Mar. 28: Letters on TRID, staffing costs, and APR primer; CFPB opinions & updates including new MOU with the FTC

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...

Does everyone know it is “Something on a stick day” today? Me neither. I can’t imagine why people think they never learn anything from this commentary…

 

Bob Kelly, Senior Vice President at Bank of America, writes, “Bank of America has taken on additional responsibilities as part of the new RESPA-TILA changes. We are focused on educating business partners by providing leadership in lending and financial education, ensuring a better experience overall. We feel responsibility as an industry leader to spread awareness. That is why since September, Bank of America has been communicating with business partners, real estate agents and home builders. We have published two articles for real estate professionals on the Agent Resource Center and one in ARE Magazine (official publication of the Asian Real Estate Association of America) specifying the RESPA-TILA changes and how they can guide their clients through the closing process. After presenting an overview of the upcoming changes at the 2015 RE/MAX R4 conference earlier this month, we are also developing a webinar that will occur soon. As mortgage professionals, it is our responsibility to thoroughly understand the changes being made to RESPA-TILA so we can better serve our customers and communities.”

 

Speaking of RESPA-TILA and disclosures, Kristin Messerli, CEO of Cultural Outreach Solutions, wrote, “I just published this article about leveraging integrated disclosures to improve market share.”

 

After reading my staffing description for a correspondent channel, Linda Bomar, VP of Sales at Indecomm Global Services, contributed, “I read the staffing for a correspondent division commentary on Friday and wanted to share with you that we are seeing an increase in this business too. Successful lenders are recognizing the need to have scalability and faster ramp up times plus they want the opportunity to move fixed costs to variable costs. Indecomm consults (for free!) with companies every day to help them develop a road map utilizing outsourcing for their correspondent and wholesale channels.”

 

Thank you to Nicole Dimetman-DeLeon who has grown weary of all the confusion surrounding APR (and for many the lack of it on the CFPB’s rate shopper site) so sent along a note meant for borrowers. “A closer look at APR! Annual percentage rate (APR) is the total yearly cost of a mortgage, expressed as a percentage of the overall loan amount. Including fees such as interest, lender charges, mortgage insurance and points, the APR of a mortgage gives buyers a rough idea of the total costs of home ownership before committing to a lender. Although it’s not perfect, APR is the industry standard for comparing different lenders when searching for a mortgage. Lenders may provide you with a variety of confusing numbers that mean a variety of different things, but, through the use of APR, you can compare loans side by side without needing a degree in finance. If you’re ready to begin your housing search and looking into obtaining financing, there are some important facts to keep in mind regarding APR in order to ensure you get the best possible deal. Let’s take a closer look at the benefits, drawbacks, and misconceptions that commonly surround mortgage APR.

 

“APR and interest rate are not one and the same. Understanding the difference between the two can protect you from mortgages with hidden fees and other costs. While lenders are quick to advertise low interest rates, the truth is that APR is a much better tool for determining if a loan option is a good fit for your needs. According to SFGate, APR should generally be slightly higher than the interest rate of a loan, normally by about 0.25 percent. Settlement fees such as loan origination fees, discount points, mortgage broker fees, mortgage insurance premiums, application fees, assumption fees and other service costs increase the APR of loans, so calculating this number will help you avoid lenders with excess hidden charges. The greater the amount of fees, the more expensive, and therefore less desirable, the loan’s APR will be.

 

“The APR of a loan is not all inclusive. Third party fees can increase the cost of owning a home, so it’s important to consider extra expenditures when calculating a housing budget. The home buying process includes a variety of costs that aren’t included in the APR of your mortgage. Expenses such as appraisal costs, inspection fees, settlement fees, title search and examination fees, title insurance expenses, recording fees and property taxes are all important to keep in mind before pulling the trigger on a new loan. While APR is a great tool for comparing financing options, it has limited functionality in terms of developing an overall budget for your home search. It’s always a good idea to have some savings available when purchasing a home to help cover the primary expenses involved with completing the transfer.

 

APR is a useful tool for comparing loans, but it does have limitations. The length of time you expect to use a loan is one example of a variable that is ignored by APR calculations.

APR calculates costs by assuming that you plan to maintain the loan throughout its duration. If you plan to use your loan for a shorter length of time, it’s important to remember that your APR calculations will be lower than actual costs. One time charges that are paid up front won’t be divided over the life of the loan. Instead, you’ll need to divide these costs into the shorter payment period. According to About Money, if you play to pay your home loan off more quickly, APR will underestimate the impact of early costs to your budget, so it is vital to ensure that you make an educated estimate of the length of time you plan to pay on the mortgage before committing to one financing option over another.

 

“Lenders have some wiggle room when calculating APR. Some lenders may exclude fees that others include, creating a much less valuable comparison point. Comparing APR is a great method for determining the best financing option, but some lenders have a reputation of reworking the numbers. The credit report fee, appraisal fees and inspection fees are all examples of costs that may be excluded from an APR quote, so it’s vital that you thoroughly study the numbers from each lender before making a decision. The truth is that, while APR is certainly a decent place to start, the only way to find the best loan for your needs is to do a line by line comparison of each lender’s quote.”

