Oct. 24: Notes on the broker model, empowering LOs; does the CFPB scope include banks with less than $10 billion in assets? You bet!

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...

To start things off with a chuckle, since the rest isn’t exactly a barrel of laughs, earlier this week Jay Leno told the mortgage bankers, “If Bernie Sanders wins in 2016 he will be the first socialist president to be elected since 2008.”

 

Leena Kostelich, National Account Director with Mortgage Coach, sent in, “While I believe the CFPB, in broad terms, is coming from a ‘best interest of the borrower’ stance with all they are trying to do, I do not think TRID or the CFPB will drastically, or even noticeably, change the way homebuyers buy homes. The CFPB is essentially putting more responsibility on the purchaser which would have been more relevant in the bygone days of vastly disparate rates and loan options.

 

“The only people that know who the CFPB is are industry professionals. Ask any non-industry person – and see what they say. Heck, HUD is far more known – and how many people that have bought homes actually checked out that website – or read the required Settlement Costs Booklet?

 

“Savvy borrowers likely search rates online and may submit applications with two lenders – max.   The CFPB telling them to shop around and get multiple LEs in hand is a lot of extra work for buyers – work that they don’t have the patience or time for. Our industry is what it is today so borrowers DON’T have to shop around so much. That’s why yield spread is dead and gone (and No Doc and SISA and Neg-Am, etc.). The playing field is the most level it’s ever been as far as benefiting and protecting the borrower. That’s been the word on the street for quite some time now, and it’s accurate.

 

“I recently purchased a new car – done during my off time since I work full time. It was exhausting! After all that involved – the last thing I wanted to do was call around to different companies to get the absolute best rate/deal. I was satisfied with the service of the dealership and their finance options – so I signed on the dotted line and drove away in my pretty new car.

 

“Buying a home is a bigger investment, obviously – but the same overall process, just in a much longer time period and much more cumbersome process. If the borrowers trust and know they can rely on their LO from the beginning – they will stay with that person. Same with their Realtor. These are the people whose advice and direction buyers trust and follow today – and will tomorrow and every day after. (Which is why these Joint Ventures and MSA’s need to go away – but that’s another book!!)

 

The best thing a lender can do is empowering their LOs to understand the LE and CD and give them the tools to communicate the necessary information and deadlines to their customers and referral partners in the most efficient way possible. Take full advantage of technology to deliver transparency and education and you will be successful.”

 

And this note on the broker versus banker model from David M. Lichtman, President of DML Mortgage Enterprises in New York: “From one of what feels like the few remaining mortgage brokers (that are not a 1-person shop) out here I submit the following. I am licensed in multiple states, main office/license in New York since 1988. Many times I considered going the banking platform and last year even flirted with merging my shop into another bank’s operations (mid-size regional S&L) or another bigger mortgage banking platform. Each time I ponder relinquishing my license or making change I always come back to the conclusion that the mortgage brokerage model is great for the consumer in regards to price and for me with regard to profit.

 

“This past Thursday I entertained bunch of people at a local hot spot and a few LOs that used to work for me stopped by. Some were out of the industry entirely; others who panicked and jumped ship to the Realtor in-house LO model for large national banker to the S&L to the regional mortgage banker to the net branch (that’s not supposed to exist?). And I found upon listening to the banter that between price and service we offer we really can’t be beat. Mind you, our scale (we were once a team of approximately 40 are now a solid dozen of us) makes it easier to personalize the service and when it gets busy we do have to work long hours. I am not complaining, but based on ups and downs we can’t hire and fire randomly just like any other player but perhaps more due to cost of interviewing, training, etc. Again, as I listened to others, I noticed our ‘wholesale price leader’ allows us to maintain a 2 point margin and be anywhere from .125% to .25% better in rate! And if we go Borrower Paid with same, and earn less than the 2 point bucket we are in, we appear to be the consistent leader in conforming, agency, and jumbo. And having locked in a lovely borrower this past week FHA at 3.375% fixed 30 while seeing a quote from a larger competitor at 3.75%, I couldn’t help but wonder if any of the regulators truly understand the dynamic they are creating.

 

“And here are our problems on many fronts: company growth, LO perception, and consumer perception. In order to grow we must be able to recruit. In order to recruit from a national lender federally chartered that does ‘in-house’ training and LOs not taking state test for NMLS licensing we have to have that LO start with education, get caught by their lender and either forced to resign or be terminated, then pass test and wait for state banking department to process their paperwork….they can easily be out of work 6 months to a year! My most recent NY State mortgage audit last March I questioned whether the NY State Banking Department wanted us in business. Not based on the difficulty of the audit (we passed with flying colors) but due to the fact that I had two LOs stuck in licensing for 6-9 months. The auditor was gracious enough to make a difference and push their applications through but we had previously called repeatedly without getting anywhere and I certainly do not want to ask for audits to get personal service on the compliance side.

