Mortgage Lenders Nationwide

Virginia passed a bill amending several provisions of the Mortgage Lender and Broker Act (MLBA). Under the amended law, the term “owner-occupied” is deleted from the definition of “mortgage loan.” As such, mortgage loans subject to the purview of the MBLA are no longer limited to loans secured by owner-occupied properties. The amended law also requires mortgage lenders and brokers to consent to national and state criminal history records checks when applying for a license. A recent report indicated that mortgage loan applications have been declining in Virginia , Maryland and the greater D.C. area.

Colorado adopted an emergency rule formalizing initial and continuing education requirements for mortgage brokers required to be licensed under the Mortgage Broker Licensing Act (MBLA). Under the rule, mortgage brokers must complete a 40-hour education course and pass an examination prior to initial licensure. Mortgage brokers currently licensed under the MBLA have until January 1, 2009 to complete the initial education course and examination. Mortgage brokers must also complete 9 credit hours of continuing education during each 3-year renewal cycle. The 9-hour continuing education requirement is not required until after the mortgage broker’s first 3-year renewal cycle.  Colorado mortgage lenders are not subject to the same laws and restrictions as mortgage brokers and this continues to fuel controversy.  Why should mortgage brokers be required to disclose “yield spread premium” if lenders in the same state do not.  Most mortgage professionals believe that yield spread premium also known as “rebate”, should not be a required in the disclosures like the “Good Faith Estimate.”

Massachusetts issued a Regulatory Bulletin formalizing initial and continuing education requirements for loan originators subject to Massachusetts’ recently enacted mortgage loan originator law. Under the new law, mortgage loan originators must complete a 24-hour residential mortgage lending course prior to initial licensure. Individuals employed as mortgage loan originators prior to November 30, 2007 who submit an application for initial licensing by May 27, 2008 are not required to complete the course. In addition, mortgage loan originators are now required to complete at least 8 hours of continuing education courses on an annual basis.

The Ohio Division of Financial Institutions has issued two letters stating that mortgage brokers, loan officers, and mortgage lenders subject to the Mortgage Broker Act and the Ohio Mortgage Loan Act must give due consideration to the procedures set forth in the Statement on Subprime Mortgage Lending (Subprime Statement). The Subprime Loan Statement was developed by the Conference of State Banker Supervisors, the American Association of Residential Mortgage Regulators, and the National Association of Consumer Credit Administrators to address emerging risks associated with certain subprime mortgage products and lending practices. The Subprime Loan Statement is an attempt to assist state regulators in promoting consistent practices in the mortgage market, and to clarify how Ohio mortgage lenders and brokers can offer subprime mortgage loans in a fair and prudent manner that clearly discloses the risks that borrowers may assume.

Maine passed a bill increasing the homestead exemption to $47,500. The bill also increases the homestead exemption to $95,000 if the debtor is elderly or disabled, has minor dependents residing in the residence, or has dependents that are elderly or disabled residing in the residence. This mortgage bill becomes effective July 15, 2008.

Mississippi passed a bill requiring mortgage lenders, mortgage brokers and loan originators licensed or registered under the Mississippi Mortgage Consumer Protection Law to utilize the multistate licensing system for all license and registration applications and renewals. The lending bill went into effect on April 7, 2008

Last month, North Carolina adopted rules affecting surety bond requirements for mortgage bankers and brokers licensed under the Mortgage Lending Act. The new rules require mortgage lenders, bankers and mortgage brokers to report any claims made against a surety bond within 10 days and to reinstate the bond to the full amount within 30 days. The rules also amended recordkeeping and notification requirements under the Act. The lending rules went into effect on March 20, 2008.

Mortgage brokers and lenders have embraced the increased FHA mortgage loan limits for North Carolina, because so many more homeowners now qualify for government refinance and purchase loans.  In some cases these FHA mortgages actually help stop foreclosures.  Like most states, North Carolina has seen a significant surge in foreclosure activities and short sale transactions.

Maryland passed a bill amending the state’s foreclosure law. Under the new law, a written Notice of Intent to Foreclose must be provided to mortgagors or grantors prior to filing an action to foreclose on residential property. An action to foreclose may not be filed until 90 days after default or 45 days after the Notice of Intent to Foreclose is sent to the mortgagor or grantor, whichever is last to occur. A copy of the complaint to foreclose or order to docket must also be personally served to the mortgagor or grantor at least 45 days prior to the foreclosure sale. In addition, the name and license number of both the mortgage lender and the mortgage originator must now be included in all mortgages, deeds of trust, and other instruments securing mortgage loans on residential property.

