Development, under the terms of Contract No. 263-C-00-05-00003-00. The opinions expressed herein are those of the author(s) and do not necessarily reflect the views of the U.S.<br><br> Agency for International Development. TABLE OF CONTENTS Acronyms Executive Summary............................................................................................................i Introduction .................................................................................................................. ......ii SECTION A: RECOMMENDED MORTGAGE BROKER SKILLS DEVELOPMENT AND COURSE OF STUDY........................................................................................................<br><br> 1 1. Summary.................................................................................................................. 1 2.<br><br> Mandatory Workshops............................................................................................. 1 2.1 cHow to d Workshop.......................................................................................... 1 2.2 Mortgage Broker Operations Workshop..........................................................<br><br> 2 3. Course of Study ....................................................................................................... 2 3.1 General Knowledge.........................................................................................<br><br> 2 3.2 Laws and Regulations..................................................................................... 2 3.3 The Loan Process........................................................................................... 3 3.4 Financial Skills.................................................................................................<br><br> 3 OUTLINE OF BASIC AND ADVANCED MORTGAGE BROKER COURSES.................. 4 Table A-3.1.................................................................................................................... ....<br><br> 4 4. Instructor Selection ................................................................................................ 12 5.<br><br> Evaluations............................................................................................................. 12 6. Venue Selection.....................................................................................................<br><br> 13 7. Classroom Size by Participants ............................................................................. 13 8.<br><br> Promotion and Publicity ......................................................................................... 14 9. Pricing....................................................................................................................<br><br> 14 10. Licensing and Empowering Educational Enterprises........................................... 15 11.<br><br> Testing and Question Writing............................................................................... 15 SECTION B: MORTGAGE BROKER LICENSE RENEWAL ......................................... 16 1.<br><br> Summary................................................................................................................ 16 2. Determination of Operational Status......................................................................<br><br> 16 2.1 Loan Officers................................................................................................ 17 3. Assessment of Administrative Fees........................................................................<br><br> 17 4. Determination of Competency................................................................................ 17 5.<br><br> Interviews............................................................................................................... 1 8 6. Mortgage Broker-Public Recovery Fund................................................................<br><br> 19 SECTION C: RECOMMENDATIONS FOR EXAMINATIONS OF MORTGAGE BROKERS....................................................................................................................... 20 1. Summary.................................................................................................................<br><br> 20 2. Examinations vs. Audits..........................................................................................<br><br> 20 3. Notification of Examination..................................................................................... 20 4.<br><br> Selection of Examiners .......................................................................................... 21 5. The Examination Process.......................................................................................<br><br> 21 6. Content of Examinations........................................................................................ 22 6.1 Loans.............................................................................................................<br><br> 22 6.2 Operational Records ..................................................................................... 23 6.3 Corporate Records........................................................................................ 24 6.4 External Audits..............................................................................................<br><br> 24 6.5 Litigation........................................................................................................ 24 7. Exit Interview by Examiner.....................................................................................<br><br> 25 8. Future Examinations.............................................................................................. 25 9.<br><br> Repeat and Willful Violations ................................................................................. 25 10. Fines and Penalties..............................................................................................<br><br> 25 SECTION D: MORTGAGE BROKER TRIBUNAL.......................................................... 29 SECTION E: FUTURE CONSIDERATIONS.................................................................. 30 1.<br><br> Summary................................................................................................................ 30 2. Loan Officers Licensing and Certification...............................................................<br><br> 30 3. Mortgage Broker-Public Recovery Fund................................................................ 31 SECTION F: TIME LINE FOR IMPLEMENTATION AND NEXT STEPS.......................<br><br> 32 List of Annexes:............................................................................................................... 33 Annex 1: Instructor Evaluation....................................................................................... 33 Annex 2: Quarterly Report of Mortgage Activity..............................................................<br><br> 35 Annex 3: Slide Presentation to MFA............................................................................... 36 Annex 4: Sample Lender-Broker Agreements ................................................................ 43 Annex 5: Model State Statutes........................................................................................