June 29: DOC change in California; broker to banker rumblings; Citi weighs in on Texas changes

Yesterday companies in California received notice that, “On behalf of the Department of Corporations, I am writing to inform you of a significant change in the organization of the Department.  Effective July 1, 2013, the Department of Corporations (DOC) and the Department of Financial Institutions (DFI) will merge to form the Department of Business Oversight (Department). The reorganization is part of Governor Brown’s plan to increase the efficiency and cost effectiveness of state government.” Current DOC licenses will remain valid and those companies will not receive an amended license. The “Department of Business Oversight” name will be affixed to future licenses and renewals. The Department of Business Oversight should be referenced in all documents and disclosure as of July 1, 2013.  All correspondence and applications should be addressed to the Department of Business Oversight and may be sent to the existing Department physical addresses.  Current DOC staff telephone numbers will remain the same.” And starting Monday, “please visit our new website, www.dbo.ca.gov, where you will find information about the new Department, in addition to the same information you previously found on the DOC site.”


Lending is truly a legal matter, and I received this statement regarding a borrower’s loan approval during a lawsuit: “Rob, as to the lender’s post application declination of the loan, a lawsuit against the potential borrower may have a dramatic impact on that person(s) assets. For instance, there may a pre-judgment attachment of their assets; garnishment of wages/bank accounts, any or all of which will affect their ability to repay the prospective loan. A suit involving the title to the property which is security for the loan is an automatic stop for title purposes.” Thank you to attorney Terry Monnie for this note.


“Rob, which should I switch from being a broker to being a mortgage banker?” Brokers have been left scrambling after recent QM rulings by the CFPB. A lot is going to happen between now and January 2014. One opinion is that if nothing changed between now and then, most brokers will change business models. Brokers can flip to a correspondent, depending on licensing, but many states are predominantly broker. What happens to the state regulators if they lose that many companies? Folks wonder how they can make the 3% with all the other items included as compensation.


Still others view recent rules as not anti-broker but “anti-non-bank.” There does not seem to be much representation for wholesalers out there, and instead they are moving toward either adding branches or moving clients toward the mini-correspondent model. For example, some brokers switch to some type of correspondent model because they believe it gives them greater control over their pipeline. It is not a matter of filling out a few forms, however. You’ll have to obtain a warehouse line, set up different agreements with investors, be prepared for a different set of reps and warrants, and so on. But generally, for examples, on disclosures, there is no need to disclose YSP on a secondary market transaction. The timing of disclosures often speeds up appraisal ordering. You can choose to use your approved AMC, or the investors.


Loans can be closed in your own name, and you can draw closing documents. Some correspondent investors offer to prepare docs for the broker, and thus there is no need to hire a closer. True correspondents can fund the loan on your warehouse line, or with your own funds if you are a regulated bank or credit union. Other correspondent models offer loan underwriting, and will issue a “clear to close” alleviating the broker/new correspondent from having to hire an underwriter and possibly lower the risk of pre-purchase suspense due to credit/underwriting issues.


There has been a lot of talk about mini correspondent business channel. This note came from a long-time industry vet: “I have to ask the question aloud about mini-correspondent programs with a ‘guaranteed purchase’ feature offered by the takeout investor. When HUD covered RESPA, they were quite specific that originators must have specific liability on the warehouse line if the loan premium is not to be considered a referral fee and a violation of Section 8. CFPB covers RESPA now, but I am not aware of any new interpretations coming from them. Although the warehouse line might be offered by a separate institution, the shifting of liability from the originator to the takeout investor might leave all parties in some regulatory peril. Is the warehouse bank really lending to the takeout investor in this case? If so, might all of their lines to various originators be aggregated for determining legal lending limit?”


Andy W. Harris, the president of Vantage Mortgage, opined, “Rob, this is 2008/2009 all over again.  The recruiters (none of which are informed of the changes) are using these expected changes under the CFPB and QM to try to drag Mortgage Brokers out again and away from wholesale.  Enough is enough; the concerns are the same they were back then – unwarranted and a way to simply use ignorance to influence those not paying attention through FEAR.  We’re in a transactional world without residual or passive revenue as determined by loans created solely by originators.  As a result, any chance they get they will use tactics to pull more volume including fear and pressure. These tactics are bad for our industry and bad for the consumers we serve.  Brokers, stay put.  Why give up your entire business and randomly add a line(s) of credit?  Do you really think this means anything to you?  Do you really think this will change your abilities simply due to the recent ‘unchanged’ ruling from the CFPB regarding using broker lender-paid comp in the 3% cap?  It will not.”


Mr. Harris’ note goes on. “In addition, do you honestly believe that you will not also have some concerns for fair lending and steering once these lines are established?  Remember, we’re not done and the CFPB is not done – things are not settled.  If you have no special interests and the same fixed LPC or lender-paid comp margin on every file… how do you think they will view that in comparison to a company offering random net branches, all with different margins to different companies and originators using both the warehouse lines and brokering- all of which impacts the consumer differently.  Way too much risk, and there is no benefit and in my opinion only lost pricing with more overlays with less choices and forced steering to lines for additional concerns as an “employee” of the creditor.  Support competition and support small business.  Fight for what is right! I’m a proud Mortgage Broker working with some excellent banks and non-banks in wholesale that execute quickly and have excellent support staff.  I have the ability to compare all overlays, rates, and execution without special interests or warehouse line steering, but many also are direct seller-servicers offering a more “direct” way to the secondary market from the primary market.  I don’t, however, claim to be a “direct lender” or “banker” as many other non-depository originators do… even if I’m more “direct” than them as a Mortgage Broker.  Let’s stop with the nonsense in our industry and rely on facts so that we can all support each other and the consumers we serve and start thinking about the big picture rather than our bottom line and our own interests.  It’s an important time for our industry and the primary mortgage market.”


