LOs, RESPA, and PHH - a Legal Take; CFPB to Register Non-Banks?
Being a compliance officer isn’t a barrel of laughs. How many compliance officers it takes to screw in a lightbulb? 3. It takes 1 to change the bulb, another to check it, and a third to file a report on it. More on the growth of compliance personnel below, along a piece on how the CFPB plans on registering non-bank financial service providers.
A newly promoted employee confides in his doctor: "I think I am a compliance officer," to which the doctor replies "Have you double checked?" Compliance isn't too much of a laughing matter - especially thinking about the counterparties with which bank and non-bank compliance officers must work.
For example, a Consumer Financial Services Review blog post by Mayer Brown lawyers "crossed my desk" discussing the CFPB's plans to register nonbank financial services providers. A piece titled, "Papers Please: CFPB Advances Plans to Register Nonbank Financial Services Providers," reminds us that anyone who is not concerned about this regulator's powers should be. "...in the name of supervision, the CFPB might condition your future ability to offer goods and services on your advance registration and satisfaction of ongoing reporting requirements..." But you can read about it yourself online. for the post in its entirety.
Some lenders and banks are too small to comply. Wait a minute - does that make sense? Or maybe they can't afford to, and skimp. For lenders who comply, staffing in compliance departments has exploded. Since Dodd Frank, regulators have created more than 22,000 pages of regulations and obliged the industry to hire thousands of new regulatory and compliance staff to help manage risk and implement these rules.
Want an example? JPMorgan alone reported 43,000 compliance and regulatory staffers at the end of 2015 versus 23,000 five years earlier. (On a comparative basis, JP reported 180,583 total employees at the bank at the end of 2015 and 181,245 at the end of 2010. That means today the bank's compliance and regulatory staff is about 24% of the total vs. 13%. For JP, this basically means hiring about 5,000 people each year or so - a 17% annual median growth rate.)
JP Morgan is complex but it is certainly not alone in such a huge hiring burst in compliance. Do lenders consider them advisors, or enforcers? At a bank compliance folks crack down on such things as AML, BSA and a host of other regulations in an effort to keep the bank out of trouble and to avoid paying fines. They are deadly serious about their duties. Consider as well that the banking & mortgage regulators have also hired or retrained thousands of examiners to zero in on new risks in this area. Pacific Coast Bankers Bank notes, "That leaves compliance officers caught in the middle between their colleagues and regulators."
Recent research by Deloitte that finds: 57% of chief compliance officers now report to the CEO or board and 55% regularly brief the board on the company's ethics and culture. Despite this, only 32% said they are seen as a business partner across the organization. Further, when asked to identify the most challenging aspects of their organization's program for managing compliance risks, the Deloitte research found: third-party compliance risk management (20%), Executing compliance risk assessment process (14%), monitoring compliance with policies (14%), data analytics and reporting (8%), regulatory relationship management (7%) and policy and procedure management (7%).
And I received this note from attorney Brian Levy, who trains LOs on RESPA issues, on concerns and issues he is seeing in that area. "Many in the industry are on edge waiting for the PHH decision to be issued and that will no doubt be a big topic at fall conferences such as MBA Regulatory and RESPRO where I will also be speaking. My sense about PHH, is that the decision (either way) will have a much greater impact on the CFPB and its 'regulation by enforcement' approach than on mortgage lenders contemplating changes to their marketing programs. Regardless of who 'wins' in the current round of PHH litigation, it seems unlikely that the loser will just take their medicine, so regardless of any imminent decision, legal appeals (and perhaps the election) will likely delay the final resolution.
"That said, it has been over a year since Director Cordray issued his decision in the PHH case in August of 2015. While there is no way to know for sure what investigations may be pending, after a period of heightened public RESPA enforcement activity in 2014 and 2015 (CFPB issued about one RESPA related Consent Order per quarter) other than the Eghbali Consent Order involving a single Wells Fargo loan officer (discussed below) there has been virtually no public RESPA enforcement actions finalized by the CFPB in over a year. This relative silence coincides with the pendency of PHH's appeal. As a result, it is possible that CFPB is waiting to see what the PHH court has to say before reinforcing its aggressive RESPA interpretations with additional enforcement actions which could be similarly challenged.
