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Breaking the residential mortgage logjam, page 16
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Issue 059
June 2012
TheNicheReport.com
Changing Consumer Needs Answered with TechnologyWith Gen I on our heels, lenders need to commit to more sophisticated practices
10 Bringing Up The RearWells Fargo Bank, Part 2
543616 The New E-sign Challenge: Employee SignaturesKey components to realizing an industry-wide accepted employee e-sign process
FEATURE ARTICLE Breaking the Residential Mortgage Logjam
For Mortgage origination ProFessionals
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CLASSIFIEDSCONTENTS Issue 59 June 2012
PubLIShErS Robert Pegg [email protected]
David Pegg [email protected]
MANAGING EDITOr Stewart Mednick [email protected]
ASSOCIATE EDITOr Cathy Johnson [email protected]
ACCOuNTING MANAGEr Shawna Ingram [email protected]
ADvErTISING DIrECTOr Jessica Grizzle [email protected]
ADvErTISING SALES Hilary Bateman [email protected]
PrODuCTION MANAGEr Henry Suchman [email protected]
PrODuCTION ASSISTANT Dawn Exner [email protected]
CArTOONIST Martin Bradford
COLuMNISTS & CONTrIbuTING AuThOrS Martin Andelman Cathy Blaszyk BJ Bounds Karen Deis William DiPaolo Frank Garay Chris Jones Ralph LoVuolo, Sr. Marc Savitt James H. VanSteenhouse Umesh Verma
ShowtimerALPh LovuOLOsr. president, mortgage motivatorAfter practicing any positive act for any period of time, it eventually becomes part of you.
20
Integration Nationbj bOuNDSsr. marketing communications specialist, calyx softwareAchieving strategic efficiency through technology.
34
Technology-Driven ComplianceuMESh vErMApresident, commerce velocityHow lenders can successfully originate loans without fear of RESPA violations.
23
The New E-sign Challenge: Employee SignaturesWILLIAM DiPAOLOceo, cogent roadKey components to realizing an industry-wide accepted employee e-sign process.
36
DEPArTMENTS
09 FrOM ThE EDITOr'S DESk
41 WhAT'S yOur MOrTGAGE IQ?
30 Shhh ... FrANk & brIAN SPEAk
26 MAN ON ThE hILL
38 kEEPING uP WITh ThE jONES
50 ADvErTISEr DIrECTOry
54 brINGING uP ThE rEAr
PrIME & FhA pg 45
COMMErCIAL pg 45
rEvErSE MOrTGAGE pg 45
hArD MONEy pg 46
juMbO pg 46
MuLTIFAMILy pg 46
SErvICE PrOvIDErS pg 47
16 Breaking the Residential Mortgage Origination LogjamjAMES h. vANSTEENhOuSE
Changing Consumer Needs Answered with TechnologyCAThy bLASzykvice president, lender services la jollaWith Gen I on our heels, lenders need to commit to more sophisticated practices
10
6 June 2012
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With the end of the Second Quarter here, many companies are looking nervously for-ward to the last quarter of production prior to the Presidential Election. Yes, this Coun-try’s economy has improved under our current leadership, but how good is it? Mortgage rates are record low, but is that a true representation of a healthy economy? In 2003, the now historic “Refinance Boom” was spawned from the lowest mortgage rates seen in decades. Hundreds of thousands of homes were refinanced. The need for mortgage brokers was so great that if you had a pulse and could make phone calls, you were making ‘bank.’ Unemployment was low, jobs were abundant, gas prices were low and consumer confidence was strong.
So, nearly ten years later we have lower mortgage rates now, but we also have record foreclosures. We have record vacant residential housing and the rental market is out of control. Supply-and-demand has claimed the rental market with a Vulcan Death Grip. Because unemployment is still high, disposable income as a whole is low, consumer confidence is low, and gas prices are $2.00 per gallon higher than ten years ago.
So two times in history with low mortgage rates, and two completely different economic scenarios.
On top of all that, we are in an election year, which means instead of exerting effort to fix the economy, the partisan government passes blame just in the name of election votes. Promises of a new Xanadu ring sweetly in the public’s ears because we all want good jobs, a nice house, and lower gas prices.
One quarter left to make this all happen before elections. Right.
The housing industry as a whole has supported this country and has brought shame to this country. It has built billion-dollar companies and it has punched holes in Wall Street.
Over the last ten years, there is one thing that has held consistent and true… the Mortgage Professional.
I am not talking about the weekend warrior broker, who now shares a bar tab with the dinosaurs, but the trained, passionate, knowledgeable, and dedicated mortgage professional. I know I originated many types of loans that were given to me as the flavor-of-the-month. We did our job. We rebounded. We do our job still. We have braved regulation, ridicule, down-sizing, and compensation depravity. But if you are reading this col-umn, then you are to be recognized and applauded as a survivor.
Third Quarter is here. Lay-offs and production constraints and election attack ads are the order of the day. But so is Mortgage Professionalism. Bless you all and keep up the great work!
Cheers!
Stewart Mednick
FrOM ThE EDITOr'S DESk
9TheNicheReport.com
MEMBEROfficial
10 June 2012
The demographics and preferences of consumers have changed drastically in
recent years. Mobile devices provide a level of convenience that is expected in every aspect of life. Almost all retail stores sell items directly through their websites, and the propensity for
shopping online does not stop with clothing or electronics, but now includes home loans and closing services.
According to a 2011 October Research study, 95 percent of homebuyers 44 years of age and younger use the Internet to search for homes. Lenders need to cater to technology-savvy consumers by offering online lending solutions. They will find that these tools not only create satisfied customers and customer loyalty, but can be the key to gaining much-needed operational efficiencies and meeting today’s stringent regulatory requirements.
TIME TO CONSIDEr GEN IThe mortgage industry, and every industry for that
matter, currently focuses on meeting the needs of Gen Y
consumers, accommodating their desire for immediacy, expectations for convenience and a high level of comfort with technology. However, we must keep in mind Generation I, individuals who were born after 1994 and are, according to one blog, described as the connected, communicating, computerized, click-all-the-time people. They are already entering college, becoming our economy’s spenders and will be the next wave of homebuyers. Gen I is the first generation born with the Internet; they simply do not know life without it. Not only do they want access to a vast amount of content; they expect information tailored to their personal preferences and unique circumstances. Finally, no surprise here: Gen I members rely more heavily on portable devices than previous generations.
Accustomed to having desired information at their fingertips, Gen I will settle for nothing less when it comes to researching home loan details. Lenders that ignore the need for online lending services risk losing potential customers, especially as a new generation with even higher expectations starts to look at home ownership. More than ever customer experience will translate to a lender’s bottom line. As social media fanatics, Gen I consumers
ChANGING CONSuMEr NEEDS ANSWErED WITh TEChNOLOGy
With Gen I on our heels, lenders need to commit to more sophisticated practices
by CAThy bLASzyk
frequently share their experiences, positive and negative, via status updates on their various social networks – a happy customer with a positive story can spread his or her experience like wildfire. Conversely, lenders that forgo the technology that creates a fast and pleasant home-buying experience also pass up this opportunity.
FINANCIAL LITErACy TO bOOST PErSONAL ShOPPINGIn today’s unpredictable economy, consumers are
willing to take the time to shop around for the best rates available. Despite this affinity for price shopping, a December 2011 poll of 1,300 homebuyers conducted by market research firm Harris Interactive indicated that while 96 percent of Americans regularly comparison shop, only 61 percent did so for mortgages. Although nine out of 10 indicated they knew lenders’ rates vary, they received just one quote before taking out a loan.
Similarly, when it comes to closing service providers, currently the majority of homebuyers defer to their lender’s and/or real estate agent’s suggestions; however, this tendency is likely to change. Many consumers are not aware that they can select closing service providers. Others simply wish to avoid the burden of making the decision themselves. However, consumers are becoming more educated on home buying and closing processes, and therefore feel less overwhelmed and more in control of these decisions. They are also finding they can save money when they shop for and compare service rates. In the near future, Gen I homebuyers will demand access to this information quickly and easily, so lenders must have the resources in place to allow these educated home buyers to conduct their own home loan research and price shop at any time of the day or night.
WhAT bOrrOWErS WANTLenders should not wait for Gen I to mature to adopt
new technology –consumers of all ages already anticipate convenient and customized services. With tight budgets and limited resources, many lenders perceive technology implementations as unrealistic; however, developing a proprietary, in-house system is not necessary. Some industry providers already supply the data, technology and expertise that can enable lenders to deliver sophisticated online solutions that satisfy customers and attract prospective homebuyers, all while improving internal processes.
What exactly do borrowers want from a lender’s online service? They want to visit an easily navigable website that offers user-friendly tools, allowing them to input minimal details and receive information pertinent to them. In addition to shopping for home loans, they want to be able to proceed to the application process. Notoriously lengthy, time-consuming loan applications are no longer acceptable – a borrower overwhelmed by the process will not move forward. But an interactive application that automatically populates fields according to the user’s previously provided information creates a streamlined process. As a consumer moves through the subsequent steps, various systems available today even deliver incentives for continuing, such as discounted closing costs.
Finally, borrowers want the option to stop working and return to the application at any time – day or night. Constantly attached to a mobile device, they also demand access to their application status via a smartphone or tablet. Uploading documents and performing transactions remotely must become the standard for serving the upcoming Gen I population.
