Mortgage Banking Employment Issues

1
Mortgage Banking Employment Issues 2006

• David Otsuka
• Wells Fargo
• San Francisco, CA
• Tel [phone] Email otsukady_at_wellsfargo.com
  
• Bob Davis
• Mayer, Brown, Rowe Maw LLP
• Washington, DC
• Tel [phone] Email rdavis_at_mayerbrownrowe
  .com

2
Focus

• Focus issue wage and hour compliance
• Fair Labor Standards Act
• State law
• Focus positions
• Mortgage loan officers (LOs)
• Underwriters
• Processors

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Brief Intro to FLSA Exemptions

• Outside Sales Exemption
• Customarily and regularly engaged outside the
  office in sales/promotion activities
• No salary basis test requirement
• Administrative Exemption
• Primary duty is gathering information from
  customers, evaluating that information, and
  making product recommendations v. sales
• Salary basis test requirement
• Retail Sales Exemption legal issue as to whether
  this applies to financial services

4
Historical Perspective Prior to the 2004
Amendments to Part 541

• Wage and Hour Op. 2148 (5/17/1999) inside LOs
  did not qualify for administrative exemption
  production work, and no exercise of discretion
  and independent judgment
• Wage and Hour Op. 2251 (2/16/2001) inside LOs
  did not do production work and thus may qualify
  for administrative exemption, but applying
  specific standards (e.g., LTV ratio) to choose
  an already established loan package did not
  constitute exercise of discretion and independent
  judgment

5
Historical Perspective Prior to the 2004
Amendments to Part 541

• Casas v. Conseco Finan. Corp., 2002 US Dist Lexis
  5775 (D. Minn. 2002) summary judgment for
  plaintiffs on non-exempt status of LOs
• Administrative exemption did not apply because
  primary duty of LOs was production/sales work.
• Outside sales exemption did not apply because
  corporate witness testified that LOs spent
  80-90 of their time in the office.
• Retail or service establishment exemption did not
  apply to mortgage banking company as a matter of
  law.

6
Increased Litigation

• Substantial increase in collective actions under
  the FLSA
• Allegation LOs do not qualify for outside sales
  exemption because most of their sales activity is
  conducted inside
• Allegation LOs do not qualify for
  administrative exemption because their primary
  duty is sales or they are not paid on a salary
  basis
• Substantial increase in class actions with state
  law claims
• Often combined with FLSA claims
• Allegation impermissible charges against salary
• Allegation impermissible deductions from overall
  compensation

7
Increased DOL Enforcement

• Outside Sales
• Allegation LOs do not qualify for outside sales
  exemption because most of their sales activity is
  conducted inside the employers place of
  business and any home office maintained by the
  LO.
• Branch Managers
• Allegation branch managers, who also originate
  mortgages, do not qualify for the executive
  exemption because they are not paid on a salary
  basis
• Minimum Wage Claims
• Allegation LOs, paid commission-only, do not
  earn at least minimum wage in each workweek or
  pay period

8
Outside Sales

• Fact Patterns
• LO who regularly and customarily meets with
  potential customers, customers, and referral
  sources outside and returns to the office for
  preliminary underwriting and application
  reviewv.
• LO who goes outside rarely and spends most of
  the time in the office on calls to potential
  customers and taking applications by telephonev.
• LO who never goes outside and spends most of
  time in the office on loans that are the result
  of marketing by others

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Outside Sales

• Selected legal authority
• Olivo v. GMAC Mortgage Corp., 374 F. Supp. 2d 545
  (E.D. Mich. 2004) commission-only LOs who
  devoted a substantial percentage of their time
  . . . to generating sales outside of the office
  satisfied the outside sales exemption.
• Belton v. Premium Mortgage, Inc., 2006 WL 561489
  (W.D. Mo., filed March 6, 2006) LOs rarely
  spent more than 3 to 4 hours per week on outside
  sales calls and were directed by their manager
  to be in the office during regular business
  hours where they made sales calls from a
  designated work area. Summary judgment denied
  for employer.

10
Outside Sales

• DOL Opinion on Outside Sales (March 31, 2006)
• DOL has now stated for the first time that
  mortgage loan officers can qualify under the
  outside sales exemption.
• DOL indicated that this exemption applies
  provided that a loan officer is "customarily and
  regularly" -- meaning normally and recurrently
  in every workweek -- engaged away from the
  employer's place of business (or a home office
  used by the loan officer) in sales activity.
  
  (continued)

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Outside Sales

• DOL Opinion on Outside Sales (March 31, 2006)
• The exempt status of the outside sales mortgage
  loan officer is maintained if he or she also does
  some amount of "inside" work incidental to the
  loan officers' own outside sales or solicitation
  activity, such as making telephone calls, sending
  emails, or meeting with clients in the office.
• DOL has made it clear, as expected, that this
  incidental activity must relate to the loan
  officer's own outside sales activities. This
  distinction is significant, and it should be
  observed carefully in applying the new opinion.

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Outside Sales

• Combining or Tacking Exemptions
• Example Condren v. Sovereign Chemical Co., 142
  F.3d 432 (Table)(6th Cir. 1998)
• Employees duties included both outside sales and
  customer-related administrative exemption work.
• Administrative work could be combined with
  outside sales work, since employee was paid on a
  salary basis
• Potential uses
• LO does some outside sales, but spends
  substantial amounts of time inside on
  administratively exempt work

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Administrative Exemption

• Duties Tests for Employees in the Financial
  Services Industry
• Section 541.203 (b) provides an example for
  employees in the financial services industry
• Note exercise of discretion and independent
  judgment must be demonstrated in addition to the
  duties in the example
• These employees generally meet the duties
  requirements for the administrativeexemption if
  --

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Administrative Exemption

• Duties include work such as
• collecting and analyzing information regarding
  the customers income, assets, investment or
  debts
• determining which financial products best meet
  the customers needs and financial circumstances
• advising the customer regarding the advantages
  and disadvantages of different financial
  products
• and marketing, servicing or promoting the
  employers financial products.

15
Administrative Exemption

• Is selling the primary duty?
• Regulation However, an employee whose primary
  duty is selling financial products does not
  qualify for the administrative exemption.
• Preamble the final rule rejects the view that
  selling financial products directly to a consumer
  automatically precludes a finding of exempt
  administrative status.

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Administrative Exemption

• Is selling the primary duty?
• Analysis
• Is the LOs primary duty customer-specific
  persuasive sales activity (do business with us
  because we are better/cheaper/faster than the
  competition)?v.
• Or, is the LOs primary duty the analysis /
  evaluation / recommendation activities described
  in the regulation?

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Administrative Exemption -- Salary Basis Test

• Exempt administrative employees must be
  compensated on a salary or fee basis at a rate
  of not less than 455 per week (23,660 annual
  equivalent)
• Salary can be true guaranteed non-refundable draw
• Employee also can receive commissions above
  minimum salary level
• Note some states have higher minimum salary
  requirements

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Underwriters and Processors

• Underwriters and processors may qualify for the
  executive exemption
• Supervision of two or more FTE employees
• Paid on a salary basis of at least 455 week
  (federal minimum)
• Use of analogy to insurance adjusters to qualify
  for administrative exemption
• Salary basis test applies
• Work must involve the exercise of discretion and
  independent judgment

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Attachments in Program Materials

• March 31, 2006 opinion letter on outside sales
  exemption
• Olivo v. GMAC Mortgage Corp., 374 F. Supp. 2d 545
  (E.D. Mich. 2004).
• Belton v. Premium Mortgage, Inc., 2006 WL 561489
  (W.D. Mo., filed March 6, 2006).