Insider Perspective: Reg Z Reform, Compliance Procedures, Realtor Pay

For anyone out there who thinks the mortgage biz in the US has become confusing, spend 15 seconds scrolling down this story on establishing the mortgage business in Saudi Arabia. "The Saudi government target is for 80 percent home ownership by Saudi citizens by the year 2024..." Sound familiar? SaudiMortgageProposals

MetLife Home Loans has recently been increasing its market share, especially in the wholesale channel, so yesterday's announcement that it was "consolidating" its fulfillment centers and making some structural changes was viewed by great interest, and some surprise, by brokers. "...we are overhauling and redesigning our Fulfillment Centers and processes...Create a single point of contact for communication, limit the number of team members that will handle your loans...MLHL has consolidated its previous nine Wholesale Fulfillment Centers into six primary Fulfillment Centers; two in each of our three divisions."

One question that agents are often asked about is, "Do you still make loans on condos?" Especially if the borrower has less than 10% to put down, this almost automatically puts them into running for an FHA loan. The HUD site that agents turn to first, to see if the project is even approved, is CondoLook. Select the state, zip code/city, and then "send." You'll receive a list, and keep an eye on the expiration date to make sure that it is farther out than the lock period.

I have received a fair amount of reader feedback recently on various topics, with various opinions:

"Lending and compliance procedures have become incredibly complex. When is a major lender or two just going to say, 'No'? Just make a public announcement. 'Based on new regulations enacted in (whatever jurisdiction), we will no longer accept home loan applications and fund mortgage loans in (whatever jurisdiction). We appreciate our past customers and regret having to make a business decision that impacts them to protect the interests of the bank. If at such time in the future (whatever jurisdiction) repeals this new regulation, we will be happy to once again accept mortgage applications in (whatever jurisdiction).' Barney Frank would have a stroke if that happened." (Editor's note: What tends to happen, of course, is that a lender drops their pricing in that area, often through the servicing value, making their product less attractive. Does that help the borrower?)

"It seems the industry is so tired from the comp issue that lenders are not seeing the next big issue staring them in the face: the Fed issuing a proposed amendment to Reg. Z (TILA) to require creditors to determine a consumer's ability to repay a mortgage before making a loan, and to establish minimum mortgage underwriting standards. We have until 7/22 to comment on it, at which point the CFPB takes over. These "ability to repay" requirements will impact all consumer purpose mortgages except home equity lines of credit, timeshare plans, reverse mortgages and temporary loans. The proposal indicates that creditors will have four options to comply. The first is the "general ability to repay standard", where the creditor would consider income or assets, employment, size of the borrower's monthly payments and other debt, and credit history. The second option would be to originate a "qualified mortgage," (no Neg Am, IO, balloon, or a term longer than 30 years AND if: total points and fees do not exceed 3% of the total loan amount, income or assets are verified, and underwriting of the mortgage is based on the maximum interest rate that may apply in the first five years, uses a payment schedule that fully amortizes the loan over the loan term and takes into account any mortgage-related obligations). The third option and fourth options involve rural/underserved areas not being subject to the balloon loan issue, or refinancing someone out of a non-standard mortgage with risky features into a standard mortgage that has limits on loan fees and that does not contain 'risky' features. Your readers should watch this carefully, as it is full of potential 'unintended consequences'."

Daniel Shlufman, president and general counsel for FCMC Mortgage, writes, "There are changes that I believe need to be required by real estate agents.  For real change there will need to be some requirements and disclosures placed on the sale of real estate (which are unlikely to happen). No blind bidding, i.e. each bidder should know what and who they are bidding against to avoid the farce of "highest and best offer" (this practice is prohibited in most other Western countries). Enforcement of conflict rules against Realtors vis-à-vis owning title companies and mortgage companies. 'Dis-incentivizing' agents from stifling competition and selling their own listings. Training on qualification (i.e. affordability), and responsibility on ability to repay, which would involve financial training on ratios similar to mortgages underwriting."   

"Regarding the comment that real estate commissions are split 4 ways and a Realtor gets around 1.25% to 1.5%, that is as false as the belief that LO comp is good for the consumer.  I own a real estate company and my Realtors get 100% commission with a flat $695 taken out per deal.  There are many companies that now compensate this way. In my area, the average purchase price is $225,000 and the average commission is still close to 3%, giving my agents an average net commission of $6,055 in their pocket on each deal. The average deal takes about 20 hours of showing homes and another 20-30 hours of paperwork to the close.  That is a max 50 hours of actual time working on a deal or $121 per hour for a job that requires no college degree, you can set your own hours and just 1 closing per month puts you at $72,000 take home pay per year.  Please do not feel that Realtors are in the same boat or even ocean as loan officers."

"I have been in lending for 25 years and have seen both bad LO's and bad Realtors come and go over the years. One of the more troubling Realtor strategies is to threaten the business relationship with a LO if a loan does not go through, or is not on time, regardless of whether or not the loan makes sense for the buyer.  During the mayhem of rising property values, I received many calls indicating that if I was unwilling to do a stated income/state asset loan for someone who clearly did not make the income 'stated', they would find another lender who would do it and they would make sure that no other Realtors used my company in the future.  I know I'm not the only manager to have ever received that call."

"Are borrowers really better off with the decline in mortgage brokers? Mortgage brokers have access to wholesale mortgage rates, which are priced below those offered by retail banks. They're able to offer lower mortgage rates because they don't need to pay a sales team to sell those rates, as mortgage brokers run their own businesses and earn money off of commissions. Many borrowers are able to get a better deal if you work with a mortgage broker as opposed to walking into your local bank branch since mortgage brokers have the ability to 'shop the rate' with multiple mortgage lenders simultaneously, meaning more options for the borrower."

"The mortgage banking profession is no different than others, in that the majority of the people in the mortgage industry are hardworking, honest individuals that do treat their borrowers with respect, honesty and fairness.  Whoever doesn't believe that may not want to believe it. Some companies did go way over the line and did commit fraud and these individuals and companies should be punished, but don't punish the entire industry for the wrong doings of a few."

"I remember being at a state ethics meeting I chaired in 1999, speaking with our state's head mortgage lending regulator who attended our meetings and discussing what we needed to do to establish a more 'professional' mortgage loan officer in our state. I suggested $100,000 individual bonding, strong testing, licensing with background checks, brick & mortar in the state, and personal liability for wrongdoing in statute for the loan officer. The regulator told the audience that lowering competition like that, and the creation of high barriers to entry, would harm the state's borrowers in restricting their choices, and that we needed as much competition as possible to keep rates and fees down for its citizens. For many borrowers 'Stated' income documentation was acceptable, as was '100% or higher LTV,' 'Neg Am,' and loans for 'low credit score' borrowers all had their place. But layering on risk and combining 2-3 of these factors was poor judgment; combining all 4 was irresponsible. We had our cake, and ate it too, for decades. Now they've taken away most of the cake and put us on a big FRB diet of how much we can eat."

To get to the point, yesterday the markets did not move much, although for the week we had some nice price improvement. The fixed-income markets closed early, and are closed today (usually leading to, if an investor is even offering rate locks, conservative pricing). Traders reported very light mortgage selling yesterday, suggesting that next week's MBA application index will be on the light side. In fact, it has been a quiet week in mortgages for several reasons: vacations, high price and low yield levels keeping buyers on the sidelines, and limited data and events. Yesterday both agency MBS prices and the 10-yr closed nearly unchanged (3.40%), so we'll see where they come in Monday morning after this 3-day (for the markets) weekend.

Clever:

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