May 28: Letters on negative interest rates, LOs & RESPA violations, right of rescission, and down payment assistance programs

Even with the holiday (no commentary on Monday) it doesn’t folks from writing interesting letters and observations that others can learn from…


No wonder underwriters in places like New Jersey, Iowa, Tennessee, or Texas have problems with values in Northern California – check out what $550k buys you in SF. (Thanks to Brent N. for this one.)


“Rob, is there any reason to think that the private equity firms currently in the residential lending business can close a loan? I remember the problems investment banks had 10-15 years ago – they could handle the capital markets end of the transaction with one hand tied behind their backs, but they couldn’t figure out the operational piece, or how to manage originators talking to clients.” It’s always been a challenge, and to that point, Wall Street (and private equity) has always taken a “rent-a-capacity” approach. Except to say that we have seen this goat rodeo many, many times before, and it always ends the same, I don’t really have anything to add. That being said, some of these large money firms own some companies staffed by some pretty talented folks.


Attorney Brian Levy commented on the CFPB’s fining of a former Wells Fargo loan originator for RESPA violations. “It’s somewhat encouraging to us RESPA compliance geeks that the CFPB highlighted its enforcement against an individual rather than the company (see CFPB’s press release). Still, it’s another example of the lender always being the one who gets punished for the RESPA violation, whether you are the giver or receiver.


“Regardless, for the last 6 months or so, I’ve been flying around the country offering an in-person RESPA training presentation targeted to originators and other salespeople.  As demonstrated by this story, the sales staff can be the weakest link in a lender’s RESPA compliance regime. The new RESPA interpretations “articulated” by the CFPB’s enforcement-based guidance have focused the need for this group to have updated knowledge and specific actions they and their companies can take to improve RESPA compliance. I suspect this story is going to inspire a bit more business for me.”


This week’s CFPB action against an individual LO made me remember a note I’d received a while back. Eileen O’Grady wrote, “There are reasons why ‘bad things are happening’ in/to our industry. Doesn’t anyone realize that we are in a ‘post-crisis-purgatory’ of our own making, and that we gave the CFPB a blank check on overseeing us when we pulled the shenanigans (yes, I said ‘shenanigans’) we pulled in 2003, 4, 5, 6, 7++? I say ‘we,’ including (to be bipartisan) ‘W’ Bush, who said ‘go forth and regulate yourselves’ (think fox in henhouse) following Bubba who said ‘let’s target a 70% homeownership rate,’ (a perfect storm of an unchecked volume-by-any-means mandate followed by self-de-regulation) and the lenders and brokers who couldn’t resist making every NINJA loan that could be made. (Can you tell I watched ‘The Big Short?’ I felt like I was dying, and my life was flashing before my eyes as I was watching it. Left the theater with a serious stomach ache thinking, ‘So this is what I invested my professional life in….?’)


“Maybe your readers can feel some peace when they come to accept that they are sub-contractors to the US Government agencies of Fannie & Freddie. I know I feel some peace when I balance the MBA’s ‘call to activism’ with historic perspective. I wonder when all of our jobs will be posted on….?  Anyone who wants to rant at me over this, email me at”


From Ryan in the Northwest I received, “The industry is enduring witch hunts! It’s sad, really. Odd how they waited several years for the banks and mortgage lenders to get profitable again before busting them. I mean, why now? Originations from 2006-2011… They had several years to bust them… Why now? Because they have money and the DOJ can take it from them. Ambulance chasers and class action lawyers they are! Guild will certainly not be last. Who’s next is the real question?”


A while back Rob Chrane, CEO of Down Payment Resource, sent me a note regarding down payment assistance programs. “There is talk in the industry of the possible down payment program cessation. I’d like to offer another opinion based on insight into more than 2,400 programs nationwide. Recently we released our 4th Quarter Homeownership Program Index. Of the programs catalogued and updated monthly in our database, down payment and closing cost help accounts for 70 percent. When the OIG audit story first broke last summer, we did a quick scan of our database and estimated that less than 12% of these programs were funded with premium pricing. We have no inside track on how this will play out, but we can assure your readers that there are more than enough opportunities to serve many qualified and eligible borrowers.”


Jonathan Foxx with The Lenders Compliance Group writes, “Recently, we have had an increase in questions about the right of rescission; specifically, about whether the exercise of the right of rescission (“ROR”) by one consumer is effective to all consumers.


“Let’s get clarity into this aspect of the ROR requirements. In any credit transaction where a security interest is or will be retained or acquired in a consumer’s principal dwelling, section 1026.23(a) provides that each consumer whose ownership interest is or will be subject to the security interest has the right to rescind the transaction. The right of rescission also applies to the addition of a security interest in a consumer’s principal dwelling that is added to an existing loan, although rescission only applies to the security interest itself, not the loan.”


