State-Level Lending Law Changes; Exec's Letter to LOs on Locks/Extensions

If you are a residential lender doing business in Nevada, would you ever lend on a condo or residence that has a Home Owner’s Association? Good luck. As has been noted in this commentary before, it is problematic. It turns out that the Reno Gazette has put some numbers on it: HOA foreclosures are tied to more than $1 billion in lost Reno, Vegas home values.

This is Part 3 of various issues that multi-state lenders must contend with around our country. Here is what's going on in the interior and west of the Rockies.

Recall that South Carolina's Board of Financial Institutions and Department of Consumer Affairs announced that it will both implement the Uniform State Test (UST) for their state-licensed Mortgage Loan Originators (MLOs) on September 16, 2017. Only two state regulators have yet to adopt the UST: the Minnesota Department of Commerce and the West Virginia Division of Financial Institutions. MBA members are encouraged to continue advocating before these remaining regulators, so the UST will become a truly uniform standard for state MLO licensing.

In late June, the Ohio House of Representatives passed the Ohio Mortgage Lending Act. The bill, a working project of OMBA's for nearly 3 years, modernizes the licensing and company registration process with the State of Ohio. Some key provisions of the bill are: All loans secured by 1-4 unit residential property, both first and subordinate liens, will fall under Section 1322 of the Ohio Revised Code, requiring only 1 license; All non-depository companies will become registrants, alleviating the possibility of unknowingly engaging in unlicensed activity; Special accounts will no longer be required; and only unsecured loans and loans secured by collateral other than real estate will require a license under Section 1321 of the O.R.C. The bill will now move to the Ohio Senate for introduction after the summer break.

A federally-funded program that helps Indiana homeowners avoid foreclosures stopped taking applications at the end of June.

Lenders have been known to imbibe, and Utah law that allows bars and restaurants to remove a frosted glass partition between customers and the bartenders preparing their alcoholic beverages has gone into effect. "The Zion curtain" has finally been smashed.

Through Bill 17-127 Colorado has amended its provisions regarding Mortgage Loan Originator (MLO) exemption requirements. This amendment is effective as of August 9, 2017. The provisions relating to exemptions to MLO requirements have been expanded to include individuals who act as an MLO, without compensation or personal gain, who provide loan financing for no more than three residential mortgage loans in any twelve-month period to a family member. For purposes of this exemption, "compensation or gain" excludes any interest paid under the loan financing provided.

Colorado has also made minor amendments to its Fair Debt Collection Practices Act in bill 1238. These provisions are effective as of August 9, 2017.The provisions of the Act have been amended to include updated references to sections, paragraphs, and subsections. No substantive changes have been made to the act.

The state of Hawaii has recently updated several requirements for mortgage loan servicers, effective September 1, 2017. legislature of the state of Hawaii has amended chapter 454M of the Hawaii revised statutes by adding two new sections relating to licensed mortgage servicers. The first section relates to changes in control of a licensee, while the second section relates to the presumption of control of an entity.

Here's one list of California's first-time home buyer programs.

Effective immediately, the California Department of Business Oversight (Department) issued a brief bulletin for licensees to be able to identify which documents may be used to comply with both the per diem statute and the Financial Code §50204 (o) (hereinafter referred to as §50204 (o)). The per diem statute prohibits a borrower from being required to pay interest for more than one day prior to the disbursement of loan proceeds from an escrow; §50204 (o) works in tandem with the per diem statute by prohibiting violation of the statute and provides guidance on licensee required documentation.

Though the Commissioner of the Department reserves the right to request more information, the following are documents outlined in the bulletin for licensees to meet compliance standards:

Written/electronic records which: (a) show communications between the licensee and settlement agent (agent); (b) verify disbursement date of loan; and (c) provide name and physical or electronic address of agent.

Written/electronic records memorializing: (a) oral communications between licensee and agent verifying disbursement date of loan proceeds; and (b) identify name and telephone number of agent.

The bulletin also answered frequently asked questions. In specific, clarification is given regarding ALTA Settlement Statement forms (ALTA forms), Closing Disclosures (CD) and alternative ALTA documentation.

Nevada has updated its provisions regarding licensing including those relating to continuing education. Section 1 has been amended to require that a mortgage broker licensee must submit to the Commissioner of Mortgage Lending (Commissioner) proof that he or she has attended at least ten hours of certified courses of continuing education during the twelve months prior to the license expiration date. The completed three hours of continuing education relating to the laws and regulations of Nevada has been eliminated. Section 1.5, addressing the Commissioner's duties in supervising licensees, has been revised to allow the Commissioner to conduct, at his or her discretion, periodic standard examinations of each mortgage broker doing business in Nevada. Also, a provision has been added to Section 2, allowing for the Commissioner to waive the report requirement of subsection 2 if substantially similar information is available to the Commissioner from another source. This provision refers to the required monthly report of a mortgage broker's activity for the previous month.

