Oct. 10: Notes on the confusing overlap of regulations, title association FAQ, aging appraisers, and appraisal costs under 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, how much longer is Richard Cordray in office?” On July 16, 2013, the U.S. Senate confirmed Cordray to a five-year term as Director in a 66–34 vote. Unless something happens to change it, he has more than 2 ½ years to go. Until then we can expect many things including the full use of UDAAP to pursue financial service companies, and know that Realtors don’t fall under the jurisdiction of the CFPB. Remember that UDAAP is defined by the Dodd-Frank Act as, “Misleading or harmful behaviors by those who offer financial products or services to consumers – ‘unfair, deceptive, or abusive acts and practices.’” Yes they are illegal, as they should be, but the term is so vague the statute is used as a catch-all reason to collect damages. It is the safest place for the CFPB to fine lenders since its staff can point to that, in Section 1036, instead of finding actual written regulations.

 

Does the growing mountain of rules and regulations from local, state, federal, and agency bodies present a problem to lenders? Absolutely! In their standard presentation the MBS puts up a slide showing the tangled & confusing web. And originators are certainly feeling it. Yesterday I received a note from Mike B. saying, “TRID vs. ECOA? On a TBD (To Be Determined) property, if we don’t have the address for the property we don’t have an ALIEN which means it shouldn’t fall under TRID regulations. Under the ECOA law, a TBD, seems like a LO should be able to request borrower documentation & provide an approval because we must make a credit decision within 30 days. Currently companies are advertising the use of TBD approvals, but legally we cannot request 3 party verifications!”

 

As if we didn’t know, the Dodd–Frank Act has created significant challenges for financial institutions, especially for smaller community banks. The legislation was designed to promote the safety and soundness of America’s financial institutions, but some small banks are finding it a struggle to meet DFA’s additional regulatory requirements. So instead of talking about too big to fail now the discussion revolves around the question if a company is “too small to comply.”

 

How about investigating the Better Business Bureau? Blake writes, “Interesting article – here is an organization that the CFPB should look at.”

 

I have heard plenty of comments from brokers and LOs about how to, and not to, explain TIP to borrowers. In a related matter Jeff Winn with Veritas in Utah contributes, “I ran into an issue that required a last minute change to a refinance. I was doing a no-cost 20 year rate/term loan. I was shocked when our auditors said that the APR of 4.8% was coming up as a HPML loan and that we needed to lower the rate. While the rate was premium priced to cover the closing cost and some prepaids, there wasn’t even monthly PMI to increase the APR. How could a 4.8% APR be 1.5% higher than the average for a 20 year term for that week? I did some checking and confirmed that the HPML calculation treats a 20 year term as a 15 year for purposed of comparison with the Freddie Mac Weekly Mortgage Survey. That is crazy! A 20 year loan is priced much closer to a 30 year fixed than a 15 year term. Any idea why the calculation is set up this way? It seems like a huge oversight. In our market, the different between a 20 and 15 year term is generally .50% in rate. I’m going to have to watch my APR on 20 year loans much more carefully in light of this information. It seems like another example of a rule being implemented without any understanding of how our business actually works. To my knowledge, TRID isn’t changing this test so I assume it still applies. To me, it is just another example of a lack of interaction between regulators and our industry. There isn’t a collaborative environment which creates issues like this that simply don’t make sense.”

 

I received this from a broker in Mississippi. “I may have missed it but while I was working on a loan today I realized that TRID is no longer disclosing LO compensation on the loan estimate. Is that right? I haven’t heard anything about that and didn’t even notice it during TRID training. I remember the days when brokers fought tooth and nail to level the playing field and not disclose YSP and it seems like the CFPB just quietly solved that old issue.” As best I understand things, yes, rather than require everyone to disclose how much they make and how they make it, the new LE does not require brokers to disclose an origination charge if it is lender paid. If you do borrower paid, then you must disclose, as the borrower must pay.

As far as I understand, the YSP credit (lender credit for the interest rate chosen) must still pass through to the borrower. Brokers are not allowed to keep any of the lender credit.

Hope this helps. BTW this is one of the things many are excited about. The fact that brokers don’t have to disclose origination. I would rather everyone disclose because I was always less than any bank or mortgage banker out there.

 

Here’s a note from out in Northern California. “Regarding the CA MLDS, in order for the LE to meet the legal requirements mentioned, it must be signed, and we must provide an additional disclosure “that includes a statement that the Loan Estimate does not constitute a loan commitment and that the borrower may check the license status of the broker and/or loan officer by calling the Bureau of Real Estate’s license information telephone number at 1-866-373-4542 or visiting CalBRE’s Web site at www.calbre.ca.gov.”  Since most wholesale lenders are providing the LE, and in most cases, not allowing us to provide one, we’re back to having to provide the MLDS, further confusing our clients.  Have you ever looked at the RE 885 form that is required for ‘non-traditional’ mortgages?  It has to be the worst form I’ve ever seen.

