Oct. 5: Letters on advertising & Zillow’s policies , playing by the LO comp rules, and the importance of monitoring warehouse costs

More than 50% of people in the world have never made or received a phone call. I have no idea how “they” figure this out – but something tells me the rest of us make up for it by making or receiving more than our fair share. The phone is not ringing as much as it was six months ago for many warehouse banks, and I received this note from a warehouse vet discussing the current residential lending environment: “Lenders have to think about the cost side of the net revenue equation – it’s a question most warehouse lenders ask. One variable cost in a mortgage company’s operation is its warehouse financing.  Most companies have multiple lines and usually those lines have different rates and fees.  C-level management negotiates the line terms, but once the contracts are executed, the daily and monthly line management becomes an operational function. What we very commonly see is mortgage companies whose funders, unaware of the economic differences among their warehouse lines, who determine which warehouse line is used to fund a loan. Funders have different decision criteria than company management, and that criteria can cost a company thousands of dollars a month.  Best execution discussions in our industry usually revolve around loan sales. Mortgage companies seeking to minimize leakage and control expenses should also be doing a loan-level best execution analysis on their warehouse funding options.” Good advice!


Switching topics, J. Steven Lovejoy, Esquire, with Maryland’s Shumaker Williams, reminds us (regarding HUD & RESPA violations), “Readers should be aware that jurisdiction over RESPA and Reg X transferred from HUD to the CFPB under Dodd-Frank.  While we think that prior HUD pronouncements are still helpful guidance, they no longer have the same weight because the CFPB could come out with a different view. This is a shame because RESPA is a difficult statute to apply to the real world even with all the HUD guidance. Most of the HUD materials on RESPA are still available on HUD’s website. Click on ‘a to z’ and go to Real Estate Settlement Procedures Act. That takes you to the main web page. It would be nice if the CFPB would formally adopt HUD’s prior guidance as they have done with the FRB Official Commentary to Reg Z.”


From New Jersey I received, “One of my loan officers was lamenting that he has lost a deal to a mortgage banker on a 5/1 arm. We had a copy of the GFE and I recognized the name of the company and they NEVER lock a borrower’s rate in until just before the closing and then come up with some excuse why they couldn’t get them the rate they applied at. This type of deceptive practice ties into a conversation I had with a loan officer who works for a mortgage banker I met at a social gathering the following evening. He was explaining how he’s paid 50% of the gross profit on the loan and is paid 1.5 points at the time of closing and the rest goes into a point bank and then he decides how much he wants to take from this point bank on a quarterly basis. Now, unless I’m missing something, if the CFPB is really interested in having lenders offer the best programs at the best available terms for borrowers, this needs to be addressed, sooner rather than later.” From what I can tell, point banks are both disappearing and a red flag for the CFPB.


“Rob, I enjoy the banter on LO comp and do understand the LO is at risk under a non-compliant comp plan. If owners and managers want to get ammunition for that argument they need to see a published and documented incident of an LO actually being fined or otherwise disciplined by the CFPB.  Until there’s a real live example, the LOs are going to be convinced it can’t happen to them.” I am sure there is one, as I may have missed it, or there will be soon.


And this note from an LO: “Great insight here into the Bankrate and LO Compensation issues.  For those of us playing by the rules, it seems like an uphill battle everyday dealing with all of the regulatory requirements of the day and then having a major disadvantage, when trying to grow our compliant business, to other lenders who are not playing by the same set of rules. Recent events going on here on the West Coast include companies with non-compliant broker agreements paying ‘referral’ fees with certain lenders lending on litigation in buildings that are clearly structural in nature, yet, somehow all this paper when trailed is leading into Fannie Mae securities.  It is incomprehensible how any business owner or loan officer for that matter in today’s day and age would think that they will not get caught. I am not a proponent of the continued government regulation; however, it is what it is.  If we want to be in the business we have to follow it. It is my hope that many of these companies are cleaned out as the production volume decreases, leaving way for us spending the money and unbelievable amount of time to implement and follow all these changes to pick up the market share that these ‘cowboy’ companies and loan officers are taking.”


The writer continued, “I have seen just too many articles and commentary written on how ‘the bad people are gone from this business.’ Yes, this has decreased, but I think people want to believe this. In my opinion, this business still has a significant amount of companies who are not following LO comp, deceptively advertising rates (Bankrate), have LOs that control pricing, have net branch agreements that allow producing managers to control pricing for not only the branch but on their own deals, point banks, etc…  The list could keep going on. If the CFPB spent even 10% of their time on these issues, which would not be hard to uncover, we would be able to level the playing field. Just put a few branches looking to move out there in an interview room requiring them to disclose all of the offers they received from recruiters and companies and much of this is uncovered in one day. I was blown away when speaking to a national recruiter for a bank mentioned the structures being allowed.  I question the recruiters as to the legality of many of the structures and the response is, ‘Many are still willing to do offer these structures.’ Well Rob, not too often I rant on the business, we tend to stay to ourselves and concentrate on bettering ourselves, but my frustrations with companies and LOs not following the most basic areas of the rules are getting to a tipping point as we are running up an escalator backwards while recruiting as a result.


