Feb. 4: Restaurants with best views; LOs adjusting to LLPA shift; CFPB case dismissed; What recession? Saturday Spotlight: OptiFunder

Tomorrow, assuming there’s an airplane available at the aerodrome, I head to Ft. Lauderdale for a Bank of England Mortgage event. (BoE is a division of the Bank of England, out of England, Arkansas, not the bank that sets monetary policy for the UK.) Where to eat? Here is TripAdvisor’s map showing the restaurants in the United States with the most beautiful views. And for those inclined, here is the same beautiful view survey for countries around the world. (Spoiler alert: most involve water.) I won’t be renting a car in Florida, but plenty of people do, and a peak under the “car rental company kimono” is of great interest. The U.S. car rental business is highly consolidated, despite the illusion of a highly competitive environment. Three companies (Enterprise, Hertz and Avis) control 95 percent of the car rental market, as Enterprise owns Alamo and National, Hertz owns Thrifty and Dollar, and Avis owns Budget, Payless and Zipcar. The market power of those companies has facilitated laws that make it extremely easy to avoid paying taxes on cars. Yes, renters benefit from lower costs, but the companies do too: Given 2 million vehicles a year bought by rental car companies, the biggest companies avoid paying $3.5 billion annually to states. On to mortgage news!

Saturday Spotlight: OptiFunder

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“Boosts Profits and Efficiency, Automate and Optimize Funding and Purchase Advices”

In 3-5 sentences, describe your company (when was it founded and why, what it does, where, recent growth and plans for near-term future growth).  

OptiFunder^SM was founded in 2019 as an enterprise software platform to make the cost of short-term funding capital more predictable for mortgage bankers. With patented AI/ML decisioning, the system factors multiple dynamic datapoints and chooses the best warehouse facility for each loan to achieve optimal financial performance. It’s expanded to a full-service platform we call the Warehouse Management System; it automates funding through loan sale to over 50 warehouse lenders and recently launched automated wire data check to add a layer of protection against wire fraud. In 2022, the platform grew more than 300% and now 1 in every 8 loans funded by IMBs is funded via OptiFunder.

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.  

Our employees are passionate about service: it’s in OptiFunder’s DNA. One of the reasons we offer generous PTO is to empower our team members to serve outside of work and enrich the lives of others. We’re loaded with dynamic volunteers who coach Special Olympics, run charitable events for veterans, serve on community boards, support local athletic programs, serve as disability advocates, feed the hungry, volunteer for clients’ charity events, and bring thought leadership to MBA and industry groups. Rather than standing behind a single cause, we celebrate those our employees champion.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?

Our team is full of smart people with initiative, curiosity and creativity. All have come to OptiFunder with remarkable learning agility and ambition, so we make learning part of everything we do. When you’re the first to solve industry challenges or break technical barriers, you have to create a space where ideas and innovation can come from anyone, anytime. We encourage our employees to pursue education formally and informally, and to bring adjacent knowledge and skills. If you were to peek behind the curtain, you’d see employees at all levels sharing experiences and new tricks, our CEO hopping on a call with configuration analysts to work a problem, developers walking through solutions with warehouse specialists. We move fast, so learning in the flow of work is critical.

Tell us how your company maintains its culture in a work-from-home environment, or how you plan on bringing employees back into the office, if applicable.  

OptiFunder is a majority WFH company. We found amazing people all over the U.S., and we prioritized having the best talent over concentrating geographically. This means we must be committed to inclusion and creative with our collaboration tools. Our communication channels are always open and active, and we respect everyone’s time away from the desk. We also laugh a lot together. Sure, we’re solving complex problems, but we enjoy each other and find the humor in our shared experience. This formula not only works for us, it works for how we interact with our coast-to-coast clients. We built our onboarding, training, performance support and engagement models to shine remotely, though we always love seeing our clients (and each other) in person.

Things you are most proud of that don’t have to do with sales.  

