May 16: Opinions on the economy, TRID compliance, Chicago closing costs, community banks finding underwriters, LO comp for bond loans
An article titled “The Death of Mortgage Banking. Long Live Mortgage Banking” will be of interest to those who are thinking a little outside the box for lending. “Mortgage banks have an advantage over the market place lenders. They have the borrowers and relationships with borrowers. Marketplace lenders are attempting to build relationships with borrowers through their core/initial products (Trojan Horses) then cross sell such customers on other products—i.e., mortgages. To fight back mortgage banks should take the fight directly to them. Why not cross sell the marketplace lending products to mortgage bank borrowers? The relationships are already there. Surely it is easier to sell a consumer or car loan to a mortgage borrower then it is the other way around.”
This from an originator in the West: “HR 2213 sounds reasonable. There are a few politicians that are listening to industry entities. Why not stop TRID totally? We just don’t need new forms. We need the current rules properly enforced. We don’t need more paper and delays that contribute nothing positive to the transaction.”
I mentioned this last week, but as a reminder the Federal Reserve has issued new examination procedures for RESPA and TILA in response to the upcoming TRID rule, effective August 1st, 2015. These provisions will apply to institutions supervised by the Federal Reserve with total consolidated assets of $10 billion or less. To view the Truth in Lending Regulation Z amended examination procedures click here and to view the RESPA Regulation X revised amended procedures click here. The Federal Reserve has also published a summary of updates to the examination procedures, which can be found here.
And from a broker: “It is apparent that the government increasing regulations increases government jobs. But, by adding layers of additional regulations, such as the TRID, is the government trying to force the private sector into creating jobs? Jobs that will enforce needless regulations that in turn actually damage the consumer and ultimately the whole economy? Most say the TRID will increase the time to close a purchase loan, and that 45 days will be standard rather than 30 days or less. Why does the government think it is beneficial to cause delays in everything? It is interesting how very few average citizens even know what is happening. Most don’t buy a house every year or two, and most don’t refi often. They have no clue, until they do want to buy or refi. Most are absolutely astounded at the changes and the difficulties in obtaining a loan and closing an escrow. What about the consumer that needs to sell their home – don’t they have any rights?”
At the risk of dipping my toe into compliance quicksand…
“In various TRID training sessions I’ve heard several times that if a Creditor has to delay the closing to reissue the Closing Disclosure, a borrower’s loss of Earnest Money is NOT considered a ‘bona fide personal financial emergency’ that would allow the Creditor to waive the 3-day waiting period while a borrower reviews the new Closing Disclosure. I’ve been trying to find confirmation of this, or examples of what would be considered a ‘bona fide personal financial emergency.’ So far I haven’t found any confirmation of either of these issues. Do you have any way to help confirm or disprove either of these issues? Loss of Earnest Money? Ouch!”
I turned to a leading wholesaler for an unattributed answer. “This is likely an issue of risk. The burden of proving what constitutes a ‘hardship’ or ‘Personal Financial Emergency’ is similar to the issues we have faced for years around the waiver of the Rescission period for a refinance. Not sure if there are lenders willing to test this. The penalty if you are wrong is too significant. Who is to say what is a ‘hardship’ for any particular applicant/borrowers?”
The answer continued. “For (1) an APR change up or down by more than .125, (2) the addition of a prepayment penalty, or (3) a program change; the 3 day waiting period is triggered. The revised CD can be provided the SAME DAY if it is for non-numerical changes. Numerical changes would have to be provided to the applicants the day before closing allowing the applicants a chance to review the day before “consummation.”
And this question: “What are you hearing about the use of Overnight Mail (like UPS) as a delivery method for the Closing Disclosure? Are you hearing Creditors will be using this?”
The unofficial answer from a large wholesale organization is, “The use of Mail is certainly not the desired method of delivering the LE or CD, however, absent an electronic solution by the Lender, or applicant(s) that may not have email, or that don’t review and respond within the prescribed time period, the only solution will be to use the mail system. 3 days for delivery, plus 3 days for the required waiting period in the case of the CD. We expect wholesale Lenders will be across the board on this. Those with the technology solutions in place will most certainly opt for the email delivery first, manual delivery by the originator (LO) – acceptance and return second, and US Mail as a last resort. US Mail will undoubtedly be used by all Lenders on some subset of their business.”
Switching gears to title… “An escrow officer can make or break your deal. Good ones with experience are hard to find. A good escrow officer is like a good underwriter. They are irreplaceable, and should be treated like GOLD. I am surprised the CFPB has not established some kind of escrow management company, just like AMCs, so we are not allowed to choose an escrow person.”
Speaking of which I received this note from Illinois. “Is there a lot of noise about title fees going through the roof? In Chicago the average closing fee when an attorney is involved is $1,000. This kills the lenders on VA loans especially since this fee can’t be paid by the vet and the lender is capped at charging 1% of the loan amount. We are seeing title charges exceed$3,000 on purchase transactions where the loan amount is $100K. Crazy stuff!”
