To the Students from the October Loan Originator CE Classes

Hi Everyone,

Here’s the follow up from the LO CE class you attended.

I mentioned a news story about ethics and emotion. Interesting that cheaters feel good when they cheat.

There was a question: What does Texas OCCC stand for?
Answer: Texas Office of Consumer Credit Commissioner

Here is a link to the CFPB Consumer Compliant database. There’s a menu running across the page, not at the top but near the top. It’s inside a gray table.  It says “Data By Product.”  For the dbase we played around with, click on “mortgages”

For branch managers, here’s the link to the proposed Social Media Guidelines. See the link at the bottom of the press release.

If anyone is interested in using these upcoming 2014 changes to be a trusted advisor w/your Realtors, here’s the new 2014 combined GFE/ TILA and also the new HUD 1. I think it would be helpful to Realtors to know about this change.

Here’s a link to the CFPB website with more info on all the Dodd-Frank rules and when they will go into effect.

Q: How is the Total Interest Percentage on page 3 of the new GFE calculated?
A: The Total Interest Percentage disclosure is mandated under Section 1419 of the Dodd Frank Act so the CFPB does not have the option to exclude it.

First figure out the total interest paid over the life of the loan as follows:
Principal and Interest x the loan term
761.78 x 360 = $274,241.

Now take the total interest paid over the life of the loan and subtract out the principal amount of the loan:
$274,241. – 162,000 = $112,241.

$112, 241 represents the total interest paid over the life of the loan.
Now take the total interest paid over the life of the loan and divide by the principal loan amount:

112,241 / 162,000 = 69.28%

This doesn’t quite match the GFE example given to us by the CFPB. So what’s missing? Prepaid interest. Add that in as part of the interest and your math should match.

Here  is a link to the website from our non-traditional lending case study: Net Life Financial.

and can you teach me how to recover real slow….This is a great video by student Chris from Guild. WOW!

To the Students from the SAFE Mortgage LO Pre-Licensing Class on July 1-2, 2013

There was a request for a link to see what the 2014 Combined TIL/GFE disclosure form will look like next January

Here’s the official FTC Memo on the MARS Rules

During our mortgage fraud review I mentioned a great article on Shawn Portmann.

Slide decks for FHA loans and also the full 2-day class can be found on Slideshare.

For those seeking additional reading material for studying, here’s a hint. The NMLS publishes a list of all the content that is covered in the exam along with links to the content.  It is heavy reading but here you go. Scroll to the very end of this document for all the links.

If you’d like to see a list of and links to all the federal laws governing mortgage lending go here and scroll down to the bottom of the page:

Here’s one of many HUD memos on Maternity Leave

Thanks for coming to class! I enjoyed meeting all of you! Keep Studying!

To the Students from the May 31, 2013 LO CE class at Best Mortgage Bellevue

Hi Everyone,

Here’s the follow up from Friday’s class.

Q: Where can I get more info on the liability of originating QMs v. non-QMs?
A: Here is the CFPB Compliance Guide. Go to page 26 for the Safe Harbor explanation on the two types of QMs, regular and higher priced.

Lenders are strongly dis-incentivized to originate non-QMs in the new rule though the reports and articles I’m reading don’t specifically state that our liability is higher when we originate non-QMs it is implied everywhere.  This article in the WSJ gives some insight.

Here is a link to the CFPB Consumer Compliant database. There’s a menu running across the page, not at the top but near the top. It’s inside a gray table.  It says “Data By Product.”  For the dbase we played around with, click on “mortgages”

There was a request for NACA’s default rate. Although there are many articles all over the web quoting their low default rate, I can’t find one source for it on their website. The event I attended had several NACA reps there and they answered my question live.  Here is the article I wrote for anyone who did not have a chance to read it.

Q: Can mortgage brokers pay their LOs commission under the new LO Comp plan coming in 2014?
A: Here is the CFPB compliance guide. Go to the bottom of page 4. The old FRB rules on LO comp from 2011 are still in place—no steering consumers into lesser-quality loans or steering consumers to loans only to be given higher compensation (the old YSP or overage.)  <–All of that is still prohibited.

RE the Shawn Portmann case, I had thought the FDIC was going after PC bank’s board but I was wrong….Instead the FDIC is going after the executives from CityBank in Lynnwood, one of Shawn’s former employers before he went on down to Tacoma.

To the Students from the May 14, 2013 LO CE Class at Rockwell

Hi Everyone,

Here’s the follow up from today’s class.

Here’s the article I wrote about NACA as published on Seattle Bubble. NACA is the org that’s bringing their zero down loan to town soon.

Here’s the link to the proposed Social Media Guidelines. See the link at the bottom of the press release.

Here’s the new 2014 combined GFE/ TILA and also the new HUD 1

I have asked the powers that be about the dedicated mortgage fraud prosecution account and where that money went….when I hear back I will post the answer.

Q: Who pays for the cost of the counseling on a HPML?
A: Consumer must receive initial GFE or open-end plan disclosure before counseling…

• Counselor must not be affiliated with creditor

• Certification must state that (1) consumer counseled on loan advisability based on terms in GFE, and (2) counselor verified consumer’s receipt of required HOEPA 3-day “cooling off” notice or RESPA disclosures

Creditor may not “steer” consumers to a particular counselor

• Creditor may pay for counseling, but may not condition payment on extension of credit

• Creditor may finance (bona fide 3rd party) counselor fee paid by consumer

New SAFE MLO Test with Uniform State Component Plus More LO Pre-Education to Start April 1

Washington State has adopted the new uniform SAFE loan originator licensing exam and our state will begin delivering this new exam April 1, 2013.  Read more here.

This means loan originator candidates will take just one exam instead of a federal exam and then another Wa State specific exam.

In moving to the Uniform State Exam, Washington State Dept of Financial Institution has adopted new rules to increase the number of pre-licensing hours of education for new loan originators.

The way it is today:
20 Hours of Pre-Licensing Education (to prepare you for the National Exam)
2 of which are Wa State Law (to prepare you for the Wa State Exam)
some course providers offer the 20 hour class plus a separate 2 hour class on Wa Law.

