Jan. 12: Notes on tech, blockchain patent, M&A & cyber risk; CA, Ohio, IL busy with lending law changes; NY addresses AMCs

Regulators are encouraging financial institutions to work with borrowers affected by the government shutdown. After two weeks of a holiday workload, some folks are still shaking off the cobwebs whereas others have hit the ground running and have already had business dinners and have conferences on their calendars after this first full workweek of 2019. The COO of The Mortgage Collaborative, Rich Swerbinsky, penned a piece on the 10 biggest news stories of 2018 in the mortgage industry. And none of them had “digital” or “technology” in the title!


There’s a new toaster in my house, made by Breville. The display prompts me for how many slices of bread I’m putting in. I’d like to know if that information is being transmitted to Google, or to the refrigerator (“Quick, hide the jam!”). Or to Weight Watchers (“Get that reminder postcard sent out!”).

Ever show someone under the age of 30 a rotary phone? STRATMOR CEO Lisa Springer sent along this humorous reminder of what might happen!

Is any lender that uses a computer in its business considered a “fintech” company? Darned if I know, but technology and “digital” mortgages continue to be the chatter at conferences. Borrowers want all the fancy bells and whistles with low rates, Jimmy Choo shoes at the Costco price.

I received this note from STRATMOR’s Nicole Yung. “STRATMOR’s 2018 Technology Insight Study goes into great detail on where lenders are using Digital to their advantage. For example, the findings show 76 percent of lenders provide the ability for borrowers to execute disclosures online versus 61 percent in 2017, and 72 percent the ability for the borrower to upload documents and respond to conditions online. These are the top two digital capabilities out of more than 20 front-and back-end digital capabilities surveyed. To see more detail, both the full and Digital-only versions of Technology Insight Study are available for purchase on the STRATMOR website.”

Bank of America has filed a patent that would use blockchain technology to verify and track ATM transactions.

Mitch Tanenbaum with CyberCecurity LLC shot over a note on M&A and cyber risk. “One thing that people don’t spend enough time on during a merger or acquisition is cyber risk. Just ask Marriott. When they acquired Starwood two years ago hackers had already been inside Starwood’s systems for two years. Now Marriott shareholders are going to have to foot the bill for that breach. While Marriott reduced the best guess at number of victims from 500 million to 380 million, the bill for this breach will certainly be in the hundreds of millions of dollars. If you include brand damage, I would expect the bill to be $500 million or more. Not to mention the years that this will be a distraction for Marriott executives including depositions, negotiations, court rooms, media interviews, and don’t forget about writing large, no very large, checks.

“Marriott hasn’t said yet how much cyber risk insurance they had, but even if we are generous, I doubt it is more than $100 million. That could put them on the hook for writing checks for a couple hundred million. That assumes that their current insurance carrier doesn’t disavow responsibility for the attack since it occurred before the acquisition, which will force them to sue their insurance company or write the entire check themselves. Strangely, this is the same month that Sotheby’s announced that hackers had been inside their Sotheby’s Home division for several years before it was acquired.

“Perhaps executives don’t mind writing those hundred million-dollar checks. But, even if they don’t, I doubt their shareholders are happy about that. Granted Marriott’s stock price is only down 20% from 6 months ago and it hasn’t been a great time for the market, but the unknown question is what happens when the rest of the market recovers. If nothing else the company will be distracted from its mission. And it will have to write some very large checks.

“The moral? Businesses that are merging with or acquiring other companies need to seriously step up their cyber due diligence. Most attacks are not targeted attacks, so whether you are big or small, you are equally likely to get hit. Except for this one thing: small companies do not have the technical resources to detect and repel attacks. Many times, they don’t even know that the attackers have been roaming inside for years – like Sotheby’s and Marriott. The good news is that Marriott and Sotheby’s have the resources to slog through this morass. Even if it costs them a half billion dollars each. Do you?”

Change is a constant in the mortgage biz, right? There has been a lot of noise about blockchain, including in this commentary. I continue to be asked about it, despite me still relying on “control, alt, delete” when something goes wrong with my antique lap top. The first thing IT folks, and CEOs, should do is learn the basics of blockchain technology and why some derivatives may be better suited for your business. Will blockchain save your company money, or bring in more customers? Will it save in auditing or compliance costs? Figure out the practical uses. IT should create a budget for blockchain research and/or usage. Of course, spend this budget wisely. If you find a vendor, can they effectively cover up the complexities of blockchain and focus on the implementation?

