March 1: Notes on overcapacity, borrower & lender paid comp, CFPB & Realtors, builders requesting pre-approvals
Yup, LO test taking and the NMLS are on LO’s minds. Here’s a handy-dandy map from the MBA (http://mortgagebankers.org/files/USTMap,Asof1-13-14.pdf) to see if your status of your state with regard to licensing.
MLO ranks, and entire organizations, are thinned out through natural attrition or forced actions. Banking veteran Joe Garrett writes, “Every day, excess capacity is being wrung out of the system, and every day will bring us closer to a balance of supply and demand in the mortgage industry. It can be a rational decision to get out of the mortgage business, but as we’ve said before, the really big wealth we’ve seen made in this industry is with those people who’ve managed to ride out the cycles and have their companies in a position to clean up when things finally improve.”
Compensation is still on the minds of many, and Steve Emory writes, “Rob, LO comp comments recently about ‘everyone else’s pay plan is wrong’ and ‘the CFPB thinking non-QM loans will be readily available’ are great examples of why Dodd-Frank is such a mess. The accelerating credit tightening the last few years is proving it. Many LO comp commenters want to read only one section of law or a Rule to justify their opinion of why some lenders are illegally offering ‘pick a plans’, varying comps based on lead source, % of loan amount and more, when each of those is specifically allowed in Dodd-Frank & Federal commentary. ECOA is used to justify flat $ fee commission and more though there are not any precedents for this. All I can think is that they want to interpret broad principals in spirit and ignore specific allowances in law to try and retain or hire LOs at lower pay. I wonder how many of them have read all of Dodd-Frank, Federal Reserve commentary & CFPB Rules (including all commentary), so know the entire evolution of the LO comp process with history before they comment?”
Steve’s note continued. “I am hoping the CFPB is just naïve thinking non-QM loans will be everywhere. CFPB has to know that legislators with consumer groups purposely write legislation to stop practices they don’t want not by forbidding the practice, but rather in making the liability of continuing the unwanted practice too risky from a lawsuit/fine/etc. perspective for the industry to continue it. This way the legislators can say of course X business can continue doing Y; it is just that we make them do it more responsibly and allow consumers to sue them much easier when they don’t. The business is the ‘bad guy’ when the business stops the practice this way. I think we have a year or more to go for the real consequences of Dodd-Frank to play out. Rough ride for consumers, mortgage lenders, and loan officers until the dust settles. I’m pretty sure no one knows exactly how the LO comp issue or non-QM loan availability will play out two years from now – not even the CFPB. I know I don’t and I have read it all.”
“Rob, some of our wholesale lenders are allowing ‘borrower paid’ compensation to be less than ‘lender paid’ compensation while some other lenders are saying that borrower paid compensation cannot be less than lender paid, which effectively eliminates the borrower paid option and the ability for the borrower to negotiate. What do you know about the CFPB’s take on this? For example, is it ok to make 2% on a lender paid VA loan and then make 1.5% on a borrower paid conventional loan?” In response to this, Medlin & Hargrave’s Brad Hargrave (firstname.lastname@example.org) writes, “This is one of those issues where the position taken by the lender is not based on any particular provision of TILA or Reg. Z, but rather on a risk assessment involving Fair Lending compliance, as well as general liability concerns associated with the acceptance of third party originations (particularly in light of the vendor management responsibilities now imposed by the CFPB). This suggests, of course, that there is no language in the Loan Originator Compensation Rule which mandates that borrower-paid compensation must be paid at a level equal to, or below, that of creditor-paid compensation. For what it’s worth, I think it’s fair for a mortgage broker (or a mortgage banker who engages in limited mortgage brokering) to ask the lender directly for the legal authority, and/or for the lender’s rationale, behind such a policy, as this may be an issue that is subject to some measure of negotiation. My hunch, however, is that in most instances, the lender will have arrived at this decision after a good deal of consultation with its counsel and compliance staff, and thus that it may be disinclined to alter its policies with respect to this issue. But there’s certainly no harm in trying.”
With the slide down in rates due to the U.S. economy continuing to muddle along, and the trouble overseas, recent mortgage paying off and the resulting penalties is still an issue. “I hear often from our AEs, that a client contends ‘Joe’s Wholesale and Nails’ is not charging any EPO. My response? Their agreement more than likely has that provision…however there are many ‘smaller’ players entering the wholesale/mini-corr arena, that are just gathering steam in market share, and perhaps don’t have large enough portfolio to generate a significant number of EPOs. Many will get there and surprise! The EPO policy in their agreement will appear! Do we negotiate? Of course. We look at time (for pro-rating purposes), what interest rate was offered to the borrower in the first place (as a tell-tale sign of a gouge), what the closing costs paid by originator were (via a HUD…not verbal), the originator’s 365 day EPO history (which is a negotiated piece on overall pool pricing), and of course, the relationship with the originator. None of this is written policy, but this is the logical business approach we take in order to stay the significant player we have been for many years (I myself have been with the Bank going on 20 yrs.). Bottom line…the money is owed, and in many ways considered a potential loss. We average a 50/50 split when the unfortunate occurs (again, informational only and not written policy). Bottom line: bank & originator – we are in this together.”
