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
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)