oversight

First Magnus Financial Corporation Violated the Real Estate Settlement Procedures Act When Paying Builders and Real Estate Companies Marketing Fees and Non-Competition Fees in Exchange for Federal Housing Administration Mortgage Business

Published by the Department of Housing and Urban Development, Office of Inspector General on 2008-08-01.

Below is a raw (and likely hideous) rendition of the original report. (PDF)

                                                               Issue Date
                                                                        August 1, 2008
                                                               Audit Report Number
                                                                        2008-LA-1014




TO:        Brian D. Montgomery, Assistant Secretary for Housing-Federal Housing
           Commissioner, H

           Henry S. Czauski, Acting Director, Departmental Enforcement Center, CV



FROM:      Joan S. Hobbs, Regional Inspector General for Audit, Region IX, 9DGA

SUBJECT: First Magnus Financial Corporation Violated the Real Estate Settlement
         Procedures Act When Paying Builders and Real Estate Companies Marketing
         Fees and Non-Competition Fees in Exchange for Federal Housing
         Administration Mortgage Business


                                  HIGHLIGHTS

 What We Audited and Why

             We audited the mortgage origination and business practices of the First Magnus
             Financial Corporation’s (First Magnus) corporate office in Tucson, Arizona. The
             objective of the audit was to determine whether First Magnus violated U.S.
             Department of Housing and Urban Development (HUD) requirements by paying
             builders and real estate companies marketing fees and non-competition fees in
             exchange for the referral of Federal Housing Administration (FHA) mortgage
             business.


 What We Found


             First Magnus violated the Real Estate Settlement Procedures Act (RESPA) when
             it paid marketing fees and non-competition fees to builders and real estate
             companies in exchange for the referral of FHA mortgage business.
What We Recommend


           We recommend that HUD’s Assistant Secretary for Housing require First
           Magnus, for any current or future FHA mortgage operations for which First
           Magnus may exercise management control, to ensure that the practice of paying
           marketing fees and non-competition fees to real estate companies and builders for
           referrals of FHA mortgages is discontinued. Also, we recommend that First
           Magnus’ active status and approval to perform FHA business removed. Finally,
           we recommend that HUD’s Acting Director for the Departmental Enforcement
           Center pursue administrative actions against the principal owners and
           management of First Magnus for allowing the improper practice of paying
           marketing fees and non-competition fees to real estate companies and builders in
           exchange for referrals of FHA mortgage business.

           For each recommendation without a management decision, please respond and
           provide status reports in accordance with HUD Handbook 2000.06, REV-3.
           Please furnish us copies of any correspondence or directives issued because of the
           audit.

Auditee’s Response


           We discussed the report’s contents with responsible HUD officials, and their
           views were considered. Due to the closure of First Magnus and its subsequent
           bankruptcy, we were unable to obtain a formal response from the auditee.
           However, the finding in this report was discussed with First Magnus officials
           during the audit, and their views were also considered in preparing the report.




                                            2
                           TABLE OF CONTENTS


Background and Objective                                                          4

Results of Audit
   Finding 1: First Magnus Violated the RESPA When Paying Builders and Real Estate 5
              Companies Marketing Fees and Non-Competition Fees for Generating
              FHA Mortgages

Scope and Methodology                                                             10

Internal Controls                                                                 11

Appendix
   A. Schedule of Payments under Builder and Realtor Marketing Agreements         12
   B. Schedule of Payments under Realtor Noncompetition Agreements                15




                                           3
                           BACKGROUND AND OBJECTIVE

Background

First Magnus was a wholesale lender that was incorporated and approved by the U.S.
Department of Housing and Urban Development (HUD) as a nonsupervised lender in 1996. Its
corporate office was located in Tucson, Arizona. As of June 30, 2008, First Magnus had 13
active branch offices and sponsored 1,961 FHA-approved loan correspondents. As a wholesale
lender, First Magnus underwrote and funded mortgages received by its loan correspondents and
other brokers.

First Magnus operated First Magnus Lender Services, which provided the following services to
its customers: full-service credit reporting, flood determination, appraisals, full-service
insurance, and title/escrow. In addition, First Magnus operated Charter Funding (Charter), the
retail-lending arm of the mortgage company. Charter’s corporate office was located in Tucson,
Arizona. Charter had affiliates in Arizona that provided the following services to its customers:
appraisals, insurance, credit reporting, and title/escrow.

During the period January 1, 2003, and December 31, 2005, First Magnus’ Tucson corporate
office paid more than $753,000 in marketing fees and non-competition fees to builders and real
estate companies in exchange for exclusive referrals of more than $937 million in federally
related mortgages (non-FHA-insured and FHA-insured). Of the payments made to builders and
real estate companies, over $32,000 in marketing fees and noncompetition fees was paid in
exchange for the exclusive referral of 236 FHA-insured mortgages totaling more than $30
million for First Magnus.

First Magnus Filed for Bankruptcy

On August 16, 2007, the state of Arizona Department of Financial Institutions suspended First
Magnus’ Arizona mortgage banker license. On August 21, 2007, First Magnus closed and filed
for Chapter 11 1 bankruptcy. Therefore, this report is being addressed to HUD since First
Magnus has closed its doors and is unavailable to respond to the report.

Objective

Our objective was to determine whether First Magnus violated HUD requirements by paying
builders and real estate companies marketing fees and non-competition fees in exchange for
referrals of FHA mortgage business.




