Who Owns an LO's Client List? The FHA Needs How Much? The MBA Addresses the Shutdown

"Rob, I attended a seminar last week, and one of the speakers mentioned something called 'Freddith Mae'. Ever heard of that?" Nope - either I'm out of touch & confused, or someone else is and you should ask for your money back. But one thing I am confused about, and it is probably only me, is what a "rule" is. When I was growing up, a rule was a rule. Now, since the industry is subject to the CFPB's rulings, we seem to have a rule announced, then time for public comment, then a final rule, and a public comment period, and then amendments, with public comments, and then changes to those. Look how many times Reg. Z has been changed - maybe I am the one who is confused.

The big news for today comes from FHA, which announced it will need a $1.7 billion bailout from the Treasury to cover projected losses in its reverse mortgage programs (currently at $5 billion). Plenty of industry observers have been predicting this day. Federal Housing Administration Commissioner Carole Galante told Congress in a letter that her agency will withdraw the money from the Treasury before the fiscal year ends today, although Congressional approval is not required. The FHA suffered big losses when many reverse mortgage borrowers took large payments up-front and later ran into financial problems, often due to falling home values during the financial crisis. As we have all heard, the FHA is required by law to maintain reserves equal to 2% of the total amount of home mortgages it insures. The 2% capital reserve ratio is aimed at covering projected losses over the next 30 years in the agency's Mutual Mortgage Insurance Fund.

Galante said her agency needs more money from the Treasury now because higher interest rates have discouraged borrowers and reduced loan volume for the FHA in recent months. Of course, we're seeing that with the entire industry - and few can say that they did not see the market (especially refis) tailing off as time went on. About a year ago we had warnings about the FHA's finances when an independent audit showed an estimated $16 billion in losses. But the agency's finances have since improved due to changes the FHA has made, including insurance premium increases and changes to the reverse mortgage program. Improvements in the housing market have also helped boost the agency's finances. And Republicans have complained that the FHA contributed to the housing meltdown by providing loans to many unqualified borrowers who ended up defaulting. They have called for ending the FHA's backing of reverse mortgages and for limiting the agency's role in the housing market. In fact, House Financial Services Committee Chairman Jeb Hensarling, R-Texas, is pushing a housing finance overhaul bill that includes a provision that would limit the FHA to insuring loans only for first-time and lower-income borrowers.

With all the transition going on in the industry, especially with loan officers, here is an interesting question I received last week. "What is the law regarding paying loan officers on deals they sourced and originated but the LO leaves to another company prior to funding. Is the LO still legally due their commissions?" I am not sure that there is "a law," and from what I understand it will depend on the agreement that the LO signed with the company. But this does lead to a related topic...

Here is a different note: "When a LO or a company joins a platform and later leaves that company, should the LO be able to have access to their data if the data is self-generated and not company supplied? I believe that it's an industry standard that when an originator terminates from their company (banker, broker, bank) that they should be entitled to all regulatory compliant data, meaning, all client lists for marketing purposes. Some believe otherwise, but only if you are a top producer. I do believe it's an industry standard that originators have 'Point Central' downloaded on their laptops and retain 'all' client data when moving from company to company.  The Point files are essentially their entire business careers wrapped into one hard drive. Is a company entitled to this data for a self-generating originator?"

While some companies state any and all data/information obtained "on their clock" is theirs and not the LO's, many lender's view is that the originator has the relationship with their customers and to that end, all contact information (the "database") is theirs to keep/take. One seasoned veteran told me that the "big guys" are more protective of data which was added or changed during an LO's tenure at the particular institution, even if it was the adding of customer contacts or prospects.