The way it will be April 1, 2013 for Wa State LO candidates:
22 hours of Pre-Licensing Education (to prepare you for the National, Uniform State Exam)
4 of those hours on Wa State Law
some course providers will offer the 20 hour class plus a separate 4 hour class on Wa Law.

How I will do it:
I have a stand alone 20 Hour Pre-Licensing class which is approved for all 50 states.
I have a stand alone 2 Hour Pre-Licensing Wa Law class.
I will write a separate 4 hour course on Wa State Law for new LO students who will be able to take this course as of April 1st to meet the new requirement.

The national exam will be tougher than it is today and we should always expect standards for licensing, pre-education, continuing education, and exams to continue to rise.

I sent detailed feedback to Wa DFI with my recommendations for even more classroom time needed for people who are brand new to the industry, and I also recommend less classroom time for people who currently work for a depository bank and just need to take the class and pass the test to make a switch to a non-bank lender or mortgage broker.  But I don’t get to make the rules.

At the present time I teach a 2 day class. In 2010 I taught the pre-licensing class as a 3-day class and had many, many requests to squeeze it all into 2 days.  Two, 10-hour days and soon, Two, 11-hour days is just plain nuts for a brand new person yet most new people do not want to take 3 days off from their existing job/life to take the course.  Arguably expenses for a trainer are higher with a 3 day course. Think room rental fees and lost opportunities to make money elsewhere on that third day.  So I will keep the class as a 2-day class for now but it is definitely a LOT of info to cover in 2 days.

Recommended reading:

SAFE 20-Hour Pre-Licensing and Exam Prep

Why some loan originators are not passing the national exam

FAQ about the pre-licensing class




To the Students from the Oct 17, 2012 LO CE Class at ORT Lynnwood

here are always two bottoms to a housing market. Here’s a great article that explains the first (new construction home starts) and the second bottom (home values.

Here’s a link to where I get all my cool graphs and charts.  Many thanks to Bill McBride who runs Calculated Risk.

Here’s the article on FHA’s solvency. What’s the plan if the FHA mortgage insurance fund runs out of money?

Here is a link to our new federal mortgage regulator the Consumer Financial Protection Bureau.

Here’s the Seattle Weekly story on the local Shawn Portmann mortgage fraud case. And here’s the latest: Shawn Portmann Pleads Guilty.

Here’s the new Wells Fargo lawsuit accusing FHA of mortgage fraud with their FHA loan program.

…and the Morgan Stanley lawsuit alleging racial discrimination in their subprime lending practices during the bubble.

Here is the press release posted on 40 companies served w/consent orders for harming homeowners in WA State via foreclosure rescue fraud scams.

I’ve been looking for USDA delinquency stats….and I think I found them here. 

Google Translate link 

Here’s the Language Line link.

LATE CE Courses for LOs Now Available

NOW AVAILABLE: LATE CE for LOs who missed the Dec 2011 renewal deadline.
Call 206-931-2241 for more info or check our schedule page for live classes.

This is the required course needed during 2012 to renew an expired LO License

LATE CE 8 Hr SAFE Comprehensive NMLS Approved Course Number 2716 (approved in all 50 states)
LATE CE 1 Hr WA State Law CE NMLS Approved Course Number 2715
Course Description:
4 Hours Federal Law
2 Hours Ethics, Consumer Protection, Fraud, Fair Housing
2 Hours Non-Traditional Lending
1 Hour WA State Law
In this course we will review the Federal Reserve Board’s rules on loan originator compensation prohibitions and the Dodd-Frank Reform Act including the new Consumer Financial Protection Bureau, LO compensation limits coming under Dodd-Frank, and definitions of non-standard loans, high risk loans, and qualified residential mortgages (QRMs).  In addition we will:

Learn why overages and yield spread premiums have been deemed unfair
Become aware of how unethical business practices can result in legal consequences
Understand the new “duty of care” required by loan originators
Learn about the most recent HUD Fair Housing proposed protected class

Schedule of upcoming classes
End of Course Evaluations

“Because the participants were far more experienced than me, I learned a great deal.”
“Very informative about the upcoming law changes. Loved the ethics case studies.”
“Kept my interest for the whole 8 hours. Good case studies, which I enjoyed the most because they tie the federal law changes together with the reasons WHY we have the new laws.”
“Case studies are an added benefit.”
“Fantastic, interactive class. Loved learning more about the FRB and Dodd Frank Act.  The coming changes are crazy and our industry has to get our head wrapped around them ASAP. Glad I came to class.”
“Excellent discussion/lecture mix with group time and case studies showing us real court cases that resulted in our new laws.”
“Jillayne is excellent in explaining the issues and keeping participants on track/on topic.”

To the Students from the July 11-12 Mortgage Pre-licensing Class

Hi Everyone,

Here’s the follow up from some of the questions and discussions from class today.

Here’s a recent blog post on those Cash Call radio ad
Interesting that Cash Call is in trouble with the AG’s office in California. Read more here.

I mentioned these movies during the course of both days:

There Will Be Blood

Charlie Wilson’s War

The Kite Runner

An Education

Red Dragon


Here’s a fantastic interview between Jon Stewart and Elizabeth Warren, the head of the new CFPB.

We talked a bit about the CSBS and the AAMR. Here’s the announcement regarding their published guidelines on non-traditional loans.

Here’s HUD’s FAQ booklet on RESPA. If I were a test writer, this would be a fantastic source for possible test questions.

And then we have the story about Fidelity Title paying a 4.5 million dollar RESPA fine to HUD yesterday.

Here’s the story about the ECOA violations at Cornerstone Home Lending….this story mentions the mortgage insurance cmpany involved.  Here’s the HUD Memo on the Fair Housing violation.

Are the Cash Call radio ads advertising a “no fee” loan deceptive?

I listen to 97.3FM and am a longtime listener of Dave, Luke, Dori (accidentally listening since 1995), Ron, Don, John, @thenewschick and @joshkerns38. I am so sick and tired of hearing the Cash Call radio ads that everytime one of the ads run, I feel the need to switch the dial over to satellite radio and I’ve been meaning to write this blog post for many months so here it goes. 

Radio listeners: There’s nothing inherently wrong with mortgage companies that advertise on the radio. This is one business model of many but realize that radio ads are not inexepensive and there are a few ways that a mortgage company can pay for their advertising. One way is to charge you higher interest rates.  But wait, how could they do that when they’re advertising low, low mortgage rates? 

