Mar. 21: Letters on the Mortgage Action Alliance, LO comp for bond loans, extending HARP, and handling student debt

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...

There continue to be plenty of astute folks in the lending business looking at common problems, and commenting or making suggestions, so without further ado…

 

On the topic of LO comp for bond loans, Steve Emory contributes, “Rob, the MBA and the National Council of State Housing Agencies is working the wrong end on the HFA (Housing Finance Agency) issue. They should push for average costs to be charged on HFA instead so they can pay their loan officers the same on HFA as any other product. Even if CFPB gives them an exemption on LO comp for these programs, it may not expand access to the HFA as they think. Loan officers also have increased costs doing these loans. Usually they take much more time, higher fallout of leads to closed, and risk to future business from referral sources when they go sideways. Many loan officers will take the approach it isn’t worth the lower compensation to do HFA loans. And where does this approach of different comp for different loans end? Or better yet, why are we here in the first place. Anyone who has been in this industry over six months knows that every loan has different risks and costs involved. Every borrower has different requirements that take different skills & time of the loan officer to close. So why are we paid the same on them all? But this argument was lost back in 2009 with Dodd-Frank. So now we deal with it and the only fix is for lenders not to offer products that can’t meet current rules with profitability. Even HFA programs offered by States will see the consequences to Dodd-Frank.”

 

Sylvia Gutierrez voiced her opinion on the HARP. “Here are some reasons why this LO thinks HARP should be extended for at least three more years. First, many lenders use USPS.com to override property addresses.  If subject property is not entered EXACTLY as it appears in the mortgage billing statement, a false ‘REFER’ property ineligible will appear. To determine eligibility, LOs should first check Freddie and Fannie sites for a match and when found, have Ops override the property address in LOS. Second, for condos, be sure unit number is a match and that AUS has picked up the unit number.  Oftentimes, AUS doesn’t pick up the unit number and a false “REFER” will appear.  When entering the condo unit number on the Fannie or Freddie Loan Lookup Tool, be sure to NOT enter symbols such as “#,” or words such as Apt., No., or Unit.  Only enter the unit number as it appears on the mortgage statement. Third, pay attention to cash-back limitations.  For Fannie, if credits show in excess of $250 on Section VII- Details of Transaction, AUS will deem transaction ineligible.  For Freddie, loan amount additions above payoff for closing costs and prepaids can’t exceed $5,000.  If they do, system will show ineligible.  Borrower should bring monies to closing (easy sell as they are typically skipping one, maybe two, mortgage payments.

 

“Fourth, many people don’t know that the most aggressive underwriting guidelines are with the servicer of their loan.  They may have made application at a “cheaper” lender, but that “cheaper” lender had overlays that prevented the borrower from benefitting from HARP. And lastly, when the program initially rolled out, occupancy was restricted to same occupancy on the new loan. Updated program makes no similar restrictions as Fannie and Freddie already hold the risk. The bottom line is that consumers can gain great benefit if they’ve fallen into the hands of an LO that is familiar with the systemic challenges.” Thank you Sylvia!

 

The MBA is alive and well. Fowler Williams writes, “Rob, as the 2015-2016 Mortgage Action Alliance (MAA) Chairman for the MBA, I want to share with you and your readers some of the reasons active engagement and advocacy are essential to the future of our industry. The Mortgage Action Alliance is a free, voluntary, and non-partisan nationwide grassroots lobbying network that is dedicated to strengthening the industry’s voice and lobbying power in Washington, DC and state capitals across America. The policies and legislation the industry faces impact our day-to-day jobs in tangible ways. We have a right and duty to join that conversation – a right to speak freely, and a duty to speak up! As a representative of an industry that employs hundreds of thousands of Americans, we can no longer sit idly by while decisions are made that affect us all. You have a choice — watch it happen and accept what may come, or be an active participant – for free.

 

“When I assumed the chairmanship of MAA, I must admit, I was disappointed to see that we had less than 10,000 mortgage professionals registered as MAA members. This has to change.

MBA’s National Advocacy Conference 2015 (April 14th and 15th at the Capital Hilton in Washington D.C.), will mark the 10th Anniversary of MAA. In order to have a louder voice in Washington, D.C. MAA is on a mission to have 10,000 members by the start of the conference. It takes just a few moments to sign up and make our shared voice louder. It is free – sign up to be a member. The larger the group, the louder the voice!”

 

Greg Swenson contributes, “I believe that FNMA has gone way too far in how they handle student loan debt. New guidelines now require the lender to use as monthly payment for student loan, regardless of their payment status, the greater of 1% calculation or the actual documented payment. A great illustration is the effect of student loan payments for a medical resident.  The doctor during residency earns about $48,000 per year, but may have $160,000 to $200,000 plus in outstanding student loan debt. Upon graduation, from medical school the student loans go into repayment but the resident is allowed to repay them via income based repayment. With income based repayment, the loan payments due can be as low as $350 per month which allow the resident enough cash flow to purchase a home.  The only way that the income base student loan payments increase is when the doctor’s income rises.  But then they are making more income, don’t they then have the ability to afford the house payment as well as the increased student loan payments?  Does it not make sense that as income rises, ability to repay rises as well?  Under new FNMA guidelines, using the higher of 1% of the outstanding balance or the actual documented payment, there is very small possibility that any young professional can qualify for a home with $1,600 to $2,000 of imputed student loan debt.  Just doesn’t make a lot of sense that we are penalizing our graduates, just as they are entering their careers, by using student loan monthly payments at a level of payment that the borrower will likely will never experience. (Or if they do, their income will be at a level that they probably can afford it at that time.)”

