June 7: Letters on vetting underwriters, brokers changing fees, preferred service providers, cool Realtor apps

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...

“Rob, is there a reputable site for free credit reports for our clients?” Yes, right here. Pass that along to your borrowers – the others are thinly disguised commercial enterprises.

 

(Speaking of sites, earlier this week I once again had the good fortune of speaking at the same venue as Genworth’s Steve Richmond. He puts together a great presentation, and I am going to shamelessly mention two cool applications he presented. The first is an app called MagicPlan that allows you, with your phone, to draw floor plans. What Realtor wouldn’t want that to show their clients! The second is pretty amazing, although it gives us a reminder of the continued presence of “Big Brother.” The Homesnap app allows someone to take a photo of a house and through GPS “the internet” figures out where you are, the house, the square footage, the last sale price, recent permits, the schools in the district, and so on. Privacy takes another hit.)

 

Regarding the increasing debt of senior citizens, Brian from CT writes, “Is the government really surprised by a statistic showing older Americans having more mortgage debt when all over you see ads for government-guaranteed reverse mortgages to make the golden years that much better? It’s like saying they are surprised the FHA average FICO is below Freddie and Fannie’s! The programs are designed to create the statistics they are seeing! Morons.”

 

Amy writes, “Regarding student loans among older people, many of these are student loans taken out by the parents to fund Junior’s education.  They have beneficial terms relative to other unsecured loans but not nearly as good as a HELOC would be. The parents are solely on the hook for these payments (note they may also be cosigners on Junior’s other loans).  And some of them are going back to get degree’s they could not previously pursue.  But I confess I was shocked too by the magnitude of the numbers.”

 

And as a reminder that most houses are homes and not investment vehicles, Vicki writes, “Housing Price Appreciation expected to plummet 40%, really? It is a home (for Myrtle, Gusto, your wife, children and you) not an investment. I’ve enjoyed a small write off (not equal to the maintenance) for years but it is a place where my children and their friends still ring the doorbell at Thanksgiving or Christmas to see ‘who is around’. Teachers (educated at Harvard) hold their wedding receptions out back and the neighbors come by regularly. The reason I’ve been in this business for 42 years is because I so believe in home ownership! Two of my three children do not have the same belief in homeownership, they have rented 10 years; wanting to be mobile, yet complaining about the landlords. Their views mirror those of FTHB’s, right?”

 

LO compensation continues to be an issue, and no one wants to run afoul of the CFPB’s interpretation of its own rules. I received this note regarding the possibility of brokers changing compensation to be competitive or help the deal close. “The problem is this is discriminatory to brokers who were defined legally as mortgage loan originators.  It is not fair to the broker.  A banker can reduce company compensation in order to fine tune a transaction or be competitive, whereas a broker can’t. The CFPB needs to change that inequity.”

 

First, no one ever accused the CFPB of wanting to level the playing field. One can always write to the CFPB and ask it questions like this. But I passed the question along to attorney Brad Hargrave (of Medlin & Hargrave) who kindly replied, “While we certainly empathize with the writer’s frustration in divining the LO Compensation Rule’s applicability to ‘real world’ scenarios, this particular question is a little more straight-forward than others.  In short, whether the transaction is borrower-paid or creditor-paid, the loan originator’s compensation must be fixed at the time the creditor offers to extend credit with specified terms, and may not thereafter be increased or decreased.

 

Brad’s note went on. “In our opinion, the Official Interpretation of Regulation Z is reasonably clear on this issue. When a creditor offers to extend credit with specified terms, the amount of the loan originator’s compensation for that transaction is not subject to change (increase or decrease) based on whether different credit terms are negotiated. (See, Comment 1026.36(d)(1)5).  Moreover, this same Comment thereafter provides that ‘a loan originator organization may not agree to reduce its own compensation in a transaction where the loan originator organization receives compensation directly from the consumer…’ which would appear to be directly on-point with respect to the writer’s question. And while there are, indeed, certain ‘permitted decreases’ in loan originator compensation that are now available under the CFPB Rule that took effect in January, those are narrow in scope, and should be evaluated carefully before making any such reduction in a loan originator’s compensation.” Thank you Brad!

 

And this from Northern California on trends in credit standards. “’HELOC’s and stand-alone seconds did not contribute to the housing crash. Their misuse by unscrupulous people (both lenders AND borrowers) did.’ Wow, Rob, rarely, if ever, do you get my ire up, but…I often feel like a Chevy salesman vilified for selling Corvairs while the execs at GM are playing golf and vacationing in Europe. I have a hard time with what are some of the brightest people in the business world telling the ‘housing prices never go down’ story back before the crash. Take any asset class through the entire economic history of the world, erase credit standards and loan with complete lack of common sense and discrimination, then use the values inflated by this liquidity to justify further lowering the lending standards and pumping more money in, until the bubble bursts. And nobody saw it coming? I just don’t buy it.”

