Aug. 19: Freedom Mortgage & the CFPB; compliance topics du jour; letter on title biz; vendor morsels; shaggy dog joke

As President Biden headed to Lake Tahoe for some vacation (to be interrupted by going to Maui), as planeloads of mortgage bankers and vendors head to the Western Secondary in Southern California, and truckloads of Spam are rushed to Maui, the industry is following the Consumer Finance Protection Bureau fining Freedom Mortgage for illegal kickbacks. (Are there legal kickbacks?) “The CFPB is ordering Freedom to cease its illegal activities and pay $1.75 million into the CFPB’s victim relief fund. The CFPB separately issued an order against a real estate brokerage firm, Realty Connect USA Long Island (Realty Connect), for accepting numerous illegal kickbacks from Freedom. Realty Connect will pay a $200,000 penalty and cease its unlawful conduct.” In case you have questions, the CFPB has published a set of frequently asked questions on the Real Estate Settlement Procedures Act, including guidance on gifts and promotional activity, to help regulated entities understand their obligations under federal law. (It isn’t the first $1.75 million between Freedom and the CFPB: go back to 2019 for another scape between the two.)

More on the title industry and title policies

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Stacy Mestayer, Chief Legal Officer for Voxtur, writes, “As an active industry participant, I often read your newsletter. Upon reading your August 12 Commentary, I felt compelled to reach out to introduce myself and clarify a couple of points. The portion of your update entitled “More on the title industry and title policies” began as a response to a newsletter posted on Boondoggle, which was essentially an op-ed on title insurance. From there, you referenced a UWM attorney opinion letter initiative and an ALTA article about a rumored Fannie Mae pilot program involving waivers of title insurance.

“Respectfully, neither of those initiatives are related to Voxtur or the insured AOL product that we have developed. Despite that, your next comment indicated that the Voxtur program is, ‘exploiting that ignorance to shift title risks to lenders unwittingly.’ The assertion that our product is fooling lenders into saving a few bucks up front in return for greater risk down the road is unfounded. Mr. Levy’s assertions are based on his assumptions regarding attorney opinion letters, which are not accurate as they relate to Voxtur’s fully insured AOL product.

“The concept of an alternative to title insurance is relatively new and, thanks to ALTA’s most recent comments, seems to be the source of some confusion in the market. This is not surprising, as ALTA has been extremely vocal in advocating against the use of any alternative title product (after all, they exist to support the title insurance industry).

 

“Some of the most recent commentary warrants clarification as it conflates title alternatives and title waivers, which are two very different things. There are certain alternatives to title insurance, such as the insured attorney opinion letter (AOL), that have been deemed acceptable by Fannie Mae, Freddie Mac, the VA, as well as certain private investors. In contrast, title waivers, which have come up in the context of a rumored pilot program that would waive the need for any title protection at all on certain loans, have not been formally announced or approved by any agency, to my knowledge.

 

“Therefore, ALTA’s release of its confirmation that ‘Fannie Mae is no longer pursuing the title waiver pilot program’ isn’t much of a confirmation. It is simply a statement that Fannie Mae is not pursuing an initiative that was never formally announced in the first place. More importantly, this reported confirmation by ALTA has no impact on Fannie Mae’s prior approval of the use of AOLs as an alternative to title insurance.

 

“Proponents of title insurance have been quick to cite perceived risks associated with attorney opinion letters, including the risk that coverage may not extend beyond the initial lender or that coverage may terminate if the attorney goes out of business. Others have pointed to the limitations inherent in attorney malpractice insurance, including the need to prove negligence or file suit against the attorney and the lack of a duty to defend on the part of the insurer. Anyone who has done their research will tell you that these are real risks posed by traditional attorney opinion letters. What they will, or should, also tell you is that these risks have been solved for by the insured AOL title alternative offered today.

 

“The insured AOL comes backed by transactional liability coverage that begins at origination and extends for the life of the loan, travels with the loan into the secondary market, provides buyback protection, and is issued by an A.M. Best A rated insurance carrier. This coverage also includes a duty to defend by the insurer and does not require proof of negligence or malpractice as a condition to recovery. The agencies and lenders that have vetted the program can attest to the robust coverage.