 

“I know this is old news, and off topic for the complaint du jour, but are you aware of any legal challenges by the broker community to the compensation rule? Specifically, but not only, that we cannot make less than the amount set forth in any of our lender compensation agreements. How is that ‘protecting’ the consumer? There are somewhere around 124,000 state licensed MLOs in the US. We all love to sit around and complain about the rule, but, to the best of my knowledge, nobody has tried to do anything about it. I know NAMB and the state associations have made efforts in Washington, but their collective lobbying budgets are woefully underfunded when compared to groups like the NAR. There are ~42,000 licensed MLOs in California alone, yet there are only ~2,000 members of CAMP! The NAR’s lobbying clout is evidenced by the fact that there has not been a single piece of legislation introduced that limits Realtor compensation, or anything else in regards to the way they do business. It cannot be argued that they had no culpability in the financial crisis; I remember back when I would be asked to pre-qualify a borrower, and I would give the Realtor a maximum purchase price of say, $600,000. The next day I would get a signed purchase contract on my desk for $800K, because the Realtor knew that we could a no-doc loan. Are there any law firms out there that would be willing to take on the CFPB?  If we could collect say, $100 from even a quarter of the state licensed MLOs in the U.S. we would have a ~$3.1M war chest with which to fund a class action suit.”

 

And regarding ALTA I received this note from Wayne Stanley, the Director of Public Affairs with the American Land Title Association. “I’m emailing you because there are a few factual errors in your email below at the ALTA Best Practices. I know you citing Mr. Andrew Liput but I feel it’s important for your readers to receive accurate information. ALTA does not and has not advocate for third-party assessments of the ALTA Title Insurance and Settlement Company Best Practices. We encourage all ALTA member companies to undergo a self-assessment—and we’ve provided the tools for our members to do so. We believe that undergoing a self-assessment puts companies in the best position to work with their lender clients and is an important process to undergo, even if their lenders require further assessment from a third party company. This week, during our 109th Annual Convention in Boston, ALTA will release a new set of FAQs for our members to understand the difference between a self- and third-party assessment. ALTA continues to communicate to our members the need for them be in close contact with their lender about what kind of third-party vendor management protocols they plan to put in place.”

 

We’re all aging, some faster than others. Appraisers age like the rest of us, but that career has the disadvantage of potential new recruits, after years of college and being asked to serve an internship, balking at entering the business. Mark Lyons, SVP of The William Fall Group/Valuation Partners, sent, “Much like the aging population in the mortgage industry overall, the appraisal industry is also challenged with an aging population, and difficult standards to recruit new appraisers. Bill Fall has prepared a concept document which articulates the current environment and provides recommended solutions to improve the barriers to entry. Bill will be presenting this proposal to the Appraiser Qualifications Board (AQB) on October 16. The AQB is an independent board of the Appraisal Foundation.

 

And Brian Coester with Coester Valuation Management Service writes, “The little to no tolerance on fees in which the TRID regulation is written implies that the appraisal fee, scope of the appraisal, and what needs to be done to complete an accurate assignment, must be determined before any information regarding the assignment’s level of difficulty is known. Traditionally, if the appraiser did research on the property and determined it was larger or more complex than originally expected, a fee increase would be requested and that would be the end of it. With TRID, it’s not as simple. With complex re-disclosures and time delays, the lenders we’ve surveyed want an upfront flat and fixed priced by state.

 

“Regardless if you use an appraisal management company, or if you have your own compliance department in place and go directly to a field appraiser, no one can accurately determine the price of an appraisal before the proper research on the property is conducted.

 

“Currently a flat rate is the only option in place for most lenders and almost every lender we’ve talked with has decided to go with a flat fee state specific model for appraisal assignments. I think that this the best way of dealing with a very tough situation as for all practical purposes you can’t simply re-disclose on every single file because of the appraisal fee when all other fees are known in exact amounts beforehand. The current solution for the TRID appraisal pricing being a state specific flat rate fee schedule is something that will fade away. AMC’s and appraisers will need to have a pricing engine that is online and be able to determine the appraisal price based on the property’s public data and property specific characteristics.”

 

Investors are providing similar information. For example, on Friday NYCB sent out, “When disclosing the ‘Appraisal Fee’ always enter the dollar amount specified on the NYCB Valuation Fee Schedule [WSL: 652] for the state where the collateral property is located. The NYCB Valuation Fee Schedule [WSL: 652] can be obtained in Gemstone’s First Mortgage Forms section.”

 

 

(Thanks to Guy K. for this groaner.)

There were two guys, Sam Franks and Frank Sams. They were the best of friends and did everything together. As fate would have it, they both died on the same day.

Frank Sams went to heaven and Sam Franks went to hell.

Frank Sams really missed his friend and went to God one day and said he would really like to go visit Sam Franks down in hell

Against his better judgment, God let Frank Sams go down to visit his friend, but insisted that he conduct himself as a good angel and set a good example.

Frank Sams went off to see his friend, but God decided to wait up for him to make sure he got back okay.

It got later and later as God waited for Frank Sams to return until it was 3:00 in the morning.

Frank Sams gets back to heaven and is a mess. His halo is askew, his wings are a mess, his robe is dirty and his harp is missing.

God is very unhappy and confronts Frank Sams. He says, “Frank Sams, what happened to you? Your halo is askew, your wings are a mess, your robe is dirty, and your harp is missing. What do you have to say for yourself, and here is your harp!”

Frank Sams says, in a very slurry, drunk voice, “I left my harp in Sam Frank’s disco”…………

 

 

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.)