Aug. 24: State law changes; letters about comp, ransomware, and borrower disposable income

Comp? Cyberattacks? Changes in underwriting philosophy? A look through my email inbox indicates they’re on folks’ minds this week. And let’s throw in some state-law changes. Just because Congress is on recess doesn’t mean states are idling.

Compensation

It’s a rare thing when someone doesn’t know what they “should be” earning. Few companies work in a vacuum, although sometimes the knowledge flow isn’t always efficient. While capital markets staff scrap to pick up a few basis points here and there, compensation levels at most lenders continues to be viewed as hefty. “Hey, without MLOs, those folks in capital markets wouldn’t have anything to sell!” So lenders have gradually cut mid-level managers and increased productivity levels for originators, e.g., raised minimum production numbers.

According to STRATMOR’s Spring 2019 Compensation Connection Study, 67 percent of Regional Sales Manager Personal Production Incentives were based on the same tiers as Loan Officers in 2018. You can get basic salary compensation information from a host of HR-based providers, but what you won’t get from them is why the compensation for mortgage-specific roles is different than other industries. STRATMOR’s Compensation Connection Study provides compensation information for all roles, including those that are unique to the mortgage industry, from sales to post closing and for both Independent and Bank-owned lenders. And, because there is more to compensation than salary, Compensation Connection provides details on incentives and benefits paid (like bonuses, educational allowances and time off) giving you the information you need about the market to build a compensation plan to attract and keep the right people. Don’t miss this opportunity to have the most mortgage-specific compensation information available. Sign up for the 2019 Compensation Connection Study today!

One reader wrote, “Regarding LO compensation, let’s be real, too many loan officers and mortgage companies want to earn as much money as possible with the least amount of work. Given the opportunity to charge a client more points & fees or direct a borrower to a rate or loan program to earn a greater commission, they will charge the borrower a lot more often than you think. Too many LOs took advantage 30 years ago and too many will take advantage today.

“I worked in Secondary Marketing for 23 years at banks and mortgage companies. I experienced first-hand how many LOs would lock a rate with the highest rebate and/or charge the most points possible, so they could get rich at the expense of the borrower. Each borrower trusts the LO to either get them a fair or the best deal. In addition, the realtors don’t compare different lenders rates, fees and loan programs. They refer borrowers to the LO because they’ll get the loan closed at all costs. And, too many realtors want something from the lender for referring the borrower to them, such as free advertising, tickets to a pro game or free boat rides. Based on my experience, 5% of realtors try to help their clients get the best mortgage loan.

“The reason I started my mortgage consulting/coaching business several years ago was because I saw too many LOs direct borrowers into FHA or sub-prime loans to earn greater commissions. Too many other borrowers didn’t know how to compare rates, fees and programs, so they asked the realtor or friend for a lender based on trust and experience. Too often I can beat the realtors recommended lender at .25-.50% in rate.

“Why do so many borrowers search for a lender on their own, before and after meeting with a real estate agent? Because, they don’t trust the realtor to recommend a competitive lender. The LO comp rules are not great. They need to be improved. But they need to be in place to protect the borrowers. I put in place an LO comp plan some years back. It removes all of the issues mentioned above provides incentive for the LO to provide the best solution for the borrower.

“Moreover, I am greatly annoyed by the ads I see touting 15-year mortgages as a ‘benefit’ to borrowers. The slightly lower interest rate on a 15-year mortgage is way too insignificant to offset the increase in payment due to the lower amortization period. On a $200,000 loan, for example, the payment at 3.75% for a 15-year mortgage is $1,454.44 compared to $954.83 at 4.0% on a 30-year mortgage. That is a sufficiently large enough increase to make the mortgage unaffordable for many borrowers.

Risk

IT experts will tell you being hacked is a question of “when” and not “if.” I received this reminder from Michael Steer, the President of MQMR, SQC, and HQVM. “We encourage our clients to remember the importance of cybersecurity, and the consequences of ignoring it. Lenders still aren’t doing enough and should be performing IT risk assessments and audits on an ongoing basis to see where their weaknesses are, something MQMR covers as either part of our internal audit program we set up for clients or a standalone IT audit. During a recent session at TMC’s conference, we touched on ransomware and leveraging phishing services, such as KnowBe4 (a service that MQMR personally uses to educate our employees), to bring awareness to users across an organization about clicking on malicious links/emails. I’m a raving fan of the informative blog Knowbe4 puts out every week. Here’s a link for people to sign up (free!) to learn more about cybersecurity threats.

“On that same topic of ransomware, here’s another article about ransomware attacks, this time in the great state of Texas. Given the amount of information that mortgage companies and mortgage vendors have, it’s extremely important that we, as an industry, continue to share best practices and bring awareness to everyone. We’re only as strong as our weakest link. No cybersecurity program is bulletproof but educating frontline users, putting in controls to mitigate risk, and constantly assessing/testing the infosec program is important. Here are two FAQs we published within the last year that highlight some simple but effective best practices: “IT Security Controls” and “Office Security Best Practices.” Thank you, Mike!

Banks’ use of external data storage and third-party technology makes them especially attractive to hackers, warned Korbinian Ibel, director general of microprudential supervision at the European Central Bank, who called for “a common understanding at board level of the needs and risks of IT”. His warning comes after a malware attack on the ECB’s own Banks’ Integrated Reporting Dictionary website caused its closure last week.

Thank you to Rob H. for passing along an article from the Wall Street Journal: “The Startups Safeguarding Real Estate Against Schemers and Scammers.” The story mentions that wire-transfer fraud cost 11,300 victims nearly $150 million last year, according to the FBI.

