More on Brokering and Compensation; Homeowners vs. Hazard Insurance Basics

Instead of the two-party system, how about the "I want to party" system!? Today, as one critic put it, is when the fate of the nation is determined by several bridge clubs in Ohio. Many states, like here in Kansas, saw little or no presidential advertising as one or the other party wrote them off. But let's not forget the Congressional elections, which may have more of an impact on the looming fiscal cliff. And in terms of the stock and bond markets, they're pretty much stagnating until tomorrow when the results are known - if they are even known by then (think Gore versus Bush). No market likes uncertainty, but betting on rates and which way things will go is like putting your money on black or red at the roulette wheel at this point.

But one thing for sure is that Veteran's Day is coming up, which gives the Census Bureau a chance to tell us about ourselves (although it is another pseudo-holiday for some companies). There are three states with 1 million or more veterans residing in them: California, Florida, and Texas, but up in Alaska 14% of people 18 and older are veterans (12% or more in Maine, Montana, Virginia and Wyoming). The annual median income for veterans was $35,821 in 2011 inflation-adjusted dollars compared with $25,811 for the population as a whole, and there are over 9 million vets in the labor force. No wonder the VA lending program is alive and well!

I have been retained by a national mortgage banker who is seeking a Regional Operations Manager for its wholesale/correspondent operations center in Sacramento, California.  The desired candidate is a proven business leader with western regional knowledge, industry connections and an overall expertise in operational and sales processes.  The mortgage banker is very well capitalized and has a national footprint with 2012 production in excess of $5 billion. Qualified candidates send your resume to me at rchrisman@robchrisman .com - "your exciting opportunity for 2013 awaits."

Regular readers know that the commentary occasionally has job listings for individual companies. But here is one from Talagy, a job site that contains banking and mortgage jobs across the country.  "Our clients are forward-thinking financial services firms seeking mortgage experts with a desire to succeed." Talagy is currently seeking candidates for the following roles:   Mortgage Division Operations Manager (Fairfax, VA), Mortgage Processing Manager (Fairfax, VA), Regional Underwriting Manager (Braintree, MA), Mortgage Business Unit Risk Manager (Jacksonville, FL), Senior Underwriter (Jacksonville, FL), Senior Underwriter ( Sacramento, CA), Corporate Portfolio Underwriter (Jacksonville, FL) and Senior Underwriter (Austin, TX).  If you are interested in these or other positions, please visit talagy.com or contact enrique.bush@talagy .com for more information.

Today is the last day to comment on the RESPA/TILA form merge by the CFPB. But that agency may also tweak LO comp, and I received this note from a manager at another large lender regarding LO comp. "Regarding Mortgage Brokers being treated as professionals, this is most likely very true for the majority. I manage a branch for a direct lender and interview a lot of candidates. It amazes me how those coming from the broker side are shocked when I tell them they will be paid the same on a Government loan and a conventional. As a direct lender we have one price sheet. They are still telling me that they get paid differently as brokers depending on which investor they send the loan to. Isn't this steering? Isn't this what the whole Dodd-Frank is about? If brokers want the respect of the industry, follow the rules. We are forced to be compliant. CFPB will catch up with those that are not."

"Rob, yesterday's commentary had the note, 'An LO inside of a mortgage bank is not supporting the bank by brokering out a loan - they are supporting themselves.' Actually, there's a good chance the LO is also supporting their client. That shouldn't be lost in the equation, because any banker who successfully retains and grows his/her book is an asset to the bank that employs them. A brokered client may become a repeat/banked client, or generate banked referrals. Efficiency measures are great until they become so extreme that they restrict the agent from being able to do the right thing to help a client. This is how a relationship business grows into an evil empire, IMO. Fine lines here need to be regarded in the interest of the bigger picture."

A Capital Markets person from the Southwest wrote, "Brokering is viewed as a real negative at our company by the MLOs.  As difficult as it is to warehouse lend (meet agency and investor requirements for manufacturing quality), brokering is even harder.  Each wholesale company has their own AMC policy, their own disclosure policy, 60-90 day turn times, and underwriters that don't condition like ours.  I am frankly surprised that anyone is still brokering at all."

BR writes, "I found that our LOs want to keep as much of their pipeline 'in house' as possible so they maintain control of service levels. Yet as the owner of the company (and a former producer), I understand the value of having broker relationships. You want to keep your client and referral partners 'in front of you.' By utilizing these relationships when necessary, your referral sources and clients gain further confidence in your ability and wherewithal to provide a range of products for them. As an LO, the last thing you want is another LO from your competitor in the mix. Obviously, we won't chase bad loans, but with the proper policies and procedures mortgage bankers can achieve a successful balance incorporating broker business into their model. We currently only broker less than 5% of our overall volume and we continually track this number each month."

JV notes, "Our mortgage brokerage company is 'courted' often by mortgage banks. And, two of the things that scare us away from banking are: (1) the risk of too high of a rates during high-volume periods - we often compete on pricing alone and the pricing at many banks would put us out of competition (our volume remains high because our wholesale rates are so low), and (2) the risk of too many overlays or restrictions that would take away the flexibility we offer because of our access to so many lenders.  We well-understand the necessity of forcing at least an 80% capture rate on the banking side. By the same token, offering a broker channel keeps mortgage banks 'honest' as it forces them to remain competitive and flexible."