Nevada has modified its provisions relating to mortgage brokers and mortgage bankers. The effective date of these provisions ranges from October 1, 2017 to January 1, 2020. For example, Section 15.5 requires mortgage brokers to deposit with the Commissioner and keep in full force and effect a corporate surety bond payable to the State of Nevada

Nevada has amended its provisions regarding qualified custodians and notaries in relation to electronic wills. The definitions section has been updated to include definitions of "certified paper original," "electronic notary public," and "qualified custodian." Amendments have been made to the definition of "electronic will," which is now defined as an instrument, including a codicil, executed by a person in accordance with the requirements set out in NRS 133.085 and which disposes of property upon the testator's death. Section 10 states the criteria for an electronic will to be considered self-proving. Section 11 provides who can be considered a qualified custodian of an electronic as well as electronic recordation requirements and when the qualified custodian may, in his or her own discretion, destroy the electronic record. Section 16 covers what duties an electronic notary public may perform for all purposes relating to the execution and filing of any document with the court in any proceeding relating to an electronic will.

Pipeline accounting

On May 19, 2017, seven CPAs and one warehouse lender submitted a comment letter to the Financial Accounting Standard Board's Emerging Issues Task Force concerning pipeline loan accounting. First Tennessee's Andy Greer was one of the signers and has written a follow-up to a pipeline fair value paper summarized on this website on July 16, 2016.  With a foreword by Andy Schell, CPA, CMB, this new paper describes why the letter to the FASB was necessary, why the industry standard method of pipeline accounting overvalues unclosed loans, why this method provides poor information about anticipated cash flows from the pipeline, and how assigning more costs against the asset would benefit management and users. Andy Greer would also like to meet with anyone interested in this topic at the upcoming Western Secondary Conference and has reserved a meeting space on Thursday, July 20 to do so. Please contact Andy (901.759.7705) to obtain a full copy of this paper or to set a meeting time. (Andy is a CPA & warehouse lender with First Tennessee Bank.)

Capital markets

What other industry gives away a free option (e.g., the rate lock to the borrower)? Despite that, LOs still ask for exceptions and extensions, and the practice prompted one capital markets executive to weigh in. "Does your company have a robust process for dealing with unexpected pricing exceptions? At newer mortgage companies, the lock desk's policies and procedures may allow for some loans to seep through the cracks and cost the company money.

"Examples? The borrower is quoted rates by the LO, but communicates their desire to lock after rates have changed. The file comes out of underwriting with different figures than what your borrower had expected. The appraisal comes in low after the initial LE has been sent. I could go on and on. Even if your company has procedures in place, often it is the case that you are a smaller lender and need the volume, don't want a customer to escalate a complaint and get legal involved, your LO has 'just really fallen in love with this borrower and the borrower is ready to be a raving fan of ____ corporation,' or whatever story they may conjure to tug on your heart strings. Bottom line is that any pricing exception is going to be costing your company money, at least on an opportunity cost basis if not an actual net basis.

"Let's say your company primarily originates on average $650k jumbo 30YRs at 4.25%. Currently, the difference in execution on a 30YR between 4.25% (roughly 101.75) and 4.125% (roughly 101.15 - per a specific investor's pricing I can sell to) is 60bps. Now, comp structures work differently across companies, but that 60bps is going to cost the company $3,900 in this example. Yes, the company will still make about $7,500 on this loan, but that is the gross/total amount. Subtract that LO comp, which may or not have been dinged in this scenario, P/L costs, and any other expenses the company incurs, and that $3,900 you are missing now throws off target execution numbers and accounting must redo their budget if this becomes a regular occurrence.

"There are always three voices in an LO's head: the borrower's, their manager's/the company's, and their own that keeps them coming to work each day. The only way to ensure each party has the proper voice control is to have strict procedures regarding rates and impress upon your sales staff to make borrowers aware of changing rates or the effect locking rates has on their file."

Turning to the bond markets, to reiterate, Federal Reserve officials are deeply divided on the issue of when to start cutting the size of the central bank's bond portfolio, according to minutes from the Federal Open Market Committee's June meeting. Opinions ranged from "a couple of months" to waiting until December. We know this is going to happen, but what seems to be driving our rates this week is news from Europe.

Yesterday U.S. Treasuries, and MBS prices, moved lower in a curve-steepening trade despite a weaker-than-expected ADP Employment Change number and a drop in U.S. equities. Instead talk revolved around the break higher of the 10-year German bund yield out of its 6-month range, a better-than-expected ISM Services report & Challenger job cut number, and some volatility in crude oil prices. In the selloff, 10-year yields touched 2.39% (closing at 2.37%) but agency MBS prices held in there well by comparison.

Does anyone care about U.S. job numbers? This morning we've had the June figures: the nonfarm payroll number was +222k, topping forecasts, the unemployment rate was 4.4%, and hourly earnings were +.2%, more than forecast. Combined with May's numbers, the job market is doing pretty well. After this gaggle of statistics, we find the 10-year yielding 2.37% and agency MBS prices a shade better.