Overloading the borrower with
"CYA" closing documents is a big concern of lenders and regulators
alike. Over the weekend I received this note from Steve Sherwood, president of
Alerus Mortgage: "A wise attorney, when asked if the client should read
all of the closing documents said, 'If you make all of your payments on time
there is nothing in the documents that can hurt you. If you don't make your
payments on time, there is nothing in the documents that can help you'."
Well said.
Let's face it: lenders who
ignore compliance are doomed in the long run. Here's a recent quick note
provided by the Mortgage Bankers Association of the Carolinas regarding 1099
compensation to branch managers, written by Ari Karen of Offit Kurman and C 3 C
Compliance Solutions. "Many lenders still have relationships with branch
managers where, in addition to normal W2 compensation, they pay managers money
via 1099 for various expenses. This is particularly true where the
manager owns the building or equipment in question. Of course, there are
also scenarios where managers perform outside tasks for the branch, such as
marketing, etc. and receive 1099 compensation related thereto. Lenders
should be aware that 1099 payments have become a focus for auditors due to the
concern that it could be a vehicle for the payment of compensation that is no
longer permissible under Dodd Frank. Indeed, both federal and state
regulators are paying close attention to such payments attempting to ascertain
their legitimacy and basis. Of course, given the mandate to report
improper tax practices to the IRS, such payments are likely to be scrutinized
from that perspective as well."
The note continued: "To be
clear, all expenses should be paid directly by the lender whenever possible,
thus minimizing the need for reimbursements. In those cases where the
manager owns the property, a fair market value for the rent must be ascertained
based upon a comparative analysis and the 1099 payment should be limited to the
fair market range for the property in question. Beyond that, generally
speaking, no additional services or compensation should be payable outside the
manager's responsibility for the company. In other words, whatever
services are performed by the manager should be considered part of their job
and the compensation for such services paid as part of their employment related
wages. Commonly, managers want to receive money via 1099 for tax reasons and
write-offs. Unfortunately, with the increased regulation and scrutiny,
the risks from a banking compliance perspective - both for the lender and the
manager - have simply become too great. As such, lenders should reexamine
such practices and discontinue them when necessary." Thanks MBAC!
Servicing continues to be in the news. Last week, of course, the
New York Department of Financial Services (DFS) Superintendent Ben Lawsky sent
a letter to Ocwen as part of its ongoing examination of the company's
relationships with affiliates. Specifically, Lawsky's letter asks for
additional information regarding OCN's relationship with Altisource and
its subsidiary, Hubzu. As the letter states: "One particularly troubling
issue is the relationship between Ocwen and Altisource Portfolio's subsidiary,
Hubzu, which Ocwen uses as its principal online auction site for the sale of
its borrowers' homes facing foreclosure, as well as investor-owned properties
following foreclosure... Hubzu appears to be charging auction fees on
Ocwen-serviced properties that are up to three times the fees charged to
non-Ocwen customers." The letter requested responses to eight sets of
questions by April 28. It has become clear that the DFS' primary concern is
regarding OCN's affiliate relationships as opposed to the on-boarding of large
MSR transfers. Please see page 3 of this document for Compass
Point's cool "map" of OCN and its affiliated companies.
Secure Settlements told
clients that it has enhanced its Closing Guard agent vetting program to
encompass the verification and certification of agent internal controls.
This new feature helps lenders meet CFPB requirements that vendors have
appropriate data privacy and security and consumer protection policies
internally. SSI will be releasing on June 1st "QuickCheck
Professional", which will provide a detailed and automated background risk
assessment report on any third party vendor required by a lender to be screened
for risk. The report will cover appraisers, brokers, 203K consultants,
financial planners, credit counselors, real estate agents, property managers,
sub-servicers, collection agencies, REO companies and virtually anyone with
whom a lender is sharing any business and consumer information. All data is
verified and evaluated by risk analysts to provide the highest accuracy.
Fannie Mae has
clarified several requirements for lending in small towns and rural areas,
including allowing small lenders to be "excepted" under AIR when they
are not sufficiently staffed to have a distinct separation between production
and quality assurance functions, provided that they can demonstrate documented
safeguards and processes to separate their collateral evaluation processes from
origination processes. With regard to appraisals, appraisers of
properties in towns with few sales may travel greater distances to appraise
comparable properties or use older transactions if they provide a thorough
narrative that covers current market conditions and available market data along
with the analysis of the subject property. Adjustments may also exceed the
usual 15% net and 25% limits on variations from the comparable sales price.
We can't even have a definitive
measure of the whether or not the housing market is doing well or not. Last
week the markets were focused on poor home sales, but noticed that the prices
had gone sky high. Yesterday we learned from NAR that contracts to purchase
previously owned U.S. homes climbed in March by the most in almost three years,
showing residential real estate was starting to stabilize entering the spring
selling season. Pending Home Sales were up 3.4%, the first gain in nine months.
To be frank, there was no earth shattering news Monday to move
the markets, and it decided to sell off slightly rather than rally slightly. It
happens, right? Today the markets will have a little more to chew on: 8AM CST's
February S&P/Case-Shiller Home Price Index, which is expected a bit lower,
and 9AM CST's April Consumer Confidence numbers. For numbers, we saw a 2.68%
yield on the benchmark 10-yr T-note at close on Monday, and in the early going
it is now 2.72% and agency MBS prices are worse about .125
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