FACILITATING COMPLIANCEWhile consumers demand convenient service and
access to information at their fingertips, lenders today require efficiencies and cost savings. In an unstable economic environment, further complicated by regulatory change, technology adoption is placed on the back burner. Fulfilling requirements properly and on time has become more than a task; it is a primary component of lenders’ businesses, forcing them to unfortunately place greater focus on compliance than customer service.
As lenders brace themselves for even more legislative changes down the road, implementing new technology can simultaneously contribute to meeting compliance objectives. Today’s advanced online solutions and data technology are designed to deliver accurate information in
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real time – which means consumers receive correct quotes and lenders reduce the risk of expensive RESPA tolerance violations associated with providing misinformation. These systems take both federal as well as specific regional regulations into account and adapt immediately as changes occur, allowing lenders to truly solve the significant compliance concerns affecting their businesses. They must take advantage of flexible technology to keep up with the constant legislative changes and keep the focus on their business objectives and customers.
FOrWArD ThINkINGForward-thinking lenders better equip themselves
to keep consumers informed, and by providing the information potential borrowers want and the tools to access that data, they can gain more business. Deloitte’s 2008 study, Silver Lining in Lending, indicated that 70 percent of consumers shopped for mortgages online – and that was four years ago. At the same time, lenders using online technology experienced up to an 80 percent reduction in origination costs as compared to traditional methods, not to mention greater confidence in the quality of service provided and customer relationships they developed.
Moving forward, industry professionals and consumers do not want to repeat the mistakes of the past. Prospective borrowers want to arm themselves with all of the facts necessary to make sound financial decisions. Lenders that are ahead of the curve and already taking their processes online are empowering consumers and gaining market share, not to mention positively affecting profitability by completing more loans in a shorter amount of time and reducing overall expenses. Ultimately, improved consumer technology is beneficial for everyone involved – and it does not have to break the bank.
Cathy Blaszyk, CMPS, RMA, is Vice President of Lender Services for ClosingCorp, a real estate information and data services company based in La Jolla, CA. ClosingCorp develops Web products to serve the needs of real estate professionals and consumers, including the SmartClosing Mortgage Calculator, the SmartGFE Service for loan originators and Closing.com. Blaszyk has spent two decades in the mortgage banking industry, representing direct lenders such as Bank of America and CitiMortgage, as well as serving as a mortgage broker.
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Breaking the Residential Mortgage Origination Logjam
by jAMES h vANSTEENhOuSE
It has been nearly five years since the housing market bubble burst, and a vigorous recovery has yet to take hold. Yet the culprit is not, and has not been for some
time, the affordability of mortgage loans. In fact, Freddie Mac, the government-guaranteed source of much of the mortgage lending pool, reported in early May of 2012 that the average 30-year fixed mortgage rate (3.84%), the 15-year fixed rate (3.07%), and the one-year adjustable mortgage rate (2.70%) were all at record lows.
But even though record-low mortgage rates mean banks are seeing stronger demand for home loans, those banks are not loosening their tight credit requirements, according to the Federal Reserve's April 2012 survey of senior loan officers at more than 80 selected banks around the country. The survey found more than 90% of the bank respondents made basically no change during the three previous months in their credit standards for prime home borrowers – those who have relatively high credit scores and well-documented financial statements. And for nontraditional residential loans, which include interest-only mortgages and "alt-A" products with limited income verification, credit standards had tightened.
What we have here, in the classic line from the movie Cool Hand Luke, is failure to communicate. If money is available to lend, why are lenders tightening their loan standards even for creditworthy borrowers? The answer goes to the heart of what today’s housing market really needs to recover. It’s time to break the mortgage lending logjam by de-emphasizing the dominance that the largest commercial banks have taken in the residential mortgage origination market, and give more weight to the institutions that stand ready to lend: community mortgage bankers who know their borrowers and stand prepared to lend to them.
MOrTGAGE brOkErS AND MOrTGAGE bANkErSTo demonstrate why this is so, begin by considering the
basics. Mortgage bankers close and fund loans arranged by mortgage brokers, and purchase loans originated by other mortgage bankers. Mortgage bankers also often originate loans through their own loan-origination employees, informing applicants about available loan products and working with them through the lending process. In each of these scenarios, mortgage bankers fund the loan transaction with their own funds, or funds they borrow using lines of credit. Likewise, the mortgage banker is responsible for underwriting the loan and, correspondingly,
has a significant financial stake in a loan’s subsequent performance.
It’s an arrangement that has benefitted the housing market for decades. Unfortunately, in the overheated lending environment that led to the market collapse, the role of the mortgage banker became secondary in the minds of many – consumers and financial professionals – to the role of the mortgage broker. Brokers are intermediaries between the applicant and mortgage bankers, theoretically giving their customers access to a wide range of loan choices. Unfortunately, as many fixated on the subprime borrowers and “no doc” loans to applicants with a high credit score, credit quality dried up and the entire mortgage industry, bankers and brokers, were seemingly tarred with the same brush of irresponsible tactics.
The result was the dropping of a regulatory hammer symbolized by the Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act). It established nationwide continuing education (CE) and testing, and mandated that the states license mortgage loan originators employed by mortgage bankers and brokers; however, mortgage loan originators employed by federally regulated banking institutions were exempted from these requirements.
ThE uNEvEN PLAyING FIELDMortgage loan originator licensing required by the
SAFE Act was intended to weed out the “bad apples” – and rightfully so. During the past three years just 66% of the loan originators taking the national test for the first time passed; slightly over 80% subsequently pass – obviously, it’s a tough test. But mortgage loan originators employed by the tier-one national banks are not required to take the test.
That dominance has been amply documented. In the first quarter of 2012 the four largest commercial banks with mortgage lending divisions – Wells Fargo, JP Morgan Chase, U.S. Bancorp and Bank of America – accounted for nearly 54% of the residential mortgage market. Yet these are the same banks that have tightened lending standards and face numerous problems of their own:
• A$26billionsettlementpaidnationwide,asforced by the attorneys general of 49 states, to settle allegations of “robosigning” in home loan foreclosures.
TheNicheReport.com 17
• A16-monthsupplyofbank-owned inventory in unsold homes, which is sure to rise as foreclosures that had been on hold are moved ahead in the wake of the state settlements.
And on the horizon, a global regulatory framework, Basel III, calls for the banks to greatly increase their capital reserves at a time when they should be lending.
ThE MOrTGAGE bANkEr’S STrENGThS
This is a market problem that simply shouldn’t exist. It’s a basic fact that in today’s financial marketplace, mortgage lending is profitable. Interest rates on new U.S. home loans are higher than yields on the mortgage securities they are typically packaged into. The gap between the cost of 30-year loans and benchmark Fannie Mae yields, a measure of lenders’ profit margins called the primary-secondary spread, had widened by early May of 2012 to about 0.96 percentage point, compared with a 10-year low of negative 0.12 percentage point in June 2007, according to data compiled by Bloomberg News. The spread peaked at 1.66 percentage points in December 2008, as conditions were collapsing.
That brings us back to the strengths of the mortgage banker. Unlike large commercial lenders, independent mortgage banks typically do not have a big backlog of real-estate-owned to sell. Because they know their communities and borrowers, these lenders are committed to helping close home sales that are at fair market value to benefit the industry and the homeowner.
Mortgage bankers’ financial successes are linked to loan performance, giving them a stake in borrowers’ ongoing ability to repay their loans. Mortgage bankers
are financially motivated to make loans that make sense. Mortgage banker revenue can come from multiple revenue streams associated with managing various risks throughout the life of a loan, including the risk that the borrower defaults. Whether they hold loans or sell them to investors, mortgage bankers generally lose money when loans default. As a result, mortgage bankers have a greater interest in ensuring that borrowers choose products that
will give them long-term financial success.
This distinction is crucial. A local mortgage
banker has a direct stake in earning income over the life
of the mortgage. The mortgage broker’s incentive lies in upfront
fees; the large commercial bank’s incentive lies in earning income on the
spread between the yield on mortgage-backed securities and mortgage rates (currently more than twice the norm). Neither of these incentives serves the best interest of the homebuyer, and until the homebuyer receives help at the lender level the market will not recover.
The housing market crisis did not develop overnight, and it will not be solved overnight. Those of us in the financial industry know there is still more to do to restore market confidence. But the financing foundation for a recovery exists. Community mortgage bankers should be encouraged to build on that foundation, to benefit the housing industry and the country.
James H. VanSteenhouse is Manager and CEO of InterLinc Mortgage, one of the fastest growing mortgage companies in the industry. www.interlincmortgage.com
18 June 2012
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If you haven't seen the movie, "All That Jazz," you should rent this movie from your local video
store. This is a movie that has, as a subtle yet integral message, a lesson that we all should learn. The star of the movie, Roy Scheider, who plays the part of Bob Fosse, a Broadway director, choreographer and well-known
raconteur, teaches the lesson. Apparently Bob Fosse had a habit that became a part of his life, that we should make a part of ours. The movie contains scenes where the lead actor uses two specific words constantly. These two words teach us a principle that should be applied to our lives as mortgage representatives. I promise you, it is a part of my life.
One of the basic principles taught by every motivational teacher since the idea of "secrets of sales success" was first thought of is to be upbeat and hide your personal and business problems. Your clients, both potential and actual, don't want to listen to you whine, don't want to hear you complain, don't want to be brought
down by your problems. They want to do business with successful, upbeat and interesting people. So – you must create that image, no matter what is going on in your life. Your clients don't care to hear about the flat tire you had, the difficulty you're having with your children, mother, father, sister, brother, aunt, uncle, cousin. They want you to help them be successful, and your responsibility is to be sure to get clients approved for their mortgage. Those people who are best able to help others be successful exude the image of "Success."