“Having done extensive due diligence and risk analyses, they would also likely disagree with the contention that they are being fooled into taking on additional risk later for the promise of savings now. In my experience, banks and other lenders tend to err on the side of caution, usually moving slowly and methodically to approve anything new or different. With that, it is not surprising that they would welcome the opportunity to offer a cost-saving alternative to their customers, particularly when they are satisfied that there is no additional risk.

 

“To be clear, not all title alternatives, or even AOLs, are created equal. Several months ago, a lender announced its own AOL program, which provides self-insurance for the lender in lieu of lender’s coverage, and suggests to the borrower that they obtain their own coverage elsewhere. While this may be a valuable alternative for the lender, it is not very helpful to the borrower.

 

“To be a viable, valuable alternative to title insurance, an AOL must protect the lender and the borrower from risk, at a cost that is actually commensurate with that risk. That is the only way to create meaningful change for the benefit of the consumer and the industry. In an industry that hasn’t seen meaningful change in 150 years, that is real progress.”

(If you would like details of Voxtur’s written coverage and policy materials, as any company using its services would want to, please contact Stacy Mestayer, Chief Legal Officer for Voxtur.)

Compliance: one of the last departments that should be cut back

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MQMR wrote about how Fannie Mae recently updated the seller/servicer reporting requirements related to the Office of Foreign Assets Control (OFAC) regulations. What does the update entail and when does it take effect? A seller/servicer: must establish and maintain an effective OFAC compliance program; must report all instances of penalties (civil or criminal) or enforcement actions for compliance failures or violations related to OFAC requirements to Fannie Mae’s Ethics division; may not deliver a loan to Fannie Mae if any borrower is on one of the sanctions lists maintained by OFAC; and must periodically screen the loans that it services for Fannie Mae against OFAC’s sanctions lists. If the servicer identifies a valid match, the servicer must  notify Fannie Mae Ethics via email within 24 hours of blocking or rejecting a mortgage transaction, including in the notice the borrower’s name, Fannie Mae loan number, and a point of contact at the servicer. Upon receipt of the notice, a representative from Fannie Mae will contact the servicer to discuss the match and any potential next steps.  take steps to ensure that any funds from the individual or entity on an OFAC sanctions list are blocked and segregated, including any escrow funds. Finally, a seller/servicer must take steps to ensure that all servicing activities on the loan cease.

Jonathan Foxx, Ph.D., of Lenders Compliance Group recently opined on what to do if your company is hacked. If your company experiences a data breach, you should notify law enforcement, other affected businesses, and individuals. Do not destroy evidence, and have an immediate response, including securing physical areas potentially related to the breach. Stop data loss and remove web vulnerability. Whatever steps you take procedurally, be sure to ask your forensics experts and law enforcement when it is reasonable to resume regular operations.

In a recent Compliance Hot Topic, MQMR addressed upcoming changes to FHA’s branch registration requirements. Though there is no timeline for an implementation date, on March 1, 2023, HUD published FHA-INFO 2023-14, a proposed rule change entitled, “Changes in Branch Office Registration Requirements”, which would eliminate the requirement that FHA-approved mortgagees and lenders register all branch offices conducting FHA business with HUD. Currently, all FHA-approved mortgagees and lenders are required to register any branch office where they originate Title I or II loans or submit applications for mortgage insurance. HUD explained that due to technological advances and remote service delivery, the current requirement is inconsistent with industry practices. The proposed rule, revising 24 CFR 202.5 (k), would grant mortgagees and lenders the option to register and maintain branch offices with HUD thereby allowing such branch offices to be placed on HUD’s Lender List Search page. The proposed rule would make registration fees applicable only to those branch offices registered with HUD. Unregistered branch offices would not be subject to unnecessary registration fees and will not be placed on the HUD Lender List Search page. Comments on the proposed rule were due May 1, 2023. HUD states that these proposed changes will simplify FHA lender and mortgagee approval processes to align with industry practices and eliminate unnecessary fees for FHA-approved entities.

A recent MQMR Compliance Hot Topic addressed recent trends in mortgage fraud schemes and mortgage fraud prevention tips. Lenders should remain diligent and continually look out for ways to improve fraud detection and prevention controls given the unique financial pressures of the current market. Fannie Mae advised lenders they may strengthen their fraud detection and actively combat mortgage fraud by leveraging their quality control (QC) program to reinforce fraud controls and prevent fraud before it starts. As a reminder, lenders must implement Fannie Mae’s enhanced pre-funding and post-closing quality control requirements by September 1, 2023. See Fannie Mae’s March 1, 2023 Selling Guide Announcement, SEL-2023-02 for details on the updated pre-funding quality control review requirements and for changes to the post-closing QC cycle timeline.

