WARNING: What you are about to read are 100% factual accounts of grievous broker misconduct. The rules regarding YSP and disclosure are clear, yet some broker/bankers continue to operate as if they’re above the law.
If you’ve never seen this 2-page brief on YSP & Consumer Disclosure from the California Department of Real Estate, or this bit of Capitol Hill testimony on YSP from a Harvard law professor, you’re in for an eye-opener.
PATRICK DANIELS Senior Loan Consultant, First Capital Corporation
Office: 949.793.5064
Cell: 949.375.2736
Cell: 949.375.2736
Email: patrickdaniels@firstcapcorp.com
CLAIM TO SHAME: Caught by XBroker trying to slide $18,375 in commissions by a 75-year old retired physician. Fraudulent docs, threats…the works.
XBroker was contacted on 07/25/06 by a borrower who was told just 24 hours prior to close that his mortgage broker was receiving $18,375 in previously undisclosed compensation (YSP) in return for his accepting an interest rate higher than he actually qualified for.
XBroker reviewed the Good Faith Estimate, Mortgage Broker Compensation Disclosure, and Escrow Services Closing Costs Estimate.
Here’s what we uncovered:
GOOD FAITH ESTIMATE: 
view
There are two areas we look at on a GFE specific to broker compensation:
- The 800 SECTION (Broker Compensation)—$495 in disclosed fees
- ADDITIONAL COMPENSATION TO BROKER—$5,880 (.3 points) of YSP were originally included, but the borrower crossed it out and initialed it.
MORTGAGE BROKER COMPENSATION DISCLOSURE: view
- Mr. Daniels gave this document to the borrower to sign, failing to have the borrower personally date it.
- The date assigned by Mr Daniels was 7/17/06, which legally represents the borrower had 8 days to consider nearly four times the amount of YSP—the same YSP he had explicitly rejected on the GFE.
- With less than 24hrs before the mortgage was scheduled to close, the borrower was cajoled into signing the document and consent to closing the loan despite his defrauded feelings. ‘Too late now’ was the broker’s stance. Mr. Daniels refused to apply any YSP incentives towards the borrowers closing costs, which is the expressed purpose of YSP rebates.
- $18,375 is what the mortgage broker is making “as the result of a higher interest rate charged on [your] loan.”
ESCROW SERVICES CLOSING COSTS ESTIMATE: view
This is what we match up against the GFE in a Mortgage Autopsy™ to determine exactly what was promised, and what was delivered.
Key Points
- Mr. Daniels never told the borrower he had the option of a lower rate.
- Mr. Daniels pressured the borrower into signing a fraudulent legal document which represented to the lender that the borrower had 8 days to consider nearly four times the amount of YSP he had explicitly rejected on the GFE.
- Mr. Daniels neither answered nor returned our calls—even after being notified that we had been authorized by the borrower to resolve the dispute.
On 7/26/06, the day of the proposed closing, XBroker sent a letter along with supporting documents to First Capital, requesting an immediate response.
At 2pm PST, we received a call back from a “manager” (a recon agent deployed to assess the threat) attempts to forward me to Mr. Daniels’ direct manager. At 3:30pm, the “CEO” calls to discuss the situation. He was asked:
- Why wasn’t the YSP disclosed until 24hrs before the closing?
- Why was the borrower cajoled into signing a fraudulent document?
- Why wasn’t he told he actually qualified for a lower rate?
- Having rejected $5880 worth of YSP compensation on the GFE, what made the broker believe the borrower would accept over triple that amount?
- Lastly, what did Mr. Daniels do to deserve an $18,375 back-door commission on a stated income loan?
The “CEO” of First Capital maintained that:
- “The borrower got a great deal.”
- “Paying only one point is a great deal.”
- He “knew nothing about the backdating of any documents.”
- His brokers are “independent agents”
- “This is how business is done in California.”
Unfortunately, this IS how business is done in California—and the rest of the 49 states. Unfortunately, it’s the rule, not the exception.
UPDATE!!!
After a delay in closing, the borrower was contacted by Patrick Daniels on 7/28/06 and informed that because of the XBroker’s “meddling,” the matter was being taken up by First Capital’s in-house attorney:
Peter K. Solecki
Prudential California Realty
12544 High Bluff Dr #420
San Diego, CA 92130
858-792-6085
Rather than sit idly by, we contacted Mr. Solecki directly and were told he was preparing to file a complaint in response to the “slanderous and false” statements posted on our Broker Black List page.
Of course, we maintained that all statements were factual and documented—and that if anyone had a right to damages it is the borrower.