While watching this movie, one activity that took place struck me as so very important that I have used it repeatedly. This activity, a physical expression of a psychological event, showed that regardless of what was going on in Bob Fosse's life, no matter what outside influences might be affecting his life, he had to go "on stage." He had to go "on stage" as an actor – as a dancer – lover – father – boss – promoter – loan officer.
When he went "on stage" he was no longer the same person who had been in the wings of the theater stage. In the wings, he was merely a man – a man who had so much evil chasing him trying to influence his life, evil that
ShOWTIMEAfter practicing any positive act for any period of time,
it eventually becomes a part of you
by rALPh LovuOLO
20 June 2012
NicheReportAd.indd 1 9/13/11 4:08:42 PM
created more problems than he could count. But when he went "on stage" he had a part that he had to sell to the audience that evening. He needed the audience to buy his act. He wanted the audience to give him a standing ovation. He waited for the "BRAVO" in order to take his bows. He was a perfect actor.
Before he went on stage, he checked himself in the mirror, primped, pinched his cheeks, slicked his hair, checked his clothes, shoes and teeth, snapped his fingers and said "Show Time." It was more than just a physical act; it was a way of putting his mind in a certain place, a place that was positive, free of problems, cares, and any influence from the devils in his mind. It helped create a mindset, clear his mind of any negatives and be ready to sell himself. This is an action I’ve taken for the last 40 years, when going on a sales call. I physically snap my fingers and say the words "Show Time" just before I get out of my car.
Mortgage representatives should make it a part of their routine especially when they go on a sales call. In fact, if you can discipline yourself enough, try the "Show Time" routine whenever you need to enter into any conversation.
Therapists will tell you that after practicing any positive act for any period of time, it eventually becomes a part of you.
Ralph LoVuolo, Sr. President, Mortgage Motivator, a consulting firm on the cutting edge of the mortgage business to help people achieve their true potential. LoVuolo Sr. is one of the founding fathers and a two-term president of the New York Association of Mortgage Brokers. Additionally, he served as Parliamentarian for six years on the Board of Directors of the National Association of Mortgage Brokers. LoVuolo, Sr. can be reached at [email protected], or visit him at http://www.mortgagemotivator.com.
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Whether you’re a large lender with billions of dollars in assets or a small, local lending institution, you are feeling the impact of
compliance requirements on your business. As the regulatory environment continues to evolve into one of “zero tolerance,” the threat of loan repurchase requests has lenders carefully evaluating their compliance capabilities.
When it comes to loan repurchase requests, the primary regulatory drivers are RESPA, MDIA and TILA, and violation of these (or any other disclosure agreement) can effectively void a loan. In the past it was the investor kicking back loans for repurchase, now it is the borrower. As an example, more and more lenders are hearing from borrowers, “My house is underwater and I received the disclosure, but you funded my loan prior to the seven-day rescission period.” The loan is still funded, yet the borrower now can claim a MDIA violation of an improperly executed document —leading to a loan repurchase. Once a loan is closed, there is no retroactive
option for correcting the compliance violation.
WhErE IT bEGINSThe roots of a compliance volition can be traced to
any number of processes or material changes that occur during the loan origination cycle -- depending on how an originator handles compliance verification. If, for example, there is an increase in the loan amount, a rate change due to a lock expiring or any undisclosed debt that increases the DTI late in the process, an additional disclosure must be sent to the borrower. Even if the borrower has seen the revised disclosure, the seven-day rescission period still applies and, if the lender funds the loan without the proper validation of the seven-day period, they now have a compliance violation, increasing their repurchase risk. It’s an issue of human error that is easily solved by employing the right technology which enforces policies and procedures. Furthermore, using validation rules as a form of checks and balances, prevents lenders from facing this problem in the eleventh hour
TEChNOLOGy-DrIvEN COMPLIANCEHow lenders, regardless of size, can successfully originate loans
without fear of respa violations
by uMESh vErMA
of the origination process and reduces performing loan repurchase risk.
Lenders will tell you that the “disclosure obstacle” and failure to comply are the primary causes behind many repurchase requests. From a loan quality standpoint, non-compliant procedures reduce the overall profit margins and shareholder value and are extremely costly to institutions. The end result is either for the lender to take a penalty on the overall value of the loan, or to repurchase and carry the loan on its balance sheet. The pervasive issue of distressed properties is doing enough damage to lenders without the added internal risk associated with non-compliance. Rather than trying to find the right balance between over- and under-compliance, having an effective and preventative solution in place to manage the process is a more reliable deterrent.
PrEvENTATIvE MEASurESThe integration of a solution will not have the desired
positive effect if the data a lender is managing does not fit into a workflow system with business rules and enforced policies in place. The data itself must integrate with the system for validation and identification of any issues. As many LOS vendors are performing integrations, they are simply providing a link to a report, but there still needs to be someone who can view that report and decide what action needs to be taken based on the results. There needs to be an industry-wide elimination of what can be called a “stare and compare”, where underwriters and processors are examining multiple reports outside of their systems to interpret and make a decision. Ideally, data should pass through a workflow with analytics enforcing hard stops using business rules that won’t allow the loan to progress if there is a violation of any business policy or regulatory requirement.– The key is to identify and prevent an issue
before it can balloon into a costly problem down the road.
The ability for a lender to continue utilizing its proprietary workflow without changing their business process to fit a vendor’s fixed generic workflow is more pragmatic and cost effective in both the short- and long-term. Solutions should adapt to the customer, taking a lender’s processes and making a system fit around it, while providing controls and rules for MDIA, RESPA, TILA, and the host of other regulatory programs, regardless of retail, wholesale or correspondent channel. As institutions become more and more focused on cost-containment, a significant source of expenses can be greatly reduced by effectively applying a solution that reduces human error through hard stops, automated workflow, analytics and business rules. The loan origination process is one in which there is virtually no way to ensure that every step is completed correctly in every instance unless the system in place is prepared and well-equipped to handle it. We have seen it succeed in other consumer areas --much like a report can be issued in auto lending in the form of a “CarFax,” providing a history of the car, a well-developed LOS with validation rules and process controls should offer a “LoanFax,” where a lender and investor are provided a snapshot of every material change on a loan; reporting every instance of who, when and what changed on each specific loan.
ONE SIzE ShOuLD FIT ALLLOS technology can be a lender’s most effective tool
in mitigating non-compliance risk associated with the varying degrees of regulation. The enacted compliance rules from Dodd Frank, and newly enacted agencies to enforce them, do not give special consideration for lenders, big or small. Compliance is the biggest obstacle, so there should be equal accessibility to an LOS capable of originating and processing quality loans. Lenders can have multiple channels or system limitations, which depend on several platforms and often have difficulty in maintaining compliance across the enterprise. Disjointed solutions with disparate databases shift control from the lender, causing it to lose top-down enforcement and visibility throughout the process. Conversely, for community banks, which often fall in the “too small to comply” segment, managing compliance proves challenging as well, given the considerably lower number of loans they process. A bank in this situation often needs to employ a compliance
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team, as well as a technology infrastructure that includes testing sites, development sites, 3rd party integrations and a system implementation team. . An ideal LOS should have all of these components built into it, saving operating costs and maintaining compliance, while offering the flexibility for the business user to make changes quickly.
The fluctuating and unpredictable nature of the mortgage industry has forced many lenders to reevaluate their current technology. By selecting a solution that provides the flexibility to make changes quickly, they are able to reduce vendor costs and dependency and remain compliant with the evolving regulatory challenges. In addition to managing expenses along with the decreasing origination margins, lenders require different pricing models for solutions in today’s market. Failed implementations, or systems requiring never ending customizations in the “pay-per- user license” front loaded model can no longer be the status quo Lenders want to avoid paying a large amount upfront and sharing the implementation risk with their vendor, Just as the different regulatory programs have effectively evened the playing field for lenders of all sizes; a proper LOS solution should provide equal opportunity in terms of compliance and deployment for financial institutions as a whole. For any lender, smaller or large, the “pay-per-license” process can be inefficient and costly, driving vendors to create a “per-closed- loan” option. Additionally, not all originators have the resources or technology to develop and maintain policies and procedures to ensure that they stay compliant. A solution should provide a flexible model that does not require a lender to conform to a standardized workflow or to be dependent on the vendor for any changes, but still allows for unique or institution-specific business processes within an existing system the lender can develop or change on the fly. Some lenders may want a solution installed behind their firewall, but want to enjoy the advantages of the per closed loan pricing model, and other lenders may go for the licensed pricing – so a shared risk pricing model needs to offer something for everyone.
MOvING FOrWArD…Loan quality and data integrity are the primary factors
when dealing with loan repurchase requests. Identifying the problem at the source, pre funding, is the only way to truly avoid a single drop poisoning the entire body and ensure the validity of a loan. Lenders should not be focused on structuring processes around a solution;
instead, the solution should integrate and work with whichever strategies an institution is using. Neither should the size of the lender exclude it from the accessibility of a solution, as compliance for all lenders in 2012 is necessary and should be as accessible as possible. Processing a mortgage is not an easy task, but it should not result in additional work on the back-end once the process has been completed. A diverse system that provides the ability to create workflow business rules, hard stops and analytics with a high level of integration, regardless of channel, will be the deciding factor in identifying only qualified loans and vetting compliance for a functioning LOS. This will allow the lender to focus on loans that need review, while the higher quality loans, validated with business rules, analytics and automated workflow, flow through the origination process.
