Feb. 8: Letters on cybersecurity, increasing LO productivity; Fannie & Freddie weigh in on LIBOR move

The rumor that tomorrow is National Pizza Day is true. In our business there are always plenty of rumors to go around. The latest involves, giving rate engines and automation, one large private MI company buying another, like Radian purchasing Genworth. (I’m not saying those are the two, and picked two names at random.) Remember the beginning of 2019 when many lenders and vendors, big and small, were looking to be bought, merge, or acquire? The rumor mill was working overtime. But who needs rumors when there’s enough going on in real news to keep us all busy!

Wednesday’s commentary contained this note. “Let’s take any brokerage or small mortgage banker, 10 loan officers doing an average of 3 loans per month for 30 loans/month. The company has the operations staff to handle the current amount, probably more. Does it make more financial sense to go out and hire a recruiter and/or pay a signing bonus for another LO, or increase the efficiency of the existing LOs through better marketing, training, and improving the process? Let’s say all you had to do was move MLOs from 3 loans to 3.5 loans per month. I’m no math whiz, but that’s 5 more loans per month, about the same as hiring 2 new LOs. And while you’re at it, have your Ops staff take advantage of training and conferences that are out there, many at no cost. Makes all the sense in the world to me, and it’s a mystery while lenders focus so many resources on finding and training new staff rather than focus on honing your existing group. Just think of all the money you’d save on signing bonuses or guarantees!”

I received many responses suggesting that in a perfect world this would be the case, but that management doesn’t seem to recognize it. Others were more detailed.

From Texas Geoff S. sent, “I think I can tell you the answer to your first set of semi-rhetorical questions. The company quietly knows that the 10 loan officers they have are not all so ‘hot’, or even average. Human nature almost dictates that three of them are a hopeless mess, four of them are average, and the other three are going to produce no matter what happens. So ‘honing’ this bunch with training may have limited effect. The top three are already ‘self-honed,’ the middle set might be able to produce slightly more, and the last third are impervious to training efforts. So the company sets off in search of the next ‘superstar LO’ hoping they fall into the top tier of producers and praying that no one takes away their own top producers. At least I think this is what would describe the current industry behavior to continually hammer away at bonuses, etc.”

Gregg K., an originator from California, relayed, “I would say, in reference to your first insight why employers concentrate on recruiting vs increasing loan volume via marketing, customer acquisition using their current LOs is due to the fact the majority of employers have no idea how to create more volume using marketing skills. They rely 100 percent on the LOs personal marketing skills. At least that’s what I have found during my 22 years at this cray biz. Unless you have Paul Redham mindset and skill set (marketing genius) which very few are, but then the LO works for 35 basis points. Just my two cents.”

And from out West a lender’s president scribed, ““The issue with investing in growing Loan Originators is as follows. If they are unambitious and content with 3 loans per month (national average is 1.4, as you know), then they are unlikely to embrace training. We’ve thrown tons of tools, personal coaching, and even warm leads at our folks, and we typically see fewer than 20% of our LOs actually engaging with what we give them. If the LOs are ambitious, and they do engage with what we’re investing in them, then they are typically going to be similarly ambitious when it comes to taking calls from recruiters that might enhance their earnings. So long as IMBs continue to make stupid offers of signing bonuses and unprofitable commission plans, there will be a constant tug on the more ambitious LO’s to jump ship. Thus, the ROI for any decision to invest in training, tools, etc. must be discounted by the high probability that an LO will defect. Profit sharing and graduated compensation plans can play an important role, but here again, it’s tough to get the numbers to work out.”

From Washington the MBA’s David Upbin penned, “Rob, thank you for your commentary on Wednesday regarding training and development versus recruiting and hiring. MBA Education is geared to be the one-stop-shop (one RESOURCE) for training and development in our industry. All of MBA Education’s webinars are complimentary to MBA members and there are currently 30 webinars on the calendar with more being scheduled every week. A number of our 200+ self-study courses are complimentary to members and the other courses are only $49. For the small- to mid-sized lender, MBA Education has built Education Advantage which allows MBA members to invest in their staff for one low price per year and get everything MBA Education has to offer. A member company who has a total origination volume of $30M could get 1) unlimited self-study courses; 2) unlimited designation enrollments (CMB included); and 3) limited School of Loan Origination, School of Mortgage Servicing, and School of Mortgage Banking seats for one total annual price of $4,500.”


Don’t forget that ICE, the same company that owns MERS, owns LIBOR, and don’t forget that that the “L” in “LIBOR” stands for London, so the world is keeping an eye on what happens with UK institutions.

The UK Financial Conduct Authority and the Bank of England have announced a series of deadlines for Libor phaseout. The first deadline is March 2, when users and issuers of derivatives should shift to the Sterling Overnight Index Average. Britain’s financial institutions anticipate new regulatory measures to speed the phase-out of Libor, which may include a tax or capital add-ons for transactions that continue to rely on it. “My sense is that regulators would want to make Libor more expensive and therefore less attractive to use,” said Ed Moorby, a risk advisory partner at Deloitte. And the UK Financial Conduct Authority has added further pressure to move away from the London Interbank Offered Rate with the warning that markets “should not assume that any period of non-representative Libor… would last for more than a short period, that is a period of months, not years.” Derivatives markets have yet to agree on how they will handle the Libor phase-out.

