Oct. 4: Observations on the CFPB’s Consent Order regarding MSAs; catching up on lender & investor updates

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...

H&R Block recently published information on the worst college majors based on industry unemployment rates. If obtaining a job is a top priority it’s best to avoid a degree in anthropology, archeology, or film and photographic arts. Further, while there’s nothing saying a person who majors in music or history won’t get a job, the odds aren’t overwhelmingly in their favor either. By contrast, retail salespeople, medical and health service managers, physical therapists, occupational therapists and computer support specialists are in high demand. James suggests, “Here are my thoughts. It’s fair, and it’s not fair, and when it comes right down to it, caveat emptor! A Stanford economics degree should cost $125,000, and a Stanford art history degree should cost $45,000. Colleges should charge, if neoclassical economics hold true, according to a price disparity index. Problem solved.”

 

And on the at-times divergent goals of solid credit and the government pushing home ownership higher, I received, “Has the government thrown the baby out with the bathwater? Every day my LOs see qualified borrowers who don’t quite fit the QM box, yet with low LTVs and other compensating factors. Yet we, as lenders, can’t do those loans, or the interest rates are too onerous. Yet the government continues to beat its drum about home ownership, and have somehow shifted the blame onto the lenders that home ownership has dropped. One is not entitled to own a home, it should take hard work, save up for a down payment, have a good credit history, a solid job and some money in the bank. Not everyone should own a home if they can’t afford one. This is just plain common sense.”

 

John N. Hale, founder & CEO of Glendenning Mortgage Corporation writes, “Noticeably absent in the article (The CFPB filed a Consent Order on Tuesday against Lighthouse Title, a title insurer based in Holland, Michigan.  The order was, the Bureau said, sending “a clear and simple message” that it intends to pursue legal action against financial institutions that pay in any manner for referrals) is any reference to the consequences to the referring parties for having accepted valuable consideration in exchange for having made referrals to the entity that was the subject of the CFPB’s enforcement action. Referral sources (real estate brokerages, builders, etc.) will continue to actively seek out and engage in Marketing Services Agreements (“MSAs”) with settlement services providers (mortgage originators, title companies) until such time that referral sources clearly and unambiguously understand that through their participation in these arrangements, they are accepting the risk of serious regulatory enforcement action with major consequences to THEM. Only then will the goal of consumers becoming the beneficiaries of free will, merit-based referrals from real estate professionals as envisioned by RESPA, sections 8(a) & 8(b), stand a chance of being fully realized.”

 

On the same issue (the CFPB announcing a Consent order with Lighthouse Title regarding marketing service agreements – MSAs – CFPBTakesAction) I received this comment from attorney Brian Levy. “Since this appears to be the first Consent Order arising from a CFPB enforcement action focused exclusively on MSAs, I have been fielding a fair number of calls asking about its implications. While the Order does not carry the same force of law as a regulation or even a court decision, it does reflect at least some of the CFPB’s, seemingly skeptical, views on MSAs. On the other hand, it also admits that RESPA permits payment for goods and services, and does not expressly outlaw MSAs.  The Order has spawned considerable discussion among the ‘legal eagles’ familiar with these RESPA issues as to its exact impact, but, in the absence any additional regulatory pronouncements from CFPB, at this point that mostly amounts to ‘tea leaf’ reading.

 

Nevertheless, for what it is worth, while containing some very opaque references that are likely to create confusion, the Order is largely a reminder of what the existing law and regulations already say: namely, an MSA is not simply an easy way to “get around” the referral fee prohibitions of RESPA. As each MSA is different and poses unique issues for the participants, it is important to consult with your own legal counsel directly, but the following are a couple of key take-aways from the Order as I see it:

 

