Compliance
and technology are the name of the game, and Rachel Bell with Bicoastal
Consulting writes, "The CFPB has been very involved with MISMO and is
interested in using the mortgage standards. My concern was that if
the examination and enforcement end did not issue or enforce electronic best
practices then the banks would not have any motivation to embrace new
processes. I am working to have both ends of the CFPB deliver a consistent
message. In fact, I recently had a very encouraging chat with an individual
at the CFPB that I wanted to share. I had reached out in an effort to
discuss the recent originator examination updates that included the requirement
for an examiner to look for fraud in income and asset documentation. My comment
was why look for fraud (good luck in electronic documents) when you can use
authoritative source data (IRS, bank records, employer records) directly."
Ms.
Bell's note continued. "The conversation expanded into the general use of
electronic processes for better compliance and audit transparency (electronic
origination including eSign etc...). Whenever a consumer prints, signs and
uploads a disclosure or supporting document we are left with a 'black hole' in
the audit trail. The comment from CFPB regarding electronic processes and using
source data as best practice was 'that's just common sense' and 'no one wants
to deal with paper'. While he acknowledged the need to serve all consumers
either electronic or paper it was clear CFPB does understand the value of
electronic processes. While not yet ready to issue a best practice
doctrine, the CFPB did state they would encourage banks with issues to embrace
electronic processes and give examples of banks that are doing it right. After
10+ years of working on paperless, eSign and eMortgage initiatives it is
refreshing to have a regulator who 'gets it'."
Ms.
Bell is referring to Module 4 - Underwriting, Appraisals, and Loan
Originators, page 23, "UNDERWRITING: Ability-to-Repay
mortgages. 1. Determine whether the lender meets the requirement to consider
ATR for consumer-purpose, closed-end loans secured by a dwelling, and whether
the lender verified and maintains a record of the information it relied on.
Please refer to the TILA examination procedures for Section 1026.25(c)(3)
Records related to certain requirements for mortgage loans and to Minimum
Standards for Transactions Secured by a Dwelling - Section 1026.43, and Ability
to Repay - Section 1026.43(c), regarding TILA, 12 CFR 1026.43(c),for more
information." And page 24, "7. Review the loan file to determine
whether loan documentation, including income documentation, has been altered or
forged. Any indications of fraud should be handled in accordance with CFPB
internal consultation procedures, and examiners should refer them to other
authorities as appropriate."
Here
is a note, not unlike many others I have received, from an owner of a small
mortgage company in the South. "I, like many other small mortgage
lenders, cannot afford a $300,000 a year compliance department and all the risk
of repurchases. So after several decades in this business, and over 20 of
owning my own company, I am going to close my company and nearly all my staff
will go to work for a regional bank. But I am worried about the long term
risk on closed loans after I shutter this business. I find it very hard to
believe if I close the company and take all money out that they will come after
me personally. Fortunately the bulk of our loans have been sold to the same
bank that will be employing us, so my risk is not 100%. But I have sold to some
of the aggregators in the past 10 years, and am wondering if I am going to be
liable for buybacks."
This
is obviously a serious issue plaguing many lenders who are leaving the business
due to volume, margins, and costs, further concentrating lending in fewer and
fewer institutions. Given the legal nature of the question, I passed it along to
attorney Brian Levy with Katten & Temple, LLC (blevy@kattentemple.com)
who replied, "You are not alone in asking these questions (or in your
frustration with compliance costs). As a mortgage banking attorney who
often deals with repurchase issues (and compliance), the question of liability
for repurchase after a corporation or other entity is dissolved and/or
liquidated comes up occasionally. In each instance this is a question of
individual state law and the actual facts and circumstances around the
potential for additional claims. Under most states' laws, you cannot
escape a known or even reasonably likely liability of a company by 'closing
shop' and taking your money out. Some state laws may even require you
to notify creditors and potential creditors prior to liquidation. Whether
a third party creditor might sue an owner (or Director) personally for an
unpaid liability is uncertain, but depends on things such as the amounts
involved, what was known, whether there was an attempt to defraud creditors,
breach of duty, conflict of interest, and the perceived likelihood of success
and collection by the creditor. Again, since this is largely a matter of state
law that isn't just focused on mortgage lending, I strongly suggest that you
consult with an attorney licensed in your state that is familiar with
debtor/creditor and business issues generally."
Let's turn to some recent
lender and investor news - it just doesn't stop.
Plaza Home Mortgage is hosting
complimentary live seminars in Austin on March 26th and Houston on March
27th: Successful Selling to the Realtor Market with Dennis Black.
During each comprehensive 3-hour seminar, discover how to get 5-10 quality
Realtor relationships for 2014. This course will cover 5 key areas to a
successful sales strategy.
WesLend has
updated its Conforming DU and LP guidelines for modified/restructured loans to
require four years' seasoning, re-established credit, a minimum FICO of 680,
and at least 10% down. This option is not available for a property that
is currently owned by the borrower. For modified WesLend Direct and
WesLend AJ modified/restructured loans, two years' seasoning is required and
the LTV must be 80% or below. The VA guidelines for cash-out refinances
have also been updated to lower the minimum FICO from 640 to 620.
First
Community Mortgage has expanded its hours to allow certain products to be locked
overnight on normal business days. Eligible programs include Conforming Fixed,
Lender-Paid Mortgage Insurance, FHA Fixed, and VA Fixed. Loans may be
priced over the weekend but locking will be limited to the business week.
Shifting over to the markets,
rates improved slightly Tuesday. Yesterday we learned that Housing Starts in
the U.S. were little changed in February, about as expected, after declining
less than previously estimated a month earlier, indicating the home-building
industry is stabilizing after bad winter weather curbed construction. Most
attributed the Housing Starts news to the weather, but suggested that the
increase in building permits is a good sign leading into the spring home buying
season. The most important takeaway from this report is the bump up in single
family homes - a sector that is dire need of an increase in inventory. We also
had the Consumer Price Index, little changed in January and pretty much as
expected.
This morning we've already had
the MBA applications numbers (down about 1% last week), but the focus will be
more on the closing announcement from the Federal Reserve Open Market
Committee. We can all expect a shift from a quantitative approach to forward
guidance to a qualitative one, and another cut (taper) of $10 billion to the
monthly asset purchases. Specifically in MBS, outright purchases are
expected to decline to $25 billion in April from $30 billion in March.
Combined with paydowns, MBS buying should decline from the $2.3 billion per day
area to just over $2 billion in the first half of April as a result. And with
another $5 billion predicted in May, daily average buying is predicted to drop
to roughly $1.75 billion in the first half of May.
For numbers, the yield on the
10-yr closed Tuesday at 2.68%, and this morning it is nearly unchanged as are
agency MBS prices.
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