If the Maryland mortgage lender or bank is exempt from licensing, the mortgage or deed of trust must contain an affidavit to that effect. The bill went into effect on April 3, 2008.  According to Jason Sklar an attorney who works with a Loan Modification Company in Owings Mills, the foreclosure issue is serious and needs to be addressed quickly so homeowners don’t lose their homes.

Fannie Mae made recent changes while clarifying their Maximum Financing Policy:

• Home equity combined loan-to-value (HCLTV) ratio is also subject to the Maximum Financing Policy.
• How the Maximum Financing Policy applies to mortgage products with LTV, CLTV, or HCLTV limits of 95% or greater.
• Outlining several exclusions from the Maximum Financing Policy
  • establishing a “floor”, below which the Maximum Financing Policy does not apply,
  • updating the policy to allow a maximum CLTV of 105% when the subordinate financing is in the form of a Community second mortgages

revising the existing exclusion from the Maximum Financing Policy for certain limited cash-out refinance transactions of Fannie Mae-owned or securitized first mortgages, and clarifying that home mortgages that are fully-insured or fully-guaranteed by a federal government agency are not subject to Fannie Mae’s Maximum Financing Policy.

There is a growing sense that the worst of the credit crunch may be behind us. And despite a tamer-than-expected reading for April, inflation is still very much a concern for many Americans.

So with that in mind, could the Federal Reserve be forced to raise interest rates before the end of the year….even in the midst of the presidential race?   The Fed has historically been reluctant to make significant policy moves in the months leading up to the election.  In fact, some Republicans still think that President George H.W. Bush would have won in 1992 if Alan Greenspan had lowered interest rates more aggressively.

Still, the market now seems to think that Fed chair Ben Bernanke may take action just a few days before Election Day on Nov. 4.  According to futures listed on the Chicago Board of Trade, investors are currently pricing in a 56% chance that the Fed will raise its benchmark federal funds rate by a quarter of a point, to 2.25%, at the conclusion of a two-day meeting on Oct. 29. Traders widely expect the Fed to keep rates at 2% at meetings in June, August and September.  There have been calls for the Fed to, at the very least, leave rates alone for the foreseeable future. Critics of the Fed have maintained that a relatively low federal funds rate, an overnight bank lending rate that affects how much interest many consumers and businesses pay on loans, has weakened the dollar and helped fuel the boom in commodity prices.

The economy, as it was in 1992, is likely to be the primary focus for this election. There is a reason why we at CNN and CNNMoney.com have dubbed this ‘Issue #1′ after all.  Even those who don’t think the Fed would mess with an election think rates are heading higher by year’s end.  “I really doubt the Fed would go and raise rates right before the election, especially one that’s hotly contested. But I think they could definitely raise rates in December,” said John Derrick, director of research with U.S. Global Investors Inc., an institutional investment firm based in San Antonio.  Still, if the Fed were to make a move just before the election, would that be the right decision? I’d argue yes. The Fed has to do its best to steer clear of politics. And even though raising (or lowering) interest rates in the days before Americans hit the polls might have an impact on the race, the Fed has to do what it is best for the economy.

If food and gas prices continue to rise and the dollar remains weak, the central bank may have no choice but to start raising rates.  At this point, it’s unclear which candidate a rate hike would benefit (or hurt).  If it boosts the dollar and lowers oil and gas prices, a rate hike could actually make Americans feel better about the current economy. What’s more, many voters, particularly older ones, would welcome rate increases since that would lead to higher rates on savings accounts. The Fed’s series of rate cuts since last September has caused rates on CDs, money market accounts and other savings instruments to fall below the inflation rate, a blow to many retirees.

So if (and these are admittedly big ifs) the housing market starts to show signs of stabilization later this year and the economy bounces back a bit as consumers spend their tax rebate checks, then inflation, not a recession, is likely to be the top concern for voters and the Fed this fall.  “There is no reason to think the Fed will do anything but sit tight for awhile,” said Jim Glassman, senior economist with JPMorgan Chase. “But over the summer months, my guess is Wall Street will realize maybe that economic stimulus is working and those who thought the economy was falling apart may start pricing in more of a chance of tightening later this year.”  And that means that the candidate that makes the best pitch for a stronger dollar and shows the best inflation fighting credentials could wind up winning the White House.  So instead of blaming Ben Bernanke for costing them the election, John McCain, Barack Obama or Hillary Clinton may actually need to thank him if the Fed raises rates in October.  Article written by Paul R. La Monica - See more articles at http://money.cnn.com

The spiraling wave of foreclosures has become an election year issue. Along with the ending the war in Iraq, fixing the health care crisis, and addressing the rising cost of gas and food, voters want candidates for President and Congress to stem the accelerating loss of their homes and its disastrous impact on the economy and surrounding communities. The issue is front-page news. In recent primary contests, Senators Hillary Clinton and Barack Obama have made constant reference to the growing problem of foreclosures. In the battle for control of Congress, the housing and credit crisis is likely to become a hot issue, especially in many key swing districts and states.

