Jan. 3: Notes on eminent domain, SISA & NINA loans, whether or not LOs can work for various companies

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...

All kinds of predictions are flying around, as they do at this time every year. And often forecasters look to past trends and correlations for information. Sergio M. passed along this site showing that correlations aren’t always what they seem. For example, the number of people who died by becoming tangled in their bed sheets correlates with total revenue generated by skiing facilities (US). Really?

 

I received this question. “Rob, what is the latest on eminent domain?” There isn’t much, but the MBA summed things up nicely with the headline, “Congress Enacted MBA-Supported Provisions to Block Eminent Domain Mortgage Seizures”. “In recent years, a growing number of municipalities across the nation, at the urging of a private investment company, have considered using the power of eminent domain to seize performing, underwater mortgages and refinance them. As a result of MBA advocacy, Congress weighed in strongly on the issue by approving legislation barring FHA from refinancing mortgages seized in this unprecedented manner. More specifically, the law prevents HUD, FHA, and Ginnie Mae from insuring, securitizing, or establishing a Federal guarantee for loans seized in this fashion. The provision was added back in June to a broader HUD appropriations bill that passed the House, and was ultimately included in the omnibus appropriations bill Congress approved this month for FY2015. MBA believes the legislation wisely protects taxpayers from footing the bill for this costly scheme.”

 

Last Saturday I received several letters after the commentary quoted a reader who opined, “Rob, I’m in my 35th of the mortgage business. Bringing back SISA and/or NINA loans would be the MOST stupid thing the industry could do. It would be completely irresponsible. I can’t state my opinion on the subject in a more blunt, terse, or direct manner. First, any person with a MLO license who advocates for SISA and/or NINA should have their license revoked for life.”

 

It would appear that if all the participants to transaction where honest, SISA and NINA would probably work. But the fraudulent element in the industry makes those features unworkable. And they violate the CFPB’s Ability to Repay rule.

 

Murray Gray with Grace Financial wrote, “Regarding the comments on no more stated loans, I always get a bit frustrated that the dialog tends to go back and focus on those NINA and SISA loans originated in the last few years prior to collapse. The challenge with that is that I can’t imagine anyone who has been in the industry since the 80s or 90s that believes a 100% LTV interest only NINA investor loan with a 500 credit score would ever have a chance of performing even for a month after closing but the product did exist at the very end just before everything blew up. I never personally ever originated a subprime loan but I saw it being done regularly and I just rolled my eyes in disbelief. But I also find that the conversation of stated income loans tends to fall into the same discussion as the SISA state income stated asset loans or NINA no income no asset loans. Just as we hear Bozo the clown politicians make generalized statements that all interest only loans are bad when we know that is not a true statement there is no doubt in my mind that there is a significant market for stated income products. And no I am not referring to a stated product that has only a ¾ point disparity between that and a full doc loan as this mindset takes us back to the time just prior to the collapse.”

 

Murray’s note went on. “I tend to simplify my perspective on lending. With the 4 categories of a loan broken down into income, funds, property and credit, to make a good loan, if one of those categories is absent then the other 3 must be that much stronger. But without strength in 3 of the categories I do not believe you can have a quality product so I am in agreement that true SISA and NINA loans have no place in our industry. Having these points clarified the industry could certainly use some good stated income loans. Does anyone think a 50% LTV loan on a borrower with 750 credit and enough liquid assets to pay off that loan would not perform at a higher rate than the current Fannie or Freddie loans with default rate of around 2%? And the difference in this loan is that the bank that makes the loan knows that if the loan goes south then the bank will still come out ahead. The key to opening that product back up is simply a matter of time but the real question for the industry is to find a way to keep politics out of the conversation and use the statistics on the historical performance of these loans (that are available) to determine the responsible limits of where these products. With verified strong assets, excellent credit and healthy Real estate values the focus should be on LTV and pricing. They will come back; my only fear is that we have to ensure they remain at a responsible level. Just because a borrower can’t qualify for a loan under current Fannie or Freddie guidelines does not make the borrower in a stated income loan a fraudulent borrower.”

 

And Garry Shaw from San Rafael, CA wrote, “His arguments against NINA and SIVA loans may make sense in Wisconsin, but they don’t necessarily apply to California. Here in the Bay Area we have both high property values and a large number of self-employed entrepreneurs. Their tax returns will never adequately reflect their capacity to service the debt on their homes. The first thing successful people do once they start creating wealth is to hire a sharp CPA or tax attorney to help them shelter their income from taxation. With most underwriting being done according to Fannie and Freddie guidelines this fails to address the realities of many high income earners. I’ll cite a recent example: a client who is a co-founder of a Silicon Valley business. During the early years of the company in lieu of salary he received stock. Following a successful IPO his block of stock is worth millions, but because of his cash flow, he doesn’t qualify using conventional underwriting. Despite having generated perhaps $15,000,000 in asset growth over a 5 year period, his annual income for qualifying purposes is relatively low. Wouldn’t a SIVA be appropriate?”