<br><br> 55 Acronyms ALO Accredited Loan Officer AM Amortization rate CAP Capitalization Rate CBE Central Bank of Egypt CMC Certified Mortgage Consultant CRMS Certified Residential Mortgage Specialist EBI Egyptian Banking Institute EMA Egyptian Mortgage Association EMRC Egyptian Mortgage Refinance Company EPMMC Egyptian Primary Mortgage Market Course EFS Egypt Financial Services Project GAAP General Accepted Accounting Practices GOE Government of Egypt IT Information Technology LO Loan Officer LTV Loan to Value Ratio MFCs Mortgage Finance Companies MIS Management Information System MFA Mortgage Finance Authority NOI Net Operating Income PP Power Point REO Real Estate Owned SBI ShoreBank International Ltd SME Small and Medium Enterprises SOW Scope of Work TOT Train the Trainer TT Trainer Trainee USAID United States Agency for International Development i Executive Summary The objective of this SOW was a continuation of previous efforts to facilitate the expansion of the mortgage lending system which, if adopted, would be a contributing factor of economic growth in Egypt. The report focuses on current market conditions and recommendations as it relates to mortgage brokers and their role in expanding the mortgage industry. In addition, this report will address the roles and perspectives of real estate developers and banks which directly and indirectly affect the mortgage and housing industry.<br><br> Since Mortgage Brokers can be fast, low cost, providers of service to both first- time home buyers and owners of real property, by virtue of their involvement in their communities, they are often the first contact with property owners who wish to use valuable equity from their real property to their advantage. If properly trained and qualified, mortgage brokers are an efficient delivery system to the primary market, relieving primary lenders of the necessity of investing in loan production staff, and hard assets such as cbrick and mortar. d Mortgage brokers may also be best suited to serve outlying areas and areas where primary lenders choose not to open branch offices. Over 210 mortgage brokers are currently licensed in Egypt, many of whom are not properly trained or qualified to originate and document a loan request for submission to a primary lender.<br><br> This report includes recommendations to develop a chow to d workshop and a workshop for Mortgage Broker Operations which will address the basic elements of proper management of a mortgage broker office. As loan originations are expected to increase, it will become necessary to develop a meaningful method for assuring compliance with Mortgage Finance Law 148 for the year 2001 and its executive regulations to protect the public from harmful business practices. The contents of this report will discuss steps necessary to: " create specific courses to be taught to mortgage brokers; " implement and enhance examinations (tests) administered by MFA for licensing mortgage brokers; " implement a system for physical examination of the books and records of mortgage brokers as a means to verify compliance with the law; " implement a licensing renewal system that requires mortgage brokers to improve or sustain core competencies; and " introduce the concept of loan officer education and licensing, in order to " encourage all local banks to engage or increase participation in the mortgage lending sector of the Egyptian economy.<br><br> Introduction The Mortgage Finance Law 148 passed in 2001 intended to open the doors to more homeowners through development of a mortgage market. While two mortgage finance companies (MFC 9s) are actually operational and two more licensed, growth has been slow. Acceptance by banks (direct lenders) has also been slow to materialize due to concerns about foreclosure laws, property registry, risks in lending in an untested market sector and extension of credit beyond current market depository instruments, i.e., certificates of deposit.<br><br> In addition, developer financing of buyers has created a submarket not found in other developed regions. Essentially, a builder pre-sells all units to be constructed in a building. At the time of contract, the developer collects 25% of the purchase price from the buyer and requires the buyer to pay the balance of the contract price over a period of three years in equal monthly installments.<br><br> During that time, the developer constructs the project with buyer funds, his own capital and a minimal amount 1 of bank financing. When the project is complete and the borrower makes final payment to the developer title is passed to the buyer who has essentially paid for the property without debt. This financing scheme is favorable to both the developer and buyer as it severely limits the cost of interest or other financing charges.<br><br> Consequently, the mortgage market faces obstacles to growth not the least of which is the promotion of mortgage finance by mortgage brokers. When Mortgage Finance Law 148 was passed, mortgage brokers were written into the law under a broad definition of cbroker d and with few qualifications. Now, the MFCs and MFA are faced with mortgage brokers who have no training in sales and marketing, mortgage originations, loan documentation, or proper underwriting techniques.<br><br> As a result, this technical report will provide recommendations for improved training. Section A is Recommended Mortgage Brokers Course of Study with further subdivisions in the following subjects: " cHow To d Workshop " Mortgage Broker Operations Workshop " General Knowledge " Laws and Regulations " The Loan Process " Financial Skills " Instructor Selection " Evaluations " Venue Selection " Classroom size " Promotion and Publicity " Pricing " Licensing and Empowering Educational Enterprises " Testing and Question Writing Following in Section B is Recommendations for Mortgage Broker Licensing Renewal with further subdivisions: 1 Mr. Fathalla Fawzi Mohamed, Chairman of Mena for Touristic and Real Estate Investment, who is also the President of the Builders and Developers Association, states that the average builder needs to borrow only 25% of the cost of the project from banks.<br><br> " Determination of Operational Status o Licensing Loan Officers " Assessment of Administrative Fees " Determination of Competency " Mortgage Broker- Public Recovery Fund " Role of Mortgage Brokers Associations " Mortgage Broker Tribunal Section C is Recommendations for Examination of Mortgage Brokers , which is a discussion on the physical elements of examining a mortgage broker operation, including subdivisions: " Examinations vs. Audits " Notification of Examinations " Selection of Examiners " The Examination Process " Content of Examinations " Exit Interview by Examiner " Future Examinations " Repeat and Willful Violations " Fines and Penalties Following the recommendations is a brief overview of mortgage lending in a bank environment followed by reviews of the appraisal course and mortgage testing software. 1 SECTION A: RECOMMENDED MORTGAGE BROKER SKILLS DEVELOPMENT AND COURSE OF STUDY 1.<br><br> Summary Mortgage Brokers are fast, low cost, providers of service to both first-time home buyers and owners of real property. Mortgage brokers, by virtue of their involvement in communities and neighborhoods, are often the first contact with property owners who wish to use valuable equity from their real property to their advantage. Further, trained and qualified mortgage brokers are an efficient delivery system to the primary market, relieving authorized Mortgage Finance Companies of the necessity of investing in loan production staff, employee overhead expense, as well as other hard assets otherwise known as cbrick and mortar. d And, certainly not least, mortgage brokers are best suited to serve outlying areas and areas where MFCs choose not to open branch offices.<br><br> This proposed course of study is designed to be the framework of a body of knowledge that mortgage brokers and their employees (loan officers) should have before being licensed to advise real property owners on matters of financing the greatest asset families have. This course may be considered for entry level and prospective licensees which should be an integral part of a comprehensive training program that includes practical, hands on, chow to d training. While the current mortgage broker licensing law broadly describes the experience requirement as being five years in cbrokerage, d notwithstanding the fact that the term cbrokerage d is too broad, but the industry is so new, that actual hands-on experience in the production of mortgage loans is very limited and may be of low quality.