Sep. 23: LIBOR change status; notes on credit, cybersecurity, servicing, MLO marketing plans

Some people like lists. What are the most active real estate markets right now? Colorado Springs, Chicago, and Reno. Least active? San Francisco, where the average house price is now over a million – but there aren’t any “For Sale” signs – Boomers aren’t moving since they’re happy in their homes. Much of the Northeast has cooled off, literally and figuratively. What makes a market active? Access to both good jobs and affordable homes.


The times, they are a’ changing. Bloomberg reports the state of Hawaii plans to be the first state to allow marijuana dispensaries to do sales without cash. The state has asked the dispensaries to ask customers to use a debit payment app to buy marijuana instead of paying in cash. Banks will have to think about how to monitor this activity under BSA-AML rules given how difficult it might be and the fact that the app taps into bank accounts for payment. Mortgage companies’ collective hands are still tied, of course, since marijuana is not legal at the Federal level. So, any agency that is part of the U.S Government (read: FHA, VA, Fannie Mae, Freddie Mac, USDA…) can’t be involved in loans underwritten using marijuana as income, or anything related to it.

Who’s right?

I received this 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.


Donna Beinfeld writes, “Hi Rob! Since many lender’s clients, and loans, are in California, or own property in California, our fair state has a Mitigation “Bill of Rights” that must be followed for defaulted loans. We will have our fair share of disasters with the fires destroying homes, hillsides and more. Here is the link to California’s policies: I’ve had two clients ordered to implement the CA Bill of Rights in their manuals and in their servicing activity. Some of it matches CFPB and some requirements are different.

Cyber security patches & training

Ken Perry with the Knowledge Coop sent, “Hey Rob, I was sitting there in D.C. at the MBA Regulatory Compliance conference thinking through the Equifax breach and had a couple of thoughts you may want to share. First, it has been announced that the patch for the vulnerability that was exploited was one that had been out for 2 months, yet Equifax didn’t patch their system. This is something everybody should take note of and check their IT procedures for patches. ‘Patch Tuesday’ is Microsoft’s patch release day each week and should be a day that all IT people review the patches and update systems.

“Second, companies need to update their training immediately based on the amount of cybercrime there is out there. We are recommending training on wire instruction fraud, phishing scams, and the importance of updating devices and changing passwords. I just shot a video for our company about our security cameras and the importance of never using a laptop in a way that the camera can see your keyboard. Webcams are extremely vulnerable to hacks and anybody can be looking through them remotely. We will be releasing all new training into the Knowledge Coop to help our clients stay on the cutting edge of cyber security training.” Thanks Ken.

Credit guidelines: make up your mind

I received this note from a capital markets exec. “One of the quotes in this article yesterday really bothered me this morning. Maybe I’m venting, and maybe I’m a bit cranky as the coffee hasn’t kicked in, but I am sick of hearing about ‘tight mortgage credit’ and ‘tight guidelines.’ When guidelines and credit requirements are loosened, there are articles warning about how the evil mortgage banks are going back to the subprime days. It seems we can’t win in this industry. Guidelines tighten up, and the industry isn’t being helpful for homeownership, guidelines loosen, and we are being careless. At what point does the reputation in our industry improve? No wonder why the younger generation isn’t coming into this line of work. ‘Record-low interest rates have helped spur home buying and boosted the housing market. Yet despite low mortgage rates luring prospective homebuyers, the housing market has remained hampered by tight mortgage credit, rising home prices and a thin supply of homes on the market.’ Go figure.”


Servicing is a lightning rod for complaints, and therefore regulator attention. Some are legitimate, others are, “No one told me that I had to make a payment!” Regardless, servicing is not something you want to mess up, and plenty of lenders are paying attention to developments as LIBOR goes away in a few years. Yes, LIBOR will be replaced as the benchmark for financial transactions including adjustable rate mortgage adjustments.

As a reminder, the Federal Reserve now accepting public comment on a proposed benchmark to replace LIBOR. If you’ve been waiting for direction on how to plan for future loan transactions, here’s your chance. While the change to a new benchmark is not finalized, the fact that the Fed has provided its proposal for comment indicates that the change process is in motion. Although changes will not take effect immediately, it is important that community banks, servicers, and lenders begin carefully reviewing how they currently use LIBOR and what needs to be done to replace it in their loan documents and calculations.

