Dec. 20: Letters on minimizing fraud, Freddie’s EPO policy, no more stated loans, and young & old LOs

“Rob, I am as lost as last year’s Easter egg on this topic. Are stated loans coming back or not?” I occasionally am asked about the odds that SISA or NINA loans will return to the market. Originators need to remember that the ATR/QM rule that went into effect in January makes those types of loans illegal. Loans that are subject to Reg. Z (specifically 1026.43) require that the borrower’s income/assets are fully documented and verified.


Dick Karth of Grafton, WI sent, “Rob, I’m in my 35th of the mortgage business. Bringing back SISA and/or NINA loans would be the MOST stupid thing the industry could do. It would be completely irresponsible. I can’t state my opinion on the subject in a more blunt, terse, or direct manner. First, any person with a MLO license who advocates for SISA and/or NINA should have their license revoked for life. Advocating for a return to ‘liar’s loans’ marks them as crooks and fraudsters. I would also suggest they are lazy because (1) they don’t want to take the time to learn how to work with complicated financial situations and (2) don’t want to put the work into their deals when the financial situation is complicated. Any real estate agent/broker, prospective borrower, and MLO who are involved in a SISA and/or NINA deal should immediately be referred for law enforcement for loan fraud. Any loan file for a W-2 income borrower that goes SISA is automatically fraudulent. Give me ONE good reason why a W-2 borrower would pay the pricing hits that ranged from 3/8s to 3/4s of a point to go SISA. Just ONE good reason. (And “not qualifying on their W-2 income” doesn’t count!) The handful of honest, legitimate SISA and NINA deals done in the 1990’s and early to mid-2000s were completely overshadowed by the many hundreds of thousands and probably millions of fraudulent SISA and NINA deals that were done.”


Dick’s note went on. “The crushing over regulation that generations of real estate agents/brokers, borrowers, and mortgage professionals will be forced to live with are a direct result of this kind of stupidity in this industry. Back in the 50’s, 60’s and 70’s thousands of savings and loans made enormous numbers of SISA loans that they put in the portfolios which performed well. That’s because the applicants tended to be honest and accurate with the information provided, the LOs and the credit committee had a general idea of what most jobs in their communities paid, and there was little incentive to commit fraud.  Unfortunately we don’t live in that kind of culture anymore. What I’ve found most interesting over these 35 years is that the industry and too many of those who work in the industry appear to have NO sense of industry history, NO memory or even vague recollection of what contributed to all the downturns and recessions in the real estate and mortgage markets. All the young people in the industry (ages 22 to about 55) will relive all the downturns and recessions that I have. This will result in more legislation, more regulation, and more restriction to credit. At the same time we hear calls from SISA and NINA, we still have a myopic credit granting culture (are you listening Fannie, Freddie, FHA, VA, MIs, etc.) that penalize an applicant whose income is NOT needed to qualify for the loan but whose credit history ranges from abysmal to just short of qualifying. The industry CANNOT discard that applicant and through her or him onto the junk pile fast enough because of their tainted credit, in spite of the other borrower(s) in the deal being able to qualify completely on their own. This is both stupid and discriminatory.”

The state fraud rankings came out, and Donna Beifeld wrote, “Eliminating 100% of fraudulent loan applications will always be difficult, so look for the typical problem areas and plan a strategy to minimize it. Gift letters, short-sales, purchases between family members and individuals, as well as purchasing multiple properties in a short period of time can be minimized. For gift letters, call the donor to verify the gift. Pay attention to the “wire” or funds deposited to escrow, and that it matches the donor’s account on the gift letter. Think long term in discovering short-sale transfer fraud, by working with a service provider that can alert your company, if a transfer occurs over the next 1-2 years. Buying multiple investments or primary residences can be caught by checking MERS after a loan’s closed for 30-60 days. Pay close attention to an AUS message indicating there is more than one application in progress for the borrower. Please let your readers know they are welcome to reach out to me for more information on this topic.”


“Rob, have you been hearing any feedback on Freddie’s EPO policy?  As I’m sure you know they implemented and early pay off policy last year. I’m not sure everyone knows how punitive it is though. Like many aggregators the policy is around loans that pay off within 120 days of FHLMC purchasing the loan (through the cash window). The kicker is that when they bill you for an EPO you pay back the base rate price rather than the price net of LLPAs. So if the price for the rate was 105 and there were 2 points of LLPAs you got paid 103 for the loan. Freddie bills you back 105. I was pretty shocked by this. They, on the other hand, think it’s perfectly logical.  It makes you think twice about selling them loans…” No, I have not heard much feedback, but thank you! For the complete manual visit FreddieSelling.