The answer is one you will not want to hear but I’m going to tell you anways:  The rates advertised are likely NOT the rate that you will get.  The rate advertised is for a loan program that only a very small percentage of people will qualify for.  People with credit scores above 740. People with lots of equity in their homes, people who want a 10 year mortgage, or in the case of Cash Call, people who ONLY live in the state of California.  That’s right, the radio ad that’s running in Seattle comes with one caveat: It’s only avail for California borrowers.

To their defense, the Cash Call radio ad airing on 97.3FM does state that the rate and APR advertised are for a 10 year mortgage but realize that only a very small percentage of people calling that firm will end up with a 10 year mortgage.  This might come very, very close to a classic bait-and-switch scheme without crossing over the line but we don’t have enough facts to make that determination.  Instead the reason for their radio ad is to motivate radio listeners to pick up the phone and call. 

So, who’s on the other end of the phone?  The answer shows us another way companies that advertise on the radio make money. 

Any consumer who is curious about the licensing status of their loan originator can use the Nationwide Mortgage Licensing System’s Consumer Access website to check on the status of a mortgage company or individual loan originator.  When searching for the company name CashCall you’ll see many, many licensed LOs, okay that’s good. But dig a little deeper and you’ll notice that each person’s employment history contains many months of unemployment right around the subprime meltdown and lots of jobs held at subprime shops or other companies that only do radio or TV ads…Ditech, Amerisave, Countrywide, and other low wage side jobs outside of the mortgage industry.  That leads to the second part of how these companies make money advertising on the radio.

If they can’t offer you the lowest rates they’re advertising, then another way to make money is for the radio-advertising mortgage company to pay their loan originators a really low fee.  This is justified by the firm because…the company is making the phone ring! All the LO has to do is sit there, answer the phone and close the customer.  This is loan origination at its worst and if you don’t believe me just simply google:  Cash Call Complaints or Quicken Loans Complaints and see how many dis-satisfied customers they’ve left in their wake.

Homebuyers and refinancing homeowners should be wary of ANY mortgage lender that operates out of state and has no physical prescence in your state and if they did have an office here, why aren’t you working with a local person? 

Homebuyers and refinancing homeowners should always check the licensing status of their loan originator here and if their LO is not in the NMLS system ask WHY and ask to speak with their manager. Mortgage brokers and non-depository mortgage lenders must license their LOs. Depository bank LOs begin registering their LOs within the NMLS system this year. Maybe the person on the phone calls himself/herself an intake specialist or a loan something or other. Ask to speak with a licensed LO. If there are no licensed LOs then you’re probably dealing with a lead generation company and I’ll do a serious smackdown on lead gen firms in another blog post.

Companies like Cash Call and Quicken hire the loan originators who have no client base, don’t want to work hard enough to earn repeat business, only work part time, will work for a low wage, and/or are paid to close deals and not serve the best interests of their clients.  Do you want low rates? Go ahead and use one of these companies but you should have extremely low expectations of your rate being as verbally promised or the transaction closing at all. Expect pain and suffering. Some people pay extra for that, but now we’re getting off track.

Do you want your transaction to close? Select a loan originator based on his or her experience and knowledge. Choose a local company with a loan originator located right in your city so you can go into the office and meet with him or her face to face at application.  Yes, this will take time. Do you want your transaction to close and also get a fair interest rate? Then that means you will have to invest some time into understanding your options and understanding the documents you’re signing and that means human interaction whether that’s email, text or facebook messages.  You will need someone to respond to your questions who knows what they’re doing.  It is impossible to be a part time loan originator and serve your clients efficiently because there are far too many changes taking place on a daily basis.  A part time salesperson’s time and energy are split between many competing interests and self interest will typically win out every time. 

Kiel Mortgage radio ads are great. The radio ads from TILA Mortgage have improved over the years.  Best Mortgage’s ads are fine.  These are all LOCAL Seattle area companies with local loan originators and company owners who have been serving homebuyers and homeowners for decades.

I notice that on the Cash Call website, and on KIRO 97.3 FM, they’re advertising a “no cost” mortgage loan.  Folks, there is no such thing as a zero cost loan.  It doesn’t exist unless you’re doing a straight interest rate reduction refinance with your same lender, going through that lender’s loan servicing department and I think it’s even rare that that would happen nowadays with so many banks and lenders immediately selling everything to Fannie Mae or Freddie Mac.  Mortgage loans will always have fees and costs involved.  Some of those fees will be to the bank funding the loan, other fees will benefit the loan originator helping you, and still more fees will go to third parties.  Any company that tries to sell you a “no fee” mortgage loan is lying to you. The fees ARE being charged….they’re just being covered by a higher rate or they’re not telling you about the other third party fees that you’ll pay at closing unless you decide to read the fine print. 

So the opening call-to-action phrase on the Cash Call home page is a lie, the radio ads are deceptive and their loan originators are sub-par. I’m sure they’ll make several million dollars this year, pay a very small percentage of their profits in fines, and keep on using the radio to find more rate shoppers.  It’s a business model that works. Expect more copycats.

8 Hour SAFE Comprehensive Continuing Ed Course Plus 1 Hour WA State Law CE

8 Hr SAFE Comprehensive NMLS Approved Course Number 2146
1 Hr WA State Law CE NMLS Approved Course Number 2089
Course Description:
4 Hours Federal Law
2 Hours Ethics, Consumer Protection, Fraud, Fair Housing
2 Hours Non-Traditional Lending
1 Hour WA State Law

In this course we will review the Federal Reserve Board’s rules on loan originator compensation prohibitions and the Dodd-Frank Reform Act including the new Consumer Financial Protection Bureau, LO compensation limits coming under Dodd-Frank, and definitions of non-standard loans, high risk loans, and qualified residential mortgages (QRMs).  In addition we will:

Learn why overages and yield spread premiums have been deemed unfair
Become aware of how unethical business practices can result in legal consequences
Understand the new “duty of care” required by loan originators
Learn about the most recent HUD Fair Housing proposed protected class

