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.

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!

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.

DAY 2

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

DAY 3

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.”

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.

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 dictionary.com definition of the word professor:
Origin:
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:
Origin:
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)  
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.

[Middle English 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.

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.

Here’s the follow up Q&As from today

 Here is the updated Credit Suisse chart.

There was a question as to whether or not a church can gift the funds for closing on an FHA loan. Here is a link to the HUD manual….

“An outright gift of the cash investment is acceptable if the donor is…

•the borrower’s relative
•the borrower’s employer or labor union
•a charitable organization
•a governmental agency or public entity that has a program providing home ownership assistance to
?low- and moderate-income families
?first-time homebuyers, or
?a close friend with a clearly defined and documented interest in the borrower.”
 Overall 17% of FHA Loans are currently delinquent. That statistic is horrifying. This will not end well.

Here is the interactive map from the New York Times I mentioned. Looks like 30% of the loans originated in Yakima County were subprime. 

and….check out the proposed HUD Rule that was just released today.  Here’s the PDF.  See page 3, number (8)  “(8) Establishing a means by which residential mortgage loan originators would, to the greatest extent possible, be required to act in the best interests of the consumer;”

Didn’t I just say today that this is where we are headed? This moves LOs more on the path toward professionals with fiduciary duties owed to their clients and further away from a retail sales role. We should all carefully watch the debate/comments on this proposed rule.

UPDATE 1

Here’s a link to the FDIC website showing a description of pre-paid finance charges in paragraph 18 (B). I did not see the chart Brandon referred to in class. Brandon if it’s easy to get a hold of that link again, please post it in the comment box. Thank you!

Here is a link to the page where HUD posts updates to the FAQ document regarding all the new RESPA changes (including GFE FAQs). Ooooo, notice that HUD has also updated the “Settlement Costs” Booklet. At the bottom of this same page is a link to submit your comments to HUD.  Now’s your chance to have your voice heard…..who will submit a comment from today’s class?  Hmmm.

Here is a link to an article written by Brian Brady, a mortgage pro located in Calif and a fellow blogger. Brian’s article about the new GFE really jumped out at me.  He says we can use the new GFE to gain clients. Give it a read. 

See you in the morning!

Day 1 follow up:

Here’s the link to the Neighborhood Watch website where you can check on the status of a company’s FHA delinquencies. Follow the link that says “Early Warnings.”

There was a question about the use of the word “firm” in the WA State law Escrow Registration Act. Here’s the link to the definitions section.  See number (7). I can only infer that the meaning has to do with a company’s “doing business as” name, which would be the name of their “firm.”

Here is a link to the NMLS website where they have information on the criminal background checks.

And there were three questions about having to re-take the state exam if you previously took the exam but let your license lapse. I have put an email in to DFI to get an official answer on that one, since the question kept coming up.

and finally, regarding the requirement to disclose the owner’s title insurance policy charge on your GFE, this is from Page 12 of the new FAQ PDF from HUD:

Q: Are charges to the seller listed on the GFE?
A: RESPA requires that only the borrower receive a GFE. The GFE is defined as an estimate of settlement charges a borrower is likely to incur in connection with the settlement. Charges that typically would not be charged to the borrower, but would be charged to another party—such as the seller—do not have to be included on the GFE. If the borrower typically would incur charges for title services and lender’s and owner’s title insurance, the GFE instructions make it clear that those charges are required to be listed regardless of whether, for example, the contract requires the seller to pay for the service. If there is a question about whether the borrower or seller is to pay for a particular settlement service, the charge for that service should be disclosed on the GFE.

Emphasis mine.

Day 2 follow up:

Question from Cathy: Are LOs required to give consumers a list of providers? 
Answer: Found on page 12 of the recent updated HUD FAQs for the new GFE:

GFE – Written list of providers
1) Q: When do loan originators have to provide the borrower with a written list of identified providers?
A: When a loan originator permits a borrower to shop for third-party settlement services, the loan originator must provide the borrower with a written list of settlement services providers at the time of the GFE, on a separate sheet of paper.
2) Q: Does the borrower have to select a settlement service provider from the loan originator‘s written list of settlement service providers?
A: No. If the loan originator permits a borrower to shop for a settlement service provider, the borrower may choose a qualified provider that is not on the originator‘s written list.

You can download the HUD FAQ PDF here.  Ooo, you can also take a look at the new HUD “Settlement Costs Booklet” from this same page. Remember new/newer LOs have a homework assignment to read the Settlement Costs booklet but I will bet that Robert, Ed, Matt, Jenni, Luke, Cathy and Brad will also download and read this. Why? Because these guys are highly attentive to detail.  Follow their lead and read the booklet that you’ll be giving to your customers.  You don’t have to read it tonight, but if I were you, I’d skim-read this before taking the exam.