First and foremost, the CFPB said loud and clear that an MSA is not a means to legally pay someone for referrals.  While it is essential to have a contract that says the right things, even if you have a compliant legal agreement it will not serve as shield to actions at the ground level that reflect a different understanding from what is written on paper.  Everyone involved in an MSA needs to understand and be able to articulate that the relationship is solely for the purchase of specified marketing services and not a quid pro quo for referrals. Under RESPA, there can be no agreement or understanding regarding referrals in return for payment.  In that regard, it can be helpful to analogize the MSA relationship to purchasing an advertisement in the newspaper or a booth at a trade show that enable you to get your name and products in front of consumers: but you still need to compete for business.  Ironically, the fact that Lighthouse’s referred transactions increased after the MSA commenced was used by CFPB as evidence that relationship was really about referrals and not services (the Order fails, however, to conclude whether it was the marketing or the referrals that led to more transactions).

 

Second, it is essential that the fees you pay in an MSA not be greater than fair market value and that you document receipt of the services you pay for.  Otherwise, the CFPB might conclude that what you really intended was to just pay for referrals.  The Order is clear that Lighthouse should have determined (and documented) the fair market value of the MSA services before entering into the MSA.  Because Lighthouse failed to make a fair market value determination for the MSA services, instead using the value of the business to generated and what others were willing to pay for similar MSAs, CFPB concluded that the monthly fee (which I understand was actually a fixed monthly fee) was based on the expected or received amount of referrals.  Moreover, CFPB highlighted in the Order that Lighthouse should have verified that the MSA services were, in fact, delivered.  Confirming fair market value (at the onset and periodically thereafter) and verifying receipt of services on an ongoing basis is a relatively easy compliance matter for MSA participants to address (most already do), ideally using a third party service provider who can provide an independent assessment.” (Brian can be reached at blevy@kattentemple.com.)

 

Let’s check out some lender, investor, and vendor announcements from the last several weeks. Playing catch up! As always, it is best to read the full bulletin for details, but these will give us a sense of where lending is trending.

 

AllRegs has been named the official publisher for FHA Single Family policies. Aspects of the FHA agreement include publishing, training, customer service and project management. Details of the publishing platform include searchable access to both current and archived documents, the ability to perform dynamic searches using keywords and synonyms, and the ability to export content into user modifiable formats.

 

Citibank credit overlays listing provide a summary of credit overlays in its policy in addition to agency guidelines. Bulletin 2014-10 contains credit policy updates, regulatory update notice, clarifications and reminders.

 

Ellie Mae announced that it has completed its acquisition of AllRegs, a leading information provider for the mortgage industry. At a time when compliance has become mission critical for mortgage lenders, the acquisition positions Ellie Mae as the leading source of mortgage management technology, investor guidelines, compliance resources and education to help lenders achieve compliance, loan quality and efficiency.

 

Flagstar Wholesale posted multiple memos covering the following topics: reminder to ensure FHA’s UFMIP refund and loan calculation requirements are met; Flagstar’s Funding Department must receive all FHA Refinance pre-funding documents no later than 5 p.m. ET on the appropriate deadline. The 2014 annual recertification for all Flagstar Non-Delegated Brokers and Correspondents began on Monday, August 18th; important updates to items needed for non-Delegated Broker and Correspondent recertification have been posted. FHA has extended, without revision, all temporary condominium project approval guidelines originally published in Mortgagee Letter 2012-18. Additionally, lenders are reminded that premium pricing credits may be used to pay closing costs, discount points and pre-paid expenses on behalf of the borrower, provided that the credit is disclosed on both the Good Faith Estimate and HUD-I Settlement Statement in accordance with RESPA. Finally, customers with closing cooperative loans in the states of New York and New Jersey, a new procedure document was created in its Sellers Guide for reference.

 

BBVA Compass Bank reminded the industry that it offers 95% home loans to doctors, lawyers and dentists with NO PMI or reserve requirements and flexible guidelines.

 

Fifth Third Correspondent has expanded its policy on Locks and Relocks, the timeframe required to relock at worst case pricing have been reduced from 90 to 60 days. Also, clarifications regarding Conforming and Portfolio Products Sales Contract Extension Requirements have been posted.

