LOS Primer; VA Loan Changes Coming? Appraisers to Have Comp Set in Stone? San Bernardino Bankrupt

That commercial sector is rockin' and rollin', up 25% for the 2nd quarter from a year ago. Granted, most of that was due to increases in originations for retail and hotel properties. The MBA noted that, "The increase included a 56% increase in the dollar volume of loans for retail properties, a 22% increase for hotel properties, a 19% increase for multifamily properties, a 15% increase for office properties, an 11% increase in health care property loans. These gains offset a 5% decrease in industrial property loans."  Here you go.

Remember New Century? Formed in 1995 from some folks from Option One, it fell into bankruptcy during the first half of 2007. Reuters reported that the Public Employees' Retirement System of Mississippi led a group of investors in a lawsuit against Goldman Sachs Group in which they claimed they were misled by the bank into purchasing mortgage securities from New Century Financial, which went bankrupt in 2007. Goldman has agreed to settle the suit by paying $20 million to $21.3 million to investors, depending on whether a Dutch pension fund decides to join the class action suit. Goldman will pay another $5.3 million in legal fees and expenses.

Whether it is a yellow pad, or a highly complex vendor-generated program, every originator needs a way to track his or her pipeline. But LOS (Loan Origination Software) is a tricky subject. "Rob, I've used excel in the past to compare loan options, our LOS doesn't really do a very good job of selling the client on their best solution.  Our company recently said that we can't use tools that we create ourselves, and they want to approve any client facing materials.  Why is that? What are your thoughts on presenting loan options to clients?"

I am going to preface this by saying that I am not an expert in LOS, but I know how it fits in with the industry. Lenders are responsible for the actions of their loan officers, and logical or mathematical mistakes could put your company at risk.  Lenders are learning from the financial planning industry, and in that industry the company provides the platform or solution that the financial advisor uses for asset management.  Having loan officers using home grown solutions creates a real headache if a future client presentation needs to be reviewed by a compliance officer in an audit, or legal issue.  In other words I think you'll see in the future that most companies provide the liability management tools for their loan officers, just like the big financial planning firms have for years. There's too much risk to you and your company using home grown solutions.

A LOS conversion is one of the most important projects a mortgage company can undertake. The advent of the hosted platforms, where a low initial investment can get a client onto their "dream" software in a very short time, can lead to flawed implementations and ongoing reconfiguration efforts.  There is a low barrier of entry for vendors offering new systems, and "in the old days" mortgage companies only had to consider the cost of the software (licensing and maintenance costs are not cheap), cost of the hardware (upgrading software also meant upgrading servers which required pouring money into a diminishing asset), and the cost of the implementation (IT guys' time isn't cheap). A mid-sized lender could easily spend 9-12 months on implementations with a minimum investment of $500k.

Today, things are different.  Bankers can get access to excellent software through a hosted platform for a minimal investment. But it still takes time, and experts will tell you the more time the better. It would be a mistake to think that a low cost, hosted platform, with a pay as you go formula leads to a successful implementation.  Hosted or non-hosted implementations both require a detailed project plan and manager to lead all efforts.  Until recently this has been the IT director, but with the hosted platform, their value is somewhat minimized to simply obtaining a strong internet connection and installing the software to desktops. These implementations now require a "mortgage mind" who also understands technology so it can be customized to match the proper workflow. You don't want to implement something that the LO's can't or won't use, or rush through it, trying to meet that 90-day deadline, and miss out learning (and teaching the LO's) about the "bells and whistles" a system offers. It seems that a lot of functionality goes unnoticed or under-utilized as nobody ever took the time to build a holistic workflow within the LOS from the start.  The lack of a true implementation manager who "gets it" leads to inefficient and manual processes, taken from the old LOS, and inserted into the new.

It seems that most originators are looking at new LOS, because they've outgrown or are unhappy with it, or have just added new LOS. (Take a poll some time with a bunch of lenders in the room.) The LOS should be a game changer for every firm, allowing for a streamlined, user-friendly origination process.  It should provide the engine needed to support current and future volume, eliminate manual processes through automation, eliminate the need for tracking spreadsheets, and allow enforcement of corporate policies in today's compliance/regulatory environment.

How long does this take? Banks and other lenders need to invest in a workflow analysis, a thorough decision making process, a strong testing plan for the new LOS and an in-depth migration plan. If you think you can roll one out successfully, given the planning and analysis, in a month or two, it is highly unlikely. Really breaking down and understanding underwriting and processing is 30 days alone, secondary and post-closing is another 30, and there's still sales, QC, accounting, testing, training, etc.

