May 15: Letters on the money supply & inflation, the recovery’s disparities, and compliance concerns; Saturday Spotlight: Stewart

Vendors and lenders, and for that matter every business that could, “turned on a dime” last year and converted workforces to being at home. Now, however, the process is reversing itself, to some extent, and with that comes hiccups. There’s this this short humorous video about life coming out of the pandemic. (Just page down once or twice and skip the ads on the video.) (Or the same video on YouTube.) What’s going on with law firms? Sullivan & Cromwell was “strongly encouraging” but not forcing anyone to come back to the office. While the Chairman Joseph Shenker was adamant that no one at the firm should feel pressured to return to in-person work, some industry observers said that messaging could be confusing and biased. One attorney told Law.com’s Patrick Smith, “It infers that there is some sort of judgement for not returning to the office.” But what’s the right way to communicate its desire to bring people back together? There’s no one-size-fits-all answer but one thing’s for sure: firms should not try to craft the message by themselves. “If you are going to issue statements that are going to affect people’s lives, they need to be vetted by people outside the management bubble,” Johnson said. “You can’t have people who work in a boardroom just issue a statement if they don’t understand how it affects 99% of their employees.”

Saturday Spotlight Company: Stewart with title offices and Trusted Providers streamlining your loan process.

 

In 3-5 sentences, describe your company (when was it founded and why, what it does, where recent growth and plans for near-term future growth). 

Stewart was founded in Galveston, TX in 1893, but we are basically a 128-year-old ‘start-up’ in the real estate settlement industry.  We are committed to being the premier title services provider, investing in our people and in opportunities that add scale and introduce innovative technology that enables our clients and partners to succeed.  As our market continues to transform and evolve, Stewart is headed to where the puck is going.

Tell us about what type of volunteer work employees are encouraged to engage in, or charities your company supports, and why.

Stewart launched a Community Service Awards program, through which Stewart recognizes and supports employees who make a difference in their communities. Just last quarter, Stewart awarded $500 donations to 85 different charitable organizations in the name of the employee nominating them. Near our headquarters in Houston, Stewart has partnered with Child Advocates, building hundreds of bikes for foster children in the annual Build-A-Bike campaign. We encourage employees to get involved locally because it is important for us to give back and to be part of something bigger than ourselves. Hopefully, our efforts will inspire others to get involved and make a difference in their community as well.

What does your company do to help elevate your employees’ growth? Describe any mentoring programs, outside classes or training, in-house training. How does the company help people develop?

Stewart has a number of internal professional training courses and materials, all housed in our proprietary learning management system, Stewart University. Specific job functions can use tools like Escrow Academy to enhance and progress their career through additional skills.  Stewart recently launched a new Mentorship Program aimed at partnering young employees early in their career with seasoned, experience industry leaders.

Tell us how your company maintains its culture in the office, or in a work-from-home environment if applicable.

Stewart has a robust internal communications platform called Workplace by Facebook that allows employees to communicate and collaborate across the country. It allows for team building and cohesion amongst groups and especially during the pandemic has allowed teams and employees to stay in contact both professionally and personally. Stewart also utilizes Microsoft Teams for document sharing and virtual meetings, allowing all work-from-home employees to stay connected.

Things you are most proud of that don’t have to do with sales.

Top to bottom, it is the people. Our Stewart family has been extremely resilient in supporting our clients, our communities and our colleagues despite a few years full of uncertainty and upheaval. Stewart has navigated this past year well and focused on growth, successfully adding several new companies, including 1,200 new employees, who brought with them the same level of determination, dedication, and culture of ‘getting stuff done’ that Stewart is known for. Pretty cool.

(For more information on having your firm, employee growth, and your charitable side featured, contact Chrisman LLC’s Anjelica Nixt.)

Economic trends… Remember M1, M2, and M3?

Many people around the world have been watching the money supply in the United States skyrocket. Back in the 1980s and 1990s on trading desks, the Thursday afternoon announcement of money supply rivaled the current significance of our employment data that comes out on the first Friday of the month. The MBA’s Chief Economist Dr. Michael Fratantoni weighed in with some thoughts about it. “Money supply is indeed being watched. Particularly given the combination of fiscal and monetary stimulus.  Larry Summers, former Treasury Secretary, leading Democratic economist thinker, noted that while the pandemic created a deep hole in the economy, the combination of stimulus bills has now filled that hole three times over, with more spending to come. That is inherently inflationary. And that’s before we add in the Fed’s efforts to keep both short- and longer-term rates low.