"Enforcement, unfortunately (rather than rulemaking and/or official policy determinations), has been the only method by which CFPB has issued RESPA (referral fee) guidance to the industry since it took over RESPA enforcement from HUD in 2011. As I have discussed previously, the CFPB's emphasis on enforcement as guidance is misguided (pun intended) because extrapolating one fact pattern to others (especially when not all facts are disclosed publicly) often leads to unintended consequences and confusion. For example, incredibly, as explained below, the Eghbali Consent Order seems to prohibit all consumer discounts to customers of referral sources. Other enforcement actions (e.g., Lighthouse Title, PHH) can be extrapolated to the conclusion that virtually any agreement between settlement providers can be viewed as a RESPA violation in the absence of the right narrative. Despite many challenges to the efficacy of regulation by enforcement, Director Cordray made it crystal clear in speeches last March to bankers' groups in which he said it was "compliance malpractice" not to take note of what he claimed to be the "detailed guidance" offered in his agency's enforcement actions.
"With that admonition in mind, in Eghbali (the only RESPA enforcement action over the past year), such detailed guidance was sorely lacking. In that Consent Order, a single loan officer was accused of receiving 'a thing of value' from an escrow company in return for referral of customers for escrow closings. Mr. Eghbali was not accused of getting anything directly for those referrals. Rather, the CFPB alleged that his customerswere offered a discount upon his request and those discounts (which the consumers enjoyed) were somehow a "thing of value" because it enabled Eghbali to do more business. In other words, the discount obtained by the LO for some of his customers created a RESPA violation! You may ask, since RESPA was designed to lower consumer costs through prohibiting referral fees, "how can a discount to a consumer be an illegal referral fee?" Excellent question, but unfortunately, CFPB's Consent Order against Mr. Eghbali failed to provide any of the kind of detailed guidance Cordray claims would be compliance malpractice not to follow.
"While questions could arise as to how consumer discounts are allocated under fair lending or UDAAP type laws, those were not raised by CFPB. Meanwhile, prohibiting all discounts would be counterintuitive and against the whole purpose of RESPA. Surely, CFPB does not believe that all borrower discounts to customers of referral sources should be prohibited. Yet, the CFPB offered no factors by which to assess whether a borrower discount offered to a referral source's customers likely violates RESPA. For example: (i) would it have mattered if a discount was made available to all customers of Eghbali instead of just when he asked for a discount?; (ii) what if the escrow company discounts its fees for any consumer just for asking?; (iii) why didn't CFPB provide any evidence that the discount created a competitive advantage for Mr. Eghbali-can CFPB just assume that is true?; and (iv) perhaps most confusing, if a consumer discount can be a thing of value to a referral source, what about better service? That is, if the escrow company just agreed to provide speedier or more attentive closings to customers of Eghbali, could that be a thing of value to Eghbali and thus a RESPA violation?
"There are ways to mitigate the concerns raised by the CFPB's RESPA interpretations as applied to discounting and other relationships among settlement providers, but most originators at the ground level are totally unaware of these complications and how they are often the weakest link in the compliance armor." Thank you Brian! (This is not a paid announcement, but Brian, to help companies train and equip their salespeople with the knowledge to act properly in this new environment, offers a comprehensive RESPA training presentation focused on the salesperson's role in each company's unique marketing plan(s).)
Ah, the bond markets giveth and the bond markets taketh away. Yesterday U.S. Treasury prices rallied, and thus rates dropped, as oil prices declined. And agency MBS prices improved. Of more interest, however,this was the ninth consecutive session of widening in the 5-year/30-year Treasury yield spread as traders and investors are concerned about an end to central bank asset purchases as the driver of the sell-off rather than changes in expectations for next week's Fed rate move. If you'd like some numbers, the 10-year rallied .375, closing at 1.69%, whereas 5-year T-notes and MBS both improved about .250.
