Daily Mortgage News & Commentary

July 10: Notes from readers on how hacking works, credit scores & default risk, LOs & social media, AMCs; Saturday Spotlight: Sourcepoint

Renegotiations, watching LOs’ social media profiles, cost cutting & efficiency, appraisal delays, hacking and ransomware (with U.S./Russian headlines this morning)… lenders have a lot on their plates. But overall business volume is decent, especially in light of some of the dire predictions from earlier this year. According to FBX, June 2021 mortgage rate-lock volume was down 15 percent year over year but up 4% month over month across all channels, while funded volume increased 10% YoY and 10% MoM. (In the retail channel, lock volume decreased 11% YoY and 4% MoM, while funded volume was up 5% YoY and 10% MoM.) Rates were nearly the same as May and 15 basis points less than June of 2020. FBX sources a statistically significant data set directly from lenders to produce these benchmark figures.

Saturday Spotlight: Sourcepoint, a business process management (BPM) services provider, providing expertly crafted, productized solutions spanning the mortgage loan cycle.

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).

Sourcepoint is a business process management (BPM) services provider, serving the mortgage industry for over 25 years. Our team utilizes next-gen technologies to support the end-to-end mortgage lifecycle of our clients, including top 20 lenders and servicers. Over the past year, Sourcepoint has witnessed accelerated growth and we anticipate the momentum to continue in the coming years.

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

Sourcepoint is guided by the philosophy of ‘doing well by doing good’. Giving back to the communities we operate in is integral to our culture. We offer employees paid time off to participate in Sourcepoint’s community outreach programs. Our employees participate in disaster response, fundraising events, partnerships with NGOs, and various payroll giving opportunities, including our recent COVID-19 relief campaign.

 

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 PeopleFirst culture is geared to provide a unique employee experience focused on promoting employee growth. Sourcepoint provides on-demand and in-person skilling to nurture development through leadership and technology courses. Our First Learning Intelligence mastery tool is designed to deepen employees’ understanding of the mortgage industry. Employee progress is tracked in a performance management tool that defines goals, develops a roadmap, monitors strategies, and provides feedback for improvement.

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.

Regardless of whether our employees work in Sourcepoint offices across the globe or from their homes, our goal is to integrate them into their roles and the culture. Our team of specialists leverage a robust new hire orientation process, and our technology-driven platforms enable collaboration across locations in a distributed work environment. Annually, we conduct an employee satisfaction survey to understand our employees’ preferences and assess opportunities to do better. Our intranet acts as a central hub for CEO messages, inclusion and diversity initiatives, employee spotlights, and celebrations, to name a few.

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

The company expanded its commitment to inclusion and diversity (I&D) to further its PeopleFirst ethos. We hold discussions where guest speakers and employees participate in open, thoughtful conversations. This is supplemented with organizational communications highlighting the importance and historic achievements of different groups to maximize impact.

Sourcepoint participated in Allies for Change raising awareness among our employees and the community. The initiative involved daily tasks where participants deep dived into issues like stigma, harassment, discrimination, and how allies can provide equal treatment and support to organization members. We are proud that in the #AllyChallenge we ranked among the top 10 on the leaderboard featuring 53 organizations!

Hacking primer

Why couldn’t they catch the Russian hacker? Because he ransomware. (Say it out loud.) I have received several emails stating that Texas attorney Black, Mann, & Graham were the victims of a ransomware attack last week. (If you have questions or concerns, you should reach out to that firm directly.) It isn’t a laughing matter, especially when borrower’s information is involved.

Russia’s interventionist foreign policy, and its nuclear weapons, make it easy to forget that Russian’s economy is smaller than Canada’s and just over half the size of California’s. But Russia, among others, makes trouble for the United States, particularly in cyberspace. The rash of ransomware and other hacking attacks by Russian organized crime on U.S. companies is a growing cause for concern.

I am not an expert in ransomware, its attacks, or its solutions, but receive occasional questions on the topic. I received a very good explanation from STRATMOR Group’s Mike Stahura. “Most folks think having an off-line backup is good enough. But looking at the recent ransomware attacks, the virus could have been embedded in the client sites for many months before the hackers pulled the trigger. So if you, as an individual or company, retain backups for every week for the last three months, but the system got infected four months ago by a hacker that has patience, you still might be in trouble. Of course you could unplug the system from the network to stop time synchronization, reset the system clock to a few days before, reinstate a backup, and then hopefully find the virus and kill it before it trips and encrypts everything again. Some software, like iCloud and OneDrive, actually retain previous versions of files. So once you wiped your entire system clean and reloaded all the system software, you could request previous versions of your files and hopefully get lucky enough not to request a file that has the virus.

