All posts by Synergy

Fannie Mae Selling Guide Announcement SEL-2018-05

Selling Guide Announcement SEL-2018-05

June 5, 2018

Selling Guide Updates The Selling Guide has been updated to include changes to the following:

MH Advantage™ Properties

Inspection of Manufactured Homes with Structural Modifications

Project Standards Updates

Flash Settlement for MBS

Desktop Underwriter® (DU®) Bankruptcy and Mortgage Delinquency Assessment

HomeStyle® Energy in DU

HomeStyle Renovation Forms

Miscellaneous Selling Guide Updates

Each of the updates is described below. The affected topics for each policy change are listed on the Attachment. The Selling Guide provides full details of the policy changes. The updated topics are dated June 5, 2018. The highlighted Selling Guide PDF is back by popular demand! Beginning with the June 2018 Selling Guide update, Fannie Mae is again providing a highlighted version of the Selling Guide PDF to enable a simple way to quickly identify the most recent significant updates made to the Selling Guide. The topic title and edited paragraphs are highlighted in yellow to help you identify where changes were made. (Note that deleted topics and paragraphs are not identified.) The highlighted Selling Guide PDF is intended to be used as a companion tool in conjunction with your review of the corresponding Selling Guide Update Announcement. MH Advantage Properties We are pleased to introduce the MH Advantage initiative. MH Advantage is manufactured housing that is designed to meet specific construction, architectural design, and energy efficiency standards that are more consistent with site built homes. The goal of this initiative is to help bridge the gap in affordable housing by encouraging more consumers to consider manufactured homes as an alternative to site built homes. Loans secured by MH Advantage properties are afforded a number of flexibilities over standard manufactured housing, including higher LTV ratios, standard mortgage insurance, and reduced loan-level price adjustments. Examples of the physical characteristics for MH Advantage include  specific architectural and aesthetic features, such as distinctive roof treatments (eaves and higher pitch roofline), lower profile foundation, garages or carports, porches, and dormers;  construction elements including durability features, such as durable siding materials; and  energy efficiency standards (minimum energy ratings apply). MH Advantage is open to all manufacturers. Participating manufacturers will enter into an agreement with us allowing them to attach an “MH Advantage Sticker” to the home in proximity to the home’s HUD Data Plate. The Sticker identifies the home as having been designed to accommodate the physical characteristics for an MH Advantage property. The lender will confirm the presence of the Sticker, and additional information about site improvements to the property, but is not responsible for confirming the physical characteristics of the home.

 

