| ID | Status | Date | Public/Private | Industry | AHACPA Contact |
|---|---|---|---|---|---|
| #7870 | Closed | public | FHA Lender |
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We have a mortgage lender client that makes advances to their branches when the branch expenses exceed the commissions earned at the branch. This balance has accumulated to a significant amount at the balance sheet date, and the client insists that this is a customary business practice reserving less than 10% of the total amount advanced. The client has yet to present us with satisfactory evidence concerning their rights to recover this balance and to support the valuation of the balance. Are these “branch receivables” typical of other lenders and what sort of evidence is typically provided to support the existence, rights and valuation of this balance? |
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From Mike Olsen: I have not heard of an arrangement like this before. HUD requires that the Mortgage Lender be responsible and pay for all branch expenses. In addition, leases and other agreements must be in the name of the mortgage company, not in the name of a Branch Manager. This sounds a little suspicious to me. It sounds like the company has an arrangement with the branch in which the branch is responsible for its own expenses and when it can’t cover them, the company borrows funds to the branch to cover the expenses. If this is the case, it sounds like this would be a prohibited branch arrangement. Here is some language out of the new 4000.1 SF Handbook: 6g. Payment of Operating Expenses If you would like to discuss this further, please email or call me. |