Many of us at OptiFunder are industry veterans, and we’ve been on the other side of partnerships and service agreements. When we came together, we vowed that we’d treat our customers in a way that delights them and avoid the irritations we’ve all experienced. This is not just for the sake of client retention, it’s because we believe the people we serve should feel valued and supported. Saying it’s easy, but delivering on the promise, means having employees who show empathy, embrace accountability, and fully commit to excellence. When our clients tell us we are different, that they love working with us, that our approach is refreshing, we feel a deep sense of pride and gratitude.

(For more information on having your firm’s extracurricular activities, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

Snippets from the compliance, regulation, and legal world

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The owner of a small Chicago mortgage company accused of violating the Equal Credit Opportunity Act (ECOA) and redlining has succeeded in his battle with the Consumer Financial Protection Bureau (CFPB). After years of discovery and back-and-forth motions, the CFPB’s case against Barry Sturner, owner of Townstone Financial, and his mortgage company was dismissed with prejudice.

In other corporate level items, there are plenty of rumors swirling around various companies and a renewed focus on MLO comp and “net branches” throughout the industry. For example, there are unconfirmed reports about what’s going on with Finance of America and the company requiring branch managers to keep earnings in company accounts and then not let branch managers take their bonuses or other compensation until future months P&L’s were done and lease payments taken care of.

The speculation certainly brings up the industry-wide issue of profit distribution and at-will employees of lenders. Regardless of lender, how are contracts structured in terms of being eligible to earn the commissions described in the compensation plan? Some will argue that a P&L balance is not a commission contractually owed to the branch manager, although one can also argue that as a branch manager, one of the job responsibilities is to manage the financial viability of the branch. Does a contract say that the branch manager is eligible to request discretionary bonuses, for preapproved reasons, to be paid from the P&L balance tied to the branch if approved by the company, in its sole discretion, and in compliance with the law?

Switching gears somewhat, MQMR recently wrote on the amendments to the Safeguards Rule, what companies they apply to, and when they go into effect. The Safeguards Rule requires financial institutions (including mortgage lenders and brokers) to develop, implement, and maintain an information security program to protect customer financial information.

Recent amendments require financial institutions to maintain a more detailed and comprehensive information security program. The amendments also provide greater clarity including specificity in regard to elements required for an information security program and additional definitions of terms like “multi-factor authentication,” “penetration testing,” and “security event”. While some provisions went into effect in January 2022, other sections of the rule were set to go into effect on December 9, 2022. The FTC recently voted to extend the December 2022 effective date to June 9, 2023.

The provisions of the updated rule specifically affected by the six-month extension include: designating a “qualified individual” to oversee the information security program and reporting to the Board in writing on the program at least annually, developing a written risk assessment, limiting and monitoring who can access sensitive customer information through various safeguards, encrypting all sensitive information held or transmitted, training security personnel, developing an incident response plan, periodically assessing the security practices of service providers, and implementing multi-factor authentication or another method with equivalent protection for any individual accessing customer information. Despite the six-month extension, companies should not delay in addressing the new requirements as they will take time to develop and implement.

LOs adjusting to the FHFA loan level price adjustments

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From Texas, Michael P writes, “I understand the mechanics and the subtleties of the possible problems for the loan process that the LLPA adjustments discussed may create. But, by the time the underwriter receives the loan file, there should be no surprises.

“The buyer will not be put out because we all are playing to the same piper’s tune, and we are communicating. The borrower approval process has not changed in quite some time. Loans are pre-approved with the LO checking the income and making assumptions about the taxes, the hazard insurance, and the HOA dues based on the experience with the properties in the area buyer is looking for a home in.

“The interest rate quoted will reflect the LO’s work. When giving the buyer the pre-approval letter, the LO makes the buyer aware of the assumptions in the pre-approval home payment amount and that any changes to the assumptions in the tax, HOA and the insurance payment  may affect the payment and or the rate. Here in the Houston area, for example, real estate taxes range from 1.8% to 4%+ in some cases, for the new subdivisions. As an LO, I have to make an educated guess what the taxes will be in order to issue a pre-approval letter. So I use a 3% tax rate and tell my buyers why I did that.