Evaluating borrower risk

Regarding the current, and future direction, of underwriting, an industry vet from the East wrote, “Historically as incomes have risen, the debt to income (DTI) ratio has been modified higher because the disposable income becomes greater as an individual’s monthly income rises. Unfortunately when the CFPB took over, its staff continually refused to listen to ‘bots on the street.’ The CFPB wizards never accounted for variations in disposable income. When a constructive individual looks at the disposable income of an individual earning $60,000 it is noted that they have a radical difference from the disposable income of an individual earning $400,000 a year. There was an educational ignorance at the CFPB in that staff continually refused to listen to input from industry and only adhered to the input from the consumer groups. Unfortunately, ‘safety and soundness’, though noble in its concept, has had a negative impact on the lower economic groups it was designed to protect holding them back financially and preventing economic disparity while preventing this sector of America from prospering with the upper reaches of our society.”

State law changes

The state of Nebraska enacted provisions relating to its Online Notary Public Act. Provisions include remote presentation and the requirements needed to register as an online notary public and educational requirement mentioned above, a notary public must take a course of instruction and pass an examination approved by the Secretary of State. The fee for registering or renewing a registration as an online notary public will be an addition to the fee required in section 33-102 of the Act.

The amendment requires a notary public to register with the Secretary of State which includes information regarding the technology the notary public intends to use to perform an online notarial act, a certification by the notary that he or she will comply with the standards developed by the Secretary of State under section 7 of the act; and an email address for the notary. Additionally, the amendment allows the online notary public to perform acknowledgments, jurats, verifications or proofs, and oaths or affirmations as online notarial acts.

The Ohio Mortgage Bankers Association posted the following information: Both houses of Congress have passed H.R. 299; The Blue Water Navy Vietnam Veterans Act of 2019. Included in the bill is removal the maximum loan amount and down payment requirements for veterans with full entitlement and raises the VA funding fee for a period of 2 years.

Effective with closings on or after January 1, 2020, the funding fee for both active duty veterans and reservist first-time users with $0 down payment will be 2.30%, and 3.60% for subsequent uses. The funding fee will be 1.65% with a down payment of 5%, and 1.40% for loans with a down payment of 10%. Funding fees will reduce January 1, 2022.

The guaranty for loans at $144,000 and less remains unchanged. Loans greater than $144,000, to veterans with full entitlement, will be guaranteed at 25% of the loan amount, with no maximum loan amount. However, veterans that have used entitlement that has not been restored are limited to guaranty of 25% of the Freddie Mac conforming loan limit, less the amount of the previously used entitlement.

The state of Minnesota modified provisions relating to residential mortgage originators licensing requirements that include licensing exemptions effective on August 1, 2019.

The amendment exempts a manufactured home dealer or a manufactured home salesperson from the residential mortgage originator licensing requirements where the manufactured home dealer or a manufactured home salesperson: performs only clerical or support duties in connection with assisting a consumer in filling out a residential mortgage loan application but does not in any way offer or negotiate loan terms, or hold themselves out as a housing counselor; does not receive any direct or indirect compensation or gain from any individual or company for assisting consumers with a residential mortgage loan application, in excess of the customary salary or commission from the employer in connection with the sales transaction; and discloses to the borrower in writing.

In a recent legislative update from Black, Mann & Graham, L.L.P, the firm summarized bills from the 2019 Legislative Session that are effective immediately. Previous to this legislative update, it issued Legislative Update I, summarizing Senate Bill 2330 granting certain individuals temporary authority to act as residential mortgage loan originators in Texas, and Legislative Update II, summarizing Senate Bill 614 and House Bill 1442 that continue in existence the Finance Commission of Texas, the Department of Banking, the Savings and Mortgage Lending Department, and the Office of Consumer Credit Commissioner. Legislative Updates I and II are found on the Resources page of the firm’s website.

The Washington Department of Financial Institutions, Division of Consumer Services has issued a notice to licensees that it will temporarily waive certain fees and parts of fees under its Consumer Law Act.

For the period of July 1, 2019 through June 30, 2020, hourly fees charged on consumer loan company examination will be temporarily waived. Still required are the payment of travel expenses in connection with examinations. Also temporarily waived for the calendar year are Annual Assessments on the following categories of loans: 1) residential mortgage loans in portfolio on December 1, 2018; 2) residential mortgage loans brokered in 2019; and 3) residential mortgage loans purchased in 2019. Residential mortgage loans made during the 2019 calendar year will still be assessed. Mortgage Loan Originator Renewal Fees for the 2020 calendar years have been temporarily reduced from $155 to $75.

Connecticut has enacted provisions requiring real estate closings to be conducted by licensed attorneys. Under the new provision, no person shall conduct a real estate closing in Connecticut unless the person is a licensed attorney who has not been disqualified from the practice of law due to resignation, disbarment, or being placed on inactive status or suspension.

For purposes of this provision, “Real Estate Closing” means a closing for a mortgage loan transaction or any transaction where consideration is paid in exchange for ownership of real property. Not included in this definition are home equity lines of credit or any other loan transaction that does not involve the issuance of a lender’s or mortgagee’s policy of title insurance. These provisions are effective as of October 1, 2019.

I saw my wife, slightly drunk, yelling at the TV.

“’Don’t go in there! Don’t go in the church, you moron!”

She was watching our wedding video again.

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. The current blog is, “Mortgage Rates: Thinking the Unthinkable.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

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