 

Luke asks, “Rob, Do you know if a loan officer can hang their NMLS license with multiple companies at the same time? Real estate brokers are allowed to do that and I see no reason why a loan officer shouldn’t be afforded the same privilege? I can understand being a captive LO if you’re only registered with NMLS but a licensed LO should be allowed to originate at different places…say, for example, working for a builder’s brokerage on weekends and then for a local bank during the week.”

 

After wondering why any loan company would want to permit its originators to do that, why would management of any company allow their W2 employees to work different day jobs, I received a “loud and clear” response from the attorneys I contacted, including the following from one respected mortgage attorney: “Real estate agents are agents, not employees. That makes all the legal difference in the world, but even so, I’m not sure that many brokers allow their agents to work for multiple brokers. Meanwhile, it is a requirement of most state licensing regimes that NMLS licensed originators be under the control of the licensed origination entity to avoid needing to obtain their own broker or lender license.  Also, employees owe a duty of loyalty to their company and must avoid or disclose conflicts of interest.  Working for another company poses a direct conflict with their employer and is a recipe for all kinds of shenanigans that should be avoided.”

 

[Editor’s note: north of here, in Canada, the real estate rep may also be the mortgage agent.]

 

“Rob, can a company be set up to employ loan officers, but hire those loan officers out to various mortgage companies?” If I understand your question, Myrtle Inc. is created. Myrtle Inc. has loan officers on its staff, and these LOs are hired out by Myrtle Inc. to various banks and credit unions that want to help their depositors but don’t want to hire an LO. It looks like this company https://homeloancusw.mortgagewebcenter.com/  employs the LO and offers the service to credit unions. In this hyper-compliance environment we will see how this works out. Perhaps it is a nice business model if it truly is compliant. The CFPB or another regulator might be interested in whether or not the credit union is providing enough of the essential elements to be able to receive compensation if the LO is on site basically doing everything. But if you have questions about an LO having a duel license in NMLS, one for one state and another for a different state, and whether or not the FHA cares about this (it does), and the fine details, ask your in-house attorney.

 

“Rob, can a company be set up to employ loan officers, but hire those loan officers out to various mortgage companies?” If I understand your question, Myrtle Inc. is created. Myrtle Inc. has loan officers on its staff, and these LOs are hired out by Myrtle Inc. to various banks and credit unions that want to help their depositors but don’t want to hire an LO. It looks like this company https://homeloancusw.mortgagewebcenter.com/  employs the LO and offers the service to credit unions. In this hyper-compliance environment we will see how this works out. Perhaps it is a nice business model if it truly is compliant. The CFPB or another regulator might be interested in whether or not the credit union is providing enough of the essential elements to be able to receive compensation if the LO is on site basically doing everything. But if you have questions about an LO having a duel license in NMLS, one for one state and another for a different state, and whether or not the FHA cares about this (it does), and the fine details, ask your in-house attorney.

 

Your attorney may note that they don’t see anything specific about them acting as a service provider to the credit unions. But attorneys have structured such outsource arrangements understanding that the originator/LO company may have overlapping compliance obligations with the lender bank/CU.

 

The small print it said CU Member Mortgage was “a division of Colonial Savings, F.A.” Perhaps the CU’s are funding the loans originated/brokered by CU Member Mortgage and their “compensation” is obtained solely through a secondary market transaction not subject to RESPA.  One prominent lawyer observed, “It also looks like this company services the loans for the CUs.  In a way, all mortgage brokers are just outsourced LOs. This may be an example of doing the same thing, but calling it something else. I’d be interested in how the CU regulators look at the vendor management issues posed by this kind of relationship, especially if it is an exclusive relationship.”

 

Donna Beinfeld at www.Donnashi.com (QC audits, both post-closing and servicing, and writing QC plans and mortgage banking manuals) thought, “I believe this would violate state, HUD, State, RESPA, and CFPB. Though none of these agencies or regulations have a direct policy on ‘Rent an Originator’, they are all clear on the fact an originator works for a financial institution, licensed, and is paid in compliance with CFPB’s Loan Originator’s Compensation Plan. HUD requires a Loan Originator to be paid by W2, and is identified as an employee. At the state level, various states require that an employee maintain a state license which would be active with one company at a time.  The NMLS system requires that if the Loan Originator changes employment, their license information has to be updated. And concerning RESPA, the recent Consent Order for Lighthouse Title Company paid referral fees to individuals that provided client referrals as non-employees. Had the individuals been in payroll for the title company, this would not have been a referral fee ‘RESPA’ violation.” Thank you Donna!

 

 

(Yes, I know this is ancient.)

A man goes to see the Rabbi.

“Rabbi, something terrible is happening and I have to talk to you about it.”

The Rabbi asked, “What’s wrong?”

The man replied, “My wife is going to poison me.”

The Rabbi, very surprised by this, asks, “How can that be?”

The man then pleads, “I’m telling you, I’m certain she’s going to poison me. What should I do?”

The Rabbi then offers, “Tell you what. Let me talk to her, I’ll see what I can find out and I’ll let you know.”

A week later the Rabbi calls the man and says, “I spoke to your wife on the phone for three hours. You want my advice?

The man said, “Yes!”

The Rabbi replies, “Take the poison.”

 

Rob

 

(Copyright 2015 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.)