Up-to-the-Minute TRID Info; The Problem with APR; MI Company's Focus

History lesson anyone? In the spring of 1861 the state convention in Richmond, Virginia declared secession. Nearly all delegates from counties west of the Allegheny Mountains voted against secession, and most people and officials in that area refused any directions from the secessionist state government. Through various procedures this new government body approved statehood for West Virginia, and Congress approved statehood that December with the condition that slavery must be abolished in the new state. So on this date in 1863, the newly proclaimed state of West Virginia was admitted to the Union, including all the western counties and the lower (northern) Shenandoah "panhandle".

There appears to be some questions about the status of TILA-RESPA reform. One person even wrote to ask if it was going to be abandoned. The answer to that is no, and that companies should proceed with their plans. And Dave Stevens with the MBA writes, "The comment period is required under APA law and we can expect the notice early next week with a request for comment on a two month delay of implementation. The CFPB recognizes that some residential lenders are ready and that they want to implement sooner due to explicit costs to delay or competitive opportunities, but that the CFPB allowing earlier implementation is highly unlikely: only one RESPA/TILA rule in effect at the same time - so - those that were ready will have to delay."

David K. Stein with Ohio's Bricker & Eckler, Attorneys at Law, writes, "TRID is a big problem for wholesalers. Most of the great educational efforts of the MBA and others have focused on the retail level of the LE and then getting the loan to close properly with the CS.  The law gives little direction to wholesalers.  This is not a reason for wholesalers and brokers to be complacent. There are large obstacles to navigate to get the job done correctly, and this will require critical thought and analysis as to the many scenarios that will arise in the process of origination of TPO loans.  Detailed review of existing processes and careful thought about who the liable parties will be are very important considerations to think about NOW.  Then - there is the training of brokers and setting new expectations. The stakes are too high to wait to set new policy and protocols.

"As I speak with clients and industry players, it is very clear that each wholesaler is in a quandary. Some wholesalers say they will control the entire scope of disclosures, but that attitude is just going to set them up for failure. Their competitors will use this as a reason to sell brokers to not do business with those that will be too controlling. On the other hand, those that do not provide enough control and oversight of brokers are going to pay the price for loose practices - practices that happen days or weeks before the 'lender' (wholesaler) is even in contact with the consumer. The winning strategy will be enacting clear expectations and practices that brokers must follow, and engaging in tight audit and control over those practices.  I'm helping some wholesalers sort through this quicksand, but until TRID is effective and oversight commences, it is all theory. However, as they say:  'fail to plan or plan to fail'." Thanks David!

Jim Bedsole with Georgia's BankSouth scribes, "Rob, one thing that hasn't received much industry publicity with regard to the CFPB's recently announced 'leniency' on TRID enforcement - the fact that the CFPB made a blatant misstatement in their letter to Congress and in their 'Fact' sheet.  They state that one of the three events that can cause a new 3-business day waiting period is an increase in the APR of more than 1/8 of a percent for a fixed rate loan and more than 1/4 of a percent for an adjustable rate. That statement is not consistent with Regulation Z section 1026.22(a) which states that an APR is accurate when it is within 1/8 of a percent for a regular transaction and 1/4 of a percent for an irregular transaction. The section and the official staff commentary then further explain that a typical ARM loan is NOT an irregular transaction, but is, in fact, a regular transaction. Construction loans with multiple draws, even if at a fixed rate, are irregular transactions. Loans with seasonal payment schedules are irregular transactions.

"But ARM loans are not irregular transactions. Institutions that rely on the CFPB 'Fact' Sheet and grant a 1/4 percent tolerance on an ARM without giving a new Closing Disclosure and a new 3-business day waiting period will be in violation of Reg Z, and while the CFPB might not think that's a problem, I wonder whether the lawyers who will be looking for TRID class action lawsuits will see it that way. This 'Fact' Sheet is not the only place in the CFPB guidance materials where they make this statement. It may be that they are planning to amend 1026.22(a) to make it match what their 'Fact' Sheet says, but if that's the case, I hope they do it soon."

And this from Dan Cutaia who wrote in about APR.

"Here is the formula for the ubiquitous Annual Percentage Rate, APR:

"If you're like me, then when you retrieve the daily mail there inevitably will be some trifling piece with an APR. You'll eye it, rub your chin and contemplate the P₀ and the r and maybe if you've had a coffee, you'll give a bit of attention to an n or two. "Hmmm", you'll hum pensively.  You will look very serious, perhaps even smart. The squiggly lines must mean something. Politicians paid some math geeks with foreign accents a lot of dough to come up with a way to make borrowing money real easy to understand. You are expected to get it. But, despite your very best intelligent looking poses, you can no more decipher this gibberish than comprehend 40,000 words in 163 disclosures.               

"I'll assume that everyone, except politicians and regulators, understands the utter futility of expecting consumers to get the slightest shred of value from the Byzantine labyrinth of unintelligible legalese contained in a loan file's colossal heap of disclosures. So for politicians and regulators: disclosures protect the lender, not the borrower.

"I just blew your mind, didn't I? It's true. Lenders spend piles of cash-money to craft documents proving they are compliant with countless regulations while slipping in an assortment of CYA disclosures complete with acknowledgement so that consumers don't have a leg to stand on if they try to sue. The standard lender defense when threatened is, 'Well, Mr. Consumer you can't sue us for malfeasance since you signed the Agreement to Let Lender Malfeasance All Over Borrower disclosure form.' This generally works.  But a pugnacious plaintiff's counsel will regale the court with a profoundly technical legal analysis amounting to, 'Nobody reads that stuff', which on occasion strikes a sympathetic chord with an otherwise responsible judge and leaves the lender whining, 'But your Honor, we have the borrower's signature on 160 pages of stuff! It must count for something.' Go figure." Thanks Dan!

