May 25: Libor transition; TN & NJ lending law changes; blockchain, cybersecurity, and FAF’s immense data leak

First off, a nod to the dedicated real estate columnist Kenneth Harney who passed away this week. In lending it’s a full-time job staying abreast of the changes to our industry. Just yesterday, for example, rumors were put to rest with the formal announcement that Freedom Mortgage Corporation agreed to acquire RoundPoint Mortgage Servicing, primarily known for its Agency servicing. The dollar figure wasn’t announced. RoundPoint currently services and subservices about $91 billion in unpaid mortgage assets, and the new entity, with its combined owned and subserviced mortgage servicing rights portfolio, should exceed $300 billion after the deal making it #7. What else is going on there?

Libor transition

As a reminder, for decades, LIBOR has been a ubiquitous short-term interest rate used in mortgage lending, corporate debt, and notably in the swap market. Because LIBOR is slated to go away by the end of 2021, banks, corporations, and investors are scrambling to find a suitable replacement that captures the risks of short-term lending. In 2014, regulators and banks formed a working group called the Alternative Reference Rates Committee (ARRC) in order to create the Secured Overnight Financing Rate (SOFR).

While the ARRC says adoption is happening quickly, companies appear to be in “a state of paralysis” while longer-term SOFR rates are being created. In October, Toyota raised $500mn in the first nonbank SOFR commercial paper offering even though it continues to sell LIBOR-linked debt. Since the SOFR debut last year, borrowers have sold $105bn of floating-rate securities linked to the new reference rate.

During the same period, however, companies have sold more than $900bn of debt tied to LIBOR. GSE Fannie Mae has sold $15.5bn of SOFR senior unsecured debt since last July; nevertheless, it has continued to use LIBOR when selling $10bn of MBS and CRT securities. A representative for Fannie Mae said, “We think it’s important for not just Fannie Mae, but for other market participants, to prepare for a world without LIBOR.”

Fannie’s trading desk sent out a letter saying, “We have issued a Lender Letter to provide guidance on a new policy related to the acquisition of certain LIBOR ARM loans. Effective immediately, all LIBOR ARM loans must be purchased or securitized by Fannie Mae no later than six months from the first payment date of the loan. For example, if the first payment date is January 1, whole loans must be purchased before July 1, or securitized in MBS with issue dates no later than June 1. Going-forward, we will not purchase or securitize any LIBOR ARM loans older than six months on a “flow” or negotiated basis.

Over in England there’s… Sonia? An amendment of Libor-based contracts to track an alternative interest-rate benchmark has started. Associated British Ports has asked holders of a £65 million bond to approve replacement of Libor with the Sterling Overnight Index Average.


Reasons to check out blockchain? Sure, here you go.

Debbie Hoffman, CEO and Founder of Symmetry Blockchain Advisors, writes, “It’s great to see your continuation of the coverage of blockchain in mortgage. Recently you highlighted several companies making progress including (i) SafeChain, which has launched a blockchain based network related to title insurance policies; (ii) Figure Technologies’ product, which is a ledger for stakeholders across the mortgage lifecycle and particularly focusing on HELOCs; and (iii) Spring Labs’ blockchain based platform aimed to facilitate consumer information among parties to help with credit reporting.

“What is extremely exciting about these examples is the variety of innovative methods by which blockchain can enhance the mortgage and consumer finance industry. It causes efficiencies in all types of business processes to allow information to flow across “non-trusted” parties and it eliminates the clumsy transfer of repeated data. It also reduces the risk of having information lost in the process. When people ask me why I founded Symmetry Blockchain Advisors, Inc., moving from the practice of law into that of blockchain advisor, it is because I am excited about the future of how blockchain can and will transform not only the mortgage lending industry, but all industries across the board!”

On the flip side of something that is constructive for the world is cybercrime. A ransomware attack is when a hacker obtains access to your computer, encrypts all your files and then demands bitcoin in exchange for the password. If it sucks as an individual, for companies, hospitals and law enforcement it’s a nightmare that costs thousands. The FBI’s Internet Crime Complaint Center counted 1,493 ransomware victims in 2018, but most companies that get data taken hostage prefer that to remain on the down-low, and the actual estimate from the Department of Homeland Security is 4,000 ransomware attacks per day for about 1.5 million per year.

There are companies that purport to step in and use technology to decrypt the hacked tech for a fee, which is a real blessing. Or it would be, except for the fact that a ProPublica investigation found that some of these companies just pay the ransom and take some profit on top, restoring the client’s system and letting the afflicted client keep plausible deniability.

First American Financial, a Fortune 500 provider of title insurance and real estate settlement services, is being reported as having a leak of nearly 900 million documents filled with sensitive borrower information. Great.

New technology is fine, but what about…Old school?

New originators should learn something from originators who’ve been around a while. I sit face to face with clients and explain the rate, and why is what it is. I have a current rate sheet. Point out the rate, the YSP for the rate, the LLPS for their specific situation. I tell them the pluses and minuses. A higher rate means more YSP credit. A lower rate less YSP credit, call it what you will. I explain the difference in the payment, and what makes the most sense for my client. If it is not possible to meet face to face, I send a pdf and e-mail and discuss via a phone conversation. No borrower can ever say I steered them into something that was not the best. By the way, I did all this with borrowers before the anti-steering form was invented.

