March 8: Comments on licensing, Realtor & builder relationships, and EPOs; a clever little joke

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...

Successful originators and management continue to focus on issues that they can influence rather than issues they can’t. Individually they can’t change the solvency of the FHA, or the margins their competitors charge. But they can give input on builders having favored lenders, Realtor relationships, and early pay off (EPO) penalties. So here we go….

 

From Bali, of all places, I received, “During my LO days I believed that Realtors should be paying LOs a fee to ensure that the loan, and sale, closed so the Realtor could receive their much larger commission.” Hard to argue that…

 

John A. cleverly observes, “On the bank MLO versus mortgage bank MLO licensing question, we in the mortgage industry tend to focus on little items (such as, ‘why I am paying $300 to NMLS?’) but instead should be looking at how something benefits us. If your competitor has less training than you do, why would you WANT them to have the same training as you? Score one for the licensed originators! Think how great it is to talk with your Realtor targets about why the other guy trying to suddenly get your business is not even licensed, lacks the same training you do, and will give you less than quality results as a consequence. Even the big banks don’t get it. Have you ever looked up some of the bigger banks LOs on NMLS? ‘N/A’ is listed as their job title. They’re so secretive they don’t want you to know what actual job title these registered people have. Score another one for the licensed originators.”

 

It is becoming harder to deny favoritism, and therefore some claims of steering, exists in the real estate agent – lender world. There is a fine line between the efficiencies of working with one company being passed on to the consumer versus being accused of steering the consumer – choices and transparency are musts. Here’s a note: “I relocated to Florida within the last year, and it has a whole different business atmosphere. It seems here in the Tampa Bay area marketing agreements run rampant, and with no real control. I have heard that some offices are being paid upwards of $7,000 – $10,000 a month to have an exclusive lender within the real estate brokerage. I understand many firms depend on this money to stay profitable but, it seems like such a violation of the old RESPA rules. HUD never took the time or had the desire to root out these violations, and I also know that NAR is a very powerful group in Washington. In my prior state Wells Fargo had a few Joint Ventures (now shut down) with large real estate firms and the agents were constantly pressured to refer clients to the in-house lender and were verbally told it would increase their splits. Marketing agreements have taken hold of the market due to the large increase in required net worth a lender needs to show. Many it seems, based on the large checks they get each month, have found a way to keep the profits rolling in without having to make the initial investment a JV required. The Affiliated Business Disclosure a client is required to receive at application is not and never has been a realistic playing field.”

 

GF writes, “The builder/lender quagmire is quite complex as you know. I see your point for large builders wanting to have an idea of the qualifications of the borrowers buying their homes.  But I have an issue when the builder offers tens of thousands of dollars of incentives to the buyer only if they use the builder’s lender to cover carpet and flooring upgrades, landscaping, etc.  I have lost many borrowers over the years because of this. The builder’s lender did not offer as low a rate or fees as me, but that did not matter since my borrowers wanted the upgrades. In these instances there was nothing I could do – the deck was definitely stacked in the builder’s lenders favor.  I would think today that this would be considered steering, which is illegal. When the builder figures their profit numbers, I believe that they have included the cost of these incentives in their models. They know down to the penny how much they will make on a home, so they also know how much the incentives cost them (and their actual cost is nowhere near the amount they tell the buyer).  I believe that these builders have financial arrangements with the lenders as well, which is why the rates and fees are not as competitive with the in house lender.  If their lender has to pay a certain percentage on every loan, then they have to increase their rates and fees in order to make up the difference and cover the costs associated with staying in business and making a profit. My goal is to help my customers realize the dream of home ownership, and this whole builder process it counter to this.”

 

“Builders and their preferred lenders – I run across this all the time.  Given all the Dodd Frank, RESPA, etc. rules and laws I find it difficult to understand how builders can steer buyers to a specific lender. The incentives are dramatic ($2,000) on a $150,000 purchase. We all know the $2,000 is added to the price of home but this isn’t disclosed to the novice buyer.  I hope the CFPB can look into this deception.  Some builders tell buyers the incentive comes from lender – could be but then what is the change in rate to pay for the $2,000? The incentive does show on the HUD as a credit to buyer but builder shifts (by way of instructions to title company) most of the seller costs to borrower side of the statement.”

 

And this from Ohio: “Your email of 2/15 really made me sit up with attention since it truly hits home. Since 2001, I’ve battled the builder/preferred lender love affair with no results.  In 2004, a few of us tried to raise a ruckus with the State of Ohio, but really didn’t get anywhere.

