National Association of Mortgage Fiduciaries » State Law

Mortgage Lead Generation Firms Continue to Violate Federal and State Laws

mf — Thu, 15 Apr 2010 05:53:38 +0000

So here we go again. Now that mortgage rates are headed up, the deceptive lead generation ads are crawling back onto the web. Here’s a great example from a Google ad:

FHA Refinance 4.0% Fixed
$160,000 FHA mortgage for $633/mo. No SSN req. Calculate payments now!
MortgageRefinance.LendGo.com

When clicking through, the lendgo.com lead generation site asks some simple questions like the value of my home, zip code, whether or not I’ve ever filed bankruptcy, etc. Then I’m asked to provide personal information and assured that I’m dealing with a secure website. Name address, phone number, etc. After I click “submit,” I’m told that I will be given four quotes. I clicked ‘submit’ after offering them the following:
First Name: Your Ad
Last Name: Violates TILA
But I don’t get a quote. Instead I’m asked even more questions before being told that four lenders will contact me within 24 hours: Quicken Loans, Onyx Mortgage, Americash Mortgage Bankers (I’m thinking it was a seven beer night when someone decided on that name), and….I’m totally surprised here: Paramount Equity Mortgage.

So, Quicken, Onyx, Americash, and PEM, Are you aware that the lead generation company you’re using is violating the Truth in Lending Act and probably a handful of state laws by advertising a note rate without conspicuously including APR in that ad?

I bet someone at these mortgage companies assumed that no one would be able to trace the deceptive ad back to them. Nah, their chief compliance officer couldn’t be that stupid. Oh wait, maybe they don’t have a chief compliance officer. Or perhaps these big mortgage companies are just making a strategic business decision: Violate TILA and some state laws and if we get caught, we’ll just pay the fine and move on because we’ll be able to earn six times the amount of the fine anyways.

Regulators: You’re being tossed under the bus in Washington D.C. this week as banker after banker stands before various congressional committees telling the world that the bank regulators were asleep at the wheel. I’m not going to throw you under the bus. Why? Because there never will be enough money to regulate every single mortgage lending transaction across your area of authority. You’ve got limited resources and regulators are always trying to balance everyone’s needs and are constantly being pulled in 10 different directions at once.

So I’d like to give the regulators a helping hand.

If mortgage companies are buying leads from a firm that’s using deceptive advertising, you can write out 5 consent orders and be very efficient with your time. Just start clicking on all the banner ads! It will be easy and mildly entertaining for your staff! At the same time, you’ll help consumers avoid getting sucked into doing business with a company that has chosen a business model of attracting consumers who are an easy mark.

They fell for the click through ad. They believed there was a 30 year fixed rate mortgage available under 4 percent! If they were stupid enough to fall for this, then that means perhaps the mortgage company can also win all kinds of other shell games with these folks, who probably believe there’s a diet pill that will help them lose those last 10 pounds and that the secret to prosperity and abundance is to think thoughtful thoughts. Maybe that’s the secret to the housing market recovery: We can just “think” away all those short sale, REOs, and re-defaulting loan mods!

Here’s another one:
3.44% APR – Refinance Now
$200,000 Mortgage for $898/Month! As Featured on CNNMoney & Forbes.
DeltaPrimeRefinance.com

Oh my goodness! This lead generation firm actually quoted APR! Which would be a cause for celebration, until you click through and see that they’re quoting a 5/1 ARM loan, and then they also inform us that this might be a 15 year amortization. Of course the APR looks awesome. Regulators, it would be interesting to find out exactly how many people, after filling out the online lead generation form, decided to select a traditional 30 year fixed rate loan instead of an ARM loan or a 15 year amortization. Classic bait and switch. Like shooting fish in a barrel.

These lead generation companies appear to hold a mortgage broker or lender licenses in various states, yet the consumer information is sold to other licensed brokers or lenders.

Question: Are mortgage brokers, lenders and banks responsible for making sure the leads they purchased are generated by advertisements that do not violate state and federal law? If the answer is no, then deceptive mortgage lending advertising will continue to grow as long as brokers, lenders and banks are able to skirt law by purchasing these leads.