In 2007, 405,000 households lost their homes, an increase of 51% over the more than 268,000 that were repossessed in 2006. The Center for Responsible Lending projects that 2 million families are likely to lose their homes in the next few years due to the current subprime lending crisis. More than 80 sub-prime mortgage lenders went bankrupt by the end of last year. 

But it is not just borrowers and lenders who are losing. Standard and Poor’s reported that home prices dropped by more than 12 percent over a one-year period beginning in February 2007. As a result, property values and property tax revenues have declined. The U.S. Joint Economic Committee has projected a loss of $71 billion in housing wealth as a result of the mortgage meltdown. The U.S. Conference of Mayors projected that 10 states alone would lose $6.6 billion in local tax revenue.

Most Republicans in Congress, including Senator John McCain, balk at using tax dollars to rescue homeowners and gasp at the idea of holding businesses accountable to be socially and economically responsible. They prefer to blame the victim the borrowers who got snookered by predatory lenders and mortgage brokers, but feel no hesitation at bailing out Wall Street banks like Bear Stearns.

The mortgage bill allows homeowners to shift from sub-prime mortgages they can no longer afford to federally backed mortgages. It would provide $300 billion in federal loan guarantees to lenders who agree to reduce the outstanding principal on loans. In exchange for a new mortgage, backed by the FHA, homeowners must share profits on a subsequent sale of their home with the government.

A surge of partisanship has placed in jeopardy a bill aimed at helping homeowners who are at risk of foreclosure. But the political resonance of the issue could prompt the measure’s Republican critics and Democratic backers to find middle ground.

The bill would try to lower risks for both the lender and the homeowner, by offering government-backed insurance to lenders willing to reduce the principal for mortgage loans made to some people who owe more on the property than the home is now worth. It passed through the House Financial Services Committee with 10 Republicans joining Chairman Barney Frank and the panel’s other Democrats. But after President Bush yesterday came out and threatened to veto the bill, Republicans put up legislative road blocks  to keep the measure from the House floor, as the New York Times reports. Mr. Bush says the bill would “reward speculators and mortgage lenders” without making a big dent in the country’s mortgage and housing-market crisis. Moreover, Republicans argue, it means taxpayers could be stuck with bad credit mortgage loans newly insured by the Federal Housing Administration. But the issue is more complicated than that.

Wall Street Journal columnist David Wessel boils down the debate to a question of whether Washington should push the lenders to help Americans whose home values sank below the size of their mortgages “even if it may cost taxpayers some money,” with the White House saying “No!” and Mr. Frank, quietly backed by Federal Reserve Chairman Ben Bernanke, saying “Yes!” Citing research from Economy.com, Mr. Wessel puts the number of families with such “underwater” mortgages at about four million, and notes that number is predicted to reach around 12 million by early next year. While many of those families will keep paying their mortgages, “many won’t, and are at risk of losing their homes,” he says. Since “no one in Washington wants to help the ’speculators’” who bought homes as investments, and most there agree people who bought houses they can’t afford are probably beyond aid, “the debate revolves around the ‘preventable foreclosures,’” he adds.

According to California mortgage banker Bryan Dornan, “America looses when the government starts subsidizing foreclosures.”:  Dornan continued, “letting the market correct itself will make housing more affordable while getting our economy back on track quicker.”  And no one, from the homeowners to the lenders to the politicians and economists like Mr. Bernanke, wants to let preventable foreclosures go unprevented. The bill, while crafted to exclude people who don’t need the help or wouldn’t benefit, “could allow some homeowners to get a deal they don’t deserve; that’s the unfortunate byproduct of any rescue,” Mr. Wessel notes. But the Treasury and Fed, he argues, “surrendered the let-the-market-work-it-out high ground when they agreed to risk nearly $30 billion of taxpayer money to shield Bear Stearns, its creditors and counterparties from losses.” Democratic legislators yesterday were mentioning the Bear Stearns bailout again and again.