Requirements for Loans Secured by MH Advantage Properties The following table describes the requirements for delivery of loans secured by MH Advantage properties. Requirements Property Eligibility The lender must confirm the following by reviewing photographs in the appraisal report:  the property is MH Advantage as evidenced by MH Advantage Sticker;  the HUD Data Plate and HUD certification labels are present;  the presence of a driveway leading to the home (or to the garage or carport, if one is present); and  the presence of a sidewalk connecting either the driveway, or a detached garage or carport Appraisal  Manufactured Home Appraisal Report (1004C), and  Completion Report (1004D), if applicable Eligible Transactions  MH Advantage loans follow the same DU eligibility requirements as manufactured homes, with the exception that the maximum LTV ratio is increased to 97% for certain purchases and limited cash-out refinances. All requirements that pertain to loans with LTV ratios 95.01 – 97% apply.  The CLTV ratio may be up to 105% with Community Seconds.  Loans may be originated as HomeReady and subject to all HomeReady requirements.  HomeStyle Renovation and HomeStyle Energy may also be combined with MH Advantage. Underwriting  Lenders must use DU to underwrite.  The “Manufactured Home: MH Advantage” Subject Property Type must be used (even if the property is in a project). Mortgage Insurance MH Advantage loans are subject to standard mortgage insurance coverage requirements; the deeper coverage required for manufactured homes does not apply. Delivery A new Special Feature Code (SFC) 859 is required at delivery in addition to SFC 235. There are no other new requirements related to loan delivery. MH Advantage loans are delivered using:  ConstructionMethodType (Sort ID 51): “Manufactured”  ManufacturedHomeWidthType (Sort ID 33): “MultiWide” or “SingleWide”  If the property is located in a condo, co-op, or PUD, the related project data points are also required. Loan-Level Price Adjustments (LLPA) The 50 basis point LLPA that is applicable to manufactured housing does not apply to MH Advantage. All other standard requirements that apply to manufactured housing apply to MH Advantage. NO T E : The Eligibility Matrix, Loan-Level Price Adjustment Matrix, and Special Feature Codes documents have all been updated to reflect these changes. For more information about MH Advantage, see our website. Effective Dates Beginning today, lenders can:  underwrite MH Advantage loans in DU Version 10.2,  submit MH Advantage loans to EarlyCheck to validate the data via a new set of MH Advantage edits,  deliver whole loans to us, and © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 3 of 8  deliver loans in an MBS with pool issue dates after May 1, 2018. Inspection of Manufactured Homes with Structural Modifications Currently, the Selling Guide requires that when a manufactured home has an addition or a structural modification and is not located in a state with an agency responsible for inspecting these modifications, then the property must be inspected by a licensed professional engineer. The engineer must certify that the addition or structural change was completed in accordance with the HUD Manufactured Home Construction Safety Standards. With this update, if the state does not have this requirement, then the structural modification must be inspected and the structural modifications be deemed structurally sound by a third party who is regulated by the state and is qualified to make the determination. Certification of compliance with HUD Manufactured Home Construction and Safety Standards is no longer required. Effective Date Lenders can take advantage of this change immediately. Project Standards Updates In response to lender feedback, we have made several updates to our condo, co-op, and PUD project policies. These updates will simplify our policies and increase flexibilities when originating loans secured by units in a project. The following table describes the updates. Refer to the Selling Guide for additional details and clarifications. Summary of Project Standards Updates Single-Entity Ownership  Waive the single-entity ownership requirement when the purchase transaction will result in a reduction in the single-entity ownership concentration (maximum single entity ownership 49%, no delinquent dues, no pending or active special assessments)  Exempt units held by non-profits, affordable housing programs (including units subject to non-eviction rent regulation codes), or institutions of higher education from the percentage of single entity ownership calculation  Allow single-entity ownership in projects with 21 or more units to increase to 20% Commercial Space  Exempt commercially owned or operated parking spaces from the project’s commercial space calculations  Increase commercial space to 35% Established Project Definition  Allow a new condo project to be reviewed as an “established” project if it meets all the requirements for an established project other than the 90% unit conveyance policy. Allow 80% conveyance if the developer is holding back units as rental stock if additional requirements are met. Investment Property Transactions  Allow investor transactions to be eligible for Limited Review for LTV, CLTV, and HCLTV to 75% FHA Project Review  Allow delivery of conventional loans secured by units in established condo projects approved by FHA’s HUD Review and Approval Process (HRAP) Two-to Four-Unit Condo Projects  Waive project review requirements, with the exception of some basic requirements