Next up: What’s deductible? Here’s a link to the IRS website with the answer.  See the link that says “points.” You may have to scroll down a bit after clicking.  Whoa. That answer was so complex, there’s no way (unless my name is Brad) that I’d tackle trying to explain that one.  But maybe I’m just tired.  What would you do?

There was a question: “Is there a difference between simple referral and a referral?”  I see nothing deliniating a difference between the two in the definitions section of the statute.

Joe wanted more reading material (because we know Joe is a big fan of reading) about defaults.  Here are some great articles I found:

Option ARM Recast/Reset Update but what about prime loans? Here you go:

We should also check on the re-default rate of loan mods and the HAMP program. 

Here’s the latest report from TransUnion showing delinquencies over 10%.

Jumbos aren’t doing all that well either.

Dare we check FHA? WTF? Does this report say what I think it says about FHA deliquencies? Quoting CR, “This will not end well.”

Get some sleep and I’ll see you at 9AM!

Day 3 follow up

There was a request for me to send a list of all the Class B Felonies in WA State.  Here you go.

Here is the link to the NMLS Resource Page where you may download and review the SAFE Mortgage Licensing Act.

and Ed had a question regarding the words “non-institutional investor” that appear on page 4 of your Day 3, State Law course packet. Those words are not listed in the defintions section of that RCW. Without knowing DFI’s intent, we are left to take a lay person’s guess that it may mean an individual investor that’s not tied to corporation.  For a precise answer Ed, I suggest contacting DFI direct.

Thank you for the memorable 3 days!

Here’s the follow up from Day 1:

Ken Harney’s column regarding LOs using worksheets to provide a pre-GFE in order to attempt to escape quoting fixed costs on the new GFE.

Link to the Neighborhood Watch website where we can check on the FHA default rate of various companies.  And a related story from the Seattle Times.

Stephen Colbert: Honor Bound.

and this late breaking news tonight about FHA raising standards and raising the mortgage insurance premium.  We should expect continued, gradual tightening at FHA.  It should come as no surprise when standards tighten again during 2010.

Day 2
Different ways of holding title.

There was a question left over from Day 1 regarding the dollar amount of the fidelity bond needed for escrow companies in WA State on the escrow quiz. Confirming the answer, as noted in the quiz is $200,000. Here is the link.

And while we’re on the subject of links, here’s the page we talked about on the NAMF website providing the links to all the laws.  All the NAMF exam prep info will eventually move to this new domain.  And who wants access to the existing practice exams for free before they go away and transition to the new platform? When you’re ready, email me and I’ll send you the logon info.

As a result of this policy, individuals in the community were denied equal access to credit, capital, banking services and loan products; and made housing unavailable on a prohibited basis, a clear violation of Fair Housing law. Loan officers repeatedly told shoppers, “We don’t do row houses.” In some cases Novastar and Bell refused loans where the borrowers had more than adequate credit scores, income, financial stability and even low LTV ratios.

When Bell joined with Novastar it was given a Company Program Manual  listing Unacceptable Property Types. Row houses were not listed. Bell also secured an exclusive warehouse credit line from Novastar, agreeing that Novastar would fund all of Bell’s loans. At the time, Bell had several unclosed Baltimore row house loans, which Novastar refused to fund, and warned that using another warehouse line to close those loans would be a violation of their exclusive warehouse agreement. Bell assigned the loans to another lender for a fee. Bell and its staff continued to refuse loan applications on row houses in Baltimore even after being informed that this was a violation of Fair Housing laws.

Plaintiffs sought injunctive relief as well as money damages, cease and desist orders, attorney’s fees, and enjoining Defendants to modify their lending practices to comport with the law.   
The N.C.R.C. and N.A.A.C.P. in their COMPLAINT claimed the following:

I. Defendants policies and practices violated the provisions of the Home Mortgage Disclosure Act by redlining: refusing to grant credit in a community or neighborhood. Their actions have had a disproportionately adverse effect on African Americans and other people of color compared with Caucasian applicants by virtue of denying the financing of the type of property chosen for security purposes. This contributed to the economic destruction of a Baltimore neighborhood, depreciation of property values, higher foreclosure rates, street crime and the creation of housing ghettos.
II. Defendants policies and practices violated The Civil Rights Act of 1964, which prohibits racial discrimination in the formation and issuance of contracts, and intentional interference to pursue and hold real property. Defendants through their willful conduct contributed to racial hatred, and denied African Americans the right to own property.
III. Defendants policies and practices violated the provisions of The Equal Credit Opportunity Act which prohibits a creditor from discouraging an applicant from making application for credit by refusing to consider the security property offered.
IV. Defendants policies and practices, through the disparate impact theory,  a provision of The Fair Housing Act and other legislation by imposing different requirements or conditions on a loan on the basis of elements other than credit, the result of which was racial discrimination.