The housing downturn is an economic problem with as much political resonance as gas prices, and if no relief is provided, it could be a poignant issue ahead of November’s elections. Even as Mr. Bush was threatening a veto yesterday, Keith Hennessey, director of the White House National Economic Council, was saying the differences between congressional Democrats and the administration aren’t impossible to overcome the Journal reports, adding that this leaves the door open for an eventual deal. 

The Department of Housing and Urban Development has determined that market conditions prevented Fannie Mae and Freddie Mac from reaching two affordable housing subgoals in 2007, and it will not require the two government-sponsored enterprises to take corrective action. The two home-purchase sub-goals are supposed to measure the GSEs’ efforts in financing low-and moderate-income homebuyers. Fannie and Freddie submitted market data to HUD showing that rising home prices reduced the availability of affordable housing. In addition, the sub-prime mortgage meltdown and tighter credit conditions made the barriers to achieving the subgoals “insurmountable,” Freddie Mac said. In letters to the chief executives of the two mortgage companies, HUD Assistant Secretary Brian Montgomery reported that information provided by the GSEs is “consistent” with HUD’s market research. HUD has determined that the achievement of the two sub-goals was “not feasible,” Mr. Montgomery says in the April 24 letters. He also notes that HUD also considered the “financial stability” of Fannie and Freddie in evaluating their mortgage loan products and affordable housing performance.

Mortgage lenders are urging the Office of Federal Housing Enterprise Oversight to withdraw its support for appraisal reforms that Fannie Mae and Freddie Mac agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo. The agreement “permits the NYAG to unlawfully exercise authority that resides exclusively with the federal government,” according to eight financial services trade groups. And they contend that OFHEO “violated its statutory directive” to be the sole regulator of the two government-sponsored enterprises when it entered into the agreement with the New York attorney general. “We urge OFHEO to withdraw its assent to the agreement, to not permit the GSEs to implement the agreement, and take steps to assure that this type of rulemaking by settlement does not occur in the future,” the joint letter says. In comment letters on the real estate appraisal reforms, the same groups strongly oppose the ban on the use of in-house appraisers and subsidiary appraisal firms.

Many mortgage originators turned away from the Federal Housing Administration mortgage insurance program because subprime products were easier to do and more profitable. Because the secondary market for subprime has collapsed, the FHA program is seeing a spurt in interest. But many recent entrants to the mortgage business have no experience with these loans, while veterans have not done any FHA loans in years. In order to educate real estate professionals on how FHA and VA loans can be leveraged, the education division of the Mortgage Bankers Association, CampusMBA, has launched FHA Central, a complete FHA and VA training service.

FHA Central offers custom classes are designed to give users insight into this expanding segment of the market. The classes provide users with both tactical and strategic skills that can be practically applied to their current businesses. FHA Central includes a series of live online workshops, instructor-led web course, print-based courses and publications. Seminars include, “How to Become FHA Approved” and “Top Ten Advantages of Selling VA Products.” Instructor-led courses will begin in early 2008 with “FHA Fundamentals” and “VA Fundamentals.”  “As FHA’s influence and market share are now growing again, this is the time for industry professionals to learn or re-learn the basics of the FHA program and how it can be utilized,” said John Golden, MBA’s vice president of education.

“It’s critical that they understand how these recent changes will affect their businesses and by leveraging CampusMBA’s FHA Central, they will have the opportunity to see the broader role that FHA and VA loans can play in helping more borrowers achieve…homeownership,” he added. CampusMBA also offers the option for custom company-specific FHA and VA training through its Enterprise Learning Solutions Group.  Registration is open to MBA members and nonmembers. Real estate professionals interested in enrolling can visit http://www.campusmba.org  - Article Written by James Comtois

Competitive Enterprise Institute issued a new report after examining the sub-prime loan crisis that argues the various proposals before the U.S. Congress to correct the loan defaults could instead make things worse. According to “A Non-Prescription for Confronting the Subprime Crisis” authored by CEI analysts, John Berlau and Eli Lehrer, “To date, the crisis has been relatively minor, a small decline in homeownership combined with a small uptick in foreclosures, with well-off investors absorbing the bulk of the damage. Doing too much could turn a minor crisis into a major one affecting ordinary Americans.”