Marc Dooley with Doolster writes, “Rob – I have been reading this last week about from your emails about the industry and how the aging LO workforce is or the role of the LO is changing.  Here is my 2 cents: I think the organizations need to think differently. Today’s workforce has been pretty much given accessibility which unfortunately breeds lack of a strong work ethic. All these regional and branch type of organizations talk about these LO’s as employee, by law they are but they are in reality commissioned sales people. What I have seen is that the organizations that invest in marketing (I am speaking as a marketer) don’t have any problem recruiting – LoanDepot, CashCall, Quicken, etc. They can’t have enough jobs for the people that are applying there. It is the organizations that still believe that their ‘value add’ is speed of underwriting, underwriting in-house, great customer service, etc.  Those organizations are still living in the hay day instead of adapting to the current climate. People want the easy road and as a commissioned sales person, you want to be feed business/leads. Recently I started working with branches that decided to fit the bill for leads…paid for by corporate.  You know what?  They are scaling and adding more LO’s due to the additional revenue and ROI that paying for quality leads and their best recruiting tool is, we will invest in you by sending you 4-6 calls a day of qualified, filtered consumer calls.  They now get to pick and choose what LO’s they want instead of just filling in seat.”


Casey Fleming pens, “When I read about LOxchange it occurred to me I might not have ever mentioned my Google group. I created this group in 2008, and we have about 250 members across the country, including members in California, Washington, Pennsylvania, New York, Texas, etc.  We share ideas and resources, and regularly refer clients to each other in different states.  The group includes wholesale reps, hard money lenders, appraisers, and one prominent real estate attorney. The idea is simple – if you want support for any mortgage-related issue (including resources for specific loan scenarios) send an email to the group – no logging on required – and replies will come back to you via email.  So, you literally ask 250 colleagues how to find a loan for your unemployed bankrupt pyromaniac. The cost is reasonable – it’s free – and you can set it so you receive emails for every post, a summary once a day, or none at all if you prefer to just check the bulletin board. Anyone in the mortgage industry in any capacity is welcome.”


Regarding the aging lender workforce Michael U. donates, “Rob, Tell your reader not to worry about ‘What is going to happen in 10 years when a huge number of originators are retiring?’ With volume continuing to drop no one will be able to retire in 10 years. Just joking. I am 31 years old, and I started in 2005 2 days out of college at a subprime broker shop as a 22 year old know it all who literally knew nothing about mortgages, within 6 months I became the only loan officer who originated prime loans at the branch. I moved on and eventually I left a top 10 retail bank in 2008 for other career paths and a failed 1 semester stint at law school then returned in 2012 and will probably be in mortgages for the rest of my life. Any younger person that is thinking of getting into mortgages I would tell them run as fast and as far away from this industry as possible. Getting business is not easy, learning and understanding the ins and outs of guidelines is not easy, the amount of competition is horrible, the disparity in cost/time/effort between state licensing and bank federal licensing is pathetic. Competing with builders ‘in house lenders’ or with realtors ‘preferred lenders’ is not easy. Dealing with non-producing managers who promise you the world but fall very short of it is not fun. Then when you finally overcome all of this and get a loan the real fun starts with underwriting and their mishugas.”


Gellert Dornay from the Northwest (as opposed to the myriad of other Gellert Dornays around the nation) writes, “Rob – One issue that has not come up in the discussion around new younger entrants into the origination role is that there we are so far below origination capacity. Volume is down 60% from the highs and there plenty of old folks around to originate today’s volume.”


And AB sent, “Regarding your piece on whether or not we’d recommend a young person to get into the mortgage business:  I have a long time business friend, he retired after a 30+ year career as regional manager for a NYSE financial services firm.  He became a one man mortgage brokerage licensed in two states, and over 10 years he had 10 audits, 5 from State A and 5 from State B, without a single violation.  But he was tiring of the expense of the audits and of 25 year old examiners coming into his office treating him as a criminal, of his wife calling him repeatedly during a snow storm while an auditor refused to let him go home and continue the audit on another day. State A came in for their 6th audit and again did not find a single violation.  Then they asked my friend to produce loan files from previous years and my friend told them those files had already been audited. They insisted so he complied (at his expense for the prolonged audit) and again not a single violation was found.  That was the last straw for my friend, even though he had the energy of a man half his age and wanted to continue working, he finished out his pipeline and turned in his licenses. Shortly thereafter he received a letter from the senior auditor from State A, saying that he was sorry to see my friend retire, that State A needed more brokers like him. I’d recommend a young person to go to law school and volunteer on one of his State’s Congressional campaigns and parlay that into a job at the CFPB.”



Some of you will be looking for creative ways to harvest a Christmas tree. Here you go.





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Rob Chrisman