Connecticut's
1st Alliance Lending, LLC has been fined $83,000 by the CFPB
for violating Real Estate Settlement Procedures Act (RESPA) rules. 1st Alliance
apparently realized it had illegally split real estate settlement fees and
notified CFPB on its own of the infraction. 1st Alliance buys distressed
mortgage loans from servicers, and then attempts to refinance those loans into
new ones with lower principal balances through federally related mortgage
programs (similar to Ocwen). Initially it obtained its funding from a hedge
fund and split revenues and fees with the hedge fund's affiliates but ended
that in 2011 although continued to split origination and loss-mitigation fees
with the affiliates, a violation of RESPA which
bans a person from paying or receiving a portion or split of a fee that has not
been earned in connection with a real estate settlement. Read all about it because it's no longer good enough to turn in your competitor...
What
happens if a QM loan is found to be a non-QM loan, say through some points and fees miscalculation, by the
investor? As best I can tell, these loans currently cannot be cured. But
there is certainly a move in the inner ranks of the industry to allow specific
violations to be cured, somehow, depending on the reason the loan violated
QM. Many in the biz say that, from a high level, QM seems very reasonable and
is in everyone's best interest. But the fact of the matter is that if a
"QM" loan doesn't fit inside the box (points and fees exceed QM cap,
DTI over 43%, cannot obtain a GSE patch on 43% DTI, negative loan feature like
IO or prepayment penalty, did not determine the borrower's ability to repay), it
is moved from a "credit decision" to a "risk decision"
by the investor. Lenders know that loans can be profitably originated and
sold within the boundaries of QM. The problem is that it's not as easy as
it looks, and the devil's in the details: a processor clicks the wrong box and
the technology does not calculate the points and fees correctly, a borrower's
employment is terminated a day before the loan funds but after everyone
verifies income, an underwriter missed a lender announcement on how to document
assets and now the AUS cert is invalidated. I think the industry is
protesting because people make mistakes, and some of the old timers don't want
to transition to the 21st century. I would like to see a
better originator system of checks and balances for auditing loan quality.
On the other hand, although
some people did not take QM seriously many did their homework, and read all of
their investor's guidance on QM documentation, and personally audit each one of
the files for QM compliance before loans are sold. There will be a
learning curve and some expensive mistakes by the industry. And thus we find
capital markets staff dusting off the business cards for scratched & dented
loan buyers, and girding their loins for 70 cents on the dollar, or asking an
under-utilized LO to refinance the customer into a QM compliant loan if that is
an option.
Regarding the agencies auditing
files, Frank Fiore, president of Matchbox LLC, writes, "Your
comment in today's commentary is what scares me about certain lenders out
there. Anyone that looks to agency approval for the fact that Fannie does not
review their files as hard as Chase does truly does not understand the
implications or being agency approved. Selling direct to the agencies
requires a stronger set of QC and QA guidelines pre and post-closing. They
have to be able to ensure that the loan has been run through a more stringent
set of tests so that when that loan come back as a possible repurchase in 3
years from now, it can be defended. I advise all of my clients that before they
sell a file to an agency they should be able to mark it complete and be able to
support the closing of that file 3 years from now assuming no one that was
involved with the file is still with the company to "defend" the decision
to close. Any lender that is looking to the agencies as an easier outlet
than aggregators does not truly understand the possible repercussions that will
be coming in 6-18 months from now, if not sooner."
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