 

Globe Newswire reported Urban Financial of America, LLC introduced “HomeSafe” Jumbo Reverse Mortgage for homeowners with significant property values. The report states this program is now available for homeowners in high home value States of California, Florida, Hawaii and New Jersey.

 

Freddie Mac’s Single-Family News Center article discusses tool to help manage post-funding quality control (QC) activities. It’s called Quality Control Information Manager (QCIM), and it’s a powerful online tool to help you manage QC performing and non-performing loan requests from Freddie Mac. QCIM is designed to manage post-funding QC requests, create customizable reports, and analyze trends for process improvements.

 

Fannie Mae’s Announcement updates several servicing policies and related Fannie Mae forms. The affected policies include authorizing servicers to waive deficiency judgment rights, introducing the Suspended Counterparty Program, requiring electronic submission of the P&I and T&I Letters of Authorization, clarifying when to submit a request for servicing and subservicing transfers, adjusting the Fannie Mae Standard Modification Rate, and clarifying the MyCity Modification process. Get the facts about Fannie Mae’s updated policy for borrower eligibility following a derogatory credit event. This new fact sheet summarizes the previous and revised policies, and includes borrower scenarios for a previous short sale or deed-in-lieu of foreclosure.

 

Citibank Correspondent Lending is offering a more simplified approach for Correspondents that use Ellie Mae’s Total Quality Loan program (TQL). Citibank is accepting TQL standard services including: Encompass Compliance Service™ with ATR/QM verification documentation, Income verification via Encompass 4506-T Service™ with either Record of Account (ROA) or Return Transcript to include one year tax return, Standard fraud report utilizing Encompass Fraud Service™ and Encompass Flood Service™.

 

Essent Guaranty, Inc., a nationwide provider of mortgage insurance (MI), announced that it is now offering lenders access to Essent MI for delegated and non-delegated loans and rate quotes through ISGN’s MORvision Plug-In Partner Network. ISGN Corporation™ is a leading provider of end-to-end technology solutions and services to the U.S. mortgage industry.

 

Mountain West Financial Wholesale announced it will discontinue the Fannie Mae HomePath program effective with the following dates: HomePath loans must be submitted to MWF Underwriting by September 30, 2014, HomePath loans must close by December 12, 2014. USDA pending guarantee fee increase will affect loans that have not received a conditional commitment. Loans must be re-disclosed to include the new guarantee fee within the allotted time frame.

 

Envoy Correspondent Lending will now purchase HPML and Rebuttable Presumption Loans within certain loan program origination guidelines.

 

MB Financial provided additional clarity regarding underwriting guidelines on conforming loans. Allowable age of credit documents that when consecutive loan documents are in the file, the most recent document is used to determine the age.

 

M&T Bank has updated some agency insurance requirements on Agency Condos and Co-Ops effective September 15th. Updates to its declining market policies have been posted as well.

 

Homebridge Wholesale has programs with 5% down gift funds allowed.

 

 

(Rated PG)

In the great days of the British Empire, a new commanding officer was sent to a jungle outpost to relieve the retiring colonel. After welcoming his replacement and showing the usual courtesies (gin and tonic, cucumber sandwiches etc.) that protocol decrees, the retiring colonel said, “You must meet my Adjutant, Captain Smithers, he’s my right-hand man, and he’s really the strength of this office. His talent is simply boundless.”

Smithers was summoned and introduced to the new CO, who was surprised to meet a humpbacked, one eyed, toothless, hairless, scabbed and pockmarked specimen of humanity, a particularly unattractive man less than three feet tall. “Smithers, old man, tell your new CO about yourself.”

“Well, sir, I graduated with honors from Sandhurst, joined the regiment and won the Military Cross and Bar after three expeditions behind enemy lines. I’ve represented Great Britain in equestrian events, and won a Silver Medal in the middleweight division of the Olympics. I have researched the history of…..”

Here the colonel interrupted, “Yes, yes, never mind that Smithers, he can find all that in your file. Tell him about the day you told the witch doctor to go f- off.”

 

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.)