To the loan originators who regularily purchase these leads: we need to send you to Tiger’s rehab center and wean you off the crack. Deceptive ads are poison to the system and they make it harder for you to procure clients using advertising methods that are transparent, ethical, and legal.

Maybe the broker/lender/banker willl say “We sign a contract and it’s the lead gen company’s responsibility to make sure the leads are generated according to state and federal law.” If I was a regulator (and sometimes I like to put on a dark blue suit and high heels and pretend I’m a regulator in the privacy of my own home) I might say, in response, “So what method do you use to be certain that the lead gen companies you deal with are advertising according to state and federal law?”

Quicken Loans, Onyx Mortgage, Americash Mortgage Bankers and Paramount Equity Mortgage, all a rational, thinking consumer has to do is google or bing your company name with the word “complaints” in the search box like I just did and they’d have all the info they need. But the rational, thinking consumer is not your target market.

To the Students from the March 29-31 Prelicensing Class in Bellevue, WA

mf — Tue, 30 Mar 2010 04:42:51 +0000

Hi Everyone,

Here are the Q&As from Day 1.

There was a question about Errors and Omission Insurance available for loan originators. In doing research, I see that carrying this type of insurance is a requirement already in some states and in those states, insurance carriers have stepped up to offer the product. I can forsee a point in the future where lenders will require this in all states.

Here is a link to a good FAQ page on the new WA State Domestic Partnership Law with links to the final bill signed into law.

There was a question regarding whether or not we can originate Pay Option ARMs or ARMs with negative amortization in WA State and David W referenced a 2008 law. Here’s the RCW. Click on “negative amortization” to read more. See 19.144.050:

“A financial institution may not make or facilitate a residential mortgage loan that includes any provisions that impose negative amortization and which are subject to the interagency guidance on nontraditional mortgage product risks and the statement on subprime mortgage lending.”

To get the full answer, we need to refer to “the interagency guidance on nontraditional mortgage product risks…” located here, that was written way back in 2005. Interesting that when you read the NTM attachment at the bottom of the page, the FRB specifically excludes reverse mortgages but specifically INCLUDES interest only loans. So are we still doing interest only loans in WA State?

DAY 2

I promised a link to the Financial Crisis Inquiry Commission….and a blog post I wrote to them.

There was a question as to whether a person can still add an ”authorized user” to their account to help improve another person’s credit score. Here’s what the folks at FICO have to say about that.

Here’s a link to HUD’s Frequently Asked Questions PDF on the new RESPA changes. This page also has a link to the new HUD Booklet for the consumer.

…and here’s a link to a page on NAMF that has the links to all the state and federal laws for further review. Remember, for the sake of efficiency, it’s important to know the purpose of each law which is stated in the preamble.

DAY 3

Oh my. I found lots of consumer complaint articles about bankrate.com and some revolve around bankrate blaming the lenders for providing inaccurate info.

There was a request for more information on commercial loan modifications and commercial loan defaults locally and nationally.

There was a request to read more about HVCC (the Home Valuation Code of Conduct.)

Cristy was right. There is more discussion about further limiting loan originator compensation structure. Here’s a nice summary/testimony pdf. This rule has a better than 50% chance of passing due to the current political climate. We’ll have to keep an eye on this.

Well Nik called with his NMLS number so now you know I’ll be able to sleep tonight, and get ready for FRIDAY! Here’s some web surfing music tonight to keep you company from Muse and SSPU.

Distressed Property Law

mf — Wed, 18 Jun 2008 05:01:28 +0000

Mortgage Brokers and Loan Originators are exempt from becoming a “Distressed Home Consultant” when helping Distressed Homeowners refinance, unlike real estate agents who are subject to increased liability under the new Distressed Property Law. My question is, SHOULD mortgage brokers and loan originators be exempt? Please read this blog post and share your opinion. I know that no brokers or loan originator is going to automatically jump up and vote for increased liability, but do you see a possible loophole for LOs to target market and prey on distressed homeowners? Have you heard of anything like this happening in your market area?