 

“LO perception is that the broker model is dead or damaged and value not there. This is due to the aforementioned difficulty posed by regulations that maintain an uneven playing field.  At one point in exploring the possibility of merger with small mortgage banker I realized we did more volume than they did but due to fact that they had banking license could hide the extra SRP on FHA as well as Lender bonus premium and generate more revenue.  Albeit, taking on more risk? But judging from organization of shop I did not see a better run shop than mine (biased of course but factual; hence reality we are able to do more business). Let’s be real. From LOs to ownership, we are all in this game to make strong profit. LOs will go where they believe the best profit and support to make a living. And much of the so-called lender support appears to be window dressing as inevitably the LO still has to take time to network and market themselves as should be the case.

 

“Consumer perception ranges from the borrower who can’t thank us enough and borrower who indeed realizes better pricing and service that the local neighborhood mortgage broker offers, to the consumer who has bought into previous media and mainstream comments blaming our most recent recessionary problems on the non-bank entity. The playing field in the higher end markets has been especially biased against the smaller player although I do see that changing.

 

“Finally to address comments regarding to the banker hurdles being even more extensive than the non-bank. I was involved in a successful S&L start up a few years ago and yes the regulations to make sure S&Ls should succeed and not fail are extensive. However, for the LO who is working for the S&L I cannot accept that they are any more or less effected than that which any other LO faces. And again for those that can hide behind the federal charter and not have to get approved on a state or national level it has already been proven that this type of LO is on average much more shallow and inept in regards to fully understanding all aspects of residential mortgage lending that is available. I know because repeatedly we do close loans where the borrower initiated the process with larger lender to be misled or misinformed by their LO. (Only this week did a borrower tell me that while my price quote is better than the big lender, they have told him he does not need last year’s tax return nor a profit and loss statement…  It’s a refi. He’ll end up my way or rates will increase and he’ll never close!) When faced with potential default on their deal we are able to put it together and make it happen quickly, efficiently and somewhat painlessly for the consumer. What concerns me overall is what other regulated industry, financial service industry, legal, real estate industry, mandates different forms of licensure amongst the same body that is competing?  That my friend is absurd!

 

David finished his note off with, “Inevitably regulation will stabilize and at some point I can only hope that common sense prevails within the free and democratic market we reside. The good will always survive but will the small business be allowed to once again grow and thrive?”

 

“Rob, I am an LO at a bank with less than $10 billion in assets. As I understand it the CFPB can’t touch us – is that right?” Well, besides the fact that every rule, explicit or hinted at, impacts every residential lender in one way or another, sorry – nope, your understanding is not quite correct, and it would not be a surprise to see the CFPB tag along with some other regulator and have an examination & audit fiesta in your conference room. Congress gave the CFPB an enormous range of power, which, with hindsight, was unconscionable. Jack Konyk with Weiner Brodsky Kider PC points out that all one has to do is look at the actual language of Section 1026 of Dodd-Frank, which sets out the supervision and examination authority of the CFPB over depository institutions with $10B or less in assets. Jack reminds us that, “This is just their supervision and examination authority, which is separate, apart and in addition to their full enforcement authority under the statues themselves.” For the full text see the link above, but I paraphrased some for you here:

 

“CFPB Supervision Authority Over Depositories with $10B or less in assets.” (Not to be confused with their enforcement authority under the statutes themselves.)

 

SEC. 1026. OTHER BANKS, SAVINGS ASSOCIATIONS, AND CREDIT UNIONS.

(a) Scope of Coverage.–This section shall apply to any covered person that is–

(1) an insured depository institution with total assets of $10,000,000,000 or less; or

(2) an insured credit union with total assets of $10,000,000,000 or less.

 

(b) Reports.–The Director may require reports from a person described in subsection (a), as necessary to support the role of the Bureau in implementing Federal consumer financial law, to support its examination activities under subsection (c), and to assess and detect risks to consumers and consumer financial markets.

(2) Preservation of authority.–Nothing in this subsection may be construed as limiting the authority of the Director from requiring from a person described in subsection (a), as permitted under paragraph (1), information owned or under the control of such person, regardless of whether such information is maintained, stored, or processed by another person.

 

(c) Examinations.–

(1) In general.–The Bureau may, at its discretion, include examiners on a sampling basis of the examinations performed by the prudential regulator to assess compliance with the requirements of Federal consumer financial law of persons described in subsection (a).

(2) Agency coordination.–The prudential regulator shall–

(A) provide all reports, records, and documentation related to the examination process for any institution included in the sample referred to in paragraph (1) to the Bureau on a timely and continual basis;

(B) involve such Bureau examiner in the entire examination process for such person; and

(C) consider input of the Bureau concerning the scope of an examination, conduct of the examination, the contents of the examination report, the designation of matters requiring attention, and examination ratings.

(d) Enforcement.–

(1) In general.–Except for requiring reports under subsection (b), the prudential regulator is authorized to enforce the requirements of Federal consumer financial laws and, with respect to a covered person described in subsection (a), shall have exclusive authority (relative to the Bureau) to enforce such laws .

(2) Coordination with prudential regulator.–

(A) Referral.–When the Bureau has reason to believe that a person described in subsection (a) has engaged in a material violation of a Federal consumer financial law, the Bureau shall notify

the prudential regulator in writing and recommend appropriate action to respond.

 

 

“It’s just too hot to wear clothes today,” Jack says as he stepped out of the shower, “honey, what do you think the neighbors would think if I mowed the lawn like this?”

“Probably that I married you for your money,” she replied.

 

 

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.)