Apr. 1: CFPB goes after layaway plans & publishes meeting minutes; LO comp experiment; Florida lender addresses regulatory burden

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...

This year Nationstar Mortgage, acting on the advice of its blue ribbon commission, began a re-naming marketing campaign where it would be known as “Mr. Cooper.” Other lenders, not wanting to miss the wave, quickly reacted. Wells Fargo announced it would be Ms. Smith, Citi Mr. Jones, Chase will become Mrs. Johnson, U.S. Bank Mr. Thomson, and, with a nod toward the expanding Hispanic market, PennyMac chose Ms. Cortez. This has led to “unintended consequences,” however, for the MBA planners for the national conference next month in New York. Mr. Cortez doesn’t want a meeting room next to Mrs. Johnson. Ms. Smith wants a meeting site away from the conference hotel, and is fine if Mr. Jones is in the same hotel. Mr. Cooper doesn’t want to next to a depository bank in the meeting area. Ms. Cortez doesn’t want to be next to anyone it sells loans to, and Mrs. Johnson wants to be on the ground floor. Who murdered Colonel Mustard?

 

Ty Burbidge with Utah’s RANLife Home Loans reports, “Our company here in Utah is feeling the BERN!!! We have decided to move away from commission and start a program called Bernie BPS. We will no longer focus on any one individual’s performance but every LO in the company will be paid out an equal portion of the company’s total volume. The LO that funds $200,000 will be paid the same as the LO who funds $3,000,000. We feel this will really attract hard working, high producing LOs and should help us avoid lazy ones. What could go wrong?”

 

Late in 2015 the FHFA, FNMA, FHLMC, HUD, GNMA, and put together a blue ribbon commission made up of their best & brightest. After a series of bi-weekly, hour-long meetings the commission decided that the residential lending industry did not have enough acronyms for lenders to keep track of and memorize. They have decided to create “UJHY,” “TGOM,” and “WRV.” They will announce a naming contest in the 3rd quarter, since it takes months to do things like create naming contests, to fill in the actual words that go along with each letter. Watch for upcoming bulletins.

 

Pollster Benjamin, Golden, & Sonner released the results of its latest survey done by its blue ribbon commission. “We found that regardless of renting, living with relatives, or actually owning a home, the respondents were universally tired of being polled.” The U.S. Census Bureau echoed the results, saying that, “Not only are the majority of households we’ve sent surveys to ignoring the survey, but some actually tear it up and mail it back in the prepaid envelope. While we like supporting the Post Office, these garbage-filled envelopes are running up our costs.”

 

From Charlotte, North Carolina comes word that Bank of America’s blue ribbon commission has found a new source of revenue. Saying that the penalty will cover the costs incurred by the financial institution whenever a customer makes a withdrawal that results in a positive account balance, Bank of America introduced a new $50 underdraft fee on all checking and savings accounts. “Beginning today, we will assess a fee on customers who withdraw less money than they have available,” bank spokesperson Steve Lam told reporters, noting that the $50 surcharge will automatically be deducted any time a patron uses a Bank of America debit card or check to make a purchase that is less than the dollar amount of his or her account balance. “We’re confident this new fee shouldn’t be an issue for most of our customers. As long as account holders remain vigilant about their finances, and make sure not to withdraw too little money, they should be able to conduct their banking business as usual without ever receiving a ‘sufficient funds’ notice.” To further incentivize customers against repeating such a financial mistake, Lam added that the fee will increase with each additional underdraft, with the penalty rising to $75 for a second offense, $150 for a third offense, and a value equal to the remaining balance of one’s account for any additional underdraft committed thereafter.

 

The MBA came out with a revised production forecast for 2016. Interestingly, it mimicked, nearly word for word, its reworded 2015 forecast. “The good news is that many lenders will reach their goal of 70% purchases making up their volume! The bad news is that overall volume will be down by 90%.” This once again has spooked the LO herd and I received this note from a new LO in Wisconsin: “Rob, my mentor told me that I could make a living originating loans, especially refis. And now we hear this forecast. I’ve spent most of my time focusing on hobby farms. I’m really starting to gain traction, but do you think that I need to reevaluate my future in lending?” Yes.

 

Speaking of life in the lending world, Wyoming’s Gaptooth Mortgage has instituted an office-wide policy permitting employees to work from home any time after 6PM. “If it helps them be efficient and get more done, I have no problem with people working remotely once they’ve left the office for the day,” said the CEO, who noted that as long as they’re doing their jobs, the location where his staff members choose to work between 6PM and 9AM is “completely up to them.” That’s the kind of relaxed culture we strive to create here—one where you can even be working from your living room couch at two in the morning if you’d like.” The bulletin reminded employees that since they don’t have to be in the office for any meetings, employees are free to work from home on weekends and holidays as well.

 

The CFPB held its (now) annual Easter egg hunt. The participants were not given the rules, not told how many eggs there were, told they could have an attorney present at the start of the hunt if they so desired, not given the area over which the eggs were hidden, and told that the hunt could continue indefinitely. Many of the participants were dismayed when egg hunt judges, after being a judge for a while, were called off to other tasks and replaced with new judges who had no experience judging an egg hunt.

 

Obviously a big part of residential lending these days is following the events of the CFPB. The CFPB has announced a public comment period on grammar rules as they pertain to capitalizing certain words for no reason whatsoever. In addition, the CFPB has released an additional set of HMDA information that lenders may be required to collect. These new data fields include, “What color tie did the client wear at signing?”, “Did the client sign with his right or left hand? Or neither?”, “How long did the client take to sign his loan documents: under 20 minutes or over 20 minutes?”, “Did their hand shake during the signing?”, “Does the client own a pet?”, “How many lenders did the client call before selecting your company?”, and “Can the client compute the APR without a calculator?” The agencies and aggregators are adding IT staff in order to accommodate these additional fields before January 1, 2018, when they take effect.

