As I was saying earlier, “Outsourcing payroll and other human resource operations to textile manufacturers is a suitable metaphor for why many mortgage bankers and community bank mortgage benefit from outsourcing their mission critical, but non-core, areas of operation. Specifically, I am thinking about mortgage fulfillment operations, where detail orientation and scalability must co-exist.”
Earlier this week, I heard about how Automatic Data Processing (ADP) came to be a leading global business-to-business outsourcing firm today valued at $9 billion.
In 1949, in a New Jersey textile manufacturing region, textile mill accountant Henry Taub realized the burden payroll represented to manufacturers. Payroll was mission critical to the mills, but their work had nothing at all to do with payroll per se. Textile mills employed a lot of people, and by that era employees were unionized, so payroll was subject to scrutiny and enforcement by Federal regulation.
Guest Post by Ian Wright, Community Trust Bank
Last week I attended the MBA’s National Policy Conference – my favorite MBA event of the year.
Heading home, I tweeted about what a great event it was. Later that day I got an email from a friend asking me “What was the most interesting take away from the conference?” That got me thinking – the MBA had 4 specific talking points that made up a bulk of the agenda. That wasn’t my top take away. As I listened to the speakers and read over the literature, one theme kept coming back at me, Dodd-Frank.
We have been hearing about Dodd-Frank for months. How complicated it’s going to be to implement, the number of agencies affected by the rule changes, we’ve heard it all.
Earlier this week some team members and I were discussing Dodd-Frank’s “Too Big Too Fail”(2Big2Fail) aspects. This is a favorite topic because 2Big2Fail is such a singular (e.g. “BIG FAT UNDENIABLE”) example of what happens when laws are passed in a political panic response. And it isn’t pretty.
I’d been debating all week whether the strong language of our discussion should reach the tender ears of our readers. Then, just this morning, the Wall Street Journal featured an article, “Dodd-Frank’s Threat to Financial Stability.” American Enterprise Institute senior fellow Peter J. Wallison speaks with clarity when he writes “The identification of firms as too big to fail is a MAD [emphasis added by blogster] policy: It will signal to the world, removing all doubt, that the government will take steps to prevent the failure of these firms, giving them advantages in the marketplace.”
Guest Post from TLC Partner: Matchbox, LLC
So as we close out a rocky Q1 expect to see some change in more than just the weather this Spring. Moving forward it’s clear that the regulatory and compliance sector is driving the ship right now with no signs of letting down. I’ve been told that 50% of the staff increases for mortgage bankers over the past year have been in the compliance departments. From TILA changes to NMLS call reporting there is an increasing trend of requests for data from mortgage companies. It even seems as though compliance attorneys have all gotten together to coin a new catch phrase – “Document It.” As credit profile was the hot topic for the last few years, get ready for data integrity.
Lenders, investors and servicers who refuse loan level review at post-closing, pre-purchase, or prior to servicing are risk masochists, or amnesiacs. Earlier this week, I promised to extend the call for a new industry standard loan level review practice to servicers, who need to improve their intelligence on the loans in their keeping prior to accepting emerging risks and liabilities.
This entry was triggered by reading Kate Berry’s March 9th American Banker article, “Foreclosure Talks: Servicers Object to Liability, Compliance Costs in AGs’ Settlement Proposal.”
Executing loan level review periodically throughout the mortgage lending lifecycle is an industry best practice that must become an industry standard practice. A couple of recent articles by Kate Berry, a Wall Street Journal reporter we watch closely with respect, inspire me to take to my soap box.
Her Monday, March 7th column “Inspector General Audit of 15 FHA Lenders Finds Problems Run Deep” is a veritable scatch-and-sniff of rubber hitting the road on the case for loan level review, with 15 mortgage lenders facing $23.4 million in potential fines for improperly underwriting FHA-insured loans. Further, the IG’s report rebukes HUD for basically having its eye off the ball and, to my point, failing “to verify independently that loans met FHA requirements and were eligible for insurance.”
Every day it seems there is a new volley of posturing and positioning around the fate of the GSEs. Personally, I find the back peddling by previously outspoken critics of the government-sponsored entities irritating and hypocritical. By back peddling, I mean proposals for the reconstitution of a government-insuring role in the mortgage industry at the same time the current players are being wound down.
Just a month ago, they were flagellating on the Left and on the Right about Fannie and Freddie’s “dirty deeds,” now they are wont to pass judgment. Get a spine, I say.
By Super Bowl Sunday, most folks that made New Year’s resolutions know where they stand. You’re either going for the goal line or you’re watching Groundhog Day. Based on our market intelligence, many mortgage lenders vowed to improve per loan profitability by trimming overhead this year. Others adopted policies to improve loan file compliance and salability by tapping deeper industry expertise. We know this is true because inbound calls and queries for our closing and post closing services poured in unexpectedly in late January and have not relented.
We’d foreseen a more traditional mid Q1 new business bounce. Typically, December is virtually a loan origination holiday and January is when senior management restores discipline. Clearly, something different is at work this year.
