February 29, 2008
Filed under: HR 3915 — admin @ 10:50 am
Ruth Lee
A continuation of my analysis of HR 3915 from here and here.
Over the last decade, the debate over licensing used what many thought to be the rational distinctions of broker, banker, lender, FHA-approved lender and depository institution in determining the minimum standards of state licensure. Some states employed legislation that tiered and parsed amongst the definitions to establish their regulations based on some very substantial and some pretty flimsy differences between originators. HR 3915 establishes minimum standards that delete every distinction except depository (registration) or non-depository (state-licensing and registration) from the debate. It covers every single originator and requires a unique identifier number for the purpose of tracking the originator. It will be interesting to see if they employ MERS for assistance in tracking and streamlining the process… 78 character MERSMIN FTW!
HR 3915 defines an originator as anyone who:
“takes a residential loan application; assists a consumer in obtaining or applying to obtain a residential mortgage loan; or offers or negotiates terms of a residential mortgage loan, for direct or indirect compensation or gain, or in expectation of direct or indirect compensation.”
Depository institutions are subject to some pretty profound regulatory standards and auditing. So HR 3915 directs the Fed to establish registration only. This registration is limited to fingerprints and background checks on any loan originator, most obtain these in hiring anyway, so it shouldn’t be too onerous. Registration for all originators will be founded in the Nationwide Mortgage Licensing System (NMLS) that went live in early January of this year. Not every state has signed on for participation, but HR 3915 would require that all do so in the future.
NMLS: a mortgage licensing system developed and maintained by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators for the State licensing and registration of State-licensed loan originators and the registration of registered loan originators or any system established by the Secretary under section 108.
In creating the distinction of depository and non-depository, HR 3915 makes any flavor of originator that has enjoyed exemption additional regulatory requirements, such as FHA approval, a moot point. All will be required to obtain state licensure - but there is a lot more. They will also be required to obtain that licensure based upon the minimum standards established in the legislation. These standards are considerably higher than many states’ broker standards, so another winner amongst our industry partners will be companies offering mortgage education. Fortunately for those of us that have had to obtain licensing in several different states, the courses will be standardized and approved by the NMLS, making it substantially easier to comply and potentially much less expensive.
All states will be required to amend or pass legislation within a 1-2 year period, depending on their legislative cycle, that conforms to drastically different standards of licensure and eliminate any exceptions or exemptions available for many mortgage lenders. These new standards include: fingerprints and background checks (including a credit report), no license revocation for the past five years, no felonies for the past 7, at least 20 hours of education (to include 3 hours on federal law and 3 hours on ethics), 8 hours of annual continuing education, and a test to be developed by the NMLS.
While HR 3915 does specifically define and exempt employee loan processors and underwriters, it does require that “ a loan processor or underwriter may not work as an independent contractor unless such processor or underwriter is a State-licensed loan originator or a registered loan originator. An interesting aside is the impact this could have on mortgage insurance companies and their contract underwriting, unless they qualify for a different exemption… The last part of the clause suggest that the independent contractor might be eligible for registration only – fingerprints and background; however, it would be interesting to find out how they are going to track them as well, will their unique identifier number be in a different field for reporting?
A big concern is about the efficacy of placing the entire mortgage industry and their livelihood into a virtually untested database. HR 3915 does include language that allows the Fed to replace the NMLS if it is ineffective; and there have been numerous other platforms that perform much the same service. I would imagine that the technology won’t be the downfall; rather It is the data entry that is of greatest concern, especially in light of the volume of transactions. Being placed on a list that could potentially wrongfully denude you of your license is a grave responsibility. On the other hand, for those that play by the rules and do spend a lot of time and money maintaining licensure, it could be a welcome relief.
February 21, 2008
Filed under: Mortgage Industry Trends — admin @ 8:42 pm
Ruth Lee
I found this on a great blog - check it out here.
Filed under: Domestic Outsourcing — admin @ 2:12 pm
Mary Kladde
“Focus on your core competencies and utilize the core competencies of others to your advantage.”
Lenders, like any other savvy business professionals, should focus on their core competencies and not risk the quality of their pipelines by banking on limited experience or trying to manage multiple mortgage operations and processes in-house if that is not their area of expertise. This is a tried and true business strategy, as is the outsourcing of operations that fall outside of a business’ core competencies.
In the mortgage industry, outsourcing makes sense for small lenders who do not have the resources to keep certain processes or experts in house. However, lenders should take care to outsource the processing of this sensitive information to industry professionals who have the experience to manage different loan products and aspects of the lending process, and who have current and up to date knowledge of industry standards, regulations, and compliance issues that affect their area of expertise. In addition, they also usually have the latest and greatest software and technology needed to manage their field of expertise.
Although some large lenders have tried offshore outsourcing for some aspects of the loan cycle, with the recent market problems, increasing regulatory focus on the lending process and an industry wide call for “a return to quality”, lenders need to reassess whether or not saving money on the front end by offshore outsourcing is worth the costs and risks on the back end.
