July 18: Notes on broker biz, property line disputes, counter-party risk, and how LOs helping Realtors can be a RESPA violation

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...

We’re in the dog days of summer*, and things seem slow. But my guess is that there will be plenty of company changes in the industry – the consolidation won’t cease. In the meantime we have plenty of other things to talk about. (*The phrase “dog days” refers to the sultry days of summer. In the Northern Hemisphere, the dog days of summer are most commonly experienced in the months of July and August, which is when the Dog Star Sirius rises with the sun and are typically the hottest summer temperatures. Bring Pluto back on the planet list!)

 

“Rob, with the continued news about RESPA enforcement, I have always wondered what your thoughts are about firms that provide open house marketing solutions to Realtors at no cost. I recently saw a provider of open house flyers promoting a new feature that makes it easy for the loan officer to create an open house flyer and post it directly to the real estate agent’s social media accounts. How is that not a RESPA violation?”

 

Before I got snippety and replied, “Bring cookies to the open house, end up on ‘Orange is the New Black’ or ‘Oz’,” I asked Steve Lovejoy, Esq., with Shumaker Williams, P.C.. He wrote, “It is highly likely that the practice you describe violates Section 8 of RESPA. RESPA prohibits the payment or receipt of ‘anything of value’ in exchange for the referral of settlement service business. Real estate agency services, title services and insurance, and arranging or making a mortgage loan all qualify as ‘settlement services.’ We don’t have to limit our research to recent enforcement efforts by the CFPB to determine that mortgage companies or title companies providing ‘freebies’ to real estate agents is a clear violation of Section 8. In 2002, HUD entered into formal settlement agreements with no less than 7 large title insurance companies, whereby the title companies agreed to cease providing free ‘virtual tour’ computer technology to real estate agents in the expectation that borrowers would be steered toward their company for title services. In 2006, HUD accused a title insurance company of violating RESPA by providing real estate agents with free ‘Just Sold’ and ‘Just Listed’ postal cards, and some other ‘things of value’ also resulting in a Settlement Agreement. In each of these cases, the entity that allegedly violated RESPA by providing the “thing of value” paid substantial civil money penalties.

 

“There are some recognized exceptions to the anti-referral fee prohibitions in Section 8, such as joint marketing to the public where the cost is fairly split between the real estate agent or broker and the other service provider. That exception, however, does not allow for the party seeking referrals to pay the entire cost of the joint marketing effort. Also, these marketing agreements have come under attack by the CFPB as, themselves, being a ‘thing of value’ where there is an expectation that the real estate agent will refer to the joint marketer. The take-away from all this is: DO NOT try to employ a RESPA exception to Section 8 without a regulatory counsel guiding the way.

 

“The only things that appear to have changed with the transfer of RESPA enforcement authority from HUD to the CFPB are: 1) The CFPB is now also seeking civil money penalties from the recipients of the illegal referral fee (thing of value); and 2) the size of the demanded civil money penalties appear to be significantly higher than those previously assessed by HUD.” Thanks Steve!

 

“Hey Rob, why don’t lenders and banks have to disclose to borrowers that their information is being processed, reviewed, and updated in another country? (Most of the time it is in India.) I pretty sure if any borrower had their choice of picking to have their information stay within our borders or be transmitted and reviewed in another country, they would pick for it to stay in America hands down. Not to mention it would give work to Americans. Why isn’t the CFPB all over this issue? Sincerely – ‘concerned mortgage person.’”

 

And this on confidentiality issues: “Your contributor Luke, who wrote about the confidentiality rules with Realtors etc., discussed a very big issue. At our company we have the client sign a release allowing us to share the info with the others in the trains and the other must be exactly identified. Essentially a hold harmless, but I can see why sellers, realtors etc. want to make sure these sales close since there are still too many Originators out there that should be in the business and cause some serious problems. Unfortunately, every month I am rescuing loans from others in distress where the LO has really screwed up and caused either a sale fail or over qualified a borrower and we have to start over with a new approval etc. It is highly annoying how many people are still in this profession that need to be gotten rid of and will not leave of their own volition.

 

Property line dispute? Julia Wei from the Law Offices of Peter N. Brewer discusses a rare case this year when California courts gave a neighbor an “irrevocable parole license” over someone else’s property. The dispute was over a 30 foot wide easement down a 150 foot long road. The Poksays built their home in 1989 and the Schaefers had granted the Poksays an easement for access and utility purposes only. The Poksays improved the easement with plantings, irrigation and electrical lighting. The Poksays then sold the property to the Donettis who then added further vegetation. In 2004, the Francs purchased the Schaefer’s property and after 6 years the Francs cut the power and irrigations lines, dismantled the water pumps and demanded that the Donettis remove their landscaping from the easement. The Donettis sought an injunction, which was granted and sought the ultimate relief of an irrevocable parole license so their successors could maintain and improve the landscape, irrigation and lighting within the easement. The Donettis won the case. The court ruled in favor of the Donettis because they were maintaining the easement and paying for all the landscaping and water bills over the past decade.

