Nov. 14: Handy-dandy websites; takeaways from the MBA conference; curing TIP under-disclosure; costs on rural appraisals

“Rob, do you know of any primers on the differences in requirements between being a correspondent and a mini-correspondent? I receive different information from different sources…” Sure – start with this website and page down once to the links to “Mini-correspondent” and “correspondent.”


“Rob, I am a broker in Missouri and my client needs a 203(k) loan. Do you know of any wholesalers doing those?” Not off the top of my head – too many lenders, too many states, too many programs. I refer everyone to where you can type in the state and then select the program and it will give you the investors. (As a reminder Section 203(k) insurance enables homebuyers and homeowners to finance both the purchase (and refinancing) of a house and the cost of its rehabilitation through a single mortgage or to finance the rehabilitation of their existing home.)


On trends with Fannie Mae & Freddie Mac, Anthony Berris sent, “Fannie and Freddie are becoming the Visa and Master Charge of the mortgage market. They don’t actually take much credit risk; they just provide the plumbing and infrastructure for a fee. That’s a good business model for them, but the drawback is that it is inherently pro-cyclical. By that I mean when mortgage capital abounds, they will get it out there efficiently. When mortgage capital is scarce, they will do nothing toad substantial new capital to the market. Markets with private capital are always pro-cyclical; hence the old joke that the only time a bank will lend you money is when you don’t need it.  Rational market reform would acknowledge the ease with which private capital can be distributed in a good market (because private markets are pro-cyclical) and set up counter-cyclical mechanisms for augmenting private capital when capital is scarce.”


Capital is not currently scarce, and Mr. Berris’ note went on. “The MBA conference seemed like 2004 to me with lots of ‘we’re going outside the Fannie/Freddie box’ and ‘How do you feel about seconds?’ in my meetings. The mortgage market is awash with capital and it’ll get deployed chasing yield, which means we’re going to be seeing the whole slate of alternative products again, bounded, perhaps, by some new regulation like QM. The mortgage bankers were giddy.”


While we’re on the topic, the dust has now settled on the MBA’s conference in San Diego. It’s only been three weeks (yes, time flies) and some are heading to the MBA’s Independent Mortgage Banker conference in Nashville. In only three weeks! The national conference was certainly a good way to hear the latest views from all industry participants.


Of the SD conference David Wind, who runs mortgage for SoFi, contributes, “The San Diego MBA Conference was well attended by companies looking for the secret formula to attract the Millennials — the growth market in housing. Much of the focus was on what aspiring home owners want and expect during their home buying experience. At the conference, it was clear that new entrants into the mortgage space have a distinct advantage given their innovative approaches. As one of the newer entrants, the conference reinforced what we’ve long known to be true: we at SoFi have a great opportunity to rapidly grow market share and get more financially responsible Millennials into homes sooner.”


Most admit that there was a positive tone on GSE Rep and Warranty changes. Mel Watt, the head of FHFA, and the CEOs of both Fannie Mae and Freddie Mac spoke about continued improvements to the rep and warranty framework, an updated version of which the GSEs released over a month ago. The new guidelines help provide clarity to lenders on materiality of mortgage origination defects that can result in a repurchase. New rep and warranty guidelines related to GSE servicing will also be released soon in order to provide mortgage banks more clarity in this area. And given the “ruling by enforcement” CFPB environment, clarity is a good thing.


The impact of the new TILA-RESPA Integrated Disclosure Rule which went into effect on October 3 was a topic of discussion by many panelists – but is it beating a dead horse? The new rule was put in place by the CFPB. Richard Cordray, the head of the CFPB, noted that the rule is required by Dodd-Frank and said he does not expect it to have a material impact on the industry. Industry participants complained about the difficulty of adopting it, but no one suggested that it could have a long lasting negative impact on the industry. And I have not heard much since.


And don’t forget Marketing and Servicing Agreements (MSAs). A recent area of focus in the industry has been MSAs and it was the topic of a panel discussion. The CFPB recently came out with guidance that suggested that lenders would have to be vigilant to ensure that their MSAs were compliant with RESPA. The consensus among panelists was that it will likely be difficult to operate MSAs in a compliant manner given the lack of clarity by the CFPB on what would make any MSA RESPA compliant. Unfortunately the industry awaits another enforcement action, as well as following the CFPB/PHH saga.