 

“STRATMOR clients should know that the anti-virus, and anti-malware, software programs can only catch the viruses they “know” about. A new virus can make it into your system because the antivirus and anti-malware don’t know about it. If the hacker is greedy and goes for the quick money, then the security community does its investigation, finds the fingerprint of the virus, and all the anti-virus/anti malware software is updated. So it is now harder to for the greedy hacker to infect systems. If, on the other hand, the hacker infects your system, then waits for a few months while he infects other systems without the antivirus software breathing down his neck, he infects more computers and makes more money.

 

“In a similar, but totally unrelated, related story, you receive an email saying, ‘Please call us immediately your [credit card number], [SSN], [or whatever] is about to be disabled.’ The email contains spelling mistakes and obvious grammatical errors and you think to yourself, ‘What a pitiful hacker, everybody can see that a mile away.’ But not so fast. It is a smart hacker, trying to weed out the smart people who would argue with them and try to validate who they are. The people who can’t see the red flags, and that’s the hacker’s audience. The hacker is just weeding out the top troublesome people. Hackers always lead the way. The security community plays catchup. It is the way of the world.”

LOs and social media

“I receive occasional questions about monitoring MLOs’ activities in social media. It is not something I regularly watch, so I asked Melissa Thomas, Head of Compliance at ActiveComply, for an update on what their team is seeing out there. She replied, “there has been a huge spike in the use of social media thanks to the pandemic. Even as businesses start to open back up, many lenders know that social media marketing and brand development is here to stay. We’ve seen an increase in regulatory citations from states like NV, VA, and NC for missing licensing numbers on social media profiles. We also know that fair lending is a prominent concern this year for regulators, so it would be advised that lenders take a close look at their advertising content– who is in your photos? Are the past 5 ads featuring a happy family of the same ethnicity? Marketing departments should do their best to ensure that their content isn’t subliminally excluding another demographic, to both make all consumers feel welcomed by the business and make a stronger argument for fair lending compliance.” Thank you, Melissa!

The credit industry’s policies and procedures

Every once in a while, I receive an email from someone outside of the industry asking about something-or-other. The latest, from Maine, was regarding credit. “I bumped into your website and read many articles there. It’s helping me a lot, thanks a ton. This guy claims that I get 14 days to do rate shopping and the inquiries won’t affect me. Do you think it’s true?”

I referred this question to Tracey King-Danadio, COO of Partners Credit & Verification Solutions. “I am happy to report that this information is true. The credit bureaus recognize that consumers need the ability to shop around when financing a large purchase like an automobile or a home. To that end, they have provided grace periods during which multiple inquiries may appear, but only the first one will impact the score. There are no grace periods on inquiries other than those for automobile and mortgage. For a more specific detailing of the grace period, it varies by bureau, something to consider. Since Experian has the shortest time frame, it sticks to the 14 days as most credit pulls are tri-merges (Equifax, TransUnion, and Experian). Equifax has a grace period of 45 days, Experian 14 days, and TransUnion 45 days. The time before the first inquiry impacts the score is 30 days for all three.”

While I had Tracey’s attention, I asked her about this article about whether credit scores predict mortgage default risk. “This article hits on several great points. For me, while the FICO score formula has remained a mystery, there are companies built on trying to understand it and more importantly, manipulate it. Depending on the resources available to you, or the lender you go through, they can help you bring your score from a 640 to a 720 in 3-5 business days. So let’s say that John Borrower’s lender is savvy, knows he can get a better rate for John if he gets him to a 720 and will run a credit scenario which tells John to pay down his Macy’s card $10, his Visa $100, and his Costco card $42 (yes sometimes it is that specific), and shazam: Suddenly John’s in a whole new bracket. You can dissect this in several ways as to whether this practice should be done, who it’s offered to, etc., but my main question is that if we put so much stock in the credit worthiness of a borrower, based on their credit score, should it be this easy to adjust?

“The article also mentions this is more of a question for lenders than it is for credit reporting companies. True. I’ve spoken to several lenders from banks that decide to portfolio a loan that wouldn’t meet GSE guidelines. Their criteria are generally more forgiving and creative, which leads to the notion that there are credit worthy borrowers out there, they just require more attention or the chance of explanation.” Thank you very much, Tracey.