Arguing that the people whom were hurt the most by the subprime crisis were real estate investors and reckless lenders, the report notes that the decline in home values, and the increase in foreclosure and delinquency rates have had little impact on the average American homeowner. With that as the setup, CEI’s analysts advocate that Congress’ prescription to the subprime crisis should be to do nothing. The report concentrates its criticism on the following proposals that are up for consideration:

• The FHA Finance Reform Act, which contains a provision to tax Fannie Mae and Freddie Mac to create an “Affordable Housing Fund” of approximately $450 million per year with an official objective of building one million new affordable housing units through grants, subsidies and insurance programs. “A Non-Prescription for Confronting the Subprime Crisis” states that this legislation would not address the subprime crisis and could reduce homeownership. Among the reasons cited for a decrease in homeownership are the encouragement of the building of more rental housing, downpayment assistance for marginal buyers may increase default rates, and taxing Fannie Mae and Freddie Mac may result in a decrease in credit availability.

• Increase the Fannie Mae and Freddie Mac conforming loan limits. Under HR 1427, the conforming loan limits would be raised from the current $417,00 to $622,000 – higher in certain high-cost areas. The authors of the report said, “There is no good reason for people buying houses at that price level to get any help at all from the government-sponsored enterprises.”

• The Expanding American Homeownership Act would expand FHA’s mandate to allow it to write more insurance, insure zero-downpayment and subprime loans, and make more loans overall. Messrs. Berlau and Lehrer believe that this would increase the number of subprime loans to marginal borrowers, thus possibly exacerbating the subprime crisis by “providing guarantees to poorly managed lenders making loans that should never have been made in the first place.” They also cited a statistic that higher FHA market share correlates to lower rates of homeownership.

• The Mortgage Reform and Anti-predatory Lending Act (HR 3915) received particularly scathing criticism from CEI’s analysts. “This and similar proposals would go beyond improved disclosure to essentially outlawing certain types of loans … limiting the choices of both lenders and borrowers,” they said. “A mandated ‘cheaper’ loan that requires larger cash payments at one time may hinder borrowers’ abilities to achieve other financial goals, such as sending a child to college.” They also pointed out that it could worsen the housing crisis by making it harder to get home loans.

• The Mortgage Forgiveness Debt Relief Act (HR 3648), which would change the tax code so that people who negotiate a workout of their foreclosure aren’t held liable for income taxes on the forgiven debt received the authors’ support, although they note that it would do nothing about the current subprime crisis. They also said that it could slightly increase default rates, interest rates or both, by making it easier for people in default to walk away from their mortgages.

Arguing against both overregulation and bailouts from government agencies, Messrs. Berlau and Lehrer concluded that these interventions would worsen the market’s ability to correct the problem by repricing risk.  – Article Written by Alton Gary Simpson

In the current troubled home financing market, in order for a conforming an FHA lender to compete, it needs to have an automated underwriting system, which enables the mortgage lender to close loans quicker and with accuracy than other conventional lenders.

As a means of growing their business amist the subprime market, Community First Bank Loan Services, a Maryland based mortgage lender, choose PriceMyLoan to provide it with automated underwriting and loan pricing technology. CFB Loan Services chose PML’s services based on recommendations from lending partners and colleagues as well as PML’s reputation in the industry.

“Our evaluation process involved extensive due diligence with existing clients of vendors,” said Steve Park, Director of Business Development for CFB Loan Services in a statement. “The clients using Price My Loan spoke positively about their rate pricing results.”

Price My Loan is an internet based private label automated underwriting and loan pricing system designed for correspondent mortgage lenders and provides an online channel for loan originators to accurately determine loan eligibility and pricing using live credit report data and direct uploads from loan origination servicing software.

Additionally, PML is a full-service system that supports multiple investor product lines across an array of product types, from FHA to subprime. The full-service component of PML removes the maintenance and labor required to update investor guidelines and pricing, placing the responsibility on PML’s staff.

PML is a proprietary product of Insight Lending Solutions, a Fountain Valley, California based provider of web-based application services for the mortgage lending industry and software as a service to its clients to enhance productivity, reduce IT dependency and accelerate time-to-value for home financing companies.

Despite the subprime mortgage meltdown, online lead generator, Lead Planet, is reporting an increase substantial in consumer requests for home loans. The California based mortgage marketing company said it received a record number of homeowner requests for refinancing in the 4th quarter of 2007 and the 1st quarter of 2008.  The mortgage loan quotes during the first quarter of 2008 were up an astonishing 164% over the first quarter of 2007.

The Lead Planet ackowledges the increasing number of loan defaults and interest rate cuts as the primary reasons for the increased loan application volumes this year.  According to Dan Ambrose, “Most of the mortgage companies that are left have shifted to reverse mortgages or FHA mortgage lending.” 

Founded in 1999, the Lead Planet provides quality mortgage leads to lending professional.  They remain a direct lead provider who generates loan applications directly from the consumer.  The Lead Planet generates their leads on the internet through serach Engines like, Yahoo, MSN, Google and AOL.  Ambrose “maintains that they do not buy leads from other lead aggregators.” 

