The 19-Loan Month
Dana originates loans for a mid-sized lender. She is paid $275 per funded loan plus a $1,000 bonus if she funds 20 loans in a calendar month. With two business days left in the month, she has 19. Her borrower, Ms. Ruiz, is preapproved for $265,000 at a 43% debt-to-income ratio based on a $78,000 salary and a $1,850 housing payment. Two weeks before closing, the processor's verbal verification of employment shows a $68,000 salary, and a refreshed credit report shows a $610 per month auto loan that was not on the application, with two 30-day late payments in the past year. Ms. Ruiz says her brother will pay the car off soon and asks Dana not to mention it. The selling agent, who has referred 14 loans to Dana this year, texts: "Come on, she can pay. Don't blow this up." Dana's branch manager suggests re-running the file "with the car excluded" because it will be paid off.
1. Identify every compliance and ethics problem in this file before anyone acts on the manager's suggestion.
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There are at least five distinct problems.
1. Unverified income. The application states $78,000, but the VOE shows $68,000. Income must be documented and accurate. Dana cannot rely on the original figure, and she cannot average or "split" the difference without a documented basis. The lower figure must be used unless other verified income exists.
2. Undisclosed debt. The $610 auto loan must be included in the debt-to-income ratio. A borrower's request to omit it is not a basis for exclusion, and neither is a relative's verbal promise to pay it off.
3. Undocumented payoff claim. A debt may be excluded only with documentation acceptable to the underwriter, such as a payoff statement plus evidence of funds, or a credit supplement showing the account closed. "Soon" is not documentation, and the originator does not make that call unilaterally.
4. Third-party pressure. The agent's referral history and the manager's instruction are improper influences. Referral volume is not a factor in underwriting, and a manager cannot direct an originator to misstate a liability.
5. Compensation incentive. The $1,000 bonus creates a conflict at exactly the moment accuracy matters most. It does not make the conduct permissible; it makes the file more likely to be scrutinized as motivated by compensation.
2. What must Dana do, step by step, and what should she do about her manager's instruction?
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Dana should stop the file from moving to closing and correct the record.
First, she should update the application to reflect the $68,000 salary and the $610 auto loan, and document the conversation with Ms. Ruiz in the file, including that Ms. Ruiz asked her not to disclose the debt. Second, she should tell Ms. Ruiz plainly that the debt must be disclosed and that a payoff can be considered only if it is documented and verified before closing. Third, she should notify the processor and underwriter and request a re-underwrite at the corrected figures.
Fourth, she should re-run the automated underwriting system. If the loan no longer meets guidelines, the lender must issue a timely adverse action notice with specific reasons. If it still qualifies at a lower loan amount or with conditions, those conditions must be met before closing.
Fifth, she should decline the manager's instruction in writing and escalate to compliance if it is repeated. "Re-running it with the car excluded" is an instruction to omit a known liability, which is misrepresentation. Dana's duty runs to accurate underwriting, not to the branch's closing count.
Finally, she should not discuss the agent's text with the agent beyond a neutral statement that underwriting must be accurate. The 14 referrals are irrelevant and should not appear in the file.
3. If Dana follows the manager's suggestion, what consequences are realistic?
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Submitting an application that omits a known $610 monthly liability and overstates income is loan fraud, not a paperwork error. The lender could be exposed under federal false-statement and mail/wire fraud statutes, and the loan could be subject to repurchase or indemnification if sold. For Dana personally, the realistic consequences include termination, a SAR filing by the lender's Bank Secrecy Act team, reporting to NMLS, and state license suspension or revocation, plus restitution and civil money penalties.
The manager's participation does not insulate Dana. She signs the file and is the licensed originator. "My manager told me to" is not a defense to a false certification.
The ethical core is straightforward: the borrower's ability to pay does not permit an inaccurate application, and a promise that a relative will pay off a debt does not remove it from the ratio. The correct outcome may be a smaller loan, a later closing, or a denial. Each of those is better than a funded loan built on a known misstatement.