Some things just don’t outsource well offshore - mortgage loans are one of those things. Consider:
1. The U.S. mortgage industry is a creature indigenous and unique to the U.S. economy:
It is at every point and in some way intersecting with state and federal guidelines and regulatory bodies throughout the entire loan process. Everything about the mortgage industry in the US would seem to require some level of knowledge about the specific state and federal provisions covering lending practice oversight. When considering outsourcing, your focus needs to be on ensuring that the outsource provider selected cannot only understand US state and federal requirements, but must also be able to communicate any needed actions in an efficient and expedient manner.
2. Language barriers are hard enough without adding industry specific details that are consistently changing.
Mortgage lending and all the surrounding rules and regulations are difficult enough to explain and describe in our own native tongue with a general understanding of and the right to homeownership. Foreign data processors are fundamentally at a disadvantage trying to understand how it all works in a second language.
It is very difficult for those having very little, if any, concept of owning their own home to explain the benefits and requirements of a mortgage.
3. Is exporting sensitive consumer and financial data overseas a wise practice?
United States consumers have been plagued by identity theft at staggering rates over the last several years. Distributing sensitive information into areas not completely under the control of stringent domestic regulations and US oversight “can be” an unnecessary risk.
Lending processes should be outsourced to domestic specialists with the experience, industry specific knowledge, and domestic expertise necessary to ensure that quality is maintained throughout the life of a loan.
Outsource? Yes. But never sacrifice quality to save money on the front end. It is far more costly to clean it up on the back end, as our current situation clearly demonstrates.
February 20, 2008
Filed under: Escrow — admin @ 8:01 pm
Mary Kladde:
Simple Steps to Shore Up the Your Back End in Escrow States:
To read the first half of this post, click here.
1. Treat escrow states differently than closing/wet states and put an escrow review process in place.
Escrow review should include receiving the original signed documents back from title/escrow and conducting of an audit of those documents and any outstanding conditions prior to issuing funds for disbursement. If there is missing documentation, make sure you get it before sending any money.
2. When issuing funds to the settlement agent, be sure to recalculate per diem interest based on the date funds are released and the actual recording date.
3. Confirm that funds were in fact disbursed on the day they were sent.
If for some reason funds are not disbursed same day, be sure to instruct settlement agent to return any additional per diem interest directly to borrower and provide evidence that this was accomplished.
4. Lastly, obtain a Final HUD from the settlement agent showing the accurate disbursement date.
The Final HUD is not required to be signed by borrowers in escrow states and is considered a trailing document that is obtained once the transaction is completed, much like the recorded docs and final title policy. You will also find this document to be very helpful when auditors come through your shop.
February 14, 2008
Filed under: Escrow — admin @ 2:54 pm
Mary Kladde
As a continuation to the discussion of Escrow States, let’s address CA specifically. Have you received an audit request from the CA Department of Corporations? Don’t worry…you will, especially in the current lending environment. Do you know what one of the first things they will evaluate is? OVER-COLLECTION OF PER DIEM INTEREST. Ask Wells Fargo about this one.
One of the major items to watch in the State of CA (or any escrow state for that matter) is the adjustment of per diem interest upon disbursement. Disbursement/funding of a loan is concluded by title/escrow on the day of recording. Many lenders not accustomed to lending in escrow states make the mistake of not ensuring per diem interest overages are refunded directly to the borrowers upon disbursement. Often times, title/escrow will return the overage in per diem interest to the lender, or in some cases, have the borrowers sign a disclosure releasing those funds to directly to title/escrow.
The CA auditors do not look favorably on either of these practices. It is the lender’s responsibility to instruct title/escrow to return any per diem interest overage back to the borrowers. If the money has been returned directly to the lender instead, it is then incumbent upon the lender to ensure the overage for per diem interest is returned to the borrowers. In my personal opinion and there may be some that disagree, it is never okay for title/escrow to keep the overages.
In cases where an audit is conducted, a lender’s entire pipeline extending back years can be evaluated. If per diem interest overages are discovered and no evidence can be produced to show overages were refunded to the borrowers as required, the amount of the overage plus interest at the rate of 10% interest per annum (Section 50504(b)(FC) must be refunded. This could add up to be quite costly, not to mention the fines that might be levied by the state.
There are a few simple steps that can be taken to ensure your company does not get caught up in this audit trap.
More to follow……
February 12, 2008
Filed under: Mortgage Industry Trends — admin @ 7:51 pm
What is outsourced mortgage fulfillment and what should you look for in a provider? How does outsourcing back end processes increase quality control and overall loan quality? What are the benefits of domestic outsourcing vs. offshore?
Click here to read a recent commentary by Mary Kladde posted on Lender411.com.