Switching gears entirely, this comes from Genworth MI's SVP of sales, Matt Young:

Genworth's Top 10 List for 2015

2015 has been an action-packed year so far - not just in the lending industry, but in life and events happening around the world. From the now infamous "deflategate" to some of the harshest winter weather extremes on record to the birth of Princess Charlotte Elizabeth Diana to the retirement of late-night legend, David Letterman, events like these leave a lasting imprint on our lives. The same can also be said of our work lives and the never-ending flurry of changes that affect lending and its relationship with mortgage insurance, the government and more.  So, let's get to it, Letterman style. Here is Genworth's 'Top 10' list for 2015, and why these topics will continue to resonate the full year through...

10. Jobs are increasing - how about incomes?

2015 marks the 6th year for job growth.  We expect the economy to add between 2.4 to 3 million jobs this year, bringing the unemployment rate to around 5% by year end. The labor market strengthened significantly last year - adding 3.1 million jobs. In fact, it was the best year for job growth since 1999. That momentum should continue this year, despite a current slowdown. An important question for the mortgage market will be the pace of income growth. When the job market tightens, income growth has historically accelerated but we have not seen it so far. 

9. TRID is looming and transparency rules the roost!

Lenders are taking comfort in the CFPB's enforcement grace period for "good-faith efforts to come into compliance with the Rule on time." To help with readiness, Genworth and others are actively training lenders with custom TRID courses to help them prepare. Beyond system readiness, we hear from lenders that MI partner readiness is also very important - no disruption to workflows, clear and transparent pricing, and maintaining turn-time service levels are some of the top concerns.

8. FHA vs. MI - the Tug of War continues...

The FHA's 50 basis-point reduction in January is still a hot topic today. Supporters argue favorable and immediate economic impact. Critics suggest increased risk and further delays in meeting minimum capital requirements. Either way, after five straight years of premium increases, this move got everyone's attention. With taxpayers caught in the middle, it's important to strike the right balance of FHA vs. MI originations. Lenders having to provide both options are also at risk: a cheaper loan out of the gate or the cheaper loan in the long run? Do your borrowers care about cancelling the insurance one day? Assess every borrower's situation first.

7. GSE Fees - if you blinked, you might have missed it, BUT...

The anticipation was high for a reduction in loan level price adjustments (LLPAs), but we all know it turned out to be a non-event. The adverse market fees were discontinued, but offsetting increases were implemented in other ways. So what's next for reform? Genworth and some of the other MIs have been following up with various constituent groups in Washington -- within the Administration, on Capitol Hill and among industry trades.

6. PMIERs compliance

Even the biggest of fans are prone to skepticism from time to time, and the Private Mortgage Insurance Eligibility Requirements (PMIERs) have provided an interesting platform for taking shots at the MI industry. However, the final guidelines have largely fallen in line with expectations, and Genworth, for one, is committed to meeting the new capital requirements by the established deadline of December 31, 2015.

5. Availability of credit is still a big concern for us all

Industry constituents acknowledge that the credit pendulum has swung too far in the aftermath of the housing crisis. Many credit-worthy borrowers - especially first-time homebuyers - are having a hard time gaining access to affordable homeownership opportunities. If the FHA premium reductions are any indication, we expect continued housing reform efforts to improve homeownership accessibility, a key cog in our broader economic recovery, as well as a continued push towards expanding the credit box in a sustainable and prudent manner.

4. MI is in vogue once again

All indications are that the private mortgage industry is stronger than ever and poised for growth. Recall that private mortgage insurers covered $51 billion in claims since the mortgage crisis with $45 billion going to Fannie and Freddie, thereby fulfilling the role they were intended to serve. With today's far-improved market conditions, new regulatory standards, new sources of capital, refreshed products and services, and more, the MI industry is focused on expanding the housing market and helping more borrowers achieve and protect their dreams of homeownership.

3. Risk sharing is getting attention in Washington

GSE risk sharing will remain a consistent topic of conversation for the foreseeable future.  Protecting taxpayers from the impact of another widespread housing crisis while making mortgages as affordable as possible is a priority, though there is still much debate in how to achieve this.  Mortgage insurers are logical candidates to assume an increased role in risk sharing since this is in keeping with the role the industry has traditionally played. Regardless of the eventual solution, there is good forward progress being made to fortify the industry's stability against future market fluctuations.   

2. Home prices are appreciating

Home prices have risen strongly in the past two years, and we expect home price appreciation to be in the 5% range this year.  A key driver will be the return of homeowners looking to move up or to homebuyers to buy their first homes.  Homeownership today is at the historical average, so the movement toward renting is probably over or near the end.  We expect states with strong economic and demographic profiles to see fast home price appreciation.

And the #1 thing on the minds of industry constituents everywhere...

1. Genworth's got game

It goes like this..."Let's help someone buy a house today." And it's about mortgage lenders and Genworth working together to further enable homeownership for more borrowers. Genworth has 20+ loan origination technology connections, Simply Underwrite, 30+ customer training offerings, Enhanced Coverage Commitment, Homebuyer Education, customer consulting, competitive pricing and guidelines, Rate Express, preferred industry partnerships, contract underwriting services, Homebuyer Privileges, SmarterMI.com, Medical Professional Program, strong senior management team, fast turn times, ActionCenter guidance, seasoned sales and underwriting teams, Loan Officer Toolkit, Homeowner Assistance, Realtor Resources, and much more.

Take the intelligence test that Thomas Edison Gave to job seekers (although it is a little outdated).