<br><br> When interviews were conducted with participants in the industry, it was learned that mortgage brokering is a sideline business to many currently acting as mortgage brokers. Consequently, the recommendations made herein, propose a progressive program to bring currently licensed mortgage brokers and those seeking a license to a higher standard of knowledge, thereby increasing the quality of every loan application taken and delivered to an MFC. To that end, it is in the best interest of the mortgage brokers association and MFCs to hold workshops designed specifically to teach mortgage brokers how to deliver a quality product that will be met with a fast loan decision.<br><br> 2. Mandatory Workshops In addition to the primary course of study, it is recommended that each mortgage broker candidate must attend two eight hour workshops, hosted by the MFA or other authorized institution after the mortgage broker has passed the basic examination and before the mortgage broker license is issued by the MFA. 2.1 cHow to d Workshop The first is step by step eight hour workshop for teaching the licensee candidate specifically how to: " conduct a proper interview with the borrower " properly complete a loan application " obtain the proper documentation to verify income and assets " properly compute and complete a disclosure of costs " properly assemble a loan file " properly document the borrowers needs and expectations " write a loan request or an executive summary of the transaction " interact with the MFC " assist with the loan signing process The course of study also includes provisions for continuing education and development of advanced skills for the mortgage professional who desires to advance his or her profession and career and for renewing their license.<br><br> License renewal will be discussed further at the end of this document. 2.2 Mortgage Broker Operations Workshop The second workshop, titled Mortgage Broker Operations , will include the following topics: " Record keeping requirements " Employee hiring requirements " Accounting practices " Preparing for an examination of the mortgage broker operations by MFA " Required disclosures to borrowers " Prohibited acts " Business ethics This workshop will better prepare the mortgage broker to employ sound business practices and methods of business management. 3.<br><br> Course of Study The following course of study is subdivided into four areas; General Knowledge, Laws and Regulations, The Loan Process, and Financial Skills. Each subdivision is noted with the recommended number of hours of instruction. If the candidate should fail the exam, he/she should be permitted to retake the exam one (1) additional time in a 12-month period.<br><br> 3.1 General Knowledge The first session of General Knowledge is intended to give the student participant a global perspective in the cycle of lending. Such a perspective allows the student/participant a better understanding of the impact of home ownership and the flow of capital in micro, as well as a macro economic environment. Studies of economic cycles provide the student/participant better insight into changes of underwriting standards and risk models, while identifying the roles of government agencies and programs designed to further private ownership of real property.<br><br> 3.2 Laws and Regulations The second session addresses the current mortgage finance law including mortgage broker licensing regulations, Minimum Quality Standards, as spelled out in the regulations, protocols of the New Urban Communities Act, and the Guarantee and Subsidy Fund mandate. Relative to mortgage financing, the law is intended to be the framework for consumer protection by addressing matters of the tripartite agreement, and debt to income ratios intended to assist property owners from overextending their income with excessive debt. Notwithstanding protection of consumers, the law is moving forward, looking to protect property owners with identification of their property and property rights through the process of registration, which currently is estimated at less than ten percent (10%) of all properties in Egypt.<br><br> It is also imperative that mortgage brokers in Egypt understand the nuances and benefits of Sharia compliant contracts of Murabaha, Ijara Wa Iqtina,Musharaka Mutanaqisa, and Istsnaa. Finally, the advanced session also addresses important issues of the process of foreclosure. 3.3 The Loan Process The significance of this session is evident by the number of hours of training, basic and advanced, necessary for proficiency in mortgage lending.<br><br> A mortgage broker is expected to shoulder a substantial portion of the burden of the loan process by delivering a complete, accurate loan file in a clear and concise format which meets the standards of the MFCs and the secondary market; anything less should be reflected in the amount of compensation derived from the transaction, if any. The mortgage broker 9s activities must be cvalue added d to the process. In addition to loan delivery, the mortgage broker must employ timely, accurate disclosures of loan costs, interest rates where applicable, terms of payments, reset agreements, final balloon payments, and penalties required in the loan agreement.<br><br> While current mortgage finance law does not address each of the disclosures mentioned, the mortgage broker associations and their members should be proactive in this matter, and become an active participant in creating sound business practices to inform and educate the public. Quality control of the loan process starts at day one with the first interview of the borrower and carries through until the loan is delivered to the mortgage finance company for approval and signing. Mortgage brokers must also take a proactive stance on the elimination of fraud.<br><br> Identifying the methods of the criminal mind will reduce the number of unnecessary loan defaults and repossessions which lead to higher borrowing costs. Furthermore, professional management of the loan process leads to customer assurance and confidence that will return new business ten fold. The loan process session teaches mortgage broker 9s aspects of fiduciary responsibility to the client borrower as well as to the MFC or bank the loan will be delivered.<br><br> 3.4 Financial Skills Tantamount to sound origination skills is the ability to accurately calculate, assess, and analyze financial matters germane to the loan process. The loan underwriting process employs numerous financial calculations which, if left to the untrained, would result in potential disqualification of a borrower or worse, misleading a borrower to believe that the loan could be obtained when in fact it could not. To accomplish this objective, the Financial Skills session addresses basic skills.<br><br> While this session is not designed to promote specific instruments (calculators), it is well-advised to passively suggest that complex, multifunction instruments are not necessary. An instrument with the ability to calculate amortized payments, balloon payments or future values, present values, terms, and annual percentage rates is sufficient for both basic and advanced applications. 4 OUTLINE OF BASIC AND ADVANCED MORTGAGE BROKER COURSES Table A-3.1 3.1.<br><br> General Knowledge 3 Basic Hours A. Mortgage finance market overview I. Economic impact of property ownership II.