Disturbing News in Latest NMLS Report; Primer on Unfair and Deceptive Acts and Practices

By: Rob Chrisman • Fri, May 16 2014, 10:12 AM

The Census Bureau tells us that American families formed 423,000 new households during the 12 months ending 3/31/14. 79% of the new households formed (333,000) were renters and 21% of the new households formed (90,000) were homeowners.

So we're seeing some household formation - a good thing for lenders and Realtors. Some of them are buying houses, and some of those are obtaining loans to do so (although cash purchases account for over 1/3 of home buying!). What is happening on the licensed originator (non-bank) side of the equation? The recent NMLS report sheds some interesting light on the subject - not all of it good for LOs. During 2013, the number of state-licensed mortgage companies remained essentially flat, but the number of mortgage loan originators grew by 8% and the number of licenses held by MLO's grew by 28%. Every state saw net growth in the number of MLOs operating in their state. Mortgage originations by state-licensed MLOs declined significantly during the 2nd and 3rd quarter of 2013 due largely to a decline in refinance transactions. Federally registered institutions and mortgage loan originators remained flat in 2013.

While most state-licensed companies and individuals work in just one state, the number of entities working in multiple states is growing at a faster rate. The total number of state-licensed MLOs grew 8% over the past year, while the total number of MLO licenses grew 28%. The average number of state licenses held by an MLO in 2013 was 2.54 licenses per MLO, up from 1.8 licenses per MLO in 2011. The total number of state-licensed companies declined, but the number of company licenses held grew over the past year.

The report has some fascinating state-level stats. Let's take a look at one state, since I was just there yesterday: Washington. Washington saw a 30% increase in licensed originators last year, up to nearly 12,000. There are 9,200 that are "Federally Registered." (The population, by the way, is about 7 million.) Last year Washington saw about 46,000 purchase transactions, and the average loan size was about $248,000. Ladies and gentlemen, I know that I am simplifying things, but if there are 12,000 MLOs in Washington, and purchase transactions remain constant at 46,000, that is about 4 transactions per LO for the year. Don't take my word for it - here is the Industry Report so you can take a look at your own state.

GSE reform...I've got good news and bad news. The good news is that Johnson Crapo passed through the Senate Banking Committee. The bad news is that it still has to go through the Senate, the House, and the President - all before the election in six months. Experts think that the odds of that happening are slim at best. And after the election, well, the make-up of Congress changes.

Suddenly interest rates are attracting some attention. Yes, companies are still focused on lowering costs, improving efficiencies, and eking every basis point out of every loan. But with the U.S. economy seeming to muddle along, rates seem more inclined to drop than to increase. I was recently speaking with a portfolio manager who explained to me that the Federal Reserve has an obligation to keep interest rates low. Maybe, but "obligation" is a strong word. While most believe that it is likely that the Fed will maintain the current target range for the federal funds rate for a considerable time, even after the asset purchase program ends, there is always uncertainty in duration the further out you look. Keynes said it best, "we're all dead in the long run." But that doesn't stop "yield chasers" or anyone looking for reasonable ROI, which is a good place to be if you manage ETF funds. According to a Bloomberg article earlier this month, investment flowing into exchange-traded funds focused on real estate this year has already eclipsed the 2013 total as concern over rising interest rates subsides and property markets improve. Brian Louis and Alexis Leondis write, "In 2014, 31 percent of money going into U.S. sector-focused exchange-traded funds, or $3 billion through March 6, was for real estate, according to data compiled by Bloomberg. That's 43 percent more than the net deposits the funds attracted in all of 2013, and a greater share of total ETF contributions than any time since at least 2012."

The Mortgage Bankers Association of the Carolinas sent out a blurb on "What Small Mortgage Lenders Can Learn from Credit Card Settlement." "The Consumer Financial Protection Bureau has once again utilized its broadest and most powerful weapon to levy large fines: the Unfair and Deceptive Acts and Practices. This time, it was Bank of America that received a $727 million dollar fine for 'illegal credit card practices.' These practices included alleged deceptive marketing by inaccurately describing the benefits of certain add-on charges and the billing process for such charges. In particular, it is alleged that telemarketers 'went off script' in describing the benefits and charges of certain credit protection plans to coax consumers into receiving them. Many smaller lenders still utilize telemarketer driven leads for all or part of their business. Even more lenders rely upon loan officers during initial conversations with consumers to accurately communicate the benefits and risks of certain loan products as well as describing the lending process."

But next we have a warning that keeps banks like Citi, BofA, Chase, and Wells who have thousands of LOs up at night. "To the extent the CFPB can apply the unfair and deceptive acts and practices label to 'off script' communications with consumers, lenders need to give particular attention to being able to prove what is said, by whom, and when. When it involves telemarketing-whether it is done by the lenders or a lead company they hire-lenders need to pay attention to the content of the script and the manner in which the telemarketer ensures it is followed, as well as a telemarketers' compliance history (after all, lenders could be held responsible for independent telemarketers through third-party vendor rules). Addressing communications directly from internal loan officers, lenders need to rely upon training and should increasingly consider occasional monitoring to ensure proper communications are maintained. Better yet, lenders should consider integrating certain communications systems into the origination process that ensure the lender is able to document the accuracy of communications with borrowers. Such processes do not detract from the origination process, but rather add to it by removing loan officers from the compliance process, and allowing them to focus on sales and customer service. The last thing lenders want to consider these days is spending more on compliance. However, there are new options emerging that protect lenders and assist in origination efforts. More than ever, lenders should consider new alternatives to avoid the risks of 'off script' communications."

