Apr. 22: Notes on Zillow, MSAs, RESPA, sales techniques, 10-day closes, and big bank market share & FHA lending

“Rob – are you seeing lenders out there offer 10 day closing guarantees?” Yes I am. But experienced originators are quick to tell borrowers, who typically wave that in their face, to read the small print. The advertisement claim is almost guaranteed to contain some clause, or clauses, that will say something like, “10 days from the time the loan goes to title,” or, “10 days after appraisal and credit package are approved.” Another good topic LOs use to educate borrowers and add value.


“Rob, what are you hearing about March volumes?” Well, the first quarter of 2017 seemed rougher than most, and many companies are breathing a sigh of relief at projected April fundings and the size of the pipelines lined up for May. But the continued lack of listings is epidemic in many locals. There are numerous reasons. Funds like Blackstone own tens of thousands of units as rentals. People are living longer, Baby Boomers are perfectly content in their house and aren’t downsizing or moving, owners don’t want to incur the tax liability for a house that has appreciated, the permit process (cost) for new units is prohibitive, the list goes on. And if people “at the top of the housing food chain” aren’t moving, then “move-up buyers” aren’t moving either, and this in turn stifles first-time home buyers.


“Rob, what’s going on with the big banks and FHA lending?”


Good question, and let’s tie that into market share in general. Regarding FHA loans, did you see Wells Fargo’s price changes for low balance FHA loans this week? (Starting May 1, see how the pricing works for a low-FICO borrower, and you’re calculating in a 3, 4, or 5-point hit.) It is generally believed that JPMorgan Chase would return to offering that program on a competitive basis IF the regulatory, and penalty, environment changed. And if they do, the market share will be taken from smaller independent mortgage banks who have been enjoying the profits.


As a reminder, mortgage banking earnings for JPMorgan (JPM), Wells Fargo (WFC), and PNC Financial (PNC) were down in the first quarter but largely in line with expectations. The decrease in earnings was driven by volumes, while gain-on-sale (GOS) margins were mostly flat. JPM’s mortgage origination volume of $22.4 billion was down 23% Q/Q from $29.1 billion while WFC’s origination volume was down 39%. WFC’s application pipeline was down 21%, which was slightly worse than expected. Both companies reported flat gain on sale margins.


The question often comes up about market share in residential originations, and big bank timing in terms of market share. Keep in mind that typically the big banks, at least Wells Fargo, usually don’t strive for market share for the sake of share. They take the approach that they have a very definite cost of funds, expense structure, and value of servicing, along with other components, and use those things in setting an exact price. To the extent that the derived price garners them business at the desired profit level, good. If it doesn’t, and results in fall in market share, so be it. They don’t chase the market, or a competitor who thinks the value of servicing is higher than everyone else. In terms of a bike analogy, they rarely lead the race, but are generally in the peloton.


Contrast that to non-depository lenders who seem to lead the pack in terms of pricing, then suddenly they’re back in the pack, then behind, then ahead. And market share tends to be a backward-looking measure rather than using current locks and the strain on internal operations. Banks view it with caution, given their focus on profitability rather than pricing based on competitors.


On this topic, I received this note from the leader of a well-known independent mortgage bank. “Wells still controls an amazing market share and continues to often win 40 to 50% of our mandatory bids. I have not seen a major pull back from Wells in correspondent space outside of a degree of risk aversion compared for example to a player like Freedom.  Wells is excellent on service and consistent as a buyer. We highly value our relationship with Wells.


“But on the retail side, as an independent mortgage banker in the retail space we have enjoyed the big banks pull back in retail. It’s been a pleasure I have rarely experienced over the past 30 years. We have also seen some community banks pull back, or even run, from residential lending.


“In terms of share, non-bank lenders have enjoyed the opening provided by depository banks scaling back throughout 2016, although this may change. I am carefully watching knowing the big banks have tremendous power and reach. And their cost of funds is much lower than an independent mortgage banker. If they jump back in retail with any aggression and it will materially change industry dynamics.


“Considerable infrastructure and fixed cost across the independent mortgage banker space in the industry has been built to not only to deal with regulation but to deal with market share growth. It is easy for non-banks to be caught flat footed. I do not want to be that guy. As an independent mortgage banker, I am watching carefully and closely as 2017 unfolds.”


LO Sales


Whether agents have listings or not, plenty of LOs are attempting to forge relationships with them to obtain business. Dave Savage sent along this note on a “Big Idea for the Spring Home Buying Season.” “Rob, your readers may want to check out a 5-min video that shares a big idea for Realtors and lenders to get more listings and to help more families move up into their dream home. CLICK to learn about a big idea called the ‘DUAL MARKET Opportunity.’”


(Editor’s note: Studies find the probability of selling something to an existing customer is about 60% to 70%, while doing so to a new prospect ranges from 5% to 20%. In addition, it is about 7x costlier to acquire a new customer than to retain an existing one. Finally, you should know that existing customers are 3x more likely to buy from you than new prospects.)


And Ralph LoVuolo Sr. writes, “This is a primer into my basic philosophy of Mortgage Loan Officer sales and how you can become much more successful than you have ever dreamed you could be. Apply these thoughts and actions to your everyday activities and you’ll quickly discover how much your business will improve. Free on Kindle.”


MSAs, builder business, and RESPA


“Rob, is buying a real estate agent a spa treatment for every referral a violation of anything?” If you have to ask, you don’t deserve an answer. But given the improving economy, many areas are seeing an increase in the number of agents – which doesn’t make a lot of sense given the plodding number of listings.


