Mortgage Lenders Nationwide

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.
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• 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.