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Thwellsere were more than 2000 registered attendees, with probably 1000 unregistered attendees at the MBA Secondary Conference in New York. Here are some of the takeaways from that conference.

People were talking about the possible effect on the market we can expect as a result of the upcoming elections and the preparations the industry can take in anticipation of it.

A major topic at the conference was the announcement that yet another entity was being targeted for originating faulty FHA loans.

The mortgage servicing rights for Ginnie Mae (FHA/VA Servicing) liquidity has been a huge concern for mortgage bankers. Some of the larger and money center banks are purposely de-emphasing government lending.

Prehaps partially in response to that, Wells Fargo is introducing a low-down-payment mortgage to serve as an alternative to Federal Housing Administration loans for low- to moderate-income borrowers and first-time homebuyers.

The “yourFirst Mortgage” was developed in partnership with Fannie Mae and is modeled after the low-down-payment offerings the government-sponsored enterprises introduced with limited success last year. However, the criteria for qualifying are much simpler — addressing a key disadvantage of such programs. Blackwell of Wells Fargo estimated that Wells, the nation’s largest mortgage lender, originated only 200 of Fannie’s HomeReady loans during the first quarter. The new program’s volume should be a lot bigger.

“We’re not interested in doing a handful of loans. We’re interested in making a big impact on the first-time homebuyer market by creating a better alternative for customers,” he said.

Some of that expected increase in volume will come at the expense of Wells Fargo’s FHA production at a time when many lenders are scaling back their involvement in the government mortgage insurance program amid concerns that lenders are being unfairly targeted by the Department of Justice for violations of the False Claims Act.

The GSEs’ initial foray into 97% loan-to-value mortgages last year was met with great fanfare but found few takers, due in large part to the programs’ strict eligibility requirements. In response, Fannie’s HomeReady and Freddie’s Home Possible created “enhanced” low down payment programs designed to be easier to qualify for, but reserved for low-income borrowers or those purchasing homes in Census Bureau tracts with higher concentrations of minority populations.

Wells’ will not restrict eligibility for the new product with the maximum income threshold and high minority Census tract location requirements that have stymied HomeReady. Nor will it require consumers to complete a homebuyer education course to qualify for the loan. Instead, those who take such a course will get a discount on the loan rate.

“We changed the entire positioning of homebuyer education from an impediment and a reason you can’t get a loan to an incentive,” said Blackwell.

Features of the Wells Fargo program that mirror Fannie’s HomeReady product include a minimum 620 credit score, expanded credit history reviews that include nontraditional sources like tuition and utility bill payments and consideration of income from relatives or renters who will live in the home with the borrower.

The Wells program requires a down payment of 3% to 9.99%. It will replace three separate GSE low down payment mortgage options Wells offered.   Those who take it before closing will receive a 0.125% interest rate reduction for the life of the loan. On a typical $200,000 purchase transaction, that equates to about $15 per month. To quantify the savings for borrowers who take the new Wells loan instead of an FHA loan, Blackwell gave the example of a $200,000 home purchase.

An FHA loan would require a $7,000 down payment and an initial loan amount of $196,400 after rolling in the upfront mortgage insurance premium of $3,400. With the new Wells Fargo program, the borrower makes a $6,000 down payment and has an initial loan balance of just $194,000.

“You basically save $3,400 right off the bat and your mortgage payments are typically going to be quite a bit lower,” said Blackwell. “For someone with a 700 credit score, it would be about $70 less per month.”

These new products along with the continuing fear of being the target of regulatory action are expected to result in significant changes in the year to come.




Blog – 04-27-2016

It is more common than one might think for an employee leaving one lender for another to either solicit co-workers to make the move with them.

Ari Karen a partner at Offit Kurman and CEO of Strategic Compliance Partners wrote an article last week in National Mortgage News regarding a practice as old as the mortgage industry that we, back in the day, called pirating.  I had an experience with pirating as an employee of a branch of a large national firm back in the 80s. The manager of my branch called a meeting and informed the employees of the branch that we would all be employed by another company starting the first of the month. In my youth and ignorance, I happily followed along. The good times didn’t last long though, our previous employer sued our new employer as well as the loan officers that left.