Today we've already had Initial Jobless Claims (260k from 265k), August Retail Sales (weak at -.3%), August PPI and Core PPI (flat and +.1%), September Philadelphia Fed, Q2 Current Account Balance (narrowed to $120 billion), and September Empire Manufacturing - all at 8:30 EDT. Later is the August Industrial Production and Capacity Utilization at 9:15 ET. Early on the 10-year is chopping around 1.68% and agency MBS prices are better by about .125.
Jobs and Announcements
In job news, CoesterVMS is looking for an experienced Quality Control specialist to work for its robust compliance and quality control team. "CoesterVMS, which has experienced positive growth, made news recently with its Extreme School Makeover. It partnered with Wave City Cares and completed a full makeover of 4 local schools before the school year started this year. CoesterVMS is also looking for experienced sales people in the Chicago and Dallas Fort Worth area. All positions require experience in the mortgage industry please e-mail Brian Coester.
On the retail side, SecurityNational Mortgage Company is among the TOP 50 mortgage lenders in the country and management is looking for like-minded people to join the team. SNMC is searching for Area Managers, Branch Managers and Top Producing Loan Officers in Minnesota, Wisconsin and Nebraska. Security National is on solid ground and has been in the financial business for over 50 years and is backed by a public traded parent company, Security National Financial Corporation, (SNFCA-NASDAQ). The company is approved with FNMA, FHLMC, and offers many non-agency products, superior customer service, in-house processing and underwriting, and a full service marketing and advertising department. "The company has won a variety of awards including the Best of State, Top Places to Work, Scotsman Guide 'Top Mortgage Lender', CEO of the Year, Sales and Marketing Team of the Year (SAMY Award), and more." Contact Director of Business Development Justin Pater (801.864.2240).
The Money Source, a national correspondent lender and loan servicer, has launched a depository division where banks and credit unions can take advantage of co-branded servicing statements. Your company logo and contact information appears on the borrower's monthly mortgage statement, and their non-solicitation agreement ensures a clear path to refinancing and retaining your own borrowers. For information on a correspondent relationship with TMS, please contact Seth Elbaum, VP of Correspondent Sales - National Depositories.
MB Financial Bank's Mortgage Division was recently ranked #6 in Top Wholesale Volume in 2015 by the Scotsman Guide and is currently seeking qualified Wholesale Account Executives who are looking to grow its business. Interested candidates in California (Los Angeles and San Diego), Colorado (Denver), Florida (Southeast and Tampa/Sarasota), Illinois (Chicago), Kansas/North Dakota/South Dakota, Michigan(Southeast), New Jersey (Southern), Ohio (Northeast), Pennsylvania (Western Pennsylvania), Tennessee, Kentucky, and Wisconsin should contact our Recruiter, Mark Powell (734.548.6126). MB Financial, Inc. is the Chicago-based holding company for MB Financial Bank, N.A., which has approximately $19 billion in assets and a history of building deep and lasting relationships with individuals for over 100 years. EEO/AA Employer. Equal Housing Lender and Member FDIC. NMLS#401467.
In correspondent news, First Guaranty Mortgage Corporation, a Virginia Corporation, providing residential mortgage lending services for over 25 years, is pleased to announce that mortgage industry sales veteran, Angelo Zakis, has joined the company as Regional Sales Manager for the Correspondent Division. "We're very excited to have Angelo join our national correspondent sales team. Angelo's deep experience in correspondent sales, and solid track record in the Northeast, will undoubtedly cause him to become an even greater asset to the company," said Mark Mayhook, Senior Director of TPO Production.
Before going on, I have a correction to a website that was listed yesterday for brokers to take advantage of AFR's free MyLoanCenter ("...streamline the way brokers communicate with their customers, offering customizable options to provide optimal service..."). The website for more information is www.afrwholesale.com, and I apologize for any confusion.