Mar. 14: Notes on handling capacity, TRID violations, FHA & FHFA on coronavirus; state lending law changes coast to coast

The production and operations staffs of every lender across the nation are “going bonkers.” Responsible senior managers and owners are doing things they never thought they’d have to do like raising margins to limit volume, and asking personnel to “play nice” with each other. Of course it is not in a loan officer’s DNA to limit volume. This is a typical note I received recently. “____ is essentially at capacity. We have loan officers climbing the walls to get every last deal. It kind of brings out the worst in both lender and client. I’m taking those who call me and set up a time to discuss. Those who call for rates are 99.999% a waste of time, although you have plenty of LOs willing to take a shot. I prefer to keep my sanity. While I don’t like the rate shoppers, I understand it! Everybody wants a good deal. I would have never become a lender if this were the environment, but it’s fascinating to watch.”

Some borrowers shop for rates? Who knew!? This week my commentary mentioned loan officers possibly picking and choosing borrowers based on loan difficulty. I heard from attorney David Stein with Ohio’s Bricker & Eckler on the topic. “Rob, I noted the statement in today’s post: ‘…pushing off difficult loans or borrowers that are shopping rates…’ Lenders and loan officers should be very careful. Originators are obligated to make credit available to those who are interested, without regard to a variety of classifications. If access to credit is to be curtailed, lenders need to plan for important fair lending considerations. Access to credit is one of the key issues that are field tested by HUD and the CFPB, through matched pair testing (secret shoppers). Once you turn one person away, you will be expected to treat everyone the same. So, if a lender is to turn away potential borrowers, they are advised to approach all credit inquiries with a clear set of objective criteria.” Thank you, David!

Coronavirus consequences

This commentary has discussed the virus’ effect on rates. Certainly non-critical travel has vanished. What about processing? The question has been sent to me by a few people concerning verbal verifications of employment. “Rob, what do you hear about how everyone is handling VVOEs with employers/schools/etc. being closed due to the Coronavirus? (VVOE=Verbal verification of employment that must be completed no greater than 10 days prior to closing.)”

This is an uneducated guess, but I’ve heard that FHA has no special underwriting provisions for re-verifications of employment. Has anyone heard about Freddie and Fannie? VA? The non-QM or jumbo lenders?

With the influx of volume, lenders, big and small, need to remember compliance is the name of the game. It is important that the industry is aware of some lenders pushing boundaries, but also that wholesale lenders finally be put on notice they are responsible for the TRID clock form the day the broker is aware of the 6 elements.

For example, I received this note. “I was just contacted by a broker in the Northeast who is dealing with a fairly sizeable wholesale lender. The lender failed to issue the TRID early disclosures in a timely manner. The lender instructed the broker to simply send a new 1003 with today’s date. Then the lender will treat the item as timely.

“In effect this lender is telling its broker to commit fraud. To intentionally submit a document it knows to be false to overcome a timing violation issue is a huge problem. This forces the broker to but does not alleviate the timing problem/violation.

“I have been aware almost since the TRID rule was implemented that more than a few lenders disregard the TRID requirement to start the ‘clock’ at the broker shop when the 6 elements are known to the broker. They seem to want to start the clock upon submission regardless of the transaction’s history before it reached them. The rule (See below) requires lenders to ensure the disclosures are issued within 3 days of awareness of the 6 elements, not just when the loan is submitted to the lender.

“But now, if lenders under the duress of volume or for whatever reason, are instructing brokers to create documents to mask the real timing, it seems someone should say something. At least remind brokers that they have the responsibility to issue the early disclosures once the 6 elements are present whether they have found a lender or not and remind lenders that the TRID rule requires them to police the timing regardless of source. They simply can’t just wait to start the clock.

“It seems that with the apparent glut of volume today lenders are experiencing operational challenges to get new deals timely processed. If that is the case, and this is a solution we may be in for some interesting pushback from regulators.” Thank you for the note!

National Mortgage News reports that the Conference of State Bank Supervisors created a centralized link to state websites highlighting information relevant to business continuity plans for licensed mortgage loan officers.

As in-person events, conferences, and training are cancelled nationwide, the Mortgage Bankers Association has launched a new webpage to provide a single source of industry information related to the challenges the industry is facing on the Coronavirus COVID-19.

Homeowners who are facing a temporary hardship due to the coronavirus and heightened safety measures such as businesses shutting down have options to postpone mortgage payments, according to the FHA (Federal Housing Finance Agency). FHFA director Mark Calabria advised mortgage servicers this week to offer forbearance options to those who might be in jeopardy of falling behind on mortgage payments.

Loan officers know that we don’t operate in a vacuum. The striking pace of hiring to start the year will be hard to maintain amid efforts to contain COVID-19. Services are at greater risk than recent periods of slowing growth and threaten the broader health of the labor market. What else is going on in real estate, and companies that are reliant on services?

When was the last time you went to a movie theater? The stock of AMC theaters has declined drastically in the last few years, which has erased more than $3 billion in market cap since 2017. Unfortunately the troubles of the company have only worsened in recent weeks as more news related to COVID-19 pour in. Since the end of January, the firm’s share price has dropped by another 58% and traded at about $2.70 this week.

What if you were a commercial lender on a building with a theater as your largest tenant? Cineworld (the second largest cinema chain in the world) warned investors that the firm’s ongoing viability could be threatened by the revenue losses associated with widespread closures. But it’s not just closures that Cineworld has to worry about. Delays in film releases could also significantly impact the firm’s bottom line. For example, the premiere of the new James Bond movie has been postponed to November due to the pandemic. The firm has warned that this will likely reduce expected foot traffic.

