Aug. 10: Letters from readers on Congress & the GSEs, borrower data, what constitutes an application, and mini-corr

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. Read more...

Instead of cartoons on this Saturday morning, how about a little “comedy” about big bank fines, and related matters from The Daily Show Thursday: http://www.thedailyshow.com/full-episodes/thu-august-8-2013-kirsten-gillibrand#.

 

Or this, to see how eminent domain is being portrayed in the press (although at least there is a mortgage lender being interviewed for some balance):

http://sanfrancisco.cbslocal.com/video/9180592-richmond-offers-to-buy-underwater-mortgages-banks-resist/.

 

Compliance and consumer rights are the name of the game, and Andrew Liput, President and CEO of Secure Settlements writes, “Under GLB, FACTA and FCRA, enforced by  CFPB, lenders must have controls in place to protect borrower personal information and to evaluate and manage those within their control (employees and agents) who have access to the data.  We are recommending that lenders run annual background screenings an ALL employees (not just MLOs per SAFE Act) who have access to borrower data to avoid consumer claims that they failed to safeguard their personal data.”

 

On the question, “What is a mortgage application?” Leonard Ryan, president of QuestSoft Corporation, surmised, “I love your quest for an elevator speech on a mortgage application and all of the regulations that conflict. I was probably wordier in past years but I think this would be my definition at least for this year for the elevator pitch to your Nana. ‘A mortgage application is where you pour out more information than the IRS (and possibly the NSA) knows on 4-6 pieces of paper in order to prove you are capable of taking on lots of debt, then the lender orders 500 pages of documentation along with scouring through 12,000 pages of laws and regulations to try to prove you aren’t.’ But more seriously, I give webinars on this one all of the time since we are HMDA experts. There is a HUGE gray area and absolutely no common definition. Lenders usually start with the credit report as their line until they think it through (is having a social security number and a credit report a prequalification or an application?) But it seems on the other side that the point you would first issue a statement of credit denial is the latest for the definition of an application. We have found over the years because of the regulatory conflicts that the best way to define an application for regulatory purposes is the one that examiners are willing to accept. That is 1) pick a firm line in the sand, 2) have a WRITTEN policy of where the gray line becomes black, 3) be consistent in applying the policy and 4) stick to it. As long as a point has been picked in the gray area, I have not seen an institution fined. But make exceptions and use an earlier standard on good applications and use the latest possible for denials and you get are asking for trouble.” (If you want to reach Mr. Ryan, go through www.questsoft.com.)

 

And, “RESPA has been around for a long time.  Most of the ‘acts’ have been around for a long time. They have been in conflict with each other on the 1003 description from day one. Back in the day when everything was done by hand, there was no issue. An application was completed and signed.  Sometimes you mailed an application to the client, they completed and sent back, although 99.9% of clients signed it in front of me and still do. The beauty of FNMA/FHLMC was standardized underwriting and basically one set of rules.  If you provided what they wanted, you had a sellable loan – everything had to be signed upfront. In today’s world with internet, you can apply for a loan with some outfit while you pump gas.  The rule says if you have five pieces of info, you in fact have an application and you MUST provide a GFE/TIL for the borrower.  Now comes the part I have a problem with: the big lenders (on line or not) order the credit report immediately and do not have a ‘signed’ application – just some info over the phone or fill in the box on-line.  They tell the consumer we can or cannot do a loan for you based on what you said. If it is okay, then they send the application package. When you have an inexperienced consumer looking for a house or refi, they can call and go on-line to a dozen different lenders checking for the ‘best deal.’  Well, each of those inquiries is noted on the credit report.  All those inquiries can cause lower FICO score.  A 5 point drop can make the difference of 1 point in risk based credit cost.  The lenders don’t care if they are damaging that individual.”

 

And this from a broker in Nevada, “What I do, and have done for over 30 years (the old ways seem to be the best and safest) is I speak with client on phone and ask all the pertinent questions – you pretty much know when someone is okay. I ask for financial info, driver’s license, and bank statements; I complete the initial application in my system. If this is a refi or a normal purchase, I call the client and pull credit while I have them on the phone and tell them the scores, and what is on the report.  Then I fill in any blanks on the application, # of years in school etc.  I make an appointment for them to sign the package. I upload the electronic file to the lender, often pull DU.  I print the package and meet with the client – they sign everything. We go over everything. I give them a copy of the credit report, and collect any addition items I need, explanation letters, etc.  Then I upload the actual file to the lender. The client can come to me, or I go to them. If it is an out-of-area client, I will FedEx the complete upfront file for signatures – I have found clients don’t do a good job of printing 72 pages. If the purchase is a short sale, I can work up the base package and send a GFE so the client understands the cost.  I don’t pull credit, unless the client says they have a problem or had a recent problem.  If the SS approval drags on for 6 months, as most do, there is no reason to pull credit and then do again. I was taught there is NO loan without a signed application.  The signed application and separate authorization gives me the authority to proceed with the loan.  I still go by that.”