I spoke to many lenders who have been seeing strong performance in 2015. This tends to generate a lot of optimism…maybe too much? It seemed that every lender intends to increase their production in 2016, and some think they’ll double it within three years. We’ll see if the big banks cooperate with that plan! Any companies good at recruiting will certainly have the inside track since most estimates that I have seen show 2016 volume to be about what we’re seeing this year – so it will be a market share grab. Neither Freddie, Fannie, nor the MBA, project returning to a $2 trillion market as we experienced in the early-to-mid 2000’s.


As Jeff Babcock with STRATMOR puts it, “Under these slow-growth conditions, the well-capitalized larger players with greater resources should be able to prevail if they are willing to ‘pay up’ with LO singing bonuses and aggressive valuations for M&A sellers. It appears likely that originator competition will show up in pricing with a potentially negative impact on profit margins.”


And most of the large mortgage originators have now reported third quarter results. Mortgage banking revenues were down quarter over quarter as lower volumes were coupled with lower gain-on-sale margins. The folks who follow such things say things were down 10-15% versus the 2nd quarter. And sure enough the results from PHH, Nationstar Mortgage, Walter Investment Management, PennyMac, Redwood Trust, and Stonegate Mortgage echo that. They also show, however, that in general volumes are up about 15% versus Q3 of 2014.


But any experienced mortgage person will tell you that volumes aren’t as important as margins but it is easier to compare volumes. Gain on Sale (GOS) margins were down by an average of 14 bps. Only Fifth Third and First Republic Bank reported a higher gain-on-sale margin quarter over quarter. Ask anyone in capital markets and they will tell you that the downward trend is not surprising in a slowing mortgage market since this usually results in increased competition for volumes.


I received this note from a loyal reader: “File under, ‘CFPB Directors say the darnedest things’: Cordray: Financial Literacy a Priority for All Age Groups. In his remarks at the ABA Annual Convention, CFPB Director Richard Cordray encouraged banks of all sizes to continue working to increase financial literacy, stressing the importance of financial education for three specific groups: students, adults in the workplace and older Americans. He applauded, for example, the ABA Foundation for its recently announced Safe Banking for Seniors initiative. I assume Mr. Cordray thinks that unemployed people seeking jobs are included in the ‘adults in the workplace’ category, so apparently the only people who are not in need of financial literacy assistance are ‘non-older’ adults living on either (i) government benefits or (ii) inherited or other passively obtained wealth. And perhaps another exclusion from the need for financial literacy per Cordray is Americans who made enough money to retire on before they were classified as ‘older’. That should narrow it down to manageable.”


And the comments from TRID continue although they are dying down. “I wanted to propose a question to you and maybe your readers around the new TRID (The Reason I Drink) regulations. The questions stems around the ‘Intent to Proceed Document’. I hear some organizations will not allow their loan officers to ask, require, or analyze supporting documentation until they find a home and execute the intent to proceed. This causes the pre-approval letter to not have any teeth and in essence it’s like the old pre-qualification letter. The sellers are going to want something more definitive. And then I hear that other organizations do allow their loan officers to ask and analyze the supporting documentation prior to receiving the ‘Intent to Proceed’…….which allows them to have a legitimate pre-approval letter. Which is correct in the CFPB’s eyes?”


“Rob, I think most of us in the mortgage industry are nervous about the Zillow Marketing agreements with realtors (i.e., marketing expenses are percentage of the total, etc. – typically 50%). We simply give them a credit card and they add zip codes, etc. as they see fit.”


“We’ve delivered our 1st TRID loan to an investor and they have pended us indicating that the TIP is under-disclosed by .01%, which I agree with. Is there no tolerance percentage for the TIP disclosure?” I turned to Ginger Bell with Go2training. “The first comment, after, ‘Oh good, only .01%’, was to question if there is indeed a tolerance issue on TIP.  (This Is Possible) or (Total Interest Percentage). The rule and materials produced by the CFPB seem to be silent on the matter of tolerance and TIP, especially since the rule is specific as to the simple method of calculation. The differential of .01% may easily be interpreted as a rounding preference (2 places vs. 3 vs. 4, etc.) and therefore may very well fall under the category of ‘investor preference’. The fact that the rule appears to be silent on the concept of rounding to the nearest .00% vs. .000%, vs. 0000% may also result in an interpretation that there is zero tolerance.


“The best advice is to check with your investors and find out what their interpretation of TIP tolerance is. Also, watch your TIP calculations in your LOS. It seems that the TIP calculation the LOS issues may be different from the loan validation program. Don’t worry folks, Thanksgiving will be here soon and we can just worry about the savings you will get on the socks you are buying at the annual sock sale.”