1
 Named after the U.S. bankruptcy code 11 entitled Reorganization, Chapter 11 bankruptcy is ordinarily used by
commercial enterprises that desire to continue operating a business and repay creditors concurrently through a court-
approved plan of reorganization.


                                                         4
                                RESULTS OF AUDIT

Finding 1: First Magnus Violated the RESPA When Paying Builders
and Real Estate Companies Marketing Fees and Noncompetition Fees in
Exchange for Referrals of FHA Mortgage Business
First Magnus paid builders and real estate companies $32,154 in marketing fees and non-
competition fees in exchange for exclusive promotion of its mortgage products and programs via
terms set out in marketing agreements and noncompetition agreements with these entities. These
fees, paid during the period January 1, 2003, through December 31, 2005, were associated with
First Magnus’ origination and processing of 236 FHA mortgages totaling more than $30 million.
First Magnus disregarded RESPA and engaged in the practice of paying improper marketing
referral fees and noncompetition fees to builders and real estate companies in exchange for FHA
mortgage business referrals. First Magnus loan officers were on site at builders’ and real estate
companies’ offices, and borrowers were directed to these First Magnus loan officers by the
homebuilder sales agents and real estate agents. These arrangements effectively limited affected
borrowers’ ability to comparison shop with other lenders and violated RESPA.



 First Magnus Paid Marketing
 Fees to Builders and Real
 Estate Companies for
 Generating FHA Mortgages


              During the period January 1, 2003, to December 31, 2005, First Magnus paid real
              estate companies and homebuilders $26,602 in marketing fees in exchange for the
              referral of 89 FHA mortgages totaling more than $12.4 million. Homebuilders
              received $17,307 in marketing fees in exchange for the referral of 50 FHA
              mortgages totaling more than $7.5 million. Real estate companies received
              $9,295 in marketing fees in exchange for the referral of 39 FHA mortgages
              totaling more than $4.9 million (see appendix A). First Magnus may have issued
              payments to real estate companies and builders in addition to those amounts
              identified during our review.

              The practice of paying real estate companies and builders in exchange for
              exclusive rights to FHA mortgages violates section 8(a) of RESPA, which
              prohibits specified referral fees. Specifically, RESPA regulations at 24 CFR
              (Code of Federal Regulations) 3500.14(b) state, “No person shall give and no
              person shall accept any fee, kickback, or thing of value pursuant to any agreement
              or understanding, oral or otherwise, that business incident to or part of a
              settlement service involving a federally related mortgage loan [e.g. FHA-insured]
              shall be referred to any person.” Effectively, RESPA prohibits payments merely


                                                5
for referral of business. In this regard, HUD generally has held that when a
payment is based on the volume or value of business transacted, it is evidence of
an agreement for the referral of business, unless it is shown that payments are for
legitimate business reasons unrelated to the value of the referrals.

First Magnus violated this regulation when it executed marketing agreements that
required the builder or real estate company to exclusively market its mortgage
products and programs in exchange for payments ranging from $1,000 to $40,000
per month. First Magnus paid this fee to builders and real estate companies on the
basis of the number mortgages closed rather than on the basis of the type of loan
(e.g. FHA). As a result, all mortgages were treated on an equal basis with no
particular loan receiving a having fee than another loan. As part of the
agreements, homebuilders and real estate companies were required to exclusively
distribute and display various First Magnus promotional and marketing materials,
as well as provide First Magnus employees with exclusive access to their sales
offices. Among the promotional and marketing materials homebuilders and real
estate companies were required to distribute and display at their sales offices were
business cards, flyers, and brochures covering various First Magnus mortgage
products and services.

For example, First Magnus entered into a marketing agreement with new home
builder Santa Anna Homes on January 1, 2004. The purpose of the agreement
was to market various First Magnus mortgage products and programs (e.g. FHA,
Conventional, etc.) within all Santa Anna Homes sales offices in Arizona. The
marketing agreement further specified, “This shall be an exclusive marketing
relationship for Marketing Partner (Santa Anna Homes). Marketing Partner
(Santa Anna Homes) shall not actively support referral of business to any other
mortgage company without prior written permission.” In exchange for the
exclusive referrals at Santa Anna Homes sales offices throughout Arizona, First
Magnus would pay Santa Anna Homes a monthly “marketing” fee of $9,999.

Santa Anna Homes was paid $76,800 from the first quarter of 2004 through the
first quarter of 2005 to refer mortgage business to First Magnus. Of this amount,
$14,374 was paid to the homebuilder for the referral of 47 FHA mortgages
totaling more than $7.1 million. Although the agreement indicated that the
marketing fees were to be paid in fixed monthly sums, the payments were
improper referral fees under RESPA. Further, three of the four payments made
under this agreement differed from the amount specified in the agreement and
were apparently based on the volume of mortgage referrals made during the
period. This information is consistent with an e-mail from a First Magnus branch
manager stating that the amount charged by the builder for the first quarter of
2005 was lowered from the amount stated in the agreement ($9,999 per month;
$29,997 quarterly) to $16,800 ($5,600 per month) due to slower volume during
the period.




                                 6
         Although the agreement specified an initial term of three years, the agreement
         included a clause allowing either party to terminate the agreement for any reason
         with 30 days written notice. In addition, the agreement stated that the fees paid to
         the builder would be reviewed on a semiannual basis to evaluate the mutual
         effectiveness of the agreement. These terms allowed First Magnus to terminate
         the agreement if the volume of mortgages being referred by the builder did not
         justify the monthly referral payment.