<br><br> Role of mortgage finance in the economy 2 B. Development of primary mortgage market providers I. Sources of funds for mortgage lending II.<br><br> The cost of money and loan pricing 1 C. Development and the role of secondary markets 1 D. Government agencies and their roles I.<br><br> Ministry of Investment II. Ministry of Justice III. Ministry of Housing IV.<br><br> Guarantee and Subsidy Fund V. Mortgage Finance Authority (MFA) VI. New Urban Communities Act 1 E.<br><br> Other Service Providers I. Appraisers II. Mortgage Finance Companies III.<br><br> Banks IV. Credit Bureaus V. Egyptian Mortgage Refinance Company (EMRC) VI.<br><br> Real Estate Brokers VII. Attorneys/Foreclosure Agents 2 Total Hours Basic 7 5 3.1.1 General Knowledge- Advanced Hours A. Economic models of mortgage finance in developing countries 2 B.<br><br> Development and the role of secondary markets i. Mortgage-backed securities ii. Reselling to mortgage investors 1 C.<br><br> Residential lending and economic cycles 2 D. Commercial Loans i. Acquisition and Development ii.<br><br> Construction Lending 4 Total Hours Advanced General Knowledge Grand Total General Knowledge Table A-3.2 3.2 Laws and Regulations 3 Basic 9 16 A. Mortgage Finance Law 148 i. Tripartite agreements ii.<br><br> Loan to value limitations iii. Tenor limitations iv. Debt to income limitations 3 B.<br><br> Prime Minister 9s Decree No. 465 i. Mortgage broker licensing regulations ii.<br><br> Education requirements (Article 40) iii. Bonding/licensing fees iv. Employee hiring requirements v.<br><br> Compensation laws (Article 50) vi. Executive orders from MFA Board of Directors 1 C. Tax Laws affecting mortgage lending i.<br><br> Lender incentives and liabilities ii. Borrower incentives and liabilities iii. Seller liabilities iv.<br><br> Transaction taxes v. Developer incentives and liabilities 1 D. Security agreements and provisions to protect lenders i.<br><br> Due on sale ii. Assignment of rents iii. Guarantee and Subsidy Fund 1 E.<br><br> Registration of real estate property i. Overview of procedures and requirements for application ii. Ministries requiring approvals iii.<br><br> Processing times 1 6 iv. Verification of ownership v. Methods of holding title 1.<br><br> freehold rights 2. leasehold rights vi. Warranties surviving the passing of title vii.<br><br> Protocol of New Urban Communities (Minister of Housing) F. Islamic/Shariaa compliant and alternative instruments 2 Total Hours Basic Laws and Regulations 9 7 Table A-3.2.1 3.2.1 Law and Regulations - Advanced Hours A. New housing laws and legislative developments 1 B.<br><br> Property ownership and matters affecting title i. Liens ii. Easements iii.<br><br> Encroachments iv. Escheat v. Ownership rights vi.<br><br> Covenants conditions and restrictions 2 C. Foreclosure i. Reasons for defaults ii.<br><br> Collection practices and procedures iii. Collection and consumer protections laws of Egypt iv. Overview of Executive Regulations of Real Estate Finance Law No.<br><br> 148 v. Required notices vi. Registration and public notice vii.<br><br> Assignment of foreclosure agent viii. Appraisal of property ix. Public auction of the collateral x.<br><br> Results of third party bids xi. Alternate liquidation of the non-performing asset xii. Affects on lender portfolio by real estate owned (REO) xiii.<br><br> Affects of bankruptcy xiv. Deed in lieu of foreclosure 2 D. Affects and liabilities of insider loans 1 2 8 E.<br><br> Mortgage finance companies regulations Corporate policies and management (Article 35) Bis (2) i. Policies and procedures (sub 1) ii. Authorized activities (sub 2-3) iii.<br><br> Records management (sub 6) iv. Audit procedures (sub 7) v. Complaint resolution (Article 35 Bis 3) vi.<br><br> Financial management (Article 35 Bis 2) vii. Record keeping (Article 35 Bis,4,5,6) Total Hours Advanced Laws and Regulations Grand Total Laws and Regulations 17 8 Table A -3.3 2.3. The Loan Process Hours A.<br><br> Role of mortgage brokers according to the law .5 B. Pre-qualification procedures i. Preparing for the loan interview ii.<br><br> Using the 4 C 9s of Credit to determine loan feasibility iii. Helping the consumer understand the obligation iv. Addressing borrower objections 1 C.<br><br> Loan originating methods i. Using electronic data processing ii. Online and internet applications iii.<br><br> File preparation and documentation iv. Employing a loan document checklist v. Standardization of file organization vi.<br><br> Quality control of mortgage loan files vii. Employing a client conversation log viii. Reading and interpreting real estate contracts ix.<br><br> Case studies 4 D. Disclosures delivered to the borrower upon loan application i. Cost estimates ii.<br><br> Amounts and terms of payments iii. Loan reset requirements iv. Future transfer or sale of the loan v.<br><br> Borrower rights to documents and information vi. Authorization from borrower to obtain information from third parties 1.5 E. Collateral valuation i.<br><br> Identification of real property ii. Market approach iii. Income approach iv.<br><br> Cost approach v. Capitalization rates 3 F. Adopting standard underwriting procedures i.<br><br> Credit assessment ii. Alternate sources of credit verification iii. Risk assessment iv.<br><br> Risk mitigation 1. verification of income 2. verification of credit 3.<br><br> verification of ownership 4. length of ownership 5. Down payment and capital contribution requirements 6.<br><br> Verification of sufficient income to close 7. Seller disclosures 8. Seller contributions to loan and closing costs 4 9 G.<br><br> Sales and marketing i. Methods to increase loan production ii. Effective methods of marketing iii.<br><br> Understanding consumer behavior iv. Developing communication skills v. Employing the internet vi.<br><br> Referrals vii. Marketing partnerships viii. Relationship building ix.<br><br> Role playing x. Selling mortgages vs. installment sales 2 H.<br><br> Business ethics i. Conflicts of interest ii. Fiduciary responsibilities to the borrower iii.<br><br> Fiduciary responsibilities to the lender iv. Preservation of client information v. Discriminatory practices 2 Total Hours Basic the Loan Process 18 10 Table A -3.3.1 3.3.1 Advanced Loan Process Hours A.<br><br> Collateral valuation i. Capitalization rates ii. Affects of economic cycles iii.<br><br> Depreciation iv. Zoning and condemnation v. Subdivision law vi.<br><br> Environmental impact 1. water 2. toxic materials 3.<br><br> lead-based paint vii. Engineering and physical obsolescence 4 B. Identification of fraud i.<br><br> by the borrower ii. by the mortgage broker iii. by the real estate agent iv.<br><br> by the appraiser 2 C. Quality control i. Flow and control of loan documents 1 D.<br><br> Loan closing i. Documents ii. Elements of promissory notes iii.<br><br> Elements of the security agreement iv. Procedures for attorneys and settlement agents v. Verbal and non-verbal representations made to borrowers 2 E.<br><br> Overview of loan administration and sub-departments (Article 57) i. Value of loan servicing and its rights ii. Recordkeeping (Article 57 Section A) (Article 61) iii.<br><br> Reconciliation of income (payments) received (Section A) iv. Verification of payment of real estate taxes due v. Certification of insurance coverage vi.<br><br> Remittance of payment to loan participants vii. Collections management viii. Reporting to MFA (Article 35) Bis 2 F.<br><br> Customer retention practices 1 Total Hours Advanced Loan Process 12 Grand Total Loan Process 30 11 Table A-3.4 and 3.4.1 3.4. Financial Skills Hours A. Loan product pricing i.<br><br> How interest rates are established ii. Discounts, premiums, and par pricing 2 B. Introduction to financial calculator i.