Nov. 3: Letters on Zillow’s event, VA IRRRLs, LO comp; California’s changing lender environment

Many states change their clocks (“Spring ahead, fall back”) shortly after midnight tonight. Time seemed to fly, and me along with it, as I spent this week in Nevada, North Carolina, and Tennessee, and there are some very interesting things going on as lenders and vendors continue to strive to help their clients.

For example, earlier this week Garth Graham (STRATMOR) and I attended and spoke at the Zillow Premier Agent Forum in Las Vegas – a good place at handling a large crowd. (The majority of attendees were real estate agents but recall that several months ago Zillow announced the acquisition of Kansas’ Mortgage Lenders of America – MLOA. That acquisition closed this week.) Garth had some thoughts on the gathering. “I had the pleasure of attending the Zillow Premier Agent forum this past week in Vegas, and my perception is that what Zillow is doing with consumers, and the way they think about mortgage and real estate, is certainly turning heads. There were over 2,000 Premier Agents in attendance, and these Realtors are examples of those in the industry who have embraced a different way to engage with consumers and deliver a more digital process to shopping for a new home. They came to listen to Zillow executives and some great speakers from other industries talk about disruption, innovation and the evolution of the consumer experience.

“Zillow is only a 10-year old company, but already over 100M unique users leverage their platform each month. That’s an extraordinary reach and is really changing the expectation of consumers about the real estate process. And that means that it’s also changing the consumers expectations about the mortgage process that supports the home buying cycle. Zillow’s previously announced purchase of Kansas City based Mortgage Lenders of America (MLOA) was also a topic of discussion with those in attendance, and how the MLOA platform was going to focus on providing financing for their Zillow Offers business, where Zillow purchases homes directly from those homeowners who are looking for a quick and certain sale transaction without the hassle of the typical sales process. That is certainly disruptive, although obviously a small number of home sellers are expected to choose that type of transaction.”

Garth also noted that, “There were also over 50 mortgage lenders also in attendance, and what struck me is that it was NOT just Consumer Direct lenders who were there – it was also some of the best traditional retail lenders who were present, lenders who realize that the ability to understand the online real estate experience is critical for the future success of the traditional retail lender, just as the 2,000 agents who were present have already realized. From my perspective, every lender needs to have a strategy to embrace a consumer centric process, and to embrace potential innovations, and Zillow is certainty a leader in driving and even changing consumer buying patterns in real estate. I think the most successful lenders in the future are those that realize that the market is changing and are willing to evolve their business to meet the consumer’s needs.”

Letter writing can be effective, and the Community Mortgage Lenders of America (CMLA) is asking the Senate to fully consider and vet House language recently passed to correct transitional issues, primarily regarding VA Interest Rate Reduction Refinance Loans (IRRRLs), that were orphaned on May 24, 2018, when President Trump signed into law S.2155 – Economic Growth, Regulatory Relief, and Consumer Protection Act which contains several legislative protections for veterans, active-duty personnel, and consumers. When the CMLA read this language initially, there were immediate concerns of unintentional consequences for loans in the pipeline. Since that time, companies have been unable to rectify outstanding loans and forced to sell them as “scratch and dent” as well as repurchase loans from Ginnie Mae Pools.

The new language change on the House floor was not widely vetted and the CMLA is concerned that this new language is too broad and could empower Ginnie Mae to overrule VA on which refi mortgages ought to be considered safe for pooling into Ginnie securities.

The House bill may be considered for “hotline” in the Senate, which is a process to speed consideration and move legislation on the Senate floor (1) in this case, without going through Committee, and (2) without taking up much Senate floor time, including not holding a chamber vote.  Thus, it was possible this new language could be placed into statute without any further opportunity for comment by stakeholders.

“The CMLA Board concluded that speeding corrective language through–in part to solve flawed language previously sped through Congress–did not make sense. “The new language is too broad and could allow future Ginnie Mae leadership to interpret it as it sees fit without taking into account the mission needs of veterans’ and rural lending,” said Ed Wallace, Executive Director of the CMLA.

“As the House Bill now reads, Ginnie Mae has authorization to change what is acceptable without any parameters. The language is so open, if Ginnie Mae determines seasoning requirements need to be 5 years for a VA loan, they have the authority to demand repurchases on any loans which do not meet that criteria. I know that is a stretch, but the reality is, that is the way the Bill reads.”

“We are asking the Senate to step back and allow some time for the best language to be presented with input from the industry and the VA. We want to fix the VA IRRRL problem, but also do it the right way without adverse repercussions to the industry.”

Recently the MBA sent a letter, signed by many mortgage executives, to regulators asking for changes in the LO comp rule. The action prompted Corina Carter, owner and CEO of CMS Mortgage Solutions in Virginia, to write, “BE CAREFUL WHAT YOU WISH FOR! So many of us have wanted LO comp to go away, but now look at what it could do for you and against you. I can share 2 sides of the story. In the retail channel, this side of the story looking inside and out to the retail channel only. Never have worked it in it may not mean much to you but as a business owner, teacher, and trainer of thousands of MLOs, I watch, I listen, I learn.

“Given all the market compression and mortgage companies working for pennies (or in the red), look at, after 8 years, how many names, companies, and leaders are on this Letter. (‘Hmmm,’ you must ask, ‘why didn’t it matter in past 8 years while MLOs pay got cuts?’) Now all the large banks and lenders need a way to maneuver costs. Now they sign up ASAP how we can help the consumer and how we can keep the business flowing in to our brand.