Schedule of upcoming classes

End of Course Evaluations from previous years:
“As always…awesome! You make it fun and interesting and I always learn something new.”
“I liked the class participation, open discussion and quizzes. This kept us engaged and time flew.”
“The best part about this class is that it went by really fast and we got all our CE hours done in one day!”
“Jillayne is informative and keeps the class moving. Simply an exceptional instructor.”
“Great class.  I honestly dreaded coming today thinking class was going to drag on but time flew by, we actually had fun learning all the regulations and getting this over and done with in one day feels great.”
“Excellent class. Good case studies, good dialogue among students.”
“This is the most comprehensive class out there for mortgage lending.  Not only is the instructor informative and up to date but she also teaches in a fun and motivating way.  Thank you for being an LO advocate.”
“I have always enjoyed your classes and this one was outstanding.”
“I am very happy that I now understand the new RESPA and TILA rules. Ethics is always a pleasure and court cases seemed unjust toward the loan originator at first but now I understand why the LO/Broker was sued.”
“Enjoyed learning more about non-traditional lending. As a broker that generally handles only conventional loans, this information was very informative.”
“Ms. Jillayne helps me to understand and remember TILA and RESPA. She is always energetic and there are no dull moments.  I always return for her classes.”

To the Students from the April 4, 2011 Prelicensing Class

Hi Everyone,

Here are links to some of the topics we covered today.

Here’s that great NPR radio segment called “The Giant Pool of Money.”

More on Pay Option ARMs.

Barry was right; Kant did live in the 1700s.

Here’s the story about the Russian orphan who was sent back to the orphanage.

Here’s more info about the Sea King Co Assoc of Realtors Young Professionals Network.

Here’s reading material on AAMR (American Assoc of Mortgage Regulators) and their Guidelines on non-traditional lending.

DAY 2 Federal Law Review/Exam Prep

We heard a story about a bank offering a RESPA violation-type kickback to a builder.  Anonymous whistleblower complaints can be sent to:

Jim Siwek with the Seattle HUD Office of the Inspector General’s office.

There was a question on when the VA Funding Fee is waived. Here’s the answer.

There was a question about escrow reserve account tolerances under RESPA.  I didn’t find the answer here, in HUDs FAQ on the new RESPA changes…but I do see the answer here….$50.

We had a chat about professionals v. non-professionals v. emerging professionals (LOs are classified as an emerging profession.) Here’s an article I wrote on this subject back in 2007.

There was a question about how long derogatory information such as late payments stay on a person’s credit history. The answer is here.

To the Students from the Jan 24/25th Exam Prep class

Hi Everyone,

There were many different requests for reading material so here it goes:

There was a request to read about the history of Fannie Mae.

Someone asked for more reading material on the Red Flags Rules. The best source on that topic is the Federal Trade Commission’s website.

Here’s some reading material on the Do-Not-Call Registry and the Telemarketing, Consumer Fraud and Abuse Prevention Act

Here’s more reading material on the three normative moral theories.

Anna asked for the CSBS Guidelines for Non-Traditional Mortages.

Loan Originator Says “I’m Entitled to Overage! How Will I Survive 2011?”

This is a good representation of the emails and blog comments I receive daily on the topic of loan originator compensation:

Dear Jillayne, I read your article because I am trying to determine when the loan originator compensation limits will go into effect and what I’m going to do if this acutally happens. As an LO for 10 years, I take great pride in being a member of the lending industry and in my opinion, I have provided an invaluable service to my customers over that period.  I will also admit to having earned the ocassional “overage” in a transaction.  I did not price my loans to make overage, however if the par price paid less than 1% (as often happened because of the rate sheet) I felt I was entitled to do it.

I do take issue with you on the amount of work that an LO does to earn their compensation, a competent LO not only takes the 1003 loan application, I take an appropriate amount of time on the front end of the transaction to thoroughly explain the loan process. I tell customers exactly what they can anticipate.  I then take a complete application and discuss what documentation will be required and why. I spend at least 2 hours reviewing every disclosure, state and federal, that they are signing.  I then collect all documentation, prepare the loan package, sort the package to a stacking order, order title, order appraisal, register the loan and submit to processing.  I get the conditions which I discuss with the processor, and then collect the conditions and submit for final approval.
My company has just announced that they are discontinuing payment of all overage effective January 1, 2011.  Regardless of your opinion on overage, it is a significant component of any LO’s income.  While we can debate whether it should or should not be, the fact of the matter is, it is!  The companies are not going to increase my compensation to account for that loss in income, and I find myself having to generate 50 or 75% more sources to find loans.  How would you approach that change in your income?

Dear Entitled to Overage,

We exchanged two emails in which I asked you how many hours you spend, on average per file and I also asked for your average loan amount.  E2O, you said you spend an average of 15 hours originating each loan and your average loan amount is $175,000.  Let’s do the math.  I’m going to estimate that in today’s competitive market, a loan originator would be hard pressed to get away with earning more than a 1 percent loan amount with a 1 percent overage

Let’s pause and quickly educate readers on overage income: This means marking up the wholesale interest rate and selling the consumer a higher interest rate at retail rates. The lender funding the loan, who is very happy that you’ve sold a much higher rate, rewards the loan originator by paying them a percentage of the loan amount at closing.  Mortgage broker LOs disclose ALL their compensation on line 1 of the Good Faith Estimate.  Mortgage banker LOs do not have to disclose this overage income as of today. However, two rules at the federal level will change this come April 1, 2011: The Federal Reserve Board Rule and Dodd-Frank Wall St Reform.  More on LO Compensation limits in a future blog post.

So E2O, I’m going to estimate low. Let’s say you currently feel entitled to make 2 percent of the loan amount as your fee for working 15 hours.  That’s $3500. Let’s divide $3500 by 15 hours.  That comes out to $234 per hour.  Please help me understand how a position that does not require a high school diploma is worth $234/hour?  If a person making this kind of hourly wage works a full, 40 week, that means this same person is grossing $486,720 per year.  No wonder loan origination attracted so many people who were only in it for the money.  LOs could work as little as 10 hours a week and make a comfortable living.

Let’s get back to your question. You’re saying that your company is going to take away your ability to earn the hidden “overage” income immediately and you’d like my advice on how to approach that change in income. 

