May 9: Notes on RESPA & gifts, Ocwen, Super Lien states & HOAs, and from brokers & LOs regarding TRID

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, what do you hear about Super Lien states and HOAs? I understand an HOA obtaining first position is a big deal, but taxes also take first position when delinquent – and no one has stopped lending where there are taxes. Is there a rule against impounding HOA dues if in a Super Lien state? There was a flurry of news about it late last year, but has the issue gone away?”

 

For an answer I turned to Pete Mills, the MBA’s SVP of Residential Policy and Member Engagement. He responded with, “It’s not a simple issue, and it is fraught with risk, complications, and costs. I did, however, have a few quick thoughts – and more formal documents are available. HOAs do not routinely provide notice to lenders that dues are DQ (delinquent).  A borrower who is DQ on a mortgage is probably DQ on HOAs, but there are many borrowers who are current on the mortgage but DQ on the HOAs – they have dispute with the HOA over how it’s being managed, there are HOA dues increases or special assessments they refuse to pay, etc. Many HOAs have no professional management, so the delivery of notices w/r/t delinquencies, liens, foreclosure of a lien is spotty at best.”

 

Pete’s response went on. “Some HOAs secure the lien, sell it to a speculative investor at a discount, and the investor pursues the F/C in the hopes they can extinguish the lien or extract a larger payout. Notice requirements in superlien states need to be beefed up significantly. Impounding for HOA dues is an option but… lack professional management of many HOAs means that the servicer is dealing with a volunteer entity whose Treasurer rotates annually. They won’t likely allow the servicer to remit semiannually – they want/need their remittances monthly. They may or may not provide timely notice of changes in HOA dues, special assessments, etc. This is a very costly escrow item for servicers – very different from dealing with Hazard insurance or MI company or a county.

 

“The bottom line is that superliens that inure to the benefit of a private party – HOAs, speculative debt buyers, solar leases, etc. – are very bad public policy. Why should first lien holders be made into guarantors of a borrower’s other obligations?  The HOA liens are in that family, although the GSEs have made limited exceptions for such liens with a payment priority (not a true priority) and a limited time frame under the notion that it supports the health of the entire Condo/PUD development. But that’s a slippery slope. First HOAs, then PACE liens, then private activity bonds, what’s next? ‘First in time, first in line’ should be preserved whenever possible.”

 

There is a lot of interest in Ocwen this week. We all learned that the monitor of the National Mortgage Settlement reported that retesting of 1Q14 metrics showed OCN failed to notify borrowers of missing or incomplete documents in loan modification applications. The monitor also reported, however, that Ocwen’s internal review group has shown measurable improvement and taken steps to address problems. The monitor expects to file final results for 1H14 in the coming weeks. If Ocwen is found to have failed NMS metrics, it will have to submit a remediation plan, which the company expects.

 

Prior to that, Bloomberg reported that its president & CEO Ronald Faris stated that trustees and master servicers are beginning reviews of allegations related to Ocwen servicing. “Gibbs & Bruns clients have agreed in principle to a standstill during the review process, which if approved is expected to be in place until June 30, 2015. Ocwen reiterated there’s no litigation pending, just a breach claim to the trustees, and that Gibbs and Bruns clients compared Ocwen pools to ‘non-comparable prime pools’ and made other ‘groundless’ claims including that Ocwen modifies to many loans, and that it does not remit all proceeds recovered to the trust.

 

From Levick’s John Lovallo I received, “I thought you might find the position taken in this independent white paper from LL Funds, LLC (LL Funds) titled “In Defense of Ocwen Servicing” interesting for your readers. (LL Funds manages over $1.5 Billion market value, $4 Billion current face, of non-Agency, credit-sensitive, residential mortgage backed securities, primarily in the Subprime sector.) LL Funds takes issue with legal claims, made by Gibbs & Bruns (G&B) on behalf of a number of institutional investors, which is ultimately trying to transfer servicing away from Ocwen Financial (Ocwen).  LL Funds’ whitepaper concludes that if this would occur, both homeowners and bondholders would be harmed.

 

“The detail analysis by LL Funds points out that the G&B analysis fails to account for the fact that Ocwen services a larger percentage of subprime borrowers compared to other servicers. Ocwen has been willing to give marginal borrowers second and third chances. Once accounted for these factors, Ocwen’s performance is better than that of other servicers. Ocwen’s aggressive load mods clearly benefit delinquent homeowners who otherwise would lose their property to foreclosure This strategy also benefits the bondholders, which the white paper concludes that losses from liquidations would range from 65-75%, while losses from modifications would be just 42-53%. There is no reasonable estimate of modification losses that comes close to the estimated losses that would have been realized had Ocwen pursued liquidation.

 

“This is the second independent research report that has been released this year.  The first one was issued in February 2015 by Morgan Stanley RMBS strategy team, titled ‘Understanding Ocwen Servicing’ and details many aspects of Ocwen’s servicing business. A couple of highlights from Morgan Stanley’s report: Ocwen’s ‘modification style’ is effective in keeping borrowers in their homes. “Ocwen appears to be significantly better at keeping borrowers in their homes.” This is true no matter if a borrower first went delinquent while being serviced by Ocwen, or fell delinquent and was then transferred to Ocwen.  Borrowers are more likely to be in their homes today than if the MSRs were with another servicer. And Ocwen’s current servicing practices are very similar to market averages, leaving investors with little to gain from an MSR transfer.” Thank you John.