And "Author Unknown" wrote me, "The mortgage industry as a whole should not allow any loan officer to broker a loan if they work for a correspondent lender that has their own underwriters. Wholesalers should turn down the broker application for any company approved as a correspondent. Whether the loan officer "screwed up" or the quality of the loan file does not meet "their company's standards", it should not matter.  Why should the wholesaler take on the risk of this loan that everyone knows has been underwritten elsewhere?"

And lastly, "Rob, I really enjoyed your write up yesterday on how improving loan officer production being a significant management challenge. I just wanted to share with you a way our firm manages poorer performing loan officers. We utilize a program called Bankers Performance offered by MQM Research mqmresearch.com. They offer a product that on a monthly basis they do e-mail surveys and or telephone call surveys rating the loan officer's performance. We have found this enables us to help improve the loan officer's quality and performance along with being able to contact our clients if they are not 100% satisfied and make them feel 100% satisfied with a management follow up call. This has also generated us a ton of business and additional referrals/refinances being that the market continues to improve rate/fee wise. Lastly they also provide us feedback so if any borrower is confused on where to make their first payment, etc. We can reach out to the client and make everything 100% clear." (No, this is not a paid ad, nor do I profess to know anything about it.)

Turning to something more temporal, with Hurricane Sandy having battered the eastern seaboard, no doubt there are millions of people who are thrilled to have hazard insurance (also called property insurance). Lenders, too, are grateful that the collateral for the loans they've issued is covered.  In the interest of minimizing their own financial losses, lenders as practice require borrowers to take out hazard insurance prior to closing.  Borrowers are issued with a specific coverage amount and policy type to ensure that, at the very least, the property is covered against the amount of damage that would make it worth less than the amount loaned.  Generally, hazard insurance covers any physical damage from fire, smoke, vandalism, and the like and ensures that the borrower has a habitable place to live.  In terms of payment structure, the deductible represents the homeowner's share of any loss, while the monthly or quarterly premiums are paid to the insurance company to accept the homeowner's risk.

But as I understand it, region-specific hazards are often not covered by basic hazard insurance.  In California, separate earthquake and wildfire policies are either required or strongly recommended, depending on the lender, while the same goes for hurricane policies in Florida.  Another note on natural disasters: if a lender is aware of an approaching disaster and the borrower doesn't yet have windstorm/flood/locust swarm insurance in place, closing will be delayed until after the disaster passes, and the borrower will probably have to have the property reappraised to confirm that the value hasn't been negatively affected. Homeowners' insurance is more comprehensive in that it protects against not only physical damage to the property but theft of personal property.  It's also possible to add coverage in a rider that addresses damage to or theft of specific personal property (jewelry, collectibles, artwork, my beer can collection!) Homeowners' insurance also covers the property owner's liability, as it takes on the risk of someone getting injured on the property, needing medical treatment, and suing for personal loss.

For a quick bit of industry news, Zillow entered into a definitive agreement to acquire Mortech, Inc., a mortgage technology company that provides essential software tools to the mortgage industry, for approximately $12 million in cash and 150,000 shares of restricted stock, which goes a long way in Lincoln, NB. (In a quick side note, I spent some time with the owner of Mortech while sitting next to him and his wife at dinner in Chicago two weeks ago.) "This acquisition accelerates the development of Zillow Mortgage Marketplace, Zillow's lending marketplace where borrowers can connect instantly with reputable lenders to get personalized loan options and real-time mortgage rates." Mortech's subscription-based software solutions include a product and pricing engine to help lenders quickly match the right mortgage products to the needs of a borrower at the best prices, a lead management platform to help lenders efficiently serve borrowers from multiple channels both online and offline, and marketing tools to keep lenders' brand and rate quotes in front of borrowers throughout the mortgage shopping process      

Turning briefly to the markets, agency MBS drifted through much of Monday. Thomson Reuters and Tradeweb reported "Mortgage bankers were modest in supplying $1.5 to $2 billion in TBA sales, while specified pool lists were moderate." Prices moved up a little, down a little, and some investors put out price changes to their clients - much ado about nothing. And today we have Obama versus Romney, with the incumbent seen as more dovish and accommodative to the rates and bond markets and Romney more in favor of free markets determining where things go. Stay tuned, but in the very early going rates have nudged higher with the 10-yr. (which closed at 1.68%) up to 1.70%.

(This joke comes along every 4 years. I literally flipped a coin to see who had what role - it is not a statement of political views.)
The Presidential election 2012 was too close to call. Neither Mitt Romney nor Obama had enough votes to win. There was much talk about ballot recounting, court challenges, etc., but a week-long ice fishing competition seemed the sportsmanlike way to settle things. The candidate who caught the most fish at the end of the week would win the election.
After much of back and forth discussion, it was decided that the contest would take place on a remote frozen lake in northern New Hampshire.
There were to be no observers present, and both men were to be sent out separately on this isolated lake and return at 5PM with their catch for counting and verification by a team of neutral parties.
At the end of the first day, Mitt Romney returned to the starting line and he had 10 fish.
Soon, Obama returned and had no fish. Well, everyone assumed he was just having a bad day or something and hopefully, he would catch up the next day.
At the end of the 2nd day Mitt came in with 20 fish and Obama came in again with none.
That evening, the democrats got together secretly and said, "I think that Mitt Romney is a low-life, cheatin' son-of-a-gun. Tomorrow don't bother fishing. Just spy on him and see just how he is cheating."
The next night (after Mitt returns with 50 fish), the democrats got together for the report of how the republicans were cheating.
Obama said, "You are not going to believe this; he's cutting holes in the ice!"