Aug. 17: Letters on QM, eminent domain, LO comp, the increasing mountain of rules, mortgage brokers, etc.

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...

The real estate, banking, and lending industries are filled with smart entrepreneurs, many of whom have valuable input and suggestions on dealing with the current environment. Here are some of their recent notes on current topics, many of which are probably of more value than the actual rules and regulations.

 

Bruce G. asks, “Will marketing agreements ever end? When I close with a title company who has a marketing agreement with the real estate broker, the closing costs are always $300-$400 higher.” I hope so, and Andrew Liput, president of Secure Settlements, put on his compliance attorney hat and opined, “This is the next issue on the CFPB hit list as it does not help the consumer only increases costs through hidden revenue sharing. It does highlight the lack of independence and transparency surrounding title services.”

 

And how about subprime tests? Erik M. observes, “One of the biggest things we have seen with state specific legislation is that the trigger is based off the application date while the federal HPML rules are triggered off the lock date.  It is no surprise floating loans in a rising rate environment run the highest risk of failing state high cost and subprime tests.  Hopefully, the individual states bow to the CFPB so we can achieve some regulatory conformity.  It sure seems counterproductive to deny a borrower’s application from 30 days ago for failing a high cost test that they would pass if they re-applied today.”

 

Rick B. asks, “FHA Assumptions – as the mortgage industry heads towards a new year not knowing what will happen to loan limits on conventional loans (lowering to $417K perhaps). How do you think FHA will react to a full Assumptions and allowing a second lien on a new purchases?  Remember the old 80-10-10 scenarios! This is very interesting topic because the private sector will not be capitalized enough to handle the non-conforming volume in high costs states such as California for example. I am curious to see if others are asking the same questions.” Thank you for pointing that out. Others have not, but I can see this happening.

 

And this note on settlement providers. “First, the CFPB doesn’t identify and address what it claims are ‘real disadvantages’ of settlement providers.  Everything is always in general terms. To be effective these ‘disadvantages’ should be addressed specifically instead of with blanket statements and rules. Second, it appears they don’t consider the ‘real advantages’ lenders have with their service providers, namely established efficient working relationships rather than the consumers brother-in-law that just got into the business. Third, imagine the conflict between the consumers wish and a company’s ‘Vendor Management’ policy, and the inefficiencies this will introduce! Should consumers also be able to tell; banks and brokers which lenders to use or who not to sell their loan to, building contractors which subs to use, McDonalds where to buy their hamburgers, Starbucks where to buy their coffee? There can be ‘real disadvantages’ everywhere! Fourth, ‘Vendor Management’ definition; Companies and employees are now responsible and liable for the adherence to the law of other companies and their employees that provide ancillary services. Guilty by association and ‘inadequate policing’ sure makes the long arm of the law a lot longer.” Yes, companies working with minority and women-owned businesses will become important in the future – this is a growing concern for the regulators and should be for lenders. Section 342 in the Dodd-Frank legislation that is in effect today calls for further inclusion of minority and women-owned businesses.  …Chances are you should be looking into this. So it seems that using such a company will provide a ‘very real advantage’ with regulators. Strange days indeed!

 

Greg G. asks, “I guess the CPFB realizes now that they have a less-than-stellar reputation with financial firms.  Have you had any dealings with the CFPB’s lender ‘hotline’ for complaints about the CFPB and what is the overall response to dealing with them?” I have to admit I have never called the hotline. But I have spoken to people who have, and they told me that the response is adequate IF the complaint is well thought out and warranted. That being said, Mike C. wrote to me and said, “I have filed complaints regarding the CFPB actions hurting our clients. They have not provided one response with the first being filed back in May.  Oddly, they have time frames in which a lender must respond to a borrower’s inquiry, yet the CFPB will not hold itself to the same standard.”

 

John L. surmises, “With CFPB, I am not hearing much about mortgage brokers any more.  But I am starting to hear from my LO’s the mortgage brokers are starting to grow again as mortgage banking companies are getting tight with their compensation rules. We are also hearing the good old bait and switch coming back with the brokers where they are not using the proper GFE and completely lying about rates. I believe the CFPB should look at how mortgage brokers do business FIRST and start its way up. Many of the mortgage banking companies fear of losing LO’s to brokers so they bend rules for them. If the CFPB started to review the brokers, especially the large brokers, than you would fewer issues with point bank systems and paying 1099.”

 

K.B. writes, “I am responding to your recent article about eminent domain. Does anyone ask where these home buyers came from in the first place? Was it the realtor that was holding a homebuyer seminar at their church? The realtors were the ones doing the ‘targeting’ but everyone seems to forget that. They always say, ‘Why waste that money renting when you can buy a home?’ So the buyers—people who never thought they could—turned out and a mortgage product was designed for them. (I am not saying it was right.) I worked through the subprime days and I never steered any loan clients to anything more expensive. Usually there was only one loan they could qualify for: the 2/28 or 3/27 ARM. I took great pains to make sure my clients knew when the rate change would occur and by how much. They just nodded their head and signed. It is a shame that the media has everything stacked against the lender and they have told the story so many times everyone believes it or at least doesn’t question it. (I am sure there were some originators out there who were just after a large paycheck but I was not one.) What is sorely lacking is any level of responsibility by the borrower. I had a client come in and I was working on his refinance and I asked about a $3000 deposit in his checking account. He said it was from Aurora Loan Services. In 2009 He bought a rental home, had it rented for a few years and then sold it and paid off the mortgage in full. Two years later he gets this check as a “settlement.” What did Aurora do to him? Let him purchase a property? I asked my client what the settlement was for and he said it was a predatory loan. We have a long was to go to get to the truth. Just because you can buy a home doesn’t mean that you should.”

