As an independent document preparation company, DocMagic personnel interact with thousands of customers involved in the mortgage origination process, be they mortgage brokers, mortgage lenders or secondary mortgage market purchasers. Indeed, DocMagic will often have some type of relationship with all the parties involved in a particular mortgage loan origination: broker, lender and purchaser. Because of the widespread penetration of our products in the mortgage lending industry, DocMagic can assist greatly to prevent many, if not most, of the problems that create points of friction between mortgage originators. However, many investors are unaware, or otherwise choose to ignore, the benefits of dealing directly with service providers to resolve issues before they arise.

An "investor" can be described generally as either a purchaser of closed mortgage loans on the secondary market either in bulk or on a flow basis, or a wholesale lender that authorizes its brokers to prepare loan documents for funding. Of course, an investor can, and often does, engage in other activities, but in this article we will focus on those listed in the preceding sentence.

Given the number and wide variety of business partners with which most investors do business, ensuring that the mortgage loans delivered to the investor conform to the investor's myriad compliance and delivery requirements can be quite daunting. The investor's requirements may be, and quite often are, numerous, complex and very different from those of other investors. Moreover, the business partners with whom the investor transacts business will themselves vary greatly in terms of their expertise and ability to comply with those requirements. These variations create a situation ripe for conflict between investors and their business partners.

Let us take just one simple example. Assume that you are an investor purchasing loans secured by California properties from 150 different business partners. You know that California law is ambiguous at best regarding the inclusion or exclusion of yield spread premiums ("YSPs") paid by lenders to brokers for purposes of California's high cost test (for a discussion of this issue, click here and click here. You take the position that YSPs should be included in the points and fees test, and communicate that to your business partners through a variety of channels. Some of your business partners seem to grasp your request and you have no problems with this group. However, you discover that an alarming number of your business partners are not following your requirements and just don't seem to get it. This creates inefficiencies and delays in your business, not to mention a great deal of ill will and hostility between you and your business partners as loans are refused and kicked back, often with a request that money be refunded to the borrower. What can you do to correct this problem?

Well, you could attempt to contact each of your business partners again and tell them to correct the problem. That will take care of some of your problems. But what about the others? Let me add one small twist to our example above.

Suppose that in reviewing the problem loans, you discover that the majority of the loan documents were prepared by just three or four outside document preparation companies that your business partners utilized. Could this scenario perhaps offer an alternative solution to your dilemma? The answer is a resounding YES! If one of those document preparation companies happened to be DocMagic, you could contact one of the attorneys in our legal department or one of our customer service representatives, and an audit would be implemented to ensure that going forward the problem simply could not happen again. And, no doubt, other document preparation companies could also implement an appropriate solution.

This solution seems so obvious that you would think that all investors would jump at it. Sadly, however, that is not the case. It is not uncommon, for example, for service providers, when they contact an investor for an explanation or clarification of a particular policy, to be told in no uncertain terms that the investor simply will not discuss the matter with the service provider, and that the issue is strictly one between the service provider and the customer. Surely, some of the concern is due to a fear of legal repercussions if the investor was to advise the service provider incorrectly regarding the matter. While those fears should not be dismissed out of hand completely, nonetheless the likelihood of such legal repercussions is very likely grossly overestimated and almost certainly not worth the day-to-day headaches occasioned by the failure to comply with the investors' requirements.

In closing, if you are an investor, please be aware that service providers may be able to provide you with solutions to systemic problems you may be having with your business partners in terms of complying with your loan requirements. By taking advantage of those potential solutions, you and your business partner win: you and your business partner can rest confident in the knowledge that the loan being delivered meets your requirements.

Bill Lambropoulos is the General Counsel and Director of Compliance and Legal Services at Document Systems, Inc.