“As we are seeing, the economy cannot accelerate that quickly. Supply chain constraints, shortages of workers, jumps in inflation, etc. Milton Friedman argued that inflation is, ‘…Always and everywhere a monetary phenomenon.’ He is rolling over in his grave at those money growth charts. The near-term correlation between money growth and economic statistics has always been noisy, even more so over time, but the trend is enough to be concerning. Remember that the Federal Reserve is betting that these constraints are transitory. I am expecting that inflation will run higher than we have become used to for years, but don’t worry (much) about a return to 1980 level of inflation. It’s possible, but the Fed remembers how to stop inflationary dynamics from really taking hold…raise rates quickly and push the economy into a recession.” Thank you, Mike!

And some believe that the economic recovery is regional. Peter Muoio, Ph.D., who is senior director at SitusAMC and head of SitusAMC Insights, writes, “Rob, data from our new SitusAMC Insights Heat Maps indicates that recovery from the COVID-19 pandemic isn’t the same everywhere. Regionally, economic conditions are strongest overall in the Southeast and the Southwest. The recovery, however, is off to a slower start in the Northeast and much of the Midwest. The West is more mixed. Key factors behind these differences include strong migration flows from the Northeast and Midwest to the Sun Belt accelerated by the pandemic, high housing costs, and the mix of industries that are recovering at different rates.

“We also identified a list of the top- and bottom-five metropolitan statistical areas (MSAs at the end of 2020 using NCREIF return data), which showed the pandemic has fueled growing disparities among cities during 2020. Southern California’s Inland Empire topped the list of strongest MSAs as high housing costs in Los Angeles are pushing people east. Phoenix; Denver; Cambridge, Mass; and Atlanta rounded out the list. At the very bottom was San Francisco, which is experiencing an exodus of tech companies, followed by Houston, Miami, Chicago, and the District of Columbia.” Thank you!

Optimism continues to rise that California will see a broader reopening of the state economy this summer. As of May 11, 46.1 percent of the state’s population that is 16 and older was fully vaccinated, with another 16.2 percent partially vaccinated. The state is aiming for a full reopening on June 15 if COVID case counts remain low. This is good news for California’s labor market recovery which has lagged the U.S. recovery since last year. As of March, California has recovered just 43.7 percent of the jobs lost last spring, well below the 62.1 percent for the national average. Any many expect rising employment in the hard-hit services sector to drive a stronger state economy in the second half of 2021.

Compliance: the name of the game

Lenders everywhere are focused on helping consumers, as well as helping those consumers in a compliant way. Compliance encompasses a plethora of topics, but let’s take a glance at a couple of the topics on the minds of compliance vets.

MQMR addressed what the Consumer Financial Protection Bureau’s (CFPB) Advisory Opinions Program is and how a regulated entity submits a request for opinion. The CFPB established an Advisory Opinions Program to publicly address regulatory uncertainty in existing regulations by providing written guidance in the form of advisory opinions to regulated entities upon request. Under the Advisory Opinions Program, entities subject to the CFPB’s supervisory or enforcement authority can submit a request for an advisory opinion to advisoryopinion@cfpb.gov or through other means designated by the CFPB. Requests are accepted and reviewed on a rolling basis. Third parties, such as law firms, trade associations, or consumer advocacy groups, may submit requests on behalf of clients or members without identifying those entities. For a complete list of the information that must be provided with the request for advisory opinion, visit https://www.mqmresearch.com/. All advisory opinions issued by the CFPB will be posted on the CFPB’s website and published in the Federal Register.

 

Another compliance hot topic from MQMR was Fannie Mae’s recently enhanced requirements for use of a Power of Attorney (POA). Fannie Mae’s guidelines for POAs in a purchase transaction now require a written record or a recorded Internet session demonstrating a meeting with the borrower to explain the Closing Disclosure after the borrower receives it. Fannie Mae’s Lender Letter, LL-2021-03 indicates that unless a recorded Internet session is required, a Power of Attorney may only be used in a purchase transaction with a note date on or after Apr. 7, 2020, if, after the Closing Disclosure or other closing statement, as applicable, has been delivered to the borrower before closing, an employee of the lender or settlement agent explains the terms of the loan to the borrower(s) to confirm that each borrower understands them. Fannie Mae also indicated that the purpose of the Borrower Acknowledgement provision is to confirm verbally after receiving the Closing Disclosure that the borrower understands both the key features of the loan and that the attorney-in-fact has the ability to contractually bind the borrower to the transaction, including the purchase of a home, on the same basis as if they had signed themselves. Fannie Mae’s Selling Guide, chapter B8-5-05, outlines all of the requirements for use of a POA.