 

And G.K. observes, ‘This whole eminent domain thing is a potential nightmare, of course.  But what really upsets me is that the lenders on all these mortgages may be forced to take less than was contractually agreed to by all these borrowers.  Although I understand the plight of people who are underwater on their loans, they agreed to pay back what they borrowed.  It’s called a contract, and now they want to change that.  So the lender is the bad guy because they won’t forgive loan balances to help borrowers stay in their homes, yet if property values had gone up, there is no one who would be offering to give the lenders any of that equity.  It’s just very hypocritical.  If you agree to a contract, then honor it instead of trying to weasel out of it.  Buying real estate is not a guaranteed thing and people DO lose money.  It’s the risk you take when you buy real estate.  All these underwater mortgage borrowers took that risk and now they want to be bailed out on their poor decision.  This is another example of how our society is today.  If things don’t work out in your favor, get someone else to fix it for you so you don’t have to deal with it.”

 

Regarding the piling on of rules and regulations, this broker from Nevada writes, “The problem with the government is it never cancels anything.  When rules or programs change, or the need for that rule or program goes away, government just layers the new rule and/or program on top of the old one. The old program is still administered and the forms required.  Even though there is no validity. The State specific forms are a very good example.  Nevada has a form that everyone must sign up front that states what we are collecting up front – application fee, appraisal fee, credit report fee. Well everyone knows in today’s world the only upfront fee that can be collected is credit report. Yet the old form is still listed by NV as an active, required form.  Some lenders go by that list and require that form in the file.  I put a zero on each line and have the client sign it. The next form they sign is the MDIA form that states they paid nothing up front except the credit report. Is that STUPID or what?  There was one NV form that we had to put how we made money: origination, YSP, servicing release, gain on sale.  I screamed like crazy.  How STUPID can you be?  Brokers do NOT receive servicing release and/or gain on sale.  Now, we don’t get YSP either. It is a never ending battle.”

 

Jeff N writes, “Big banks at record profits, yet they can’t foreclose on time….why??? Because in most instances they do not want to take on the liability of the property taxes, HOA Dues, and insurance costs. Now they are talking about going after homeowners who walked away years ago, really? I can see Obama coming after the banks to cover this cost and question the foreclosure practices and timeframes: http://www.mpamag.com/real-estate/how-detroits-bankruptcy-will-hit-the-housing-market-15497.aspx.”

 

Jon H. writes, “Does Congress or the CFPB understand that some LOs are better and more experienced, and that they should get paid more? All LOs are NOT created equally so they shouldn’t get paid equally.” I agree 100%, and hopefully regulators understand that. Chatter out there suggests that the CFPB is more concerned about compliance, servicing, and protecting the consumer than about LO comp.

 

John Jacobs, SVP of Secondary and Capital Markets with Patriot Bank Mortgage, wrote, “At the risk of opening the ‘Pandora’s Box’ of debates, I would like to suggest that the 43% DTI limitation in the QM rule will have devastating effects to production volumes in some higher priced areas of America.  If one thinks that, (1) the aggregators will only buy QM loans, and that (2) producers will therefore only produce QM loans, fitting into the 43% DTI will be mandatory.  We just analyzed our YTD production for all loans that we closed in 2013 with DTI’s above 43%.  It turns out that those loans represent 36% of our total production.  We are primarily a Texas originator, so we have no declared “high cost” areas within our state, and if we have this large a population of possibly non-QM loans, what must be the percentage of California loans where 50% DTI’s and higher have been a way of life for many years?  I realize that there is a temporary exemption for loans that get an AUS Approve Eligible finding from the GSE’s, but that has a hard stop at 45% DTI.  This QM DTI limitation, in my opinion will have a dampening effect on sales prices in high-cost areas because those people that could buy with a 50% DTI will need to buy a cheaper home so that they can achieve a max DTI of 43-45%.  I am not sure everyone has focused on this approaching issue.”

 

 

What does “Service” mean? I was totally confused when I hear the word ‘Service’ used with these agencies:

Internal Revenue ‘Service’

US Postal ‘Service’

Telephone ‘Service’

Cable TV ‘Service’

Civil ‘Service’

Federal ‘Service’

State ‘Service’

City ‘Service’

Public ‘Service’

Customer ‘Service’

This is NOT what I thought ‘Service’ meant.

But yesterday I overheard two farmers talking, and one of them said he had hired a bull to ‘Service’ a few cows.

BAM!!! It all came into focus… Now I understand what all those agencies are doing to us…

 

You are now as enlightened as I am…

 

 

Rob

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