June 18: Notes on a new 1003, LO signing bonuses, the appraisal biz, servicer costs, tracking security issuance; a little Father’s Day humor

“Rob, I am hearing rumblings that the Agencies are going to mess up the entire industry, again, by putting in place unnecessary additional forms in mortgage applications. True?” Well, you’d be better served by speaking directly to HUD, or Fannie, or Freddie. That being said, yes, URLA (Uniform Residential Loan Application) changes are in the works – which probably means that some time in 2017 lenders and borrowers could be seeing a new 1003. Some, given the recent TRID experience, view the changes as a nightmare. Others don’t. But just think of all the other aspects of pricing, tracking, doc drawing, title, etc., etc., information from the 1003 touches. But contact one of the agencies for the straight scoop and timeline.

I continue to hear about the difficulty in recruiting, and about how some companies pay bonuses and others don’t. Recruiter Jim Boghos volunteers, “Hiring a top production candidate is tricky. I advise my clients to NOT pay sign on bonuses. For a multitude of reasons, they rarely work out. The water becomes murky when production candidates ask the new lender to roll the dice by laying out large sign-ons and then hope the production candidate lives up to their end of the bargain.

“Sign on bonuses should not be mistaken for transition packages. Anyone enjoying any degree of success will need to be financially transitioned over to the new lender. Lenders have increasingly become smarter about how to accomplish this. We are seeing healthy financial rewards for performance. There isn’t a client I represent that isn’t willing pay for results. In today’s market, the better lenders will structure transitions tied to performance. You want this money? No problem. Show us you are taking the steps to bring your business to us by agreeing to fair and measurable results, i.e., number of broker approval packages submitted, number of applications/loan packages submitted, etc. These are usually basic low level tiers to hit that start low and ascend higher as the transition package ages towards expiration. (To explore hiring a seasoned professional search firm focused solely on Mortgage Lending, contact Jim Boghos or call 407-790-7500 ext. 100.)

“Rob, how long does it take these days from application to Intent to Proceed (ITP)?” Huh? Isn’t it about 10 days? Seriously, I don’t know, so I turned to the folks at the MBA for something close. Mike Fratantoni replied, “Across the industry, for 2015, app-to-close averaged about 48.5 days.”

(And since we’re talking about stats, when asked about the percentage of 15-year loans in the production, the MBA’s Marina Walsh stated, “The 15-year fixed rate mortgage was approximately 9% of all first mortgage $ volume in 2015, down from about 17-19% in 2011-2012.”)

TRACE (Trade Reporting and Compliance Engine) is a system that was developed by FINRA where all bond trades by member firms have to be reported for compliance and tracking purposes.  The information is compiled and made available to the public. Investors have long preferred holding positions in Fannie TBA due to its superior float and liquidity.  The ratio between the Fannie TBA traded and Freddie TBA traded has typically been in the 8.5-9.0 range over the longer term.  The ratio has trended lower this year but did and about face in May as the ratio moved higher to 8.0 up from 7.19 in April as Fannie TBA traded volumes were up 14% month over month while Gold TBA traded volumes were only up 2.5%.  In the 15yr space, Fannie and Freddie 15yr TBA volumes were up 2% in May 2016, causing the FN/Gold 15yr TBA ratio to remain steady at 6.46. The 15yr ratio is in the middle of the longer term range.

Jeremy Potter writes, “The conversation of assignee liability continues. This article points to CFPB’s catch-22.  On one hand, they want to give more guidance to avoid freezing the secondary market and creating a real access to credit issue.  On the other, they need to walk a fine line or risk rendering the Loan Estimate (LE) worthless by undermining the rule with exceptions for mistakes/errors. I think that’s a really good point.

“July’s comment period and whatever changes CFPB ultimately makes could have significant impact at the third party due diligence and investor levels. Yes, we hope it makes technical changes to ease some tension for originating entities and production staff, but the bigger issue is clarity around what the level of risk is on Loan Estimates and Closing Disclosures. Once we have that, law firms and due diligence firms can properly evaluate risk and the secondary market can price/react accordingly. Right now these firms and organizations are doing exactly what we’re paying them to do – avoid risk. Many originators believe investors (or the third parties representing them) are being too conservative as it relates to the likelihood of TILA liability on these loans, but having just paid billions in loan production settlements to the DOJ, it is understandable that these backers are still smarting and want to proceed cautiously.”

What’s wrong with the appraisal biz, and how to fix it, is quite a hot topic out there. Peter Gallo sent, “Rob, this is where things get dangerous. Things get busy and those who see appraisers as a hurdle want to get rid of them and those that see a profit in taking over the profession with their own schemes, seek to lower standards or automate what we do.

“This is exactly the time when appraisers and their expertise matters the most. When buyers enter a heated market and get into a bidding war with no regard for the fact that they are using someone else’s money. The lender’s. It is the appraiser’s role, not to direct the market, but to PROVE the property’s place in it. It is a vital protection for our clients and their business.

“Yes, this takes time and we cannot work for free. But to lower standards, or somehow automate what we do with data systems only, is quite a cavalier attitude to have when considering the tremendous need we have for stability and the long term viability of the mortgage and housing market.

