The chatter this week focused on W.J. Bradley, and what could have driven the company out of business while many other lenders had profitable, satisfying 2015’s. I received a number of e-mails, from recent employees and others, most often mentioning Chase buybacks, legacy issues, and delegated fundings tying up warehouse lines. I think perhaps TRID might’ve been the icing on the cake, but that alone cannot be blamed for the failure here. WJ Bradley had just as much time to prepare for TRID as other companies that continue to thrive.
For others attorney Brian Levy penned a note of caution. “Most investors are still clinging to the same life of loan, unlimited risk repurchase language in their sale agreements. This is true despite the vastly reduced upstream risk created by the new Fannie Freddie rep and warrant framework. If originators learned anything from the awful buyback experiences of the post meltdown period, it should be that they need to protect themselves from repurchase risk. The investors who are taking actions to address these risks should be applauded.”
And I received this from another well-known mortgage attorney regarding W.J. Bradley’s sign-off statement. “Rob – this was a false and misleading statement: ‘This means that you must continue to comply with your obligations to the Company and its customers in the same manner and to the same extent as if the wind down was not occurring. Your NMLS record will continue to reflect the Company as your employer until changed by you. If our borrower’s request that their loan application be transferred another lender, you must obtain the borrower’s prior written authorization to do so.’ Any licensed originator may terminate their relationship with a lender by going onto the NMLS platform and removing their association with the lender. That company has effectively terminated these employees, and they no longer owe a duty to that company related to any of its applicants. Further, any consumer can simply put a new application in with another lender or broker. They have no duty to WJB. In fact, there is no such thing as ‘transferring an application.’ New creditor = new application. Period. I’m not sure why WJB is bullying its former staff and customers, but those actions may put the officers of that company into hot water.
“And let’s not forget about privacy issues. There are no duties to WJB, but there are still privacy duties to consumers both with respect to what’s left of WJB and its former employees. It may be semantics, but WJB probably should have been more explicit about that concern rather than saying something that sounded like they were making it difficult to take the customer to a new lender.”
This from an LO in California. “There has been a lot of speculation as to why WJ Bradley closed. My teammates have been told that it appears that they have unsaleable non-agency loans because of TRID issues. This resulted in the loss of their warehouse lines. This is a sad example of what can happen if companies do not follow the TRID regulations exactly.”
Appraisers and other counterparties are left wondering whether or not they will be paid. One person wrote, “They seemed not able to adapt to a changing retail lending environment which included needing to become more competitive, getting on top of all things technological to bring more benefit to their retail reps, and finding ways to attract good reps. and provide top training in a different lending environment.”
I received this letter from a CEO of a residential lender in the Northeast. “Rob, I read with great interest Kate Berry’s quotes from Richard Cordray regarding the CFPB governing the entire residential lending industry via enforcement actions. I couldn’t believe what he way saying and what I was reading. Perhaps Mr. Cordray should read up on constitutional law about how laws are created, rules written and enforced, and violators prosecuted.
“For him to say, ‘The alternative (to using enforcement actions) is just a random series of actions that takes a few wild swipes at the bad actors without systematically cleaning up the practices that harm consumers’ I find wildly unfair. He is actually using enforcement actions randomly and taking a few wild swipes at actors he deems as ‘bad’ without systemically publishing clear rules that would go far to clean up practices that harm consumers.
“Perhaps Mr. Cordray should look to other regulatory bodies for guidance. How would the prescription drug business perform without specific rules from the FDA governing medicine, and instead merely waited for the next penalty against a drug company? Or how about the food industry being guided by enforcement actions, rather than exacting nutritional guidelines and rules regarding safe hygiene and food handling that we have now? How about auto & highway safety? As I heard you say in a recent speech, what if there were no speed limit signs on the road, and motorists had to rely on what each individual enforcement agency deems to be a ‘safe speed,’ but only finding out what the speed limit is after they receive a citation?
“Ms. Berry’s American Banker article noted that, ‘He added it would be impossible and time-consuming to develop specific rules to root out every fraud while also protecting consumers.’ How about the impossible and time-consuming burden placed on every residential lender to both interpret and attempt to conform to unwritten rules and a byzantine layering of regulations via state, federal, and regulatory bodies?
“Cordray mentions the ‘evenhanded oversight and enforcement of the law. If that was truly the case, wouldn’t HUD and the CFPB have had the same interpretation in the PHH case? Unfortunately for PHH, senior management didn’t have ESP about how Cordray’s staff interpreted the regulations – they followed HUD’s guidelines. And for their trouble PHH’s management saw Mr. Cordray overrule a judge and attempt to shift the company’s fine from $6 million to over $100 million.
“And lastly he states that the CFPB’s “rules merely imposed the kind of common-sense requirements that lie at the heart of all responsible lending.” I beg to differ. Every day my underwriters and loan officers show me loans that cannot be made due to arbitrary lines drawn in the sand regarding debt-to-income ratios, loan type, and so on, or loans that must be extended at a cost to the borrower due to TRID requirements. I suggest that Mr. Cordray listen to the industry.
“Right now the residential lending industry is a dog that continues to be beaten after the bad behavior has stopped and doesn’t know why.”