 

We are truly one of the top construction, construction-perm, and long-term lock banks in the country, offering 30yr fixed options locked out 8, 10, and 12 months with no one I can find really offering the same in our area. That said, our construction success is outstanding!  Even some of the track home builder reps use us for lending sources since we can lock out that long (including a float down option). The one builder that I’ve always had issues with is M/I Homes (http://www.mihomes.com/).  This is a track builder with an in-house lender (which is really a broker/correspondent for all intents and purposes) that even matches their name – M/I Financial, LLC.  If one uses their preferred in-house lender, that buyer receives 3% towards closing costs (or whatever is needed to pay buyer costs). If this same buyer goes outside for lending, however, the 3% is lost. That would be fine except for a few small things: their rates are at a start of about .375% to .500% higher, they’re maximizing their income potential and not benefiting the buyer, the 3% is rolled into the cost of the house.  Thus, if they go with the builder financing, they get the 3% that’s in the build cost but if they go outside for financing, the cost of the home doesn’t go down.”

 

The letter from the reader goes on. “This has been a hot topic in Central Ohio for a long time now.  Those in the ballgame fight on this with the builder, the reps, and even M/I Financial suggesting that this is illegal. In the last year or so, however, things have heated up again.  Another builder in town doing this has backed off, allowing more than one lender to be the ‘preferred’ and more have jumped on the ‘illegal’ bandwagon. Many believe that numerous consumers are buying homes with a rate .125% lower than what we can do and covering costs only because they’re throwing 3% at the loan, where, if given the same opportunities, we would be able to give the buyer another .375% off the rate and do the same for the same benefit.  Something is wrong here, would you not agree? To make this even more interesting, our bank actually allows for 30yr fixed (or any fixed rate) long-term locks for 8, 10, and 12 months with only a small bump to rate, thus permitting today’s rates in the event of a quick rise in rates…this builder lender cannot.”

 

[Editor’s note: I know that I have published the CFPB whistleblower site before, but it is worth repeating. In my experience, yes, one receives an e-mail back, and eventually a call: http://www.consumerfinance.gov/newsroom/consumer-financial-protection-bureau-begins-taking-whistleblower-tips/. If you believe something is truly against the rules, report it.]

 

Although it is not a huge issue, if rates show any tendency to move lower still, early payoff penalties could become more of an issue. In fact one LO wrote saying, “The problem is not that people are done refinancing but that the current overlays, LLPA hits, or bizarre/odd underwriting rules are so restrictive that many simply cannot qualify. Couple that with the persistent and ever ending HVCC/AI problems, and refis are further suppressed.”

 

From Louisiana I received, “Rob, regarding the comments by LO’s concerning why they should not be held financially accountable for EPOs on loans that they originated, there must be a balance between what is right for the LO and what is also right for the LO’s employer. As stated by many LO’s, there are many reasons that a loan might pay off early that are beyond their control but, does that mean that the employer takes all of the hit per the terms of the wholesale agreement and the LO does not have any responsibility? I love LO’s as they are the life blood of the industry–they get everything going by bringing real loans in the door that generate salaries and commissions for everyone in the company. On the flip side, I love the employer who puts their personal capital at risk by guaranteeing the contracts they execute and responsibilities of running the company. There must be a balance—-too many hits that are not shared the company disappears and nobody in the company, LO’s including, has a job!”

 

Craig Pollack contributes, “I won’t try to defend all of the Dodd/Frank Reg Z changes as the perfect solution to what ailed the industry, but by requiring the loan officer to accept the same compensation on all loans, regardless of loan type, rate, terms, etc. the rule puts the loan officer in the position to desire to offer the consumer the absolute best combination for their situation. How long will a quality loan officer stay at a company that is consistently so far out of the market that they lose clients to competitors? The company must put their best price forward at the initial stage so the consumer does not have to “horse-trade” to get their best rate. And EPOs should not be charged back to loan officers! Just because a lender wrote it into their employment agreement did not make it legal or the proper thing to do. If the loan officer properly took the application and informed the underwriter of anything that might be false or misleading in the documents provided by the borrower, then responsibility for the technical aspects of the loan fall on the mortgagee not an employee of that mortgagee. You can fire the LO, processor, or underwriter for making bad decision or doing sloppy work; but you should not be docking their pay. On the flip-side, if a loan officer knows the consumer is going to sell or refinance within 6-months, he has an obligation to notify his employer. If the loan officer has created a good relationship with the borrower, he should know when a borrower has had a change of circumstance and is thinking of selling or thinking of refinancing prior to the 6 month anniversary. In that case, he can discuss the situation with his employer and they can make a decision together on how to handle the situation.”

 

Okay, enough for one day!

 

Paddy is doing some roofing work for Murphy. He nears the top of the ladder and starts shaking and going dizzy. He calls down to Murphy and says, “I tink I will ave to go home, I’ve come all over giddy and feel sick.”

Murphy asks “Ave yer got vertigo?”

Paddy replies “No, I only live round the corner.”

 

 

Rob

(Copyright 2014 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)