Daily Mortgage News & Commentary

Dec. 17: How an MLO should retire; Notes on fraud and compliance; increased credit cost thoughts; vendor bytes

“Hey, get off my lawn!” Who didn’t hear that when they were growing up from the codger up the street? I know that this is a commentary on lending and the economy, but it is always good to know about what is going on with property law around the nation since so many work with real estate agents. A Maryland lawsuit between a homeowner and their homeowner’s association led to a new state law that protects the right of a homeowner to forgo a nonnative turf lawn and instead plant pollinator plants and rain gardens in an attempt to promote the health of the butterflies, bees and bats that need such flowers to survive. Transitioning a yard into a place with native plants can be a significant asset for imperiled pollinators in the area, but also attract the attention of homeowners associations seeking to only have lawns. The National Wildlife Federation said that 2020 saw a 50 percent increase in the number of people creating NWF-certified wildlife gardens.

Retirement rather than waiting for a rebound?

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Mark scribes, “In my 20 years in the biz I’ve not witnessed an LO retire from the game. Quit, fired, leave the business… sure. But no ‘fading into the sunset.’ What happens when an LO retires? Specifically, I wonder how does a successful, long time LO transition their business to someone who remains in the field? Some LOs have children in the business to take over their practice. But for those who do not, what happens to their client and referral source relationships? Are there any best practices on ‘business transition’ so that an LO can gracefully handoff client relationship to another LO, and possibly monetize the last few years of a successful career?”

For an answer I asked STRATMOR Senior Partner Jim Cameron who polled some of the STRATMOR staff. Sue Woodard, Senior Advisor, observed, “I know some MLOs sell their book of business (their database and connections) and agree to do introductions to database of past clients, warm transfer of relationships with agents etc.

Tom Finnegan, Principal, replied, “In a bank setting, what an opportunity for a younger LO! Compliance would have to work on how to ascribe the proper NMLS number to the deal, but, of course, in a bank setting, there is registration only, not licensing.

“I don’t have any knowledge about what people have done, but I think the approach could be something like this. Have the retiring LO identify, with help of sales management, who the best heir apparent might be. Establish a joint approach to originations with that person, which contains a commission split (possibly the total commission could be increased for a period of time), work all deals jointly, then gradually change the split to have the larger percentage go to the apprentice LO, until the split becomes 95/5 or something like that, until the retiring LO’s formal retirement date. The retiring LO could go into a part time status with the bank to enable a much lower draw to be paid without violating any minimum wage laws.”

And David Hrobon, Principal, noted, “I have seen a few folks transition their business with mixed results. Some of these are obvious but here’s a summary and a few recommendations from my experience. First, a slow transition (3 – 5 years) works better than a fast hand-off. Understand your primary objective and priority. The answer will help inform your plan.

“Retire by a certain date. Monetize the annuity business. Take care of existing clients. Help maintain or grow the business. Pay it forward to an “up and comer.” Find the right person(s). Share your plans with your inner circle and ask for their input. If possible, share your plans with a few of your top referral sources to get their buy-in. Understand their concerns. Ask for candidate referrals. Ask if they would be willing to interview candidates. How much of your business comes from your company (your Bank Partners – Personal Bankers, Wealth Management folks, Loan Servicing Clients, etc.)?

David’s note went on to say that, “The best technician or best customer relations person may not have business development skills. 1/3 of your current referral sources are leaving the business so someone needs to replace that runoff. Make a list of your top local competitors. Would any of them be a potential transition partner? Work with your Management team to approach the individual or group about joining your team and transitioning your business to them. Or do you need to move to your competitor’s firm and transition your business afterwards.”

Eyes on fraud, compliance, and regulations: oh, so important

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I recently attended the Wisconsin Mortgage Bankers Association conference. There were several interesting sessions, one of which was an FBI agent explaining mortgage fraud. It is “The material misstatement, misrepresentation, or omissions relied upon by an underwriter or lender to fund, purchase, or insure a loan.