The latest company to jump on the Federal Housing Administration bandwagon is E-Loan here.  The company is now offering FHA-insured loans as part of its product menu. “Unfortunately, we are seeing an unprecedented number of homeowners being forced to foreclose on their homes because they cannot afford their newly adjusted mortgage interest rates,” said Mark Lefanowicz, president.

“For many, the flexible guidelines and competitive rates of these FHA mortgage loans will mean the difference between losing their homes and being able to keep their piece of the American dream fully alive.”

E-Loan is a subsidiary of a New York State-chartered bank, Banco Popular North America.

According to the company’s website, E-Loan does not offer FHA mortgages in the District of Columbia, New Mexico or West Virginia.

“This is a great loan product for the millions of buyers out there struggling to find a way to buy their first home – especially in today’s ever-tightening credit markets,” said Mr. Lefanowicz. “It is also ideal for borrowers with adjustable rate mortgages that are getting ready to reset into a higher rate.”

Back in November 2007, the ultimate parent of E-Loan, Popular Inc., announced a restructuring of the company which included a newly placed emphasis on originating loans that meet the secondary market standards for purchase by one of the government-sponsored enterprises.

A new trade group has been formed to support education initiatives and provide resources to improve the operational efficiency, consistency and financial sustainability of reverse mortgage counseling programs nationwide. The National Housing Counseling Association, formed by a coalition of reverse mortgage counseling agencies and elder care experts, will build on existing best practices in the reverse mortgage counseling industry and will offer membership to all HUD-approved housing counseling agencies which agree to abide by the NHCA code of ethics.

“The association was created to ensure the availability and quality of reverse mortgage counseling for seniors,” said Chuck Stanley, NHCA spokesperson in a statement. “With the near exhaustion of available HUD funds for HECM counseling and the delay in HUD’s borrower pay regulation, many counseling agencies are being forced to cut back on counseling services.”  Mr. Stanley added that the NHCA has developed an approach to accessing additional grant funds “without the perceived conflict of interest associated with direct contributions by individual reverse mortgage lenders. We believe this approach will be a win-win for all reverse mortgage counseling agencies, their clients and the reverse mortgage industry as a whole.”

Participating agencies will have access to DirectConnect Reverse Mortgage Counseling Services software, which will be used to gather counseling session data for use in grant reimbursement and research purposes.  NHCA is currently endorsed by many HUD-approved counseling agencies, and agencies from each of the credit counseling trade organizations, American Association of Debt Management Organizations, Association of Independent Consumer Credit Counseling Agencies and the National Foundation for Credit Counseling.    -Article written by James Comtois

More than 100 additional classes of subprime mortgage-backed securities were downgraded by Fitch Ratings on April 30. Fitch also affirmed the ratings on classes with outstanding balances of more than $5 billion. The securities affected by the latest downgrades were: 54 classes from 23 issues by Structured Asset Investment Loan; 31 classes from eight issues by CDC Mortgage Capital Trust; 20 classes from 19 issues by Chase Funding Loan Acquisition Trust; 17 classes from four issues by Structured Asset Securities Corp.; and nine classes from two issues by People’s Choice Home Loan. Fitch can be found online at http://www.fitchratings.com.

FHA loans have become the fastest-growing product for an alliance of 110 local and regional mortgage bankers, constituting 35% of their loan volume in March, according to Lenders One chief executive president Scott Stern. Back in January 2007, FHA mortgage lending represented only 1% of their loan production. “Due to the tremendous growth, we refer to FHA as the ‘Loan Product of the Year’,” Mr. Stern said. The Lenders One CEO said he believes that FHA production could hit 40% of originations if Congress makes the increase in loan limits permanent and does not raise the FHA downpayment requirement. Alliance members originated $40.4 billion in residential mortgages in 2007, and they are currently originating $3.3 billion to $3.5 billion a month.

The Federal Open Market Committee has cut its target for the federal funds rate by 25 basis points to 2% and indicated that it will try to avoid further cuts even though the credit crunch and housing woes are likely to persist. “The substantial easing of monetary policy to date, combined with ongoing measures to foster market liquidity, should help to promote moderate growth over time and to mitigate risks to economic activity,” the Federal Reserve’s monetary policy-making committee said. The FOMC also noted that it remains concerned about inflation, as “some indicators of inflation expectations have risen in recent months.” Two committee members voted against the most recent cut, indicating that they preferred no cut be made.