The January 25 review of Andrew N. Liveris’ book Make It In America by Wall Street Journal reporter James R. Hagerty caught our attention. Reading business book reviews lets us consider ideas emerging outside our own industry that may shed light on our industry’s challenges – without reading the book. In this case, that effect became even more intriguing since Mr. Hagerty previously interviewed TLC when he covered the WSJ’s mortgage industry beat.
As for the book penned by the chairman and chief executive of Dow Chemical, on the surface it may appear irrelevant to mortgage lenders and businesses that serve them. Liveris favors incentives for U.S. manufacturers to manufacture in the U.S. as a strategy to restore and sustain a balanced, thriving economy. I think it is relevant in two aspects.
We’ve been watching with special interest over the last few weeks the apparent acceleration of community banks adding, or thinking about adding, mortgage warehouse lending to their commercial loan offerings. Earlier this month, National Mortgage News’ Paul Muolo noted the entry of Republic Bancorp of Kentucky, and People’s United Bank, Bridgeport, Conn. TLC offers all of our best wishes to warehouse lending veteran Kevin Rost with Republic on an smashingly successful rollout.
Since we work day-to-day with mortgage lenders of every description in the course of business and have reason to keep our own ear to the ground, we are aware of other community institutions that are in the education process and are considering a commitment to the warehouse lending model.
by Ruth Lee
Last week’s news out of Massachusetts is illustrative of what is becoming the normal climate for our industry. Our first read of the story came on Friday, January 7 from American Banker reporters Kate Berry and Jeff Horwitz.
According to that article, the Massachusetts Supreme Judicial Court rejected claims by two major banking institutions that they did not need to prove themselves the authorized mortgage holders at the time each foreclosed on properties in that state. Ironically, or perhaps for the Court’s purposes symbolically, the foreclosures considered were executed on the same day in the summer of 2007.
HousingWire’s Jacob Gaffney this week aptly examined investor and analyst responses to the ruling. I’d recommend reading it.
Nonetheless, while we tend to agree that the impact of the Massachusetts ruling on the securitization industry is likely negligible, we see other facets of portent to it. Admittedly preferring to read the tea leaves versus just drinking the brew, we see guidance from the Massachusetts court that can benefit mortgage lenders of every description.
We see three distinct messages:
First, this ruling by a state court steeped in the tradition of protecting its citizens’ rights is a much-needed reminder that our industry is regulated both at the state and Federal level. Mortgage lenders of every breed – banks, mortgage bankers (retail, wholesale and correspondent alike) and mortgage brokers – are bound by the laws and interpretations of the states in which they do business.
This is especially germane for multi-state lenders operating under a complex matrix of regulation and scrutiny. Beginning in 2011, as we’ve said before [Read Here], multi-state lenders are subject to coordinated cross-jurisdictional audits. The Conference of State Bank Supervisors (CSBS) and the American Association of Residential Mortgage Regulators (AARMR) hammered out the Nationwide Cooperative Agreement for Mortgage Supervision (NCA). NCA includes eExams for compliance checks with HMDA, TILA, HOEPA, RESPA, plus relevant high-cost, anti-predatory and consumer credit mandates.
Second, the Massachusetts ruling tells us that documentation matters. Not merely “best effort” documentation, but accurate, complete and timely documentation. The distinction is important, even though to us it reeks of common sense, because it appears from the unfolding of the Massachusetts’ scenarios that both banks, when given the opportunity to rectify title record on the properties in question, produced plenty of documentation.
None of it met the court’s standards because the documentation was irrelevant to its request that clear proof of authority related to the mortgages be established. Since it is highly (we pray) unlikely that banks of sophistication and reputation would purposefully attempt to mislead or skirt the intent of the court, we deduce that these institutions did not comprehend the incompleteness and inadequacy of their documents. In other words, business as usual would appear to be sloppy documentation.
State courts do not approve.
My third and final takeaway from the Massachusetts salvo to the mortgage industry is that timeliness in executing mortgage lending, mortgage assignments, mortgage securitization, mortgage servicing and mortgage foreclosure protocols (and business process management) will be taken seriously by state courts. Authority to take actions related to mortgage loans will be based on timeliness.
Although it sounds ludicrous to the average Jane, it appears that neither the banks, nor the servicer used by both, saw anything prohibitive or unusual in the fact that clear title to foreclosed properties had not been established according to state law. This says volumes about how far off the mark our industry can be in understanding the judicial system’s perspective.
Heretofore, our industry has tolerated a loose interpretation of timeliness throughout mortgage origination to closing to post-closing, secondary marketing and securitization to servicing. Henceforth, if you read the Massachusetts ruling the way we are inclined to, timeliness and accuracy will make or break mortgage lending practices.
by Ruth Lee
This article originally appeared last week in TLC’s Progress in Lending Column: A Bit of TLC
Traditionally, independent mortgage bankers have prided themselves on, and in many ways built an industry upon, their sense of self-reliance. I cannot imagine any veteran mortgage lender taking exception to being described as independent, entrepreneurial, innovative or resourceful. In fact, it would behoove our government, Wall Street and the media to take our industry’s roots into account as they try to regulate, capitalize on and report about it.