And the dynamics of supply and demand with appraisers, and appraisals, continues. I received a note from a lender in a rural area of Northern Arizona. “Our properties are spread out, not contiguous in style and design, may be up to 40 acres, and on well and septic. In the last 12 months, I have seen the price of SFR appraisal quotes from AMC’s skyrocket. The following quotes are real: 1. Chloride, AZ – $2400 for SFR, small acreage with a few outbuildings, distressed property; 2. Meadview, AZ – $900 for SFR, small acreage, large garage with one-bedroom; Kingman, AZ – $1100 for SFR, 5 ½ acres, 28 miles north of town on I-40. I am just curious if any of your other rural community lenders are seeing appraisal fee quotes in this range? I am not familiar with all the regulatory guidelines that AMCs/appraisers must follow. Are there any regulations regarding price? These fees are double and triple our normal fee quotes for similar properties.”


I turned to Michael Simmons, SVP of AXIS Appraisal Management Solutions. He replied with, “We have an office in Tempe, AZ so I asked our team there for some general market information, and spoke to one of our account executives who manages orders for a number of our lender-clients in Arizona. I also spoke with one of our QC appraisers who knows the area for their feedback.


“While at first blush the fees in Meadview and Chloride (that name alone should be a harbinger) sound unreasonable, a closer inspection is revealing. Chloride is a silver mining ghost town…literally. It has a population of 352 per the 2000 census – and you have a distressed property with outbuildings. I shudder to think what comps an appraiser might actually be able to find. My guess is that some appraiser spit out a ‘if you really want to pay me this much I’ll take the assignment’ quote. My concern is that the bigger problem might be marketability from a lender’s standpoint. That’s not a problem that any appraisal fee (big or small) can cure.


“Meadview is a retirement community of approximately 1500 people located 1 ½ hours north of Kingman. That’s a long drive since I don’t believe there are any appraisers that actually live in Meadview (unless they’re retired) and the distance goes a long way to explain such an escalated fee. It looks like there are about a dozen appraisers who will take assignments there, so few extra calls might generate a more acceptable fee.


Kingman is the county seat of Mohave County and is considered a ‘big city’: 30,000 people and a Walmart Superstore. We’ve probably done under 100 appraisal assignments in the last several years there and I don’t think we’ve ever charged over $540 (and that’s paying an appraiser $400). Even though a property is outside of town and likely carries the burden of distant and limited comparables, $1100 seems a reach. Your panel of appraisers might be too small.”


Mike’s note finished with, “These escalating fees don’t seem to be a function of regulatory guidelines so much as a falling supply of appraisers – simple supply and demand. The medical world’s experienced much the same phenomenon in terms of the difficulty in finding doctors willing to serve outlying areas. Are higher fees something we should come to expect? I think so. But we need to remember that while we’re all entitled to earn reasonable compensation, these are your neighbors and parents of your kid’s friends that are going to be paying that $1,100. And before you feel it’s personal, know that it’s not much different in West Virginia, Colorado, Montana, Alaska, – or any other state you’d like to name.” Thanks Mike!



(Rated R for language.)

We were dressed and ready to go out for the New Year’s Eve Party.  We turned on a night light, turned the answering machine on, covered our pet parakeet and put the cat in the backyard.

We phoned the local cab company and requested a taxi. The taxi arrived and we opened the front door to leave the house.

As we walked out the door, the cat we had put out in the yard scooted back into the house. We didn’t want the cat shut in the house because she always tries to eat the bird.

My wife walked on out to the taxi, while I went back inside to get the cat. The cat ran upstairs, with me in hot pursuit. Waiting in the cab, my wife didn’t want the driver to know that the house will be empty for the night. So she explained to the taxi driver that I would be out soon. “He’s just going upstairs to say goodbye to my mother.”

A few minutes later, I got into the cab. “Sorry I took so long,” I said, as we drove away. “That stupid b&–ch was hiding under the bed. I had to poke her ‘rump’ with a coat hanger to get her to come out! She tried to take off, so I grabbed her by the neck. Then I had to wrap her in a blanket to keep her from scratching me. But it worked! I hauled her fat a$s downstairs and threw her out into the back yard!  She better not s–t in the vegetable garden again!”

The silence in the cab was deafening.





(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.)

Rob Chrisman