Appraisal thoughts

A broker from out West writes, “The appraisal situation is total chaos. It was wrong 10 years ago, and it is worse today. Paying in advance for something and then having no recourse is WRONG. I know wonderful appraisers. The best in the biz. They dropped out of residential mortgage appraising with HVCC, declining to participate in the new inferior system. They are healthy and happy providing appraisals for attorneys, estates, individuals, and banks that are allowed to order an appraisal direct from the appraiser of choice. The VA still has its own process, and MLOs I speak to don’t have an issue obtaining a VA appraisal.

“This is interesting, and troubling. My clients pay for the appraisal when it is ordered from the AMC. There is an immediate charge to their credit card. The AMC pays the appraiser on completion, perhaps 3 or 4 weeks later. I don’t know of any other item that is totally paid for in advance, and you receive later with no recourse whatsoever. Now the AMCs are offering incentives. That sounds discretionary. All appraisers are supposed to be treated the same. Get rid of the AMC system. It is worthless and expensive.”

 

Michael Simmons, Co-President of AXIS AMC, also commented on the state of the appraisal business. “Rob, I am hearing more and more noise in the markets about appraisers and appraisals. This level of frustration is generally accompanied by some consistent myths and misunderstandings.

As a myth, for example, Dodd Frank did not, as someone recently told me, implement, or mandate the use of Appraisal Management Companies. On the contrary, it merely imposed and codified greater regulatory oversight on the lending and appraisal industries. There is no mandate from Dodd Frank, or anyone else, that a lender must use an AMC. Some lenders choose AMCs as we serve effectively and compliantly as their sword arm in managing the appraisal process, saving lenders significant staffing costs and other resources.

“Along those lines, HVCC (now supplanted by AIR) was not enacted in 2010 as part of Dodd Frank. It came into existence in 2008, effective May 1st of 2009, as part of an agreement between Fannie Mae & Freddie Mac, OFHEO (now FHFA), and the Attorney General of New York. It established a code of conduct on the part of lenders that prohibited influencing the development or value conclusions of an appraiser, and it provided protections for homebuyers, mortgage investors, and the housing market.

“And someone told me that appraisals are the only unregulated piece of the real estate settlement services pie. That is not true as the business is impacted or overseen by all the following: Dodd Frank, FIRREA, TILA, the Appraisal Subcommittee (ASC), USPAP, the Appraisal Foundation, the Appraisal Standards Board, HUD, the GSEs (Fannie & Freddie), and every state regulatory body that oversees state licensing and acts as a clearinghouse for complaints and the administration of fines and penalties when violations occur.

“It is important for both originators and borrowers to understand that price does not always equal value. Price is what a buyer is willing to pay for an item because it’s worth it to them. Value is what a lender requires when making the decision to lend. Markets with more buyers than sellers can distort prices (think 20+ offers and overbidding on purchases). When supply and demand return to [a more] normal state, values will reach a new equilibrium. Ask a lender why they fear that tipping point.

“As an AMC, we do not control fees. We find ourselves as frustrated as lenders, originators, and borrowers are in markets like these. When appraisers are getting 5 to 20 orders a day, some succumb to (and here I will quote that line of Glenn Frey’s in his song Smuggler’s Blues) ‘the lure of easy money, its gotta very strong appeal’. Many appraisers are getting what could rightfully be termed exorbitant fees because they can only absorb 2 new assignments a day, so they take the highest offered fee. Still, many continue to work for reasonable fees because they value the business relationships, but at the end of the day, they are independent contractors who are in short supply and overworked. Look at the price of lumber nearly tripling in the last year. Nobody is calling for regulations on the lumber companies or home builders who have had to raise their prices. These are short term anomalies that will subside. Just the same, it is a challenging place to be for all of us.

“Some believe that paying in advance for an appraisal is wrong. Better yet, when didn’t we all pay for our appraisals upfront? Remember, back in the day, when you told your borrowers, ‘Be sure to have a check for the appraiser when they come to do the inspection!’? And if you did not have a check, most appraisers turned around and left without inspecting. Today, it is the lender that is requiring a broker to have their borrower pay in advance. Why? Because, at the end of the day, it is the lender who is ultimately responsible for seeing that the appraiser is paid.

(Thank you, Mike! Next Saturday I have Mike’s note on items that lenders have a right to expect from appraisers and AMCs.)

Don’t be worried about your smartphone or TV spying on you. Your vacuum cleaner has been collecting dirt on you for years.

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, “A Primer on What Originators Should Know about the Fed”. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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