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Mixed Opinions Over Overtime Ruling

Department of Labor rules originators exempt from FLSA

April 21, 2006

Washington, D.C., correspondent for MortgageDaily.com

Commissioned mortgage loan originators who generate little or no income can no longer hold their employers liable for minimum wage compensation and overtime pay. But the reprieve, which came in the form of an opinion letter recently released by a federal agency, doesn't go far enough, according to mortgage employers with pending actions against them and attorneys.

The Department of Labor has ruled that mortgage loan officers can be paid on a commission-only basis under the outside sales exemption -- an apparent reversal of the agency's earlier position.

The ruling is useful to mortgage employers because, if followed in good faith, it provides an absolute defense in case a mortgage company is sued or investigated by the labor department. But it is not a "get out of jail" free card for the industry. David Fortney, an attorney with the Washington, D.C. firm of Fortney & Scott, cautioned that, even with the ruling in place, employers still have to pay the employer's share of the employee's wage taxes and make unemployment fund contributions.

Fortney also said that companies that have settled with the government won't be able to use the letter ruling to recover what they have paid. You can't go backward with the labor department, he pointed out. If a company has settled, the matter is done. If a company is litigating the matter, then application of the exemption can be raised, if the issue was persevered for appeal.

The ruling stemmed from a letter sent to the Department of Labor by the National Association of Mortgage Brokers outlining the tasks and duties typically performed by a loan officer and asking the agency to provide a ruling on the matter.

To bolster its case, NAMB also cited a case, Olivo v. GMAC Mortgage Corporation, in which a federal judge in Michigan ruled that mortgage loan officers whose primary duty is selling mortgage loans met the requirements of the outside sales exemption under the Fair Labor Standards Act.

In a four-page letter signed by Alfred B. Robinson, Jr., the department's acting administrator, the agency ruled that loan officers whose duties match the ones described by NAMB meet the requirement for the outsides sale exemption.

In concert with state law, the act governs minimum wage and overtime payment to employees. However, the federal law provides exemptions to the payment requirements if certain conditions are met. The act's outside sales exemption requires that the employee's primary duty must be making sales and that the employee must "customarily and regularly be engaged away from the employer's place of business."

Mortgage brokers are cautiously optimistic over the letter ruling's impact.

"It's definitely headed in the right direction," said Rodney Cotner, the owner of two Columbus, Ohio, mortgage companies sued by the government earlier this year for back wages of $220,786. He said he plans on using the recent ruling in his fight against Department of Labor's investigation.

Cotner said the ruling has placed the Department of Labor on a more "realistic basis" with the industry; but, echoing a familiar lament, he said, "I'm very, very pleased to hear that they are coming around. They still have a way to go. They still need to qualify loan officers in the same classification as Realtors," he said.

Real estate agents have an across-the-board exemption from minimum wage and overtime laws because they are independent contractors. Indeed, many mortgage companies have been baffled when hit with a government enforcement action, arguing that mortgage brokers' and loan officers' jobs are similar to real estate agents who have an exemption through the IRS and thus can be classified as independent contractors. But the IRS has not given such an exemption to the mortgage industry and has even issued an advisory memorandum indicating that mortgage loan officers are employees and not independent contractors.

Another mortgage broker, headquartered in Cleveland, Ohio, spoke on condition of anonymity because his company is currently under investigation by the Department of Labor. He is also cautiously optimistic as to what the ruling will mean to the investigation of his company and to the industry.

"I'm hopeful, but I would be more comfortable if it was clarified further; because, if it's open to interpretation, then nobody is yet safe. It shows that there is going to be some pragmatic application to these rules. I'll start to feel better after a couple of mortgage brokers are investigated and DOL says they are exempt."

He is, however, confident that his sales force can meet the requirements for the exemption, including the often thorny requirement that an employee must be customarily and regularly be engaged from the employer's place of business. He said that over 96 percent of his company's loan signups were done outside the office in the customer's home, a nearby restaurant a library or a Realtor's office.

"We should easily be classified as outside sales," he said.

However, describing the Department of Labor as a "horrible force" with which to reckon, he said that he won't be comfortable until he sees how the recent ruling is applied to the industry.

He also pointed out that, because of the investigation, his company had dropped the commission-only pay structure in favor of a guaranteed minimum wage plus overtime plus a bonus. His loan officers, some of whom have been in the industry for over 20 years, "absolutely despise" the new pay plan, he said.

Jay Dunsing, the president of Heartland Home Finance, the subject of two lawsuits over back wages, one involving 830 people, said the ruling "doesn't reach far enough" because it doesn't include the inside sales exemption. He declined to offer any further comments.

Dunsing's outside counsel, David Carr, of Indianapolis, Ind.-based Ice, Miller, echoed Dunsing's comments.

"It's a helpful ruling and an opportunity for mortgage lenders to dodge the problems that are endemic to the industry right now with the FLSA lawsuits," Carr said. "But the reality is that loan officers very often don't travel outside the office enough to qualify for the outside sales exemption. The Department of Labor should go all the way and determine that not only are they exempt under the outside sales exemption but that the average loan officer is also exempt under the administrative exemption."

Under the administrative exemption, an employee must be paid at least $455 a week; the employee's primary duty must be the performance of office or non-manual work directly related to the management or general business of the employer; and the employee's primary duty must include the exercise of discretion and independent judgment in significant matters.

Carr explained that loan officers exercise independent judgment and discretion on a sufficiently frequent basis to qualify for the administrative exemption because they provide counseling to consumers seeking a change in their mortgages. He said the labor department should clarify the regulations on that point or Congress should be willing to address the issue.

When asked if the recent ruling paves the way for such a broader finding by the Department of Labor, Carr said the recent ruling makes it more likely that such a ruling could be forthcoming.

Carr said he doesn't think that the recent ruling will have a "huge impact" on the many lawsuits besetting the industry because many loan officers don't spend enough time outside the office to qualify as outside salesmen.

One attorney found that the ruling will be useful for both the industry and the government's field investigators.

Bob Davis, a partner in the Washington, D.C. office of Mayer, Brown, Rowe and Maw, said the ruling is a positive development because it "squarely clarifies" for the Department of Labor's field investigators how the rules will work. He also described the labor department's letter ruling as "solid" and "well-expressed" and said that it should provide "comfort to a lot of employers in the industry."

Bank of America declined to comment. Ameriquest, Countrywide Financial Corp. and Wells Fargo did not offer any comment by press time.


Originator Overtime
WASHINGTON -- Faced with an overwhelming number of overtime lawsuits and stepped-up wage and hour enforcement by the Department of Labor, mortgage brokers recently met in the nation's capital to talk about how to deal with compensation for loan originators.

Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record.

e-mail Lisa at: [email protected]

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