Vendors and third-party providers motor on

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A measure of any conference attendance has been nicknamed the “LTV” ratio, which measures lenders to vendors. They need each other. Let’s take a random look at who’s doing what besides capitalizing letters in the middle of names.

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Gallus, the ‘New Kids on the Block’ of the mortgage industry, are revolutionizing Business Intelligence with its cutting-edge solutions. Powered by AWS and Snowflake, Gallus empowers mortgage lenders and servicers to unleash the full potential of their data. But what sets Gallus apart is its user-friendly approach: if you can use Google, you can use Gallus. Watch this quick video to see how effortlessly it works. Moreover, Gallus has just released their highly anticipated second version of the HMDA tool, now equipped with comprehensive 2022 data. Experience the unparalleled power of Gallus by scheduling a call with their Co-founder and CEO, Augie Del Rio. Discover how Gallus can transform your financial results by seamlessly turning data into actionable intelligence.

Forta Solutions announced the launch of Agility™, a new warehouse lending platform, designed by warehouse lenders to simplify the workload of mortgage lenders, who frequently staff up at the end of every month to close loans on time. With Agility, lenders can expect a faster, safer path to warehouse liquidity. Agility represents a major leap forward in the industry, offering unprecedented flexibility, transparency and efficiency.

Clear Capital has expanded its partnership with ValueLink to increase support for appraisal modernization policy changes. ValueLink customers now have access to Clear Capital’s proprietary Universal Data Collection™ (UDC™). And one can read the Clear Capital Home Data Index (HDI™) report to brush up on the state of the market and see this month’s highest and lowest performers.

LenderLogix, a leading provider of mortgage automation software and application programming interfaces (APIs) introduced the Homebuyer Intelligence Report, a quarterly summary of insights into borrower behavior during the home buying process based on data collected by the LenderLogix suite of tools. The inaugural report covers data collected during the pre-approval and borrower application process during the first quarter (Q1) of 2023.

A father’s oldest son was born without any arms or hands. But despite the significant challenges that this created, the son was always upbeat and positive and never complained about the tough hand (sorry!) he had been dealt. Because of this, the father always wanted to go above and beyond for his son whenever possible. As his son’s 21st birthday approached, Dad planned a special night out, starting with his son’s first proper drink in a bar followed by a nice steak dinner.

The father and son go to a nice bar and dad orders two martinis. The bartender sets the drinks down on the bar and sheepishly asks the son if he needs a straw. The boy smiles and says, “Thanks, but that won’t be necessary” and then leans forward, grabs the glass with his teeth, then leans back and takes his first ever sip of a martini.

A moment later there was a loud pop and suddenly the boy had his right arm and hand. Everyone was amazed and overwhelmed by joy. So much so that the father ordered another round of martinis. But this time when the drinks arrived, the son was able to pick up the drink and bring it to his lips using his brand-new right hand. The father and son clinked glasses and then each took a big swig. And moments later there was another loud pop and now the son had his left arm and hand also.

At this point, everyone in the bar was cheering for this young man whose handicap had just been miraculously cured. The bartender was so happy that he offered up the next round on the house. They hesitated for a moment… 3 martinis are quite a lot, but given the circumstances they figured, “Why not?” They clinked glasses once more, but this time after he took a sip, instead of growing an arm, one of the son’s new arms disappeared.

The father cried out, “This is terrible, we need to try and get it back. Another round, bartender!”

But no luck, his other arm disappeared. Not willing to give up, they ordered another round. This time a leg disappeared. On and on they kept going until the son’s legs, torso, and neck all disappeared. At this point, the father said, “We can’t leave you like this: we must try one more time,” and so he ordered another martini. When it arrived, he poured it into his son’s mouth and then – poof! His son had disappeared!

At this point the bartender walked over, with a slightly smug look on his face, and said, “Maybe he should have quit while he was a head.”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. STRATMOR’s current blog is titled, “Improving Revenue Might Be Right Under Your Nose.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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Rob Chrisman