“Thoughts from the trenches continue to come in, in spite of the holiday week. Let’s jump in.
Here is an observation from an East Coast 100% retail lender’s president on the predicament of an aging LO workforce. “A huge issue I am seeing right now is the ignorance of the loan agent. Our industry is aging and we are not getting in the younger agents. The young don’t want to come into this business. How do we change this? I bet the average age of our LOs now is around 50, and the older agents are stubborn and would rather ignore what has happened to our industry than embrace how to be better. Every day I hear from the seasoned agents: ‘This is a ridiculous underwriting decision, or a competitor would do that loan even though it doesn’t meet QM,’ and so on. I think we need to find a way to wake up the sales force and quit placating them. We do have some new younger agents, and the difference with their openness about our industry compared to the older generation is astounding.”
And in a similar vein I received this note from another retailer in the Southwest. “With the change in QC, our cost of a loan has gone up significantly. The only person in this industry that hasn’t been impacted by way of income is the loan officer: their income is really very steady and they still have the lowest risk overall. The consumer has been impacted and the owners and investors are impacted, but the loan officer is still doing what they did before. We are forcing them to be compliant, but against their will. They just have no idea what the consequences are and they just don’t care – ignorance is no excuse. I am amazed by the fraud that even our small company sees in our QC department, silly stuff like making up a promissory note to source funds, or signing a LOE instead of asking the borrower to do it. No one talks about it, but every time I meet with anyone at my level they say the same thing. Loan agents need to wake up and own their career!”
John Jacobs, CMB and SVP with Patriot Bank Mortgage reports, “I did an analysis for our bank’s regulators to determine the production sensitivity to interest rate movements and could not find a correlation. My analysis looked at interest rate movements, both MBS and the 10-year treasury from 1975 through 2013 against changes in the volume of loan production done in America. Certainly there were some directional implications of production volume to interest rates, i.e. rates moved down and volume moved up, and vice-versa, but the magnitude of production increases and decreases had more to do with the macro-economic conditions, and what interest rates had been in the immediate past rather than the absolute level of rates. We have just gone through a period of nearly historically low interest rates and volumes are at very low levels. Why? A) Most people that could refinance have, b) scarcity of listed inventory, c) no first-time home buyers, d) no wage gains for most Americans, and e) little faith that individuals financial situation will improve any time soon. These facts weigh heavily on loan production. I predict that if the economy strengthens and real wage and job growth occurs, buyers will buy at higher interest rates, because we have seen it in the past. You cannot predict loan production volumes from the movement of interest rates with any certainty.”
Education at any level is a good thing, and Jan Walters, a Senior Associate with the STRATMOR Group, contributed, “I’d start with a book called ‘Mortgages for Dummies.’ It was a book that I stumbled on when I was managing a team of Business Analysts about 10 years ago, and my staff often did not have much (if any) mortgage experience. While it is geared for first time home buyers, it gives a broad overview of the business, terminology, etc. and gave my staff a lot of grounding and my staff who read it found it very helpful. There is now a third edition that was published this year—and I’m sure that the approach has changed due to the meltdown and the loss of equity and wave of foreclosures that occurred as a result of lovely things like pick-a-pay mortgages. I read the reviews on this edition and while most felt that it was very helpful, there were a few more who didn’t feel that the book was helpful (from the perspective of someone already working in the industry) or that there were some references to appendices that were missing—probably some slips on the newest edition that have not been worked out yet.”
Regarding LO comp, Bart B. “put pen to paper” saying, “Way back when I first started in the mortgage business and before the issues with LO comp came into prominence, I believed that LO comp should be revised. The manner in which LOs would be compensated under my plan would have prevented churning, eliminated (or at least greatly reduced) fraud, improved the overall quality of LOs, and greatly reduced ‘predatory’ LOs, and more. My plan was modeled on the compensation programs utilized in the life insurance industry. There would have been a relatively small initial payment to the LO, compared to the current model, at the closing of any loan. That initial payment would have been the same regardless of loan amount helping to ensure that all potential borrowers were well served. The LO would then receive a regular monthly payment, similar to the servicing payment in concept, for each month the loan remained on the books and was paying on time. This would have encouraged professional LOs to remain in contact with their clients to help ensure that any client who refinanced stayed with that LO. It, also, would have attracted only serious LOs who were looking to establish a long term career rather than inviting the ‘get rich quick’ people who helped contribute to the fiasco of the mortgage meltdown. While it would have taken a little time, successful, long term LOs would reach a point when they only had to wake up to have achieved an income for the month. The stable income generated by the “servicing” aspect of their compensation would remove the possible incentive to be ‘creative’ in any loan application merely to produce a commission. Current computer systems and national licensing procedures have made it quite possible to do this.”