Reverse Mortgage Loan Originations Caught up in New State Law Changes

mf — Tue, 17 Jun 2008 21:37:09 +0000

This memo was sent to me by a member of the National Reverse Mortgage Lenders Association:

Member Alert: NRMLA Trying to Resolve Licensing Issues in Washington State
June 2, 2008

Washington state recently passed legislation (SB 6471) that may impact non-depository lenders, as well as the correspondents, subsidiaries and affiliates of depository lenders who make reverse mortgage loans in that state. SB 6471 requires that all non-exempt lenders doing business in Washington be licensed by the Department of Financial Institutions under the Consumer Loan Act (CLA) by June 12, 2008. As of June 12th, lending will no longer be permitted under the Mortgage Broker Practices Act (MBPA). Lender entities generally exempt from this change are those operating under Washington or federal law as banks, trust companies, thrifts, and credit unions–but not their subsidiaries, affiliates or correspondents. A bill synopsis is available here.

The change in licensing administration impacts the reverse mortgage sector as the CLA requires its licensees to use the simple interest method (RCW 31.04.125(2)) to calculate interest, which according to Washington Administrative Code (WAC 208-620-010) expressly precludes the compounding of interest, or negative amortization. Since negative amortization is a key term of all reverse mortgages currently in the marketplace, we are concerned that implementation of this law would adversely impact reverse mortgage lending. We believe this is a result neither the legislature intended nor one that serves the best interest of Washington’s expanding senior population.
In fact, we believe this is an oversight on the part of Washington state legislators’ and are diligently working with the state legislators and the Department of Financial Institutions (DFI) to seek an emergency clarification that would exempt reverse mortgages from the CLA requirement that prohibits the compounding of interest. The DFI has been very receptive to our concerns and we hope for a quick and positive outcome to this issue.
In the interim, we recommend lenders who do business in Washington consult with legal counsel to discern how this change may impact your ability to continue doing business in the State, and we strongly encourage affected members to submit their CLA licensing application to the DFI prior to the June 12th effective date.
We will keep you appraised as things progress.
Erin Gulick
Policy Associate
202.939.1745

Live from the WA Mortgage Broker Commission Meeting

mf — Tue, 13 May 2008 17:06:34 +0000

I’m here at the Washington State Mortgage Broker Commission Meeting in Bellevue.

Licensing update: back in February of 2008 we had 1900 brokers in WA state with about 1700 branch offices. Now as of May 2, 2008 we are at 1500 licensed broker main offices with 1700 branch offices.

In February 2008 we had 13,000 licensed loan originators. Now, as of May 2nd, we have 7500 licensed LOs.

WA State new Licensing Program Manager Berri Leslie comes from Oregon.

Jim Brussleback, in charge of enforcement, was asked about complaints in relation to the industry’s hope that the “bad apples” were leaving the industry. The hope from the commission is that consumer complaints would fall as these bad characters left mortgage lending. Jim reminded the commission that even though a company or LO voluntarily surrenders their license, DFI may still decide to pursue action against that person or company.

Steve Bozik asks about the complaints regarding LOs. Jim says the majority of the enforcement actions revolved around the LOs license application and not necessarily regarding LO conduct.

Update on the May 7 Mortgage Broker Commission Meeting and SB 6471

mf — Thu, 08 May 2008 05:56:02 +0000

At the beginning of every law, there’s a preamble and then a set of definitions. Many of you know this: A mortgage broker is not a lender.
A lender is defined by federal law, RESPA, as an entity that makes loans. This means the entity has the money to fund the loans.

Brokers, by definition do not loan their own money. Instead, they’re middlemen who go out and find the mortgage money. The entity funding the loan is the “lender.” This definition comes to us via RESPA. Nothing has changed here, and I predict state law will mirror federal law.

In terms of state law, and in particular, SB 6471, it should now be made crystal clear to the consumer that a MORTGAGE BROKER IS NOT A LENDER.

Okay, fine. We got it. However, there’s one small problem. As I addressed in my four part series on the differences between a banker, broker, consumer finance company, and a credit union within the realm of licensed mortgage brokers we have a hybrid. A “correspondent lender” is an entity currently licensed as a broker, but they have their own warehouse line of credit with a bank. They can fund their own loans, and they can also broker out to other lenders, if they so choose.