Lastly, Jeff Berglund with Priority Lending sent along this piece from Swanepoel T3 Group on interest rates, more specifically conjecture on the impact of negative interest rates, that may be of interest to some. “The last three major real estate downturns had their roots in the financial sector. Even though properties experienced extraordinary deflation during each of these downturns, over time the markets recovered with inflation stimulating a long-term upward trajectory in property values. For the first time in our lifetimes, however, negative interest rates could trigger a deflationary cycle resulting in the next real estate downturn.


“The real estate industry is no stranger to plunges in property values. Nevertheless, a downturn coupled with deflation will be unlike anything we have experienced before. To illustrate how bizarre this can be, in Denmark, where they instituted negative rates to protect their currency, some borrowers with adjustable rate mortgages ended up with the banks paying them. In a deflationary cycle, the so-called mattress effect can become a reality; i.e., your money is worth more under your mattress than it is in a bank or an investment that is depreciating in value. The key challenge facing the Central Banks and the Fed is how far to cut interest rates in order to stimulate growth and to increase inflation modestly without creating another housing bubble.”


“Our whole financial system is built on positive interest rates. When interest rates go negative, banks charge their customers and other financial entities for leaving their money on deposit with them. The longer the money is held on deposit, the less the balance becomes. This is the exact opposite of an inflationary cycle where cash loses value as prices increase. The goal during an inflationary cycle is to buy before prices increase even further. In a deflationary cycle where values are declining, the goal is to delay purchasing as long as possible in order to obtain the lowest possible price.


“Countries that have instituted negative interest rates hope to encourage more lending as opposed to leaving the money on deposit with a Central Bank. Negative interest rates also tend to drive down the value of the country’s currency. The result is their exports become cheaper while imports become more expensive; this helps their balance of trade. Moreover, there’s little incentive to save when bank balances decrease due to the negative rates. The hope is that people will spend more money, employment will increase, inflation will return, and that the next recession will be avoided.


“While some experts question whether the Federal Reserve can legally reduce rates below zero, other countries such as Denmark, Japan, Sweden, and Switzerland have already ventured into negative interest rate territory. $1.1 trillion worth of German bonds and $4.5 trillion in Japanese government debt carry negative interest, and more than $7 trillion bonds overall had negative yields. According to Nordea, Scandinavia’s largest bank, negative interest rates only help central banks to defend their currency. For those trying to stimulate the economy, negative rates are the wrong tool. That’s good news for Denmark and Switzerland and bad news for the Euro Zone, Japan, and Sweden.


“According to Scott Minerd, the global chief investment officer for Guggenheim Partners, bond markets are global. Negative rates abroad are among the factors depressing interest rates in the United States. Furthermore, declines in German rates are likely to lead to additional declines in American rates as well, even as the Fed intends to push rates higher. This is good news for mortgage rates, but it could also be the trigger for the next housing bubble in the U.S. In addition to a potential housing bubble, Jim Rogers argues that these unconventional monetary strategies (negative interest rates) will lead to a stock market rally in the near future, with deep trouble later this year and into 2017. He fears that financial Armageddon is just around the corner. It’s been seven years since there has been a decent correction in the stock market. Markets are supposed to have economic slowdowns he warns; that’s the way the world has always worked.


The opinion piece finishes up with, “The bottom line is that negative interest rates have led us into uncharted waters. With an increasing number of countries jumping on the negative interest bandwagon, the risks of a currency war are greater than ever. If the negative interest rate trend continues, the probability of a housing bubble with a subsequent deflationary period where everyone’s entire modus operandi will be turned upside down becomes increasingly more likely.”


That being said, various Fed Governors have been asked about the possibility of negative interest rates here in the United States. To the best of my knowledge they have all pretty much uniformly said that the possibility was negligible.



“Lexophile” is a word used to describe those that have a love for words, such as “you can tune a piano, but you can’t tuna fish”, or “to write with a broken pencil is pointless.” A competition to see who can come up with the best lexophiles is held every year in an undisclosed location. This year’s winning submission is posted at the very end.

When fish are in schools, they sometimes take debate.

A thief who stole a calendar got twelve months.

When the smog lifts in Los Angeles U.C.L.A.

The batteries were given out free of charge.

A dentist and a manicurist married. They fought tooth and nail.

A will is a dead giveaway.

With her marriage, she got a new name and a dress.

A boiled egg is hard to beat.

When you’ve seen one shopping center you’ve seen a mall.

Police were summoned to a daycare center where a three-year-old was resisting a rest.

Did you hear about the fellow whose entire left side was cut off? He’s all right now.

A bicycle can’t stand alone; it’s just two tired.

When a clock is hungry it goes back four seconds.

The guy who fell onto an upholstery machine is now fully recovered.

He had a photographic memory which was never developed.

When she saw her first strands of grey hair she thought she’d dye.

Acupuncture is a jab well done. That’s the point of it.

Those who get too big for their pants will be totally exposed in the end.





(Copyright 2016 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