“During the last 8 years I have lobbied for this and could’ve helped the consumer in cost and savings a ton in the past 8 years. But now the large banks and lenders cannot stomach and eat the cost of doing business. The margins are not there. So, wake up LOs. Now we will get our wish of flexibility in this channel. Yay or nay? Sure, the consumer now wins BUT wait a minute… so do the big banks and large-scale retail channel. For example: Now you have a consumer shopping you, and your competitors are at low cost rate of 4.25% and you priced out at 5%. Now in today’s market the company reaches down takes a major hit and says sure we will help you match it and you get to keep your same pay 100bps points. Fast forward. MLO comp changes and you can move your comp and be flexible. LO, sure you can certainly match and or help pay for your own, or company, errors, but now your comp goes to what .50 bps points!!!!! IF YOU DONT THINK SO, WAKE UP SMELL THE COFFEE.

“In the broker channel, and or non-del, – LOW RATES LOW COST Closings. Flexibility has always been there once you learn to work in the channel. Sure, we have been working for a little less in most cases. But the consumer always won, business has been great, and we are on rise of almost 20% market share because the consumer now has sticker shock and is shopping for rates in every market. Yes, and shocking news: We have been able to lower comp (borrower paid) which means, wow, lowering that fee to cover errors, Lowest rates in the market, and/or pay the closing costs for the consumer. Now what we need is not MLO comp to go away exactly, but the 3% margin QM that is hurting the small guys on the tough small loans or the restraint and time-consuming loans that no one want to do for 50 bps points. And keep pushing buyers away.

“Level of playing field. MLO comp goes away, 3-point QM goes away, and well, the consumer wins. Educate the buyer on how to shop and compare rates and services. Full disclaimer: I am never 100% right and I only see things from my little chair. If interested in flexibility, products, and pricing from Ground Zero, no built-in cost. Want to be independent but not alone. Now is the time to visit all options.”

Between 20 and 25% of residential mortgage business comes from California. So…

In this election Proposition 10 would overturn a 23-year old law limiting the use of rent control in California, allowing cities to enact rent control.

An initiative to roll back restrictions on taxing commercial and industrial properties in California has qualified for the November 2020 ballot. The campaign could get ugly: rolling back parts of Proposition 13 would increase tax receipts $6 billion to $10 billion for cities, counties and school districts. Business groups are preparing for a fight. Right now, home and business property taxes are limited to 1 percent of a property’s taxable value, which can’t rise more than 2 percent per year. The initiative would keep that protection for homes but would let local governments tax businesses based on market value. The polling finds 46 percent of Californians support that change, 22 percent oppose it, and 31 percent are undecided. Buckle up, Golden State, the 2020 election somehow just got even more intense.

California amended its consumer protection provisions effective on January 1, 2019. Section 1 of the amendment requires a supervised financial organization that negotiates a modification of any terms of a loan, or extension of credit, primarily in Spanish, Chinese, Tagalog, Vietnamese, or Korean, and offers a borrower a final loan modification in writing, to deliver to that borrower, at the time the final loan modification offer is made, a written disclosure summarizing the modified loan terms in the same language as the negotiation.

The amendment requires translation of a Loan Estimate by the supervised financial organization in the applicable language no later than three business days after receipt of the written application for transactions where a Loan Estimate is provided to a borrower. Additionally, for transactions where a Closing Disclosure is provided to the borrower, the supervised financial organization must translate the Closing Disclosure into the applicable language at least three business days prior to consummation of the loan.

The Department of Business Oversight is required to make available each of the above forms based on existing forms in each of the specified language for use by a supervised financial organization to summarize the terms of a mortgage loan.

Section 2 of the amendment provides that, after a revocation order is made by the Commissioner against a licensee who fails to file a certified financial statement prepared by an independent certified public accountant, and a request for hearing is filed in writing within 30 days from the date of service of the order and a hearing is not held within 90 days of the filing, the order is deemed rescinded as of its effective date. The amendment further provides that a licensee shall not conduct business during the period when its license is revoked, except as may be permitted by further order of the Commissioner. However, the revocation, suspension, or surrender of a license shall not affect the powers of the Commissioner as provided in this division.

Lastly, Section 3 of the amendment provides that amendments made relating to the written disclosure summarization become operative 90 days following the issuance of forms by the Department of Business Oversight but in no instance prior to January 1, 2019.

California modified its provisions relating to debt collection effective on January 1, 2019. Section 1 of the amendment prohibits a debt collector from sending written communication to a debtor attempting to collect a time-barred debt without providing specified written notices stating that the debtor may not be sued for the debt, but that the debt, depending on its age, may be reported as unpaid to credit reporting agencies. Section 2 of the amendment provides that when the four-year period in which an action must be commenced has run, no person may sue or initiate an arbitration or other legal proceeding to collect the debt. The period in which an action may be commenced under this section may be extended only in specified circumstances.

The year, as usual, is sailing by, and we find ourselves in November, the month of Veteran’s Day and Thanksgiving. Most of us forget that there are 130,000 of our soldiers buried in other countries. Here is a moving 17-minute video of the Montfaucon cemetery,  during which the stunning question is asked, at 13:45 in the video by a young French woman guide at the cemetery, “What would we do if we were called to fight for another country’s freedom?” She also states, at 13:21: “…. those soldiers didn’t die for their country, they died for my country…they died for a freedom they would never experience…”.

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Rob Chrisman