         The marketing services outlined in the agreement included distribution of
         brochures, flyers, application packages, and other materials, providing First
         Magnus with rights to training presentations for builder sales staff, distributing its
         business cards to customers, displaying its signage and marketing materials
         including First Magnus-produced content in customer newsletters, and permitting
         it to communicate directly with builder agents.

         First Magnus executed agreements with real estate companies similar to those it
         had with the homebuilders. For example, it entered into a marketing agreement
         with Long Realty on June 20, 2003. The agreement required First Magnus to pay
         up to $40,000 per month in exchange for providing 10 First Magnus loan officers
         with exclusive access to Long Realty’s sales offices. If fewer than 10 loan
         officers accessed Long Realty’s offices during the period, the amount would be
         prorated. For example, if just one loan officer was granted access during the
         month, First Magnus would pay Long Realty $4,000. In addition to providing
         First Magnus with exclusive access to Long Realty’s sales offices, the agreement
         specified that Long Realty could not enter into any similar agreement with any
         other residential mortgage lender or broker. The agreement also required Long
         Realty to perform various promotional and marketing activities including
         distribution of First Magnus brochures, flyers, banners, and business cards as well
         as to permit First Magnus to communicate with its designated agents through
         Long Realty’s interoffice voicemail, e-mail, and intranet. From June through
         December 2003, First Magnus paid Long Realty $126,667 in connection with this
         marketing agreement. Of this amount, $5,637 was paid to the real estate company
         in exchange for the referral of 28 FHA mortgages totaling more than $3.2 million.

First Magnus Paid
Noncompetition Fees to Real
Estate Companies in Exchange
for FHA Mortgage Business


         During the period January 1, 2003, to December 31, 2005, First Magnus paid
         Long Realty, a real estate company, $5,552 in noncompetition fees in exchange
         for the referral of 175 FHA mortgages totaling more than $21 million (see
         appendix B). First Magnus may have issued payments to real estate companies in
         addition to the amounts identified during our review.



                                           7
             Similar to the practice of paying marketing fees to real estate companies and
             builders, the practice of paying real estate companies noncompetition in exchange
             for exclusive rights to FHA mortgages violates section 8(a) of RESPA, which
             prohibits specified referral fees. Specifically, RESPA regulations at 24 CFR
             (Code of Federal Regulations) 3500.14(b) state, “No person shall give and no
             person shall accept any fee, kickback, or thing of value pursuant to any agreement
             or understanding, oral or otherwise, that business incident to or part of a
             settlement service involving a federally related mortgage loan [e.g. FHA-insured]
             shall be referred to any person.” Effectively, RESPA prohibits payments merely
             for referral of business. In this regard, HUD generally has held that when a
             payment is based on the volume or value of business transacted, it is evidence of
             an agreement for the referral of business, unless it is shown that payments are for
             legitimate business reasons unrelated to the value of the referrals.

             In addition to payments made under the above marketing agreement, payments
             totaling $150,000 were made to Long Realty in connection with a separate
             operating agreement involving another First Magnus-related company, FMLC
             LLC. This entity is 50.1 percent owned by First Magnus and 49.9 percent owned
             by Home Services America (the parent company of Long Realty). As part of this
             agreement, First Magnus was required to pay Home Services America/Long
             Realty a noncompete fee of $50,000 per year. The agreement stated that Home
             Services America would not enter into any similar agreement in Pima, Cochise, or
             Santa Cruz County, Arizona. Further, Home Services America/Long Realty
             would not let any other lender have access without appointment to Long Realty
             offices or its employees. This noncompete fee ensured an exclusive relationship
             between First Magnus and Home Services America/Long Realty in these selected
             Arizona counties and further prohibited Home Services America from providing
             competitive lending services in the same counties.

             As a result of these competition-limiting agreements, uninformed borrowers were
             directed to First Magnus, when better FHA mortgage terms may have been
             available from other lenders. This practice is a violation of RESPA’s prohibition
             of referral fees in exchange for FHA mortgage business.


Conclusion


             First Magnus’ practice of paying marketing fees and noncompetition fees to
             builders and real estate companies in exchange for FHA mortgage business is a
             violation of RESPA’s prohibition of referral fees. Accordingly, HUD should
             require that all current and future practices of paying marketing fees and
             noncompetition fees to real estate companies and builders in exchange for the
             referral of FHA mortgages be discontinued. Also, we recommend that First
             Magnus have their active status and approval to perform FHA business removed.



                                              8
          Finally, we recommend HUD pursue administrative actions against the principal
          owners and management of First Magnus for allowing the improper practice of
          paying marketing fees and noncompetition fees to real estate companies and
          builders in exchange for FHA mortgage business.

Recommendations

          We recommend that the Assistant Secretary for Housing-Federal Housing
          Commissioner

          1A. Require First Magnus to discontinue the practice of paying marketing fees
              and noncompetition fees to real estate companies and builders in exchange
              for referrals of FHA mortgages on all current and/or future transactions.

          1B. Remove the active status and approval for First Magnus to perform FHA
              business.

          We recommend that the Acting Director for the Departmental Enforcement
          Center

          1C. Pursue administrative actions against the principal owners and management
              of First Magnus for allowing the improper practice of paying marketing fees
              and noncompetition fees to real estate companies and builders in exchange
              for FHA mortgage business.




                                         9
                       SCOPE AND METHODOLOGY

We performed audit work from October 2005 through May 2006. The audit period covered
January 2003 through December 2005.

