Jan. 28: Notes on weed & lending, FHA MIP about-face, showing up for conference meetings, and what LOs should tell borrowers

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...

While the industry digests the latest big acquisition (in this case Stonegate & Home Point… isn’t the first, won’t be the last – lots more on Monday) there are plenty of other issues on readers minds.

 

I’m usually pretty liquored up when I write this 6-day a week commentary. Either that or stoned. Actually I am neither, especially at 4AM, but wanted to grab your attention – although occasionally people ask me about both conditions contributing to my writing. The topic of residential lenders making loans to borrowers involved in marijuana-related businesses comes up occasionally – primarily because the federal government views it as illegal, and thus any lender that deals with the federal government must also.

 

To step back for a moment, the US government defines marijuana as the dried leaves, flowers, stems, and seeds from the hemp plant, Cannabis sativa. The government also indicates the plant contains the mind altering chemical delta-9-tetrahydrocannabinol and other related compounds. Marijuana remains illegal at the federal level, despite recent moves by about 1/3 of the states to legalize it at the state level. Given FDIC insurance is at the federal level, banks throughout the country risk a lot if they decide to do business with such customers – even if the state in which the bank is located has legalized it.

 

So banks and lenders remain stuck due to federal laws. The federal government classifies marijuana as a Schedule 1 controlled substance (along with heroin, LSD, GHB, meth, ecstasy, and so on) having a high potential for abuse, no currently accepted medical use in treatment here in the US, and having a lack of accepted safety for use of the drug or other substance under medical supervision.

 

Because marijuana remains illegal at the federal level, some credit card companies won’t process transactions for pot dispensaries. That is also why the vast majority of banks won’t even open accounts for these businesses either. After all, who wants to risk deposit insurance and potentially see criminal prosecution? But it appears more and more financial institutions are open to doing business with marijuana dispensaries. Further, the number of banks and credit unions who said they would consider handling marijuana money under Treasury Department guidelines has increased from 51 in March 2014 to 301 in March 2016. And Steve Brown with PCBB writes that, “The Associated Press indicated that most dispensaries say they have been getting financial services mainly from local credit unions. Only time will tell how this plays out and the boost in state legalization could eventually tip the scales and open up this

customer base to community banks.”

 

What about banking the marijuana industry? Same thing – many banks that report up to federal regulators can’t accept that income, and won’t handle those deposits. But banking marijuana businesses is not illegal. It’s a permissible activity but banks need to be very thorough in their review of all the risks involved. A recent American Banker article noted that there are 301 banks providing banking services to marijuana-related businesses.

 

What about someone who owns a rental house, and the tenant’s income comes from a marijuana-related business? What about problems caused by marijuana cultivation in and around residences? The Institute of Real Estate Management (IREM) issued a white paper that warned of problems. “The growing of marijuana requires significant amounts of water, heat, and humidity,” the IREM white paper stated. “These conditions can create mold issues in properties. These requirements can also increase utility costs for the landlord, and if tenants don’t pay individual electric and water bills. Further, the property could be subject to civil asset forfeiture if you permit growing.”

 

What if the housing complex has its loan with Fannie Mae, or receives subsidies from the Federal Government? Things can become complicated, and conflicting in a hurry. The Agencies and investors’ contractual agreements with lenders place the burden on the lender to assure that they are conforming to existing rules, regulations, and laws.

 

The Colorado Association of Realtors wrote a blog posting entitled “Recreational Sales and Property Values,” which assured its membership that home values would not suffer due to the changes in law. “Although state law allows pot shops to exist, Amendment 64 gives local governments the authority to regulate commercial activities associated with the recreational use of marijuana.”

 

Some day in the future, the marijuana sector may offer banks & other lenders a wealth of opportunity. Today, however, that opportunity comes with a lot of known and unknown risks for depository and non-depository lenders.

 

Passing the pipe, in a manner of speaking, to the FHA MIP change’s indefinite suspension, I received this note from an originator in Minnesota: “In the movie ‘Mr. Smith Goes to Washington,’ Jimmy Stewart plays an honest, but naïve regular guy that gets appointed to be a junior senator from his state. He quickly finds out that he was being played by the political machine. He stands up for truth, and in the end, he wins! I’m sad to say I don’t even know who stands for truth anymore, but I’m pretty sure it wasn’t the previous leadership at HUD. On November 15th, Julian Castro and Edward Golding were plugging the fact that they brought the FHA’s mutual mortgage insurance fund back up to an acceptable level and that ‘the fundamentals were strong and improving.’ Golding also said that there is no additional cut coming to the FHA mortgage insurance premiums.

 

“Okay. End of story? Not quite! In a surprise move on January 9th, Golding sent out mortgagee letter 2017-01 reducing Annual MIP rates by 25 basis points. In an unusual move, he made the decrease effective for closings/disbursements (rather than case numbers issued) on or after January 27th. Julian Castro claimed that the MIP reduction was necessary to offset a rise in interest rates. (Huh?) Of course we all know what happened. On January 20th this regulatory change was frozen with all the other last minute political moves. Aside from making customers angry, this whole debacle gave those in the press and others ample opportunity to point out how awful the new administration is because it ‘raised’ the cost of homeownership for working families.

 

“So, I ask these questions: Why did they not lower MIP in late November when rates were where they are now? Did the MMIF improve over the holidays? Why did they make the MIP reduction effective one week after the inauguration? Why closing dates instead of case numbers? I think the answer is simply petty politics. Golding and Castro might think their little dig was funny, but it wasn’t. It only served to aggravate the tensions in our stressed nation. Most Americans expect public leaders to lead and public servants to serve. (I wonder if the False Claims Act would apply in this situation?)”

