June 27: Letters from readers on the APR, CDOs, phone system uniformity, the importance of QC, and the broker model

Summer vacations are upon us, but that hasn’t stopped the communication. Two days left in June – and once again fundings are doing well! But aren’t margins and maintaining customer service just as important, if not more?


Hank A. writes, “My Dad’s explanation of Men was that there are 3 kinds: those that watch things happen, those that make things happen, and those that wonder, ‘What happened?’!” Speaking of which, and I have not checked the validity of this, one of the presidential candidates supposedly has embraced the term “revenue enhancements” instead of “tax hikes” – just like “stealing” has become “inappropriately diverting.” If you have nine minutes to spare or even a couple, this George Carlin routine really sums up how words have lost their impact in the name of political correctness.


I received this note from a CEO from a lender on the East Coast. “Rob, we’ve been adding branches and originators over the last several months, and it seems that everyone has a different phone system. My IT gal says that there are major issues with that. Is that what you’ve heard?” In a nutshell, yes. Some lenders (especially banks) where LOs are placing outgoing calls – and you’d better hope they are placing outgoing calls! – now want to record every call, or at least a sampling. Certainly servicers do. Some older phone systems don’t do that, and different states may have different consent laws. Sometimes phone systems are grandfathered in, maintenance efforts, or have long remaining periods on their contracts. There are some old phone systems out there of varying degrees of effectiveness. Regardless, if you’re involved in some class-action lawsuit and are in a “he said, she said” situation, having an effective and easy-to-research-calls system will be critical. And some companies are attempting to make them uniform across branches. But…they all seem expensive – and those costs are passed on to the borrowers.


“Rob, I understand that some in the industry are worried about things like ‘swaps’ and ‘collateralized debt obligations’ – CDOs. What are folks saying?” Well, there are two sides of every story. Just like interest only loans didn’t cause the financial meltdown, nor did pay option ARMs, I don’t think that credit default swaps were solely to blame. But plenty believe otherwise, and with good reason. There is virtually no regulation, and no one knows how many policies have been issued or how many are outstanding. Everything else seems to be regulated up the…”wazzoo.” Studies have been done, but may also be missing issues. For example, for any security institutions are going to cover to the opposite direction (hedge), just in case they are wrong. That will not necessarily entice bad underwriting, but with these instruments the company buying the swap was actually insuring its own asset! And things can become complicated with options on swaps, and swaps on swaps… and asking Congress to regulate that, well, forget it.


Last week’s Saturday edition included a discussion of APR. A seasoned originator from Nevada wrote, “APR is worthless. No one understands what it represents. It can be manipulated to be whatever you want. Is it legal? No. Is it done? Yes. Just using an APR does not give the consumer a true picture. At times, a lower APR is NOT worth the investment. You have to compare out of pocket cost and P& I payments.  Lower payment, versus out of pocket cost to obtain. It is correct that the statement disclosures are to protect the lender. The government feels they must create forms for the industry, because the industry does not create forms that benefit the consumer. The government is right on that account. The industry is more interested in not saying too much, and protecting itself, rather than truly informing the consumer.  It has always been this way. No bank wants the consumer to know how much money they make on a loan. They know the consumer would have a fit.


“Not to single them out, but take a look at the Wells Fargo anti-steering form. The purpose of anti-steering was to give the consumer basic info to make an informed decision. The Wells form does nothing, except there is a required form and it is signed. The issue is communication.  Most people need to communicate verbally to understand complicated issues. Can you imagine getting a disclosure statement from your doctor, rather than a verbal discussion of the surgery required?


“The APR actually hides the REAL truth of a loan. Instead, LOs should give people a list of actual cost and show how they will pay for it. There is ALWAYS cost. How do you pay for it, is the issue, and where choice comes into play. Instead of the rigmarole of TRID the simple worksheet line item list of cost is the best.  Attach a page with definition of what listed items are.”


Hank Davis of Metasource contributes, “Hey Rob, as the importance of QC/Compliance in the mortgage business has evolved we are getting a lot of requests from companies to ‘outsource’ compliance and QC. I think what most of these clients are saying is that they need someone to come in and tell them what to do as it relates to both subjects. This end of our space keeps evolving as it’s all still so new (5 years or so running) and so we keep seeing evolvements of practice as time goes by. A few years ago clients were just getting the audits done, trending then became required by FNMA and a practice of how the process should work evolved to those selling to FNMA in particular. Now people know they need to be doing more but just aren’t sure what as they see CFPB fines and thus the worry of not being compliant – which is exactly why I am fielding questions about setting up a process, and how we give them updates during the month to help our clients keep up on changes. I let them know they can’t outsource the accountability and responsibility of these functions!”


And folks continue to weigh in on the issues facing brokers, not the least of which is the broker model itself.


“Rob I enjoy the back and forth about wholesale but perhaps the writer who states we as brokers can have up to 20 investors may not be aware that most require a certain volume level and will shut you off if this is not accomplished. As we all know most broker shops are not closing 5-10-15 million a month so spreading the wealth around is quite difficult. I wonder what his firm’s position is on required volumes from their brokers.”