Before the trial was held, Bell asked the judge for summary judgment,  claiming it was only following the dictates of its “exclusive source of warehousing and funding.” Its agreement required that all loans must be sold to Novastar thus it had no other choice. At trial Novastar raised an unusually large number of issues with respect to the wording of the law, citing numerous cases and questioning the interpretation and meaning of whether or not the law applied to this case.

The lenders denied the accusations and set out these AFFIRMATIVE DEFENSES

I. Type of property. Independent appraisals show that row house properties in Baltimore are in a transitional state. Many are being converted to commercial or mixed-use enterprises. This, not lack of financing, has resulted in value depreciation. Our Company Program Manual at ¶5.3 Unacceptable Property Types reads: Commercial use or a mix of commercial and residential properties. Clearly, many row houses in Baltimore are “mixed use”, as most appraisals point out. This violates our written policy, which was not drawn frivolously. Empirical evidence we have provided demonstrates that losses on this property type exceed those of other type of dwellings. As further evidence of excessive risk, private mortgage insurers have refused to insure loans on row houses.

II. Intentional Interference. We have shown that there are other mortgage lenders in Baltimore and elsewhere that offer financing to row house buyers.  We fail to see how our actions prohibit borrowers from shopping the mortgage market for other sources willing to accept this type of security. Our Company Program Manual at ¶2.3 Regulatory Compliance reads: We comply with all federal and state regulatory requirements in granting mortgage loans. We have provided the court with a recent pipeline and portfolio report showing that a large number of our borrowers are African American and other minorities and the security properties are located in a variety of neighborhoods, towns, and rural areas  . We fail to see how our conduct in these cases intentionally interfered with these borrowers right to contract for the property desired.

III. Discouraging Applicants. We have shown a number of examples where national mortgage lenders regularly publish U. S. Postal zip codes showing geographic areas in which they will not grant credit.   These typically are areas where lending experience has shown that unreasonable business risks have been found through empirical evidence. We ask the court: How does this differ from avoiding row housing? We believe we should have the same right to define when, to whom, and where we will grant credit without the interference of government and claim this right specifically in this case. We deny discouraging borrowers from applying for credit because in every case cited we informed the borrower of our willingness to finance real property in many other locations.

IV. Racial Discrimination. Refusing to accept real property offered as security for a loan is not against the law. The decision to lower lending risk profiles and elect not to finance row houses is racially neutral – it is not directed toward any race –- it is directed toward real property and therefore cannot be found racially discriminatory.  As an example of our neutral policy we refer to our Company Program Manual, at ¶6.2 Minimum Value Requirements. There is no minimum value requirement for Citizens and Resident Aliens with our company because we long recognized that this is discriminatory by its very nature.  (Non-resident aliens and piggybacks are limited to $75,000 because of secondary market considerations not internal company policy). We have provided the court with example after example of lending companies that have loan minimums whose adverse and disparate effect is directly similar to the case at hand. We will make mortgage loans other companies refuse because we understand the need for making capital available in large or small amounts – a racially neutral policy. We contend that minimum loan amounts are also discriminatory but counsel can find no case in the court’s jurisdiction where lenders have been challenged under civil rights statutes.

Trial Notes
Mentioned in this suit is the fact that lenders have been sued by several cities using two theories of “Public Nuisance” In City of Cleveland v. Deutsche Bank Trust Company, et al. Common Pleas. January 10, 2008. The city claimed that lenders were the cause of high foreclosure rates, blocks of unoccupied residences that were more expensive to police and protect against fire damage and empty blocks of neighborhoods decreases property values and loss of revenue

Notes on the defenses raised:

I. Defendants provided audited internal data showing greater-than-average losses on row houses, together with an article from the Baltimore Sun newspaper, which reported that some units in Baltimore’s row houses were being used as boarding houses and even Bed & Breakfast Inns, in violation of the zoning laws. Zoning violations are often considered a default in mortgage lending.

II. The pipeline and application data used were taken from published HMDA reports, and the Mortgage Bankers Association provided data on the number of foreclosures and average losses to member companies in the same geographic region.