Moving on, I have received questions recently about conforming loan amounts. “Why haven’t Fannie & Freddie raised the conforming loan limit to something higher than $417,000? We really need it here where I live and work.” The rally just now making up for the drop in the median price of a home from 2008 through a few years ago. But the question is better directed to the FHFA, conservator of F&F. Conforming loan amount changes typically happen around Thanksgiving, and conventional conforming loan limits are set using a formula proscribed by the Housing and Economic Recovery Act of 2008. As you know, under that formula loan limits are based on annual 3Q-to-3Q changes in the Home Price Index HERA required FHFA to establish. So the FHFA sets the loan limits, and in its release of the 2016 levels they reference the home values element.
“In determining 2016 maximum loan limits FHFA did not change the baseline maximum conforming loan limit of $417,000 because, according to the expanded-data HPI, national average home prices in the third quarter of 2015 remained approximately 3.7 percent below price levels in the third quarter of 2007.3 After a period of declining home prices, HERA requires that prior price declines be fully offset before a loan limit increase can occur. During the recent financial crisis, the average U.S. home price declined substantially and, despite recent price increases (the expanded-data index grew roughly 5.8 percent over the last four quarters), 4 a small deficit remains.”
And loan limits in high cost areas are also covered under HERA. “HERA provisions set loan limits as a function of local-area median home values. Where 115 percent of the local median home value exceeds the baseline loan limit, the local loan limit is set at 115 percent of the median home value. The local limit cannot, however, be more than 50 percent above the baseline limit.”
There’s a lot going on the in the appraisal business, ranging from the reasons for the lack of new appraisers all the way through the cost and process of appraisals. I opened my e-mail to find this well-thought out note from Eli Pascon, Chief Appraiser for ValueQuest AMC. “Dear Rob, regarding your commentary on iMortgage Services being fined, ValueQuest AMC (VQ) would like to take a moment to express our position on Customary & Reasonable (C&R) fees amongst other components of the appraisal management process.
“Prior to determining an appropriate C&R fee, VQ conducted its own independent fee study through multiple steps. There are many ways to accomplish compliance with the regulatory standards. Our approach involved sending a survey to our entire panel of appraisers spanning about 15 states. This way, we can stay connected to the local appraiser groups and the market, giving us a keen sense of long-term trends in pricing and service. Our goal was a true comparison of where we were with our competition, which included banks, credit unions, lending institutions and naturally, other AMCs. Lastly, we consulted the VA national fee schedule and fee studies conducted in Louisiana and Kentucky. What we found is that our fees were competitive, taking into account both appraiser and customer. While there is still no bright line on the cost of certain products, I was shocked to see a full 1004MC FHA appraisal for $200. Our new fee schedule ranges from $330 to $450 for a conventional 1004MC and $385 to $525 for a FHA 1004MC, in the states we currently operate in.
“With the inception of TRID and many lenders revisiting their policies around fees and Changes of Circumstance (COCs), ValueQuest AMC responded proactively by raising the base fee paid to appraisers, knowing that this would address the potential for increases and/or rejection rates for slightly atypical properties. We also developed an additional disclosure sheet with “a la carte” fees, in which the lender must disclose upfront any special or unusual circumstances that could complicate the order. This is helpful for preventing callbacks by the appraiser for a higher fee, since they would know ahead of time what they are dealing with. Some of these special circumstances include homes with additional dwelling units, waterfront or horse properties and log homes.
“ValueQuest AMC does not broadcast orders; they are individually assigned. We never shop for the lowest appraisal fee. Our orders are assigned at our published fees and are never up for bid. The appraiser has up to 24 hours to research the assignment and give us a response, before the order is reassigned to a different appraiser. A due date is set for a minimum of 7 calendar days out and can be extended depending on the circumstances.
By addressing these concerns before the lenders even have to worry about them, AMCs can move the conversation beyond C&R fees into the full scope of items our industry can handle on behalf of our lenders. We pride ourselves on the service we provide to each client and commitment to a mutually beneficial relationship with our appraisers.” Thanks Eli!
And Greg Bernstein with Value Trend Solutions noted, “To echo the sentiments of many in the appraisal industry, the barriers of entry for the appraisal business are too high. Requirements to obtain an appraisal license have gotten out of hand, and though regulatory agencies are starting to take steps to ease the process, there is a massive problem that no one seems to be discussing. The truth is that most lenders will not accept appraisals where significant work was completed by a trainee. Most won’t even accept work from licensed appraisers (instead requiring a Certified Residential designation to complete appraisals). This creates an industry where there is almost no incentive for current appraisers to train new blood. Further, an individual considering a career in appraising has to face the possibility of 2-3 years of trainee work with little or no compensation before finally being able to complete appraisals for the majority of lenders.
“So what’s the solution? First, regulatory agencies should continue to strategically ease the licensing process for new appraisers. Equally important, lenders need to work with their AMC partners to allow trainees to assist with the development of appraisal reports (under careful supervision, of course). As a lending industry, we must create an attractive environment for new potential appraisers. Otherwise, a decreasing supply of appraisers will lead to higher fees and longer turn times which affect everyone negatively.”
How to put on a bra – a short video for Jane Bond fans. (Rated PG.)
(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.)