 

MQMR discussed industry best practices related to physical maintenance of IT servers. This is separate from maintaining IT server security, but important because proper on-going maintenance of equipment helps ensure continued operations, a repair process in the event of an outage or equipment failure that is not hampered by a disorganized server room, and a commitment to organization and order, especially in the event of an audit. One recommendation was to develop a color-coding system to organize server wires and use racks with cable management “teeth” or ties to bundle wires and prevent damage. Other best practices recommended were building a checklist during server configuration to ensure that people-based controls are executed when needed.

Jonathan Foxx, Chairman and Managing Director of Lenders Compliance Group, opined on credit unions developing Community Reinvestment Act (CRA) initiatives for the first time. Generally, state CRA laws and regulations hew closely to federal reinvestment policies and standards, but provide an extra layer of oversight. His advice was to not try and go it alone if you haven’t had substantial experience. The federal CRA was passed to address concerns with financial institutions that accepted deposits from their local communities and failed to make loans in the same communities. It may not just pertain to depository institutions, but also require regulators to examine financial institutions for compliance and consider their local lending records when they seek approval to open new offices, relocate offices, merge, or consolidate, acquire other institutions, or expand their authority. A HMDA filing is still mandated, so the HMDA and CRA filings must be consistently corroborative of each other in certain states.

 

He answered another question on issuing Regulation B’s Notice of Action Taken when potential borrowers go online to complete a prequalification. Application information is taken from the customer, including credit reports, employment verifications, and the verification of other information, but some parts of the loan underwriting process are left out due to the customer not yet having a particular home or property in mind. This is to give customers an idea of the maximum amount they can borrow with a given amount for the down payment, and the price range they can afford for a home. There are a number of compliance rules under several regulations that require certain actions and/or disclosures whenever an application form is given by a lender or, in the case of Internet banking, whenever the individual is asked to supply or transmit application information online.

And Lenders Compliance released a follow up FAQ on Limited English Language Proficiency mentions Special Purpose Credit Programs. The Equal Credit Opportunity Act states that discrimination under its statutes does not include refusal “to extend credit offered pursuant to…any special purpose credit program offered by a profit-making organization to meet social needs which meets standards prescribed in regulations by the CFPB.” By permitting the consideration of a prohibited basis in connection with a SPCP, Congress protected an array of programs specifically designed to prefer members of economically disadvantaged classes, such as government-sponsored housing credit subsidies for the aged or the poor and programs offering credit to a limited clientele such as credit union programs and educational loan programs.

(Thank you to Richard B. for this one.)

A priest dies and is waiting in line at the Pearly Gates. Ahead of him is a guy who’s dressed in sunglasses, a loud shirt, leather jacket, and jeans.

Saint Peter addresses this cool guy, “’Who are you, so that I may know whether or not to admit you to the Kingdom of Heaven?”

The guy replies, “Dude, I’m Steve, a retired airline pilot from Houston.”

Saint Peter consults his list. He smiles and says to the pilot, “Take this silken robe and golden staff and enter the Kingdom.”

The pilot goes into Heaven with his robe and staff.

Next, it’s the priest’s turn. He stands erect and booms out, “I am Father Bob, pastor of Saint Mary’s for the last 43 years.”

Saint Peter consults his list. He says to the priest, “Take this cotton robe and wooden staff and enter the Kingdom.”

“Just a minute,” exclaims the good father. “That man was a pilot and he gets a silken robe and golden staff and I get only cotton and wood. How can this be?”

“Up here we go by results,” says Saint Peter. “When you preached, people slept. When he flew, people prayed.”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Summer Concerns.” The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).

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(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. This newsletter is designed for sophisticated mortgage professionals only. There are no paid endorsements by me. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2021 Chrisman LLC. All rights reserved. Occasional paid job & product 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