III. Copies of advertisements and loan program brochures of other lenders provided information on zip code lending restrictions. It was and is a common practice. Plaintiffs did not refute it.

IV. The disparate theory holds that when an action has a disproportionate effect on some group (racial, ethnic, etc.) it can be challenged as illegal discrimination even if there was no discriminatory intent.

The question is whether someone who does not engage in racial discrimination can violate the federal Fair Housing Act. The claimant need not prove that individuals were treated differently because of their race. Instead, it is enough to show that a neutral practice has a disproportionate effect – that is, a disparate impact – on some racial group.

However, the theory is difficult to apply. Suppose a landlord refuses to rent to people who are unemployed, and it turns out that this excludes a higher percentage of whites than Asians. A white would-be renter could sue. It would not matter that the reason for the landlord’s policy was race neutral and had nothing to do with hostility to whites. He would be liable, unless he could show some “necessity” for the policy. This would hinge on whether he could convince a judge or jury that the economic reasons for preferring the rent to the gainfully employed were in some way essential.

__________
Questions.

Did Novastar engage in racial discrimination?
Is it possible for a company that does not engage in racial discrimination to still be found in violation of Fair Housing laws?
If yes, how so? If no, why not?
Here is a link to the Fair Housing Laws for your review.

Here’s the follow up Q&As from our class last week:

Here’s the Neighborhood Watch website where you can see the WA State (well, actually all 50 states) list of the lenders and brokers with the highest default rates on FHA loans.

More concerning news on FHA’s capitalization problems. We should all be prepared for, and be an advocate for higher downpayment requirements, higher MIPs, and tighter UW guidelines next year.  There’s no good reason for taxpayers to have to bailout this trainwreck.  The MIP fund has always been self-supporting. 

There was a conversation going on at one of the tables regarding how the subprime meltdown is really “nobody’s fault.” I mentioned I wrote an article on this theme in 2007. Here it is: “What the Space Shuttle Challenger Disaster Can Teach us About the Current Mortgage Lending Crisis.”

Here’s the Credit Suisse graph showing the coming recasts of Pay Option ARM loans through 2012.

Here’s the story about HUD possibly adding sexual orientation as one of the protected classes. They’ll start with renters and move on from there.

New favorite TV show: Lie To Me.

You Tube Channel for JSchlicke showing a recent foreclosure auction taking place at Factoria.

Rural Development (USDA) Maps for WA State.

The article I wrote on Paramount Equity’s Consent Order. Is a similar business decision like this ethically justifiable?

Regarding the appeal of HVCC, I found HR-3044 which just calls for an 18 month moratorium. It’s in committee. I wouldn’t hold my breath.

I think that’s it! Thank you so much for coming to class and remember to renew your license!

Thanks for a thoroughly enjoyable class today and all your kind words in the evals.  Here’s the follow up:

Q: Where can I find out what interest rate the Fed will use so I can figure out if I have a high cost loan?
Here’s some insight from a great article by Blank Rome:

“…the measuring stick is the “average prime offer rate,” which is defined in the Final Rule as an annual percentage rate derived from average interest rates, points and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.At least initially, the Fed will use information derived from Freddie Mac’s Primary Mortgage Market Survey (“PMMS”), but may eventually develop its own tables. The average prime offer rate for both fixed and adjustable rate loans will be published in a table and updated at least weekly.
A loan is considered higher-priced if its APR exceeds the applicable average prime offer rate by 1.5 percentage points or more for first lien loans and 3.5 percentage points or more for junior lien loans.Unlike the HOEPA APR test, which compares the loan’s APR to the applicable Treasury security yield as of the 15th day of the month immediately preceding the month in which the application is received, the Final Rule requires that the loan’s APR be measured against the applicable average prime offer rate “as of the date the interest rate is set.” The Official Staff Commentary clarifies that if a loan’s rate is initially set at one level but then changed prior to closing, a lender must use the last date the interest rate is set before closing.”

Remember, there’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.   The MBAA is correct. The industry deserves an answer from the FRB on this conflict.

I’ve emailed Sam a PDF copy of the MDIA color coded matrix.

Here is a list of WA State Housing Counseling Agencies

Here is more info on sociopaths.

and finally, Cookie Monster wanted to know why a “lady” was chosen to represent “justice”

See you next year for exam prep!

Here’s the follow up from today.

There’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.