From Alabama I received, “I am encouraged by your information concerning the CFPB’s interest in the Realtor’s role in steering clients. As Homer Simpson said, ‘DOH!?’ I would bet 100% of loan originators have been told the same comment from a Realtor, “If I use you and your company for my mortgage referrals you have to use my appraiser and closing agent.” The emphasis is on ‘MY’. If the LO does not approve the use of ‘their’ appraiser and closing agent, the LO can forget obtaining any referrals. Long before HUD approved MSAs and JVs, a consistent question I heard from my major sources of referrals was, ‘When are you going to pay me for all this business I send you?’ Or some version of the same comment, meaning, ‘I want to be compensated for sending you business.’ I also know for certain that Realtors coached buyers on how to ‘qualify’ for mortgage loans during the Stated Income period. And if you questioned the viability of the stated income, the borrower was moved to a more lenient lender down the street who did not ask questions. Similar to this issue, was the comments made by appraisers stating mortgage lenders put pressure on them to provide the value needed to match the sale price. Now I am sure there were some LOs that did that, however, going back to the statement in the first paragraph, from the Realtor who demanded I use ‘their’ appraiser if I expected to receive business, gives credence to the knowledge of who was really controlling the appraiser. But you cannot blame the appraisers, after all, they know, as do all mortgage lenders that Realtors and builders are our life source if we want to remain in the mortgage business (as a purchase lender); so none of us can throw light or aspersions on our main business source; for fear if we do, we will be banished forever. In closing, I am hopeful the CFPB will do the good it is intended to do, by focusing on corrupt lenders, LOs, and all associates involved in the real estate transaction.”
I received this note from a senior LO in Arizona. “Hi Rob: Are you hearing much grumbling about the new FHA loan limits? I have lost two really nice purchase deals just in the first two weeks of the year, due to FHA lowering its loan limits from about $346K to only $270K here in Phoenix. They were both borrowers who had suffered a foreclosure over 3 years ago, which would have qualified them for a FHA loan, but will now have to wait another 4 years for Fannie/Freddie. One was a $400K purchase; borrower already was putting in $80K, would now have to come in with another $50K. The other was a family of four that wanted to buy $350K home, but would now have to come in with another $70K or so. I am surprised the real estate world is not raising holy hell with their lobbying strength.”
Did someone mention non-QM loans and licensing? There is this note expressing the author’s opinion, and is definitely “poking the bear”: “I just want to bring to light what everyone else is probably thinking… banks have the advantage of offering non-QM products from their retail salesforce and yet their salesforce is technically the least proficient given they are exempt from taking any mortgage exams.”
Eric DeFries, with the Bank of Utah, writes, “I think it is worth mentioning that, in my opinion, there is a difference between a builder-owned mortgage company, which I think opens up the door for potential QM and RESPA section 8 issues, and a true preferred lender situation. All the ‘legit’ preferred lender situations I am aware of there is no kickbacks or affiliated relationships. They come with relationships built over many years. A builder doing business with an honest and reputable mortgage lender who has consistently given good information regarding the creditworthiness of their potential buyers, worked through tough construction loans, helped the builder get spec/A&D/lot and other types of loans needed to run their business, would be crazy not to team up with a ‘preferred lender.’ Most of these arrangements are about relationships and which I think everyone one in the industry would agree relationships are one of the keys to success. From a consumer perspective, getting your construction and term financing at the same institution provides the consumer with similar rates and fees, better service, and a better overall home buying experience.”
Lastly, “I was hoping for your take on a phenomenon that has recently picked up momentum in the Southern California market, if not others. I have offices located in both Oregon and California, so it is interesting to oversee two completely different markets. What we are experiencing in California daily is simply never done in Oregon. Listing Agents in SoCal are ‘demanding’ that potential buyers get Pre-Approved with their lender. They are not just asking, or presenting another option, but are crystal clear that the buyer MUST get pre-approved with their lender, and they often incentivize potential buyers to do so via contingencies, timing, etc. We may have worked with the buyer for months, only to have then ‘strong-armed’ by the listing agent or the lender for the listing agent. Is this legal? What is and what is not legal as part of this process? Don’t any incentives have to be uniform across the board? The supply and demand in the So Cal market is again empowering sellers, which is great, but it also forces buyers to play their game.”
Six retired Irishmen
Six retired Irishmen were playing poker in O’Leary’s apartment when Paddy Murphy loses $500 on a single hand, clutches his chest, and drops dead at the table. Showing respect for their fallen brother, the other five continue playing standing up.
Michael O’Conner looks around and asks, “Oh, me boys, someone got’s to tell Paddy’s wife. Who will it be?”
They draw straws. Paul Gallagher picks the short one. They tell him to be discreet, be gentle, don’t make a bad situation any worse.
“Discreet? I’m the most discreet Irishmen you’ll ever meet. Discretion is me middle name. Leave it to me.”
Gallagher goes over to Murphy’s house and knocks on the door. Mrs. Murphy answers, and asks what he wants. Gallagher declares, “Your husband just lost $500, and is afraid to come home.”
“Tell him to drop dead!'” says Murphy’s wife.
“I’ll go tell him,” says Gallagher.
(Copyright 2014 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.)