 

Regarding RESPA & gifts, I received this clarification from a very authoritative source. “Any suggestion that a gift to a borrower is a RESPA violation is not true. Builders routinely give valuable incentives to borrowers as an enticement to purchase their homes. This is not a violation. When a lender covers the cost of an appraisal as a means to lessen the financial commitment of the borrower, there is no violation for this generous act. When a home warming present is given to the borrower at the closing table, this is certainly not a kickback. The prohibition is for referrals for business which applies between service providers but does not include the borrower. Incentives such as those mentioned above are not prohibited under RESPA.

 

Lord Chesterfield supposedly said, “If we do not plant knowledge when young, it will give us no shade when we are old.” What kind of knowledge will TRID give us? One broker wrote, “I just finished filling out yet another lender’s Broker Application Package. You might note they will all have to be amended. Seems most packages reference GFE, HUD 1 or HUD1A. As of August 1, these are all non-viable instruments. Frankly, I just keep finding more and more problems with TRID and I’m a small shop.”

 

And, “I received this from a veteran broker. “I’m going back and forth with an AE on TRID, and I am being told about 80-90% of wholesalers are talking to each other. Not sure if this is desperation because of a lack of clear guidance or a violation of the Sherman Anti-Trust Act. They seem to want all brokered loans estimates to be issued via the wholesaler within 3 days of application, not from the broker. This is a major issue on a number of levels. First, under TILA, we are both the creditors. That was the issue from ‘Day One.’ Only under MLO comp is a mortgage brokerage company not a creditor, which causes its own issue. The mortgage brokerage companies should have been excluded from the 3% Rule and had it only apply to MLOs, but that’s for another day.

 

“Brokers are mandated to issue an Estimate and in one wholesaler’s webinar they reiterated, anytime we have an address we must issue an Estimate. Some wholesalers are looking to create a web portal for the brokers to issue an Estimate when they do pre approvals. If you are given certain items, i.e., an address, you must give an estimate. Fine, but now some lenders will want the loan, or can use the data to contact the borrower. Worse, what happens if you give the Estimate, and in 2 weeks when the application comes in that lender is no longer competitive. I’m not violating TILA, even if it means multiple Estimates.

 

“The wholesalers are going to have to find a way, and fast, to have one appraisal fee like they have your commitment fee. I’m guessing the commitment fee will increase to offset any losses on the appraisal side. Maybe even a commitment fee with the appraisal fee included or the lender charges an upfront application fee that is the average of their appraisal fees.”

 

“I’m also being told that a whole new application needs to be taken to flip from one wholesaler to another. Complete waste of consumers and brokers time and money.”

 

And, “I am hearing new stuff on TRID, like appraisal quotes are going to have a zero tolerance. What a mess that is going to be. To me that is the pinnacle of an example of a complete lack of understanding of the industry. When you couple this with the new AMCs ordering appraisals via AMCs the end price cannot be absolute, particularly with the integration of geographic differences, value differences, and property variations.”

 

Another wrote, “There is NO way to know what an appraisal fee will be on a custom home.  The AMC lists $450. I tell the AMC I don’t want cheap and fast, I want well done, and I know it will cost more than $450. Typically the AMC will call all over trying to find the cheapest appraisal fee as if that is in the best interest of the consumer. The worst permanent change to come out of the crisis is the HVCC system for appraisals. That fact that I am not allowed to speak with a professional that will provide a major part of my transaction, whether it be purchase or refi, is RIDICULOUS.  All it did was keep loans from moving around, as it is very difficult to move a loan to different lender, after the appraisal is done.

 

“The quality is worse and we have another layer of senseless paper. Lenders now have middle management companies in place that actually order the appraisal and 4506T: another layer. Lenders don’t want responsibility for anything. Well, if it goes bad, guess what, the lender is liable anyway.  Why not do it yourself and saved some time and money for the consumer. I guess the whole thing is for job creation – like government jobs. People pushing paper and getting paid something, but the results are basically worthless. Someone tells them they are doing important work and are saving the country. Bull.”

 

 

(Parental discretion advised due to language.)

A motorcycle police officer stops a driver for shooting through a red light. The driver is a real jerk, steps out of his car and comes striding toward the officer, demanding to know why he is being harassed by the Gestapo!

So the officer calmly tells him of the red light violation. The motorist instantly goes on a tirade, questioning the officer’s ancestry, sexual orientation, etc., in rather explicit offensive terms. The tirade goes on without the officer saying anything.

When the officer finishes writing the ticket he puts an “AH” in the lower right corner of the narrative portion of the ticket. He then hands it to the “violator” for his signature. The guy signs the ticket angrily, and when presented with his copy points to the “AH” and demands to know what it stands for.

The officer says, “That’s so when we go to court, I’ll remember that you’re an a$$ hole!”

Two months later they’re in court. The “violator” has a bad driving record with a high number of points and is in danger of losing his license, so he hired a lawyer to represent him.

On the stand the officer testifies to seeing the man run through the red light. Under cross examination the defense attorney asks, “Officer, is this a reasonable facsimile of the ticket that you issued to my client?”

The officer responds, “Yes, sir, that is the defendant’s copy, his signature and mine, same number at the top.”

The lawyer questions, “Officer, is there any particular marking or notation on this ticket you don’t normally make?”

“Yes, sir, in the lower right corner of the narrative there is an ‘AH’ underlined.”

“And what does the ‘AH’ stand for, officer?”

“Aggressive and hostile, sir.”

“Aggressive and hostile?”

“Yes sir.

“Officer, are you sure it doesn’t stand for a$$ hole?”

“Well, sir, you know your client better than I do.”

How often can you get an attorney to convict his own client!!

 

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.)