By Umesh Verma, President, Commerce Velocity
hOW WE SEE IT
How many times have we heard that news rules and regulations were being
imposed because consumers were confused? This worn-out, consumer-group talking point has caused more harm to consumers than all the supposed unscrupulous loan
originators combined. Let’s look at some recent history. In 2009, the secret
society of regulators, also known as the Federal Reserve Board, proposed a rule to eliminate “consumer confusion and steering” in the home loan process. They claimed their rule was justified, based on consumer testing and anecdotal evidence from consumer groups. As a result, the “LO Comp Rule” was implemented, after a failed legal action by industry and over the objection of the SBA office of Advocacy.
There’s an old saying in Washington, “Perception is reality.” This is another way of saying, “If you tell a lie long enough, you’ll start to believe it yourself.”
In short, the FRB’s “studies” were ridiculously
ArE CONSuMErS rEALLy CONFuSED?
by MArC SAvITT
flawed, and allowing their use is tantamount to deceptive practices by the FRB. One study was actually a survey conducted by the AARP. Just over 1,000 homeowners 65 years of age or older were phoned and asked questions about their home financing. At no time did the AARP ever examine a single loan file from any of the 1,008 participants. If that’s not bad enough, AARP couldn’t reach a conclusion, and called the survey incomplete.
Even more deceptive was the FRB’s justification for excluding numerous independent studies that clearly showed the rule was unnecessary. One of those studies was completed by a former Georgetown University professor, who is now employed by the FRB.
As far as the anecdotal evidence concocted by consumer groups, you would think the FRB would require real evidence, instead of “story time.”
The latest attempt to eliminate “consumer confusion and steering” in the loan origination process was released by the CFPB on May 9, 2012. I thought the LO Comp Rule and the GFE 2010 took care of that? How could consumers still be confused after all this?
In the interest of full disclosure, the CFPB appears to have attempted to address some of the concerns in our
26 June 2012
industry. However, the rule itself, as well as section 1403 of the Dodd-Frank Act, actually creates consumer confusion instead of eliminating it.
On page one of the May 9th outline, the very first paragraph reads: “Compensation practices for mortgage loan originators (MLOs) such as loan officers and mortgage brokers can create incentives and confusion that lead to consumer harm.” If you’re ready to scream, you’re not alone. They keep using the same old, unjustified, worn-out talking points from 15 years ago. Remember, what I said above? If you tell a lie long enough, you start to believe it.
If this is really about consumer protection, then why aren’t ALL mortgage loan originators LICENSED? Why aren’t banks following the same rules and regulations as brokers? Since 1992, brokers were required to disclose yield spread premiums (RIP YSP), which are now prohibited under LO Comp and Dodd-Frank. Regulators claim “dual compensation” is unfair and deceptive, UNLESS you’re a bank who doesn’t disclose it. Let’s make this clearer for all the confused consumers. Brokers, who always disclosed this form of compensation, can no longer receive it. However, the banks who NEVER disclosed it can continue to receive it, because you don’t know about it. In my opinion, brokers are victims of their own disclosure.
The CFPB continues to talk about a level playing field and competition. I’m all for it. They should start with eliminating many of the harmful, confusing and unjustified rules they inherited. The first rule that needs to go is “Appraiser Independence,” formerly known as HVCC. This is one of the most harmful, economically damaging rules I’ve ever seen. It was designed to get Cuomo elected Governor and make the banks a lot of money…PERIOD! Next up should be originator compensation. The current rule(s) are clearly excessive. Instead of regulation by “trial and error,” perhaps we should adopt time-tested regulations used by some of the states.
I’m still hopeful the CFPB will correct the mistakes made by past regulators. The new GFE/TIL, which currently is in development, should be given a chance to work before other regulations are enacted. Moreover, Congress needs to amend certain sections of Dodd-Frank to allow the CFPB more time to get it right.
Although I do believe some consumers were
genuinely confused by the mortgage process, it probably had something to do with the mountain of disclosures mandated by Washington. Other consumers were conveniently confused. After 31 years in the mortgage financing industry, I believe we should give consumers credit for having intelligence and regulate accordingly.
Lastly, with every new onerous rule and regulation imposed on mortgage brokers, originators and appraisers, we continue to warn Congress of our extinction. Although this is a real concern and has been proven true for many, I believe we need to take a different approach. All too often, members of Congress turn a deaf ear to our situation. I suggest we make this about their jobs, not ours. The House of Representatives is up for election every two years. Many of these localized races are won or lost on less than a 1,000 votes. As Main Street, small business housing professionals, we hold significant power that could decide an election.
NAIHP is going to ask all 435 Members of the House and 100 Senators to sign a pledge to support an amendment that allows LICENSED brokers and originators to order residential appraisals from LICENSED appraisers. In addition, the pledge will include our amendment to the LO Comp Rule and similar language in Dodd-Frank, which will limit the fee restrictions to high-cost mortgages. Prime and government loans were never the problem.
If a legislator fails to sign the pledge by the due date, local housing professionals should ask their opponents to support us. Remember, many elections are decided by less than 1,000 votes. If every broker, originator, appraiser, real estate agent, title agent, their staff and all their families voted in support of those who support us, we could shape our own future. The banks may have the money to buy influence, but we are the organized votes.
Marc Savitt is the President of the National Association of Independent Housing Professionals. Previously, he served as the 2008-2009 President of the National Association of Mortgage Brokers. He also held the positions of NAMB’s President-elect, Vice President, Director, Chairman and Founder of the Consumer Protection Committee, and was awarded NAMB’s highest honor, Broker of the Year.
28 June 2012
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Here goes... I'm going to say it. I hate this word that I'm about to say, but I have to do it. The reason I hate it so much is because it's so played out in
our industry. At any rate, here it is – Facebook. Yuk. I’m so tired of hearing that word. But you know what? We need to dive into this crap and figure out how to use it to make some stinking money. There are so many companies out there ready to grab your credit card and promise you the world. A lot of us jump on it because we don't get it, don't want to get it or we're just lazy and don't want to put any effort into it. I say don't do it. Don't break out that credit card just yet. There's an easy way to do this thing and it works, but it does take a little effort – not much mind you, just a little. In fact if you can sit on your rear while drinking a cocktail in front of the television, congratulations! You're qualified to make money with Facebook!
Here's the deal. You have to work this site. Why? Because everybody lives there now. Did you hear me? I said EVERYBODY lives there now. In fact, not only do they live there, but they want you to show up and play with them there. They not only want you to show up, but they want to show you everything that's going on in their lives.
ThE uLTIMATE COCkTAIL PArTy
by FrANk GArAy
They want to tell you about every single little thing that they like, and every single little thing that they hate. They want to show you what clothes they like, what restaurants they frequent, what stores they shop at, what television shows they watch – EVERYTHING!
Want to make someone like you? Talk to them about something they like. Don't believe me? Try it. There's a guy that works in the office space a few doors down from us that always comes and visits for no apparent reason other than to suck the life out of us with useless conversation about stuff that I absolutely do NOT give a crap about. I don't care for him. I don't hate him, I just don't care for his company. Okay... he's irritating and he drives me freaking crazy! Are you feeling me? Anyway, one day he comes over and sees a guitar in the corner of the studio. It's mine, I'm a guitar player (or, at least I used to be). So he picks it up and says, “I don't play, but I'm trying to talk my wife into letting me buy a Gibson Les Paul.” The next thing you know I'm in a 45-minute conversation with the little life sucker about guitars. Eww... I almost felt dirty afterwards.
So think about the recon you can accomplish by being someone's friend on Facebook. Heck, you even get to see
30 June 2012
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who their other friends are for goodness sake! This type of personal recon is so valuable if you know how to use it, which of course I will show you. Ready? Here goes....
Step one:Go home. Easy – yes?
Step two:Deal with all the stuff you usually deal with when you get home. Kiss the spouse, hug the kids, pet the dog, eat dinner, watch the latest episode of Days of our Lives (did I type that out loud?), whatever. Easy – yes?
Step three:Pour yourself a glass of your favorite beverage. If you need help in this area, I recommend a nice Irish Whisky. Easy – yes?
Step four:Grab your laptop and sit on your ass. Easy – yes?
Step five:Log on to Facebook. Still easy... yes?
Okay, I've got you all set to go. I'm so excited... my heart's beating so fast right now.... Okay, so now what you do is you look over to the right. Way over to the right on
Facebook you'll see which of your friends are currently “on-line.” You'll see some people you know, and if you're like any other typical mortgage or real estate person you'll see people you don't know. Those would be the people whose friend requests you accepted because you're hoping they will magically want to do business with you. Well, magic time is over, we're going to get that business. On a side note, the average person on FB has 150 friends. But what we've learned is that the average mortgage or real estate person has 450. Anyway, here's what you do next:
Find someone over there that you don't know, one of those people you're hoping will magically do business with you for some reason. Now go to their profile page, and learn something about them. If you click on “info” or “about” you'll see who they work for, what schools they attended, what music they like, all kinds of stuff. More importantly you can click on their friends and see your “mutual friends.” So now click on that person’s name over on the right so you can actually “live chat” him or her. Yes, that's what I said, “live chat” them. You're a sales person remember? We actually need to talk to people and let them know what we do – that's our job, right? But don't panic! Remain calm! You're safe! You're only “chatting” through a social site. You're not actually face to face, so you still have your “I'm afraid to talk to people” buffer zone in place.