To accomplish our objective, we

   •   Interviewed First Magnus employees,

   •   Interviewed employees from mortgage companies, real estate companies and real estate
       developer,

   •   Interviewed state and federal government agency employees,

   •   Reviewed First Magnus financial records, and

   •   Reviewed public records and databases.

We performed our review in accordance with generally accepted government auditing standards.




                                                10
                             INTERNAL CONTROLS

Internal control is an integral component of an organization’s management that provides
reasonable assurance that the following objectives are being achieved:

   •   Effectiveness and efficiency of operations,
   •   Reliability of financial reporting,
   •   Compliance with applicable laws and regulations, and
   •   Safeguarding of assets.

Internal controls relate to management’s plans, methods, and procedures used to meet its
mission, goals, and objectives. Internal controls include the processes and procedures for
planning, organizing, directing, and controlling program operations. They include the systems
for measuring, reporting, and monitoring program performance.



 Relevant Internal Controls

              We determined the following internal controls were relevant to our audit objectives:

              •   Reliability of mortgage documents used to approve FHA-insured mortgages.

              •   Origination and processing of FHA-insured mortgages in compliance with
                  HUD rules and regulations.

              •   Safeguarding FHA-insured mortgages from high risk exposure.

              We assessed the relevant controls identified above.

              A significant weakness exists if management controls do not provide reasonable
              assurance that the process for planning, organizing, directing, and controlling
              program operations will meet the organization’s objectives.

 Significant Weaknesses


              Based on our review, we believe the following item is a significant weakness:

              •   First Magnus disregarded RESPA regulations when it paid builders and real
                  estate companies marketing fees and noncompetition fees in exchange for
                  referrals of FHA mortgage business.




                                               11
                                              APPENDICES

Appendix A

SCHEDULE OF PAYMENTS UNDER BUILDER AND REALTOR
            MARKETING AGREEMENTS2
          Homebuilders/Real          Payment         FHA Number             Mortgage             Marketing
           Estate Companies            Date                                  Amount              Fee Paid
     1   TJ Bednar Homes            10/1/2003      022-1759008             $142,962.00              $800.00
     2   TJ Bednar Homes            10/1/2003      022-1758235             $148,088.00              $800.00
     3   TJ Bednar Homes            11/1/2003      022-1762861             $146,921.00            $1,333.00
     4   Santa Anna Homes            7/7/2004      023-1897221             $159,524.00              $333.00
     5   Santa Anna Homes            7/7/2004      023-1898312             $148,179.00              $333.00
     6   Santa Anna Homes            7/7/2004      023-1906562             $156,764.00              $333.00
     7   Santa Anna Homes            7/7/2004      023-1985303             $148,660.00              $333.00
     8   Santa Anna Homes            7/7/2004      023-1874351             $154,131.00              $333.00
     9   Santa Anna Homes            7/7/2004      023-1899557             $162,578.00              $333.00
    10   Santa Anna Homes            7/7/2004      023-1878817             $155,797.00              $333.00
    11   Santa Anna Homes            7/7/2004      023-2006793             $135,855.00              $333.00
    12   Santa Anna Homes            7/7/2004      023-2002018             $155,686.00              $333.00
    13   Santa Anna Homes            7/7/2004      023-1876918             $157,083.00              $333.00
    14   Santa Anna Homes            7/7/2004      023-1997426             $126,072.00              $333.00
    15   Santa Anna Homes            7/7/2004      023-2000046             $162,489.00              $333.00
    16   Santa Anna Homes            7/7/2004      023-2020930             $158,491.00              $333.00
    17   Santa Anna Homes            7/7/2004      023-1876664             $158,911.00              $333.00
    18   Santa Anna Homes            7/7/2004      023-2031897             $136,244.00              $333.00
    19   Santa Anna Homes            7/7/2004      023-2015209             $162,578.00              $333.00
    20   Santa Anna Homes            7/7/2004      Not Available ∗         $152,700.00              $333.00
    21   Santa Anna Homes            7/7/2004      023-2033406             $156,218.00              $333.00
    22   Santa Anna Homes            7/7/2004      023-2014600             $159,564.00              $333.00
    23   Santa Anna Homes            7/7/2004      023-2017166             $156,358.00              $333.00
    24   Santa Anna Homes            7/7/2004      023-2047317             $159,376.00              $333.00
    25   Santa Anna Homes           9/28/2004      023-2065683             $161,492.00                $203.00


2
  Individual marketing fees paid for each mortgage was calculated by dividing the total fee paid for the period by the
number of related mortgages (both FHA and non-FHA) referred during the period. For example, $5,000 in
marketing fees paid to a homebuilder for the referral of five mortgages resulted in $1,000 ($5,000 divided by five) in
fees earned per mortgage.
∗
  Associated FHA Number was not found in HUD’s single family database systems. There is a possibility the lender
may have closed the mortgage as an uninsured “FHA” mortgage.