 

Greg went on. “In addition, it has always been a pet peeve of mine that student loans are charged to our graduates at a rate of 6.8% in interest.  We can refinance a home loan to get the interest rates down to the 3% to 4% range, yet no one can refinance a student loan payment to a lower interest rate to make the payments more affordable.  Student loans stick with you and cannot even be discharged in bankruptcy.  The government has so many people who owe the student loans and cannot or will not repay.  Perhaps if they allowed the student loans to be refinanced at a lower rate; rather than have them accrue interest at loan shark rates people may start to repay them.  A novel idea would be to reward the former students by lowering the interest rates with prompt payment histories.  When they pay 12 months payments on time, the rate gets a bit lower.  When the payment is made on time for 36 or 48 or 60 months, the interest rate is lowered again.  We need to find some way to get these people repaying their student loans and reward the ones that do.  I know lowering rates will cost the government money by receiving a lower rate of return.  But that is nothing compared to how much is lost by people not repaying the loans at all.” [Editor’s note: Social Finance refinances student debt.]

 

And this note from a broker on the CFPB, consumer complaints, and reverse mortgages. “The CFPB bases their focus on consumer complaints, but consumers have no clue. A consumer will complain about the time involved at closing. Yet the consumer does not understand that all of those stupid forms are required by CFPB rules. Speaking of ‘understanding,’ the reverse mortgage program has been evolving since the 1960s. And while there are issues and things that can be made better, it is a good program and has helped many elderly retain their homes.

The paper work at this time is very explicit regarding what happens with the property when the borrower permanently vacates the property. But in my opinion we have a situation of ‘wanting my cake and eating it too.’ Children are happy their parents can obtain a reverse mortgage so they can stay in their home and not need assistance from them. Yet, after Mom and Dad are gone, they still want to be able to keep the property and/or make money on it. The rules were changed so the borrower cannot take a large lump sum upfront – regulators didn’t want the elderly making poor investment decisions and losing their money. What about the elderly person that needs those funds to pay medical bills or repair their property?  They cannot get all they need upfront. If protection from loss is the object, then the CFPB does not do anything to protect the elderly that sell their homes and invest the proceeds in worthless investments. Is that discriminatory?”

 

On the consequences of lending practices ten years ago, Mat Piwowarski opined, “Rob, in reading the many emails from your loyal readers not one of them felt they needed to mention that the ‘Mortgage Meltdown’ that occurred has a lasting effect on our industry for generations to come.  I speak of the trillions of dollars that the Federal Reserve invested in our own MBS market to keep it propped up because we had no longer the opportunity of foreign investors buying them as they were burnt so badly in the past by the greedy!  Regardless of the type of loan program that was performing so well or not we have to realize that our industry (the mortgage industry) did not do a good enough job at self-policing ourselves to ensure our future would always be rosy so to speak!  Instead, the mortgage industry just went on with the party.  Very similar to the ‘Great Gatsby.’ Every good party must come to an end!”

 

 

(Rated PG, maybe R)

Day after day a first-grade teacher, Ms. Brooks, was having trouble with one of her students. The teacher asked, “Harry, what’s your problem?”

Harry answered, “I’m too smart for the 1st grade. My sister is in the 3rd grade and I’m smarter than she is!  I think I should be in the 3rd grade too!”

Ms. Brooks had enough.  She took Harry to the principal’s office.

While Harry waited in the outer office, the teacher explained to the principal what the situation was. The principal told Ms. Brooks he would give the boy a test.  If he failed to answer any of his questions he was to go back to the 1st grade and behave. She agreed.

Harry was brought in and the conditions were explained to him and he agreed to take the test.

Principal: “What is 3 x 3?”

Harry: “9.”

Principal: “What is 6 x 6?”

Harry: “36.”

And so it went with every question the principal thought a 3rd grader should know.

The principal looks at Ms. Brooks and tells her, “I think Harry can go to the 3rd grade.”

Ms. Brooks says to the principal, “Let me ask him some questions.”

The principal and Harry both agreed.

Ms. Brooks asks, “What does a cow have four of that I have only two of?”

Harry, after a moment: “Legs.”

Ms. Brooks: “What is in your pants that you have but I do not have?”

The principal wondered why she would ask such a question!

Harry replied: “Pockets.”

Ms. Brooks: “What does a dog do that a man steps into?”

Harry: “Pants.”

The principal sat forward with his mouth hanging open.

Ms. Brooks: “What goes in hard and pink then comes out soft and sticky?”

The principal’s eyes opened really wide and before he could stop the answer, Harry replied, “Bubble gum.”

Ms. Brooks: “What does a man do standing up, a woman does sitting down and a dog does on three legs?”

Harry: “Shake hands.”

The principal was trembling.

Ms. Brooks: “What word starts with an ‘F’ and ends in ‘K’ that means a lot of heat and excitement?”

Harry: “Firetruck.”

The principal breathed a sigh of relief and told the teacher, “Put Harry in the fifth-grade, I got the last six questions wrong… ”

 

 

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.)