Another writes, “There are some great wholesalers out there, but there are a lot that really don’t care like they should. They refuse to hire more people to help with the influx of loans so that turn times get to be very long (I also understand that they don’t want to lay off staff either, once they train them and spend all the time and money on them). And, the attitude seems to be, deal with it or go somewhere else since they have plenty of business at that point. Depending on the volume a company does with a wholesaler can have a big impact on how quickly things go, or are resolved. But when you have an issue on a loan and can’t get any information for a couple of days, or even a clear understanding of what the underwriter wants (it’s not easy to get hold of the U/W since they are protected so they can U/W more files), and you submit conditions hoping it’s what they want, then you wait a few days and get something else added, or asked for (when a quick 2 minute phone call would answer the questions so the correct info could be submitted). I like being a direct lender at this point because I can call my U/W (or walk around the corner and talk to him) and get answers very quickly, as well as needed clarifications.”


Josh Erskine, the CEO of OneTrust Home Loans writes, “I personally do see a place in the market for Brokers as well as Direct Mortgage Lenders, Depository Banks, Credit Unions, etc…  I am a firm believer that as long as all these companies follow all legal requirements without pushing the envelope as it relates to compliance with comp plans, Fair Credit associated to how MLOs quote rates / control rates to Consumers, as well as any other areas that companies may be looking to “gain an edge” or “uneven the playing field,” then there is a place in the market for them.


“My issue with Brokers is nothing more than they must also follow the same rules that direct lenders have to follow as it relates to how their MLOs control/quote rates.  In addition, I have an issue with any MLOs able to determine the amount they make on a loan depending on what Wholesaler they choose to work with.  One consistency that we have seen when having the many conversations we have had with Brokers about transitioning from their independent brokerages to branches within our company, is that nearly 100% of the brokers we had discussions with had many different comp plans setup with different Wholesale Lenders for the same product type.  This ultimately allowed them to adjust rates offered to consumers based on what competitors were offering by lowering what they were making on the loans.  We ultimately stopped targeting Brokers and their teams to become retail branches of our company because it was very clear that we had very different understandings and interpretations on compliance related to Dodd Frank, Fair Credit, etc…  This was with both the Broker themselves as well as the MLO working there.   This is very likely to not be all brokers, but the sample size of people we spoke to was large enough to believe this more than a small percentage.


“To clarify, Wholesale Lender A, B, and C all offer 30 yr. fixed FHA Loans.  The Broker closes 30 yr. Fixed FHA loans with Wholesale Lenders A, B, and C.  The Broker, who in most cases we have seen is also performing the services of an MLO on many loans, has broker agreements in place with Wholesaler A at 100 BPS Lender Paid comp, Wholesaler B at 200 BPS Lender Paid comp, and Wholesale C at 300 BPS Lender Paid comp.  If the Broker and MLO have the ability to choose a rate to quote based on how much they want to make, I have an issue with this, because our MLOs who may be quoting against them do not.  We also saw that most comp plans with MLOs at brokerages were based on percentages of revenues, so not only did the Broker when they were also acting as an MLO get to directly control the income they made on that loan depending on rate offered, but the MLOs who worked for the Brokers all had comp plans that adjusted based on the multiple comp plans with the different wholesale lenders in some way.


“If this is allowed in any way for the MLO of record to control what rates get offered to consumers based and adjusting this depending on how much they make on that loan, then I personally do not understand many of the regulations, both new and old, that we are all required to abide by daily.  So, if the percentage of Brokers we saw doing this stands true across the country, then I do not see a place for them purely on a basis of them not following the rules.  I also believe Wholesalers should be required to collect and review the comp plans of other Wholesalers the Broker is working with to detect the above.  This is easily controlled/regulated.  To make the point initially stated again, I do see a place for Brokers in the market, however, we have seen little to no regulation of these comp plans being offered and selected across multiple wholesalers to ensure this is not occurring.  If the argument is that this is not the Wholesalers job to do this, then the CFPB needs to begin to audit these companies as well.  It is not difficult to uncover this.  There is a place for everyone in the market who follows the rules.  Things are not always black and white, but those areas that are need to be followed.”



A very shy guy goes into a bar and sees a beautiful woman sitting at the other end. After an hour of gathering up his courage he finally goes over to her and asks, tentatively, “Um, would you mind if I chatted with you for a while?”

To which she responds by yelling, at the top of her lungs, “No, I won’t sleep with you tonight!”

By now, the entire bar is staring at them. Naturally, the guy is hopelessly and completely embarrassed and he slinks back to his table.

After a few minutes, the woman walks over to him and apologizes. She smiles at him and says, “I’m sorry if I embarrassed you. You see, I’m a graduate student in psychology and I’m studying how people respond to embarrassing situations.”

To which he responds, at the top of his lungs, “What do you mean $200!”





(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