Say something like this: “Hey, I see we're mutual friends with [insert mutual friend name here... preferably a mutual friend that you actually DO know], how do you know him/her?” Then the magic starts. He or she may actually respond to you, and if that happens, you've got yourself a little conversation going. After they reply back – and it doesn't matter how they reply back, just keep the conversation going – make sure you drop the good ol' “So I see you work at [insert where they work], how's work treating you?” Or something to that effect – these are concepts, guys, work with me here. They will answer you and more than likely ask you in turn “what do you do?” BINGO! That's what we're looking for! And if they don't ask what you do – tell them. Say something like: “I'm one of those big bad mortgage guys, but things are going pretty well for me right now” (please stay positive here.... please).
Now you're having a conversation about what you do. I'm sure I don't have to tell you too much more from this point, right? You can work it from here, right? Of course you can – YOU ARE A SALESPERSON! See, you want to treat FB like a cocktail party. In fact... while you're sitting on your rear with your favorite beverage, you could be chatting it up
with two, three, four people at one time! You're just mingling and getting to know people. If you were at a physical “mixer” would you stand in a corner and just watch people? No, you'd mingle. Treat Facebook that way. Treat it like your own little cocktail party a few nights a week and I guarantee you'll get business and actually make money from Facebook without spending a dime doing it. Easy, yes?
So now I want you to consider how you treat these new leads. When you're talking with a new lead, don't just get phone numbers, emails and addresses – ask if you can friend them on Facebook. Because let's say that lead doesn't convert today. Let me ask you this, what's going to have more impact on a person – sending stuff out via email to them, or actually “chatting” with them? I'm not saying don't email them! Of course you do that. But now you can actually chat them up a little bit and have a really good chance at getting their business and referrals – agreed?
We shared this tip on the TBWS Daily Show a couple years ago. A few months after we shared the tip we were at an event that we put on in Los Angles. A guy comes up to me and says “Hey, remember that Facebook tip you shared on the Daily?” I say “yeah.” He goes on to say that he's
getting a bunch of business from it. He said the first night he did it he got an app and three or four appointments. So this stuff works guys! Just do it, it's so freaking easy.
Now... I said to do this little exercise with someone you don't know, but you can do this with people you do know as well, right? Sure you can, just start talking about “work” and you're off to the races. Look at you! You're networking and socializing with a cocktail in your hand from the comfort of your own living room! It really doesn't get any easier than that. Geez... now all you have to do is buy Real Estate Marbles Premium to really take advantage of Facebook – but that's another article, and it does cost money. At any rate, have an awesome day, and uh.... don't be a stranger, chat us up on Facebook.
Thinkbigworksmall.com (TBWS) was founded in 2007 by a group of highly successful real estate and mortgage industry entrepreneurs. Born in the most battered market in the real estate and mortgage industry’s history, Thinkbigworksmall.com was conceived after decades of observing how the most successful professionals always seem to work smarter, not harder. Frank & Brian can be reached at [email protected]
A quick search on Amazon.com for books on “business efficiency” yields over 10,000
results. Now if your search is more specific for the mortgage industry, you get a few white papers that may or may not be relevant. My point is that in an industry as heavily
regulated as the mortgage industry, most “get efficient” tips do not apply. The government regulates much of what you do in your business, so you must strategize your efficiency effectively in other areas. However, if you really want to get more efficient with the actual loan completion process, you only need to look as far as the technology you use.
So many of us use just the basics of the software we have for our business. I can write articles and blog posts all day long on Microsoft Word, but I know there are so many other cool and interesting tools that I’m not using. It’s true that some software programs have many
whistles and bells that I will never need, but I also know that there are some features I’m not using that could make my life so much easier. The same is true for your LOS. For example, if you are not a mortgage banker, you may not need the banking screens, but they’re there for everyone to use. However, there are some built-in features designed specifically to make you more efficient and save you tons of time.
GET STArTED rIGhTAfter marketing, the next main step you can
economize with is your application process. Websites are cheap. Make sure you have one! Then begin the integration. Tie in your LOS with your website. It’s going to make a huge difference in the application process. Your borrowers will appreciate being able to apply online and you’ll appreciate not having to rekey their data into your LOS later. It saves time and effort for everybody involved in the process.
If you’re hesitant to enable online applications
INTEGrATION NATION Achieving strategic efficiency through technology
by bj bOuNDS
34 June 2012
because of the three-day disclosure rule, all you have to do is limit the allowable fields on the initial application. Limiting the fields ensures that the three-day rule doesn’t trigger until you’re ready to move forward. It gives you time to contact the applicant and begin the relationship building. Starting efficiencies by having the integrated systems in the beginning makes the next steps in the process more streamlined.
SET uP FOr SuCCESSOne helpful feature that will save you infinite time
and frustration can be found in your utilities menu. From there you can set up all of your company, vendor and user defaults. Once you have taken the time to set up your defaults, your files, documents, and processes will help pre-populate screens and make your process flow smoothly.
With your LOS, you can set up company information, user contact and licensing information, stacking order for documents going out to investors, vendors, and data tables such as escrow or title tables. If you’re typing in these items with every single file, you are wasting your valuable time and leaving room for errors that must be fixed. Technology for the mortgage industry exists to automate and streamline an otherwise complicated process, but it becomes cumbersome if you don’t allow it to do what it’s designed to do.
CLICk vS TyPEYour LOS is designed to take the burden of time
and effort off your shoulders, so, like Microsoft Word, it has many built-in features designed just for that. One of the most important and often overlooked, features of an LOS is the large network of vendors that are interfaced directly through the system. What this means to you is that you no longer need to key in all of the borrower data every time you need to order documents, surveys, appraisals, etc. Even pricing is available at the click of a mouse.
Vendor interfaces through your LOS will save you so much time and will greatly lessen any chances of typing errors. If you already have an account with service or product vendors, chances are they are already interfaced with your LOS and you can simply order them directly through each borrower file. Can you imagine everything you can do with the free time you’ll gain doing that? Plus, anything you order from your LOS is delivered right back into that file’s document management sector.
You just can’t get that type of efficiency by skirting your technology!
LEArN IT TO LIvE ITYour LOS should not be the clunky software
package that you only use for taking applications. It can be so much more, and it can streamline your mortgage processes in different ways. Integrating your operations from beginning to end and through all the points in between can simplify your business and save you time. If you need assistance, take advantage of the services of industry professionals who can get you set up and going quickly, and gain valuable insider knowledge along the way.
Take the time to attend every free online class you can get with your software - you can learn all you need to know about the most effective uses of your system through these classes. Get the tips, the tricks, and the advice from experts. With all the time you save by integrating your systems such as web and vendor interfaces, you could spend more efforts on marketing to build your business!
B.J. Bounds is the Sr. Marketing Communications Specialist for Calyx Software. In addition to media relations and copywriting, BJ is a contributing author to the Calyx Software blog, CalyxCorner. She has over 12 years experience in sales and corporate marketing with a focus on technology that spans several industries. For more information on Calyx Software, contact 800-362-2599 or visit www.calyxsoftware.com or www.calyxcorner.com.
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As the mortgage lending industry continues to seek the optimum paperless
(digital) loan system, a relatively new issue has surfaced. How can lenders streamline and create a more effective loan application process that will allow their employees to
sign documents electronically?While it has long been accepted that borrowers can
sign loan documents electronically, more lenders have started to realize the advantage of their loan officers, underwriters and others also doing so. It seems such a simple step, yet it is clear that no standard protocol currently exists for tracking and auditing employee e-signatures.
However, I and others involved in the mortgage lending profession are adamant that with the appropriate collaborative effort among lenders, technology providers, investors and others, we can achieve this critical goal.
ThE OPPOrTuNITyThere is a significant benefit for all parties involved in
the loan transaction to e-sign documents, thus avoiding the inconsistency of borrowers providing a digital signature and the loan officer signing in ink.
Consider the current loan transaction experience. Loan documents are prepared and one or more borrowers review and sign them electronically. Hard copies of all appropriate documents are then printed so that the originator can sign in ink, and everything is scanned and combined as revised docs in the electronic file for review/approval.
This is a very inefficient and cumbersome system, but it is what we have become accustomed to. In addition, the current lack of employee signature standards doesn’t offer investors consistent means of ensuring the loan officer signatures haven’t been “rubber stamped” or to connect signatures to the employee who actually worked on the file.
Having everyone sign electronically will provide a much more efficient, trackable system and ultimately a major step forward in developing fully digital closing
ThE NEW E-SIGN ChALLENGE: EMPLOyEE SIGNATurES
There are several key components to realizing an industry-wide accepted employee e-sign process
by WILLIAM DiPAOLO
36 June 2012
packages. In addition, the enhanced e-sign function will better enable investors to match the signatures to those who work on the loan, so that should a compliance, fraud or related issue arise, the responsible parties can be easily identified.
ThE ChALLENGEBased on my discussions with various lenders and
others in the industry, it is obvious that this is unfamiliar territory. There has not been sufficient review and discussion to bring the issue to the forefront. Many lenders are more comfortable with the current system because they aren’t aware of the options.
What is the main obstacle to what appears to be a perfectly good concept? The primary roadblock is a lack of technology standards by which loan officers can sign electronically. Investors must be confident that there is a uniform approach; that the signing is done in the correct way every time; and of course, that the person(s) signing is actually the one who coordinated the loan package.
