Feb. 7: Letters on Reg. Z, the difference between apps & fundings, bank vs. non-bank LOs, and meaningless borrower paperwork

With so many changes in the residential “menu” it is always good to “check out the buffet” and hear what others are “serving up” about “what’s in season” – we have “a full plate.” (Can you tell I haven’t had my Captain Crunch yet this morning?)


On the subject of LOs and companies either embracing or ignoring technology, Kristin Messerli, Multicultural Consultant, writes, “Though I hear them repeatedly, today’s remarks made me say yet again, ‘Are you kidding me?!’ The mortgage industry is so far behind in meeting the consumer’s demand for technology, and it appears that there are very few who care. For some to state that technology will simply ‘weed out weak originators’ is reflective of how disconnected the industry really is from technology and the demand of their consumers. The fact is that technology is the new language of consumers.  When you have a customer who speaks Spanish, you provide them with information in Spanish.  Today, the majority of consumers speak digital, and yet you avoid speaking our language. Not only is digital our language, but it is also our value.  Millennials value quality and efficiency in purchasing decisions.  The current process is nowhere close to being efficient.”


Her note continued. “With the passing of the Dodd-Frank, we have regulations in place to ensure quality loan products and disclosures, but we still cannot ensure that consumers are making good decisions and fully understanding the disclosures.  We simply hope for a good LO. While the CFPB has shortened disclosures, most of them still require a financial literacy rate that is far above that of the average of consumer.  Additionally, the quantity of disclosures is so extensive that majority of consumers are not capable of processing them appropriately. Good technology puts the consumer in a position to understand in plain language (and their native, digital language) the disclosures and whether or not they are ready to own a home.  For lenders, it also meets the demand of the buyer for a better mortgage experience. I think mortgage companies will experience another rude awakening if we continue with this idea that people will keep putting up with the industry’s apparent lack of technology adoption for the sake of a ‘good LO’ or ‘solid referral partner.’ We may like you, but we are literally in bed with our technology. Ultimately, technology is not about removing the relationship.  It is about increasing relationship through proper communication. The industry must start rapidly adopting technology that will increase effective communication before it’s too late.”


And from Illinois comes, “Recently you posted an interesting perspective by the seasoned (aged) LO. He sees the void created by an aging and thinning LO population as a pending disaster. Others see it as an opportunity. Nature abhors a vacuum, as does the marketplace, and the fossilized retail LO model in place since the early ‘80s will change. The vacuum will be filled by new talent adopting new ways of doing business. Unfortunately most salespeople entrenched in the current model will be unable to adapt. I love evolution!”


Switching tracks entirely, Mike N. writes, “Hi Rob, I have been reading the Appendix Q, Reg. Z-General ATR, and Reg Z QM general rules. My underwriters are saying all self-employed borrowers need to provide a p&l done by a third party. If all self-employed borrowers need an accountant/bookkeeper who does not work for the self-employed borrower to do a P and L, how in the world will all these people get loans? This would mean all of them would need to get their accountants to ‘confirm’ their P and L’s and what accountant would be willing to do that without the expense of a full blown audit?? Have you heard anything about how lenders are viewing these new requirements?”


I had not, so I turned to Tracy Sanderson with Banner Bank (WA) who responded, “Some investors are taking the requirements to the nth degree. Check out Reg. Z Appendix Q. If you look at page 5, you will see that self-employed borrowers must provide individual and business tax returns for the most recent 2 years and a year to date Profit/Loss Statement and Balance Sheet. The only reference to accountant is found on page 7 – if the corporate percentage of ownership is not shown on tax returns, we must obtain that information from the accountant. I had to do battle with an investor recently and remind their staff that while we must have the P/L and balance sheet, it does not have to be accountant prepared.” Thank you Tracy!


Raising the issue of bank versus non-bank LO licensing always riles originators on both sides of the issue. Joe Adamaitis stokes the fire: “Hey Rob, regarding the issue of bank vs. mortgage banker and licensing, I have been on both sides and I can tell you without any doubt that bank LOs face similar, if not greater, hurdles. One of your readers commented that, ‘One person takes the exams for all the LOs.’ Really? And ‘LOs run to the banks when they can’t pass credit, FBI or background checks.’ Whatever cool aide that person is drinking tell him I need a year’s supply. As a manager for a community bank, I am required monthly to take courses and unlike some broker/state licensing courses, I am required to take an exam which I must pass. Courses cover everything from Fair Lending to BSA and FinCen. You cannot work at my bank unless you pass a background check and, oh wait, a much more thorough credit check through Lexis Nexis. You are also required to have fingerprints cleared. All my investors require that we have these procedures in place and further that we have a real QC plan and as well compliance review of all loans. Before coming back to the bank side I too thought there were an unfair playing field and or an easier path by being on the bank side. However, I have learned otherwise. I would challenge any broker shop or lender to the idea that we as bankers are not going through the same if not more rigorous process ‘especially’ when the FDIC or other bank regulator comes knocking for an exam. We are all subject to a new world of regulations fair or otherwise and the only way for us to have any chance of changing is to be united with our state MBA or broker organization. In ending, I would just say that any LO who thinks otherwise might want to try and apply for a bank job and see how much fun it is to qualify and once there, keep up with the regulatory process.”