<br><br> Financial coefficients and mathematical formulas ii. Loan amortization iii. Balloon payments iv.<br><br> Calculation of adjustable rate problems v. Per diem and prorating calculations vi. Loan to value vii.<br><br> Debt to income ratios viii. Graduated payment loans 2 C. Loan programs i.<br><br> Case studies ii. Suitable mortgage solutions for different customers iii. Refinancing iv.<br><br> Debt consolidation loans v. Property rehabilitation vi. Construction loans vii.<br><br> Non-owner occupied loans viii. Working with self-employed borrowers ix. Loan productions for small and medium-sized enterprises (SME) 2 Total Hours Basic Financial Skills 6 3.4.1 Advanced Financial Skills Hours A.<br><br> Loan product pricing i. Hedging interest rates ii. Affects of secondary market demands iii.<br><br> Affects of loan commitments and delivery iv. Single loan and Mortgage Pool Yield Calculations v. Discounting for market yield vi.<br><br> Commercial loan applications 1. Net Operating Income 2. Debt Service Ratios 3.<br><br> Capitalization Rates vii. Case studies 4 4 Total Hours Advanced Financial Skills 8 Grand Total Financial Skills 14 33 28 Grand Total Basic Hours Grand Total Advanced Hours Grand Total All Hours 61 12 4. Instructor Selection Course delivery requires more than subject knowledge; it must also be theatrical and motivational.<br><br> It is not sufficient for an instructor to lecture only. Our fondest memories of teachers and instructors in our developmental years were those that inspired us to be proactive in the learning process. The following recommendations should be carefully considered before attempting to host a course by simply advertising the content in the hope that interested participants will attend.<br><br> Success of the course and credibility of the program depends upon the instructor chosen to present the course. The instructor should: " have direct experience in the subject matter " be knowledgeable, if not passionate, about the content of the subject matter " have excellent presentation skills " use multimedia " employ varied teaching methods " understand the dynamics of room set up " have a commanding presence " engage the audience " present with humor and wit " have technological aptitude to operate computers and projectors " know the audience " be sympathetic to the learning objectives of the participants " be well-groomed " sustain a cvery good 3 excellent d evaluation by student/participants Where attempts to develop a program of Train the Trainer (TOT) are employed to expand the base of instructors, the trainee trainer (TT) should make his or her first presentation before other instructors. The instructor audience should critique the performance of the TT to help the TT build upon solid skills.<br><br> The audience should also be frank in their evaluations to identify and reject anyone who does not meet the skills mentioned above. After selection, the TT should co-present the subject with a master instructor until the master instructor is willing to testify that the TT has reached a proficiency to hold the course alone. 5.<br><br> Evaluations Whether a course is delivered by a master instructor or a TT, each course should be subject to evaluation by the audience. An evaluation form is presented in Annex 1, reflecting how participants view the instructor for appearance, subject knowledge, and use of materials, voice, and mannerisms. Such information may be further quantified through numeric scoring for greater accuracy in evaluating the instructor.<br><br> Upon conclusion of each course, the evaluation forms should be delivered to trainees/participants and collected by the course host. When the evaluations have been 13 reviewed, the results should be shared with the instructor. Thereafter, a decision to reengage an instructor may be much easier.<br><br> 6. Venue Selection Similar to selection of an instructor, selection of the venue must also be done with care. The venue should meet the following criteria: " convenient, if not central, location to the majority of participants " easy to find " be modern in appearance " have accessible parking, especially if the majority of participants are driving " have a well-lit room " have a clean, odor-free " have sound buffeting qualities " should not be in an area near another event that will compete with sound and lighting functions " should be set up over one hour in advance of the presentation " engineering staff should have tested all electrical appliances including projectors and microphones prior to the presentation " signs should be clearly posted around the property to direct participants to the presentation room " drinking water or other refreshments should be delivered in the room at least 30 minutes prior to the presentation " registration staff should have participant registration forms and course hand-out material on site, and be prepared to welcome and check in students at least one hour prior to the presentation " restroom facilities should be convenient to the presentation room " entrances and exits should be well- functioning and the hinges oiled, if necessary, to avoid noisy latecomers.<br><br> " if the room is to be classroom style, there should be a white board with new dry erase markers in 2-3 colors " there should also be a flip chart or flip chart size cpost it d pages At the conclusion of the program the trainees/participants should also have the opportunity to critique the facility. Course organizers should consider the comments and recommendations that favor a better learning environment. 7.<br><br> Classroom Size by Participants Workshops and courses have varying degrees of success depending upon the number of trainees and participants. Where the workshop requires case studies or projects, the optimum number of participants is 20-25. Where the subject matter is primarily lecture and with slide presentations, the number can be increased to 35-40.<br><br> When the subject matter is a presentation by a guest speaker, a room can be expanded to over 100, provided that there is no question and answer period planned. 14 8. Promotion and Publicity Equal to venue selection in terms of importance is promotion of the event or course being offered.<br><br> It is an interesting phenomenon observed with western mortgage brokers that registration for events is delayed (for a multitude of unclear reasons), until the last possible minute prior to the event. This surely makes for nervous event planners and sponsors. Perhaps the Egyptian culture is more respectful of such matters.<br><br> Promotion of an event or course should be frequent and begin as early as three months prior to the event with a simple post card to cremember the date. d Another teaser post card with bullet points that highlight the theme of the event, if one is appropriate and the subject matter in one or two words should be scheduled for 3-4 weeks after the first is delivered. Approximately 45 days prior to the event, a detailed schedule of the event should be sent to prospective attendees and should be ctalked up d at meetings and functions of the mortgage brokers association. This notice should state clearly what will be taught, who should attend, and how the information presented will be valuable to the attendee.<br><br> This promotion piece should be delivered, again, approximately 2 weeks prior to the event to nudge on the procrastinator. Follow-up personal calls could also take place. Arrangements could also be made with the MFA to post such events on its portal.<br><br> 9. Pricing Course and event pricing is a science that considers recovery of costs of production, marketing, instructor/speaker compensation, if any, and fees to the event planner. Later herein, we will introduce the value of one or more sponsors that become indirect beneficiaries of the course or event.