There is a right way and a wrong way to switch from one lender to another and making the wrong choice rarely creates a business advantage.  A California jury’s decision last month against a lender $25 million is a testament to that. The verdict was based upon the fact that the lender encouraged its new hire by attaching a bonus to the initial period of employment for engaging in actions constituting a data breach.

In most cases, employees leaving a lender show little consideration of the fiduciary duties owed to the prior lender, nor the fact that most of the information they have access to may be considered trade secrets and/or information proprietary to that employer. Further, the lenders hiring these individuals similarly often fail to appreciate the role they can play in promoting or incentivizing such practices.


Quality Control and Compliance

Mortgage lenders acompliancend brokers are more concerned than ever about . This has led to ever increasing loan production cost and has significantly lengthened loan turn times.
Thanks to TRID, the roles and responsibilities of the real estate closing process have been transformed. With the average time-to-close on the rise, real estate service providers – lenders, realtors and title/settlement agents – have embraced digital closing platforms to conduct fully electronic mortgage closings (eClosings). We’ve progressed to a point where most leading lenders in the mortgage industry are using powerful software solutions to streamline or automate individual tasks throughout the loan process. 
In this high tech world, a mortgage loan officer striving to understand the new processes, while providing quality service to the borrower, often finds him/herself, faced with last minute issues that have to be solved with old-fashioned diplomacy and ingenuity. Take for instance, the borrower that negotiated a sales price for the purchase of a home in which the seller agreed to pay $3600 of closing costs and finds at the closing table the cost only equal $2800. Good news for the seller, but the borrower feels cheated. What would you do in that situation? Cutting your fees wouldn’t help. One of my clients who found himself in that situation had the seller pay for a home warranty. In another case, the seller reimbursed the borrower for the cost of the appraisal.  
I would be interested to hear from you about your experiences solving this type of last minute issue that required the personal touch, knowledge and experience of a mortgage loan officer in the midst of all of this technology.

TRID Implementation

keep-calm-and-trid-on-2I have to admit that the results of the TRID implementation continues to confound me.  As those who have read this blog know, in the beginning, I didn’t expect TRID to have the impact it did.

A new survey of 1,000 repeat homebuyers from residential real estate closing cost data and technology provider ClosingCorp found that 64% of respondents believe that the old rules made getting a mortgage easier. More than half also believed that the process under TRID takes more time.

More importantly 51% of homebuyers surveyed reported an increase in “unexpected costs, fees and surprises” during their most recent mortgage process experience, ClosingCorp said.

“Time and anxiety is being added to the closing process and more than half of the respondents said they still encountered unexpected costs, fees and surprises,” ClosingCorp chief executive Brian Benson said in a news release accompanying the survey’s results. “The findings suggest that our industry has more work to do to get comfortable with the TRID forms and processes, and to educate consumers and their employees.

I know that a lot of you were surprised to wake to the news of the closing of W. J. Bradley. This came with no notice to their customers or to their employees. They blame the combination of TRID and the implementation of Encompass for their demise. I expect we will hear a lot more about this in days to come. Let’s hope this will be an isolated case.

While plenty of homebuyers had their gripes, there were many who also found reason to praise the new TRID process. Many people prefer the new forms as 63% said that the new “Know Before You Owe” forms were easier to understand and 68% reported that the new forms are better at preparing applicants for closing costs. And more than three-quarters of consumers polled said they were informed about the ability to shop for providers, with a majority of them taking advantage of the option.

Stay tuned.


This and That in the Mortgage Industry Today

I keep heamortgage salesring that rates are going up “we are at the top of the bubble” and “lenders are being regulated out of business” on one hand and on the other the big players in the industry are are undertaking unprecedented expansion.

