Oct. 8: Notes about DACA borrowers, lenders buying banks, the CFPB’s database, and HMDA; a pretty good joke

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...

Today’s commentary is short – folks are less concerned about opining about current events and more concerned with helping consumers, funding loans, and, in the coastal areas of the Southeast, bugging out. A quick clarification to a note last Saturday about on-line mortgage applications. Although Hunter Dodson with Pierpont Communications, Inc. sent it to me, he did not write the article – Amplify Credit Union’s Kristin Keller did.

 

Moving on, I received this note on foreign buyers, or better put, semi-foreign buyers. “It seems as though there is some confusion surrounding whether borrowers with a ‘deferred action’ or ‘DACA’ status are eligible for FHA financing. Some people refer to these borrowers as ‘dreamers.’ They are immigrants whose parents entered the country illegally but most of them have grown up in the United States. These people may have a social security number, an EAD card authorizing them to work in the US but their immigration paperwork from the USCIS will list their ‘status’ as ‘deferred.’ This means that their deportation has been deferred for a period of two years and during those two years, they are not precluded from establishing domicile in the US and are authorized to work in the US.

 

“The question at hand is can we give DACA borrowers a loan under the HUD 4000.1? Although it seems as though the majority of lenders believe that these borrowers do not qualify because they are not considered a non-permanent resident alien and clearly have no ‘legal status’ in the US, many lenders believe that these borrowers are eligible because they have had an EAD card renewed multiple times and it will be renewed again assuming no political change and no crime is committed by the person in question. Even lenders whose guidelines clearly state they will not purchase DACA loans, ultimately purchase these loans due to faulty post-closing procedures not designed to catch this particular status. This has only deepened the debate because many lenders point to the fact that they have closed these loans without issue as a reason to continue closing them.

 

“There are millions of these people here in the US and many of them are trying to apply for loans. Many of these loans are closing even though most lenders agree they should not. Our company had a private call with some individuals at HUD who understood the issue and confirmed that borrowers with deferred action status are not eligible for FHA financing because they are not on a pathway to residency and do not meet the guidelines printed in the manual. Additionally, these loans are clearly not eligible for USDA financing as GUS requires you to enter information that identifies their status in the US. When you do so, GUS will tell you that the borrower is ineligible. If you are a lender who currently accepts borrowers with a deferred action status, you may want to consult your attorney for legal advice.”

 

Regarding lenders buying banks, Teraverde’s Jim Deitch contributes, “The past few years have generated more reasons for a lender to consider acquiring a bank. My perspective is founding and serving as CEO in a number of mortgage banking businesses as the principal strategy of a bank depository from 1988 through 2010. The main positives are (1) warehousing funds from low cost deposits assuring liquidity; (2) ability to provide portfolio products such as construction to perm, jumbo ARMS, seconds, NOO, etc.; (3) more favorable counterparty to GSEs and correspondent lenders. The main negatives are the bank prudential regulators. The FDIC and OCC appear to have acquired a ‘jaundiced eye’ towards mortgage banking in a depository brought about by reckless operational practices by a number of smaller banks with large mortgage banking operations.

 

“Nonetheless, a solid business plan with adequate capital and excellent operational controls make buying a bank very doable. There are over 2,000 FDIC insured banks with assets of less than $200 million. These banks will be hard pressed to achieve adequate profitability on a long term basis because they are simply too small, and have few options to grow. Mortgage banking is one of the few options available. A number of banks are actively looking for a way to sell, and can likely be purchased for a slight premium over book. It would likely take $15-20 million of total equity (purchase price plus equity additions) as a minimum to be considered viable.

 

“A lender considering this strategy should be prepared for a regulatory application process of a year, and a likely insistence that the president of the bank have adequate banking experience. A gradual rolling in of the lender’s operations into the bank has been successfully performed by a number of lenders. Speaking to one lender who rolled his operation into a depository, ‘My warehouse line cost me 40 basis points and has no renewal or collateral issues. The warehouse operational savings alone are worth $200 per loan.’ I’d be happy to provide my perspective to a lender considering buying a bank.”

 

The 2015 HMDA data was released. Should the average person in the industry care, or care about HMDA in the future? Maybe not. But anyone who cares about being in the industry longer than a couple years should. The CFPB has taken over the HMDA function, new data fields will be asked for, and the industry’s belief is that HMDA results will be used for punitive measures against lenders. At this point it seems most lenders are already collecting the data fields, and are focused on testing it for accuracy, and reading the results to see what it tells them BEFORE the CFPB sees it in the future.

 

Maria Zywiciel, President of NAHREP Consulting Services, addresses anyone asking about HMDA data fields to be collected, and reported quarterly, starting in 2017. “The purpose of HMDA data reporting is to 1) Shed light on areas served by lenders; 2) Assist public investment and 3) Facilitate Fair Lending reviews. However, the third piece becoming even more critical as the data will create much greater insight for other regulatory and social purposes. The formation of CFPB and the new HMDA data reporting requirements, are creating a new environment for the lenders where the importance of the HMDA data for fair lending regulatory reviews has increased exponentially for both depository institutions and for independent lenders. We expect regulators, advocates and the public to perform greater analyses of the lending operations of the lenders. The next 18 months will be challenging from implementation perspective and also from the increased scrutiny over the HMDA results by the public.

 

“We’re telling our clients that it is important for lenders to navigate this correctly by performing a baseline assessment of their publicly available HMDA data set and will benchmark the data to the data of your peers. This will be especially helpful for any diversity and inclusion initiatives, like Section 342. This will provide a lender with an independent and objective assessment that will give them an understanding how their operations are viewed by the regulators, consumer advocates and the general public. Armed with this knowledge, a lender can take pre-emptive measures if needed, or if not, the staff can use the positive results to promote their brand awareness in the community.”

 

While we’re on HMDA and the CFPB, last week, MBA filed a letter in response to the CFPB’s request for comment on its proposed change to the Consumer Complaints Database. The change would replace the existing dispute function with an optional survey that would provide consumers with an opportunity to rate their satisfaction with the resolution of their complaints on a numeric scale and provide additional narrative feedback in support of the rating. MBA urged the CFPB to eliminate the rating system, or at least to exempt highly-sensitive complaints like foreclosures and debt collection. MBA also suggested that the CFPB pilot the survey components first to assess whether the information collected aligned with its expectations and goals.

 

 

A couple was celebrating their golden wedding anniversary on the beaches in Montego Bay, Jamaica. Their domestic tranquility had long been the talk of the town. People would say, “What a peaceful & loving couple.”

The local newspaper reporter was inquiring as to the secret of their long and happy marriage. The husband replied, “Well, it dates back to our honeymoon in America. We visited the Grand Canyon, in Arizona, and took a trip down to the bottom of the canyon, by horse. We hadn’t gone too far when my wife’s horse stumbled and she almost fell off.

“My wife looked down at the horse and quietly said, ‘That’s once.’

“We proceeded a little further and her horse stumbled again. Again my wife quietly said, ‘That’s twice.’

“We hadn’t gone a half-mile when the horse stumbled for the third time my wife quietly removed a revolver from her purse and shot the horse dead.”

The man continued, “I shouted at her, ‘What’s wrong with you, woman?! Why did you shoot the poor animal like that, are you *%&#@$ crazy!?’

She looked at me, and quietly said, ‘That’s once.’

And from that moment we have lived happily ever after.”

 

 

 

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.)