 

Steve E. opined, “Regards the mini-correspondent issue . . . Brokers should realize that when they get legal advice from an attorney, even one that specializes in mortgage law, it just means that attorney is willing to let them pay $300-$400 hour defending them when the attorney’s advice doesn’t match up with any regulator’s opinion of the Law/Rule. And they should realize that they will lose either way with large costs. Getting their legal advice from the wholesaler or peers is just nuts. No matter what they decide, they should read the actual Dodd-Frank bill, the original proposed Rules comments (all sides) and the new proposed rules as well – certainly the parts of it that apply to this issue. Most of the broker supporter’s points today, are already in the proposed rules from years ago, and were discounted by the powers then. I read it, decided a captive correspondent arrangement will not fly (probably not with HUD long term either) and shut my brokerage long ago. Going down a business path with an aggressive interpretation written up to get around a Rule with fancy technicalities with CFPB these days seems suicidal to me. The penalties today apply up and down the employee food chain equally as well. The loan officer has high liability going along with their employer’s aggressive stance, if CFPB doesn’t like it. Those extra commissions you get at an aggressive stance lender (broker or correspondent) may cost you a career. It may not be fair, or the right thing for consumers, but reality is what it is as the cliché goes.”

 

Regarding politics in lending, from the Atlantic Seaboard I received, “I was dumfounded when Barack Obama told the nation that he wants more private capital in front of the nation’s housing finance system, and then he goes and (again) promotes taking underwater PRIVATE-label securities and refinancing them into FHA- or GSE-backed loans.  And no one bats an eye at that logic. Aren’t we all weary of politicians from both sides of the aisle suggesting that the GSEs were run as if ‘heads we win, tails you lose?’  When the GSEs’ performance faltered and were placed into conservatorship, equity holders in Freddie and Fannie were wiped out and senior managers lost jobs – not unlike other companies in residential lending.  WHO was ‘bailed out’? Debt holders, in China, Japan, Korea, Germany, other foreign central banks, and Wall Street firms – why were they ‘bailed out’?  Because the U.S. Treasury desperately needed their capital to keep flowing into the States to keep a faltering economy going – imagine if we had told them to pound sand, does the public think they would have invested in US Treasuries again?  But Freddie and Fannie, per se, were not bailed out, and in the fact is that private capital WAS in front of the losses – just not enough. (But the same could be said of AIG, Merrill Lynch, GM, and so on.)”

 

Jeff T. observed, “Did you see the President in AZ this week? I am sure golf was his primary order of business, but he did mention that the end of Fannie & Freddie is on his agenda? Did everyone forget we financed a 3 month tax reduction on 10 YEARS of Fannie Mae increased fees? Has anyone noticed that both Fannie & Freddie are sending BILLIONS of dollars in profits back to the government? Who breaks up with a model while she/he is on the front cover of every magazine? You can be sure that when it comes right down to it, politicians are slaves to the money machine. Until Fannie/Freddie become Lindsay Lohan, they will be alive and well!”

 

Brian B. observed, “We have both the Dems and Reps trying to end the GSE’s. I’m open to hearing any options but I have one major question. Both parties have repeatedly voted to increase G-Fees on a number of occasions – one was to raise revenue over the next 12 years, or so, to pay for the employment tax extension. So if we end the GSEs, are the G Fees and their revenue gone. Has the President or Congress thought of that?”

 

“Regarding the comment by the reader that said, ‘…banks want more regulation…’ I am okay (and I think many mortgage banks will agree) with that. Having worked both sides, as far as the lending and licensing and compliance regulations go, I think that both sides of the origination channel play by the same rules. Where banks mortgage departments may feel more regulated, it may be the result of the fact they are depository institutions. So, speaking of regulation, let’s get all the bank LOs licensed (and help with the attrition).”

 

 

Mildred, the church gossip and self-appointed monitor of the church’s morals, kept sticking her nose into other people’s business. Several members did not approve of her style, but feared her enough to maintain their silence.

She made a mistake, however, when she accused George, a new member, of being an alcoholic after she saw his pickup parked in front of the town’s only bar one afternoon. She self-righteously told George and several others that everyone seeing it there would know what he was doing. Being a man of few words, George stared at her for a moment, then simply turned and walked away.

He didn’t explain, defend, or deny. He said nothing.

Later that evening, George quietly parked his pickup in Mildred’s driveway…walked home…and left it there all night.

 

 

Rob

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