Oct. 7: Letters regarding wire fraud, LO oversight, CFPB & arbitration, the myriad of housing stats, and LIBOR

Weekends are for open houses, right? The number of homes for sale rarely increases in the autumn and winter, so things probably won’t improve in this group, from Realtor.com, of the tightest housing markets. 1) San Francisco Bay Area, CA (1 out of 332 homes for sale), 2) Seattle area, WA (1 out of 263), 3) Santa Rosa, CA (1 out of 247), Vallejo/Fairfield, CA (1 out of 231), 5) Stockton/Lodi, CA (1 out of 180), 6) Denver area, CO (1 out of 177), 7) Greater Los Angeles, CA (1 out of 176), 8) Salinas, CA (1 out of 172), 9) San Diego area, CA (1 out of 172) and 10) Portland, OR/Vancouver, WA (1 out of 170).

Speaking of housing stats

“Rob, how many housing-related indices are published every month?” Good question, because as the years have gone by, I am overwhelmed with them. Let’s dive in with the MBA’s mortgage applications, NAHB Housing Market Index, Housing Starts & Building Permits, Existing Home Sales, New Home Sales, Single Family Home sales, Pending Home Sales, S&P CoreLogic Case-Shiller indices, CoreLogic US Home Price Report, Black Knight Home Price Index, Federal Housing Finance Administration (FHFA) House Price Index, House Price Index from the St. Louis Fed, Freddie Mac House Price Index, ATTOM Data Solutions’ home price levels, the First American Real House Price Index, Zillow Home Value Index, the National Association of Home Builders Housing Market Index…

That’s about one for every business day of the month! How to think about them all, since there are so many? I asked the team of economists at the MBA. Lynn Fisher replied, “The information supplied by the Census gets you medians, but Case Shiller made the methodology of repeat sales (which attempts to control for the composition of sales by quality) the standard, and then everyone with comprehensive access to mortgage transactions (FHFA, Freddie) or deed data (CoreLogic, Black Knight, Attom, First American) went on to build their own versions. And Michael Fratantoni observed, “All these measures are telling a similar story, i.e., home prices are rising much faster than wages or overall inflation. That can’t continue forever.”

Repent and reform!

In my opinion, the odds of meaningful reform that we need as an industry are not high. This is despite the need, and the earnest, continued efforts by many in our industry. One experienced broker from New Jersey wrote to me saying, “They have a saying that all bills went to the Senate to die. Heck, now Congress only initiates bills they know will die, and let the regulators create the laws.”

And regulators have conferences. Jonathan Foxx of Lenders Compliance Group writes, “Readers might be interested in the post that Alan Cicchetti published to our LCG website. Before joining LCG, Alan was the Deputy Commissioner of the Connecticut Department of Banking, and attends the AARMR conference every year on behalf of LCG. This year he posted a synopsis of some of the salient issues discussed at the AARMR conference.

And recently I published an article about the consumer and arbitration. It seems like many news outlets are now following the same response to this situation as I am. Here is but one of many: https://www.nytimes.com/2017/08/10/opinion/republicans-class-action-sue-banks.html. “Now, congressional Republicans are getting into the act by attacking a new rule, issued by the Consumer Financial Protection Bureau, that will let Americans bring class-action lawsuits against banks instead of being forced into arbitration.”

Mr. Foxx continued. “The issue is heating up quite a bit now, since the compliance effective date is just a few days away (October 18th). My views are contrary to the ones advocated by most associations in the financial services industry. Yet HERE is one or many articles, this one in USA News (10.3.17, Dean Clancy), that is highly critical of the industry’s tactics and the attempts by politicians to destroy the CFPB’s rule. I understand that some people believe that the CFPB has been overzealous, and I have written extensively about where it has overstepped its bounds and not followed appropriate rule-making procedures. But the Arbitration Rule is evidence-based consumer advocacy.

“On Monday (10.3), I issued my Commentary on the rule, entitled Arbitration Rule – Preserving Consumer Access to Courts. (Attachment) In the paper, I make crystal clear that the industry is not taking a consumer advocacy stance at all. In fact, it is using the subterfuge of consumer advocacy to dissimulate and undermine consumer financial protection. It is pulling out all stops to deny consumers the fundamental constitutional right to their day in court!”

LO Oversight and Training

In September this commentary included a note from someone who wished to remain anonymous. “How funny is it that I recently attended a Mastermind group, and listened to a large group of mortgage loan originators (MLOs) talk about their own, very unique marketing plans, communications, and systems. And then I listened in to an event you had posted in your commentary from Total Expert featuring Mitch Kider discussing the legal perils of companies allowing their own MLOs to ‘do their own thing.’ Who is right?” Good question. I’m sure that is why sales managers are paid the big bucks.”

It prompted Ralph LoVuolo, Sr. to pen, “I suggest that the great majority of sales managers don’t discuss, much less monitor what their salespeople are saying to ‘anyone.’ If there was a poll of sales managers as to how often they meet with their sales staff, I further suggest you will find that the percentage of people who hold regular, meaning weekly, meetings, you’ll find it is less than 25%. It is easy then to conclude that allowing MLOs to use their own ‘unique’ marketing plan is, to use a fancy word: silly. Sales managers get the big bucks because they are spending their time fixing all the mistakes that their salespeople are making. I make these conclusions because I speak to MLOs and managers every single day in every area of the country. Oversight does not exist.”