Guidelines for Ensuring Legal Conformity – By A. Blair Glenn

Most mortgage salespeople are not compliance experts.  We typically eschew rules and regulations—anything that potentially gets in the way of our talent and trade.  We intrinsically dislike the details, timelines and processes that comprise many aspects of mortgage compliance. The salesperson is by nature not a detail-oriented individual.  Pursue relationships, mine the database, meet with clients for prequalifications, take applications, get involved when needed during the process, and then on to the next transaction.  Fortunately, the best mortgage leaders and mortgage sales professionals are driven by our legal and regulatory responsibilities and doing what is right for the customer.  The collapse in the subprime mortgage market in 2007 has now impacted all aspects of our industry.  Compliance has now become just as important as production! 

If you are not current with the legal aspects of compliance, get there, and do so quickly.  Not just for your customer, but for yourself and your company. As mortgage professionals, compliance isn’t the sole domain of a group of people at the home office.  It is the responsibility of originators, processors, underwriters, closers, sales managers and administrative assistants to generate and deliver profitable volume for our organizations, but equally important in this highly charged environment, we must do it legally and responsibly. 

• RESPA provides detailed guidelines on referral payments and co-op marketing. This has been around since 1974 when HUD created the regulation to protect the customer and ultimately level the playing field for lenders.  While RESPA and the all-important Section 8 has been the rule of the land for quite a while, originators still get confused and/or ignore the basics. You can’t provide a thing of value (coffee coupon, special party, gifts) in exchange for referrals. Also, if you do co-op marketing with Realtors/other partners, you must proportionally share the costs (advertising, printing etc.) Otherwise, in both cases you risk a steep fine and possible jail time. 

• Proposed RESPA Revisions have been recorded as of mid-March in the National Register.  Per HUD, the proposed rules are to simplify and improve the process of obtaining mortgages and reduce consumer settlement costs.  If passed, one of the new rules will further standardize fees on the GFE and link to the HUD 1 Settlement Statement. 

• Fraud is an element of quality control and the domain of everyone in a mortgage office.  On a single mortgage transaction, fraud can be perpetrated by the originator, the Realtor(s), builder, settlement agent, attorney, appraiser, buyer/customer, seller or a combination of these.  Most originators will quickly bring suspicion of fraud to management’s attention.  However, what we tend to see is convenience fraud and failing to address fraud red flags.  Originators who know about a large gift being made but not showing up on paperwork, or other information that is different than what is documented or discovered is fraud–plain and simple.  Also, when fraud red flags are noticed, they must be sufficiently investigated and addressed.  Addressing these red flags on an application or paperwork received at time of application is the responsibility of the originator. 

• Licensing currently is not required by originators working for most lenders and banks.  Mortgage brokers do have individual licensing requirements.  Many states are already proposing legislation to require licenses for all originators and brokers.  To be better prepared, stay current on pending legislation and rules through associate membership in MBA, NAMB and other industry trade associations. 

• Reg. B is another regulation that originators and others in the process need to follow correctly.  HUD does not technically say when an application is an application as relates to Reg. B.  However, it is the responsibility of the lender to put their policies for compliance in writing so originators, processors, underwriters and everyone else can fully comply.

Of course there are several Senate bills and other regulatory measures of which we must all be aware (see article by attorney Herman Thordsen in M.O.M.’s subscriber-only Web section at the Mortgage originator.com.

Ensuring Compliance
The following are some ways to ensure compliance on the originator and team level:

• The Mortgage Application: Originators earn their compensation for originating loans, taking thorough and accurate 1003s, following policies and procedures, adhering to compliance policies including proper disclosures, and oversight of the loan to funding.  With the issues facing our industry today, there is increasing clarity around the importance of everyone in the organization following written processes and procedures.  The originator is the key to this process, and it is our responsibility to instill a sense of urgency around compliance and following the various regulations to the letter.  

• Checklists:  Develop an application process checklist that will ensure a systematic approach to the application and accountabilities for disclosures.  Putting a process in place that manages them and audits a percentage of these checklists will ensure a more compliant process.
 �
• Disclosures:  Compliance dictates proper disclosures and strict timelines for GFEs and TILs.  The natural complaint is under-disclosure. However, another common complaint is regarding originators who may confuse the estimate.  Too many “throw in the kitchen sink” when preparing these figures, and instruct the customer to not worry about the actual numbers.  This is not only wrong, it is poor customer service.  Disclosing fees correctly and on time is a precursor to customer service excellence!  Customers will appreciate the accurate disclosures and will also appreciate the lack of surprises at closing.  Taking this one step further, leverage the disclosure process by guaranteeing the information on the disclosures.  Hold the originators accountable for quotes and numbers to ensure accuracy up-front.