First of all, I highly doubt that you’re working a full 40 hours per week.  If indeed you were actually working that hard, you’d have more business sources than you’d know what to do with so my first suggestion is to honestly reflect back on how many hours you actually spend working on the job of origination.  Subtract the hours spent going to the gym, talking sports with the guys over coffees or beers, subtract the hours spent on Mortgage Grapevine and the right wing political conspiracy blogs or Huff Po or wherever you’re currently wasting time and look at the bare bones number of hours spent talking with past clients, getting off your butt and into Realtor offices drumming up business.  My first suggestion is to work harder.  Don’t like that? Go find another job in another field that will pay you $233/hour.

Second suggestion: Ask yourself how much you love mortgage lending.  If you’re only in mortgage lending for the money ONLY, then my second suggestion is to leave the industry. That’s right, get out of mortgage lending and go do something that you really love.  Life is short (and life is long. It’s a paradox.)… life is too short to spend it in the mad, mad, mad world of mortgage lending unless you love what you’re doing so much that you wouldn’t dream of spending life any other way. This is the choice in attitude it’s going to take to get you through 2011 and beyond. 

Third suggestion: If indeed you really, truly are worth $233/hour then go ahead and charge that! Charge your clients a 2 percent loan origination fee on line 1 of the Good Faith Estimate and when they shop around and find a lower interest rate and lower loan fee, explain to your clients the reason why you are worth that amount.

Fourth suggestion: Accept that you’re not worth $233 an hour.  Why? Because if you were, you wouldn’t be asking for help.  Banning overage income is going to separate the men from the boys and the women from the girls.  Loan originators: You never were worth $233 an hour as a brand new, unexperienced loan originator.  All it takes to get a license is a 20 hour prelicensing class, passing a background check and a national and state licensing exam, and to not have any felony convictions in the past 7 years. And if an LO wants to work at a depository bank, NONE of that is required!  No loan originator is now or was ever worth $233/hour when they are first licensed.  Maybe an extremely experienced LO with, say, 25 years experience (which means they entered the industry before the subprime lending era) is worth that much.  Why? Because he/she can originate a loan IN LESS THAN 15 HOURS.  That 25 year veteran knows his/her products, knows FHA/VA/USDA, knows the FHA 203K Program which will be highly used as soon as more REOs hit the market. That 25 year veteran has seen the rise and fall of the Savings and Loan crisis, has seen many refi booms, has lived through countless underwriting guideline changes, as lived through the same amount of federal law changes, and has the experience, maturity, and knowledge to help a wide variety of clients.  This loan originator is very valuable.  A brand new LO was never worth $233/hour and one of the big mistakes company owners made was to recruite people through greed to be LOs.

Fifth suggestion: Now that you’ve accepted that no green LO is or was ever worth $233/hour reset your own worth. If it seriously takes you 15 hours to originate a loan, I’d say that you don’t know as much as you think you know (this is very common for LOs who were hired during the subprime era) or you need to learn how to work more efficiently and spend more of your time procuring new clients.  Don’t like Realtors? The majority of LOs who were birthed in subprime boiler rooms despise all Realtors because Realtors tend to hold LOs accountable.  So if you don’t like Realtors and you don’t want to work harder to procure more clients…..

E20, my sixth suggestion is to accept that your value to your company is much less than you think it is. Reset your lifestyle and spending patterns to match your worth to your company and client, or prepare to work harder and smarter in 2011 and beyond.

Readers, re-do the math with different front and back end compensation numbers as well as different loan amounts.  The income LOs have been earning has been way too high….for the amount of time spent per file compared with what it takes to become an LO.  We won’t find banks arguing to keep LO compensation limits high because what the bank doesn’t have to pay an LO the bank can keep for itself. Welcome to mortgage banking. Don’t like it?  Then I suggest you open your own bank or mortgage bank and now you can keep the profits for yourself.

To the Students from the Dec 21, 2010 Exam Prep Class

Hi Everyone,

Here’s the follow up from today’s exam prep class.

There was a question about penalties under Section 8 of RESPA:

“Violations of Section 8’s anti-kickback, referral fees and unearned fees provisions of RESPA are subject to criminal and civil penalties. In a criminal case a person who violates Section 8 may be fined up to $10,000 and imprisoned up to one year. In a private law suit a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.”

There was a request for more reading material on subprime lending. Our state adopted the AAMR guidelines and we can read about it here and here.

There was a request to read more about the age protections under ECOA.

There was a request to read about FHA 2-1 buydowns.

The three, normative moral theories are virtue/values, duty, and Utilitarianism (also known as consequentialism.) Some of you have had an ethics class from me in the past and you’ll remember these theories from the class.  You can read more about them here.

There was a question about how to calculate an “interest only” mortgage payment.  The easy formula is to just go with per-diem (day) interest:

Per diem interest is calculated as follows: Principal loan amount x rate divided by 365. Now that you have the daily interest you can go backwards and multiply that number by 365. Divide by 12 to get the monthly interest only payment.

and here is your answer from the FBI regarding the penalties and fines for mortgage fraud. You will see this on the exam! copy/paste right from the FBI.

There was a request for a link to HUDs FAQ handbook on RESPA and the changes to the new GFE.  This handbook would make an excellent source of questions if I was a federal regulator writing your test questions.  Granted, some of these Q&As have more to do with escrow and the HUD -1.  Scroll through the handbook as you’re studying, especially if you need help with RESPA.

….and here’s a link to the FTC’s Red Flags Rules.

To the Students from the Dec 13, 2010 Exam Prep Class

Hi Everyone,

Here’s the follow up from today’s class:

There was a request for more reading info on “subprime lending.”  Here’s the Interagency Memo on Subprime that will help w/those subprime-type test questions.

I promised more information on appraisal independence rules that will take the place of HVCC.

There was a question about how long a creditor has to retain files. See Section 202.12 of ECOA for th 25 month rule. Remember, state laws may be tougher than federal laws.

Regarding the question about when we can pull a credit report on consumers, see page 13 (F) of the Fair Credit Reporting Act.

Regarding the ability to re-sell information contained in consumer credit reports, see the bottom of page 33 (e) – page 34 of the Fair Credit Reporting Act.

To the Students from the Dec 6-7 SAFE Prelicensing and Exam Prep Class

Hi Everyone,

Here are the links and articles we mentioned in class:

Here’s that interview with Elizabeth Warren, the new head of the Consumer Financial Protection Bureau….watch the one where Jon wants to make out with her.