that apply Projects Consisting of Manufactured Homes  Allow Full Review of established condo projects  Condo and PUD projects subject to community land trusts, deed restrictions, leasehold estates, or shared equity arrangements may be eligible under the Fannie Mae Project Eligibility Review Service (PERS) Legal Non-Conforming Zoning  Align project standards policy to standard appraisal policy that requires the appraiser to comment on the market response to legal non-conforming zoning © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 4 of 8 Projects Operating as a Hotel or Motel (“Condotel” Policy) Clarify criteria for identifying projects that operate as hotels or motels. The HOA and/or project cannot:  be licensed or managed/operated as a commercial hotel, motel, resort, or hospitality entity  restrict owners ability to occupy the unit during any part of the year  require owners to make their unit available for rental pooling (daily or otherwise)  require that the unit owners share profits from the rental of units to the HOA, management company, or resort or hotel rental company Live-Work Condo Projects  Simplify current policy with the requirement that live-work projects be primarily residential in nature and must be in compliance with local zoning or development regulations for live-work projects Limited Equity Co-ops  Allow limited-equity co-ops to be evaluated through the PERS process for project approval (both streamlined PERS and standard PERS) – limited equity feature must be related to an affordable housing preservation program and is in compliance with our requirements on resale restrictions when applicable In addition to these changes, we also took the opportunity to streamline and reorganize some of the content. For example, we removed the topic pertaining to detached condos. It was replaced with a new topic that clearly describes the requirements that apply to projects and transactions for which a project review is waived. We also removed duplicate content that appeared in multiple topics, such as Project Type Codes. These are now listed in their entirety in only one topic. Effective Dates Lenders may apply these changes when reviewing projects immediately. The weekend of June 23, 2018 the following systems will be updated to support these changes:  DU Version 10.2,  Collateral Underwriter® (CU®),  Uniform Collateral Data Portal® (UCDP®),  EarlyCheck™, and  Loan Delivery – Whole loans can be delivered beginning June 23, 2018, and loans in MBS with pool issue dates on or after July 1, 2018 Condo Project Manager (CPM) will be updated to align with these changes in August 2018. In the interim, lenders may continue to use CPM for projects that do not require the additional flexibilities described in this announcement. For projects that are newly eligible under these expanded eligibility requirements, lenders may complete the applicable project review outside of CPM. Flash Settlement for MBS Last year we eliminated Flash MBS processing fees and instead offered Flash MBS as an acceptable, standard, and no cost delivery option. This has reduced selling costs and increased flexibility for same month pooling and allowed lenders to receive book-entry delivery on Fannie Mae MBS as soon as 72 hours. In our continuing effort to increase pooling flexibility, we will now allow lenders to receive book-entry delivery on Fannie Mae’s published Majors as soon as 48 hours after we receive the Loan Delivery submission. This reduced time-line for book-entry turnaround is only applicable for Fannie Mae’s published Majors. Single issuer MBS must still be delivered 72 hours prior to book-entry. © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 5 of 8 Additionally, we are updating the Pool Settlement Calendars to reflect the 5 th business day before the end of the month as the last date to submit Single Family MBS, allowing for an additional day of pooling. Effective Date The change to Flash Majors will occur with MBS delivered on or after July 1, 2018. The change to the Pool Settlement Calendars will begin with the July Calendar. Desktop Underwriter Bankruptcy and Mortgage Delinquency Assessment The Selling Guide has been updated to include the policies related to bankruptcy and mortgage delinquency assessment that were described in the DU Version 10.2 June Update Release Notes. When inaccurate information exists in a credit report, lenders will have the ability to instruct DU to disregard (in the eligibility assessment) inaccurate bankruptcy or mortgage delinquency information, or disregard a bankruptcy that was due to extenuating circumstances. Effective Date These changes will apply to new loan casefiles submitted or resubmitted to DU on or after the weekend of June 23, 2018. See the DU Version 10.2 June Update Release Notes for additional information. HomeStyle Energy in DU The Selling Guide has been updated to align with updates to DU regarding HomeStyle Energy mortgage loans. Because these updates will allow DU to identify transactions having energy-related improvements, the Selling Guide policy requiring lenders to manually confirm HomeStyle Energy requirements outside of DU has been removed. Effective Date These changes will apply to new loan casefiles submitted or resubmitted to DU on or after the weekend of June 23, 2018. See the DU Version 10.2 Release Notes for additional information. NO T E : As specified in the DU Version 10.2 Release Notes, two new fields are being added to DU to identify HomeStyle Energy loan submissions: Energy Improvement Amount and PACE Loan