But no, a loan officer or lender cannot pay real estate agents on a per lead basis. Lenders who still have Marketing Service Agreements (MSAs) in place are doing their utmost, as best I can tell, to adhere to the sparse guidance offered by regulators. MSA rules of thumb include, “Don’t compensate ono a per lead basis. Don’t compensate based on referral capture rate. Don’t create direct markets service provisions.”


Lenders are also careful to evaluate or document rationale for fair market value. They create procedures of management of MSAs/authorized negotiation and review, and audit that services are actually provided. Lenders include consumer direct advertising provisions/services, and are sure to disclose business relationship to consumers. They document all payments to MSA partner outside of the MSA, as well as document rationale for any payment changes.


When one uses the CFPB’s Prospect Mortgage Consent Order as a guide, you can see that it had familiar elements. For example, exclusivity: A Realtor is not allowed to promote any other lender. Or in steering consumers: they were required to use a certain lender. And fluctuating payments based on how much business they saw.


With desk rentals, everyone must maintain clear signage, and must safeguard confidential information. And they should consider licensing implications as well as retain documentation of comparable space in same area.


Realtors have been fined by the CFPB. LOs, of course, are hesitant to remind them that giving or receiving kickbacks is illegal, and I’ve heard reports of real estate brokers paying their own agents incentive to steer leads. Do not pay real estate agents per lead because it incentivizes referrals. That all said, a builder referring a particular lender to a buyer is not bad IF the lender is not giving something directly back to the builder.


Builder & Zillow business opinions continue. These are from readers.


NC writes, “Builders who pay title policies and upgrades ONLY IF THE BUYER USES THEIR PREFERRED LENDER are crooks. But, for some weird reason, this is not seen as a kickback (even though their preferred lender pays the title policy and builds it into their pricing). I’ve seen upgrades of $38,000 that the builder pays ONLY IF BUYER USES THEIR PREFERRED LENDER. Try competing with that if you’re not a preferred lender but are still giving good service and prices to consumers. Unless and until the housing industry fixes this gargantuan and long-standing inequity, I don’t put any stock in mortgage bankers, realtors and builders who give lip service to “consumer-friendly” policies.”


“It would be nice if the CFPB (and the MBA) could provide us clear and direct guidance. I have LOs that request that we sign up with Zillow. My take is that it is a potential violation and as a bank, it is not worth the risk. Several years ago, I explored Zillow and I called them to discuss their services. When I pointed out that there are inconsistencies and possibly non-compliant, the representative acknowledges the discrepancies and admitted that Zillow was not planning to make any corrections or updates.”


And lastly, “This Zillow-thing struck a nerve. I had a few branches where they were participating in the ‘Realtor Marketing’ with Zillow under the concept of co-branding. The LOs, however, were paying more than the Real Estate Agents, and receiving less of the marketing space. I ran this by both inside and outside counsel and it just didn’t pass muster.  The biggest flaw is Zillow will not enter into any contract with the Lender, or provide any invoicing to the Lender. That’s right: The Lender signs nothing, Zillow just bills the credit card.


“In Zillow’s explanation of the program they very carefully avoid any idea of a contract with the Lender. Most importantly, the Lender cannot contract with Zillow directly, they must be invited by the agent to participate in the program. This whole thing is a big ‘Kick Back.’ We stopped the practice, and not surprisingly the Loan Officers left. The funniest thing was that we found that these leads had a cost to convert of about $5,000 a file. The loan officers didn’t see this as an issue as they weren’t paying for the marketing.”



(Thanks to Kit C. for this oldie but goodie.)

Three golfing partners died in a car wreck and went to heaven.

Upon arrival, they discover the most beautiful golf course they have ever seen.

St. Peter tells them that they are all welcome to play the course, but he cautions them that there is only one rule: Don’t hit the ducks during your first three months here.

The men all have blank expressions, and finally one of them asks, “The ducks?”

“Yes”, St. Peter replies, “There are thousands of ducks walking around the course, and if one gets hit, he quacks, then the one next to him quacks and soon they’re all quacking to beat the band. It really breaks the tranquility, and if you hit one of the ducks, you’ll be punished. Otherwise everything is yours to enjoy.”

Upon entering the course, the men noted that there were indeed large numbers of ducks everywhere.

Within fifteen minutes, one of the guys hit a duck. The duck quacks, the one next to it quacked and soon here was a deafening roar of duck quacks.

St. Peter walked up with an extremely homely woman in tow and asks, “Who hit the duck?” The guy who had done it admitted, “I did.” St. Peter immediately pulled out a pair of handcuffs and cuffed the man’s right hand to the homely woman’s left hand. “I told you not to hit the ducks,” he said. “Now you’ll be handcuffed together for eternity.”

The other two men were very cautious not to hit any ducks, but a couple of weeks later, one of them accidentally did. The quacks were as deafening as before, and within minutes St. Peter walked up with an even uglier woman.

He cuffed the man’s right hand to the homely woman’s left hand. “I told you not to hit the ducks,” he said; “Now you’ll be handcuffed together for eternity.”

The third man was extremely careful. Some days he wouldn’t even play for fear of even nudging a duck. After three months, he still hadn’t hit a duck.

St. Peter walked up to the man at the end of the three months, and had with him a knock-out, gorgeous woman – the most beautiful woman the man had ever seen. St. Peter smiled at the man and then, without a word, handcuffed him to the beautiful woman and walked off.

The man, knowing that he would be handcuffed to this woman for eternity, let out a contented sigh and said aloud, “I wonder what I did to deserve this?

The woman responds, “I don’t know about you, but I hit a duck.”






(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.)

Rob Chrisman