Filed under: Quality in Lending — admin @ 7:40 pm
Ruth Lee
The Future Mortgage Leaders Program of the MBA:
“is dedicated to identifying and cultivating the next generation of industry leaders by delivering a comprehensive leadership training experience for selected participants through three events offered throughout the year.”
For years, I owned my own mortgage company. I was more than happy to stay isolated within my own fiefdom, allowing others to take on the labor of advocacy and education for my industry. I was a passive participant in the future of my own industry. Upon moving to the fulfillment side, I discovered that there was a breadth to the industry that I really didn’t understand or appreciate. I discovered that there was a need for people that fundamentally understand the rigors of the mortgage market to assist with shaping the future of our industry.
Last year, I was honored to become one of the 40 odd alumnae of Future Mortgage Leaders for the MBA. After several projects in urban areas, like Oakland, Detroit and Miami, our class was presented with the task of presenting an economic development plan for Naval Station Roosevelt Roads in Puerto Rico. And while the work itself was fascinating on many levels, there was much more to be learned through the process.
The FML class is usually comprised of a broad cross-section of the industry. With the MBA selecting both the participants and the teams, they work to ensure that you are given not only the opportunity for success, but the enrichment by peers with entirely different perspectives and skill sets within the mortgage world. The alumnae group for the FML candidates was also very gracious in reaching out and offering guidance.
In the context of recent events, it is more evident now that ever the importance of this and similar education programs. For professionals who truly care about the future and want to succeed in this industry, a fuller understanding of the forces at work, the results of certain actions and our individual responsibility to uphold quality standards is key.
Participants in the Future Leaders Program:
- Get a strategic perspective of the future of the mortgage industry delivered by industry leaders.
- Learn about the federal legislative process and meet with their elected representatives in Congress at MBA’s National Policy Conference.
- Working in teams, develop a holistic approach to community economic development and its impact on housing and commercial development for presentation to economic development experts.
- Graduate at MBA’s Annual Convention and join a national network of professionals dedicated to the real estate finance industry.
February 8, 2008
Filed under: HR 5140, Mortgage Industry Legislation — admin @ 6:43 pm
Ruth Lee
Here is a brief synopsis of HR 514o - a bill designed to inject money into the economy through individual tax rebates, business tax incentives and increasing the number of loans the FHA and GSEs are allowed to buy up or insure - as it applies to the mortgage industry:
Title II - Housing GSE and FHA Loan Limits
Section 201 -
- Raises the statutory ceiling on the maximum original principal obligation of a mortgage originated between July 1, 2007, and December 31, 2008, that may be purchased by either the Federal National Mortgage Association (Fannie Mae) or the Federal Home Loan Mortgage Corporation (Freddie Mac). Disregards mortgages purchased with the increased ceiling amount for purposes of meeting certain housing goals established under the Housing and Community Development Act of 1992.
- Expresses the sense of Congress that Fannie Mae and Freddie Mac should securitize mortgages acquired pursuant to the increased conforming loan limits of this Act if the manner of securitization does not: (1) impose additional costs for mortgages originated, purchased, or securitized under existing limits; or (2) interfere with the goal of adding liquidity to the market.
Section 202 -
- Establishes a temporary loan limit increase for FHA-insured mortgages in specified high-cost areas for which a borrower received credit approval by December 31, 2008.
- Grants the Secretary of Housing and Urban Development (HUD) discretionary authority to increase loan limits in 2008 based upon the size and location of residences in particular areas.
- Directs the Secretary to publish the median house prices and mortgage principal obligation limits as revised by this Act not later than 30 days after its enactment.
To read more about this bill, click here.
February 6, 2008
Filed under: Escrow — admin @ 6:43 pm
Mary Kladde
Are you thinking about doing business in an “Escrow/Dry” State or have you entered the lending arena in these states with little or no working knowledge of what “Escrow” State means? Do you know which states are classified as “Escrow” States? Do you understand the subtle differences in standard business practices within the individual states that are classified as Escrow States? Do you really know what you are getting in to?
The fact of the matter is that 86% of states operate as “Wet/Closing” states? This means that the loan will fund on the day of signing/closing in the case of a purchase or immediately after the 3 day right of rescission in the case of a refinance. Escrow states, on the other hand, have varied disbursement dates depending on the performance of escrow to the lender’s satisfaction. To put it more simply, the lender has the option to fund/disburse the loan once they are completely satisfied all conditions have been met to their expectation.
This control is definitely to the benefit to the lender in that they can make sure everything is perfect before funding the loan, but it can sometimes delay disbursement as much as 2 weeks. If the escrow process is not managed efficiently and effectively, you could end up reviewing files two and three times with borrowers sometimes having to execute entirely new document packages due to delays or losing the loan altogether. These delays or missteps lead to lost time, loans, and ultimately; MONEY.
Manage funding in Escrow States just like you would a “Closing/Wet” State you say?! Do you really want to go there or are you already feeling the pain of having made this type of decision?