In the U.S. the Alternative Reference Rates Committee (ARRC) of the Federal Reserve Board and the Federal Reserve Bank of New York released a consultation seeking comments from market participants on the spread adjustment methodology it intends to recommend as part of its fallback provision recommendations for cash products referencing the London Interbank Offered Rate (LIBOR). Weiner Brodsky Kider PC has a nice write up about it.

Fannie and Freddie, through an announcement by the FHFA, will wrap things up with LIBOR. Acceptance of adjustable-rate mortgages linked to Libor will cease by year-end at Fannie Mae and Freddie Mac, and the companies will soon take mortgages based on the Secured Overnight Financing Rate. This is the first major announcement of a consumer-loan product based on SOFR and will help lenders transition a trillion-dollar market away from Libor. Yes, the two will stop accepting ARMs linked to LIBOR by the end of 2020. The GSEs also said they will soon accept mortgages based on SOFR, the presumptive alternative to LIBOR, which is expected to disappear by the end of 2021.


Andrew Liput, CEO and Founder at Secure Insight writes, “What do closing agents know about cyber risk and cyber preparedness? Secure Insight just released results of a poll of over 3,400 agents nationwide and discovered some interesting information about the issue. With a database of over 70,000 professionals, SI keeps it’s thumb on the pulse of the mortgage closing industry and how it effects mortgage lenders and their business operations, as well as their borrower clients.

“Secure Insight polled 3,423 closing agents between January 20 and February 5, 2020 regarding their cyber security awareness and preparedness. Here are some of the results: 86% of respondents were not aware of new laws in CA and NY requiring lenders to protect consumer private data from third party misuse, 43% do not have cyber liability coverage, 36% have been a victim of email phishing schemes at the office, 22% have been involved in a closing where at least one party has been victimized by wire fraud, and 8% use their personal email and not their business email to transmit consumer information.”

The Treasury Department’s Office of Terrorist Financing and Financial Crimes has identified the financial system’s main vulnerabilities to illicit activity and has detailed steps to counteract them. Lack of obligation for companies to disclose beneficial-ownership information, misuse of digital assets and foreign jurisdictions’ shortcomings in monitoring digital-asset activity are primary weaknesses, which the department aims to rectify with legislation and other measures.

The Mortgage Bankers Association submitted a letter to the House Committee on Energy and Commerce with its principles for privacy and cybersecurity reform. Since last year, a bipartisan group of legislators on the committee have been working on a comprehensive consumer privacy bill. MBA’s letter highlights the mortgage industry’s principals for reform.

And of course states have policies and procedures. For example, in California, where nearly 25 percent of the nation’s residential loans come from, the state government created a Cybersecurity Task Force.

The New York State Department of Financial Services extended the deadline for filing the Certification of Compliance pursuant to 23 NYCRR 500 (“Cybersecurity Regulation”) from February 15th of each year to April 15th of each year.  Therefore, those impacted have need to have their next Certification of Compliance filed by April 15, 2020. The Department is currently accepting Certifications of Compliance filing for calendar year 2019. All filings should be filed electronically via the DFS Web Portal. “Each Covered Entity should use the account that it used for previous filings. The DFS Web Portal provides a secure reporting tool to facilitate compliance with the filing requirements of the Cybersecurity Regulation. For any questions regarding filing issues, please send an email to: cyberregsupport@dfs.ny.gov.

(Thank you to Don C. Michigan for this one.)

C – Hello! Is this Gordon’s Pizza?

G – No sir- It’s Google Pizza.

C – I must have dialed a wrong number. Sorry.

G – No sir. Google bought Gordon’s Pizza last month.

C – OK. I would like to order a pizza.

G – Do you want your usual, sir?

C – My usual – you know me?

G – According to our caller ID data sheet, the last 12 times you called you ordered an extra-large pizza with three cheeses – sausage – pepperoni – mushrooms and meat balls on a thick crust.

C – OK – that’s what I want.

G – May I suggest that this time you order a pizza with ricotta – arugula – sun-dried tomatoes and olives on a whole wheat, gluten free, thin crust?

C – What? I detest vegetables.

G – Your cholesterol is not good, sir.

C – How the hell do you know?

G – Well, we cross-referenced your home phone number with your medical records. We have the results of your blood tests for the last 7 years.

C – Okay, but I do not want your rotten vegetable pizza! I already take medication for my cholesterol.

G – Excuse me sir, but you have not taken your medication regularly. According to our database, you only purchased a box of 30 cholesterol tablets once, at CVS, 4 months ago.

C – I bought more from another drugstore.

G – That doesn’t show on your credit card statement.

C – I paid in cash.

G – But you did not withdraw enough cash according to your bank statement.

C – I have other sources of cash.

G – That doesn’t show on your last tax return unless you bought them using an undeclared income source, which is against the law.


G – I’m sorry, sir, we use such information only with the sole intention of helping you.

C – Enough already! I’m sick to death of Google – Facebook – Twitter – WhatsApp and all the others!!! I’ m going to an island without internet – cable TV – where there is no cell phone service and no one to watch me or spy on me!!

G – I understand sir – but you need to renew your passport first. It expired 6 weeks ago.

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 current blog is, “Home Ownership is Still Part of the American Dream” If you have the inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


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Rob Chrisman