Apr. 30: Letters on non-QM trends, LO accountability, Foreign National programs, and the government’s role in personal financial decisions

The lending biz certainly has its share of librarians, uh, I mean libertarians. From San Francisco comes, “The popular economics book Freakonomics is now an even more popular weekly podcast, Freakonomics Radio, with millions of monthly listeners. A recent episode centered on the CFPB and the misunderstood value of alternative funding sources. They focus specifically on the economic benefits of the payday lending industry but there are some really interesting points that apply equally to other financial companies. There’s a transcript on the website if you’d prefer to read it; check it out on their website or search Freakonomics on your phone’s podcast app.


“For a lot of people, alternative lenders and asset purchasers are the only options available to get money when needed. Credit has not become more readily available as a result of the actions of the CFPB. Let’s start educating our populace better about money and economics from an early age. We could teach folks how to make wiser decisions about financial matters, rather than taking punitive actions against financial institutions after the fact. I don’t believe in caveat emptor, I also don’t believe that the government’s primary function has ever been to protect the populace from every one of their bad financial and other decisions.”


From Oregon Andy Harris (with Vantage Mortgage Group) chimed in regarding LOs and accountability. “It’s still shocking to me the number of originators that are out there that just don’t get it.  They are sold, recruited, and influenced to work for one lender… steering all their client’s business to higher-margin retail marked up warehouse lines with fewer choices and employer influence.  When we hear of lenders closing doors I honestly look at the originators and shake my head.  The mistake the originators working there made is by being employed by this one lender and sending all their clients to them versus being employed exclusively by their client (the one they are intended to serve). Honestly, I put the accountability on the originator as well as these companies when we hear they close up shop the way W.J. Bradley did. I am sure there were corporate politics and issues before this for warning signs, but why would anyone deal with that or allow their clients loans to be placed there?


“Wholesale lending is the best it has been in history, primarily now when compared to correspondent or retail origination on pricing and execution. Mortgage Brokers not only have the ability for lenders to compete, but if one closes its doors (which we have not seen for years in a case like this), it has NO impact to the Mortgage Brokerage or originator providing there is a line of lenders ready for business behind them. It’s no different than simply choosing another lender versus choosing a different employer. 90% of originators have multiple employers on their resume over the last few years because they just don’t get it. It’s very difficult to move without negatively impacting the experience your clients have and it’s not fair to their clients.


“Why would an originator not choose the most transparent and independent channel for origination with the most favorable pricing and execution through lender competition? Why would they over-charge their clients with less compensation? Why would they work for only one lender and cross their fingers that they will do the best they can on all the different aspects of this business- putting all eggs in one basket? Why would they steer to one specific warehouse lines and think they can still broker effectively with creditor employment (believe me, they can’t). To me, that is the definition of insanity. You can’t be your best if you can’t see the best through lender competition.  You can’t be influenced by anyone other than your client and their best interests. You have to have options and integrity by knowing who the best investor is for your client and then responsibly submitting your files. It’s simply our job as licensed originators and we should be held accountable. People need to wake up and embrace wholesale…for the sake of the clients they are hired to serve.”


And from Arizona comes a note from Bill P. regarding the Know Before You Owe change that began in October. “From a personal perspective, I have to disagree how many in our industry assess TRID and what it accomplishes. While I agree it is not where we want to end up – e.g., why is there still a three-day rescission period for refinances of primary residences, when the consumer has already had 3 days and is guaranteed no changes. For their sake, let them have their money!  – it does mitigate our past sins of telling the consumer one thing, and then delivering a different product at closing. We, with ‘we’ being all the players in the real estate industry, for allowing, with our complacence, for such behavior to continue, brought this upon ourselves, in my opinion. Now, rather than accept that fact and try to correct it, we get ‘the sky is falling’ and ‘throw the baby “out with the bath water’ reactions.


“The sky is not falling – the kinks will be worked out if we keep pointing them out. I agree it is ridiculous to have to show fees which the borrower will not pay, and then have to tell them ‘Trust me, it will be gone at the end,’ when the whole idea of the CD is there are to be no changes. That needs to be changed…But, let’s not throw out the obvious benefit to the consumer, that they actually don’t have to find out at Closing, on the day they are to move into their new home, that ‘Oh, that interest rate wasn’t available’ or ‘Oh, didn’t I tell you about that prepayment penalty?’ or, so many other unpleasant surprises which occurred prior to TRID, but they could do nothing about them… We brought it upon ourselves as a community; let’s work to fix the irritants, while not allowing ourselves to go back to a system that punished our family, our friends, our neighbors, etc.”


Melissa scribes, “I agree with many about TRID: we have taken more time to explain the LE & CD especially on the purchases to our members. Why couldn’t TRID make the same fee schedules on the CD for the LE? If the Lender has to explain the roundup, sellers/lenders credit offsets, the escrow item breakdown for total payment, the form isn’t doing what it should do. As a processor, I have to certify the changed circumstance form and I’m not comfortable with that knowing the fees on revised LE not reflecting exact/correct fees as on the changed circumstance form. By the way, what’s the purpose of the fees roundup and where does the LE inform the borrower as such? TRID should allow lenders to specify their demand feature on the CD like we did with the TIL because we have had borrowers asking to see our policy for that.”