<br><br> Following is a discussion of the cost to the participant. Education must be perceived as a valuable commodity that will enhance the economic well-being of the participant. Therefore, it should not be cfree. d Participants will place greater value on something they have a vested interest in, even if they do not realize an outcome in the immediate future.<br><br> Course pricing for the participant should be considered a meaningful value. The value of a course or workshop may be as much as the fee from one or two loan transactions. Another important aspect of pricing and subsidizing the cost of education is through sponsorships.<br><br> In the mortgage industry, there are more beneficiaries to the loan process than simply the borrower or homeowner. Mortgage finance companies, banks, and the secondary market need high quality mortgage loans, produced by educated mortgage brokers with high standards. Training and educating mortgage brokers is in the best interest of this process.<br><br> As the mortgage delivery system matures, MFCs and banks will realize that for each transaction produced there is an associated cost. In the U.S., the average cost to produce a loan is between $1800 and $2200 for a quality, well-documented, properly underwritten loan. Fixed-based loan originators realized that by reducing costs, including plant and production costs, the profit margin increases.<br><br> Key to cost reduction has been third party originations (by mortgage brokers) who invest in plant and production costs individually, and on a much lesser scale. However, fixed-based mortgage companies who accept loans from any source (licensed or unlicensed, certified or uncertified) wherein the loan files were poorly assembled, poorly 15 documented, and poorly pre-qualified, in my opinion, meet with a greater probability of loan rejection resulting in a loss of time and capital. Continuing on that line, a poorly written loan has a higher probability of rejection (and later default, if the loan is approved), as the uneducated mortgage broker fails to bring sufficient knowledge, experience, and value to the process, which in turn increases the cost of loan administration before and after the closing.<br><br> Consequently, it is in the best interest of the primary market to make a contribution, (sponsorship) to educational activities of mortgage brokers thereby reducing overall costs of loan production and loan servicing. 10. Licensing and Empowering Educational Enterprises It is recommended that the MFA retain oversight and licensing authority of institutions, public and private, that desire to deliver mortgage education.<br><br> Educational institutions, private enterprises, and professional trade associations should be left to deliver content. MFA oversight should include approval of core subject matter, with elective subject matter left to the educational institution, or professional organization. Testing individual mortgage brokers, which is addressed in 11, below, shall remain the function of the MFA.<br><br> Once subject matter is established, subject matter experts (SMEs) should develop the actual material to be taught. Each approved institution or professional organization that delivers courses shall be required to keep attendance records of each student, the course title attended, the number of hours attended, and the course certificate number. The institution or professional organization shall maintain those records for a minimum of ten calendar years.<br><br> The records of the institution or professional origination shall be available for inspection by the MFA upon request. Except for currently approved universities, each institution shall be subject to review of its authorized course offerings and student records, as determined by the MFA, at least once each five calendar years. 11.<br><br> Testing and Question Writing The Mortgage Finance Authority requires every applicant to pass a test of competency. The test questions should be developed by subject matter experts presently active in the mortgage industry. It is recommended that the MFA form a committee of five, one of which is a staff member of the MFA and the remaining four members recommended to the MFA by the mortgage broker association(s).<br><br> The committee would be required to meet as needed to review subject matter to be tested, weight the subject matter as to importance and, accept from members in the industry suggested questions or subject matter, write and approve questions to be included in a bank from which tests will be created and administered. After the first set of questions is developed, the committee should determine to meet when laws or policies change or as market conditions make significant changes in practices and procedures. 16 SECTION B: MORTGAGE BROKER LICENSE RENEWAL 1.<br><br> Summary Since passing the real estate law, over 200 persons have applied and have obtained a mortgage brokers license. The current law has limited qualifications and low standards for obtaining a license. Consequently, many, if not most of the current licensees are under- performing.<br><br> According to at least one MFC, mortgage brokers have a general lack of knowledge sufficient to originate, assemble, and deliver a loan file that is worthy of consideration by the MFC. Even when provided loan processing requirements and checklists, current licensees are not sufficiently educated to employ these requirements which leave the mortgage broker, MFC, and borrower frustrated with the loan process. This report is intended to provide a working plan for the MFA to adopt a policy whereby mortgage brokers must significantly and substantially increase their qualifications and standards or risk revocation of their license.<br><br> The objectives in this recommendation will address three matters which, if required as part of the license renewal process, may result in disqualification of some mortgage brokers on the basis of lack of knowledge, or lack of activity. The objectives discussed below include: " a demonstration of whether the mortgage broker is active or dormant " the assessment of an administration fee for license renewal " the requirement to increase and maintain competency " development of a mortgage broker public recovery fund Furthermore, this recommendation will address the role of mortgage brokers and the formation of a tribunal (or other such committee, authorized by the MFA), to hear matters and recommend discipline for those mortgage brokers that pose a hazard to the community. 2.<br><br> Determination of Operational Status Renewal is an opportunity for the MFA to determine whether a mortgage broker is active (which is defined herein as currently and actively soliciting and originating mortgage loans), or whether the activities of the mortgage broker are essentially dormant (which shall be defined as originating and successfully closing less than one loan transaction per year since the license was issued). The license renewal process is an opportunity for the MFA to develop a database of mortgage brokers with information regarding their solvency, operations, amount of production, and number of employees, specifically loan originators, active under the primary broker license. 17 When a mortgage broker is dormant for more than one year but less than three years, it is recommended that the mortgage broker license be placed in a suspense status, which shall require the licensee to attest annually that no mortgage originations have been or will be made until the license is reactivated.<br><br> Further, the mortgage broker should submit annually, for administrative review, all personal and corporate financial records to verify the dormant status of the company. Prior to reactivation, the dormant mortgage broker should complete an updated licensing application and successfully complete not less than 37 hours of education for each 3 years of dormancy plus pass a test of competency. (This training is outlined in Section A of this report).