 

Garth Graham, Managing Director of STRATMOR’s MortgageSAT program, sent, “Recently the Consumer Financial Protection Bureau announced it would move forward with its plans to allow consumers to describe their banking experiences more fully on the agency’s complaint portal. STRATMOR, after surveying over 24,000 borrowers in 2014 (with 64% leaving at least one comment) said the move could be profoundly negative for lenders that are not prepared. Our experience surveying tens of thousands of mortgage borrowers tells us that when consumers are not happy, they tell people about it. Lenders do not want these borrowers placing long, angry narratives into the public complaint database. If the CFPB moves forward with this, the best defense will be for lenders to reach out to these consumers quickly, solving their problems where possible before they complain publicly. STRATMOR Group’s research indicates that borrowers who leave the experience with low satisfaction provide three times as much commentary as those that are satisfied. On a positive note, the majority of borrowers who are proactively contacted after leaving negative feedback on MortgageSAT leave the experience with significantly higher levels of customer satisfaction.”

 

Along those lines…

 

Whether or not the CFPB listens to complaints about its rate shopping site or the complaint database remains to be seen, but various groups are trying to make their voices heard. Richard J. Andreano, Jr. authored, “A group of 17 trade associations and organizations have written to the CFPB seeking a grace period for enforcement of the TILA-RESPA Integrated Disclosure (TRID) rule which becomes effective on August 1. In their letter, the groups seek written guidance from the CFPB on various situations not addressed by the TRID rule and ask the CFPB to announce and implement a ‘restrained enforcement and liability’ or ‘grace period’ for those seeking to comply in good faith following the provision of such guidance after August 1 through the end of 2015.  The groups propose to use the grace period ‘to identify pain points with stakeholders’ and thereafter meet with CFPB staff to address such issues and allow the CFPB time to provide additional written guidance. The groups note that there is no opportunity for early compliance with the TRID rule, which means that industry will not be able to test systems, in real-time, in real circumstances, until after August 1.

 

“Accordingly, since industry would still be required to use the new forms and processes during the proposed grace period, the grace period would allow industry and the CFPB to see what actually works and what might need fine tuning or further clarification without costly disruptions to consumers during peak transaction months.  The groups also observe in the letter that a restrained enforcement period is not without precedent, pointing to the approach taken by HUD when it revised the RESPA disclosures in 2010. As the groups indicate, additional CFPB guidance regarding the TRID rule is needed.  To date, the CFPB has provided guidance only orally, which many industry members consider to be lacking.  The industry has found numerous issues that are not clearly addressed by the rule and will require CFPB guidance, which appears to have been a factor in the trade groups’ request to the CFPB.”

 

There are some out there that believe the CFPB wants to become the nation’s mortgage lender given its mortgage rate calculator. One broker from the West wrote to me saying, “Not only should the CFPB take down any reference to mortgage loan calculations, Zillow should also.  Those entities are NOT licensed to dispense specific rate or mortgage information. When I asked a number of CFPB employees who had taken the NMLS test, none responded positively. If non-depository LOs must pass the NMLS, and banks such as Wells has to register all its tellers and such with NMLS, how is Zillow and others getting around it?” And American Banker reporter Rachel Witkowski writes that, “Lending groups are demanding the Consumer Financial Protection Bureau take down its mortgage rate calculator, arguing it is providing misleading information to consumers.”

 

Regarding the apparent continued eye on referral fees by the CFPB I received this note from an originator in New Jersey. “In 27 years I can’t tell you all the ‘stuff’ I have seen. Paying for realtors car leases, just plain giving parts of commissions, to giving massive discounts to builders on the construction loan interest for every loan referred, to paying companies (sometimes the largest in the industry) paying upwards of $5000 a month to a realtor for a desk in the office that the agents were paying 250 per month for a comparable desk. We all know the issue here, but lobbying dollars and the interest of larger institutions will prevent what needs to be done, from being done.  The regulators are so concerned with a borrower paying more than $100 extra at the closing than the $1000’s they are being shorted.”

 

And from Nevada: “One of the few times I say ‘GOOD JOB’ CFPB – it is about time.  RESPA has been around forever. Personally, I have NEVER paid a realtor, or anyone else, for a referral.  I was taught it was not legal per RESPA. I know some realtors demand payment from LOs or they take the business to an LO that is willing to pay. Those illegal jerks should lose their RE license. Realtors that refer clients to me do so because they know I provide the best pricing and service. I assume the practice of banks that provide construction financing and then require they provide the take out will also become not acceptable.  Again, in the old days when I worked for a bank, we did subdivision construction and required first right of refusal on all take outs.  But, we also discounted our typical origination fee from 1% to .5 – a true discount.  The discount was not made up with YSP. I made less commission. Guess I have always worked for honest, legitimate banks/brokers – lucky me.”

 

The FTC described its “cooperative relationship” with the CFPB in a blog post about the reauthorization of the Memorandum of Understanding (“MOU”) entered into by the two agencies on January 20, 2012. The MOU had an initial term of three years. There are indeed implications for nonbank entities such as enforcement, rulemaking and guidelines, supervision and examination (including, most notably, the sharing of examination reports and confidential supervisory information), consumer complaints, and information sharing and confidentiality. The new MOU, which also has a three-year term, makes what the FTC describes as “a few small administrative tweaks” to the initial MOU.  The reauthorization of the MOU is not surprising since, as the FTC writes in its blog post, the two agencies are “in harmony” about consumer protection.

 

 

Cool Message by a Wife:

Dear Mother-in-law,

Don’t teach me how to handle my children, I’m living with one of yours & he needs a lot of improvement.

 

 

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.)