Blockchain technology is available to all companies now, regardless of size. Many lenders are just trying to keep their heads above water and may not have the resources or time. Besides that, the biggest hurdle to adoption is a lack of technical understanding. “Experts” agree that companies don’t need specialized employees. But the topic is worth a meeting with your IT team to see if there is a product or benefit to you.

State laws impacting lenders

If you think it is hard enough being a lender these days, try lending in multiple states, and keeping track of all the differences. At the national level, of course, the CFPB is still with us, evolving. Thank you to Rob Branthover who reminded me of this well-written article titled, “The Tragic Downfall of the Consumer Finance Protection Bureau.”

Illinois has amended provisions under its Residential Mortgage License Act. Bona fide nonprofit organizations and their employees have been included in the definition of “exempt person or entity.” The definition of a “bona fide nonprofit organization” is further clarified in this section. Acts and practices that are prohibited by licensees are spelled out. These acts include failure to maintain at least one full service office in Illinois when required to do so; failure to maintain adequate staff; and failure to maintain written records for at least thirty-six months.

Illinois also repealed a provision requiring the Secretary to obtain loan delinquency data from the U.S. Department of Housing and Urban Development during the examination process of licensees. A final provision clarifies that requirements set forth in Section 5-9 of the Act do not apply to licensees providing notices of change in loan terms pursuant to the CFPB’s Know Before You Owe mortgage disclosure procedure.

Ohio has recently enacted the Notary Public Modernization Act with Senate Bill 263.  This bill was signed by the governor on December 19, 2018 and is effective 91 days after filling with the Secretary of State and will update and streamline the antiquated notary public system in Ohio.  One key element of the act is that it allows for electronic notarizations, eliminating the need for in-person face-to-face meetings for notarial acts.  Instead, this new feature allows Ohio residents to have their documents notarized over the internet, by connecting with a commissioned Ohio notary using live audio-video communications technology.

The act also remedies the inconsistency and inefficiency in Ohio’s notary commissioning process, eliminating the county-by-county registration system, and replaces it with one centralized, uniform system under the sole authority of the office of the Secretary of State. All notary public applicants must submit to a stringent background check, administered by Ohio’s Bureau of Criminal Investigation and Identification, and participate in an approved training course and pass an assessment.

Ohio has recently enacted House Bill 489 which decreases the number of bank and credit union examinations that are to be carried out by the Division of Financial Institutions (generally prohibiting the Superintendent from conducting examinations more often than once every 24 months for a state bank or credit union that meets the following conditions: (1) it maintains assets of $10 billion or less, and (2) it maintains a composite rating of one (the highest rating) under the uniform financial institutions rating system.  However, more frequent examinations may be carried out if (1) there is reasonable cause to believe that there is a risk of harm to the bank, or (2) the Division participates with other financial regulatory authorities in a joint, concurrent, or coordinated examination).

The bill requires nonexempt mortgage loan servicers to register every principal office and branch office with the Division of Financial Institutions under the regulatory umbrella of the Ohio Residential Mortgage Lending Act.  This provision was included because the Ohio Residential Mortgage Lending Act had inadvertently exempted entities involved exclusively in mortgage loan servicing from this registration requirement.  The annual renewal fee is $500 and is deposited into the Consumer Finance Fund (Fund 5530).

Ohio was busy and also amended its foreclosure procedures with House Bill 480. The Bill adds requirements for multi-parcel auctions to the state’s current foreclosure law.  For the purposes of the bill, “multi-parcel auction” means any auction of real or personal property in which multiple parcels or lots are offered for sale in various amalgamations, including as individual parcels or lots, combinations of parcels or lots, and all parcels or lots as a whole.

Michigan amended its provisions regarding notaries that include updates to definitions as well as the electronic notarization of documents. The amendment is effective immediately; compliance is effective on March 12, 2019. The amendment authorizes the Secretary of State to develop and implement an electronic application and payment process for individuals who are seeking appointment as a notary. It must review and approve at least one system by March 30, 2019.

There is a minimum set of standards by which it will approve electronic notarization systems. If an electronic notarization system is approved or certified by a government-sponsored enterprise, the Secretary and the Department of Technology, Management, and Budget shall approve the system if verifiable proof of that approval or certification is provided to the Secretary and Department, unless the use of the system is affirmatively disallowed by the Secretary.