Q: Where can I find out what interest rate the Fed will use so I can figure out if I have a high cost loan?
Here’s some insight from a great article by Blank Rome:

“…the measuring stick is the “average prime offer rate,” which is defined in the Final Rule as an annual percentage rate derived from average interest rates, points and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.At least initially, the Fed will use information derived from Freddie Mac’s Primary Mortgage Market Survey (“PMMS”), but may eventually develop its own tables. The average prime offer rate for both fixed and adjustable rate loans will be published in a table and updated at least weekly.
A loan is considered higher-priced if its APR exceeds the applicable average prime offer rate by 1.5 percentage points or more for first lien loans and 3.5 percentage points or more for junior lien loans.Unlike the HOEPA APR test, which compares the loan’s APR to the applicable Treasury security yield as of the 15th day of the month immediately preceding the month in which the application is received, the Final Rule requires that the loan’s APR be measured against the applicable average prime offer rate “as of the date the interest rate is set.” The Official Staff Commentary clarifies that if a loan’s rate is initially set at one level but then changed prior to closing, a lender must use the last date the interest rate is set before closing.”

The book written by Plato about Socrates’ journey to find the meaning of the word “justice” is called Plato’s Republic. You can get a used copy for $5. A great read. If you liked Ari’s way of solving ethical dilemmas, here is THE book.  Also, available used for under $5. You don’t need all the fancy analysis books, just the plain jane Nicomachean Ethics.

More on The Sociopath. Recognize anyone in your life that fits the profile?  1 in 25…

Here’s the story about HUD possibly adding sexual orientation as one of the protected classes. They’ll start with renters and move on from there.

Here’s a link to the state’s usury law FAQ page.

Here’s a link to the website where you can run a database report on which lenders have high default rates on their FHA originations.

Here’s the Credit Suisse graph showing the coming recasts of Pay Option ARM loans through 2012.

Great analysis from CR (my favorite finance and econ blogger) on how there will be two housing bottoms. Remember, Amir talked about this toward the end of class.

Great article today on the economy, again from CR. I’ll put this in next month’s email newsletter so you’re getting a sneak preview.

Thanks for coming to class. Here’s the follow up:

There’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.   Wells Fargo and other lenders have PDFs that give us a visual to refer to with a calendar and some examples.  The only problem that I’m still encountering is that some lenders are using the precise definition of a business day (unless the Saturday happens to be a legal holiday) for the re-disclosure waiting period and some are using the general definition only for early disclosures.  The MBAA is correct. The industry deserves an answer from the FRB on this conflict.

Here’s the blog post from CR with Emile Brinkmann, MBA Chief Economist’s testimony before the Senate Committee on Banking, Housing and Urban Affairs at a hearing titled, “The State of the Nation’s Housing Market” with information on CR’s prediction on when interest rates will start going up.

There was a question as to why hard money lenders will only lend on commercial property or for real property used primarily for business use.  Here’s a link to the state’s usury law FAQ page. The answer is because that lender would like to exceed our state’s usury rate.

A designated broker will need to take 9 hours of CE next year, even though LOs licensed since 07 will get a break from CE in 2010. 

Thanks for all your great questions and here’s to a great fall 09! 

Here’s the follow up from class.

Q: Do we have to resubmit our fingerprints?
A: Yes all LOs will be submitting a new set of fingerprints to the NMLS.

Q: Does a designated broker have to retake the LO exam?
A: Yes.

The name of the Northwest Multiple Listing Service Form that George referred to in class is NMLS Form 22 which helps with the automatic extension of the closing date.

Q: Where can I find out what interest rate the Fed will use so I can figure out if I have a high cost loan?
Here’s some insight from a great article by Blank Rome:

“…the measuring stick is the “average prime offer rate,” which is defined in the Final Rule as an annual percentage rate derived from average interest rates, points and other loan pricing terms that are currently offered to consumers by a representative sample of lenders for mortgage transactions that have low-risk pricing characteristics.At least initially, the Fed will use information derived from Freddie Mac’s Primary Mortgage Market Survey (“PMMS”), but may eventually develop its own tables. The average prime offer rate for both fixed and adjustable rate loans will be published in a table and updated at least weekly.
A loan is considered higher-priced if its APR exceeds the applicable average prime offer rate by 1.5 percentage points or more for first lien loans and 3.5 percentage points or more for junior lien loans.Unlike the HOEPA APR test, which compares the loan’s APR to the applicable Treasury security yield as of the 15th day of the month immediately preceding the month in which the application is received, the Final Rule requires that the loan’s APR be measured against the applicable average prime offer rate “as of the date the interest rate is set.” The Official Staff Commentary clarifies that if a loan’s rate is initially set at one level but then changed prior to closing, a lender must use the last date the interest rate is set before closing.”