During the last 15 years, technology providers have developed myriad systems to support the digital loan origination process; but there has been little consistency in the ways of addressing employee e-signing standards, such as records review and signature verification, that would ensure a failsafe audit trail. In some cases, too much information is required and in other instances, not enough data is obtained.
There must be full-feature technology that will facilitate better auditing, tracking, reporting and compliance. Only then will lenders have a more visible footprint of how the loan package travels through the system and to demonstrate they have done their due diligence regarding document preparation.
SOLuTIONThere are several key components to realizing an
industry-wide accepted employee e-sign process. First, lenders must have a greater understanding of the concept and be willing to do whatever is necessary to help reach this milestone. From my recent review and discussions I believe we are getting closer to this, but we still have more to do.
Of course, technology providers must arrive at the best possible system. The agreed-upon reporting and capture standards must be embedded in every application.
To reach that point, we need a consensus on what is necessary. I believe that lending industry conferences are an ideal way to generate discussion, provide specifics on what
is required and help map out an action plan. This type of
forum would be a proactive, joint collaboration of lenders,
investors and tech providers to develop the best possible
process.
The “Employee-E Signature Capability” should be on
the agenda of at least a few of the next regional and national
trade association meetings. Lenders can share their specific
requirements, investors can provide their insights, and
technology company leaders can obtain feedback on how to
create the most workable, feature-rich programs.
I have always been impressed at the results when
different entities come together to develop a solution to a
mutually beneficial application. This definitely is one of
those “calls to action.”
William DiPaolo is CEO of Cogent Road, a provider of
enterprise-wide, cloud applications for the mortgage industry,
www.cogentroad.com.
hOW WE SEE IT
TheNicheReport.com 37
Let me be as clear about this as I can: Spain and Greece are showing us what the U.S.
future looks like in the real-estate and mortgage industry. The road we are on leads us, lemming-like, to exactly the same outcomes we are seeing in Europe on the nightly news. Meanwhile, Tim Geithner and the assorted gurus
in Washington tell us they are doing the best they can to resurrect the housing market.
I’m afraid they are. But if so, it’s time for some new gurus. I want to outline briefly what they’re missing, and why it’s going to get very, very black here before long, unless something drastic is done.
Innovation is the lifeblood of industry. There are countless examples, but we can go with just one: Apple Computer. Some of us are old enough to remember the Apple IIe, precursor to the Macintosh (long before it became the Mac). Apple, in its beginnings, was an innovative computer company. Their computers weren’t fantastically versatile – my IBM 8088 was far more useful than my
hOW TO STrANGLE WhAT yOu MEAN TO SAvE
It’s almost never the big fellows that make the real leaps in technology and efficiency.
by ChrIS jONES
roommate’s Macintosh, when we were in college – but they were elegant and what they did they did brilliantly. Apple, though, never seriously threatened IBM’s supremacy in the computer world until the Return of the Jedi (Steve Jobs), whereupon Apple produced another computer that was not very versatile, but that did one thing so well that within a few years there were hardly any competitors left in that space.
We call that computer an iPod.Innovation followed on innovation. The iPhone
(do you realize that it debuted less than five years ago, in mid-2007?) revolutionized cell phones (and the phone/carrier interface as well); the iPad (2010) in only two years is starting to remake the computer industry altogether. Apple is now the largest computer maker in the world. Most people under the age of 30 don’t remember a time when IBM was a dominant player in the computer world. Today’s IBM computers are not fundamentally different in function or design from what I had on my desk in college 25 years ago. Apples? So different they’d be unrecognizable as computers, if I went back and handed myself one. The majority of people don’t even think of Apple as a computer company anymore, because Apple insinuated its products
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into life where nobody else thought of.The innovation of Apple has driven the entire industry
to places it couldn’t have imagined going, and remade it into probably the most robust sector of the economy, spreading the wealth into everything from cell phone manufacturers to automobiles to Angry Birds. Innovation made that happen – and it wasn’t innovation that came from the top. It was a change in thinking that started at the bottom. Steve Jobs’s greatest contribution to the revolution was that he gave it space to happen. Practically everyone has benefitted from it; we have all, in fact, become richer. That’s how innovation and productivity work.
As I said at the beginning, this is just one example. Every industry you can think of has been dramatically affected, even begun, by innovative products, things that came into existence almost exclusively from outside the big corporate giants. Airplanes? The Wrights were underfunded part-timers. Cars? In 1863 a Belgian expatriate living in Paris built a three-wheeled version while actually trying to improve the telegraph – Daimler-Benz didn’t come along for another 25 years. It’s almost never the big fellows that make the real leaps in technology and efficiency.
I’ve been in mortgages for over ten years now. That’s a relatively short time to some of you, and forever to others, but let me tell you what I see happening in mortgages that scares me. There is no innovation. If it’s true, and I believe it is, that innovation is most likely to come from the small operation, the part-time hobbyist, and the crossover from another industry, the mortgage industry is in real, serious trouble.
It wasn’t this way a few years back. I’m advancing an idea here that is going to get me labeled a dangerous lunatic, so before you decide I really am one, hear me out. Remember the heady days of 2006, when there were something like sixteen thousand different mortgage products out there, everything under the sun from no-doc 100% loans to first-trust HELOCs with variable payments. There was a new product every week. Every few days, at one point. That was a good thing.
I don’t care what the New York Times says, it was a good thing. It made loans available to a huge number of people, and, more importantly, it increased the number of players in the industry tenfold. Mortgage lending, for so long that bastion of the 30-year fixed rate (why, on earth?), had a renaissance, a proliferation of programs and repayment options far beyond what anyone had thought possible. It was a good thing.
What was even better was the dilution of market share for the government. At one point, the government’s share of mortgage loans – and I’m counting Fannie and Freddie here as well as FHA and VA – was about 40%. Now it’s 95%.
But this is because default rates were so high on those non-government loans, right? Well, data here are sketchy. It’s hard to know. So-called “sub-prime” (now synonymous with Bernie Madoff ) mortgage defaults were quite high during the crash of 2007. There is a case to be made, however, that the rate of default on government-backed and -sponsored loans was not any lower, and the fact that all but a handful of lenders went bankrupt or were consolidated while the government lenders grew, means only that the private market did not have what Fannie and Freddie did – a gigantic, almost unlimited source of guaranteed liquidity, known as the U.S. Taxpayer.
In fact, default rates were consistent across all mortgage types, when banded by credit score and equity position. In other words, it didn’t make any difference whether you got your 100% loan conventional or subprime; if you got one at all, your default rate was higher than it would have been if you put 5%, 10%, or 20% down. Additionally, where you got the down payment was a factor, with “gifted” down payments representing a higher risk than when the borrower used his own funds.
Now, it’s not disputable that a higher percentage of subprime loans went delinquent than prime/conventional loans. The reason ordinarily given for this is that subprime loans were stupid, and prime loans were sane. The data suggest, however, that when you compare apples-to-apples, the default rates are similar. The same borrower that defaulted on a prime loan would default on a subprime loan, and vice-versa. The percentages are higher for subprime lending because a higher percentage of subprime loans went to riskier borrowers. People forget this, but there were no-doc conventional loans, too. The government competed for those borrowers right along with everyone else.
There were many people that got subprime loans when their credit was good enough to get conventional financing. I’m one of them. Why would we do that? Because subprime loans were better. They required less hassle, less documentation, and had more flexible payment options. For self-employed borrowers, as just one example, they were a Godsend. Then the market tanked, and like all busts, there were a lot of people crushed under it. If a lender didn’t have sufficient reserves, or hundreds of billions in backing from taxpayers, it failed. Fannie and Freddie themselves
what kind of phone was allowable. There would never have been an iPhone. It would have been illegal. No doubt we would be sitting around with our Motorola RAZRs while Congressional testifiers pontificated about how we should be grateful things aren’t worse.
The smaller banks, which still have some flexibility here, are not going to be able to save the day as things are headed. One, there aren’t going to be any more of them than we already have. The regulatory process for getting a new bank approved is spectacularly expensive and takes years to navigate. Two, reserve requirements make it impossible for small banks to expand their lending without onerous depository requirements, so the ones in existence now cannot expand as fast as the market would allow. And three, worst of all, they’re being out-competed by government subsidy. Government loans can and do have cheaper interest rates, because ultimately, there isn’t really any risk on those loans. In a pinch, the alphabet soup of regulators can always dial up Joe Taxpayer for more cash.
I don’t get any pleasure out of painting this scenario. I lend every day. I work in the industry and I like it, and I want to keep doing it. What I’ve seen from other industries I’ve been in, though (and one of those was the dotcom industry, back in the day), is that regulation strangles innovation and destroys growth. Eventually, if the regulations get too severe, someone proposes that the industry just become a ward of the state. Spain just floated the nationalization of its banks. We are on the same path. How far behind?
We’re not seeing a recovery in housing because we’re not seeing innovation in housing. The market is there. People are just as hungry to buy houses as they ever were. What’s holding them back? It could be the very people that speechify all day about getting things going again. Washington wants a housing recovery? It should take a hard look in the mirror to see where the problem is. It might not be too late.