Most correspondent shops are very well run, with onsite underwriting, training, auditing, and compliance departments. Currently, many hold a mortgage broker license. Some of these entities are exempt from holding a mortgage broker license because DFI has granted them an exemption certificate because they have direct Fannie Mae/Freddie Mac approval. Unfortunately, these companies with the exemption certificate, (DFI estimates that we have about 300 brokers with exemption certificates,) have been largely unsupervised at the state level. Senate Bill 6471 was supposed to close this loophole and bring all exempt brokers under the Consumer Loan Act.

Many correspondent lenders also broker loans in addition to closing them with their own warehouse line of credit. This leaves the correspondent lenders with a dilemma. Correspondent lenders have the option now of holding two state licenses, or just one. They can keep their license under the Mortgage Broker Practices Act and they also now must operate with a Consumer Loan license, or they can decide to just hold the consumer loan license.

This change affects only correspondent lenders.

Pure mortgage brokers, entities that ONLY broker ALL their loans, are not affected by SB 6471.

Correspondent lenders are mad as hell and many showed up at today’s meeting to express their shock and awe at having to pay an assessment to the state at .000180271% of their annual volume. Depending on the breakdown of correspondent-funded loans v. brokered loans, estimates provided by the correspondents at today’s meeting range from an additional $20,000 to $60,000 per year in fees that the correspondent lender will have to pay to the state of Washington each year.

Existing consumer loan lenders already pay this assessment. Realize though, that many consumer loan lenders loan money at much higher interest rates and charge much higher fees than traditional mortgage companies. Correspondent lenders argue that these higher fees will be passed on to the consumer. One lender present testified that he plans on adding this fee on to the consumer’s fee schedule on the Good Faith Estimate, calling it a “State Tax.” Guys: I’m pretty sure that you cannot honestly present a fee imposed on you, as a “tax.”

Correspondent lenders are also mad as hell for another reason: They must now swim in the same pool with Consumer Loan Companies…..those who we do not speak of. Those bastards that mortgage brokers look down upon. If there’s a hierarchy, it looks like this:

Banks look down on

Mortgage Banks

Who are seen as “less than” because most don’t carry bank deposits. Mortgage Banks look down on:

Correspondent lenders

Who are seen as baby mortgage banks, not fully grown up and ready to play hardball.

Correspondents are always looking down on:

Mortgage Brokers,

Who sneer in disgust as throw up a little in their mouths when they think of:

Consumer loan lenders

Who are seen as nothing more than pawn shops, payday lenders, and one step above the mafia.

Consumer loan lenders have been originating mortgage loans for quite some time. Ameriquest, Household Finance, Paramount Equity, American Equity, are all names of lenders licensed under the Consumer Loan Act who originate mortgage loans.

Now correspondent lenders and consumer loan lenders are swimming in the same pool. Correspondents must take care not to drink the water the CL lenders have peed in and avoid their floating turds.

And now they BOTH have a new punching bag: Brokers have now been classified as the pond scum, right? Wrong.

Because there’s a problem with this new hierchy.

Instead…….BROKERS actually take a step UP above correspondents, because brokers have stricter licensing requirements under the Mortgage Broker Practices Act.

So the hierarchy now looks like this
Banks
Mortgage Banks (what’s left of them)
BROKERS
Correspondents and consumer loan lenders

This is all about ego and money.

Correspondents: It’s now time to get busy figuring out how to separate yourself from your competition. In today’s meeting, over and over again, correspondents told the mortgage broker commission that they bring a great deal of service enhancements OVER pure brokers to the consumer. If that is so, then correspondents should not have a problem in the free market. If this is not the case, if correspondents do not bring added value, then the state legislature has called your bluff. Personally, I believe correspondents DO bring value to consumers.

I can think of at least five different ways to market this change to consumers in a positive way to gain market share. This is nothing but business at it’s finest. Government intervenes, and businesses must find a way to survive and grow. Correspondents will survive this change.

Most memorable moment:

After testimony from a correspondent who reamed consumer loan companies and called them “loan sharks,” Consumer Services Director Deb Bortner stood up, waved her hands in the air and reminded the audience that there are many, many fine consumer loan lenders licensed in WA state and one of them happens to be sitting right there in the room….on the Mortgage Broker Commission. Don Burton from Evergreen Home Loans smiled. John Porter from Mortgage Masters asked, “So Don, tell us the down sides of being regulated under the Consumer Loan Act.” Don said, ‘Well, I can’t think of any.”