Payoff Amount. An amount must be entered in one or both of these fields for DU to be able to underwrite the loan casefile as HomeStyle Energy. If a lender’s loan origination system cannot be updated with these two new fields by June 23, the lender can access the DU user interface to enter the data. Alternatively, we will allow lenders to continue to manually apply the HomeStyle Energy policies to DU loan casefiles until their systems have been updated. HomeStyle Renovation Forms We have posted model Renovation Loan documents and related Summary Pages that may be used in connection with HomeStyle Renovation Loans. The following special purpose model documents are now available:  Multistate Renovation Contract – Fannie Mae Model Document (Form 3730), and  Multistate Renovation Loan Agreement – Fannie Mae Model Document (Form 3731). Also, the following model riders are now available:  Multistate Renovation Loan Rider to Security Instrument – Fannie Mae Model Document (Form 3732), and  Multistate Renovation Loan Investor Rider to Security Instrument – Fannie Mae Model Document (Form 3733). © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 6 of 8 The Selling Guide has been updated to include references to these new forms. Effective Date These documents may be used immediately; however, because they are model documents, usage is strictly optional. Miscellaneous Selling Guide Updates Multiple Appraisals. Earlier this year, we clarified the policy in B4-1.3-12, Quality Assurance regarding second appraisals. With this update, we moved a similar policy that existed in B4-1.1-02, Lender Responsibilities, to a more appropriate location in the Guide, B4-1.2-02, Appraisal Age and Use Requirements. The multiple appraisal policy is now clearly described in the two topics where lenders are most likely to look for that information. Primary Mortgage Insurance Absence Reason Code 97. Currently, if a loan is delivered without mortgage insurance, one of two codes is required:  MI Code 95 – No MI Based on Original LTV  MI Code 97 – MI Canceled Based on Current LTV We have updated the Approved Mortgage Insurers and Related Identifiers, published on our website and referenced in the Selling Guide, to reflect that Primary MI Absence Reason Code 97 may only be used for non-flow deliveries. This code is only appropriate for non-flow deliveries because it indicates that even though the original LTV ratio was greater than 80%, no mortgage insurance is required because mortgage insurance was canceled based on a new value obtained after origination. (Note that this update did not result in a direct change to the Selling Guide text.) ***** Lenders who have questions about this Announcement should contact their Customer Delivery Team. Carlos T. Perez Senior Vice President and Chief Credit Officer for Single-Family © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 7 of 8 Attachment Section of the Announcement Updated Selling Guide Topics MH Advantage Properties  B2-1.2-01, Purchase Transactions  B2-1.2-02, Limited Cash-Out Refinance Transactions  B2-2-04, Guarantors, Co-Signers, or Non-Occupant Borrowers on the Subject Transaction  B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing  B4-1.2-01, Appraisal Report Forms and Exhibits  B4-1.4-01, Factory-Built Housing: Manufactured Housing  B4-1.4-10, Property Inspection Waivers  B4-2.2-05, Requirements for Review of Detached Condos (Topic deleted)  B4-2.2-08, Additional Requirements for Review of Condo, Co-ops, and PUD Projects Comprised of Manufactured Homes (Topic deleted)  B5-2-01, Manufactured Housing  B5-2-03, Manufactured Housing Underwriting Requirements  B5-2-04, Manufactured Housing Pricing, Mortgage Insurance, and Special Feature Code Requirements  B5-5.1-02, Community Seconds Loan Eligibility  B5-6-02: HomeReady Mortgage Loan and Borrower Eligibility  B7-1-02, Mortgage Insurance Coverage Requirements Inspection of Manufactured Homes with Structural Modifications  B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing Project Standards Updates  B2-3-01, General Property Eligibility  B2-3-02, Special Property Eligibility and Underwriting Considerations: Factory-Built Housing  B2-3-03, Special Property Eligibility and Underwriting Considerations: Leasehold Estates  B4-1.4-01, Factory-Built Housing: Manufactured Housing  B4-2.1-01, General Information on Project Standards  B4-2.1-02, Waiver of Project Review  B4-2.1-03, Ineligible Projects  B4-2.2-01, Limited Review Process  B4-2.2-02, Full Review Process © 2018 Fannie Mae. Trademarks of Fannie Mae. SEL- 2018-05 8 of 8 Section of the Announcement Updated Selling Guide Topics  B4-2.2-03, Full Review: Additional Eligibility Requirements for Units in New and Newly Converted Condo Projects  B4-2.2-04, Geographic-Specific Condo Project Considerations  B4-2.2-05, FHA-Approved Condo Review Eligibility  B4-2.2-06, Project Eligibility Review Service (PERS)  B4-2.3-01, Eligibility Requirements for Units in PUD Projects  B5-2-02, Manufactured Housing Loan Eligibility  B5-5.1-04, Community Land Trusts Flash Settlement for MBS  C3-7-06, Settling the Trade Desktop Underwriter® Bankruptcy and Mortgage Delinquency Assessment  B3-5.3-09, DU Credit Report Analysis HomeStyle Energy in DU  B4-1.4-10, Property Inspection Waivers  B5-3.3-01, HomeStyle Energy for Improvements on Existing Properties HomeStyle Renovation Forms  B5-3.2-06, HomeStyle Renovation: Renovation Contract, Renovation Loan Agreement, and Lien Waiver  B8-4-01, Riders and Addenda  B8-5-03, HomeStyle Renovation Mortgage Documentation Requirements