Mr. Harris also created a version of what mortgage lending might look like in the future, and it can be found at www.TheFutureofMortgageLending.com.


Let us catch up on some recent investor, vendor, and training news!


Yesterday Citi announced to correspondent clients, “As all Correspondents who originate Texas 50a(6) Home Equity Loans (“Texas Equity Loans”) are aware, on Friday, June 21, 2013, the Texas Supreme Court issued a ruling invalidating certain long-standing Finance Commission of Texas interpretations regarding the origination of Texas Equity Loans. Citi will not undertake a detailed analysis of the Supreme Court’s ruling here since each Correspondent is obligated to obtain its own legal counsel and undertake its own inquiry on compliance with the law. Although we understand that there may be differing views on the effective date of the Supreme Court’s ruling – some conservatively opining June 21 — this Bulletin is to advise you that Citi continues its reliance on each Correspondent’s legal/regulatory compliance representations and warranties on each loan that it submits to us for purchase, including Texas Equity Loans.  We trust that each Correspondent is taking appropriate action to ensure compliance.”


Citi’s announcement goes on, “Key Areas Impacted by the Court decision: The 3% fee cap associated with Texas Equity Loans – contrary to previous regulatory interpretations, the Court ruled that discount points must be included in the calculation of fees that cannot exceed 3% of the loan amount. The closing of Texas Equity Loans via Power of Attorney (POA) – although current Citi guidelines permit POAs on Texas Equity Loans in very rare circumstances due to strict constitutional requirements already in place, the Court’s ruling makes the POA requirements even more strict. Until further clarification is received from the Court regarding an effective date, at this time Citi will not purchase any Texas Equity Loans closed on or after June 21, 2013 on which the 3% cap is exceeded with the inclusion of bona fide discount points, or which closed with a power of attorney.  Although as stated above, each Correspondent is responsible for its legal/regulatory compliance representations and warranties immediately, we will provide Correspondent Manual updates and any necessary modifications to our guidelines and processes as soon as possible.”


PHH has updated its Declining Market Indicator tool to reflect current market conditions as of June 21stThis should be used for any loans that haven’t yet been registered to confirm that the property is not in a declining area.


Pinnacle Capital has updated its Conforming guidelines to allow financed mortgage insurance, subject to an additional pricing adjustment, and has removed second homes as an option for gift of equity.  Clarification has been added on non-borrowing spouses’ wages offsetting 2106 expenses and “waiting period seasoning” as it refers to LTV, CLTV, and HCLTV. Guidance has also been added on refinance transactions to buy out an owner’s interest.  For FHA products, Pinnacle has added guidance on gaps in employment, and for HomePath loans, lenders now have access to the logo determination requirements.  For Pinnacle Choice and Pinnacle Plus, guidance has been clarified to exclude schedule F income from being used to qualify the borrower.


Effective immediately, MSI is requiring a minimum FICO score of 720 for all Conforming High Balance LPMI loans.


MSI has revised its guidelines on acceptable funds such that Gifts of Equity can only be applied after the borrower has made the minimum down payment from their personal funds and the payment has been verified.  Meanwhile, in order for alimony or child support to be used as income, MSI has clarified that it must be received for at least six months before the date on the loan application and be legally bound to continue for a minimum of three years after closing.

As of August 19th, MSI will no longer purchase or fund 5/1 ARM transactions with 5/2/5 cap structures; instead, all such loans will require caps of 2/2/5.


Stearns Wholesale has updated the LLPAs for its FHA and FHA Streamline products, reducing the adjuster for FICO scores between 680-719 from .500 to .250 and 640-679 from 1.50 to .500.

June 25th marks the deadline by which lenders must submit any lender-paid LO compensation changes to Kinecta for Q3.  This can be done using the Lender-Paid LO Comp Plan Certification form, available at http://email.kinecta.org/em/?s=1&a=4608D1800AE8499D9A3C52AAB165CC7C&b=145690.


As part of its initiative to expand its quality control audit and mortgage fulfillment capabilities, the captive reinsurance branch of consulting firm zingenuity (zInsureRe) has acquired Vermont-based Irwin Reinsurance Corporation.  The transaction was announced late last week.


Law firm Offit Kurman will be offering a webinar on “What Every Loan Officer Should Know About Compliance” on July 10th.  Presented by senior litigator Ari Karen, the training is designed to help lenders target both potential and existing weaknesses that could lead to compliance risk and legal costs.  The hour-long webinar will cover a wide range of topics, including recent changes in LO comp rules, RESPA illegal kickbacks, new fair lending documentation requirements, advertising limits and liabilities, methods for testing policies and procedures, and loan officers’ personal liability.  To register or find out more, go to https://www2.gotomeeting.com/register/129433834; details are also available via the Mortgage Bankers of the Carolinas website.



A guy goes to the doctor. After a myriad of day long tests the doctor comes back to him and says, “Well, I’ve got good news and bad news.”

Patient: “Okay, what’s the good news?”

Doctor: “You have 24 hours to live.”

Patient: “Oh my God. So what’s the bad news?”

Doctor: “I should have told you yesterday.”


(I know – oldest joke in the book.)



Rob Copyright 2013 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