SK writes, “I would like to offer a brief response to comments in your commentary made by John H. in response to an employer’s reference to point banks and losing prospective LOs who offer the ‘Sergeant Shultz’ response (‘I know nothing…’). John wrote, ‘Once the LO is forced to evolve their mind-set, the entire competitive landscape will change for the better.’ While I understand the point he is trying to make, I believe he is missing a very important point when it comes to the LOs response and mindset. The truth is that the LO is doing you a favor by going with the competitor. If he/she is willing to compromise his or her integrity, feigning ignorance, can he/she be fully trusted to provide ALL truthful information when it comes to loan submissions? Where else is the LO willing to compromise integrity, and what will the cost be to you and your company? While I agree that it is frustrating to see how many LOs are ‘purposefully ignorant’ to the rules and ramifications, I choose to place a greater emphasis on quality AND integrity. This rule has been around long enough. If the LO isn’t aware of how this works, and the difference between right and wrong, it is because he chooses not to. At the end of the day, this is not the person that I want working with and for me, and I say ‘thank you’ for making me aware of your character deficiency now, before it was too late.”


Regarding the debate about lender advertising, Erin Lantz, a Director at Zillow, writes, “Zillow has extremely rigid controls and punishments in place to ensure lenders honor the quotes they publish on Zillow.  Although I won’t enter the multi-channel pricing debate (e.g., should lenders be able to offer different rates online versus offline or in retail versus centralized sales divisions etc.) I did want to make sure that you were clear on our process to manage lender quote accuracy. We require auto-quoting (as your reader mentioned). Zillow regularly mystery shop lenders – not scripted and scheduled as your reader suggested was the case with Bankrate. We have a ‘quote flagging system’ where any lender or consumer can (and regularly do) flag quotes that are suspicious and our QA team investigates within hours. And we do ratings and reviews – as soon as lenders get negative reviews for what the consumer perceives is a bad experience, lender conversion rate from Zillow contacts declines and lenders with very poor reviews soon find it uneconomic to advertise on Zillow. We take all of this extremely seriously and have an entire team focused on this to make sure consumers can trust the quotes and reviews they see published on our site.  Importantly, when we find lenders whose quotes are inaccurate for one reason or another, we immediately suspend them from quoting and if repeat issues emerge, we ban lenders from future participation in Zillow Mortgage Marketplace.” Thank you Erin!


“Rob, I wanted to share with you the comment made by Paul Mondor at the recent Regulatory Compliance conference in DC.  When we asked if the CFPB would issue any ‘residual income’ guidance so that lenders would TRULY have the safe harbor that is PRESUMABLY  offered under the QM his answer was, ‘Well, as long as you don’t just leave the borrower with $8.20 in his account at the end of the month.’ REALLY?  What kind of answer is that? I’ll tell you what kind of answer it is. The answer is they intentionally left the words ‘residual income’ in the rule because if they did not then any borrower who could not prove their DTI was over 43% would not have a legal leg to stand on…..SO they gave them a chair!”


Lastly, regarding the partial shutdown of our government, from Ohio a mortgage banker wrote, “I am just sitting here thinking, ‘Can the CFPB fine Congress (individually and collectively) for the disparate impact on consumer financing their actions have imposed on those groups of individuals negatively affected?’ We can’t obtain verbal VOEs on federal employees, can’t validate self-employment income, and can’t get approvals or guarantees on gov’t backed HUD, VA and USDA loans.  If fines were imposed and enforced, heck, it may clear up the budget deficit too.”



(Rated PG.)

What deep thinkers men are… I mowed the lawn today, and after doing so I sat down and had a cold beer. The day was really quite beautiful, and the drink facilitated some deep thinking.

My wife walked by and asked me what I was doing and I said “nothing”. The reason I said that instead of saying “just thinking” is because she would have asked “about what?” At that point I would have to explain that men are deep thinkers about various topics which would lead to other questions.

Finally I thought about an age old question: “Is giving birth more painful than getting kicked in the nuts?” Women always maintain that giving birth is way more painful than a guy getting kicked in the nuts.

Well, after another beer, and some heavy deductive thinking, I have come up with the answer to that question. Getting kicked in the nuts is more painful than having a baby; and here is the reason for my conclusion. A year or so after giving birth, a woman will often say, “It might be nice to have another child.” On the other hand, you never hear a guy say, “You know, I think I would like another kick in the nuts.” I rest my case.

Time for another beer.




Copyright 2013 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