Aug. 31: Letters about compensation; ransomware, cyber-risk, and AI: can a robot obtain a patent?

Over the last twelve years the mortgage industry has certainly been the subject of a lot of bad news and bad publicity. Yet through it all, hundreds of companies & organizations involved in residential lending, arguably thousands, have been helping clients, and the public, with little or no notice. Groups like Fairway Independent, Wells Fargo, and the MBA through its Opens Door Foundation jump to mind, often with little or no publicity, but a complete list would be difficult to put together.

The latest example comes from Dave Hurt with Black Knight. “I wanted to share a story with you coming on the heels of my recent visit this week with Todd Householder and Jay Plum with Huntington Bank, a good sized regional and one of the top originators in the Midwest. It’s a story that will never make CNN or Fox news, but should be shared with our friends and families in the mortgage space.

“All of the ‘Huntington Family’ is living the painful tragedy which befell the city of Dayton. One of their borrowers was immediately impacted when the husband was fatally struck by one of the bullets, leaving his wife and child AND their mortgage. Todd Householder, who also lives in Dayton, recommended to Jay, who heads up the mortgage lending division among several other roles within the Bank, and the CEO and CFO of the Bank, the gesture of paying off the mortgage for the now widowed wife and remaining borrower. There were no dry eyes given the suggestion and all of the decision makers unanimously approved the payoff.

“A not so small gesture that quite often goes unspoken when all of the news is consumed by all of the wrong elements. This was all Todd, a lifelong Capital Markets veteran with the right social conscious.” Thanks for passing along, Dave.

Compensation: always of interest

I received plenty of comments about last Saturday’s piece on MLO compensation. From Oklahoma City GB sent, “What decade did he last visit a mortgage shop? Does this job description sound like a beacon for lazy, unethical job seekers? ‘Help home buyers navigate a minefield of patchwork regulations and confusing guideline traps while delivering excellent service to both nervous borrowers and demanding referral partners, in an environment of volatile interest rates, deceptive advertising and ruthless competition. High pressure work environment, commission only.  Commission reduction likely, and job subject to replacement by technology.’ And, who doesn’t want to earn the most they can while doing the least amount of work? Isn’t that called capitalism?”

Daniel S. sent over, “I take incredible exception from the long, ‘anonymous’ Op Ed you printed from the mortgage consultant/coach. First of all, before we get into the specifics of his email, which is wrong in so many ways, I want to know exactly what a mortgage consultant/coach is and how he gets paid? If it’s for a loan and it’s from a borrower, unless he has a broker license and thereby gets paid as a percent of the loan, it’s a violation of the comp rules. And assuming he is getting paid as a percent of the loan, he is probably just doing it with a lower amount of MLO comp. This doesn’t make him any different than other loan officers, he’s just a discount alternative (and see how well that worked out for real estate agents like Foxtons or Purple Bricks). And, if he’s so proud of his services and his business model, why wasn’t he willing to list his name or company (as I will at the end)?”

“First, I want to see the study where he finds that only 5% of real estate agents care about the rate their clients get. I would agree that most care if the loan gets done and gets done quickly and efficiently more than they care about getting the client the lowest, possible rate. But isn’t that really the goal? A great loan experience at a good, market rate? I’m not sure who he works with but usually using a lender with THE lowest rates has a trade off somewhere.”

Daniel’s note continued. “And, by insinuating that lowest rate is the ‘goal’ of every loan rather than understanding the loan approval process and the nuances of a real estate deal he is continuing to further commoditize our business and discount the knowledge, experience and effort that goes into not only originating a loan, but also in underwriting, processing and closing it. I am also not sure when becoming an MLO turned into a public service or non-profit business. Or what other business is obligated to provide this to their customers. Ever try to buy a car or pretty much anything? And let’s not pretend it is 2000 or before. EVERYONE has access to the internet and can shop rates. I know they do on every one of my loans, including my 60-year-old hairstylist who doesn’t own a computer but came to be office with the rate from his local bank (which I beat, by the way).

“Finally, who is he to determine that a 15-year fixed isn’t the right product for a borrower? There are many people who want this, including older folks, high income earners, or many foreign

borrowers whose countries don’t celebrate debt like we do. Moreover, he is not a very good or experienced ‘consultant’ if he either thinks that the rate differential on a 30 and 15 year loan is .25% when it is pretty universally .5% or works with lenders who are not giving his borrowers the best rates if that’s their discount on a 15-year fixed.”

Frank M. wrote, “The fact is, loan originators are doing more work than ever as their compensation has shrunk due to regulatory oversight (CFPB) and market pressures. Just saying.”

Scott J. sent, “It’s glaringly obvious this guy has NOT been on the street in the past 2 years. Borrowers blindly following agents not knowing if the loan is a good deal or not, if only this was true. Even the 635 credit score FHA buyers shop us! Steering to FHA for greater earnings, he does know we’re paid in basis point now, not a percentage of profits, right? Is his email originally from 2010? LOL” [Editor’s note: sometimes I am indeed behind on emails, but not nine years.]

