Oct. 3: Note on Hispanics & lending, troubling trends in mortgage fraud, unintended consequences of TRID, and eSignatures

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...

October 3 is here, as if we didn’t know it was coming. And as I look out the window here in South Carolina – the sun is coming up, just as expected! But instead of “Too big to fail”, the industry discussion has moved to the question, “Too little to comply?

 

Do you have a question about regulations? Who doesn’t? Casey Fleming with Ellie Mae writes, “’Ask a Regulator’ is back for 2015 – the 2nd year we’ve done this. There are 85 state-specific compliance questions with answers from the regulators of each state. Here’s a link for anyone else that may want a copy.”

 

Jim Bedsole, Chief Compliance & Risk Officer with BankSouth writes, “One issue about TRID that falls in the unintended consequence category that I haven’t seen much coverage about – differences in loan category between TRID on the LE/CD and loan category for HMDA for lenders that are HMDA reporters. Here’s an example (one of several possible scenarios): Borrower owns a rental house free and clear. Borrower is going to purchase another rental home, but the collateral will be the first rental home. Under HMDA, the loan category is “Home Purchase”. But under TRID, the loan category for this loan would be “Home Equity”. This could cause a lot of confusion for lenders that are HMDA reporters and lead to errors in the HMDA data reported for 4th quarter 2015. CFPB has acknowledged these differences and has said they will not take any steps to resolve this difference because TRID and HMDA serve two different purposes.”

 

Rick Goldbach with TowneBank Mortgage sent, “We have all been inundated with the TRID changes over the last five months – training session after training session in order to get it right. Article after article, we discuss the lenders and who is prepared for what is about to change in less than two weeks. As I travel around our markets making presentations to our Realtor relationships, I would say the biggest challenge for all of us lenders is educating the real estate agents on the TRID changes. The real estate agents are going to rely on us heavily in the coming months to perform and meet our closing dates. Ultimately, it is our responsibility to garner the trust and confidence of the real estate agents in this country. The future borrowers will rely on the agents, who in turn rely on their lender to get the job done. I can say that our future borrowers will have no clue about these changes and frankly probably won’t care. At the end of the day, we need to set the expectations for what is expected and deliver those promises we make up front at the mortgage application. I think it would be beneficial for NAR to distribute a national ad campaign laying out how these changes will affect the borrower. Let’s set the expectations up front with the borrowers now, so they are not surprised by the possible delays in closing if lenders don’t do their job.”

 

(Editor’s note: the NAR website does have a fair amount of information, including a field guide and up to date news. I have seen NAR’s education efforts for its members. That being said, a large percentage of real estate agents don’t belong to NAR, and even those that do may be somewhat “slow on the uptake” regarding the important change in process.)

 

Rachel Dollar, Esq., CMB, CFCI, Partner at Smith Dollar PC, weighed in on a disturbing trend in public documents & fraud. “A former clerk for the Cook County, Illinois, Recorder of Deeds was indicted for allegedly accepting a $200 bribe to prepare and record a back-dated and forged deed. According to the indictment, the clerk offered to prepare and record the quit claim deed, which was back-dated 18 months, in order to transfer property which was purportedly owned by three deceased persons, to a third party.  Unfortunately for the clerk, Regina Taylor, the person she offered to do this for was cooperating with the authorities and the bribe she accepted was proffered by an undercover officer.  The indictment also alleges that Ms. Taylor told the undercover officer that she usually charged $500 but would only charge $200 in this case and that her fee was less than the cost of probate. The conduct alleged in the indictment occurred in 2012.

 

“This indictment is troubling for numerous reasons. The mortgage and title industries rely upon the accuracy of the public deed records. Over the past several years, I have noted a significant increase in forged and falsified documents in the public records but have never felt the need to question the recording date itself. In fact, we often prove falsity and forgery through the public records. How pervasive was this conduct? How can the industry rely upon the records in Cook County?  Are there controls in place in other states to prevent this type of conduct? I hope and expect that the authorities and public officials have spoken to Ms. Taylor during the three years between her interaction with the undercover officer and the date of the indictment and have discovered and remedied any other instances of false recording, but I have not seen a public statement to that effect. Since taking office, the Cook County recorder of deeds, Karen Yarborough, has been vigilant in her efforts to combat deed fraud.   But, when public officials collude in fraud cases, it lends authority and support to the underlying fraud.  And it happens more often and in more insidious and creative ways than you might think.  For instance, earlier this year, a Florida police office was indicted on allegations that he created false identity theft police reports for a credit repair company on behalf of its clients.”

 

Rachel’s note wraps up with, “Mortgage fraud is complicated and difficult to perpetrate successfully. But it can be extremely profitable. Industry professionals are generally involved in the more successful schemes because in-depth industry knowledge is necessary to construct a scheme that avoids the many fraud detection measures in place. The involvement of public officials obviates controls that assist in detection and prevention.”

 

Jeff Reeves with Box Home Loans opined, “We’re a web-based, consumer direct company that up until Academy’s acquisition of Republic Mortgage, was the consumer direct arm of Republic.  Since we left Republic we have been preparing to create our own independent operation, having spent the last 6 months working on licensing, warehouse, and investor approvals. Because we felt that the transition to TRID on October 3 didn’t present enough work for us, we thought we’d launch our new operation on October 1!