 

In mortgage-related news, the CFPB, which is running out of financial transactions to regulate, has lashed out against layaway plans – unfortunately it might be 80 years too late. The agency reminds us that a layaway plan is an agreement in which the seller reserves an item for a consumer until the consumer completes all the payments necessary to pay for that item. Rather than taking the item home and then repaying the debt on a regular schedule, as in most installment plans or hire purchases, the layaway customer does not receive the item until it is completely paid for. There is sometimes a fee associated, since the seller must “lay” the item “away” in storage until the payments are completed. Because there is little risk involved for the seller, layaway can be readily offered to those with bad credit who also use pay day lenders, pawn shops, and some residential lenders. If the transaction is not completed, the item is returned to stock and the customer’s money is returned minus a fee. The main advantage of layaway is that no interest is charged – which is a disadvantage to everyone who is charged interest. In addition, the price is fixed, availability is guaranteed by reserving the item in stock, and an item being purchased as a gift can be kept secret. Layaway plans became common during the Great Depression of the 1930s but then ended with the increase in credit cards during the 1980s.

 

In an effort toward more transparency, the CFPB, like the Federal Reserve Open Market Committee, has decided to release the minutes from its senior management meetings, informally known as “cuddle huddles”. Here is an excerpt from a recently held cuddle huddle:

“The next item on the agenda is off-siting, and are we ready to push it across the finish line. Compliance?”

“Our team was going to re-purpose this task, engage in some team building exercises, and then circle back with the other pods. Legal?”

“Yes, and we need to line up our ducks and take it to the next level. Are the other assistant associate directors in agreement?”

“Roger that. My group is prepared to kick it up a notch and see if it holds water. Government affairs?”

“Last week we held an enclave, putting our heads together, and discussed dialing it back. Accounting?”

“Our group has been working under the radar with the end goal to be to operationalize this function. IT?”

“We wanted to see how this was going to bubble up, right-size it, streamline the flow, and then run it up the flagpole. Communications?”

“Can someone remind me what we are talking about?”

“We may need to outsource this. Meeting adjourned. Group hug.”

 

While we’re on the CFPB, I received this note from a new compliance person in Illinois. “I was going through the CFPB’s examination manual. (Fortunately it is not as bad as the 900+ pages sounds – a lot of it is fluff and addendums.) I have a question for you. The information noted on page 612, section 4, paragraph 3, line 7, seems to directly conflict with the information included in the HUD ‘Housing Choice Voucher’ worksheet that is distributed to the public, chapter 4, and also the RESPA document titled, ‘Exemptions from Coverage Under Sections 4 and 5 of RESPA for Certain Subordinate Loans Provided by Assistance Programs for Low and Moderate Income People,’ which refers to Section 19(a) of RESPA. What are your thoughts?” First off, I don’t have any. Second, please let me know if you ever become unhappy with your current employer – I can think of hundreds of other companies that would be happy to hire you.

 

A mortgage company in Florida, arguing that the current regulatory environment and conflicting state & local laws are out of step with helping the consumer, has decided to eliminate “compliance” entirely. “We are audited by nearly a dozen bodies, and expect the AARP to walk through the door any day. Our LOs don’t pay attention to the myriad of compliance rules anymore anyway, and lending regulations are filled with rules that say ‘Do this, don’t do that,’” said the CEO, who came up with the idea. “Our compliance people have been run ragged. And this way, think of all the money we’ll save! And we can use the conference room, previously dedicated to teams of sweaty auditors unused to the climate, for things like potlucks and Secret Santa events.”

 

Along these lines there is broad support in Texas for not only eliminating compliance, but abolishing any ties to the federal government thus effectively eliminating the risk of an exam by the CFPB, HUD, Fannie Mae, or the Department of Justice. A poll showed that the majority of Texan lenders favor ridding the state of ties to the federal government, while a sizable number thought that this had been done thirty years ago.

 

 

The bond market and interest rates have been downright boring. So let’s discuss the stock market, since that seems to attract the attention of the press all the time anyway. So for today’s stock market report:

Helium was up Feathers were down Paper was stationary Fluorescent tubing was dimmed in light trading

Knives were up sharply Cows steered into a bull market Pencils lost a few points Hiking equipment was trailing Elevators rose, while escalators continued their slow decline Weights were up in heavy trading Light switches were off Mining equipment hit rock bottom Diapers remain unchanged Shipping lines stayed at an even keel The market for raisins dried up Coca Cola fizzled Caterpillar stock inched up a bit Sun peaked at midday Balloon prices were inflated And, Scott Tissue touched a new bottom

 

And now for something completely different, like being serious!

 

Yesterday I incorrectly noted that Steve Stein had been put in charge of Ditech Financial LLC’s correspondent division. That is not the case. Steve will be running its Consumer Lending Division; John Davis still runs correspondent for Ditech.

 

And yes, we had the unemployment data this morning. The market was anticipating a slight moderation to 205k new jobs created (actual +215k) and unemployment steady at 4.9% (actual 5.0%); hourly earnings were +.3%. We closed Thursday with the 10-year at 1.79% and after the employment data it barely budged and is at 1.80% with agency MBS prices worse a smidge.

 

 

 

Rob

 

(Copyright 2016 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.)