“Many understand that the additional burdens placed on the industry with over-regulation bear some responsibility for rising cost and delays, not the least of which injected a proliferation of middlemen into the appraisal process. This is not the appraiser’s fault, and what we do and how we do it is not the cause of this.

“As the ordering and management of appraisals have become such a huge profit center, their purpose and integral function as a protection has taken a back seat. Why not promote highly trained and qualified appraisers who run efficient businesses with proper support? Instead, appraiser professionals, lenders and borrowers are bled dry by those seeking the cheapest and fastest so that can maximize their profits and pursue their own business interests.  That is not what appraising is supposed to be about. Appraisers are not the cause of this issue.”

And from Northern California: I read with great interest the rhetoric on appraisal fees. Why is it no one ever complains about the loan officers’ fees, realtor fees and bank fees. One responder states appraisal fees are causing a hardship on the buyer. If that be the case perhaps the buyer is not financially ready for home ownership, maybe the loan officer and listing and buyer agents should share in the cost of that appraisal fee to lessen the burden on the buyer. There is a significant expense in being an appraiser; licensing fees, continuing education fees, organizational membership fees, data fees, E & O insurance, liability insurance, automobile expenses (gas, oil, overall car maintenance, car insurance), office expenses and so on.

“Being an appraiser carries a tremendous liability that does not end with the loan closing. How many of your readers are still working at the same base pay they were five – ten years ago and how many of you have received a cost of living increase? Yes, many appraisers have left the business, some retired, some changed career paths and some do not do lender work anymore due to the fees not being commensurate with the time, expense and headache that come with doing lender work.

“Loan officers and real estate agents want that loan to close in 30 days because they want that commission check. Appraisers are lucky to be paid in 30 days and it is more likely 60 – 90 days before an appraiser receives payment and sometimes they have to fight like hell to get paid at all.

“Loan officers I have dealt with are pushing for a closing in two weeks – the whole loan and appraisal process in two weeks. Sounds ideal, doesn’t it? Some loan officers have made a game of this. A thread of emails I received was the loan officer asking the processor, ‘How am I supposed to close this loan in two weeks like Joe Smith did at ABC Mortgage if the appraisal has all these conditions on them, see if you can get the appraiser to remove some of them’ or ‘How can I close this loan two close in two weeks if I don’t get the appraisal back until the 10th day.’ I can go on and on but we all have a tale of woe to tell.”

From Georgia came, “I recently graduated to the warehouse side of the industry, as well as graduate school, after spending 8 years working as an appraisal department manager with a couple of mid-sized lenders. I didn’t get my certification because appraisers are not allowed to be professionals, with every though criticized by someone who is less knowledgeable about professional appraisal practice and/or not geographically competent. Understanding the plight of an appraiser and the appraiser’s advocacy to market value (not lenders or underwriters), I was able to filter thousands of hours of review/revision requests and allow my panel to focus on completing assignments. Other appraisers are not so lucky. We can increase the efficiency of our remaining appraisers by eliminating the flurry of stips coming from the uninformed and reduce the level of information required in the reporting phase of the assignment. Reports are twice as long and no more informative, as the appraiser has to make sure they cover they backside against the lender/underwriter/investor’s army of ‘experts.’ Work smarter, not harder. Right?”

Switching gears to servicing costs, Patrick Nackley, SVP with Superior Home Services, writes, “In the February mortgagee letter, HUD mandates that servicers repair properties with insurable damages to the insurance adjuster’s scope of loss, a stricter requirement than many companies historically met when conveying HUD properties.

“Given this new mandate, mortgage servicers must think programmatically with regard to settling hazard claims, and the use of available claim funds to remediate the property.  The main issue is depreciation. The insurance company settling the loss depreciates the value of the claim because the items that need to be remediated and/or replaced have a decrease in value based on age, decay, or wear and tear. The insurer will withhold money from the settlement funds unless repairs are completed to the adjuster’s scope.

“Servicers can repair the property to the adjuster’s scope and claim the recoverable depreciation if they remediate within a period of time allotted by the insurance policy. This programmatic approach will limit if not offset the corporate contribution many servicers incur in property remediation. This is where the real challenge lies.

“When it comes to repairs of insurable damages on FHA properties, the servicer must have strong communication between the department filing and settling claims, the default group that is managing property condition and upkeep in the field, and the vendor executing the work on the ground.

“The challenge of meeting HUD’s new conveyance standard requires a strategy shift for servicers. Choosing a vendor who can provide higher insurance recoveries, faster repair timeframes, all while managing repairs to the adjuster’s scope of work, should be a top priority in that strategy.” Thanks Patrick!

(For Father’s Day tomorrow.)

I was reading an article last night about fathers and sons, and memories came flooding back of the time I took my son out for his first drink.

Off we went to our local bar, which is only two blocks from the house.

I got him a Guinness Stout.

He didn’t like it – so I drank it.

Then I got him an Old Style, but he didn’t like that either, so I drank it.

It was the same with the Coors and the Bud.

By the time we got down to the Irish whiskey, I could hardly push the stroller back home.

Rob

(Copyright 2016 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.)