<br><br> If a mortgage broker licensee and its company is dormant for more than 12 months, it is recommended that the mortgage broker completes the licensing process as if the license were not initially obtained, including attending licensing courses (40 hours) and passing a test of competency. If the mortgage broker is active, licensing renewal should take place each 3 years and the broker should complete a cstreamlined d informational document attesting to the volume of loans, (expressed in number of units and total of LE), the number of branch offices established, if any, the number of loan officers working under the license (see discussion on Loan Officers below), and attach a financial statement of the company not more than 3 months old. In addition, an educational requirement, related to competency, addressed in 4 below should be included.<br><br> 2.1 Loan Officers As the mortgage industry grows, the number of, Loan Officers working for mortgage brokers will also grow. The expansion of loan officer as employees should be managed. This matter is discussed in Section E: Future Considerations.<br><br> 3. Assessment of Administrative Fees Assessment of an administrative fee for maintenance of MFA records must accompany each renewal application, whether dormant or active. Administrative fees should be considered a minor part of the MFA budget for oversight of the mortgage brokerage industry and should be assessed based upon two factors: " the total volume of transactions " the number of employees working as loan officers It is suggested that administrative fees be weighted by loan productivity and employees in order to avoid penalizing small companies.<br><br> For example, a large company with a substantial gross income should pay a greater administrative renewal fee than a smaller company with lesser income. Yet, as the smaller company grows, the administrative fee should also grow to reflect the volume of growth of gross revenue. It is recommended that the fees be on a sliding scale according to the gross income of the company or mortgage broker.<br><br> 4. Determination of Competency 18 Competency is the core issue in developing a quality mortgage delivery system. As mentioned in section 2 above, the renewal application should require the mortgage broker to attest to completion of a minimum of 37 classroom hours of education for each 3 year period.<br><br> It should not be necessary for the mortgage broker to submit for review each certificate attesting to attendance as this would create a burden on the MFA. The renewal application should include a segment requesting the date, number of hours, and subject matter of each course attended, as well as the certificate number. When the MFA makes a periodic examination of the mortgage broker (see Examination of Mortgage Brokers in Section C), the examiner should review a sample of the certificates listed on the renewal application to determine validity.<br><br> Until such time as the currently licensed mortgage brokers have substantially increased their standards of knowledge and skills in originating mortgage loans, renewal applications should require new testing of the licensee. The licensee should be allowed to retake the examination only one additional time within a 12 month period if he/she fails the first exam. In later years, after the general competency standards have been attained, it will not be necessary to have the mortgage broker submit to a test, as competency of the mortgage broker will be tested in more practical terms by the market place, specifically in its success or the volume of loan originations and the number of consumer complaints received by the MFA or by the mortgage brokers association.<br><br> 2 5. Interviews It has been suggested that an interview with the mortgage broker candidate be a criteria for licensing renewal. Apart from a few review boards or certification programs, a face to face interview with the licensee is not standard practice.<br><br> Such practices for a license are subjective and are corruptible. Again, it is the market place (and MFCs) that will ultimately determine the competency of the licensee by the willingness to conduct business with, or refer business to, the mortgage broker. 2 Herein lays the importance of empowering a tribunal of mortgage brokers to hear and judge complaints against a mortgage broker.<br><br> (See mortgage broker tribunal below.) The market place will be more effective in policing its own and thereby freeing the MFA to focus on oversight and policy development. Therefore, at the time of renewal, the renewal application should include a question, c Have you had judgment rendered against you by a mortgage broker tribunal or in civil or criminal court for actions of fraud, deceit, moral turpitude, converting the assets of insolvency, or violations of the cannons of ethics? d If the answer is no, a simple telephone investigation to the mortgage brokers association is all that is necessary.<br><br> If the answer is cyes, d the mortgage broker should be required to explain his or her actions, and state whether or not restitution was made to the aggrieved parties. As to recommendations from the mortgage brokers association, only those matters that are considered, in the opinion of the MFA, to have unfavorable acts committed upon a borrower, or actions that pose an unacceptable risk to the pubic, should be considered grounds for denial of the license. Disputes between mortgage brokers regarding fee arrangements, cooperative agreements, or other civil matters should be left to the mortgage broker tribunal, unless the tribunal recommends to the MFA that the actions of the adjudged mortgage broker are so egregious so as to pose a threat to the public and industry and are cause to deny renewal or revocation of a mortgage brokers license.<br><br> 19 6. Mortgage Broker-Public Recovery Fund Inherent in the mortgage broker industry is the potential for a homeowner to suffer financial harm from a sophisticated scheme wherein the mortgage broker played a major or minor role. In Section E: Future Considerations, is a discussion of a Public Recovery Fund.<br><br> 20 SECTION C: RECOMMENDATIONS FOR EXAMINATIONS OF MORTGAGE BROKERS 1. Summary Mortgage broker loan originations are on the rise in Egypt and it will become necessary to develop a meaningful method for assuring compliance with the Mortgage Finance Law 148 and for the protection of the public. The resources necessary to assure compliance may not be currently allocated, however.<br><br> The following recommendations take into account potential limitations of time and capital. The recommendations discussed herein are made on the basis that the industry regulator will conduct examinations for compliance rather than audits of mortgage brokers. A separate set of criteria should be considered for mortgage finance companies as it is the MFC that is directly administering the loan transaction after a loan file is delivered by the mortgage broker to the MFC or bank.<br><br> Prior to issuing the license, the mortgage broker candidate shall attend a workshop delivered by the MFA, or an authorized educational institution, on the subject of cMortgage Broker Operations and the Law. d This course will be a practical, informative workshop for new mortgage brokers and is further outlined under the section Recommended Mortgage Broker Course of Study, found in Section A. 2. Examinations vs.