The CFBP has garnered the most attention for its enforcement division and its heavy-handed tactics and seemingly endless authority. CFPB Director Richard Cordray decided to overrule an in-house judge’s decision that slapped New Jersey-based lender PHH Corp. with a $6 million fine for taking illicit “kickbacks” from mortgage insurers that led to a rise in cost for borrowers. Mr. Cordray demanded PHH Corp. to pay 18 times more, or $109 million, for ill-gotten gains and continually violating the law with monthly payments from its reinsurance contract. My problem with this type of action is not that I think that the partnership between the MI Companies and lenders is a good thing. It is that the partnership was not illegal and had been a standard in the industry for decades when a regulator said I don’t like this and retroactively punished the participants.  We are seeing an awful lot of this. What do you think?

MGIC Investment Corp.had its earnings sliced and diced. MGIC’s earnings beat forecasts due to lower incurred losses. The company announced it was revising its rate card but noted that returns should remain in the mid-teens: it should generate comparable returns across the spectrum of loans, so this would result in lower premiums on higher FICO loans and higher premiums on lower FICO loans. Net premiums earned of $226.2 million came in below some estimates, and NIW of $9.8 billion was down from $12.4 billion in 3Q and up from $9.5 billion in 4Q14. Insurance in Force (IIF) increased Q/Q to $174.5 billion from $172.7 billion. As of December 31, 2015, the company is compliant with the financial requirements of PMIERs

While we’re talking about MI companies, rumors are swirling that AIG has decided to pursue a partial spin of its mortgage insurance business. United Guaranty (UG).  AIG will soon be releasing it’s strategic plan. UG utilizes a “black box” model for pricing mortgage insurance policies, unlike many competitors who use published rate cards (see next paragraph). KBW reports that UG loss ratios “have been about 20% or slightly above over the last year, while the expense ratio has been about 25%. As of 3Q15, the equity allocated to AIG’s mortgage insurance segment was $3.4 billion.”

The Wall Street Journal reports that sales of private mortgage-backed securities reached $61.6 billion in 2015, a five-year high, according to Inside Mortgage Finance data. However, most were repackaged old loans, rather than new mortgages being securitized. Thursday we’ll see Initial Jobless Claims & Continuing Jobless Claims, December Durable Goods, December Pending Home Sales, and a $29 billion 7-year Treasury auction. Friday is the GDP numbers for the 4th quarter, the Employment Cost Index, January Chicago PMI, and January University of Michigan Sentiment figures. We closed the 10-year last week at 2.05% and this morning it is sitting around 2.03% and agency MBS prices are slightly better.

Thanks for checking in. I would like to hear your feedback.



Fallout From TRID Implementation

Nobody was more sTRID picurprised than me at the fallout from the TRID implementation. I honestly believed that it was much ado about nothing. It seemed pretty straight forward and at first glance, easier to understand than the last update.  I learned a valuable lesson. Nothing is ever straight forward in the mortgage industry.

One section of the industry that CFPB missed the boat on is the construction to permanent loans guidelines. The CFPB has issued what it calls a ‘fact sheet’ regarding the disclosure of construction-to-permanent loans under the TILA/RESPA Integrated Disclosure (TRID) rule, which the CFPB refers to as the Know Before You Owe rule.  The fact sheet falls far short of the detailed guidance sought by the mortgage industry.

A construction-to-permanent loan is a single loan that has an initial construction phase while the home is being built, and then a permanent phase for when construction is complete and standard amortizing payments begin.  Although, as noted below, the TRID rule does address such loans, the rule does not provide detailed guidance on how to complete the Loan Estimate and Closing Disclosure for such loans, nor are sample disclosures included with the TRID rule. Ballard Spahr’sRichard J. Andreano, Jr. sent out a write-up on the recent attempt by the CFPB to address the construction-to-permanent loan issue.