 

The note continued. “The guys at the Fed and the guys that run the world’s biggest investment banks are very, very bright fellows. If we can’t count on them to be the adults in the room, we need different adults. I will never forget the Aurora (read Lehman Brothers) rep handing me her card, asking me to turn it over, telling me to write my name, address, and social on it, and then saying ‘Every time you get a client to do that you will make $5,000.’ I am definitely smart enough to know better, but you take a 25 year-old who never graduated from college, has no experience in the world, hears from on high that housing can never drop, and watches all his peers doing this, and the predictable happens. And it really sickens me (not a phrase I use lightly) how so many people who really didn’t understand this charade lost their homes, life savings, and peace of mind, while the average Lehman VP had his net worth cut in half when the company went down – from $20 million to $10 million. I can handle being called unscrupulous, but only if you bring Wall Street and Washington into the same sentence.”

 

From out in Northern California Mary Lombardo contributes, “I read your discussion on consumers understanding their rights to choose service providers and the risk of referring a lender (or real estate agent for that matter) with great interest.  Everything we do these days seems to be a slippery slope of risk. Although there are valid reasons for a real estate agent to refer to their preferred lender, we as professionals need to be confident we are not putting ourselves and our license at risk as we work with our business partners. One real estate agent with whom I work requires all offers on her listings be pre-approved by her approved lender (me) before submitting their offer.  We are in an area where it has been common to have 20-30 offers on a listing.  We see the offers submitted drop to 6-10 well qualified potential buyers by requiring this process. By pre-approving the credit worthiness of all offers in the same manner, we provide a level playing field for all potential buyers where buyers benefit by not competing against frivolous offers that are not qualified and cannot close the transaction. No Seller or listing agent wants to wade through multiple offers hoping they choose the “right” one; they want a few solid offers from which to choose. Although buyer’s agents require their clients be pre-qualified by a lender before showing property, many pre-qualifications are cursory at best. I have provided this service to my listing agent and her sellers for over two years and have not worked with one client whose offer was accepted after being pre-approved through this process.  I have developed a relationship with a few clients who, although they did not have their offer accepted, were impressed by the quality of service I provided and chose to work with me on future transactions. Now I wonder how I can continue to provide the same level of service to my referral partners without putting myself at risk.  Our business is built on referrals from past clients and business partners; without referrals we can no longer provide those services that differentiate us from retail bankers who wait for their clients to come in the door with a need.”

 

From Southern California I received this note about underwriter education. “How does a sales guy, such as me, properly vet a prospective new hire underwriter if I do not have a seasoned underwriting manager on staff?  We are a small company and I would love to know if there is a service that will test/authenticate the underwriting skills of the person whose credentials appear to check out.  This could be my type-A personality in hyper drive, but the thought of funding a $600,000 FHA loan with a new underwriter that may have missed something causes me to age pre-maturely.  Then again, I am in the wrong business if I am attempting to stay young. Is there such a service that will test a prospective new hire for VA, FHA and Jumbo competency?”

 

Jan Walters with the STRATMOR Group responded, “There has always been a lot of responsibility placed on underwriters, and it has only gotten stronger in recent years-particularly with the advent of QM. That being said, I am not personally aware of any underwriter testing package that you can acquire. I would start with the MBA to see if they offered such a product or could point you in the right direction.  Beyond that, I did a quick web search and two organizations came to light that might be of some assistance. The National Mortgage Underwriters Association in Washington DC; they sell Underwriting training classes.  There is no mention of any Underwriting skill tests, but there might be something that can be worked out with the organization. Indecomm Mortgage U provides training classes for a number of mortgage roles, including underwriting, and it may also be able to accommodate a request for an Underwriter test. My best suggestion is for you to think back upon your prior experience to see if you know a senior underwriter or underwriting manager that you trust and still have some ties to.  See if he/she would be willing to help you interview your top candidates or if they would be willing to underwrite a loan or two that can be sanitized (i.e. change names, addresses, any loan, account or ID numbers to something generic) and given to your top candidates to see how they would underwrite the loan.  Compare their results to those of your contact and discuss how the candidate thought through the loan.  Or even better, see if your contact would be willing to ‘grade’ the test or discuss the candidate’s thoughts on the loan.”

 

 

Four guys have been going to the same golfing trip to St. Andrews for many years. Three days before the group is to leave, Jack’s wife puts her foot down and tells him he isn’t going. Jack’s mates are very upset that he can’t go, but there is nothing that they can they do. Three days later, the three get to St. Andrews only to find Jack sitting at the bar with four drinks set up! “Well, I’ve been here since last night. Two evenings ago, I was sitting in my living room chair and my wife came up behind me and put her hands over my eyes and asked, ‘Guess who?’ I pulled her hands off, and there she was, wearing a nightie. “She took my hand and pulled me into our bedroom. The room had candles and rose petals all over. Well she’s been reading 50 Shades of Grey…… “On the bed she had handcuffs, and ropes! She told me to tie her up and cuff her to the bed, so I did. And then she said, ‘Do whatever you want.’ “So, here I am!”

 

 

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.)