May 24: Ginnie Mae’s initiatives; the difference between “manufactured” and “modular”; letters on lender & borrower education

With the increasing interest in non-QM products, here’s note summing up how many in the industry feel about the credit crisis and lenders’ roll in it. Steve W. wrote, “It’s a slight difference, to be sure, but as I always say when teaching the mortgage products section of the School of Mortgage Banking for the MBA, ‘I’ve never seen a bad mortgage product. I’ve seen perfectly good mortgage products misused by unscrupulous people.’ I think that the distinction is important because laying the blame on the product itself plays directly into the hands of the regulatory zealots and their media acolytes, who blame us collectively and seek to restrict our business activity to what fits their narrow, frequently un- or ill-informed view of what the mortgage industry should be.  It won’t be long before they’ll be at us again for not lending to ‘underserved borrowers’ whose needs can’t be met by the narrow product set into which they’ve forced us. HELOC’s and stand-alone seconds did not contribute to the housing crash.  Their misuse by unscrupulous people (both lenders AND borrowers) did.”


And regarding borrower education, Casey Fleming writes, “I was just discussing the current lending environment with a good friend.  We were talking about a client I have currently that I’m trying to finance out of an interest-only 5/1 ARM.  Her interest-only period is up later this year, and her payment will have to double, at least.  But we’ve run into a snag – a bad appraisal. My friend – an engineer – immediately blamed the borrower (an elderly, disabled single woman on a fixed income) on her situation. “She should not have borrowed so much money if she couldn’t afford to pay it back.’  I argued that the loan officer who gave her the loan had a fiduciary duty to educate her – that not everyone was an engineer or had the knowledge or the means to educate themselves about the risks involved in different loan products.  Imagine if your doctor gave you whatever you asked for, even if he knew (or should have known) that it would make you sicker.”


Casey’s note went on. “But here’s where the last part of your comment really hits home.  Not only does management not educate LOs on the correlation between interest rates and bonds – they often (usually?) don’t educate them on the costs and risks associated with loan products.  How can we, as originators, properly counsel our clients if we don’t understand the benefits, costs and risks ourselves? In an ideal world, borrowers would be so well educated that they would choose the right product every time.  But they don’t.  LOs would seek out the education they need to properly counsel clients every time.  But they don’t.  Management would educate their LOs so well that the company’s clients would always be given the best product for their needs.  But they don’t. And we wonder why we got into such a mess.”


Increasing the number of forms that borrowers must sign just to “CYA” does not help the situation, yet lenders do it to avoid the potential lawsuits from borrowers who claim that they didn’t know they had to pay the money back. Steve K. writes, “If I could chime in on the CFPB and Director Cordray’s comments, the simple truth is that the vast majority of documentation today is not designed to benefit the consumer, but to protect the various institutions and agencies involved. It is filled with legalese and repetitive documentation that has the consumer resigned to accept this complicated mumbo jumbo. I mean, how many clients really have the patience or desire to sit through and read each and every document?


“Some clients take less than 30 minutes to sign their documents: they simply are resigned to trust what was being explained to her in regard to each document and gladly signed where pointed to sign. Over the past 5 years loan documentation has increased and loan packages have expanded. It has become a case of cover thy you-know-what and really isn’t designed to benefit the consumer at all. I have long been a proponent of the development and addition of a very simple one-page document that clearly spells out what the borrower really wants and needs to know: the terms and conditions of the loan itself. This would include the loan amount, the rate (and please omit the APR on this page. In over 16 years of lending I have yet to come across a borrower who understands what this means, and most confuse it with the actual interest rate), the term, total costs, and other specific aspects of the loan that the BORROWER actually wants to know and can easily understand. THEN, they can sign all the legalese documents.”


Ken Perry writes, “The CFPB has been talking a lot lately about vendor management. It released its report  on service provider compliance requirements and then they began dropping it into their supervisory highlights. This month it brought it up in multiple sessions at the MBA legal issues conference and then again on a panel I moderated at the NAPMW national conference last week in Seattle. In San Diego, Calvin Hagins, program manager for the CFPB said, ‘Vendor Management is not new!  It is straight forward, not complicated and fundamental, so do it!!  Make your first focus the vendors that are critical to your business (i.e., you aren’t operating without them; brokers, credit vendors, LOS).’ He followed that up by saying, ‘Don’t ignore this. It isn’t going away!’  And ‘Just to remove any confusion. A Broker is a vendor and must be vetted by the lender. If you broker any loans, know that this is coming.’ We have seen a lot of wholesale lenders start to take this seriously and begin looking for a way to verify that mortgage brokers have proper policies, procedures, training, and testing in place. One lender we met with recently is involved in a CFPB exam and is heavily increasing their broker approval and renewal process requiring an in-depth review of broker policies, procedures, training and on-site inspections. We hear a lot of frustration but have not seen many companies doing this well.”