And Kurt Reisig, the CEO of American Pacific Mortgage Corp. in California, writes, "Questions like these really point to the overall culture of the company.  While all companies should look at how they define this so as not to break any regulations regarding the handling of consumer data, any prudent LO should look carefully at their employment agreements and/or branch operations agreements before joining a firm.  Unfortunately for many producers, we have observed over the years that client data for any purposes is often retained by the employer, sometimes rather sneakily. In recent years, the proliferation of 'retail' by banks, call center operators and larger mortgage banks who covet data ownership over originator rights has left many a loan officer fighting for her client data.  Legally, all that matters is the agreement. Philosophically the company 'attitude' is nearly as important.  A little due diligence goes a long way - the best way to find out how a company acts is to ask around."

And a follow up question dealt with ownership and freedom. "If a branch joins a larger banking platform/branch, and later terminates, how does this 'divorce' get separated? For example, one would hope that if the smaller branch has been in business for many years and joins a larger banking platform and later leaves, they would be able to leave in a civilized, well-thought out manner. But I have seen examples of the larger banking company 'cutting the head off the snake,' occupying the lease for 30 days (which is standard compliant method of leasing) only to tarnish the names of the branch managers, and offering great terms for LOs electing to remain. Is this legitimate? It seems like it is, but only if the branch managers didn't pay attention to their contracts, especially the solicitation or non-solicitation of their own people. Contracts need to be taken seriously. If any branch is looking to join a banker, they had better think twice before signing their 'best china' away."

Once again, Mr. Reisig from APM writes, "This gets to the core of a company culture and one that can be answered by due diligence on agreements and past business practices.  Recently, since the market shift, we have also seen a spike in the aforementioned practice by some large operators.  Whether they are desperate for production or simply have a 'fatal attraction' complex, it is categorically and ethically wrong for them to pursue the 'assets' of any branch or originator that chooses to leave. That said, it does happen and the best defense is a fair contract. Additionally, the best course is to conduct oneself with utmost integrity and adherence to the contract. Companies have a right to an open pipeline in a branch and a right to assure that operations are wrapped up in a way that leaves the company without an operational loss as the separation is completed. We counsel those who join us to adhere to their contracts and take the high road at every juncture, basically asking people who join us to treat their former employer in the same way we would hope to be treated in those occasions an originator leaves our company.  In a nutshell what I tell producers is to conduct as much due diligence as possible on a firm they join....at least as many hours as it takes to originate and close a loan...which is a lot!" Thank you Kurt!

The focus continues to be on the government shutdown. For example, Guild Mortgage alerted its clients, "In anticipation of a possible federal government shutdown it is advised that you complete the following to the extent possible prior to October 1: execute 4506T IRS transcript requests; run CAIVR's and LDP/GSA searches; complete SSI validations; request FHA and VA case numbers; etc."

CNN tells the public about the impact of a government shutdown here.

And on Friday Dave Stevens, president of the MBA, wrote, "As Congress continues to negotiate legislation to fund the federal government in FY2014, federal agencies are preparing for the possibility of a government shutdown when the current continuing resolution expires at midnight on Monday, September 30, 2013. If the House and Senate are unable to resolve their differences by the midnight deadline, there will be a shutdown that will furlough certain federal employees and cause a significant curtailment of operations at several federal agencies.

It is difficult to quantify all of the impacts of a government shutdown. However, lenders processing loans that need tax transcripts, social security number verification, or FHA loans, should anticipate delays and reduced functionality from HUD, IRS, and the Social Security Administration. A shutdown lasting a few days would slightly inconvenience lenders in processing loans; however a longer delay would have more serious impacts. Purchase loan volume could shrink and impede the recovery of the housing market. Additionally, long-term furloughs may disrupt time-sensitive mortgage transaction deals by interfering with borrower lock agreements and causing interest rate disparities from the time of closing to the time the loan is securitized. MBA has prepared a detailed analysis of how we expect many government agencies and other entities integral to real estate finance may be affected by a shutdown. MBA will keep you informed in the days ahead during this fluid situation. Please don't hesitate to contact me with any questions."

But we do have some news this week! Today we'll have the Chicago PMI, tomorrow an ISM Manufacturing Index number, Thursday is the usual Jobless Claims, and on Friday are the unemployment numbers. For now, rates are pretty quiet with the 10-yr sitting around 2.60%.