                                                         12
          Builder/Real Estate      Payment         FHA Number            Mortgage            Marketing
                 Firm                Date                                 Amount             Fee Paid
    26   Santa Anna Homes          9/28/2004      023-2078751           $142,456.00             $203.00
    27   Santa Anna Homes          9/28/2004      023-2044920           $146,382.00             $203.00
    28   Santa Anna Homes          9/28/2004      023-2095604           $131,377.00             $203.00
    29   Santa Anna Homes          9/28/2004      023-2087739           $158,600.00             $203.00
    30   Santa Anna Homes          9/28/2004      023-2068956           $157,010.00             $203.00
    31   Santa Anna Homes          9/28/2004      Not Available ∗       $125,544.00             $203.00
    32   Santa Anna Homes          9/28/2004      023-2089326           $155,851.00             $203.00
    33   Santa Anna Homes          9/28/2004      023-2097305           $162,578.00             $203.00
    34   Santa Anna Homes          9/28/2004      023-2102144           $157,539.00               $203.00
    35   Santa Anna Homes          9/28/2004      Not Available*        $151,860.00               $203.00
    36   Santa Anna Homes          9/28/2004      023-2107311           $157,785.00               $203.00
    37   Santa Anna Homes          12/9/2004      023-2115120           $160,186.00               $353.00
    38   Santa Anna Homes          12/9/2004      023-2129171           $153,234.00               $353.00
    39   Santa Anna Homes          12/9/2004      023-2126595           $144,961.00               $353.00
    40   Santa Anna Homes          12/9/2004      023-2135000           $160,945.00               $353.00
    41   Santa Anna Homes          12/9/2004      023-2131622           $149,154.00               $353.00
    42   Santa Anna Homes          12/9/2004      023-2137483           $147,590.00               $353.00
    43   Santa Anna Homes          12/9/2004      023-2135466           $162,530.00               $353.00
    44   Santa Anna Homes          12/9/2004      023-2143780           $153,418.00               $353.00
    45   Santa Anna Homes          12/9/2004      023-2141750           $162,578.00               $353.00
    46   Santa Anna Homes          12/9/2004      023-2147508           $141,337.00               $353.00
    47   Santa Anna Homes          12/9/2004      023-2172288           $145,564.00               $353.00
    48   Santa Anna Homes          12/9/2004      023-2177197           $101,383.00               $353.00
    49   Santa Anna Homes          12/9/2004      023-2161568           $162,578.00               $353.00
    50   Santa Anna Homes          12/9/2004      023-2177160           $159,235.00              $353.00
    51   Realty Executives         7/28/2004      022-1808990           $142,962.00                $56.00
    52   Realty Executives        12/22/2004      022-1822333           $144,231.00                $45.00
    53   Realty Executives         1/24/2005      022-1823724           $175,189.00                $45.00
    54   Realty Executives         2/23/2005      022-1827070           $142,810.00                $63.00
    55   Realty Executives         3/28/2005      022-1827268           $152,605.00                $37.00
    56   Realty Executives         9/19/2003      Not Available*        $86,122.00              $1,000.00
    57   Realty Executives         9/19/2003      022-1755318           $153,468.00             $1,000.00




∗
 Associated FHA Number was not found in HUD’s single family database systems. There is a possibility the lender
may have closed the mortgage as an uninsured “FHA” mortgage.


                                                      13
          Builder/Real Estate      Payment         FHA Number             Mortgage            Marketing
                 Firm                Date                                 Amount              Fee Paid
    58   Keller Williams          12/12/2005      Not Available ∗       $196,828.00              $167.00
    59   Keller Williams          10/28/2005      271-9217992          $210,105.00               $250.00
    60   Keller Williams            7/7/2005      381-7603779          $96,323.00                $500.00
    61   Keller Williams           5/24/2005      022-1829932          $157,731.00               $500.00
    62   Long Realty               11/4/2003      022-1733749          $112,665.00               $833.00
    63   Long Realty               11/4/2003      022-1746742          $128,143.00               $833.00
    64   Long Realty               11/4/2003      022-1669981          $63,995.00                $833.00
    65   Long Realty               11/4/2003      022-1750435          $121,800.00               $348.00
    66   Long Realty               11/4/2003      022-1751742          $95,004.00                $348.00
    67   Long Realty               11/4/2003      022-1754256          $111,142.00               $348.00
    68   Long Realty               11/4/2003      022-1753670          $104,342.00                 $348.00
    69   Long Realty               11/4/2003      022-1754840          $108,300.00                  $91.00
    70   Long Realty               11/4/2003      022-1755035          $88,609.00                   $91.00
    71   Long Realty               11/4/2003      022-1758104          $153,569.00                  $91.00
    72   Long Realty               11/4/2003      022-1698994          $111,650.00                  $91.00
    73   Long Realty               11/4/2003      022-1761184          $71,963.00                   $91.00
    74   Long Realty               11/4/2003      022-1762281          $128,143.00                 $91.00
    75   Long Realty               11/4/2003      022-1720383          $153,975.00                 $79.00
    76   Long Realty               11/4/2003      022-1763530          $140,171.00                 $79.00
    77   Long Realty               11/4/2003      022-1762269          $110,990.00                 $79.00
    78   Long Realty               11/4/2003      022-1764037          $107,082.00                 $79.00
    79   Long Realty               11/4/2003      022-1765061          $121,191.00                 $79.00
    80   Long Realty               11/4/2003      022-1764615          $117,993.00                 $79.00
    81   Long Realty                2/4/2004      022-1768804          $145,145.00                 $80.00
    82   Long Realty                2/4/2004      022-1767707          $137,837.00                 $80.00
    83   Long Realty                2/4/2004      022-1768885          $149,154.00                 $80.00
    84   Long Realty                2/4/2004      022-1768617          $150,829.00                 $80.00
    85   Long Realty                2/4/2004      022-1770417          $84,955.00                  $80.00
    86   Long Realty                2/4/2004      022-1771304          $136,771.00                 $80.00
    87   Long Realty                2/4/2004      022-1770207          $146,667.00                 $80.00
    88   Long Realty                2/4/2004      022-1774005          $88,305.00                  $80.00
    89   Long Realty                2/4/2004      022-1774795          $73,841.00                  $80.00
         TOTAL                                                         $12,497,001.00          $26,602.00




∗
 Associated FHA Number was not found in HUD’s single family database systems. There is a possibility the lender
may have closed the mortgage as an uninsured “FHA” mortgage.