Mr. Perry’s note continued. “We are currently working with wholesale lenders to solve this problem and are happy to say that you are about to see the first wholesale Knowledge Coop hit the market. We have a lender who will be providing our training to their brokers through their own branded Knowledge Coop site. We are creating custom, fun, dynamic training videos that they will assign to their brokers, so they can deliver and document effective training to all of their clients and be able to hand those reports to the CFPB when asked about their vendor CMS. They will also be able to create their own videos, upload their rate sheets and program documentation, and answer broker questions in one place. We are ready to open up to more wholesalers and excited to help companies meet this requirement. Contact if you would like more info or to set up a strategy session.”


Ever wonder about the differences between MODULAR and MANUFACTURED homes? Mountain West Financial has provided the information for you and they offer these programs as well. While the terms “modular home” and “manufactured home” refer to two very different things, they are sometimes used interchangeably. Modular homes are residences constructed entirely in factories and transported to their sites on flatbed trucks. They are built under controlled conditions, and must meet strict quality-control requirements before they are delivered. They arrive as block segments and are neatly assembled, using cranes, into homes that are almost indistinguishable from comparable ones built on-site. Wind and rain do not cause construction delays or warp building materials. Proponents of modular homes claim that their indoor, environmentally controlled construction affords them greater strength and resilience than homes built on-site. They also tend to be constructed using more precise building techniques and with more building material than comparable site-built residences. One reason for this is that they must be able to withstand the stress of highway transport. Despite their manufacturing process, modular homes are essentially the same as homes that are built on-site. They are treated the same under the law, and their basic structural features are almost indistinguishable from site-built homes, once assembled.


Manufactured Home is the most recent label for what were once called “mobile homes” or “trailers.” They are relatively inexpensive, small, and are held to less stringent standards than modular and site-built homes. Their obvious advantages are their mobility and affordability, factors that allow buyers to make home purchases without a serious monetary or geographical commitment. They are available in three sizes that escalate as follows: “single-wide,” “double-wide” and “triple-wide.” In addition, Manufactured homes are relatively small, inexpensive, mobile residences that require a smaller commitment than is required by modular and site-built homes. For the complete article visit MWF’s website.


David T. asks, “I wondered if you heard any feedback to HUD proposed Supplemental Performance Metric initiative. This metric is going to be used in conjunction with the Neighborhood Watch Compare Ratio; a way to measure a Lender’s performance. From reading through the memo this morning, it appears that this will be a way for a Lender to help to explain a Compare Ratio that goes over 150%. Now with the fact that due to the fact that the current lending environment promotes Conventional loans over FHA loans; virtually everyone’s total denominator on the Neighborhood Watch report is shrinking; so this only means that with a continually decreasing National Delinquency Ratio %, it’s becoming increasingly more and more difficult to keep your Compare Ratio below 150%; so maybe this is HUD’s response to these factors.”


As a matter of fact, have not only heard of it but heard an FHA official discuss it at great length. I will save you the gritty details. But HUD has rolled out “The Drafting Table” on its website to absorb public comments, and vet possible policy and reporting changes. The above link discusses this Supplemental Performance Metric.


But while we’re talking about HUD, Ginnie Mae has made it abundantly clear that it is trying to spread information on six topics of interest to the industry. First, the number of potential new issuers has declined dramatically – which is not a surprise – but GNMA is focused on trying to figure out (and correct) the phenomenon of lenders earning the ability to issue securities but not doing it. It will be surveying “dormant issuers.”


Second, Ginnie is attempting to correct the reporting of remitting failures, whether they are late or inaccurate. And repeated offenders may face punitive measures. Third, GNMA is asking for longer lead times for servicing transfers. The lead time is needed for better schedules for goodbye letters.


Fourth, Ginnie is working on document custody issues – different tiers of lenders. There is currently a large number of servicing transfers between companies in different tiers (where one is more lenient than another) leading to problems in required documentation.


Fifth, buyouts – GNMA is working on educating issues on this complicated issue. For example, do partial payments re-set the buyout clock? (The answer is “no.”) Issuers are somewhat confused as to responsibilities and options. And lastly, Ginnie continues to work on its “modernization” effort, including addressing the various degrees of liquidity and number of servicers within a pool. Any questions regarding these topics should be addressed to GNMA.



Once again, ahead of Monday’s Memorial Day holiday, let’s dispense with the usual humor and instead highlight this Memorial Wall – a combination of veterans, motorcyclists, and no government. “The heart of the American people, represented by a cellular company – who would have ever thought it would be like this and not our own government making this kind of thing happen across the country? My hat is off to all the Motorcycle Jockeys that had a hand in bringing this to our attention.” Thank you to Cindy E. for sending it.




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Rob Chrisman