Chris Jones, branch manager with City First Mortgage Services, is a nine-year industry professional in brokering and banking, with a background in financial services, national politics and Main Street entrepreneurialism. He is the author of the forthcoming book, The Six Channels of Marketing, available in January. Chris lives in Lehi, Utah, with his wife, Jeanette, and their eight children, and can be found at www.lehimortgages.com, [email protected] or (801) 850-3781.
were nationalized and became wholly owned and operated subsidiaries of the federal government.
In short, the case can be made that government lending and warehousing grew not because Fannie and Freddie made smarter loans than others, it was because Fannie and Freddie could eat the losses, and others could not. The death of the securitization of mortgages meant that there was just one source of liquidity in mortgage lending – and that’s you and me. Fannie and Freddie, as branches of the government, became essentially the only game in town.
But the bust in the housing market caused the baby to be thrown out with the bathwater. Arguably, the culprit in the housing bust wasn’t subprime lenders (or not entirely), it was the securities market, and the insufficient scrutiny by the buyers of credit-default swaps of the product they were purchasing. The government stepped in and bought up the dead assets, liquidated the failed companies (or forced their sale), and ran the other players out of town. Then it propounded a blizzard of legislation and regulation that probably makes this particular type of crash impossible again, but in doing so chokes off the market to such a degree that no boom is possible, either. We’re frozen in place. If this were a good place, then maybe I wouldn’t carp. But it isn’t. It’s a slum. And we can’t get out of it.
Consider. There is one category of loan that showed no increase in percentage of default from 2004 to 2011: portfolio products held by banks. In other words, the institutions that were going to be on the hook for the loans they made, made good loans. They also have and always did have innovative and somewhat quirky products, like bank-statement income qualifying and no-credit-history loans. Since they were holding those loans, they made sure the compensating factors were there, and priced them in such a way that they represented a manageable risk. This kind of small, community-based lending provides a look at what could and should happen in the broader market. Only it won’t. It’s probable now that it can’t.
OFHEO, the Federal Reserve, FHFA, the newly-minted CFPB, all these organizations are set up to protect the industry that exists. I know, they say they’re protecting us, the borrowers, but they don’t actually do that. What they do is regulate the financial institutions, and they do that in such a way that the field of product in mortgage lending shrinks every month. The institution of the “qualified mortgage” means one-size-fits-all effectively becomes the sole model for mortgage lending in the U.S. Disruptive products cannot be introduced. It’s as if the government had dictated
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WhAT IS yOur MOrTGAGE IQ?
While the mortgage rule changes and updates have slowed down over the last few months, the changes being made by FHA, Fannie, Freddie & USDA are biggies. That, in turn, triggers more questions on exactly how loan originators and underwriters should interpret them! Don’t look at the answers yet—read the
questions first and see if you know the answers! Oh, by the way, Mortgage Currentcy has just added Video
Training Classes, and right now you’ll find a couple of new ones on HARP 2.0!
USDA: Buying a Home While Still Owning Home: Can a borrower own a home and still qualify for a Rural Development Loan on a new home?
It is possible for a USDA borrower to own one other property besides the one being purchased under certain conditions.
The objective of the Single Family Housing Guaranteed Loan Program is to assist eligible households to obtain decent, safe, and sanitary dwellings and related facilities for their own use as their primary residence in rural areas. RD Instruction 1980-D restricts applicants from
WhAT'S yOur MOrTGAGE IQ?by kArEN DEIS
owning multiple dwellings in certain cases, specifically in§1980.346(a), under eligibility criteria as follows: The applicant must… “Be a person who does not own a dwelling in the local commuting area or owns a dwelling which is not structurally sound, functionally adequate.”
IMPLEMENTATION RESPONSIBILITIES:§1980.346(a), of RD Instruction 1980-D.
Loan applicants are limited to retaining ownership in one dwelling other than the one associated with the loan request. To retain ownership of the dwelling and meet this eligibility criterion, the retained dwelling must be outside of the applicant(s) local commuting area or not be structurally sound or functionally adequate.
Manufactured homes that are not anchored on a permanent foundation are not considered structurally sound and functionally adequate under §1980.346(a).
“If the applicant can provide sufficient information pertaining to the square footage, household make up, # of bedrooms, # of bathrooms, etc. of the current home, and if the underwriter and RD determine that the current home is insufficient for her current family needs, then the concern of community distance will not come into play.”
Facebook Post for Real Estate Agents: Did you know that USDA allows ownership of another home under certain conditions? Long commute for job, current home not structurally sound, or insufficient for current family needs. Call me for the details.
FHA: Shared Wells: Are properties having a shared well acceptable for FHA financing?
FHA says shared wells may serve existing properties if they cannot feasibly be connected to an acceptable public/community water system. A shared well shall have a valve on each dwelling service line as it leaves the well. A shared well shall service no more than four living units or properties. A shared well must have a shared well agreement and shall be binding upon signatory parties and their successors in title. More information on this agreement can be referenced in HUD Handbook 4150.1 Rev-1, Section 12-17 and HOC Reference Guide, Section 1-21. Ref: REFERENCE: Handbook 4150.1 REV1, Section 12-17; HOC Reference Guide (1-21).
http://portal.hud.gov/FHAFAQ/controllerServlet?method=showPopup&faqId=1-6KT-1843
There’s a Mortgage Talking PointsTM article called “Minimum Requirement for Well & Septic Systems for Home to Be Eligible for FHA Financing” for your real estate agents.
FHA Collections/Disputed Accounts: With FHA’s new rule (ML 2012-3), do we only have to consider disputed accounts and collections that have had activity within last two years?
Because we have an upcoming rule change on this subject, I've given you both sets of guidance.
You will need to look at every disputed and collection account and apply the following rules to each depending on the date of case number assignment:Effective on July 1, 2012:A file must be downgraded and manually underwritten UNLESS:
• Thetotaloutstandingbalanceofalldisputedcreditaccounts or collections is less than $1,000, and
• Disputedcreditaccountsorcollectionsareagedtwoyears from date of last activity as indicated on the most recent credit report.Effective now until June 30, 2012:A file must be downgraded and manually underwritten
UNLESS:
• ThetotaloutstandingbalanceofANYdisputedcreditaccount or collection is less than $500, and
• Disputedcreditaccountsorcollectionsareagedtwoyears from date of last activity as indicated on the most recent credit report.NOTE: Current guidance does not have a cumulative
limit. Each account is viewed separately for the $500 limit.
FHA: Timeshare Foreclosure: Is a “timeshare” considered real estate for “foreclosure” purposes”?
No. And the term 'foreclosure' should not be associated with a timeshare. Timeshares are not real estate, and debts associated with them are not mortgages. They are normal installment accounts.
Fannie Large Bank Deposit: If we cannot document a large deposit on a bank statements, does Fannie allow us to "back out" the undocumented deposit and use the remaining balance?
FNMA does not address the ability to 'back out' undocumented assets that are not necessary to complete the mortgage transaction. This type of approach is driven by a specific lender/investor and their interpretation of their obligations, to ensure that the funds in question were not an undisclosed loan or similar obligation that may impact the reps and warrants that lenders are obligated to perform upon sale and delivery to the aggregators and/or agencies.
FNMA and every lender that I am aware of have documents that indicate 'best practices' and/or 'red flags' that they employ to try to draw awareness to undocumented assets. You need to seek the advice of the lender that you are using for delivery/underwriting to see if they would allow you to 'back out' undocumented deposits.
It is rare simply because it jeopardizes the lender’s reps and warrants, and could cause a re-purchase if it is determined that the funds were from an unacceptable source or were borrowed, since a payment requirement could change the qualifying ratios to a point where the borrower no longer would qualify. It is best to document and satisfactorily paper trail all assets that are included in the loan file.
Fannie/Freddie Flipping Policy: What is the current flip guideline for Fannie/Freddie?
Fannie/Freddie do not prohibit property flips, but provide guidance on ways to recognize schemes and fraud that involve a flipped property. Here is some info from FNMA and Freddie Mac that provides insight and/or best practices to follow when faced with a property flip.
It is more likely that lenders and investors will apply their own overlays to property flips and associated delivery
WhAT IS yOur MOrTGAGE IQ?
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WhAT IS yOur MOrTGAGE IQ?
or eligibility restrictions, so I encourage you to check with your underwriter or lender to make sure you know your limitations and restrictions right up front.
Freddie Mac: Transactions that Freddie Mac Considers to be Property Flips
Property flips are not inherently illegal and not all transactions involving a rapid purchase and resale are improper. Legitimate property flips are acceptable transactions in connection with loans purchased by Freddie Mac. Property flip transactions that may be legitimate include:
• SalesofpropertiesbyaGovernmentSponsoredEnterprise, state or federally chartered financial institution, mortgage insurer, or federal, state or local government agency
• Propertysalesbyemployersorrelocationagenciesrelated to employee relocations
• Salesofpropertiesthatareacquiredbythepropertyseller through inheritance, divorce, or as a result of a legal settlement or proceeding
• Salesofpropertiesthathavebeensubstantiallyimproved by bona fide and verified renovations since the property was acquired by the property seller, in which any increase in sales price over the seller's acquisition costs is representative of the market given the improvements to the home
• Salesofpropertiesthatthepropertyselleracquiredat below market value after purchasing as a result of a distress sale (i.e., REO sale, short sale, tax lien sale, bankruptcy, trustee's sale, etc.), where any increase in the sales price over the property seller's acquisition cost can be clearly shown to be a result of the difference (if any) in the market's reaction to distress sales and typical arm’s-length market sales.