There was some brief discussion about loan modifications. Here’s the new FTC rule on loan mods and short sale negotiators….no test questions on this….yet, but still important for those who do loan mods.

Here’s one 2006 news story on Merit Mortgage that one of our students talked about. But there’s a better story over at the Seattle Times.

Here’s the trailer for the movie 127 Hours.

There is no direct answer to the question “Must I display my LO number if my license is inactive.”  DFI is probably very busy right now processing license renewals.  Once you’ve passed the test and go inactive, go ahead and call DFI and ask for someone in the licensing department and ask for a direct answer.

Questions from the Dec 7th Session:

Here’s a link to all the new WA State rule changes regarding switch advertising. Scroll down to 3(p).There was a question regarding whether the trigger for TILA re-disclosure under the MDIA is .125 or higher or .125001 or higher.  It’s .125 or higher. Here’s the federal register notice for your reading pleasure.

There was a question about when women were able to hold title to real property in the United States. Here’s a nice website that traces the history of women’s property rights.

Here’s more reading material to help you understand the three normative moral theories.

RE Question 14 of the SAFE Act Quiz…the best answer is C.  See section 1504 of the SAFE Mortgage Licensing Act.

To the Students from the Nov 16, 2010 Exam Prep Class

Hi Everyone,

Here’s the follow up from today’s class.

There was a request for more information on the Home Owner Equity Protection Act (HOEPA.)

There was a request for a link to the RESPA website.

There was a question about the RESPA required servicing transfer statement.

There was a request for more information on RESPA’s exemption for business loans.

There was a request for information on the Equal Credit Opportunity Act and how ppl who are over age 62 are a protected class and are treated differently under the Act. 

Here are the three normative moral theories, to help you get your ethics test questions correct….if there is no clear statement of the law to guide you.

Thanks for a fun class today and good luck to all of you on your exam(s)!

To the Students from the October 7, 2010 LO Exam Prep Class

Hi Everyone,

Thanks for a fun class today. Here are the follow up Q&As:

Here’s more information to read on FHA basics

…and VA basics for those that do not originate FHA/VA loans on a regular basis.

Here’s a link to the three normative moral theories to help you get your ethics test questions correct. (What kind of person do I want to become? What are my duties?  What are the consequences?)

Here’s the recent story about Wells Fargo and their discrimination settlement.

Here’s the story that broke today about a possible (let’s hope not) nationwide foreclosure moratorium.

Here’s a funny interview with the new head of the Consumer Financial Protection Bureau Elizabeth Warren.

Here’s the link to Opt-Out Prescreen. Thanks, Dean!

Also, there was a request after class for the answers to the study material on MDIA (changes to TILA) and the 2009 RESPA quiz. I can definitely grade those take-home quizzes for you if you’d like. Just fax to me at:  425-673-1533…no cover sheet needed, Edmonds line.

To the Exam Prep Students from the Sept 14, 2010 class at UoPhx Bellevue

Hi Loan Originator Exam Prep Students,

Here’s the follow up from today’s class.

There was a request for more information on HOEPA/Section 32 loans. For a brief overview of the loan features that would trigger HOEPA, see page 43 of the main course packet.  You can also visit the FTC website and read to your heart’s content. Remember, HOEPA loans have higher triggers than “high cost” loans which are described in the MDIA packet.

Remember the sad facts I shared with you on how to get all your ethics questions correct?  Then after that there was a request for a brush up on the three normative moral theories. If you’ve taken ANY ethics class from me this will all come back you.

There was a question regarding TILA’s madate that the broker/lender be sure the borrower can repay the loan. Go to this page and scroll down to prohibited acts:

“(4)  Repayment ability.  Extend credit subject to § 226.32 to a consumer based on the value of the consumer’s collateral without regard to the consumer’s repayment ability as of consummation, including the consumer’s current and reasonably expected income, employment, assets other than the collateral, current obligations, and mortgage-related obligations.”

I googled the phrase “RESPA marketing agreement” and many links popped up that lead to attorney websites talking about lawsuits all over the place.  Wow. This might make for a good case study for your continuing ed in 2011. 

One student was not sure that the “authorized user” changes were already in effect regarding ppl letting others use their tradelines to bump up your credit score.  Here you go.

There was a question about why ECOA favors ppl who are age 62 and older. Here’s more from the FTC on that topic.

Here’s a link to the Seattle PI’s article on Shawn Portman.  “Feds to Portman: We want our Giant Bag of Money Back.”

Here’s the link to the Neighborhood Watch website where you too can check the FHA deliquency rate of your own firm.

I think that’s it!  Thanks for a fun class today…keep studying and schedule your exam NOW.

Day 3
Congrats to Stephanie who passed the national test today!

Here are some links from our conversation this afternoon.

There was a question as to whether or not FINRA is a government agency or independent. Looks like they’re independent BUT I’d argue that this looks like a quasi-governmental agency.

There was a question about whether or not it’s possible to create a list of values that all humans hold in high regard that can cross all cultures.  I read many of these studies in grad school. It’s easiest to just google “universal values survey” and take a look at the scholarly articles or wiki for a quick background.

and here’s an article I wrote about how we define a professional compared to a non-professional.

905 Lenders Failed To Meet Requirements for Annual Recertification of HUD/FHA Approval

Today HUD released it’s Administrative Actions from the Mortgagee Review Board. Read the Federal Register PDF here.  There were 905 lenders that failed to met requirements for HUD’s annual recertification for FHA approval.  The Mortgagee Review Board voted to immediately withdraw FHA approval for a period of one year for each of the 905 lenders.  “The Board took this action because the lenders were not in compliance with the Department’s annual recertification requirements.”

Granted, some of the lenders on this list are no longer in business such as MILA or were taken over by other banks such as Washington Mutual. Yet 905 is quite a high number and some of the names on the list surprised me. 

To check on the current default rate of your favorite FHA lender, check out the Neighborhood Watch website.

To the Students from the July 13-15, 2010 Prelicensing Class in Tacoma

Hi Everyone!

Here’s the follow up from questions that were asked in class and more.

There was a request to take a look at a sample Adverse Action form. Here’s one from the FDIC.