Source:https://www.fanniemae.com/content/announcement/sel1805.pdf 

VA Provides Lender’s Certification Requirement for VA-Guaranteed Loans

Lender’s Certification Requirement for VA-Guaranteed Loans 1. Purpose. The purpose of this Circular is to provide clarification on the regulatory requirement that all Department of Veterans Affairs (VA) guaranteed loans require lender certifications. 2. Background. Recently, VA Regional Loan Centers and Lenders have inquired as to the validity of the Lender Certification in conjunction with Interest Rate Reduction Refinance Loans (IRRRLs). The Lender Certification is required on IRRRLs whether or not underwriting is required. This is supported in 38 CFR 36.4340(k). This section states that: “Lenders originating loans are responsible for determining and certifying to VA on the appropriate application or closing form that the loan meets all statutory and regulatory requirements. Lenders will affirmatively certify that loans were made in full compliance with the law and loan guaranty regulations as prescribed in this section.” 3. Action. Lender’s certification applies to all VA-guaranteed loans, and is not contingent upon the type of VA loan. 4. Rescission: This Circular is rescinded July 1, 2020. By Direction of the Under Secretary for Benefits Jeffrey F. London Director Loan Guaranty Service Distribution: CO: RPC 2021 SS (26A1) FLD: VBAFS, 1 each (Reproduce and distribute based on RPC 2021)

Source: https://www.benefits.va.gov/homeloans/documents/circulars/26_18_14.pdf

The Latest on Home Flipping and FHA Buyers

Home flippers often claim that the renovations and repairs they do on homes before selling them preps the property for a new first-time homebuyer, but that’s becoming less and less the case.

According to new data from ATTOM Data Solutions, the percentage of home flips that were sold to homebuyers who secured financing through the Federal Housing Administration (FHA)—which are predominantly first-time homebuyers—dropped to 15.9 percent in the first quarter of 2018, a 10-year low.

Rising home prices have made home flipping a lucrative practice, as the total dollar volume of home flips has been more than $10 billion every quarter since 2016. But it’s also gradually priced out many of the first-time homebuyers home flippers claim to serve. The median price of a home flip rose to $215,000 in the first quarter of 2018, the highest since prior to the housing bust in 2008.