SeaWorld Entertainment operates the SeaWorld and Busch Gardens parks, which have more than 20 million annual visitors. Given the potential for increased public health protocols and other restrictions, travel to SeaWorld and similar destinations will likely be impacted. Indeed, equity markets hold a pessimistic view: share prices fell from $35 at the end of January to the low-$10s this week.

Cedar Fair Entertainment operates 15 amusement parks across the US and Canada, including Kings Dominion and Knott’s Berry Farm. In the past few weeks, the company has stated that it is implementing increased cleaning and disinfecting measures at its facilities. But its stock is down considerably.

Six Flags has been ailing for a while. Since early-February, the company’s stock has dropped by more than half. In step with the decline in share prices, the firm’s $800 million Six Flags Theme Parks – Tranche B Term Loans has also been marked at a lower price. All but one trade in 2020 were ‘sell’ trades going at right around par. However, the credit was marked as low as $93 earlier this week.

Litigation, regulation, and state law changes

Thank you to attorney Phil Stein, Practice Group Leader, Litigation, for Florida’s Bilzin Sumberg Baena Price & Axelrod LLP, who sent along this update on residential MBS litigation relating to loans sold prior to 2008.

Let’s play some catch up on what states around the nation have been doing. After all, for multi-state lenders, compliance can become expensive keeping up with what everyone is doing out there.

CSBS announced 2020 legislative priorities for state regulators. John W. Ryan, president and CEO of Conference of State Bank Supervisors (CSBS), recently announced the legislative priorities for state regulators for 2020.

Tim Knopp, Deputy Secretary, Pennsylvania Department of Banking and Securities/Non-Depository, has stated the following in permitting licensees to work from alternate locations: “The Department of Banking and Securities will not take exception to licensees and registrants working from alternate site locations, whether licensed or not, only while the Commonwealth of Pennsylvania is under a Proclamation of Disaster Emergency.”

Did you know that Massachusetts amended provisions relating to mortgage loan originator licensing? Yes, the Massachusetts Division of Banks amended the regulations governing the procedures and requirements for the licensing and supervision of mortgage loan originators, which went into effect on January 10, 2020.

WBK reports that Ohio announced a loan prepayment penalty adjustment for 2020. The Ohio Department of Commerce recently announced its annual loan prepayment penalty adjustment, effective January 1, 2020.

And WBK sent out a note saying that Arizona, Idaho, Nevada, Oklahoma, and Utah amended electronic notarization regulations. Since 2018, several states have enacted regulations to allow for electronic notarizations.

New Jersey adjusted its definition of a High-Cost Home Loan for 2020. The definition of a high-cost home loan has been adjusted for 2020 by the New Jersey Department of Banking and Insurance (the Department) pursuant to the New Jersey Home Ownership Security Act of 2002 (the Act).

Three thousand miles away, the Oregon Rights of Redemption Provision became effective. Effective January 1, 2020, Oregon implemented new notice requirements regarding rights of redemption after a foreclosure complaint has been filed.

NMLS Releases 2019 Q3 Mortgage Industry Report Update covering the 2019 Q3 period detailing data concerning companies, branches, and mortgage loan originators licensed or registered through NMLS to conduct mortgage activities.

In the home of Ben & Jerry’s, Vermont created a new combination license available to certain licensees. The Vermont Department of Financial Regulation created a new type of license—a Combination License—which combines the lender license, mortgage broker license, loan solicitation license, and loan servicer license in the state.

The New York Department of Financial Services (NYDFS) recently announced a new Consumer Protection Task Force within the NYDFS.

Balmy Alaska amended rules implementing its Secure and Fair Enforcement for Mortgage Licensing Act. The Alaska Department of Commerce, Community, and Economic Development (Department) recently amended its rules implementing the Act.

An Irish farmer named Seamus had a car accident. In court, the lorry company’s hot-shot solicitor was questioning Seamus.

“Didn’t you say to the police at the scene of the accident, ‘I’m fine?'” asked the solicitor.

Seamus responded, “Well, I’ll tell you what happened. I had just loaded my favorite cow, Bessie, into the…”

“I didn’t ask for any details,” the solicitor interrupted. “Just answer the question. Did you not say, at the scene of the accident, ‘I’m fine!’?”

Seamus said, “Well, I had just got Bessie into the trailer and I was driving down the road…”

The solicitor interrupted again and said, “Your Honor, I am trying to establish the fact that, at the scene of the accident, this man told the police on the scene that he was fine. Now several weeks after the accident, he is trying to sue my client. I believe he is a fraud. Please tell him to simply answer the question.”

By this time, the judge was fairly interested in Seamus’s answer and said to the solicitor, “I’d like to hear what he has to say about his cow Bessie.”

Seamus thanked the judge and proceeded. “Well as I was saying, I had just loaded Bessie, my favorite cow, into the trailer and was driving her down the road when this huge lorry and trailer came through a stop sign and hit my trailer right in the side. I was thrown into one ditch and Bessie was thrown into the other. I was hurt, very bad like, and didn’t want to move. However, I could hear old Bessie moaning and groaning. I knew she was in terrible pain just by her groans.

“Shortly after the accident, a policeman on a motorbike turned up. He could hear Bessie moaning and groaning so he went over to her. After he looked at her, and saw her condition, he took out his gun and shot her between the eyes.

“Then the policeman came across the road, gun still in hand, looked at me, and said, ‘How are you feeling?’

“Now what the heck would you have said?”

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Rob Chrisman