How about some investor news and updates? As always, it is best to read the actual bulletin for details, but these will give us a sense of the trends out there.

Kinecta Federal Credit Union wholesale channel lowered the maximum CLTV for the Piggyback HELOC and Fixed Seconds products from 90% to 89.90%. Additionally A new Certification of Resident Alien Status form is posted on its Wholesale/Correspondent Lending website.

Sun West Mortgage Inc. has posted additional FEMA disaster counties for the state of Florida in compliance with FEMA's disaster list for the Incident Period Date April 28, 2014 to May 6, 2014. For a complete list and information regarding appraisals in affected areas, contact your sales representative.

US Bank Wholesale and Correspondent division posted program enhancements for Second Mortgages and LPMI Products effective May 6^th. Please review its full product guidelines for complete program details. US Bank is reminding Correspondent Lenders of valuable resources, and introducing a new matrix that will simplify the processes when closing an ARM loan product. Contact your Account Executive for complete information.

Mountain West Financial has expanded its DU High Balance guidelines to allow FICO scores that are the more restrictive of 620 or per DU, remove LTV restrictions for loan amounts below $625,500, and align borrower and interested party contribution requirements with those of the Agencies, effective immediately.

MWF is now offering a 2/2/5 cap structure option for its 5/1 Jumbo ARM program and has removed the 75% limit on LTVs for all ARM and 15-year Fixed transactions, the 10% LTV reduction for borrowers with more than two financed properties, and the payment shock requirements who borrowers who have owned a home in the last three years. Guidelines have also been updated to allow properties with more than ten but less than 20 acres with a land to value ratio of 35 or below if typical for the area, projects with fewer than ten units, and the inclusion of HELOCs on the subject property to be included in the new loan amount on rate/term refinances.

Impac Mortgage correspondent division is requiring the Fannie Mae Homepath fixed program and Fannie Mae fixed rate loans with LTV > 95% with DU 9.0 approval to be locked on or before June 10, 2014, and purchased by Impac no later than June 25, 2014. The Fannie Mae fixed product matrix has been updated to add "Primary purchase for Elderly Parents by Adult Child" and "Primary purchase for Disabled Adult Child by Parents".

Impac's FHA 203K product has been revamped as well including clarification regarding appraisal requirements for both purchase and refinance transactions. Visit the Impac Mortgage website or contact your representative for complete information.

AmeriHome is offering a couple new products that are of interest in today's constricted market. Its Expanded Guideline Program features include: loan amounts to $1,000,000, credit scores as low as 600, no mortgage insurance required over 80% LTV, cash out to $250,000 on primary residence transactions. Its Jumbo Core Program provides your borrowers with the ability to obtain cash-out of their primary residence and investment property for any purpose, access to higher loan amounts, no second appraisal fee below $1,000,000 cash-out or $1,500,000 purchase and rate/term. To find out more about these products and others, contact your representative.

New Penn Financial Correspondent lending department has announced correspondent fee changes beginning May 12^th. The changes will effect agency purchases (FNMA/FHLMC/FHA/VA), portfolio purchases (Jumbo Advantage/Foreign National), and Condo approval requests.

PennyMac will now purchase HUD REO transactions with LTV/CLTVs above 96.5% and will accept Approve/Ineligible findings that are due to LTV. Up to 110% of the cost of repairs may be included in the mortgage amount so long as it is under $5,000, and the property is required to have a full "As Is" and to have the repairs completed per the 1004D or Compliance Inspection Report HUD Form 92051. This is available only for owner-occupied transactions and requires the property to have a title policy. PennyMac will also purchase HUD's $100 Down and Good Neighbor Next Door loans.

PennyMac will require all loans closed on or after June 15th to include 2013 tax transcripts unless the file contains proof that an extension was filed and a copy of the IRS notice showing "no record of return filed" for 2013. This does not apply to loans that do not require income or tax returns, including non-credit qualifying FHA Streamlines and VA IRRRLs.

How 'bout these rates! Sure, MBS prices are the best they've been since Thanksgiving, but the costs of doing business have increased, and let us not forget the higher gfees and loan level price adjustments - so the advantage of refinancing has dropped for existing borrowers. But hey, if rates keep dropping... Yesterday a combination of weaker than expected Q1 growth in the euro zone (which increased odds the ECB would announce further accommodation at its June meeting) and mixed data and poor earnings news in the U.S. pushed rates lower. But do lenders really want lower rates due to a slow U.S. economy? Probably not. But for now we'll take the rally: yesterday the 10-yr price improved by .375 (closing at a yield of 2.50%) but agency MBS prices barely budged due to supply and demand issues. Investors are keenly aware of whether or not a rate decline will result in more refinancing, pushing up the supply, which may or may not be absorbed by the tapering Fed and other investors.

Today we've seen the dynamic duo of April Housing Starts and Building Permits (they showed some strength) and will see the preliminary May read on Consumer Sentiment. Housing starts were above expectations, jumping 13.2% to 1.072 million due to a 39.6% surge in multifamily starts. Single family was only up 0.8%. It was the same story for building permits. Headline permits were up 8% to 1.08 million also driven by multifamily permits which were up 19.5%. Single family permits were up 0.3%. The softness in single family build is consistent with the weak message out of the NAHB index and sluggish new home sales. The gain in multifamily construction is consistent with the shift toward renting. In the early going we're sitting at about 2.51% and agency MBS prices are slightly worse on the housing news.