The FHA, a division of the Department of Housing and Urban Development (HUD), provides insurance on mortgages for qualified borrowers, typically people with lower credit scores or those without the means for a down payment. The FHA insures mortgages with as little as a 3.5 percent down payment. This helps expand credit to lower income buyers or first-time buyers.

FHA buyers aren’t always first-time homebuyers, and first-time homebuyers aren’t always FHA buyers, but there’s considerable overlap. So far in 2018, 82 percent of buyers who purchased single-family homes through the FHA were first-time buyers, according to the HUD.

So while the percentage of home flippers who sold to FHA borrowers isn’t a perfect measure for first-time homebuyers, it serves as a good barometer, particularly when looking at the general trend.

The percentage of home flippers who sold to FHA buyers fell below 5 percent during the housing bubble in 2005, as the same easy credit that inflated the bubble and caused it to burst made securing FHA insurance on a mortgage unnecessary; mortgage lenders were more than willing to offer financing to practically anyone with a pulse.

After the bubble burst in 2008 and mortgage lending ground to a halt, home flippers sales to FHA buyers peaked at 34 percent in the second quarter of 2010, as FHA insurance was one of the few ways to lure a lender into a mortgage.

The steadily declining rate at which home flippers sell to FHA buyers certainly has something to do with mortgage credit getting more relaxed over the past few years. If borrowers have other attractive financing offers, some will take it. But as home prices rise, so does the premium home flippers can charge, and many first-time buyers will inevitably get left behind.

Source: https://www.curbed.com/2018/6/7/17435202/home-flips-first-time-buyers

The Latest Developments at the CFPB

The acting director of the Consumer Financial Protection Bureau (CFPB) often says that the only reason he hasn’t burned the agency down is because it’s illegal.

Mick Mulvaney, the staunchly conservative White House budget director, has taken extensive steps to restrain and reform the CFPB while insisting he would do just enough to meet its legally mandated actions. He has worked to undo years of the bureau’s most controversial rules while laying the groundwork for a massive reduction in the CFPB’s reach and authority, including calling on Congress to strip its powers.

Just this week, Mulvaney dismissed the members of three CFPB advisory boards, including a consumer advocate panel he’s legally required to meet with twice each year.

Here are five ways that Mulvaney, who fought against the CFPB’s creation as a member of the House, has transformed it from within during his six months atop the agency.

Structural changes and political hires

Mulvaney has used his vast power and independence to sway the CFPB by pairing career bureau staffers hired for policy chops with highly paid political appointees. He’s also rearranged the bureau’s structure, making a broad array of powers subject to his appointees’ control.

Mulvaney’s top aides have overseen efforts to slim down the bureau and make it more responsive to the financial services industry.

The acting director brought on Brian Johnson and Kirsten Sutton Mork in senior roles, giving them oversight of most day-to-day bureau functions. The former aides to Rep. Jeb Hensarling (R-Texas), the House Financial Services Committee chairman, were key to his legislative and investigative efforts to tame the CFPB.

Hensarling led the House GOP’s push to repeal most of the CFPB’s powers and launched probes of the bureau’s regulatory actions through his subpoena power.

Mulvaney, a former Financial Services panel member, said the arrangement mirrored other federal agencies and balanced out a staff composed mainly of Democratic Sen. Elizabeth Warren’s (Mass.) acolytes.

Mulvaney also stoked rage among the CFPB’s progressive supporters and some small financial institutions when he dismissed this week the members of three key advisory groups.

CFPB officials downplayed the furor among consumer advocacy groups and insisted that board members only cared about “their taxpayer funded junkets to Washington, D.C., and being wined and dined by the Bureau.”

Board members called the claim outrageous and some offered to cover their own expenses.

“We give two days of our time working, sitting at our table from morning until night, digging into these weighty issues,” Josh Zinner, the CEO of the Interfaith Center on Corporate Responsibility, said Wednesday. “They have no actual rationale for dismissing these boards, and now they’re just resorting to name calling. It’s absurd.”