“In the fact sheet, the CFPB notes that Regulation Z section 1026.17(c)(6)(ii) and Appendix D to Regulation Z continue to apply in the new TRID rule world, and the CFPB specifically notes that they apply to the Loan Estimate and Closing Disclosure. The cited section provides that when a multiple-advance loan to finance the construction of a dwelling may be permanently financed by the same creditor, the construction phase and the permanent phase may be treated as either one transaction or more than one transaction. The fact sheet indicates, as the CFPB staff had informally advised in a May 2015 webinar, that a construction-to-permanent loan may be disclosed in a single Loan Estimate and single Closing Disclosure, or the construction phase and permanent phase can be disclosed separately, with the construction phase being set forth in one Loan Estimate and Closing Disclosure and the permanent phase being set forth in another Loan Estimate and Closing Disclosure.

Appendix D provides guidance on how to compute the amount financed, APR and finance charge for a multiple advance construction loan, when disclosed either as a single transaction or as separate transactions. The TRID rule added a commentary provision regarding Appendix D to address the disclosure of principal and interest payments in the Projected Payments sections of both the Loan Estimate and Closing Disclosure. The commentary provision does not address other elements of the Projected Payments sections. Additionally, the CFPB does not clarify in the fact sheet that Appendix D applies only when the actual timing and/or amount of the multiple advances are not known.”

Likely realizing that this guidance would fall short of the detailed guidance, and sample disclosures, sought by the industry, the CFPB’s final statement in the fact sheet is “The Bureau is considering additional guidance to facilitate compliance with the Know Before You Owe mortgage disclosure rule, including possibly a webinar on construction loan disclosures.


Predictions for Housing in 2016

costsForecasting the mortgage industry is a dangerous game. The last 8 years have been a roller coaster. However, with the thrills and chills brought on by the housing crash and recovery came some pretty useful tools. Through technology and the concerted efforts of some of the brightest minds in United States, we are able to track expectations of loan performance, housing cost trends and personal income.

Independent mortgage lenders are expecting a wave of consolidation prompted by excessive compliance costs, a tepid housing recovery and the need for more capital to grow their businesses. Roughly 20% to 25% of independent companies could be eliminated or change hands in less than two years.

According to CoreLogic, the U.S. will enter an eighth consecutive year of expansion in the second half of next year. One noteworthy, negative point however is that dollar volume of single-family mortgage originations is estimated to drop.

It’s looking like next year will bring more of the same in housing, according to CoreLogic’s (CLGX) 2016 Outlook for Housing.  “As we approach the start of 2016, the consensus view among economists is that economic growth will continue, and the U.S. will enter an eighth consecutive year of expansion in the second half of next year. Most forecasts place growth at 2 and 3 percent during 2016, creating enough jobs to exert downward pressure on the national unemployment rate,” said Frank Nothaft, senior vice president and chief economist at CoreLogic.

Nothaft predicts that housing can expect to see these five features next year:

  1. Interest rates will increase

Homeowners who have adjustable-rate mortgages or home-equity loans will most likely see a rise in their interest rate because the Federal Reserve is expected to raise short-term interest rates approximately one percentage point between now and the end of 2016.

Fixed-rate mortgages will also rise, perhaps up one-half of a percentage point between now and the end of 2016, reaching 4.5% for 30-year loans. Despite this increase in interest rates, mortgage rates will remain historically low.

  1. Household formations will significantly add to housing demand

More than 1.25 million new households will be formed in 2016 due to improvements in the labor market and lower unemployment rates. These new household formations will increase housing demand, specifically in the rental market.

  1. Rental homes will continue to be in high demand

Rental vacancy rates are at or near their lowest levels in 20 years, and rents are rising faster than inflation. High demand for rental homes—both apartments and houses—will likely continue in 2016, especially from new, young households.

  1. Home sales and home prices will likely increase

Not only is the rental market hot, but overall purchase demand may lift 2016 home sales to the best year since 2007. Nationally, home prices will likely rise at a quicker rate than inflation, but not at the same rate as last year. The CoreLogic Home Price Index showed a year-over-year increase of 6% in the last 12 months; however, 2016 is only expected to see increases of 4%-5%. This increase in home sales and home prices can be attributed to the improved economy, which has enhanced homeowners’ feelings of financial security.