                                                      14
Appendix B

              SCHEDULE OF PAYMENTS UNDER REALTOR
                 NONCOMPETITION AGREEMENTS3
          Real Estate          FHA                Mortgage            Payment Date    Non-
            Firm              Number              Amount                    of      Competition
                                                                     Noncompetition  Fee Paid
                                                                           Fee
     1   Long Realty       022-1733749             $112,665.00       2/26/2004          $91.00
     2   Long Realty       022-1746742             $128,143.00       2/26/2004          $91.00
     3   Long Realty       022-1669981              $63,995.00       2/26/2004          $91.00
     4   Long Realty       022-1750435             $121,800.00       2/26/2004          $91.00
     5   Long Realty       022-1751742              $95,004.00       2/26/2004          $91.00
     6   Long Realty       022-1754256             $111,142.00       2/26/2004          $91.00
     7   Long Realty       022-1753670             $104,342.00       2/26/2004          $91.00
     8   Long Realty       022-1754840             $108,300.00       2/26/2004          $91.00
     9   Long Realty       022-1755035              $88,609.00       2/26/2004          $91.00
    10   Long Realty       022-1758104             $153,569.00       2/26/2004          $91.00
    11   Long Realty       022-1698994             $111,650.00       2/26/2004          $91.00
    12   Long Realty       022-1761184              $71,963.00       2/26/2004          $91.00
    13   Long Realty       022-1762281             $128,143.00       2/26/2004          $91.00
    14   Long Realty       022-1720383             $153,975.00       2/26/2004          $91.00
    15   Long Realty       022-1763530             $140,171.00       2/26/2004          $91.00
    16   Long Realty       022-1762269             $110,990.00       2/26/2004          $91.00
    17   Long Realty       022-1764037             $107,082.00       2/26/2004          $91.00
    18   Long Realty       022-1765061             $121,191.00       2/26/2004          $91.00
    19   Long Realty       022-1764615             $117,993.00       2/26/2004          $91.00
    20   Long Realty       022-1768804             $145,145.00       2/26/2004          $91.00
    21   Long Realty       022-1767707             $137,837.00       2/26/2004          $91.00
    22   Long Realty       022-1768885             $149,154.00       2/26/2004          $91.00
    23   Long Realty       022-1768617             $150,829.00       2/26/2004          $91.00
    24   Long Realty       022-1770417              $84,955.00       2/26/2004          $91.00
    25   Long Realty       022-1771304             $136,771.00       2/26/2004          $91.00
    26   Long Realty       022-1770207             $146,667.00       2/26/2004          $91.00



3
 Individual noncompetition fees paid for each mortgage was calculated by dividing the total fee paid for the period
by the number of related mortgages (both FHA and non-FHA) referred during the period. For example, $50,000 in
noncompetition fees paid to a real estate company in exchange for the referral of 1,000 mortgages for the year,
which resulted in $50 ($50,000 divided by 1,000) in fees per mortgage.


                                                        15
      Real Estate      FHA        Mortgage       Payment Date    Non-
        Firm          Number      Amount               of      Competition
                                                Noncompetition  Fee Paid
                                                      Fee
27   Long Realty    022-1774005    $88,305.00   2/26/2004          $91.00
28   Long Realty    022-1774795    $73,841.00   2/26/2004          $91.00
29   Long Realty    022-1778059    $98,962.00   8/3/2004           $24.00
30   Long Realty    022-1767135    $87,949.00   8/3/2004           $24.00
31   Long Realty    022-1779162   $134,436.00   8/3/2004           $24.00
32   Long Realty    022-1777546    $93,532.00   8/3/2004           $24.00
33   Long Realty    022-1782205   $119,262.00   8/3/2004           $24.00
34   Long Realty    023-1990355   $111,294.00   8/3/2004           $24.00
35   Long Realty    022-1785299   $161,689.00   8/3/2004           $24.00
36   Long Realty    022-1782286    $70,948.00   8/3/2004           $24.00
37   Long Realty    022-1784314    $77,647.00   8/3/2004           $24.00
38   Long Realty    022-1784678   $121,394.00   8/3/2004           $24.00
39   Long Realty    022-1783780   $105,509.00   8/3/2004           $24.00
40   Long Realty    022-1785390    $78,764.00   8/3/2004           $24.00
41   Long Realty    022-1785384   $137,837.00   8/3/2004           $24.00
42   Long Realty    022-1784734    $82,671.00   8/3/2004           $24.00
43   Long Realty    022-1788736   $121,952.00   8/3/2004           $24.00
44   Long Realty    022-1787379   $101,500.00   8/3/2004           $24.00
45   Long Realty    022-1786396   $122,409.00   8/3/2004           $24.00
46   Long Realty    022-1788605   $111,700.00   8/3/2004           $24.00
47   Long Realty    022-1791242    $76,784.00   8/3/2004           $24.00
48   Long Realty    022-1792021   $125,352.00   8/3/2004           $24.00
49   Long Realty    022-1791367    $93,532.00   8/3/2004           $24.00
50   Long Realty    022-1789804   $133,878.00   8/3/2004           $24.00
51   Long Realty    022-1792219    $91,553.00   8/3/2004           $24.00
52   Long Realty    022-1783751   $121,444.00   8/3/2004           $24.00
53   Long Realty    022-1794182   $121,750.00   8/3/2004           $24.00
54   Long Realty    022-1794471   $141,600.00   8/3/2004           $24.00
55   Long Realty    022-1792225   $137,837.00   8/3/2004           $24.00
56   Long Realty    022-1793724   $122,053.00   8/3/2004           $24.00
57   Long Realty    022-1795477   $151,996.00   8/3/2004           $24.00
58   Long Realty    022-1796227    $50,900.00   8/3/2004           $24.00
59   Long Realty    022-1795976   $147,682.00   8/3/2004           $24.00