Mark Palmer mentioned an FTC website article whereas CLA lenders will have to disclose their overages prior to the close of escrow. I’ve asked Mark to foward the link and will upload it here when I receive it.

We had some great debate regarding the definition of a business day. Well I’ve finally figured out why there is so much confusion and a big thanks to Annette Jensen from Neighborhood Mortgage in Bellingham for being the most diligent compliance person I’ve met in a while. The reason why we were disagreeing about how to count days is because there are two definitions of a “business” day. There’s a “general business day” definition which we use when sending out our EARLY disclosures and there’s a “precise business day” definition which we will use when counting the days after we’ve had to re-disclose prior to signing. See page 8 of this MBAA PDF.   Wells Fargo and other lenders have PDFs that give us a visual to refer to with a calendar and some examples.  The only problem that I’m still encountering is that some lenders are using the precise definition of a business day (unless the Saturday happens to be a legal holiday) for the re-disclosure waiting period and some are using the general definition only for early disclosures.  The MBAA is correct. The industry deserves an answer from the FRB on this conflict.

Thanks for a fun class!

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

There was a question regarding restrictions on prepayment penaltiesin Washington State. Here’s an article that summarizes the key points of SHB 2770, passed in 2008.

Here’s an article I wrote about Paramount Equity and their recent consent order.

Here’s information about the required WA State Disclosure Summary form. Sterling was reminding everyone that this is the first document your customers should see.

There was a question about a new federal law requiring a live signature for any document that contains a person’s unique identifying information like a soc number, date of birth, and so forth.  I did not find any such law or pending legislation but will definitely keep my eyes open for it. 

Thanks for coming to class!

I am pleased to announce that the National Assoc of Mortgage Fiduciaries is one of the first course providers to become approved by the NMLS. 

SAFE-Compliant continuing ed, prelicensing, and exam prep courses are now available on the schedule page of both the CE Forward and NAMF websites. 

Here are the results so far:

85%  vote: 8 hours all at once

10%  vote: 3-hour plus a 5 hour

5%  vote: three, 3-hour classes

I’ll book the all day classes and folks who want to just attend one of the sessions can do so. Price wise, it will likely be less expensive to do it all in one day.  Watch for the all-day classes to show up on the schedule page in September.

THANKS for your participation!

Here’s the scoop:

3 hours on federal law
2 hours on ethics, fraud, consumer protection, and fair lending
2 hours on non-traditional mortgage products
1 hour of undefined instruction on mortgage origination.

Since WA State will not approve a course for less than 3 hours, that “1 hour of undefined” is going to need to be tucked into one of the other classes.  I have chosen to place it inside the Ethics/consumer protection class to make that one 3 hours. 

Last fall, I polled at least 200 LOs and the vast majority of you asked me to provide a one day education marathon so watch for the “all in one day” classes beginning in September.  The schedule will look something like this:

Fed Law
break
Ethics
break
Non Trad
go home

that way, if you only need one or two of the classes you can take them separately and leave with your certificate.  Check the SCHEDULE page for class dates.

If you choose not to attend a class due to bad weather, you will receive a credit voucher from us and may attend a makeup class.  If your makeup class has a higher price than what you paid, you will not have to pay the higher amount.  Your credit voucher is good for one year. 

From the UW: 

What are the elements of full informed consent?

the nature of the decision/procedure

reasonable alternatives to the proposed intervention

the relevant risks, benefits, and uncertainties related to each alternative

assessment of patient understanding

the acceptance of the intervention by the patient

Many LOs and mortgage brokers tell me that they have already enacted some of these processes informally with their clients.  How can we begin to create a formal informed consent process?

In order for a client’s consent to be valid, he or she must be considered competent to make the financial decision and his or her consent must be voluntary. It is easy for coercive situations to arise in real estate and mortgage lending.  For an example please read this story about Joe Six Pack.  In this story, Joe felt somewhat powerless and vulnerable. To help empower clients like Joe, mortgage brokers can make clear to their clients that they are participating in the decision, not merely signing the application and disclosure forms.  With informed consent, the mortgage broker would be obligated to provide a recommendation and share his or her reasoning process with the client. With informed consent, the broker/LO has a high duty to make sure the client understands the information provided.  This means the dialogue would be in layperson’s terms and the broker/LO stops periodically to check for client understanding during the dialogue.

Questions for Brokers and LOs:

How do you explain the differences between mortgage products? Example: Difference between a 30 year fixed and a 5 year interest only.  Yes, the 5 year IO loan has a lower payment but what are the possible consequences?