DFI’s goal is to have definitions and a preliminary set of rules out for us to review by May 16^th.

Washington State Mortgage Broker Commission Meeting May 7, 2008

mf — Wed, 07 May 2008 00:57:31 +0000

There’s a Washington State Mortgage Broker Commission meeting tomorrow, May 7th at the Renton Community Center to discuss the impact of State Senate Bill 6471. This legislation ammends the Consumer Loan Act and Mortgage Broker Practices Act requiring all lenders to become licensed under the Consumer Loan Act (except those licensed under RCW 63.14)

This change in the state law was put in place to close a loophole. Some mortgage brokers were issued an exemption certificate by their regulator, DFI, because they had received approval as a Fannie Mae/Freddie Mac direct lender. Though still subject to the MBPA, these lenders, an estimated 300, were operating with no state regulatory oversight. This loophole is now closed.

Mortgage brokers are complaining loudly that this change will cost their firm lots of money. I would like to see the raw numbers on their estimates.

I will be attending tomorrow’s meeting, and if I can catch a wifi signal, I will blog live.

This does not appear to be a “closed” meeting since DFI is indicating that the room capacity is 100. I received no notice about this meeting, which is odd, since DFI is always very good about notifying all of us via their listserve.

Time: 1:00 PM
Location: Renton Community Center
Address: 1715 Maple Valley Highway, Renton 98057
Driving Directions

WA State Legislative Changes: SHB 2770, SB 6471, SB 6381

mf — Thu, 01 May 2008 00:50:08 +0000

The Washington State Legislature has passed three new laws that will go into effect June 12, 2008.

SHB 2770
Governor Gregoire’s legislation implementing the recommendations of the Homeownership Task Force. This legislation impacts Banks, Credit Unions, the Consumer Loan Act (CLA), and the MBPA. The bill addresses prepayment penalties, negative amortization loans, the federal guidance on nontraditional mortgage products and subprime lending, and makes mortgage fraud a class B felony.
SHB 2770 PDF
SHB 2770 Summary
SHB 2270 Final Bill Report

Interesting highlights from the Final Bill Report:

The DFI must adopt a disclosure summary understandable to the average person that includes:
• the fees and discount points on the loan;
• the interest rate of the loan;
• the broker’s yield spread premium;
• the presence of any prepayment penalties;
• the presence of a balloon payment;
• whether or not property taxes and property insurance is escrowed; and
• other key terms and conditions of the loan.

A residential mortgage loan may not be made unless the summary is provided by a financial institution to a borrower within three days of a loan application. If the terms of the loan change, a new summary must be provided to the borrower within three days of the change or at least three days before closing, whichever is earlier.

Steering
A person subject to licensing under the MBPA or the Consumer Loan Act may not steer, counsel, or direct any potential borrower to accept a residential mortgage loan with a risk grade less favorable than what the borrower would qualify for under the lender’s existing underwriting standards. The licensee must prudently apply the underwriting standards to the information provided by the borrower.

Prepayment Penalties
A financial institution may not make or facilitate the origination of a residential mortgage loan that includes a prepayment penalty that extends beyond 60 days prior to the initial reset of an adjustable rate mortgage.

Negative Amortization
A financial institution may not make or facilitate the origination of a residential mortgage loan
that is subject to the Guidance and Statement if the loan includes any provisions that result in
negative amortization for a borrower.

SB 6471
This legislation amends the CLA and MBPA. All lenders, except those making loans under chapter 63.14 RCW, must have a license under the Consumer Loan Act. Lending is no longer allowed under the MBPA. Read the FINAL BILL REPORT link below. There is a lot of concern and confusion over this change. More info is forthcoming at the next Mortgage Broker Commission meeting on May 13, 2008.

SB 6471 PDF
SB 6471 Summary
SB 6471 Final Bill Report

SB 6381
Establishes a fiduciary duty relationship between a mortgage broker and his or her client.

SB 6381 PDF
SB 6381 Summary
SB 6381 Final Bill Report

Other links:
Here’s a quick overview from the Wash State Housing Finance Commission.