The very same traits that drew people into mortgage banking also happen to be traits that value expedience over process, tend to dismiss details that seem extraneous and highly value their own problem-solving acumen. When you mix those traits in a profitable, high-volume marketplace, the result can feel a lot like a rodeo. And when the conditions are just right, a high-energy, spurs-in-the-flanks event can occur. We just lived through that part. That was exhilarating, yes?
Nonetheless, and with all due respect to our forefathers’ feats, the rodeo days are over. Not because they were bad but because the way things were done in the past grows less relevant with every passing day. Now that the mortgage industry has been spotlighted as one that can support or disrupt global economic balance, we will need to channel our tradition of self-reliance in a more risk-conscious manner.
That means either assigning the appropriate level of staffing and expertise to mission critical operations or electing to outsource the function to a qualified, reputable third party. Now that the consequences of inaccurate, incomplete or just plain sloppy loan files can be costly and/or business ending, the value of a “do-it-yourself” approach is dubious.
Of course, outsourcing is not new to independent mortgage bankers, but the motivation and ROI have broadened. Today, outsourcing not only delivers quick market entry and scalability, but also ensures regulatory compliance, risk management and more confident investor relationships.
All you need to do is scan the headlines of the mortgage, financial services and business media to know that change, regulation and re-regulation are going to be the norm for the foreseeable future. Perhaps you’ve thought about outsourcing before but did not see a clear advantage or need the advantage offered. Should you reconsider outsourcing? Perhaps. Ask yourself whether your current operation is adequately staffed by experts and professionals who can respond to the current degree of change and loan level scrutiny. What would happen if your organization had a 20 percent increase or a 20 percent decline in volume? Would it be able to respond and remain self-supporting? Would you have peace of mind?
Have you taken a hard look at the costs and lost business that accumulate around your current operation? Do you have an informed understanding of your outsource alternatives? Have you talked with your peers who have been relying on outsourcing?
If you plan to be in Atlanta the week of October 24 – 27 and would like to discuss any of these questions or just learn more about the advantage outsourcing can give your business, drop me an email and let’s get together: Ruth.Lee@TitanLendersCorp.com.
by Mary Kladde
Industry veterans who have weathered multiple market downturns understand that in a low volume environment, customer service is a high-value, high-visibility differentiator. Don’t get me wrong; customer service – and having the reputation for strong customer service – has always been a deal maker/breaker in the mortgage industry. It’s just that when every penny counts, customer service and overall relationship etiquette are the opportunity to “make a difference” in your customers’ lives without adding costs.
That is why I am itching to challenge our industry’s improper use of technology as a customer service facilitator. And by improper, I mean no value judgment. Instead, I mean a lack of judgment, or perhaps just a lack of awareness, for when technology is no longer the best way to get things done.
For the sake of argument, let’s consider how email, the original Internet “killer app,” threatens to erode customer service.
Almost everyone who has used email as a business communications tool knows that messages sent via that medium are like chameleons. That’s right, the message takes on the perspective, psychology and immediate mood of the receiver. In the customer service environment when email is being utilized to communicate issues, it is safe to assume that the customer is encountering a challenge of some kind and may already be under duress.
To read the rest of the article, visit our weekly column on Progress in Lending: A Bit of TLC
by Mary Kladde
Whoever said “the devil is in the details” was probably a mortgage banker business owner or executive.
I think this for two reasons. One is that the mortgage lending transaction has always been detailed, on its way to becoming even more detailed. The folks at the top of a mortgage lending enterprise typically see themselves as detail conscious but mortgage lending has not traditionally attracted or retained truly detail-oriented individuals.
The second reason I believe mortgage bankers are bedeviled by details is that they turn to companies like mine to ensure that loan file details are reviewed and correct. By outsourcing their back office or part of their back office, mortgage bankers unload some of their risk. And on some days, they hate us for doing it. Yes, lenders sometimes find attention to detail irksome and become irritated by dogged commitment to getting it right.
Mary Kladde is the founder and CEO of Titan Lenders Corp, a Denver, CO based domestic provider of outsourced mortgage fulfillment services. Ms. Kladde has nearly 20 years of actual mortgage operations experience and exposure to all residential lending channels and processes from origination through point of sale, which has provided unique insight into the operational needs of lenders and investors
Ruth Lee is the VP of Sales at Titan, and also heads Titan's government communications and advocacy efforts. Ms. Lee actively serves and participates on national committees with the NAMB, CAMB and the TMBA. She is very much abreast of the changing regulatory requirements and challenges inundating the mortgage industry today, giving her a unique synergistic knowledge of mortgage compliance and real-world operational demands.