Fiduciary duties and informed consent requires more than just handing over disclosure forms and collecting signatures.  How do you know that your client understands everything you’re saying? 

If you haven’t yet had a chance to read this article by John Gittelsohn in the Orange County Register about a real estate sale that was financed by Wells Fargo in January of this year, please do so now. And if you were, like most people, working on the assumption that lenders and other industry participants had at least cleaned up their acts in time for the 2008 mortgage vintage to be worth something, think again. Continue reading here.

Tanta makes some excellent points that mortgage fraud within the 2008 Vintage of Residential Mortgage Backed Securities will continue to be way too high.

Your thoughts?
 

More and more spam is popping up in my spam bin targeted at LOs and selling “loan modification referral programs,” so I decided to call one of these LOs after sending an email late last night asking for more information and receiving no reply. 

This particular person goes by the title of ”mortgage planner.”  On her website, she advertises a wide variety of mortgage products including the pay option ARM and the hybrid ARM (are those even available anymore?) but there’s nothing on her website about loan modifications. None of the staff bios show any experience in doing loan modifications. Here’s what I found out.  The upfront fee charged to the homeowner is $3500.  But the LO assures me that all the work is handled by attorneys, she says.  The borrower’s up front fee is placed into escrow.  If a request for loan modification is accepted by the lender for loss mitigation (statistics were offered that 93% of loans are being modified) the full fee is due.  If the loan does not get modified, $2,000 is refunded and the remaining $1500 is not.  I asked the LO why a homeowner wouldn’t just work directly with an attorney.  She said that she works with a network of attorneys with a high loan mod approval rate and homeowners are always free to hire their own attorney and not work with her.

I asked her how much of the $3500 goes to the attorney and how much of it she gets to keep.  Her response was, “why are you asking me that?” To which I replied, “because if the attorney is doing all the work, then I’m wondering how much of that fee is going to you.”  She said “Well I work with the clients. I put a package together and follow up with the lender.” I said, “but a few minutes ago you mentioned that everything is handled by attorneys.”   If I were to guess, I’d say that the LO earned $2,000 for a successful loan mod and the remaining $1500 went to the attorney. There are forums out there confirming my guess.

In some states, including Washington State, Mortgage Brokers and their LOs now owe fiduciary duties to consumers.  A fiduciary is a person who has the power and obligation to act for another under circumstances that require complete trust, good faith and honesty. Fiduciaries are obligated to avoid self-dealing and conflicts of interests in which the real or potential benefit to the fiduciary is in conflict with the best interests of his or her client.  All fees earned must be disclosed to the consumer.  The fact that this mortgage planner/LO felt uncomfortable discussing his portion of the $3500 and the actual work performed is a big red flag. 

Loan modifications are performed by a lender with no fee to the homeowner.  HUD-approved Housing Counseling Agencies perform loss mitigation/loan modification services for free.  These agencies are supported by our tax dollars. 

I suppose the argument is this: “Well the loan servicing departments are really busy and by paying our $3500 fee, you have a 93% chance of getting your loan modified.”  But doesn’t the homeowner still have that same 93% chance going at it alone or with the help of a housing counselor?

If I had $3500 to spend, then I think I’d rather spend the whole $3500 on legal counsel, instead of just $1500. How many homeowners headed toward foreclosure have $3500 to be paid up front?  One of the hallmarks of a sham operation listed on the FDIC website is if a lender requires an upfront fee, before any service is performed.

Loan originators, a fee for services rendered is fine, but what are those services being performed? This particular person shows zero experience in loan modifications and admitted to me that the attorneys are doing all the work.  Is “gathering papers together” worth $2,000? A fee earned that is not commesurate with services rendered has been catagorized as an illegal kickback via RESPA’s Section 8. Loan Servicing companies are also subject to the provisions of RESPA.  All lenders are subject to RESPA whether or not the LO owes fiduciary duties to consumers.  Any amount over what’s considered normal and customary for services rendered is considered a junk fee and subject to challenge.  

Sigh. I suppose we need to consider that we’re coming out of a mortgage orgy where LOs actually did just gather together some papers, threw them on the processor’s desk, and picked up a fat paycheck. Why wouldn’t they believe this could be their ticket back to the good old days?

Loan Originators, before you begin earning these referral fees for basically doing nothing and handing the file over to an attorney, consider what would happen if the homeowner did not feel that he or she was well served. 

Your regulator ends up with a phone call, which turns into an investigation.  Perhaps you’ll end up having to refund all those fees back to the consumer.  It could happen. 

Loan originators, my advice is to refer your financially distressed homeowners to legal counsel and free HUD counselors.  Loan modifications are performed free of charge by lenders. 