Occasionally readers question lending statistics and also remind us that there is a big difference between applications and fundings. Marc Dooley writes, “You have to question how many mortgage applications are counted 2, 3 and even 4 times. What I have seen is that ‘lead marketing’ providers are making ‘deals’ on their leads due to interest rates being low, they say it is because of consumer demand. That is a false perception as it is really based on demand created by their own marketing as they are running more TV, more banner ads, more email and mail drops, etc. based on their thinking that a low interest rate will fuel the behavior of the consumer – that is what drives demand. I would suggest looking at closing numbers after all these refi locks which would tell what is really going on. From me being CMO for direct National lender and speaking to multiple lenders that purchase online leads that is fueling a ton of applications there duplicity in the numbers.  38-42% of applications taken send their signed documents back, and out of those 49-53% actually close. You have to wonder, ‘Where did the rest go?’ One lender said to me the other day, ‘Production has increased by 100%!’ I asked if that meant his funding has increased by 100%. ‘No Marc, just the amount of leads we are getting and apps that we are taking.’  Be aware of statistically-driven numbers as there is a difference between being busy and actually funding loans.”


Marc went on. “One more thing to add, as a CMO that was running $3M a month in TV during historical low interest rate times, when we ran TV and radio, yes the phones rang and rang a lot but when production and ops fell behind during that exact same timeframe and we quit running TV for a couple of weeks, funny thing, consumers didn’t call, even though that low interest rate was still there. I believe I saw a reference to that in one of your earlier posts – that interest rates have nothing to do with the amount of fundings. Mortgage demand is currently being driven by lead gen trying to catch up from negative year end numbers (most lenders pretty much shut down and go to skeleton crews in December) and know that lenders want to start 2015 strong and are pressured into acquiring leads. Right now there is a false bravado in applications. If I was a lender, I would be looking closely at my contact rate, drop-offs, and signed docs returned.”


Speaking of applications and volume, and meaningless paperwork, a broker from South Dakota writes, “If I could land a few (loans) a week, I would be extremely happy.  Actually 1 a week is all I want. Gone are the days that I do 15 or more loans a month. In today’s world I can barely handle 4-5 a month. It is truly amazing how much paper has been added in the last 5 years.  Back in the 80’s and 90’s we had the same paper for qualifying purposes.  Tax returns, bank statements, credit report etc.  Now we have to prove the tax returns and justify the credit report.  All the additional regulations and paper that goes with it. The W-9 form used to be 1-2 pages. Now it is 6. The first page is valid; the rest is explanation that NO ONE reads. The same with the 4506T and the SSA89. I have to give clients that are purchasing their 4th property, or refinancing the home they have occupied for 25 years, 10 pages of homeownership info: 2 pages each that say you may take a class, 2 pages each to say I have given you the list of classes available, and 10 pages of classes. Now get this: some of the entities listed on the HUD list and CFPB list no longer exist! If there is rational here, please point it out to me. Yes, first time home buyers should be notified of classes available. The rest it is a waste of paper. I know we need government oversight.  If we did not have it, we would have huge economic crashes every 5 years, there would not be a tree standing in the Pacific NW, no river east of the Rockies would be fit to touch, and women would still be treated as 2nd class citizens. But over-regulation at the wrong end of the pole just does not do much good. Why is it so many do not realize moderation and balance is the key to everything?”


And along those lines I received this from the super lien state of Nevada. “We have buyers that never should have purchased a house, living free and all payments and obligations, except for power and water. Why? Because those stupid loans that were sliced and diced by Wall St, cannot be foreclosed on the Deed of Trust under Nevada foreclosure law. The current lender (who knows how many had a hand on the file?) does not have the documentation – the original note and deed of trust. And no assignments were done as the file was passed around. The NV Statue is very explicit – you must have them or you don’t foreclose. Lenders could do judicial foreclosure, but that cost a lot more and has possible redemption requirements for the deposed buyer. The laws are there for everyone to read. No excuse to say I did not know. Lenders could take some of the money they pay lobbyist and politicians and hire individuals to review state law. It might be money better spent. I know my thoughts are simplistic, but still, no excuse to say I did not know.  We don’t accept that argument from our kids, why should we from lenders?”



An 8-year-old girl went to her grandfather, who was working in the yard and asked him, “Grandpa, what is couple sex?”

The grandfather was surprised that she would ask such a question, but decided that if she’s old enough to ask the question, then she’s old enough to get a straight answer.

Steeling himself to leave nothing out, he proceeded to tell her all about human reproduction and the joys and responsibilities of intercourse. When he finished explaining, the little girl was looking at him with her mouth hanging open, eyes wide in amazement.

Seeing the look on her face, the grandfather asked her, “Why did you ask this question, honey?”

The little girl replied, “Grandma says that dinner will be ready in just a couple secs.”





(Copyright 2015 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)

Rob Chrisman