                                      16
      Real Estate      FHA        Mortgage       Payment Date    Non-
        Firm          Number      Amount               of      Competition
                                                Noncompetition  Fee Paid
                                                      Fee
60   Long Realty    022-1793809   $122,764.00   8/3/2004           $24.00
61   Long Realty    022-1790752    $79,931.00   8/3/2004           $24.00
62   Long Realty    022-1800192   $157,528.00   8/3/2004           $24.00
63   Long Realty    022-1796921   $156,665.00   8/3/2004           $24.00
64   Long Realty    022-1799025   $113,223.00   8/3/2004           $24.00
65   Long Realty    022-1801782   $119,110.00   8/3/2004           $24.00
66   Long Realty    022-1798619   $100,688.00   8/3/2004           $24.00
67   Long Realty    022-1802272   $141,643.00   8/3/2004           $24.00
68   Long Realty    022-1801986   $102,058.00   8/3/2004           $24.00
69   Long Realty    022-1801776   $118,146.00   8/3/2004           $24.00
70   Long Realty    022-1802170   $156,513.00   8/3/2004           $24.00
71   Long Realty    022-1800061    $56,600.00   8/3/2004           $24.00
72   Long Realty    022-1799200   $150,118.00   8/3/2004           $24.00
73   Long Realty    022-1801050    $58,100.00   8/3/2004           $24.00
74   Long Realty    022-1801718   $153,569.00   8/3/2004           $24.00
75   Long Realty    022-1803284   $146,160.00   8/3/2004           $24.00
76   Long Realty    022-1802838   $140,983.00   8/3/2004           $24.00
77   Long Realty    022-1803929    $61,000.00   8/3/2004           $24.00
78   Long Realty    022-1802969    $83,179.00   8/3/2004           $24.00
79   Long Realty    022-1802322   $111,142.00   8/3/2004           $24.00
80   Long Realty    022-1803166   $149,611.00   8/3/2004           $24.00
81   Long Realty    022-1804381   $108,909.00   8/3/2004           $24.00
82   Long Realty    022-1823027   $251,517.00   8/3/2004           $24.00
83   Long Realty    022-1804402   $162,146.00   8/3/2004           $24.00
84   Long Realty    022-1804077   $118,146.00   8/3/2004           $24.00
85   Long Realty    022-1834780    $93,786.00   8/3/2004           $24.00
86   Long Realty    022-1805601   $123,880.00   8/3/2004           $24.00
87   Long Realty    022-1805081    $88,508.00   8/3/2004           $24.00
88   Long Realty    022-1805393   $142,455.00   8/3/2004           $24.00
89   Long Realty    022-1806330   $124,692.00   8/3/2004           $24.00
90   Long Realty    022-1806557   $125,454.00   8/3/2004           $24.00
91   Long Realty    022-1801514    $80,185.00   8/3/2004           $24.00
92   Long Realty    022-1805618   $144,231.00   8/3/2004           $24.00
93   Long Realty    022-1803754   $129,920.00   8/3/2004           $24.00




                                      17
       Real Estate   FHA Number    Mortgage       Payment Date    Non-
         Firm                      Amount               of      Competition
                                                 Noncompetition  Fee Paid
                                                       Fee
 94   Long Realty    022-1829013    $90,850.00   8/3/2004           $24.00
 95   Long Realty    022-1807683    $89,421.00   8/3/2004           $24.00
 96   Long Realty    022-1808722    $98,099.00   8/3/2004           $24.00
 97   Long Realty    022-1809474   $115,862.00   8/3/2004           $24.00
 98   Long Realty    022-1809813   $160,979.00   8/3/2004           $24.00
 99   Long Realty    022-1812546   $142,303.00   8/3/2004           $24.00
100   Long Realty    022-1810443   $160,167.00   8/3/2004           $24.00
101   Long Realty    022-1811852   $150,829.00   8/3/2004           $24.00
102   Long Realty    022-1810364   $145,297.00   8/3/2004           $24.00
103   Long Realty    022-1815513    $88,508.00   8/3/2004           $24.00
104   Long Realty    022-1817175   $131,899.00   8/3/2004           $24.00
105   Long Realty    022-1816787   $130,427.00   8/3/2004           $24.00
106   Long Realty    022-1813818    $57,093.00   8/3/2004           $24.00
107   Long Realty    022-1819130    $79,119.00   8/3/2004           $24.00
108   Long Realty    022-1819101   $101,246.00   8/3/2004           $24.00
109   Long Realty    022-1819958   $142,759.00   8/3/2004           $24.00
110   Long Realty    022-1819459    $93,380.00   8/3/2004           $24.00
111   Long Realty    022-1820116   $152,757.00   8/3/2004           $24.00
112   Long Realty    022-1820536    $50,250.00   10/19/2005         $17.00
113   Long Realty    022-1821438   $135,401.00   10/19/2005         $17.00
114   Long Realty    022-1821003   $147,885.00   10/19/2005         $17.00
115   Long Realty    022-1821627   $133,980.00   10/19/2005         $17.00
116   Long Realty    022-1822009   $175,189.00   10/19/2005         $17.00
117   Long Realty    022-1801391   $102,058.00   10/19/2005         $17.00
118   Long Realty    022-1821446   $129,260.00   10/19/2005         $17.00
119   Long Realty    022-1823889   $174,986.00   10/19/2005         $17.00
120   Long Realty    022-1824422   $154,838.00   10/19/2005         $17.00
121   Long Realty    022-1824669   $135,654.00   10/19/2005         $17.00
122   Long Realty    022-1825171    $79,728.00   10/19/2005         $17.00
123   Long Realty    022-1827432   $172,296.00   10/19/2005         $17.00
124   Long Realty    022-1825402    $64,960.00   10/19/2005         $17.00
125   Long Realty    022-1827416   $119,110.00   10/19/2005         $17.00