WA State residents: Governor Gregoire just appropriated 1.5 million of your tax dollars to housing counseling agencies all across the state that can help WA State residents FOR FREE.

As a fiduciary, is it possible to justify charging anything above zero when you know free services are available for your client?

Okay all you banker types. Help me analyze this trend.  If banks/servicers are offering upwards of $3500 to outsource loss mit/loan mods, that can mean several things. It surely means that a large percentage of these people who are receiving a temporary interest rate freeze on their ARMs will be back in 3 to 5 years with their hand out again, asking for another loan mod; IF they even make it that far.  40% of recent loan mods have already re-defaulted.  Random, desperate loan mods without common sense underwriting means we’re just pushing this whole mess further down the road, delaying the eventual recover until many years into the future.

Apparently one of these companies coming to town in September to sell this system to LOs immediately following the WAMB convention.  They’re charging LOs a pretty hefty set-up and monthly fee to participate in their referral program.  Someone is definitely getting rich quick off of desperate LOs.

If you’re interested in learning what it really takes to process loan modifications, I’ve been teaching Realtors how to successfully negotiate Short Sales for 8 years.  Attend one of NAMF’s Short Refi classes (yes, this is approved for CE credits) and you’ll get a better feel for if loan mods are worth the time and effort.

If you’re newly approved by FHA, your very best option is to take the class taught by HUD called “FHA Lender Training.” These classes are typically three full days: Day 1 Processing, Day 2 Underwriting and Day 3 Appraisals.  When I attended the HUD training in June put on by the Wash Mortgage Lenders Assoc, the cost was $315 and included lunch. High value for the price.  The FHA trainers were very good. I HIGHLY recommend this option.  The next FHA training in the Northwest is scheduled for Portland this coming week.  Go here for more info:
http://www.hud.gov/offices/hsg/sfh/events/events.cfm

Wholesale lenders have been offering free FHA classes all around town and even inside your office.  When scheduling these classes, look for a trainer with many years of experience in underwriting FHA loans.  If the classis taught by the Account Exec, I would query as to their number of years of experience with the FHA insurance program.

For Online FHA training, I recommend one of my competitors, Susan Williams.  I get no referral fee for sending you here. I just highly admire the quality of her distance learning products.  Here’s her website. Look for the course titled 151, FHA Lending Guidelines. Bonus: Her class is approved for continuing ed credits in many states.
http://www.schoolofmortgagelending.com

For live classroom FHA training here locally, you can choose from three courses.  This month we are offering the FHA Originating Basics course on August 13th in Tukwila.  This course works well for new-to-FHA originators, processors, and underwriters and are taught in four hour blocks, typically from 9AM to 1PM, perfect for LOs who can’t sit in a classroom for more than half a day   These classes are all approved for WA state continuing ed credits.
Read more here:
http://mortgagefiduciaries.com/mortgage-continuing-education-topics/fha-loans/

Finally, I have been working with Bellevue Community College to put together a series of classes on FHA lending. Your staff can earn college credits toward an AA degree, the classes are in the evenings, and we will use the HUD manual, taking the student from processing through origination, underwriting, and appraisals during an 8 week session.  This will be great for your processing staff.

Inside is a provision for the S.A.F.E. Mortgage Licensing Act:

S.A.F.E. Mortgage Licensing Act. The bill requires that all residential mortgage loan originators
be licensed, provide fingerprints, a summary of work experience, and consent for a background
check to authorities. States are given 12 months to develop licensing standards to ensure that
applicants meet the following minimum criteria: (1) No felony conviction involving an act of fraud, dishonesty, a breach of trust, or money laundering (no other felony seven years prior to application); 2) No similar license ever revoked; (3) A demonstrated record of financial responsibility; (4) Meet minimum net worth or bonding requirement (set by state); (5) Successful completion of education requirements (20 hours of approved courses, to include at least 3 hours related to federal laws, 3 hours on ethics and consumer protection in mortgage lending, and 2 hours on the subprime mortgage marketplace); and (6) Passage of a written exam (a minimum score of 75 percent is required to pass). If states do not comply, the Housing and Urban Development (HUD) Secretary is empowered to quickly develop the national database and license, generating revenue for its implementation through fees to license applicants.

If the bill passes, there will be money set aside for a new FHA program to help refinance an estimated 400,000 homeowners in default, and an increase in FHA loan limits.

I found this buried on page 8:

The bill requires that disclosures be provided no later than 7 days prior to closing so
borrowers can shop for another loan if not satisfied with the terms.