Loan to values seem to be a lightning rod of opinions. Gary B. contributes, “Rob, I had to reply to the post regarding 97% loans and how they’re a toxic product and have been a disaster in the past because the borrower has no ‘skin in the game.’ I only ask how many VA and USDA home loans has this LO written lately? Does he/she also advocate eliminating those loans too? It seems to me both of these are performing pretty darn well. So why not a 97% LTV loan too for the conventional borrower? I fully understand skin in the game for the investor loan or even 2d home, but we have a long history of low down owner occupied loan products that do very well.”
This is a repeat of earlier themes, but there is still confusion. JK writes, “In reading more of the ongoing discussion about giving referral fees to past clients in your commentary, something kind of jumped out at me. I’ve always held the belief that we can’t ever give anything to anyone who sends a client our way. However in re-reading the exact RESPA language shows, ‘’No person shall give and no person shall accept any fee, kickback, or thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or a part of a real estate settlement service involving a federally related mortgage loan shall be referred to any person.’ It seems to me that the key phrase there is ‘pursuant to any agreement or understanding, oral or otherwise’. So if I was to unilaterally send out some sort of small thank you gift to a past client who referred a friend to me, that’s not being done ‘pursuant to any agreement or understanding, oral or otherwise’, but just my way of saying thanks. If the client had no idea it was coming, there couldn’t possibly be any sort of agreement or understanding, so it seems to me like that should be OK.”
I turned to Marx David Sterbcow LLM, JD with The Sterbcow Law Group LLC. “Great question below and the answer is under strict interpretation that it would be illegal. The thing about RESPA is that it doesn’t have to be in writing it can just be inferred–meaning if the regulator believes you sent past clients gifts for referring business to you then this would be an illegal kickback. The formula they would use to determine the inference is this: did you send a thank you gift to more than one former client for referring business? Did you send any gifts to former clients who didn’t refer you business? If answer is ‘No’ then you violated RESPA – it doesn’t matter one iota if the recipient knew or not your paper trail confirms it was a kickback (your intent can be inferred once consummation of send gift is complete). Here is something I wrote to rob a few weeks ago about this topic:
“I defended a mortgage lender in a federal RESPA enforcement action for giving $25 dollar restaurant gift cards to former clients, family members, friends, and the general public who referred business to them. In fact the program the mortgage lender ran officially excluded any settlement service provider from participating in the program. They were misinformed into thinking a Section 8(a) violation only applied to instances where a settlement service provider referred them the business in lieu of the $25 gift card. The statute clearly says ‘No person shall give and no person shall accept any fee, kickback, or thing of value…’ No person means everyone not just former clients or other settlement service providers—so if the waiter at IHOP introduces a loan officer to a couple eating a Rooty Tooty Fresh ‘N Fruity because they are looking to refinance their house the only thing the Loan Officer can ‘give’ the waiter a great big personal Thank You either orally or in a note–not a $25 dollar gift card to White Castle.”
On the same topic BB writes, “Rob, on the topic of LOs paying realtor referral fees, long ago when I was approached by real estate agents with a request to split my commission with them my response was I would give 100% of my commission in exchange for 100% of theirs. Another response I came up with was that since their real estate transaction required a loan to close, the real estate agent should be the one paying the LO to ensure the successful closing of the sale. Neither was a totally serious suggestion but they shook up more than a few agents.”
(Rated R; adult themes)
It was the mailman’s last day on the job after 35 years of carrying the mail through all kinds of weather to the same neighborhood.
When he arrived at the first house on his route he was greeted by the whole family there, who congratulated him and sent him on his way with a big gift certificate envelope.
At the second house they presented him with a box of fine imported cigars.
The folks at the third house handed him a selection of terrific fishing lures.
At each of the houses along his route, he was met with congratulations, farewells, cards, and gifts of all types and values.
At the final house he was met at the door by a strikingly beautiful young blonde in a revealing negligee. She took him by the hand, gently led him through the door (which she closed behind him), and led him up the stairs to the bedroom where they had a most passionate liaison.
Afterwards, they went downstairs, where she fixed him a giant brunch of eggs, potatoes, ham, sausage, blueberry waffles, and fresh-squeezed orange juice.
When he was truly satisfied she poured him a cup of steaming coffee. As she was pouring, he noticed a dollar bill sticking out from under the cup’s bottom edge. “All this was just too wonderful for words,” he said, “but what’s the dollar for?”
“Well,” she said, “Last night, I told my husband that today would be your last day and that we should do something special for you. I asked him what to give you.”
He said, “…Screw him……..give him a dollar.”
The blonde then blushed and said, “But the breakfast was my idea.”
(Copyright 2014 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.)