 

In a conflux of counterparty knowledge, background checks, and regulations, Andrew Liput, president and CEO of Secure Settlements, writes, “It’s not just theft and violations of privacy that concerns lenders about settlement agent risk, with the CFPB focused squarely on consumer protections many we speak with are worried about liability they might incur for possible criminal actions by agents sent to close loans in the homes of borrowers. With plenty of court decisions determining that a settlement agent handling bank funds and documents is a representative of, and therefore the responsibility of, banks, any harm that results from an agent’s actions or inactions might come back to the bank. Recently our company uncovered an issue in California where an escrow agent who was being sent to close loans in the private homes of consumers was on the Nationwide Registered Sex Offender List. The lender had no idea their clients were welcoming into their home someone who posed a serious risk to them and their children. Interestingly neither did the firm that hired the individual, because they had failed to conduct regular background checks on their employees and independent contractors. In an environment where background data is readily available, and ongoing monitoring for risk is expected, lenders must take seriously their obligation to know with whom they are doing business.”

 

Brokering is alive and well, at least in some parts of the country. “I think it is important that people realize that brokering loans has been around for decades and is still the best way for a borrower and loan officer to go.  Over the past 2 quarters, broker business is the fastest growing sector of our industry, and that isn’t a fluke or mistake.  With all the ‘uncertainty’ behind us from a regulatory perspective, the loan officers are going back to brokering and the wholesale lenders are ready to help them grow and take great care of each borrower that they work with.”

 

From Oregon Andy W. Harris, CRMS and president & CEO of Vantage Mortgage Group, Inc., scribed, “I could not disagree more with comments about brokers ‘losing control’ over the loan or process when submitting to a wholesale lender. This is actually opposite of the truth providing our ability to choose. What these creditor-employed ‘bankers’ forget to understand is that they are shielded and blinded from what it is to be a ‘true broker’ without the correspondent line or corporate influence. Brokering as a so-called ‘banker’ is nothing like true brokering with the influence of your employer choosing what you can or cannot send, with higher margins to not compete with lines or cause compensation issues. In addition, most send odd programs they cannot do as they call ‘in house’ making the experience not what it should be with wholesale lending. The ‘true’ broker actually has more control than the ‘bankers’ as they refer to themselves. If I need something executed or an exception from a wholesale lender, it is a much different interaction than if this lender employed me. They want our business and then want us happy, so quality ‘good’ Mortgage Brokers have the advantage.

 

“As a true broker I benefit by having lenders compete for my clients business and they are judged by pricing, turn-times, communication, overlays, products, and execution (as I should also be judged as a Mortgage Broker in their minds for quality and execution).  If I have a bad experience with turn-times, communication, an underwriter, you name it… I have the ability to correct that mistake on any future files and we set expectations together as business partners. I have my responsibilities for the best quality, compliance, origination, and processing possible when the wholesale lender is responsible for the same quality and compliance, but we prefer them to have the underwriting and closing task to avoid this cost in our rate sheets with additional higher risk and less choice.

 

“I work for my client, not the lender. This is the only difference in these outdated ‘broker and banker’ titles. We are all TPO’s to the agencies as I’ve yelled for years that appears to fall on deaf ears or to those that have been victims of recruiters and selling the snake oil terms such as false ‘direct lender’ to Realtors, etc.  There are significant advantages to being a Mortgage Broker, especially when you have the most qualified and experienced professionals (in my opinion) under the wholesale channel and working hard to earn our (my clients) business. Again, I cannot reiterate the importance of choice and not steering my clients to higher-cost (in most cases) correspondent lines and employer influences.

 

“This is where our industry is lost and this is why you see most ‘banker’ resume’s reflecting several companies over the last 8 years and most “brokers” as they still call us have made very few changes.  Most are lost, looking short-term rather than career-minded long-term and what is available to their clients.  Wholesale is a hidden gem and we didn’t buy into the net branch, wholesale is dead, mini-cor, sky is falling circus years ago.  Now is the best time in history to be a ‘true’ Mortgage Broker for us that stuck with it and are established and organized. Again, if you have a bad experience with a lender which may usually only be during high volume… compare and move on. If you have a bad experience with your employer (if employed by a lender rather than independent), you’re in a difficult position. More importantly, your clients are in a difficult position. The more job changes you’re making over the years, the more your clients will feel that you are unstable. As a result you see them begin to stray.

 

“Most Mortgage Loan Originators are influenced by their employer. I choose for my employer to be the consumer exclusively which gives me a clear head and how I view origination channels. If you want the independent truth about our industry without all the noise and politics, this is it.”

 

On that same topic a while back Mark Korell, the CEO of Hamilton Group Funding, sent, “Rob, I want to comment on sometimes misleading advocacy of the broker channel. The vast majority of retail mortgage bankers and many banks do not only have 1 product set, 1 pricing strategy or even 1 fixed UW turn time, but sell loans to multiple correspondent aggregators, and direct to GSEs, who offer a wide range of products and pricing scenarios. Retail LOs thus can offer as many if not more choices to borrowers, and importantly, with typically much more control over processing, underwriting and closing operations.”

 

 

I was standing at the bar of Terminal 3 International Airport when this small Chinese guy comes in, stands next to me and starts drinking a beer.

I asked him, “Do you know any of those martial arts things, like Kung-Fu, Karate or Ju-Jitsu?”

He says “No, why the hell did you ask me that? Is it because I am Chinese?”

“No”, I said, “It’s because you’re drinking my beer, you little ‘creep’.”

 

 

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.)