From Columbus, Ohio Rich C. sent, “I must take exception to the ridiculous comments that were made regarding LO COMP! I am a 20+ year veteran originator and have remained with the same company (Equitable Mortgage) for all of that time! We had a tremendous business model going before 2011. We used the profit from a loan to pay a client’s closing fees and never took advantage of higher yields. We had a saying when it came down to competing for a loan and taking a deal with less yield, ‘How much will you make if you don’t take it?’

“Now, with LO Comp, we cannot compete and squeeze down and take those deals because the company would not realize any profit but the LO would get paid!

“Let’s take current market conditions where we have seen an unexpected precipitous drop in rates. In the old days my company would have lowered our rates to clients who have locked, made less (company and LO share the reduction), and moved on. And guess what would have happened? TONS OF REFERRALS FROM HAPPY CLIENTS who knew that they were being taken care of!!! That was our business model. Treat people right and get referrals…LO COMP has destroyed this!

“I remember back then being at an MDA Golf outing and while we were waiting on the tee box I was on the phone telling my closer to pay closing fees for someone on a refi, and when I hung up the other three members looked at me like I had two heads and laughed at my stupidity for paying fees!

“So currently I am looking at a $100 million pipeline with higher-than-current-market rates and our hands are tied due to LO COMP…. many, many clients will close at higher than market rates over the next few months because of this BS Rule!! The smart ones will leave and lock somewhere else, and I would be powerless to stop them! In the old days without LO COMP we would have had the ability to drop the rate, make a little less and get more referrals!

“The behavior described in your commentary was not an LO Problem. It was a CULTURAL PROBLEM that started with the CEO of the company! Corporate culture dictated the unethical behavior. Now with LO Comp those CEOs are pocketing the money and paying the LO as little as they can get away with! This is a money grab where the Large lenders and banks set rates and keep the profits. They can’t even bonus an LO over 10%…I sat with many of them this past week at the Mortgage Collaborative in Nashville! And the culture has not changed one iota because of this ‘Rule.’

“QUESTION:  Is this the still the United States of America? Are we still free? Are borrowers free to shop and even possibly make a bad decision? Or does Big Brother take care of everyone? We know how that ends? Honestly, I am not sure if we are still a free country when so many endorse the crooked government entering into the payrolls of private companies and dictating compensation? Huh?”

“Should we make a rule for every business transaction? What about the poor people who pay too much for a car? A boat? An air conditioner? Oh, and need I say a HOUSE?! I have access to MLS and see that realtors still in this seller’s market many times are offered bonus commission over the traditional 3% for bringing a buyer! The builders are the biggest culprits here getting realtors to send them customers who overpay and then forcing them to sue the in-house builders lender! Besides, whatever happened to ‘Buyer Beware’?

Note to those who don’t know ‘you can’t legislate against stupidity!’ If a buyer can’t understand 360 equal payments and bringing $xxx to closing, then no law or rule from the CFPB will be able to help them. I trust that the CFPB is reading this. Please help us before this next election! Immoral and dishonest businessmen will always be around, but the honest lenders need your help!” Thank you, Rich.

Cyber risk, ransomware, & AI

Can machines become inventors under patent law? A group calling itself the Artificial Inventor Project formed about a month ago thinks so, and has filed patents around the world that list an AI machine as the inventor. The trend disturbs many who wonder about the chances of the USPTO patenting AI inventions and what it could mean.

Google Cloud’s latest white paper examines how 19 leading firms have gained distinct competitive advantages using cloud-based business technologies. Scoring responses from a commissioned Aite Group survey, the content highlights three phases of maturity, including Infrastructure Optimizers, migrating specific workloads to save costs, Cautious Strategists, building new cost-cutting and business-expanding capabilities, and Transformative Innovators, going all in on the cloud for industry-changing solutions and top IT talent appeal. Learn how the cloud, big data, AI and ML converge to transform front, middle and back office performance for top capital markets firms.

Financial firms want government guidance on dealing with cyber-risk to come in the form of rapidly evolving best practices and flexible guidelines because highly prescriptive rules cannot keep up with the pace of change in cyberattacks. “Since cyber-risks and the means to address them evolve so rapidly, static requirements could end up outdated and counterproductive,” said Katherine Mooney Caroll, partner at law firm Cleary Gottlieb.

The Federal Financial Institutions Examination Council (FFIEC) members emphasized the benefits of using a standardized approach to assess and improve cybersecurity preparedness.

Ransomware has hit all sorts of municipalities, with hackers infiltrating important government systems and locking the operators out until they’re paid off in cryptocurrency like bitcoin. Cities with cybersecurity insurance are typically finding their insurers are just paying off the ransoms, which in turn fuels more hacks. The average ransom is up six fold since last October, up to $36,000. From 2015 to 2017, premiums related to cybersecurity insurance doubled to an estimated $3.1 billion in the U.S., and it’s just as profitable for the insurance companies as it is presumably for the hackers: The loss ratio is about 35 percent for U.S. cyber policies, meaning that for every dollar collected in premiums about 35 cents get paid out in claims. In property and casualty insurance, that’s about 62 percent, meaning insurers are themselves making a killing in this kind of digital hostage taking.

Many people can look at the same thing and see something different. Here’s an interesting example of exactly that, from Popular Mechanics of all places.

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Rob Chrisman