Deb Aydelotte, COO of Altavera Mortgage Services, contributes, “I thought your readers might be interested to know that since last year, Altavera has received a steadily growing number of customer inquiries related to non-QM services. Recent stories in the trade media make non-QM sound like a dead-end, but from where we sit, it appears folks are staffing up in anticipation of steady growth in non-QM lending in 2016. Non-QM isn’t a bust. While a number of originators and buyers are poised to capitalize on the expected growth in non-QM volume, however, there are still a few challenges in the supply chain. Once these pieces are resolved, we expect the market will experience a “tipping point” and swiftly move toward broader acceptance and use of non-QM products.”


Here’s something from an industry vet regarding Foreign National programs. “Rob, our attorneys are stating that the new Unruh Civil Rights Act it in California makes it ‘illegal’ to maintain a Foreign National loan program that requires more restrictive guidelines, or higher yield/fees.  These programs have been around for years.  Have you heard from any other originators or attorneys regarding the matter?


“The Unruh Civil Rights Act (Civil Code Section 51) was amended during 2015 (effective January 1, 2016) to read (in pertinent part to this discussion) as follows: …(b) All persons within the jurisdiction of this state are free and equal, and no matter what their sex, race, color, religion, ancestry, national origin, disability, medical condition, genetic information, marital status, sexual orientation, citizenship, primary language, or immigration status are entitled to the full and equal accommodations, advantages, facilities, privileges, or services in all business establishments of every kind whatsoever.


“(c) This section shall not be construed to confer any right or privilege on a person that is conditioned or limited by law or that is applicable alike to persons of every sex, color, race, religion, ancestry, national origin, disability, medical condition, marital status, sexual orientation, citizenship, primary language, or immigration status, or to persons regardless of their genetic information. (Emphasis added.)”


The note continued. “Although this statutory amendment was expressly described as being declaratory of existing law and not a change in the law, that is less than clear. This amendment may have significantly impacted the legality of Foreign National programs within California by adding citizenship and immigration status as protected class categories.


“We have not located any California-specific authority on the question of how such a foreign national loan program would have fit under the prior California statutory language, but it may have been potentially permissible under federal law based upon a distinction drawn between national origin and citizenship/alienage.


“Under federal law an applicant’s national origin is a prohibited grounds for discrimination included within the Equal Credit Opportunity Act (“ECOA”) and 12 CFR 202 (“Reg. B”). Federal regulators determined, however, that national origin is not the same as citizenship or alienage. Reg. B permits consideration of information pertinent to a lender’s rights and remedies regarding repayment of credit. The Reg. B Official Staff Commentary provides that ‘immigration status and ties to the community (such as employment and continued residence in the area) could have a bearing on a creditor’s ability to obtain repayment.’


“Although there is no sharply defined rule in place to that effect, the gist of this analysis is that there is a substantially reasonable basis to not lend to (or impose heavier conditions upon) foreign nationals who are not tied in to the local community (e.g. foreign investors, not living here with a green card) – but to treat a non-citizen living here on a green card the same as a citizen. What is highlighted as particularly important is consistency in application – and assuring that any restrictions are not pre-textual excuses for what is actually national origin discrimination.  In other words, under federal law, similarly situated non-citizens from different parts of the world must be treated consistently.  Until the recent amendment to California Civil Code Section 51, interpretation of that state statutory language (as to this point) would appear to have permitted a program such as the Provident Foreign National program.


“In contrast, the new language added to California Civil Code Section 51 appears to have potentially altered this interpretation dramatically. Citizenship and immigration status now provide a protected status. This statutory language is entirely new.  Frankly, it does not appear rational to apply this new statutory language so broadly as to suggest that a lending institution in California cannot deny a loan, or offer different terms, to a potential borrower who does not reside within the United States for real estate within California – and, in fact, it would not be consistent with the statutory language itself, because subsection (b) commences with the critical words: ‘All persons within the jurisdiction of this state.’”



Thanks to Mike C. for these clever new definitions to older words:

  1. ARBITRAITOR A cook that leaves Arby’s to work at McDonald’s. 2. BERNADETTE The act of torching a mortgage. 3. BURGLARIZE What a crook sees through. 4. AVOIDABLE What a bullfighter tries to do. 5. COUNTERFEITER Workers who put together kitchen cabinets. 6. LEFT BANK What the bank robbers did when their bag was full of money. 7. HEROES What a man in a boat does. 8. PARASITES What you see from the Eiffel Tower. 9. PARADOX Two physicians. 10. PHARMACIST A helper on a farm. 11. RELIEF What trees do in the spring. 12. RUBBERNECK What you do to relax your wife. 13. SELFISH What the owner of a seafood store does. 14. SUDAFED Brought litigation against a government official.





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Rob Chrisman