The agent went on to explain fraud for property versus fraud for profit. How mortgage loan origination fraud includes air loans, fraudulent loan documents, identity theft, straw buyers. How otherwise legitimate tools are used for fraud: Subprime mortgage loans, Alt-A mortgage loans, option adjustable rate mortgage loans, land trusts, and quit claim deeds.

And, per the FBI, here are the nine most common loan scams: Phony counseling or foreclosure rescue, fake government modification programs, forensic loan audit, mass joinder lawsuit, bait and switch, rent to own or leaseback scheme, variations, short sale scam, bankruptcy to avoid foreclosure.

Moving from fraud to compliance, this week I was at the California MBA’s compliance conference and ran into Ken Perry, CEO of The Knowledge Coop. Ken shot over some shorthand notes, which I have probably butchered, on the increase in regulator pressures and compliance staffing issues during a session with Chetna Vora (Acura Lending and Citadel), Paula Leber (CMG), and Mike Flynn (GC at HUD and now is at Buckalter).

“They are seeing open and visible hostility from federal regulators and a focus on enforcement against executives. There is more ‘regulation by inference’ which is where the CFPB does a blog post or news releases to communicate with the industry. There is an increase in DOJ/CFPB partnerships and the perception that the CFPB is targeting chief compliance

officers in their language in releases.

“Your readers should know that the OCC Spring 2022 Semiannual Risk Perspective applies to everybody. They want to see more staffing in compliance.

“Regulatory burdens? From the DOJ: Chief Compliance Officers are going to be required to sign certifications that they are compliant and that they have taken steps to correct violations. THIS IS HUGE!!!! Everybody in the room was shocked at this! The risk to a compliance officer is so high now. They need to have a seat at the table and be involved in major decision making. They will need to survey employees and analyze the surveys… They need to tie comp to compliance incentives.

“FINRA – CCO has FINRA liabilities when they have supervisor activities, which is basically just doing their jobs. FDIC – Chopra basically got the FDIC chair fired because he created a groundswell and published a memo on CFPB stationary to counter Chair Williams. Now they work together since she resigned. CFPB: The industry sent a comment letter about fair lending and the CFPB put them on blast saying big corporations and their lobbyists will not deter their work. ‘Scare tactics orchestrated by lobbyists.’ The banks fired back calling them

unprofessional. The chamber of commerce sued the CFPB challenging their oversight on fair lending.

“The CFPB came back and said they will start going after the execs of companies. They went after John Danaher at MoneyGram and said he was an out-of-control repeat offender. They are getting aggressive! He also believes that enforcement is more powerful than education.

“This is big! The CFPB said Digital marketers that are ‘materially involved’ in the development of content strategy are ‘service providers’ and thus subject to their oversight. They tied data security to UDAAP and said institutions who don’t have adequate data security are subject to enforcement. They are looking at ‘employee training debt’ where employees pay for their training it is a potential consumer loan. “Pricing exceptions? They are looking at who gets these. Is it based on race/ethnicity?

“The states: DFPI published small business loan disclosure rules. The California Privacy Protection Agency has issued their rules. So, what do we do? Leverage third parties for advice and training. Be careful though… A former CFPB guy in the room said they can pierce through the attorney/client privilege. He said do not document some of these conversations. Mitch Kider stood up and said they really can’t pierce it. They are allowed to ask and you are allowed to give them that but you don’t have to! People do because they are scared. Also, never assume that every conversation is privileged. It has to be during an actual engagement. You should be leveraging third party providers when doing fair lending assessments and more. Look at new technologies for all the things.” Thank you, Ken!

Yours and most other’s credit costs are going up

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“Rob, would you please touch on the upcoming increase in creditor report costs that the industry is expecting to see come 2023? Our credit report costs are currently $41 for a tri-merge report, but we’ve been told by our provider, CIC, that those same reports will be $71 come Jan 1st, 2023. How is FICO justifying the cost increase for all 3 major credit bureaus?”