There was a question regarding if a consumer loan company does not hold a mortgage broker license, does that company have to follow the MBPA if the consumer loan company decides to broker a loan? The answer is “no.”

Here’s a link to he article on Paramount Equity that I referenced in class.

There was mention of a CNBC special on Enron.

Geoff mentioned the famous Milgram Experiments.

and just for fun…here’s the links to the YouTube videos:
Swagger Wagon
Geico/Honest Abe 

Thanks for a fun class this week. You all impressed me with your knowledge of ethics during day 3 🙂

Remember to send me an email if you want access to the practice exams!

To the Students from the June 7, 8, 9 2010 SAFE Prelicensing Class

Hi Everyone,

Here’s the follow up from today’s class.

Here’s the link to the Neighborhood Watch website where you too can check the FHA deliquency rate of your own firm.

Here’s that great blog post by Seth Godin about deadlines.

Here’s more about the excellent book Outliers by Malcome Gladwell.

Here’s a link to the NMLS Resource page so you can download and read the MLO Test Candidate Handbook.

…and for Ron, here’s more info about the fantastic book trilogy The Girl with the Dragon Tattoo.  There’s a link to the movie trailer next to the article.


There was a question about when to include/not include a pest inspection charge in the finance charges.  Here’s the answer according to VA.

There was a request for more help in understanding the way different types of mortgages work. Scroll down to the bottom of this page. 

Here’s the story from Seattle Bubble today on the Goldman prediction that Seattle home values will drop by 22%

Here’s more information on the Merkley Amendment limiting loan originator compensation to 3%

Here’s a link to DFI’s WAC Mortgage Broker Rules regarding disclosures required when a borrower parts with money (for example, for a credit report.)

Here’s more info regarding RESPA and builders and possible rule changes


Here more info from HUD regarding adding sexual orientation as one of the protected classes when originating FHA loans:

“WASHINGTON – For the first time in its history, the U.S. Department of Housing and Urban Development (HUD) will require grant applicants seeking HUD funding to comply with state and local anti-discrimination laws that protect lesbian, gay, bi-sexual, and transgender (LGBT) individuals. Today, HUD published a notice detailing the general requirements that will apply to all of the Department’s competitively awarded grant programs for Fiscal Year 2010.

“We‘re using every avenue to shut the door against discrimination,” said HUD Secretary Shaun Donovan. “Today, we take an important step to insist that those who seek federal funding must demonstrate that they are meeting local and state civil rights laws that prohibit discrimination based on sexual orientation or gender identity.”

Traditionally, HUD requires all applicants for competitive grant funding to comply with all applicable federal fair housing and civil rights requirements including those expressed in Fair Housing Act; Title VI of the Civil Rights Act of 1964; Section 504 of the Rehabilitation Act of 1973; and Title II of the Americans with Disabilities Act. Now HUD will further stipulate that applicants and their sub-recipients must comply with state or local laws proscribing housing discrimination based on sexual orientation or gender identity.”

Merkley-Klobuchar Amendment Creates Level Playing Field

The Senate has passed an amendment to the Wall Street Reform bill that would ban loan originators from accepting compensation based on placing a consumer in a higher interest rate loan or a loan with less favorable terms.  The amendment also requires lenders to underwrite loans to assure a homeowner’s ability to repay the loan.

As you can imagine, loan originators everywhere are outraged.

Imagine not being able to earn extra compensation for selling a higher rate loan! Imagine making sure that homeowners can repay their loans! 

Wait a minute. Isn’t that the world we currently live in right now?

The horror we’re leaving behind if this amendment becomes law was the predatory lending frat parties of 2006.  From what I can tell, most (not all) of that is behind us. What are we really losing with the passage of the Merkley-Klobuchar Amendment?

Mortgage brokers have to disclose all yield spread premium earned as fee income on line 1 of the new Good Faith Estimate.  They will not be losing anything new.  It can be argued that mortgage brokers should have lost the ability to earn yield spread premium because it was horribly misused not by “an unsavory few” but by the vast majority of mortgage broker LOs all across the United States.  For the few LOs who had no problems honestly explaining their full compensation, the change to the new GFE was not seamless but certainly not painful.

Brokers might be fearful that consumers will no longer be able to select a “no cost” refinance.  First of all: THERE IS NO SUCH THING AS A NO COST REFI.  There are costs. Instead, the homeowner is selecting to amortize the costs over the term of the loan instead of coming to the table with cash to pay for the cost to refinance into a lower interest rate loan.   The way I interpret the spirt of the amendment, consumers can still elect to use yield spread premium (YSP) as a credit back from the lender, to cover their closing costs….but broker LOs are prohibited from helping themselves to any leftover YSP as compensation.  This is true today and it would still be true under the amendment. 

Mortgage loan originators who work under a consumer loan company license (They say, “I’m a mortgage banker, I’m a correspondent lender”) or LOs who work at a depository bank can still, at least today, earn hidden compensation called “overage” by selling a higher interest rate than what the homeowner could have received.  Think of it as a retail markup. These LOs may or may not choose to show the consumer the wholesale rate sheet.  This is just the same as yield spread premium but consumer loan company and bank LOs do not have to disclose their overage to the consumer.

The Merkley Klo-bu amendment aims right at the practice of earning “overage” and scores a bullseye.

Someone has been educating the Senators about how to create a level playing field and it’s not me. I’m too busy trying to recover from this delightful carpal tunnel surgery on my right wrist.  I wish you could see me try to eat a bowl of Cracklin’ Oat Bran with my left hand. As it is, I shouldn’t be typing this but don’t tell Dr. McCallister.  For me this short blog post IS taking it easy.

Brokers have been asking for a level playing field. Well the Merkley-Klobuchar amendment creates just that.  Instead of hidden compensation, the way loan originators are paid will transform. We will most likely revert back to a 1 percent loan origination fee.

Here are some new ideas. 

How about we pay loan originators based on customer satisfaction surveys. We’ll call it the Redfin model.  After the transaction is complete, clients would rate a loan originator based on how well they explained the loan program choices and how close the HUD 1 fees matched the initial GFE.  How about we pay loan originators based on the number of hours spent doing origination functions on each loan, and the hourly wage would be set by the employer based on a loan originator’s experience, education, and….loan performance.