<br><br> Audits An examination of mortgage broker records and business practices is best defined as a random, periodic review of the mortgage brokers corporate, loan, and employee files for general compliance. Conversely, an audit would entail charting source documents and material in all aspects of the loan process, from the first meeting and discussions with the borrower through, and including, the final payoff of the loan transaction. An audit is more suitable for oversight by the MFC.<br><br> 3. Notification of Examination The first examination of a mortgage broker should take place not more than one calendar year or less than six months from the date the mortgage broker license was issued. The purpose of an initial examination is to provide a form of guidance to the new mortgage broker and to determine whether the mortgage broker understands the requirements of record keeping, retention, and compliance with the law.<br><br> Thereafter, an examination of the mortgage broker should take place not more than five years in the future. 21 When the next examination is to be scheduled, the MFA examiner in charge should send written notice to the mortgage broker not less than 10 days or more than 45 days prior to the arrival date of the examiner at the primary business or home office of the mortgage broker. The mortgage broker should be required to provide in advance a list of loans originated since the last examination.<br><br> The mortgage broker should acknowledge the letter and confirm that he/she, or the owner/managing partner, in case of a corporate, will be on site during the entire examination process. Thereafter, the next examination should be determined upon the recommendation of the examiner and should be based upon the level of competency and compliance found in the initial exam. 4.<br><br> Selection of Examiners The examinations process should be conducted by highly-trained individuals that have a minimum of 5 years of active mortgage lending. The experience should include tenure in Loan Origination, Loan Administration, and one or more levels of management in a bank, MFC, or in the private sector. An examiner could be a direct employee of the regulatory agency, or an independent contractor with sworn loyalty to the regulator.<br><br> Criteria for employment of an examiner should include more than administrative skills or lending experience. The examiner should be knowledgeable of current market activities, local customs, and trends influencing loan production and loan processing, including cutting edge technology. Furthermore, the examiner should be instructed to conduct examinations with an eye to providing guidance to the mortgage broker who willingly demonstrates safe loan origination practices.<br><br> Likewise, the examiner must be trained to quickly identify deceptive and potentially harmful practices that might endanger the public, MFC, or the financial system. That said, the examiner should not conduct examinations or other activities which may instill fear and loathing of the regulatory process. 5.<br><br> The Examination Process It is well-advised to avoid making the examination process burdensome to the extent that it hampers ongoing business operations or severely dampens the entrepreneurial spirit. Pre-scheduled, well-planned examinations take fewer hours, both in the field and when writing reports and evaluations. While examinations should not be based solely on clock hours, a reasonable time frame for conducting the examination of a mortgage broker office should be sufficient to: 1) inspire the examiner to complete the examination assignment promptly and move on to the next task; 2) develop methodology for identifying weakness in the mortgage brokers operations; and 3) identify weaknesses in the regulatory process that requires legislative or regulatory rule-making corrections.<br><br> To that end, the examination process of a mortgage broker should range from 6-8 hours, depending on the number of loan files reviewed and the number of violations found. When an examiner finds a substantial number of violations, more files should be reviewed. 22 6.<br><br> Content of Examinations The content of examinations is outlined in Table C-6.1. It addresses several areas of mortgage broker operations that give the examiner an insight to compliance of laws and rules. The subject matter is broken down into five primary sectors, with further subdivision, as noted.<br><br> The subjects which are addressed in narrative below, and in the checklist format, include: 1. Loans 2. Operational records 3.<br><br> Corporate records 4. External audits 5. Litigation 6.1 Loans As a matter of general organization, a mortgage broker should maintain a list of all applications, regardless of the disposition, detailing the name of the borrower, application number, amount of the original request, date of application, date submitted to the bank or mortgage finance company, date the loan was funded, and the name of the loan officer who created the loan.<br><br> It is recommended that the MFA require a quarterly report from each mortgage broker that details the number of loans originated and the value of the loans in LE (see Annex 2). Using this log, the examiner can randomly select not less than 10 actual loan files or 10% of transactions completed in the previous 24 months of activity, to determine the level of compliance. Next, the loan file represents the primary activity and interface that the mortgage broker has with the borrower.<br><br> In this file is the evidence of compliance with the law and of rules or decrees from regulatory bodies. The mortgage broker should, at the very least, have a complete loan application with all pertinent spaces completed and supporting documentation for the information provided on the application. Furthermore, the file should include a disclosure of the costs of the loan and the purchase agreement in a clear and concise manner.<br><br> The disclosure should be signed by the borrower and the mortgage broker on the date that the application was first completed. While the mortgage broker may not have property registry information or an appraisal of the property, it is well-advised that the mortgage broker obtains as much information regarding the collateral as possible, such as the physical address, identification number, and any information regarding the building and surrounding neighborhood. The mortgage broker should be maintaining a loan conversation log with notations as to the conversations with the borrower.<br><br> Frequently, a borrower may have an additional request or change the amount of the loan, which in turn, should trigger the need for new and updated disclosures and an updated loan application. 23 6.2 Operational Records The regulatory authority must have the ability to verify the conditions of the mortgage broker 9s operational and accounting records to determine whether the broker is employing sound financial management practices. This area of the examination is weighted significantly less than the loan file examination; however, in conjunction with the results of examination of corporate records, external audits and litigation, a clear picture of the ability of the mortgage broker to properly manage its business in the best interest of the public, will materialize.<br><br> Among the first records to be examined are employee files . If the mortgage broker is a 1-2 person enterprise, it may be reasonable to reduce emphasis on documenting employment records. However, if the mortgage brokerage grows into a larger enterprise, the employing broker must have established methods and procedures for documenting employees; specifically, an employee file should have the following documentation: " the employee 9s qualifications " previous work history " education history " personal identification informati<br><br>

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