                                      18
       Real Estate   FHA Number    Mortgage       Payment Date    Non-
         Firm                      Amount               of      Competition
                                                 Noncompetition  Fee Paid
                                                       Fee
126   Long Realty    022-1825953   $125,504.00   10/19/2005         $17.00
127   Long Realty    022-1827875   $139,765.00   10/19/2005         $17.00
128   Long Realty    022-1828785   $129,920.00   10/19/2005         $17.00
129   Long Realty    022-1828388    $86,224.00   10/19/2005         $17.00
130   Long Realty    022-1828908   $133,777.00   10/19/2005         $17.00
131   Long Realty    022-1828995   $118,146.00   10/19/2005         $17.00
132   Long Realty    022-1805703   $120,379.00   10/19/2005         $17.00
133   Long Realty    022-1827852   $169,302.00   10/19/2005         $17.00
134   Long Realty    022-1829978   $157,122.00   10/19/2005         $17.00
135   Long Realty    022-1831262   $164,379.00   10/19/2005         $17.00
136   Long Realty    022-1830540   $149,611.00   10/19/2005         $17.00
137   Long Realty    022-1833313   $165,896.00   10/19/2005         $17.00
138   Long Realty    022-1812539   $171,535.00   10/19/2005         $17.00
139   Long Realty    022-1832919   $135,451.00   10/19/2005         $17.00
140   Long Realty    022-1832029   $153,823.00   10/19/2005         $17.00
141   Long Realty    022-1833989    $84,143.00   10/19/2005         $17.00
142   Long Realty    022-1832189    $82,113.00   10/19/2005         $17.00
143   Long Realty    022-1833699   $123,322.00   10/19/2005         $17.00
144   Long Realty    022-1834121    $80,337.00   10/19/2005         $17.00
145   Long Realty    022-1834818   $164,379.00   10/19/2005         $17.00
146   Long Realty    022-1832991   $140,019.00   10/19/2005         $17.00
147   Long Realty    022-1834445   $152,250.00   10/19/2005         $17.00
148   Long Realty    022-1834167    $96,729.00   10/19/2005         $17.00
149   Long Realty    022-1804658    $94,090.00   10/19/2005         $17.00
150   Long Realty    022-1834666   $122,561.00   10/19/2005         $17.00
151   Long Realty    022-1832983   $149,915.00   10/19/2005         $17.00
152   Long Realty    022-1835807    $67,142.00   10/19/2005         $17.00
153   Long Realty    022-1835308   $132,914.00   10/19/2005         $17.00
154   Long Realty    022-1835083   $138,801.00   10/19/2005         $17.00
155   Long Realty    022-1835002   $134,589.00   10/19/2005         $17.00
156   Long Realty    022-1835836   $100,434.00   10/19/2005         $17.00
157   Long Realty    022-1830880    $95,968.00   10/19/2005         $17.00




                                      19
       Real Estate   FHA Number      Mortgage        Payment Date     Non-
         Firm                        Amount                of      Competition
                                                    Noncompetition  Fee Paid
                                                          Fee
158   Long Realty    022-1835985      $131,442.00   10/19/2005          $17.00
159   Long Realty    022-1836405       $99,419.00   10/19/2005          $17.00
160   Long Realty    022-1836904      $103,377.00   10/19/2005          $17.00
161   Long Realty    022-1831516      $132,914.00   10/19/2005          $17.00
162   Long Realty    022-1836650      $135,350.00   10/19/2005          $17.00
163   Long Realty    022-1836746      $139,664.00   10/19/2005          $17.00
164   Long Realty    022-1838260      $122,700.00   10/19/2005          $17.00
165   Long Realty    022-1838310      $102,312.00   10/19/2005          $17.00
166   Long Realty    022-1838601      $161,232.00   10/19/2005          $17.00
167   Long Realty    022-1839430      $164,379.00   10/19/2005          $17.00
168   Long Realty    022-1840077      $103,530.00   10/19/2005          $17.00
169   Long Realty    022-1840996      $170,317.00   10/19/2005          $17.00
170   Long Realty    022-1840480      $134,842.00   10/19/2005          $17.00
171   Long Realty    022-1841299       $35,525.00   10/19/2005          $17.00
172   Long Realty    022-1841282      $189,805.00   10/19/2005          $17.00
173   Long Realty    022-1842026      $143,724.00   10/19/2005          $17.00
174   Long Realty    022-1842344      $120,607.00   10/19/2005          $17.00
175   Long Realty    022-1842758      $131,899.00   10/19/2005          $17.00
      TOTAL                        $21,202,775.00                    $5,552.00




                                        20