The new benchmark proposed by the Fed is called the Secured Overnight Financing Rate (SOFR) and is based on data covering almost $1 trillion in daily US Treasury overnight repurchase, or repo, transactions, as reported by the Bank of New York Melon (BNYM) and the Depository Trust & Clearing Corp. (DTCC). In a news release, Federal Reserve Board Governor Jerome H. Powell said, “SOFR will be derived from the deepest, most resilient funding market in the United States.”

The Fed is counting on SOFR to be a more effective market benchmark than LIBOR, which was somewhat tarnished by a rate manipulation scandal involving some major banks caught in a scheme to manipulate LIBOR rates. Lender and bank customers may not be aware of the issue, so it can be helpful for those groups, and especially community banks, to make clear to loan customers that a new benchmark is on its way and how it works.

Steve Brown with PCBB writes, “One effect of the change may be a lower benchmark. Several large banks have estimated that the SOFR index could range between 10bps lower (based on historical averages) to 20bs lower (based on current Libor-Fed Funds basis) than LIBOR. While SOFR is touted as the broad-based viable replacement for LIBOR, the Fed plans to publish two additional benchmarks for use in other calculations. The Tri-party General Collateral Rate (TGCR) would be established with triparty repo data just from BNYM. The Broad General Collateral Rate (BGCR) would be based on the triparty repo data from BNYM and cleared repo data from DTCC. Of course, SOFR and the other benchmarks still need to be accepted and adopted as new standards by financial institutions.

“Also, sufficiently liquid interest rate futures and swaps markets for the new benchmarks will have to be developed for widespread adoption. If the new standards are widely adopted, some banks may find that their loan documents are provisioned for a LIBOR replacement while other banks may require significant modification (depending on the complexity of the loan documents) particularly if existing floating-rate loans need to be recalculated over the term of the loan.

“In short, it might not be as easy as simply inserting SOFR wherever the term LIBOR now exists. Community banks may have little choice but to knuckle down and figure out how they are going to deal with the shifting landscape of loan rate benchmarks. The Fed is not expected to start publishing the new index until sometime in 2018, and market adoption is not expected to be mainstreamed until around 2021. Given that timeline, there is still time to plan and prepare. But sticking with what a bank now uses as a benchmark for loan calculations may not be an option for much longer, whether you are happy about it or not.”

(Thanks to Rusty C. for this one.)

Why am I Divorced?

Last week was my birthday and I didn’t feel very well waking up on that morning.

I went downstairs for breakfast hoping my husband would be pleasant and say, “Happy Birthday!” and possibly have a small present for me.

As it turned out, he barely said good morning, let alone, “Happy Birthday.”

I thought…… well, that’s marriage for you, but the kids…. they will remember.

My kids came bounding down stairs to breakfasts and didn’t say a word.

So, when I left for the office, I felt pretty low and somewhat despondent.

As I walked into my office, my handsome boss Rick, said, “Good Morning, Lady, and by the way

Happy Birthday!” It felt a little better that at least someone had remembered.

I worked until one o’clock, when Rick knocked on my door and said, “You know, it’s such a beautiful day outside, and it is your birthday, what do you say we go out to lunch, just you and me…?”

I said, “Thanks, Rick, that’s the greatest thing I’ve heard all day. Let’s go!” Did I tell you Rick was a body builder?

We went to lunch. But we didn’t go where we normally would go. He chose instead a quiet bistro

with a private table. We had two martinis each and I enjoyed the meal tremendously. On the way back to the office, Rick, who is great shape, said, “You know, it’s such a beautiful day… we don’t need to go straight back to the office, do we?”

I responded, “I guess not. What do you have in mind?” Did I mention Rick has dimples?

He said, “Let’s drop by my place, it’s just around the corner.”

After arriving at his house, Rick turned to me and said, “If you don’t mind, I’m going to step into the bedroom for just a moment. I’ll be right back.”

“Ok.” I nervously replied. He has such great eyes.

He went into the bedroom and, after a couple of minutes, he came out carrying a huge birthday cake…followed by my husband my kids, and dozens of my friends and co-workers, all singing “Happy Birthday.”

And I just sat there….

On the couch……



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Rob Chrisman