Fannie Mae: Property Flipping Part XI: Property and Appraisal Guidelines, Chapter 4, Section 406, Sales Comparison Approach to Value.
Property flipping is not illegal per se; however, when an immediate resale is attended by acts of fraud or misrepresentation, including but not limited to appraisals with inflated property values and other misleading or fraudulent documentation, it can result in a predatory transaction.
Fannie says the legitimate practice of buying real estate at a discounted price and re-selling it for the property's market value is OK. The revised underwriting policy should help homebuyers and lenders from becoming victims of predatory property-flipping schemes. This
revised underwriting policy is for loan applications taken on or after May 1, 2005.
The likelihood of fraud or misrepresentation increases when the lender is not able to confirm that the property seller in a purchase money transaction (or the borrower in a refinance transaction) is the owner of the subject property based on publicly available information.
Examples of acceptable documentation include the appraiser's analysis and conclusions in the appraisal report, a copy of a recorded deed or mortgage, a recent property tax bill or tax assessment notice, a title report, a title commitment or binder, or a property sale history report. This documentation is especially important for transactions involving an assignment (or sale) of a contract for sale and/or "back-to-back," "simultaneous," or "double" transaction closings (or double escrows) to support the property acquisition, financing, and closing.
As stated above, when a new appraisal is required, we expect the lender to perform an underwriting analysis of the current contract for sale for the subject property (for purchase money transactions), the current offering or listing for sale for the subject property (for both purchase and
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refinance transactions, if applicable), the current ownership of the subject property (for both purchase and refinance transactions), and the sale (or transfer) history of the subject property, and comparable sales (for both purchase and refinance transactions). As part of the loan origination process, it is critical for the lender to analyze and review the sale(s) of the subject property and the sale price trend in relation to the appraiser's opinion of value to confirm that they are reasonable and representative of the market.
Confirming and documenting the current owner of the property based on publicly available information as part of the loan origination process will help to ensure a more meaningful analysis of the sale (or transfer) history of the subject property. Appraisers must certify the timeliness of their data sources, identify time gaps, and assess the accuracy of their data sources.
Facebook Post: Do you work with investors who are in the business of flipping properties? I have a Mortgage Talking Points™ article called “Best Practices for Mortgage Flips.” Please call me for your personal copy
Compliance Bank Disclosures: Do you know if it would be okay to market under your broker number or NMLS #
without your company’s logo?You can produce marketing materials – but the
materials must include your NMLS information and comply with triggering terms rules for REG Z.
The problem really isn't with compliance rules. It is that if you wish to market the products of the bank/mortgage company, you must include the company name and comply with your company’s policy – that is, if you wish to stay employed. The rules that your employer must comply with include little things like the FDIC logo, and BIG things like having a Compliance Officer who ensures that the lender adhere to all disclosure and advertising rules.
You should be able to establish a blog – but it would be a personal one, and you could present yourself as a "subject matter expert." But if you sell mortgage products on the blog, then you become subject to the company’s rules.
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52 June 2012
- continued from page 54
brINGING uP ThE rEAr
take another two weeks. I mean, oh my God. Would a month or two have killed Wells Fargo? Or, 90 days even?
No, two weeks and you'll be locked out. I can’t even tell you how it saddens me that there are people in this country with such an appalling lack of compassion for others. What has happened to us?
Wells Fargo Bank is being sued by just about everyone over just about everything. Just Google “Wells Fargo Bank sued,” and you’ll find 412,000 results in .21 seconds. I know, quite a few are no doubt duplicates, but so what? Homeowners are suing them for literally ruining their lives through fraudulent acts that would make your hair stand straight up.
Investors are suing them for various frauds, as are insurance companies. AARP is suing Wells over reverse mortgages. Even the federal government is going after Wells for a few billion here and a few billion there.
And, in case you hadn’t heard, Wells Fargo was even caught laundering drug money for a Mexican drug cartel. The only thing at Wells Fargo Bank that hasn’t been involved in a scam of some kind are those little pens at the teller windows with the chains on the ends.
Remember when robo-signing hit the headlines in September of 2010. Bank of America, JPMorgan Chase, GMAC… they all voluntarily stopped foreclosing in order to conduct internal investigations into the allegations
It really is quite awe inspiring. I mean, even organized crime families have some aspect of their business that’s not entirely illegal and abusive, right? Like maybe they own a restaurant or control the docks or the garbage trucks. But, Wells Fargo seems to have the evil market totally cornered.
I’m not a great speller, so maybe you can help me. Eleven down… how many “Wells” are there in “predatory dirt bag.”
So, now I come across Wells Fargo being a good corporate citizen. Want to know what they did? They donated $22,000 to establish a suicide prevention hotline in Idaho, which apparently is the state with the fourth highest suicide rate in the country.
Here’s what it said in the story I found…Wells Fargo stepped up Tuesday with a $22,000 gift to
help establish an Idaho Suicide Prevention hotline. “Wells Fargo is pleased to invest in this important
community initiative to address a critical need in our state,” said Dana Reddington, Idaho Region president for the banking firm.
So, Wells Fargo “stepped up” with a $22,000 “gift.” Is
that how that should ideally be phrased? I suppose it’s fine. But, having spent the last few days writing and talking about Norm Rousseau, the homeowner who recently shot himself two days before Wells Fargo was to have him and his wife evicted after a protracted battle with… no, not cancer… much worse. You know, we can in many cases, cure many kinds of cancer.
Norm’s protracted battle was with Wells Fargo, and no one has even come close to finding a cure for them. So, one Sunday morning, he lost the will to continue the fight.
Look, I only spoke with Norm once for about an hour, so I shouldn’t really speak for him, but I just wanted to say that I’m pretty sure that he would have gladly traded his battle with Wells for… maybe not pancreatic… but let’s say prostate cancer… for sure. I think so, anyway.
In fact, I’d probably make the same trade at this point were I given the choice. I’m thinking that the cure rate for prostate cancer for a male in his 50s is much higher than the cure rate for a battle with Wells Fargo at any age. I don’t know… maybe I’m nuts… it’s not my core point here anyway, so just forget it.
My point is that, having been married for 22 years now, I’ve noticed that these last few years I’ve started drifting towards buying my wife gifts that aren’t really just hers, but sort of ours… kind of. I’m not entirely certain, but it’s possible that one year for her birthday I may have bought her our new breakfast nook table and chairs set.
And it brought back a memory from my youth when my father bought my mother a yellow chair/stepstool so she could sit while washing dishes… for her birthday. She thanked him… let him live… and ordered a dishwasher from Sears the very next day.
She never let him forget it though… that chair is probably still somewhere in the basement.
Anyway, that’s why I understand Wells Fargo wanting to give a gift that establishes a suicide hotline… because it’s a gift that the bank can get some use out of too. After all, what else would you get for the bank that harms everyone?
And just like my Mom… I’m not gong to let Wells forget what they’ve done. Did you follow all that? Wells… it made perfect sense to me.
Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on ML-Implode called Mandelman Matters. He also publishes a Monthly Museletter and you can follow “Mandelman” on Twitter. Send your responses to [email protected].
TheNicheReport.com 53
Okay, so here are the facts: In the last few months, I’ve seen Wells Fargo Bank commit
acts that are so heinous, so unthinkably awful, so utterly despicable, that they defy explanation.
First, as you may recall from last month, Judge Elizabeth Magner,
a federal bankruptcy judge in the Eastern District of Louisiana, characterized Wells Fargo’s behavior as being “highly reprehensible.” Judge Magner ordered Wells Fargo to pay the New Orleans homeowner $3.1 million in punitive damages basically for stealing his house through a system programmed to illegally apply fees and charges before principal and interest.
Wells Fargo Bank was caught preying on people in bankruptcy court… the people least likely to be able to protect themselves or turn to the courts for justice. It’s actually no different than an adult who goes around beating up 5 year olds.
Next, I saw Wells Fargo Bank foreclose on a 73 year-old widow’s home that she owned for 43 years all because she had underpaid a mortgage payment by $104.27. She didn’t find out that she had underpaid her payment by $104.27 until months after the fact, and by the time the bank told her… she was in default and Wells was refusing to accept her payments.
The whole thing snowballed from there, and Wells
brINGING uP ThE rEArWells Fargo Bank, Part 2
by MArTIN ANDELMAN
- continued on page 53
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Fargo ultimately foreclosed on her home, but at the end of the day none of it would have happened had the bank simply told her she owed $104.27, or had they accounted for her payment properly.
And coming in third, but certainly not in terms of significance, I saw Wells Fargo lose a cashier’s check, misapply a payment, suggest a loan modification when the lost check turned into a delinquent mortgage, and then when the couple was declined for the modification, Wells gave them six days to reinstate their mortgage by paying the delinquent payments plus late fees and charges.
The couple had saved the money and had more than enough to bring their loan current, but the money was in an IRA and took eight days to arrive, two days after Wells Fargo had sold their home at trustee’s sale, refusing to delay the same even two days for the funds to arrive. The couple had bought their home in 2000, with the 30 percent down payment they had saved over 20 years.
Two days before the couple were to be evicted at dawn, the husband, after staying up all night trying to get an older motorhome to run so they would have somewhere to go, failed to get the engine to start. He went into their bedroom, placed a blanket over his head to contain the mess, and shot himself in the head.
And Wells Fargo’s response? The bank agreed to delay the eviction for two weeks… two weeks.
Like, if I had a renter who was unable to pay their rent and then this happened, I cannot imagine saying, okay...
54 May 2012
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