 

Along the lines of doing business like your parents taught you, I received this note from a vendor who attended the MBA’s conference this week in Southern California. “While I know many of you are solicited by vendors probably more than you’d like, many of us have been in your shoes and are now vendors selling services we believe strongly in that will help your company. Be professional and courteous and respond to vendor emails timely when solicited and don’t ignore the people trying to sell you something they believe in. It would be appreciated if you just wrote back and said that you didn’t have an interest rather than just ignoring the email. If you ignore the email, you more than likely will receive more messages until you respond so this effort will in the long term save you time!

 

“I am at the IMB conference this week and had three meetings scheduled where the invitee didn’t show up and didn’t have the courtesy to call/text or email to let me know they weren’t going to make the meeting. This behavior is not only unprofessional but its disrespectful. As a vendor, I am accustomed to people not responding to emails and when someone does respond quickly it is appreciated. Be the best you, put yourself in people’s shoes and do the right thing as it relates to responding to vendors emails or meetings you’ve accepted to attend!”

 

What are loan officers telling borrowers these days? The housing inventory has declined for 18 consecutive months, driving supply down and prices up. In fact, a recent survey of real estate professionals conducted by TD Bank found that the top concern in 2017 among respondents was home inventory. This provides all the more reason for homebuyers to be nimble throughout the process to ensure they don’t miss out on the perfect home in this low inventory environment. Ray Rodriguez, Regional Sales Manager at TD Bank offers the following advice for homebuyers to avoid stalling mortgage approval.

 

Consult with your lender: Opening up a dialogue with your lender early in the process will help you outline exactly what is needed for mortgage approval. Ensure you are upfront with your lender and don’t omit anything that can derail the process down the line i.e. an additional property you own or any existing loans in your name.

 

“Prepare your paperwork: The mortgage process requires verification of your income, credit and bank account balances, among other documentation. It helps to gather forms like your recent tax returns and W-2s ahead of the process so that you aren’t scrambling when you come across the perfect house, or want to jump on a refinance into a lower rate.

 

“Evaluate your credit standing: If you haven’t checked your credit lately, use a free online tool to ensure your score is in good standing ahead of a home purchase or refinance. If you have any outstanding collections or payments that are past due on your credit report, sort these out before starting the process and be prepared to discuss these with your lender. Avoid applying for any new credit cards or loans to avoid a hard pull on your credit, which will result in an inquiry on your report that you will have to explain to your lender.

 

“Prepare for unexpected costs: The costs associated with a mortgage are often provided in an upfront estimate, so it’s important to leave some wiggle room for closing time. TD Bank’s Mortgage Service Index found that a majority of respondents (62%) spent close to $2,000 in unexpected costs during the mortgage process, while almost half of Millennials incurred up to $5,000 in unexpected costs. It’s best to be prepared with a buffer for additional funds on top of the down payment.”

 

 

Thank you to Mike C. for these “Cowboy Rules” for:

Arizona, Texas, Oklahoma, Colorado, New Mexico, Wyoming, Montana, Utah, Nebraska, Idaho, Nevada, South Dakota, Kansas and the rest of the Wild West are as follows:

  1. Pull your pants up. You look like an idiot.
  2. Turn your cap right, your head ain’t crooked.
  3. Let’s get this straight: it’s called a ‘gravel road.’ I drive a pickup truck because I want to. No matter how slow you drive, you’re gonna get dust on your Lexus. Drive it or get out of the way.
  4. They are cattle. That’s why they smell like cattle. They smell like money to us. Get over it.

Don’t like it? I-10 & I-40 go east and west, I-17 & I-15 goes north and south. Pick one and go.

  1. So you have a $60,000 car. We’re impressed. We have $250,000 Combines that are driven only 3 weeks a year.
  2. Every person in the Wild West waves. It’s called being friendly. Try to understand the concept.
  3. If that cell phone rings while a bunch of geese/pheasants/ducks/doves are comin’ in during a hunt, we WILL shoot it outta your hand. You better hope you don’t have it up to your ear at the time.
  4. Yeah. We eat trout, salmon, deer and elk. You really want sushi and caviar? It’s available at the corner bait shop.
  5. The ‘Opener’ refers to the first day of deer season. It’s a religious holiday held the closest Saturday to the first of November.
  6. We open doors for women. That’s applied to all women, regardless of age.
  7. No, there’s no ‘vegetarian special’ on the menu. Order steak, or you can order the Chef’s Salad and pick off the 2 pounds of ham and turkey.
  8. When we fill out a table, there are three main dishes: meats, vegetables, and breads. We use three spices: salt, pepper, and ketchup! Oh, yeah … We don’t care what you folks in Cincinnati call that stuff you eat… IT AIN’T REAL CHILI!!
  9. You bring ‘Coke’ into my house, it better be brown, wet and served over ice. You bring ‘Mary Jane’ into my house, she better be cute, know how to shoot and drive a truck.
  10. College and High School Football is (more) important than the Giants, the Yankees, the Mets, the Lakers and the Knicks (all combined), and a dang site more fun to watch.
  11. Yeah, we have golf courses. But don’t hit the water hazards – it spooks the fish.
  12. Turn down that blasted car stereo! That thumpity-thump ain’t music, anyway. We don’t want to hear it, any more than we want to see your boxers! Refer back to #1!

 

 

 

Rob

 

(Copyright 2017 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.)