 

“I have enjoyed your discussions on eSignatures. We’ve been using them for disclosures for more than six years, and I look forward to the day when warehouse banks and investors will finally get on board with an act that was enacted 15 years ago and allow us to use eNotes. When eSign was approved, Enron was still a legitimate company, the twin towers were still there, Al Gore was claiming to have invented this new thing called the internet, Monica Lewinsy was fresh in everyone’s minds, Google wasn’t a verb, and My Community Mortgages were being extended at 100% LTV for 600 FICO borrowers with 59% DTIs.

 

“It’s about time our industry got serious with this.  I find the concerns over borrower authentication in eSigned transactions somewhat laughable considering the alternative.  Most in our industry have witnessed the back-dating of paper docs, including escrow agents back dating notarized documents, and the “windowing” of signatures (btw, how do you know that you’re passing a mortgage company as you drive down the street?  You see a person standing in front of window with a paper pressed up against the glass with a pen in hand). With eSignatures it is infinitely more complicated to commit such fraud.

 

“When it comes our ability to pioneer, adapt, change, and leverage technology, our industry is about as eager to innovate as the railroad industry.  Our problem really is that we keep figuratively “cutting off the ends of them.” You may recall the story of the man who asked his wife why she cut the ends off her holiday baked-ham.  Even though she had never been asked that question, she replied without hesitation, “Oh, that makes it tastes better.  My mother is an expert at baking hams, and that’s how she’s always done it.” Puzzled and still searching for a substantive explanation, the man later called his mother-in-law and asked her the same question.  She too had not been asked that question, yet astonishingly she gave the same answer as her daughter:  “That just makes it taste better.  My mother’s an expert, and she’s always done it that way.”

 

“Now the man was even more intrigued: he had to know how cutting off the ends of the ham actually made it test better. Apparently, his wife and mother-in-law had never wondered how it was so.  He then went directly to his wife’s grandmother and asked the same question.  Her answer shocked him:  “Oh, I haven’t done that for years.  Forty years ago my oven was so small that I had to cut the ends off the ham to make it fit into the oven!”

 

“We’ve been slicing the figurative ends off the ham in our industry for years, binding ourselves to archaic business processes, systems, and technology because too many of us are conditioned, like Pavlov’s dog, to behave like everyone else “because that’s just how it works” in our industry. I’m hoping that we’ll finally stop cutting off the ends of the ham, and more full embrace technology like eSignatures.

 

On general vendor trends Sue Woodard, the 20-year loan originator, speaker and trainer who is now president and CEO of Vantage Production, says three things are driving their ongoing success, as highlighted by the recent additions of five large non-bank lenders to their CRM platform, VIP. “Compliance and increased production are the most obvious reasons lenders are upgrading their sales automation, marketing and CRM,” she says. “They want to avoid having uncontrolled marketing messages getting out that can cause regulatory issues, of course. And everyone wants to close more loans at lower costs. But the third factor is also interesting — recruiting. With many mega lenders in retreat, growing regional and national companies are competing for market share, and that means finding top talent.  In order to attract the best originators, whether individually or as entire branch organizations, lenders need sophisticated tools that will help MLOs do more business.”

 

And on the increasing influence of Hispanics and the attention the group is attracting from lenders, Sylvia Gutierrez, an MLO and author of “Mortgage Matters: Demystifying the Loan Approval Maze, contributed, “Rob, it’s foolish of people to believe that we need to market to Hispanics through Spanish language disclosures and marketing materials. Hispanics read, speak, and write in English. When we speak of Hispanic people, we speak of a culture. To capture the Hispanic market companies may want to begin by gaining an understanding of what the culture represents. The quickest way to learn what any culture represents is to hire them into your company. Grow the Hispanic workforce and they will tell you how to connect with Hispanic homebuyers.

 

And Teresa H. asks, “For small community banks with very active mortgage departments, what are you hearing on ALTA Best Practices – self certified versus third party certified? Many of our title agents are pushing back on the cost of the third party certification.”

 

Andrew Liput with Secure Insight responded with, “ALTA’s Best Practices initiative is an admirable effort to establish certain benchmarks for professionalism and internal operating controls for title agents. The self-certification process is merely that: the agent gets the checklist and says, ‘Yes I do these things.’ There is no independent verification. To supplement the self-certification ALTA recommends that agents be independent certified in Best Practices, typically by an accounting firm to VERIFY that the steps are implemented internally as indicated. This is similar to an SSAE16 which is a date in time review and report on internal controls. (What Secure Insight does is a step further, and is more risk management oriented: we verify not only controls, but conduct background checks on owners and employees, complete license and insurance verifications and run other risk evaluations and then monitor agents and entities for changes in risk, gathering all that data in a national database with risk ratings which our clients access on a transaction basis prior to wiring proceeds and sending documents.)”

 

“What does PHH stand for?” PHH was founded in 1946 by Duane Peterson, Harley Howell and Richard Heather. I’ll let you figure it out from there.

 

 

That time of year!

Q: What do you get when you cross Bambi with a ghost?

A: Bamboo.

Q: What’s a haunted chicken?

A: Poultry-geist.

Q: Why did the monster eat a light bulb?

A: Because he was in need of a light snack.

Q: Why are most monsters covered in wrinkles?

A: Have you ever tried to iron a monster?

Q: What kind of mistakes do ghosts make?

A: Boo boos.

Q: Why couldn’t Dracula’s wife get to sleep?

A: Because of his coffin.

Q: Why do mummies make excellent spies?

A: They’re good at keeping things under wraps.

 

 

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.)