  1. The dollar volume of single-family mortgage originations will fall around 10%

The single-family mortgage origination decline will occur even though home equity lending is expected to rise and originations of home purchase loans will likely rise about 10% in volume next year. The growth in those two areas will be offset by a 34% drop in refinance, reflecting the higher mortgage rates and dwindling pool of borrowers with a strong financial incentive to refinance. While single-family mortgage originations are expected to fall, multifamily originations will likely rise. This gain reflects the higher property values and new construction that adds to permanent mortgage usage.

Additionally, I would like to add my own predictions based on my personal experience this past year.

1) Most collaboration closing portals for TRID will fail, with only a handful being viable long-term solutions.

2) Current TRID requirements and the CFPB’s commitment to eClosings will drive lenders to implement a true eClosing process — sooner rather than later.

3) Because of QM, ATR and now the TRID MISMO 3.3 data requirement, many investors will push their post closing QC process to a more automated pre-closing QC process that ensures better data and document integrity, compliance and control.

4) Compliance will continue to be the most expensive and time consuming issue for both lenders and brokers.

Recently Compliance Ease, a provider of automated compliance solutions to the financial services industry, released an analysis of compliance defects for closed loans and estimated that the cost of correcting these errors is increasing the cost of origination, on average, by approximately $28 for every loan. The analysis was based on a cross-section of 700,000 audits that were performed in Compliance Analyzer and RESPA Auditor during the first quarter of 2015. It found that 17 percent of the loans failed for Truth in Lending Act (TILA) reasons. Another 6 percent of the loans—or one in 15—failed for being outside of the Real Estate Settlement Procedures Act (RESPA) tolerances.

So, this industry clearly is struggling with compliance. I would suggest that a third party compliance monthly review of your company will provide a lot of peace of mind and will be worth the cost.


The Key to Compliance Success – Getting your Staff on Board

I’m too busy.busy

In the mortgage industry as with few other industries, the work day is driven by “fire drills”. The days are filled with emergencies on loans that require immediate attention. Employees are caught in the crossfire of directives coming down from on high, translating strategies into action plans and then making things happen on the ground. It isn’t that the middle managers are opposed to meeting compliance objective, it’s more that these initiatives just aren’t making their way through the immediacies of the day-to-day operational duties and responsibilities.

Ethics and compliance programs are as essential to the operation of a mortgage company as processing, originations, and marketing, though they have only in the past 5 years been squeaking as loudly as the others. By codifying compliance processes and content and instilling accountability, clarity and ease of accessing the information, compliance managers and business owners can leave behind those static three ring binders of policies and procedures that are collecting dust on office shelves and implement them into a dynamic, interactive content driven workflow.


There is truth to the adage that says “that which gets measured gets done”. Work that requires updates and progress reviews get completed. Work that is assigned by never followed up on usually gets ignored.


Managers are busy people, keen on working as efficiently as possible. They have little tolerance for ambiguity. Drop the legalese and be direct as possible on your expectations.


Make compliance as easy as possible for those in the field. Complicated instructions are a sure way to set up resistance. A centralized on-line approach to organizing and disseminating compliance information makes life easier for all.

A time proven way to insure that your compliance program will be successful is to bring in a third party that does compliance work as their primary job. There would be no need to spend the time and money “reinventing the wheel” and your staff will be able to devote their time to doing what they do best.

Contact Becky Watson, Ameritrain’s Director of Compliance and Licensing, for all your compliance needs.


Best Practice Lending, what is it?

There has been a lot of talk latelybest practice about “best practice lending”. Compliant lending means that you follow all the relevant rules. Best practice lending means you provide the best product for that particular customer’s needs and ability to repay the debt. For example, if the customer’s ability to repay the debt is not properly determined, one can be a compliant lender but not operating in a best practice environment

The CFPB by definition was designed to protect the consumer from irresponsible players and lending in this industry as well as many others relative to consumer finances. The CFPB has been revolutionary in regard to “transparency” when performing rulemaking. Granted the Dodd-Frank Act spelled out the requirements for the rulemaking, but the CFPB also uses its discretionary authority when they feel it necessary. The mandated education requirements, as well as, the plethora of other rules effective this year can lead you to believe the goal is not for basic compliance with the rules but a focus on doing what is right for the consumer. The industry has been through a lot over the past five years. Stepping up, being compliant, and understanding why the rules are in place will have the effect of best practice  lending in addition to improving the reputation of the industry over time.