There are dozens of systems out there, and I am not going to list every one. But one of the more popular solutions that is gaining a lot of traction in the industry is the Borrow Smart sales presentation system at Mortgage Success Source. As I mentioned, I am no expert, but I've seen it myself, and it's designed for the loan officer to sell more while offering greater protection to the company.  Overall, it could increase LO conversion rates, and that's a win/win for you and your company.  Contact Bill Bodnar, bbodnar@mssllc .com for a demo. Or contact Len Tichy at STRATMOR - he makes it his job to keep up on these things: len.tichy@stratmorgroup .com.

Huh? They're changing the VA program? Well, here's something else for us to be concerned about.

And what about appraiser fees - why should LO comp be so regulated, and appraiser comp not? Change could be in the wind. (Thanks to Brian Coester with Coester Valuation Management Service for sending this.)

On to something almost as much fun, like bankruptcies. Ally Financial swung to a loss (almost $900 million) in the second quarter as its mortgage unit Residential Capital limped through bankruptcy. Ally took a $1.2 billion charge from placing ResCap into bankruptcy in May, and reports indicate that Berkshire Hathaway replaced Ally as the stalking horse bidder on the failed mortgage unit's loan portfolio. ResCap aside, the Ally mortgage unit originated $5.9 billion in residential mortgages during the quarter versus $12.3 billion in last year's quarter - 82% of that was refinances. And for something near and dear to every CEO's heart, Ally holds $124 million in reserves for repurchases and has roughly $82 million in buyback claims outstanding as of June 30.

Along the bankruptcy lines, the Southern California city of San Bernardino (pop. 200,000) declared Chapter 9 bankruptcy yesterday, joining Stockton (pop. 300,000) and Mammoth Lakes (pop. 8,000). They, like other places in the U.S., have been hit by the slow economy and by huge pension and government service obligations. On the other side of the income statement, property tax revenues have also declined due to dropping values. (Mammoth Lakes sought protection July 2 after a property developer won a $43 million court judgment against the resort town. Experts say this filing should not be lumped in with the other two California municipal bankruptcies since it was an unusual circumstance.) The County of San Bernardino, along with the cities of Fontana and Ontario, has been in the news lately due to considering using eminent domain as a way to seize non-agency mortgages out of pools - something that would set a dangerous precedent for the securitization business.

Taxes are a problem for everyone. "I've got the IRS auditing my company right now (I know, how pleasant). In the state of Virginia business performed at ANY location mandates a license, so I reimburse our employees for their home office expenses to the tune of $1500 per month, because they regularly conduct business at home.  This was determined to be the cost per square foot if we opened our own office nearby. The IRS is claiming that we can't deduct for home office reimbursement even if it is mandated by the state.  They say that we should only be allowed to reimburse them for the license fee of $150. The auditor is saying, 'No documentation was provided substantiating that payment to employees for a home office is a common or customary expense of the mortgage industry'. So the question is: Anyone else have experience with paying for home offices or dealing with the IRS over this issue?  Or any blog I can turn to for others in this scenario?" Write to Robert Lee at rlee@1nmc .com.

After much-ado-about-nothing, the Federal Open Market Committee did not take any easing action at its current meeting. The committee made some small changes to its statement that are consistent with a dovish bias yet remaining in watch-and-wait mode, and indicated they will "closely monitor incoming information" and "will provide accommodation as needed." We have nearly a month and a half until the next meeting on September 13, and plenty of economists think things may weaken further before that, which will prompt more Fed action. But do more asset & MBS purchases really spur the jobs market or the economy?

Now everyone can wait until tomorrow's jobs data, with Non-farm Payroll expected to come in around +100k. Unfortunately for the current administration and the economy, +100k does not help reduce unemployment. And looking at Europe, the suspense will finally "end" today when ECB president Mario Draghi sits down before reporters and outlines a plan to save Europe. And once again the markets and the media have elevated a singular European event, billing it as a major "make-or-break" moment for the Continent. I'll call B.S. - excuse the language - in reality, this is simply the latest summit/meeting of many going back years at which officials are (slowly) shifting the fundamentals of the EMU and it won't be the last.

This morning's Initial Jobless Claims came in at 365k versus estimates of 370k, below the 400k level. Yesterday's 10-yr Treasury note went out at 1.53%, and in the early going we're a shade better with the 10-yr down to 1.50%. MBS Prices

I was visiting my son and daughter-in-law last night when I asked if I could borrow a newspaper.
"This is the 21st century, old man," he said. "We don't waste money on newspapers. Here, you can borrow my iPad."
I can tell you, that fly never knew what hit it...