March 22: Letters concerning ATR liability, bank & non-bank licensing, new appraisal guidelines, and the LO function

So many issues, so little time… As usual, recently plenty of folks have contributed questions, opinions, and information facing lenders these days.


A branch manager from Delaware writes, “I’m frustrated by the fact that under recent rules, specifically the seven day from app to close requirement, has made the three day rescission obsolete. Yet we continue to have this costly and time consuming requirement in place. The rescission requirement was put in place to cause a cooling off period. That cooling off period is now covered by the app to close requirement. Doesn’t it make sense to rid ourselves of the rescission requirement now?” Great questions, and given that the CFPB is working on RESPA and TILA, resolving this just might be in the cards.


“Rob – With regards to non-QM loans, have you seen any legal opinions or discussions regarding successor liability around ATR rules? For example, does the buyer of the loan take on ATR risk directly via a lawsuit? I understand there are reps and warranties back to the seller, but I’m more interested in opinions away from reps and warranties—including if the originator goes out of business.” Darned if I knew, so I passed this along to Brian Levy with Katten & Temple, LLP ( who responded with, “Unfortunately, liability under the ATR Rule not only attaches to assignees of the loan (successors), but since an ATR challenge can be raised as a defense in foreclosure actions, the normal 3 year statute of limitations for actions under TILA is essentially extended for the life of the loan for ATR claims.”


We’re fast approaching the March 31 date and licensed originators know of, and this note fits in with that. “Rob, why is it that a bank MLO cannot receive the actual licensure? Last year I was thinking of changing companies and moving to a mortgage bank, which required me to have my MLO license. I took ALL the classes required then took the National, KS and MO Tests (all of which I passed the first go round) I then applied for my KS and MO licenses. I then decided to stay at the bank and give it another go. Both states made me withdraw my request for licensure and told me I would have to re-apply if I elected to move to a mortgage bank. It seems the only difference is needing a ‘sponsorship’ letter which the bank I was working for at the time would have provided.  I spent well over $1K on classes, test and applications for licenses.  Not being able to obtain the actual licensure just because I work for the bank is not only absurd but, in my opinion, somewhat discriminatory. I have been an LO for about 20 years – you would think I have earned a license. I would still like to obtain them but my current company is backed by a bank as well.”


I passed this along to Barbara Werth with Mortgage Training Today ( who suggested that this is due to the SAFE Act and specific State requirements. “Per for Kansas: The pending license status of all Mortgage Loan Originators will be considered “inactive” until the licensed MLO is sponsored by a licensed company. Note: It appears that the originator could obtain the license but not utilize it since it would be called inactive. Per  for Missouri: Must be employed and acting under the supervision of a single Missouri licensed residential mortgage loan broker. Both Kansas and Missouri statutes state: A licensed mortgage loan originator who fails to maintain a valid license for a period of five years or longer shall retake the test, not taking into account any time during which such individual is a registered mortgage loan originator. I believe the main reason for this is that there is a definite distinction in the SAFE Act definitions of a Licensed Loan Originator and a Registered Loan Originator and the difference being who they represent.”


Regarding the licensing question, Pete Mills, the Mortgage Bankers Association’s SVP of Residential Policy and Member Services, writes, “The MBA has been working on this issue for some time as part of our overall efforts to restore balance and fairness to the way the states implement the SAFE Act.  Over the past few years, we have worked closely with the CSBS to develop and implement what is called “Approved/Inactive” or “de novo Inactive” status.  Under this status, a bank LO can take the pre-licensing classes and the test (national/state, or national w/ UST) and submit to the background and credit checks.  Participating states then place the LO in the system in “Approved Inactive” status until the LO switches employers and has a mortgage company sponsor (hence the term “de novo Inactive”).  We also worked with the NMLS to establish a “privacy shield” in the system to ensure that this information (the coursework, the testing, and the background/credit checks) would remain private, and not automatically disclosed to the LO’s current employer (as had been the practice).”


Mr. Mills note continued. “The de novo inactive status facilitates the ability of LOs to move from the bank to nonbank world, and helps IMBs compete for talented LOs on more equal footing. No longer do bank LOs need to be out of circulation for 60-90 days while they complete pre-licensing courses and testing. With the de novo inactive status, Bank LOs can take the education and the test, and once they decide to switch, need only a nonbank sponsor to become licensed.  In most states, this takes a matter of a few days, rather than several weeks or months.  While not all states have adopted this status, the MBA has been working with CSBS and with the state MBAs to encourage more states to implement de novo inactive stays.  Based on a recent survey by CSBS, there are now 27 regulators in 24 states that allow bank LOs to seek Approved/Inactive status: AZ, CA-DOC, CA-DRE, HI, ID, IL, IN-DFI, IA, LA, MD, ME, MA, MT, NC, ND, OH, OR, SC-BFI, SC-DFI, SD, TN, TX-OCCC, TX-SML, UT-DRE, VT, WA, AND WY.