“The buyer receives the contract. The LO updates the paystubs, re-verifies the taxes and the HOA dues per MLS listing and the hazard insurance quote. This happens in the 1^st five days of the contract receipt (during which we also get the tax cert from the title company). The borrower is given a heads up that all looks good and that the loan is submitted to the processor to re-verify and confirm the LO’s work and to submit the loan to the underwriter for the initial approval. I am assuming that between the LO and the processor, the final LLPAs will be accounted and addressed thus alleviating  the stress points mentioned by our friends’ from CA comments. Are there potholes in the road? Yes. But, we all know how to work with them and accept that sometimes potholes possibly make sure we can do this for the long time coming.”

From Arizona, Steve Kaye chimed in on an originator having to deal with the frustration and confusion of the new LLPAs. “To me, as an originator, it once again boils down to effective communication with the borrower from the outset. It’s not as if we haven’t had to deal with changes before, including the numerous changes from GFEs to LEs, CEs, etc. in the past. And, in fact, this is probably another good reason to NOT quote a rate until you’ve had a chance to review the financials, something I’ve long been in favor of and have practiced.

“The conversation with the borrower must now include a brief explanation that there could potentially be a slight pricing adjustment to their rate, slightly better or slightly worse, depending on the underwriter’s final calculations of income and debt. I would add that this is industry-wide and not a company specific thing, due to recent changes made by Fannie and Freddie and the adjustment they will require should the debt-to-income exceed 40%. If preliminary numbers have been calculated, then the LO may want to include what the preliminary DTI appears to be and that this has already been factored into the shared or quoted rate.

“Look, we all want to be accurate with our borrowers, but we also strive to be transparent. Discuss and disclose this possibility from the outset! And, when locking, if your preliminary calculations place you in danger of having an adjustment, then lock with the adjustment in mind…or hold off on locking until you have greater certainty.

“Bottom line, open and honest communication with your borrowers up front can minimize potential problems should a LLPA be required. I have always found that borrowers have an amazing ability to accept some changes, as long as they have been dealt with openly and honestly from the outset.”

Someone should tell the job market about the supposed looming recession

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MBA SVP and Chief Economist Dr. Mike Fratantoni had a reaction to yesterday’s blockbuster report on employment conditions in January. “The pace of job growth had been trending down over the past six months, but January broke that trend. Recent data on unemployment insurance claims have indicated a stronger job market than the string of layoff announcements from the technology and financial sectors would suggest. Job growth of 517,000 in January, and a drop in the unemployment rate to 3.4%, puts an exclamation point on the divergence between measures of economic activity and job market statistics.

“Much of the job growth is concentrated in sectors like leisure and hospitality, which have struggled to fill job openings for much of the past year. The decline in wage growth to 4.4% may be reflecting some of this shift to sectors that typically are lower wage. However, slower wage growth in the service sector is the trend that Federal Reserve officials have been seeking, despite the persistent strength in the job market.

“Beyond the surprising hiring jump in January, employment numbers were revised up for 2022 by about half a million and were marked up for the last two months as well. As strong as we thought the job market was, it was even stronger.

“With the job market this tight, the Federal Reserve and financial markets will remain even more focused on the inflation data. We expect another 25-basis-point increase in the federal funds target in March, but do anticipate that the unemployment rate, which does tend to be a lagging indicator, will increase through the course of the year.”

And the January update of CreditGauge Powered by VantageScore™ shows that consumer credit health continues to demonstrate resiliency as the average national VantageScore credit score remained at 696. However, the data also suggests that some consumers are struggling to make on-time loan payments and are carrying higher balances, likely in response to a higher cost of living. CreditGauge data shows that credit card issuance slowed last December when compared to December 2021, which could be a sign that credit card issuers are tightening their credit requirements.

Stepping back a month, the December update of CreditGauge Powered by VantageScore™ showed overall consumer credit health remains stable but also suggests some Consumers continue to leverage credit as inflation starts to show signs of cooling.

How ‘bout a piece of trivia today? The roar that we hear when we place a seashell next to our ear is not the ocean, but rather the sound of blood surging through the veins in the ear.

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. “Productivity: More Important Than Ever” 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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