Tracey King, COO of Partners Credit & Verification Solutions, responded with, “There is huge frustration around this for several reasons – one of which is that there was no justification/reasoning behind why the increase was taking place. Additionally, the Credit Reporting Agencies (CRAs) such as myself, have received several warning emails from the bureaus that per our service agreements with the bureaus and FICO, we are not allowed to provide any details on the tiers to anyone. It is said that the tiers are volume based, however, what I will say is that there seems to be a few lenders listed that do not have the production levels to justify a reduced pricing. Lenders are going to need to make significant changes to their process and pricing to be able to adapt to this significant increase.”

Recall that earlier this year came the announcement of the new FICO 10 score and Vantage score being added; Moving to a 2 bureau credit report. But the increase in costs will directly hit either consumers or lenders. Three credit scores $15 time two. And for any loans that don’t close, the lender can’t recoup cost. Check out this credit fact sheet and https://singlefamily.fanniemae.com/originating-underwriting/credit-score-models.

Vendor and third-party updates

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There are some head-turning developments and products out there for lenders to peruse. Let’s take a random look at who’s been doing what lately.

Haven, a platform for mortgage servicers to save homeowners money, announced it has raised $8M to be used for hiring and to accelerate product development ($13.5M to date, never announced), led by Fifth Wall, with 1Sharpe, RWT Horizons and Fidelity participating.

Haven elevates mortgage servicers from back office payment processors by enabling them to deliver ongoing value to homeowners such as advising on and providing access to additional products such as insurance, solar upgrades, and HELOCs. As both homeowners and servicers have become more educated about their options, Haven has experienced rapid adoption of its platform.

eClosing technology can make all the difference in today’s mortgage market. With so many options to consider, DocMagic is here to help you decide what option is best suited for your needs. Download DocMagic’s handout titled “10 Things you should know about eClosing” it answers many common questions about hybrid eClosings, eNotes, eNotarizations, eVaults, investor acceptance and more. Most importantly, you’ll learn how digital technology streamlines operations, reduces costs and boosts efficiency.

Agile Trading Technologies, a groundbreaking fintech bringing mortgage lenders and broker-dealers onto a single electronic platform adding liquidity and price transparency, announced the latest addition to their broker-dealer network: SouthState|DuncanWilliams Securities Corp.

Tony Mun, Head of TBA Trading Desk/Business at SouthState|DuncanWilliams Securities Corp stated “The ability to adjust levels while the bid/ask is ‘open’ is a big differentiator, and I’m a big fan of the ability to sort/filter various functionalities within the Agile platform.” Agile’s technology removes manual calls, freeing up time and reducing the need to be on the phone all day.

Model Match rolled out a free feature, Model Match Connect, to provide a space for those impacted by reductions of force in the industry. Lenders, tech companies, industry partners, etc., share their background and contact information in an environment viewable to each other to connect directly. There is ZERO fee to either side for the service or once someone is hired.

When four of Santa’s elves got sick, the trainee elves did not produce toys as fast as the regular ones, and Santa began to feel the Pre-Christmas pressure. Then Mrs. Claus told Santa her Mother was coming to visit, which stressed Santa even more. When he went to harness the reindeer, he found that three of them were about to give birth and two others had jumped the fence and were out, Heaven knows where. Then when he began to load the sleigh, one of the floorboards cracked, the toy bag fell to the ground and all the toys were scattered.

Frustrated, Santa went in the house for a cup of apple cider and a shot of rum. When he went to the cupboard, he discovered the elves had drunk all the cider and hidden the liquor. In his frustration, he accidentally dropped the cider jug, and it broke into hundreds of little glass pieces all over the kitchen floor. He went to get the broom and found the mice had eaten all the straw off the end of the broom.

Just then the doorbell rang, and an irritated Santa marched to the door, yanked it open, and there stood a little angel with a great big Christmas tree. The angel said very cheerfully, “Merry Christmas, Santa. Isn’t this a lovely day? I have a beautiful tree for you. Where would you like me to stick it?”

And so began the tradition of the little angel on top of the Christmas tree.

Not a lot of people know this.

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 Secondary Market’s Focus” is the current blog. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2022 Chrisman LLC. All rights reserved. Occasional paid job & product listings do appear. This report or any portion hereof may not be reprinted, sold, or redistributed without the written consent of Rob Chrisman.)