Jeff B. sent, “Hi Rob – I couldn’t resist responding to your comment that our economy is doing ‘pretty well’. Are you starting to drink the talking heads’ Kool-Aid? MBS is still on life-support via the Fed to keep our rates artificially low. A high % of loans I do require ‘special’ programs. 20% down is rare. True unemployment numbers are not published regarding under-employed and those who have given up. Most buyers are two-income households and need all of it to get in a house.
On the recent Freddie and Fannie changes I received this note from west of the Mississippi. “In my opinion, F & F should not compete with FHA. Trying to compete with the subprime lenders is what got F & F in trouble. F & F should be for well qualified buyers/borrowers – the rates and terms are the best. The low down payment loans are not the issue. High quality buyer/borrower is the issue. The so called concern is the tax payer won’t have to bail F & F out in the future. Well, #1 quality loans won’t have to be bailed out. #2 ownership of F & F should go back to the shareholders – the GSEs are supposed to be private entities with some government guaranties. It worked well for 50 years. F & F are cash cows for the Federal treasury. That is wrong: homeowners should not subsidize the fed government. If it needs more money try closing corporate tax loopholes, or stop paying politicians who don’t do their jobs.”
A while back Ed W. wrote, “Hey Rob, since the administration isn’t allowing the GSEs to retain profits, it begs the question whether or not they are still contributing heavily to political campaigns or not. Why isn’t anyone asking that? Of course if a private company made a loan with those repayment terms, Congress would be up in arms about it.” It looks like things got pretty darned quiet after 2008. After all, one hopes that the FBI, Navy, Air Force, etc., are not making campaign contributions. In answer to the question, there is some information upon which to chew. For example, there is information on Fannie, and of course some politicians, past and present, have connections. Past that… ask your rep.
On the topic of what lenders are in store for, QC-wise, Donna Beinfeld writes, “If anyone thought last year was overwhelming, get ready to fall off your chairs! I’ve seen HUD auditor findings on many different QC Plans, and what they require to be added range from ridiculous (verify occupancy on a HUD refinance loan being just short of digging through a borrower’s trash) to out dated (borrowers’ are not allowed to sign blank forms). I’d have to say, I haven’t seen anyone put together a loan package with blank forms for a borrower to sign in about 30 years. Frightening!”
This note/question came in. “We are a community bank that struggles with having a large talent pool when it comes to processors and underwriters, seems that we are always looking for a qualified candidate. And as a community bank it is ever more important to deliver excellent service to our friends and neighbors that bank with us, do you have any suggestions to how we can solve this issue?”
For an answer I sent it off to Buddy Kittle of Bankers Mortgage Consulting. “We find this is a common issue in community banks and credit unions and encourage them to think outside the box. This involves the use of a great fulfillment/outsource partner that can process and underwrite loans on a contract basis without minimum volume requirements. The use of these services will deliver a fixed cost per loan, excellent service and solve capacity issues our industry experiences when loan volumes fluctuate. The key to success is specific workflows and procedures for a seamless implementation; this is where success or failure of using outsourcing is defined. Most that have tried and failed didn’t have a good plan, by aligning with the proper fulfillment partner, procedures and workflows that are proven to work and specific to your operation your lack of talent pool issue will be solved.
There continues to be questions about LO comp for bond programs so I thought I’d repeat something from a couple months ago. Tammy Butler from Optimal Blue contributed, “Regarding the issue of State Bond Programs and LO Compensation, I believe there are two issues. The first is the payment of LO Comp on a program, where the compensation to the company results in a net loss to the company. And the second is the use of these programs in an organization to demonstrate Fair Lending and diverse lending.
“If a lender chooses the path of ‘no state bond programs because we lose money’ due to LO Comp laws, then they shoot themselves in the other foot when it comes to demonstrating diversity in lending. This is a relatively new concept to mortgage bankers, although banks have been used to it for many years.
“Many of our clients contacted me on this issue, and as the attorneys have stated there appears to be little that a lender can do. To solve this conundrum I spoke with those who have offered these programs successfully for years, and asked them how they structure the LO compensation for bond programs. Comments were universally the same. If the institution decides that bond programs, or other similar grant programs are important to their business model in terms of diversity and profitability, then these loans are originated by an in-house originator, who is paid a decent base income and a lower compensation than traditional outside originators. Needless to say, any loan the in-house person originates is the same compensation. Logically, since these programs can be so different from a standard loan, it makes sense that you would have one highly trained originator that focuses only on these types of products. The final analysis would be the profitability on the ‘in-house’ model. If the answer to that is still ‘no’, then one would want to formulate a strong business justification backed by empirical data.”
In a little switch from humor to teachin’…
I travel a fair amount, and everywhere I go people hound me with questions about how to educate their children. “Rob, how do I teach my kids what ‘refraction’ means?” Okay, no one has ever asked me that, or about educating their children, but here is a 6 second cool video for parents with young kids hankering to learn a little science.
(Copyright 2015 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.)