“That brings up another thing: The anti-steering form is worthless. To give 3 different rate/cost scenarios tells nothing without the payments and total cost that goes with it. A few years back, the Calyx anti-steering form was a total breakdown for 3 rates. It was so easy to show a client what was what. The rule to provide accurate info is valid. The current form does not meet the requirements of the rule.

“The new 1003 is another worthless change to a reasonable form. A married couple, and each has to complete their own form? More paper and basically no additional info. e-mail address? Cell phone? It takes an additional 8 pages to add two lines? Another example of bureaucrats creating something they know nothing about. For the government, more pages mean you have something to do all day. Like attorneys: Get paid by the word.”

State law changes

New Jersey has recently amended its Residential Mortgage Lending Act to clarify that the RMLA applies to certain out-of-state persons and entities involved in residential mortgage lending in New Jersey.  The provisions specifically state that the RMLA sections 1 through 39 of P.L.2009, c.53 (C.17:11C-51 through C.17:11C-89) also apply to all persons and entities that are located out-of-state, that originate residential mortgage’s provided that they are otherwise required to be licensed under the RMLA.

Several additional updates to the RMLA had recently gone into effect on November 22, 2018.

These included requiring lenders and brokers to have a branch manager for each branch office and amending requirements with respect to the fees that may be charged during the mortgage loan process. It exempted loan processing and underwriting companies from the RMLA, provided that they register as an exempt company, and required exempt company registrants to provide written notice to the Department upon the occurrence of any event that would cause the exempt company to no longer qualify for an exempt company registration.

The updates also granted the Department the authority to issue transitional mortgage loan originator licenses and set forth the parameters as to when the Department may deem an application for licensure abandoned.  Finally, last year’s updates permitted depository institutions to register with the Department for the purpose of sponsoring licensed mortgage loan originators.

Several foreclosure-related bills have been enacted in the state of New Jersey with a range of effective dates and are as follows:

Assembly Bill 6641 requires that at the time a borrower receives a notice of intention to foreclose, the creditor must provide a written notice of the option to participate in the Foreclosure Mediation Program.  In addition, upon the filing of a mortgage foreclosure complaint, the borrower must again receive written notice of the option to participate in the Foreclosure Mediation Program.  The bill also creates a dedicated “Foreclosure Mediation Fund,” to be used for the operation of the Foreclosure Mediation Program and to enhance the integrity of the mortgage foreclosure review process.

Assembly Bill 4999 requires a creditor that institutes a foreclosure proceeding on residential property to file the summons and complaint in Superior Court, and with the lis pendens filed with the office of the county clerk or register of deeds and mortgages. The Bill also requires the following information: name and contact information for the representative of the creditor who is responsible for receiving complaints of property maintenance and code violations; and if the creditor is located out-of-state, the full name and contact information of an in-state agent who will be responsible for the care, maintenance, security, and upkeep of the exterior of the property if it becomes vacant and abandoned.

Assembly Bill 5001 reduces the statute of limitations in residential mortgage foreclosure actions from twenty years to six years from the date on which the debtor defaulted, in situations in which the date of default is used as the method to determine when the statute of limitations has expired.  The bill therefore revises the alternative methods under the “Fair Foreclosure Act” for determining when the statute of limitations for the foreclosure of a residential mortgage has expired by providing that an action shall not be commenced following the earliest of: (1) six years from the date fixed for the making of the last payment; (2) thirty-six years from the date of recording of the mortgage; or (3) six years from the date on which the debtor defaulted.

Senate Bill 3411 revises the “Fair Foreclosure Act” to require that a notice of intention to foreclose, including a notice of the right to cure the default, which currently must be sent at least 30 days in advance of a residential mortgage lender commencing foreclosure or other legal action to take possession of a residential property, shall not be sent more than 180 days in advance of taking that action. If more than 180 days have elapsed since the date the notice of intent to foreclose is sent, and any foreclosure or other legal action to take possession of the residential property has not yet been commenced, a new notice shall be sent at least 30 days, but not more than 180 days, in advance of that action.

Effective immediately, the Tennessee Secretary of State has adopted emergency rules pertaining to its Online Notary Public Act.

Rule No. 1360-07-03-.02 allows a commissioned notary public to submit an application for commissioning as an online notary public. Upon submission of the application along with the required information as detailed in the rule and a $75.00 application fee, the Secretary of State may issue an online notary public commission to a qualified applicant.

Rule No 1360-07-03-.03 allows an online notary public to perform online notarial acts for electronic documents only by way of personal appearance which can be made by electronic two-way audio and video communication.

In order to perform an online notarial act, the notary must be physically located in the state of Tennessee; the principal need not be physically located in the state of Tennessee.

Identity verification of the principal may be made by personal knowledge of the notary, presentation of a government issued identification card, credential analysis as detailed in Rule 1360-07-03-.05, or identity proofing as set forth in Rule 1360-07-03-.05.

The notary public must also maintain an electronic record of all electronic documents notarized and contain the following information: the date and time of notarization; type of notarial act; type, title, and description of the document; printed name and address of each principal involved; evidence of the identity of the principal; a recording of the act; and any fee charged.

Rule 1360-07-03-.04 requires the use of an online notary seal that substantially complies with the design and requirements as depicted and outlined in the rule. The full text of the rules is available.

When a soldier came to the clinic where a friend works for an MRI, he was put into the machine by an attractive, young technician.

Sometime later, when the examination was over, he was helped out of the machine by a far older woman.

The soldier remarked, “How long was I in there for?”

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Rob Chrisman