To the Loan Originators attending CE Classes in August, 2013

Hi Everyone,

Here’s the follow up from the LO CE class you attended in August:

There is a new case against a company for violating the steering provisions of the FRB Rule on LO Comp. Here’s the scoop.

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.

There was a request for information on how the UST will be scored. Here is a link to the main UST pagewithin the NMLS Resource center. And here’s the direct link to the scoring method.

I mentioned Seattle hip-hop artist Macklemore in class today…. This is the event I attended with my teenage daughter on Aug 12th.

Thanks for coming to class!


DFI Speaks Out on Loan Modifications

From the Washington State Department of Financial Institutions:

DFI Advises Homeowners To Verify The Licenses Of Anyone Offering Loan Modification Services Before Hiring Them

OLYMPIA – The Washington State Department of Financial Institution’s Consumer Services Division advises homeowners who are delinquent on their mortgage to be cautious about using the services of someone offering to help them work with their lender to modify the terms of their home loan.

The Department of Financial Institutions (DFI) has received a number of inquiries regarding the legality of providing this service in this state. While there is nothing inherently illegal about this business, those providing this service in the State of Washington must be licensed as loan originators, mortgage brokers, or consumer loan companies and be overseen by the Department of Financial Institutions. Additionally, under applicable law, the loan modification provider associated with mortgage brokers have a fiduciary relationship with the borrower and must act in their best interest.

“DFI is concerned that homeowners in desperate situations may pay substantial fees for loan modification services and not take advantage of the HUD-approved counseling services offered for free by numerous non-profits,” DFI Director Scott Jarvis said. “The non-profit providers can often negotiate better deals because they have formed working relationships with many of the lenders.”

“We are concerned because loan modification businesses are using high-pressure tactics to get people to pay for their services, in some instances claiming a 100 percent success rate in negotiating their loan,” warns Deborah Bortner, DFI’s Director of the Consumer Services Division. “The truth is, not every loan is fixable.”

DFI advises homeowners to make sure loan modification providers are licensed as a loan originator before using these services. Verify a license at or by calling 1.877.RING.DFI. DFI is also warning consumers to be especially wary if one of these companies asks for a fee up front. Consumers may also wish to seek free homeownership counseling. For more information, visit or call 1.877.894.HOME.

The unanswered question remains: Is helping a consumer negotiate the modification of a deed of trust the unauthorized practice of law?

If the answer is “yes,” then the nominal, paperwork intake performed by an LO must stop at some point and the file handed over to a local attorney.

I’ve submitted an inquiry to the WA State Bar Assoc on this issue asking for an “unauthorized practice of law” opinion.

Attorneys do not split their fee with non-attorneys. This means the consumer could choose to pay the LO a nominal fee for work performed such as counseling and gathering the homeowner’s information and then the consumer will pay a licensed attorney a separate fee.

I’m not sure why a consumer would choose to pay an LO a fee for doing what could be performed for free by working directly with their lender or by working with a HUD-approved Housing Counseling Agency. If a consumer does decide to pay for loan modification help, it seems more rational to just hire an attorney direct. I’ve surveyed 10 attorneys and so far almost all of them are quoting in the $1500 range for a loan modification. Some charge more if there are more liens on title. Why pay that fee, along with a separate fee to an LO?

Why pay a loan mod salesmen $3500, $4000, and upwards of $5,000 for something you can get for $1500 from a person with a law degree whose conduct is heavily regulated by the Bar?

The percentage of loan originators who know anything about loan modifications is at about one half of one percent right now because nobody up until a few weeks ago was doing them. Instead, the industry just refinanced people over and over again. 

Mortgage brokers and LOs are fiduciaries. This means they must put their client’s interests above their own interests.  There can be no undisclosed secret fee splitting. The consumer must be told everything, including fully disclosing and explaining your fee. Brokers and LOs are still coming to grips with what it means to be a fiduciary.

True story from the classroom this week:

I was delivering a 20 min lecture on fiduciary duties. One loan originator sitting in the front row with his arms crossed was not taking any notes while his colleagues were feverishly writing down everything on the board. At the conclusion he raised his hand and said, “My broker has an agreement that we have all our customers sign and in that form, it says that we are not their fiduciary so I don’t have to know any of this stuff.” 

It’s going to take a while before some mortgage brokers and LOs choose to fully embrace these higher duties. Sooner if we end up with a court case.

Just take a look at this craigslist ad: Make $15,000 per month doing loan modifications….no experience necessary.

There are many options for getting help with a loan mod. Prices range from free to predatory. Washington state Licensees ought take great care before moving in this direction. 

In closing, it’s worth mentioning that Indymac loan modifications are re-defaulting at a rate of 58% at the six month mark. This begs the question of whether a homeowner is well-served with a loan modification. This is something fiduciaries would ask themselves as well as disclose and discuss with their clients before recommending this option.

Reverse Mortgage Loan Originations Caught up in New State Law Changes

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

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

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

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