Why is it important to follow best practices to remain CFPB compliant? What do organizations gain?

Best practices are really “Tried and True” practices in the industry. Sometimes they come as a result of litigation (not doing what got that company into trouble) or as a result of regulatory examinations or simply a reliable way to be compliant and responsible. Organizations can gain insight, streamline processes, and most likely have less risk by paying attention to best practices of their peers.

Best practices are generally developed by what works for some institutions in meeting compliance after trial and error in some cases. Knowing other institutions are following similar practices can prevent you from standing out from the crowd in a bad way. Organizations can gain the knowledge of what seems to work for others, modify them for what may work better for them, use them to structure policies and procedures to help the organization make mortgage loan efficiently and compliantly.

Putting those practices into writing and insisting that your staff follow those practices  is critical to maintaining a best practice environment and will go a long way to protecting your company’s bottom line as well as your peace of mind.



QM/Ability-to-Pay News – A Matter of Perspective

house-837758_640Last week brought important news relating to qualified mortgage (QM) and ability-to-pay issues. Some in the industry are undoubtedly excited, and others not so much. As with any news, it seems, it is all a matter of perspective.

Firstly, the CFPB announced September 21 that it has finalized a rule that will make it easier for some community banks to make qualified mortgages. The rule will take effect January 1, 2016, and will allow more lenders to be defined as “small” or “rural” creditors. As a result, this will allow these lenders more flexibility in making loans that will be granted QM status.

Under this new rule, lenders will be granted “small” status if they keep their first-lien mortgage loan rate under 2,000 rather than the current number of 500. Moreover, any area that is not specifically deemed “urban” will fall under the “rural” category. The CFPB did put various safeguards in place, however, so lenders will want to study the new rule in detail before assuming they will be granted “small” or “rural” status.

Secondly, on Tuesday, September 22, in the Federal Financial Institutions Examination Council’s annual report on the Home Mortgage Disclosure Act, it was noted that the CFPB’s ability-to-repay and QM rules (which took effect in January 2014) did not have a significant impact on mortgage lending. Specifically, the report noted, “The HDMA data provide little indication that the new ATR and QM rules significantly curtailed mortgage credit availability in 2014 relative to 2013.”

The report was hailed by many as great news. Stated Sasha Werblin, Economic Equity Director for the advocacy group Greenlining, “The pushback from the private sector was that this was going to completely limit any ability to lend, and we’re seeing that now, as they’re getting in line with understanding these new regulations and the new market, they’re maybe doing better than they expected.”

On the other hand, many had reservations – about the data, as well as the fear of jumping to conclusions too quickly. Even the report itself was cautionary, noting, “There are significant challenges in determining the extent to which the new rules have influenced the mortgage market, and the results here do not necessarily rule out significant effects or the possibility that effects may arise in the future.”

Bob Davis, Executive Vice-President of American Bankers Association, made it clear that not everyone is convinced of Ms. Werblin’s interpretation of the report. “Maybe someone’s trying to jump to the inference that, because there was not a big change, there must not have been an effect. . . . Our bankers disagree with that. They [the bankers] think that using the HMDA data to make that determination is a misguided effort. While Davis admitted the effect has not been drastic, he stressed that the current demand for loans remains higher than the number of lenders willing to lend. He suggests that something is causing this, and he says that bankers are telling him it is the QM restrictions.

Clearly, both of last week’s developments appear positive at first glance. The industry can only hope the news holds out to be positive for all in the long run. As always, time will tell.

Sources: 1) Clozel, Lalita – Sep. 21, 2015 – “CFPB Finalizes QM Rule Expanding Small Lender Exemptions – ( and 2) Heltman, John – Sep. 22, 2015 – “Mortgage Rules Not Chilling Market as Feared, Data Shows” – (