But, rather than settle the matter by rebating a portion of the borrower’s $18,375 in YSP to cover his closing costs (YSP’s stated purpose) and accept a an $8,000+ payday for Mr. Daniels’ “efforts,” they declined.
Mr. Solecki said bluntly that they would not be rebating so much as a penny of YSP. Their position was, the deal stands, take it or leave it—knowing full-well if the borrower backed-out he’d lose the home.
Mr. Solecki abruptly hung-up on us, making further dialogue impossible.
ON THE BRIGHT SIDE: While our comrade/borrower ultimately had to swallow this bitter pill, you’ll be glad to know that two regional newspapers want to run with his story. DOWN WITH FIRST CAPITAL!
We’ll be posting their frivolous lawsuit/complaint as soon as it rears its head.
Be careful Jeff, I don't want you to get in trouble over this! You could be sued for libel if they found this blog in the internet
There is only one defense to libel, slander, defamation, etc.
Truth. Not one line of the post is fabricated.
We took great care to outline all the facts with documentation.
They already found this.
Yes, although I am not "qualified" to say if I really see what I think I see :)
I hope the newspapers run this story.
Exactly, Jeff. Root out the rotten - that's what we all need to join together to do! I agree, it appears you've found a rat. But let me remind you that while mortgage brokers are required to disclose YSP ON THE HUD-1 they are NOT required to do so on the GFE - in other words ahead of time. But guess who is NOT required to show it on the HUD-1 !?
FEDERALLY CHARTERED BANKS! That's my peave about it. They are not required to disclose at ANY time how much of the interest they are keeping as commission.
My company is plainly transparent. We talk to our clients about what we make on the front and on the back - all I'm saying is let's make sure EVERYONE is REQUIRED under the law to disclose and at the same time.
Let's get ALL the rats!
while mortgage brokers are required to disclose YSP ON THE HUD-1 they are NOT required to do so on the GFE
Brokers must disclose YSP on a signed GFE and HUD-1, and they must match.
"HUD currently requires the disclosure of yield spread premiums on the Good-faith Estimate and the HUD-1. (Statement of Policy, 2001-1, October 18, 2001)"
But guess who is NOT required to show it on the HUD-1 !?
FEDERALLY CHARTERED BANKS
...and Mortgage Bankers...
This was one loan discovered by total chance. If this is how 1 loan was done, imagine how many others this LO has given the same treatment too? With all the blockbuster legislation re: the CEO's responsibility to curb these types of 'crimes', and the appalling lack of responsibility taken here, even when presented all the facts, how many of this Company's LO's do business this way? 'They' claim to be the largets Broker in CA (although I hear that claim about twice a week)....if the big boys do biz this way, the smaller guys are following to some degree. So now how big is the problem?
It's pandemic.
Jeff, sorry. Mortgage brokers are not required to disclose YSP on a signed GFE ... only on the HUD-1. The GFE only requires a RANGE of YSP. For example "0-3% from lender to broker"
Right, direct lenders are also not required to disclose on the HUD-1
Ken...it is a statement of HUD policy via RESPA law. Ranges are no good...they are commonly used, but not acceptable.
Do you realize that violations on these levels can bring a cause in a court of law to allow the borrower to rescind the loan 3 years from the closing date?
RESPA law and its enforcement on class action levels, for items as seemingly innocuous as stating a range (a wide one at that) and other similar TILA disclosure violations, are gaining alot of traction on the district court levels. I can personally attest that this will work its way up and some very powerful examples are going to be made out of many businesses.
There have already been hundreds and hundreds of individual cases where Lenders are settling with borrowers by relinquishing title due to the relative cost of fighting black letter law.
Ill post some info regarding all of this, so all may see it’s not hyperbole. I was formally retained last week to serve as an expert to assist in structuring the settlement of a large class action mortgage lawsuit's mediation, in which the 'crime' may have been a lack of proper understanding of certain aspects of RESPA letter law , or may have been blatant (that’s all I can say about this).
In the end it really doesn’t matter for the defendant.If the loan was paid off within 6 mos, Mr Daniels would likely have to repay the $18k.
I have submitted this situation to the California Dept of Real Estate.
The situation violates RESPA black letter law....the broker was enriched through material misrepresentation of the facts.
The borrower was never informed he qualified for a lower rate, and the LO told the borrower the YSP was a fee the Lender paid him for delivering a 'good client'. This is called a kickback, and is strictly prohibited by RESPA. The LO's only defense would be that the YSP was paid to him as a reasonable value for services.
Except that $18k is Far from reasonable.