And Dave Savage sent, “Mortgage Coach just released a ‘NEW LOAN OFFICER PLAYLIST’ in its YouTube channel. Management started it with 6 videos designed to help new loan officers become successful faster, including how to go from price to advice, scripts, referral strategies, and more. Check it out and share it with both your loan officers.

LIBOR update

Several alternative benchmarks have been proposed as a replacement for the London Interbank Offered Rate, which is due to be scrapped in 2021, and the European Central Bank has announced it will switch to its own euro unsecured overnight interest rate. Chris Barnes, a specialist in over-the-counter derivatives, explores other proposed risk-free rates and the likely effect of the transition on derivatives markets.

Wire fraud

It seems that every day I receive some realistic email from some odd title company, where the name doesn’t match the email name, asking me to open a set of closing documents. Or click on a link that probably goes straight to Nigeria or Pakistan. Schemes to perpetrate ACH or wire transfer fraud, including corporate account takeover, are a big concern because they tend to have a greater impact in terms of loss per incident. Since ACH and wire transfer payments are executed quickly, victims have a much smaller window to discover the crime, report it, or reverse a transaction. Increasingly sophisticated cyber-criminals are using business email compromise scams frequently because they are cheap, easy and effective. Recall this is where thieves send an email to the finance group pretending to be a top executive and demanding immediate wire transfer of funds.

Banks know that this is a big deal. Last year alone, wire fraud outpaced online fraud, check fraud and credit card fraud. It accounted for more than $50 billion in annual losses, according to FBI estimates, industry reports and fraud executive interviews conducted by a fraud industry consultant. The top 10 fraud types combined accounted for about $181 billion in annual losses. Wire fraud losses are about $63k per occurrence, but can cost as much as $1mm. Worse yet, we can expect this number to increase.

Similarly, fraud cases are growing in ACH (Automated Clearing House), as these electronic payments have become one of the primary means of noncash payment in recent years. According to the 2016 Federal Reserve Payments Study, ACH payments have been growing at 8.8% per year. Now that same-day ACH credits are available and same-day ACH debits are becoming available this month, it is widely expected that more cyber-criminals will flock there for a fast, high-value, non-reversible payday.

Steve Brown with PCBB writes, “Given the growing demand for ever-increasing speed of payment, despite the potential for risk, community banks are in a difficult spot. Your customers may want you to provide and support these services, while also helping them mitigate the potential risks. To limit the success and impact of such attacks, community banks might consider revisiting some tried and true proactive steps. Implement solid authentication technologies & protocols. Multi-factor authentication helps validate that all parties in a transaction are who they say they are. While hardware tokens and multi-step identity validation might be overkill for smaller consumer payments, it makes more sense for larger transactions.

“Take a 2nd look at the transaction’s risk. Of course, taking a risk-based approach is what you do in all areas of your business already. So, making sure this is applied rigorously here is not a

stretch and filling any gaps in this process could prevent big problems in the future. Monitor transactions & behavior over time. New behavioral analytics and transaction monitoring tools are becoming more accessible and available to community banks. You may want to consider embracing these technologies to get a better, data-driven read on what is typical for each customer’s account activity, and to more easily take action when needed.”

(Thanks to Bob W. for this one. Warning: Rated PG/R.)

A young cowboy sitting in a saloon one Saturday night recognized an elderly man standing at the bar who, in his day, had been the fastest gun in the West.

The cowboy took a place next to the old-timer, bought him a drink and told him of his great ambition to be a great shot. “Could you give me some tips?” he asked.

The old man said, “Well, for one thing, you’re wearing your gun too high – tie the holster a little lower down on your leg.”

Will that make me a better gunfighter?”

“Sure will.”

The young cowboy did as he was told, stood up, whipped out his .44 and shot the bow tie off the piano player.

“That’s terrific!” exclaimed the cowboy. “Got any more tips?”

“Yep,” replied the old man. “Cut a notch out of your holster where the hammer hits it – that’ll give you a smoother draw.”

“Will that make me a better gunfighter?” asked the young man.

“You bet it will,” said the old-timer.

The young man took out his knife, cut the notch, stood up, drew his gun in a blur, and then shot a cufflink off the piano player.

“Wow!” yelled the cowboy. “I’m learnin’ somethin’ here. Got any more tips?”

The old man pointed to a large can in a corner of the saloon. “See that axle grease over there? Coat your gun with it.”

The young man smeared some of the grease on the barrel of his gun.

“No,” said the old-timer, “I mean smear it all over the gun, handle and all.”

“Will that make me a better gunfighter?” asked the young man.

“No,” said the old-timer. “But when Wyatt Earp gets done playing the piano, he’s gonna shove that gun up you’re a$s, and it won’t hurt as much.”

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Will User Names and Passwords Go the Way of Thermal Fax Paper?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.


(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2017 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