This is not a perfect solution, but it does lower barriers and allow LOs more freedom to move within the industry.  More importantly, at the federal level, MBA will continue to advocate for uniform education and testing for all Loan Officers, regardless of whether they work for a bank or nonbank. In conjunction with the across-the-board testing requirement, the MBA will also seek to require ALL states to issue a license to bank LOs that have passed the test and seek employment with a nonbank lender. This issue will be a focus at MBA’s upcoming National Advocacy Conference. If this issue is important to your IMB readers, they should come join us in Washington on April 9 – 10 — check it out here:” Thank you Pete!


I received this note regarding appraisal issues: “I work for a large lender, and wanted to see if you could shed some light on the New Appraisal Compliance and Waiver Guidelines. We are being told by legal that when a buyer cannot use 100% of the contracted Seller Help stated in the sales contract, we will have to go back to the appraiser and have the appraiser update the appraisal and if we do not have either a verbal or written Appraisal Waive in the file we will have to wait three days before we can close. Have you heard of something such as this? This seems to be either my employer interpreting the new guideline incorrectly or another ridiculous new guideline from Dodd-Frank. On the other side of this guideline, according to my employer, is if the seller help has to go higher we will have to get the realtors to complete an addendum to make that happen. This is something that has always been there AND we require the appraiser to again change the appraisal AND wait the three days after the customer has received a copy of the new appraisal showing the changes. I have heard rumors that this guideline is not to go into place until 2015, or that my employer has interpreted the new guideline incorrectly.”


I am no expert in appraisal issues, so I sent this along to Brian Coester ( returned with, “The reason for this is the tendency to use the concessions to inflate the price of homes and the recent changes from a ‘market’ based adjustment to concessions to a dollar for dollar amount which is a little more accurate. They are trying to prevent realtors and appraisers from ‘inching up’ the value of homes in the market are by including concessions in the appraised value or using some type of other then the dollar vs dollar for this. The reason for the appraisal update is because they are required to have that exactly right before the appraiser can be signed off on. The appraiser wouldn’t know of the changes in the amounts that the seller is paying. This is annoying but it’s technically the right thing to do.”


Sue Carlson, Senior Mortgage Consultant with RPM Mortgage, Inc., contributes, “Regarding the new Appraisal Waiver and Compliance guidelines, I think the reader is referring to the recent ECOA update that says “creditor shall provide applicant a copy of ALL appraisal reports and other written valuations prepared in connection with first lien loans secured by a dwelling, whether for consumer or business purpose.  This includes amended and review appraisals performed on subject property”.    Whenever a seller credit is negotiated that was not part of the initial purchase contract, that requires the appraiser to amend their report, which requires the lender to send a copy to the borrower, which then requires a three day wait before drawing docs.  Unless you got a waiver to the three days signed with your up-front loan disclosures.   Thank you once again to the CFPB for more unintended consequences!”


I received plenty of notes regarding the possible automation of the loan officer function.


Thomas B. writes, “Hi Rob: in a perfect world, automating this process might be realistic.  But we don’t live in a perfect world. Barriers exist in the world of mortgage lending – there are too many moving parts. Borrowers come in all sorts of shapes and sizes.  And because of this, many need their hand held.  Being denied a loan without the luxury of understanding ‘why’ is the very reason our jobs are secure.  It’s because we care.  An automated system has no conscience, no feeling, no spine, no love, no passion and no compassion. Being able to work thought a borrower’s issues and bring their application from denied to approved is what makes us great.  And in my opinion, life is about how you make someone feel. Satisfaction without emotion is pointless. It is like eating straw for dinner… you’re no longer hungry, but the process sure was nasty.”


Dan C. observes, “The flaw in the Bloomberg article’s logic is that ‘LOs are paid for taking loan applications.’ They are not. They are paid for finding people that want to make a loan application. There is a big difference.”


Along those lines Michael U. contributes, “That particular scenario reads more like algorithms can bump underwriters out of the picture. Until computers are able to walk into realtor offices and networking events I think I am safe. With that being said, of course we don’t need 8-10k loan officers, and I’m not sure the big banks have that many with all of the recent attrition.”



A mechanic was removing the cylinder heads from the motor of a car when he spotted the famous heart surgeon in his shop that was standing off to the side, waiting for the service manager to come to take a look at his car.

The mechanic shouted across the garage, “Hello Doctor! Please come over here for a minute.”

The famous surgeon, a bit surprised, walked over to the mechanic.

The mechanic straightened up, wiped his hands on a rag and asked argumentatively, “So doctor, look at this. I also open hearts, take valves out, grind ’em, put in new parts, and when I finish this will work as a new one. So how come you get the big money, when you and me are doing basically the same work? “

The doctor leaned over and whispered to the mechanic…..

He said: “Try to do it when the engine is running.”



(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.)

Rob Chrisman