• Customer Letter:  Design a customer letter to be sent to each customer after application detailing the process, disclosures they should have received, what they meant and what the borrower needs to do prior to closing, and what is needed from the lender. 

• Processing/Underwriting/Closing:  Establish and maintain processes and procedures with processors and other team members to effectively manage file flow and ensure compliance. For example, loan processors, either local or centralized, are our “second set of eyes.”  Originators may inadvertently miss red flags, forget to have GFEs signed or fail to fax rate lock agreements. We also need closer inspection of comparables on appraisals, review of documents such as ensuring the pay stub amounts add up to YTD figures, and for spotting large deposits on a bank statement an originator may  have missed.  But we can’t assume our processors automatically know to look for these things when in the last few years the industry originated so many “NINA” and “SISA” loans. �
• Guidelines and Regulations:  Train originators, processors, underwriters and closers on compliance and how to be compliant in their respective roles.  Don’t make the assumption they know why disclosures are required within three days of the application or which days to count in the three day right of rescission. 

• Information Flow:  Determine how compliance information is disseminated to the entire team.  Organize a regulations/compliance book and have one person responsible for maintaining and discussing updates in weekly sales meetings.  This person should also be the designate to attend compliance workshops and the like. 

Additional Areas
While adherence to compliance on many issues is the responsibility of the originators and sales support team members, the inspection of that adherence is the responsibility of the sales leader.  This is not to say our originators and sales support team members will commit fraud, fail to disclosure or properly council customers through the application process.  In fact, the vast majority of employees are diligent and highly effective at these responsibilities.  The need for close inspection and monitoring stems from turnover issues, rushing files, lack of focus, volume overload, cutting corners and other forms of fraud.  From a sales leader’s perspective, there are several key functions as well, including:

• Recruiting:  If you want a more compliant office, hire originators who understand the fundamentals of mortgage compliance.  I suggest contacting former managers of candidates to gain a perspective on how they originate volume and the quality of that volume.  Another potential source of information about a candidate is that person’s former operations manager.  The last tactic is the importance of asking compliance questions during the interview process. A few sample questions to ask: What disclosures are required at time of application, after application and during the process? What triggers the requirement for new disclosures to be provided? How does RESPA impact your business development efforts?  How does the Fair Lending Act impact your prequals and applications?

• Training: Obviously training is a critical element in meeting compliance standards. In addition to the type of training that loan originators are providing their own team members, there are a couple of other essential points. For new employee training, I’d suggest giving more attention to compliance and fraud. Appropriate topics would be pre-approval requirements; application process disclosures; proper/improper communication with Realtors, builders and referral sources; decisioning; fair lending; and addressing fraud red flags.

You’ll also need to develop training procedures for operations and sales support. I believe most operations teams have done a tremendous job of processing, underwriting, closing, post-closing and delivering loans to investors. Some suggestions to better integrate compliance within the operations/sales support and sales relationship include: holding a meeting between compliance, operations and sales management to ensure all understand the new dynamics in our industry and understand and support the company’s policies and procedures; and providing opportunities for processors, underwriters and closers to review documentation more carefully for inconsistencies and fraud red flags; review appraisals to avoid buybacks; and review closing documents and at closing conditions for irregularities and fraud red flags.

Ongoing training is also a necessary component of your compliance program. We can’t assume all mortgage sales leaders and loan originators/teams understand compliance and the legalities that exist. Some, who have assumed their position within the last few years when the market was strong, probably didn’t have any formalized compliance training. They’ve never had to require full documentation. So make sure you provide instruction on all critical areas, which will be especially important as we face increased regulations in the near future.

• Compensation: In this difficult period in our industry, I find it amazing we still have companies advertising drastic per-loan fee increases.  From lawyers to watchdog organizations, our industry is under the microscope. As leaders, it is our responsibility to compensate our originators fairly for their time, talent and production.    Here are a few ideas: Create compensation plans that avoid steering customers to selected products; when there is different compensation on select programs the justification for the difference should be easily justified (for instance, expertise required on more complex programs) and ensure that minority borrowers are not treated differently as relates to yield spread, overage and fees. 

Monitoring
Ideally you’ll have a full time compliance officer in your office who is responsible for compliance oversight. Of course, due to sizes of some offices and the fundamentals of staffing and loan economics, that may not be possible.  If this is the case, I suggest having one person besides the sales leader responsible for compliance oversight.