The amendment allows a notary public to select one or more tamper-evident electronic notarization systems to perform notarial acts electronically and prohibits anyone from requiring a notary to perform an electronic notarial act with an electronic notarization system that the notary has not selected. The amendment also provides that the Secretary may disallow the use of an electronic notarization system if the system does not satisfy the criteria under Section 26A.

Up in New York, Governor Cuomo recently signed legislation to establish minimum standards for Appraisal Management Companies (AMCs) and brings New York into compliance with a federal mandate. (See State Senate Bill 9080 here) Hats off to the NYMBA who worked to ensure that AMCs are able to provide important appraisal management services, and to maximize access to credit for consumers.

The Texas Office of Consumer Credit Commissioner has made multiple housekeeping changes to its rules under the Regulated Lenders and Credit Access Businesses chapter. The provisions took effect November 8, 2018. Provisions relating to the application process, licensing process, interest charges on loans, and property insurance have been modified to ensure consistent terminology, remove obsolete language, and to introduce technical corrections to the regulations; numerous additional modifications consisting of grammar, punctuation, and formatting changes have also been adopted.

California’s Senate is considering a new iteration of a state housing bill that would allow denser housing types near public transit stops. SB50 would prevent cities from restricting density within a half-mile of a major job center or transit hub, raises height limits to 45 feet within a half-mile and 55 feet within a quarter mile, and eliminates parking requirements.

Aside from SB50, new housing-related bills were introduced to both the Senate and Assembly on the first day of the legislative term. Proposals include reduced development fees and regulations on auxiliary dwelling units (SB13), the restoration of redevelopment agencies (SB15), and the expansion of the state’s low-income housing tax credit to $500 million (AB10).

state bill to allow dense housing near transit stops, alleviating long commutes and coaxing people out of cars, never made it out of committee last session. But backers think the mood has shifted enough in the housing debate to try again.

“In talking to my colleagues, there’s more support than there was earlier,” stated state Sen. Scott Wiener, D-San Francisco. Those provisions are less dramatic than what Wiener proposed in SB827, his first attempt at statewide zoning reform. It would have barred cities from rejecting four- to eight-story apartment or condo buildings near transit nodes.

Political leaders in San Francisco and Berkeley fumed at the building heights in SB 827, saying it would allow luxury high-rises to sprout up, unchecked, in quaint residential neighborhoods. San Francisco’s Board of Supervisors passed a resolution against the bill after an emotional hearing in which residents compared it to a “hydrogen bomb” and an “undemocratic power grab.” Some detractors worried that their neighborhoods would be remade to look like Manhattan or Miami Beach.

A state bill to allow dense housing near transit stops, alleviating long commutes and coaxing people out of cars, never made it out of committee last session. But backers think the mood has shifted enough in the housing debate to try again. Recently the California Air Resources Board published a report saying that auto carbon emissions have increased because people are driving longer distances between home and work.

In September, the Legislature passed a law empowering BART to fill station parking lots with homes. And Wiener is seeking an ally in Gov.-elect Gavin Newsom, who emphasized the link between housing and transportation in a post-election speech.

“Fishing In a Frozen Lake”

It was a cold winter day.

An old man walked out onto a frozen lake, cut a hole in the ice, dropped in his fishing line, and waited patiently for a bite.

He was there for almost an hour, without even a nibble, when a young boy walked out onto the ice, cut a hole in the ice next to him.

The young boy dropped his fishing line and minutes later he hooked a huge sturgeon.

The old man couldn’t believe his eyes but chalked it up to plain luck.

Shortly thereafter, the young boy pulled in another large catch.

The young boy kept catching fish after fish.

Finally, the old man couldn’t take it any longer.

“Son” he said, “I’ve been here for over an hour without even a nibble. You’ve been here only a few minutes and have caught a half dozen fish! How do you do it?”

The boy responded, “Roo raf roo reep ra rums rrarm.”

“What was that?” the old man asked.

Again, the boy responded, “Roo raf roo reep ra rums rarrm.”

“Look,” said the old man, “I can’t understand a word you’re saying.”

The boy spat the bait into his hand and stammered, “You have to keep the worms warm!”

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, “Low Down Payments Can Help Borrowers AND Lenders.” If you have both the time and 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