That’s another idea. Why not base LO compensation on low default rates? 

Take a look at the national default rate of FHA loans.  You can sort by state, county, company name and so forth.  What the hell is going on at these companies with high FHA default rates?  I’ll bet any of us can find out by simply having a casual water cooler conversation with loan originators at any firm in your city.  Everyone knows which loan originators are scamming the FHA system.  Can we please get rid of these LOs? The only reason they still have a job is because it takes FHA 4 years to hunt them down and between now and then, their bosses can make hundreds of thousands of dollars sending FHA these dog loans and then simply close up shop, pay the fine and move on to another firm. 

The Merkley-can-we-just-drop-the-second-name amendment might just do us all a favor and make it a good business decision for firms to get rid of the people who are sending fradulent, high default loans to FHA.

Now I know we’re going to get some clever LOs to point out that it’s not their fault that a homeowner got laid off or a homeowner decides to walk away from the loan when their 3.5% FHA loan goes negative equity this fall.  Okay fine. I see you two whiny shoulder shrugs and raise you two underwriting screw tightens.  After this amendment passes, underwriting guidelines are going to tighten up fast and lenders will definitely want homebuyers to put more money down.  Both will not give 100 percent assurance that a homebuyer will not default, however, it will be better than the loans we’re currently making. I’m hearing lenders are still making FHA loans where the back end ratio can be 50%.  Today’s FHA loans will not end well.

Loan originators, the best way to assure the future of your industry is to fully disclose ALL compensation to your clients, no matter where you work, and if you can’t justify your compensation, it’s too high so you’d better start re-learning how to create value for your clients or pretty soon you won’t be needed.

A client just called me this week and said a lender called American Interbanc is telling consumers they don’t charge a loan origination fee because they don’t have any loan originators.  I sent then an email requesting to interview someone from American Interbanc but so far they’re being shy.  Well I hope any regulator reading this schedules them for an audit real soon because someone is doing the job described in the SAFE Act as “loan origination” and if they want to slough off the work to their unlicensed processors, well then this is one company to watch. We should watch to see if this is a business model for the future or if it’s a business model that we’ll be reading about in a State Consent Order or HUD Audit. 

I happen to believe loan originators are valuable.  The most valuable LOs I meet today are the ones who have already learned how to clearly communicate their value to their clients.  The Merkley amendment has a good chance at passing.  LOs: Imagine a world where your compensation is much lower than it is today. Many will leave the industry. Many will stay and do more loans for the other’s clients.  You will have to work harder for your compensation but the ones who will choose to stay already love the industry so much it doesn’t feel like work.

To the Students from the 20 Hr SAFE Course in Oklahoma City

Hi Everyone,

Here are the follow up Q&As from Day 1:

There was a question about if LOs in Oklahoma are required to take a course on Oklahoma State law. On the right hand side of this link, click on “state specific edu” to view the PDF. No other courses are needed for OK LOs but you WILL have to pass an OK state specific TEST.

Here’s a link to the NMLS website to view the test content outline for your OK state exam.

Here’s the link to the OK Statute.  MANY of your state law questions are going to come right from this page.”clic

There was a question about whether or not loan originators in OK owe fiduciary duties to their clients.

We were wondering about the word “professional” and the prefix “profess” which reminds us of professor, and the suffix “sion” which reminds us of “confession” or even “compassion.”

Here’s the definition of the word professor:
1350–1400; ME < ML pr?fessor  one who has taken the vows of a religious order, L: a public lecturer, equiv. to pr?- pro-1 + -fet-,  comb. form of fat?r?  to acknowledge, declare + -tor -tor, with tt  > ss

Here’s the definition of the word professional:
1740–50 professional
early 15c., of religious orders; 1747 of careers (especially of the skilled or learned trades from c.1793); see profession. Meaning “one who does X for a living” is from 1798; opposed to amateur  from 1851. The noun is recorded from 1811.

The suffix “sion” comes from the word Zion.
Zi·on (z?’?n)  

The historic land of Israel as a symbol of the Jewish people.

 A place or religious community regarded as sacredly devoted to God.

An idealized, harmonious community; utopia.

Sion , from Old English, from Late Latin Si?n , from Greek Sei?n , from Hebrew ?iyyôn ; see ?wy 2  in Semitic roots.]

VERY interesting to see that sion could mean “an idealized community” because we often view people who hold professional status as something to admire; doctors, lawyers, and so forth, because of all their advanced knowledge and education. THANK YOU for asking this question. A highly detailed question that taught me something.

Here’s a link to the Neighborhood Watch website where you can check the status of FHA loan delinquencies.

To the Students from the April 6-8, 2010 20 Hr Prelicensing and Exam Prep class

Hi Everyone,

Here’s the follow up from Day 2 of our 3 day class.

Some folks asked for information regarding how a short sale, foreclosure, or bankruptcy affects a person’s credit score.

Here’s Ken Harney’s article on credit scores. And here’s Ardell’s blog post as a follow up. She has a nice visual graph for those of us who think in pictures.

Here’s a link to the FBI website with the story about mortgage fraud we discussed during Day 1:

Leader of $47 Million Mortgage Fraud Scheme Sentenced to Prison
Mortgage Fraud Scheme Used Web of Companies and False Loan Documents

More tomorrow….

Day 3

Here is the article I wrote regarding Paramount Equity’s Consent Order.

Here’s the article I wrote regarding the FCIC and how I believe they’re interviewing the wrong people.

Someone asked if I had ever been to a foreclosure/trustee sale auction. Well, actually I filmed an auction here in Bellevue recently.

Here’s the link to Neighborhood Watch, where you, too can check your company’s FHA default rate. Follow the link that says “early warnings.”

There was a question as to whether or not a borrower can pay an appraiser directly v. a borrower paying an HVCC company directly. See question 52 of the Fannie Mae FAQ PDF on HVCC:
“Q52. Are borrowers precluded from providing payment for an appraisal to an AMC?

A: The Code does not prohibit a borrower from providing payment to an AMC; however, the borrower may not pay the appraiser directly for an appraisal.”

Remember: Not all loans are sold to Fannie/Freddie and in that case, HVCC might not apply to those loans.

and please don’t fall for the media hype regarding rates rising. Take a look at another point of view over at Seattle Bubble.