Retreat on payday lending crackdown

Mulvaney has reversed the CFPB’s wide crackdown on short-term, high-interest loans.

The acting director opposes the bureau’s October 2017 rule targeting “payday” loans and sought to delay it through several means. He delayed the compliance date for the first portion of the rule in January, and started the lengthy regulatory process to rewrite it.

The CFPB filed a joint motion with a group of payday lenders suing against the rule, asking the court to delay its effective date until their case is completed.

Mulvaney has also dropped several cases against payday lenders but insists the bureau is pursuing several others under its legal mandate to enforce fair lending laws.

But his step back from the CFPB’s efforts to tackle payday lending has enraged the bureau’s liberal allies and its former director, Richard Cordray, who issued the payday rule shortly before stepping down to run for Ohio governor.

Call for complaints about CFPB’s own actions

The CFPB has issued several formal requests for complaints on almost every aspect of its own regulatory and enforcement actions.

Banks, lenders and financial services firms have griped for years about the bureau’s aggressive oversight. But the official call for complaints will give the CFPB a wealth of documented rationale meant to justify major reversals in bureau policy.

The requests target the ways the CFPB crafts regulations, begins investigations, issues subpoenas and penalizes firms it believes have violated laws.

“Regulation by enforcement is done,” Mulvaney said in April. “Financial services providers should be allowed to know what the law is before being accused of breaking it.”

Cost-cutting measures

The 2010 Dodd-Frank Act empowers the CFPB director to request from the Federal Reserve as much money as they deem necessary each fiscal quarter, and the Fed is obligated to provide the funding.

Mulvaney requested $0 during his first fiscal quarter in charge of the bureau, saying he’d instead use the CFPB’s $177 million emergency reserve account with the Fed’s New York branch.

The fiscal hawk former congressman is mulling ways to slash the CFPB’s expenses, including personnel changes or relocations. He’s also floated reducing the amount of outside scholarship conducted by CFPB employees the bureau sponsors.

Rebranding push

Mulvaney has tried to drag the CFPB as far as possible from its roots as Warren’s brainchild. He’s insisted the agency should be called by its formal legal name, the Bureau of Consumer Financial Protection, despite the frequent use of shorter names by other federal entities.

The acting director has said he wants to bring the CFPB in line with noncontroversial regulators, such as the Federal Deposit Insurance Corporation.

“I don’t want us to be Elizabeth Warren’s baby, because as long as you’re associated with one person, be it me or her, you’re never going to be taken as seriously as a bureaucracy, as an oversight regulator as you probably should,” Mulvaney said in April.

The bureau has also adopted a less flashy, more traditional logo, though its website still sports Cordray-era neon green.

Source: http://thehill.com/regulation/finance/391443-five-ways-mulvaney-is-cracking-down-on-his-own-agency?amp

Loan Officer Back to Basics Refresher

Low numbers of homes for sale have made the current housing market very competitive. For prospective buyers, this has meant it is more important than ever to be in the strongest position possible when making an offer.

Unfortunately, the market isn’t always the only barrier to home ownership. Nearly one in 10 borrowers gets denied for a mortgage, according to recent analysis by LendingTree. We pinpointed the biggest reasons mortgage applications were denied.

Here are five things that can torpedo your mortgage application.

1. Your past credit history

A poor credit history is the overarching reason that can lead to your mortgage loan being denied. In our study, one in four denied borrowers (26%) were turned down because of their credit history. The good news is that you are continually updating your credit history and can take steps to improve it if there are disadvantageous items.

Review your credit report on Annualcreditreport.com or through a monitoring service like My LendingTree to ensure it is accurate. Work to address any adverse records before applying for the loan.

2. Cutting it too close on debt-to-income

A lot of the trouble from the financial crisis was because borrowers were put into homes they could not pay for on a sustainable basis. As a result, mortgages since then have adhered very strictly to income requirements. Stretching to buy your dream home is not advisable. Lenders are unlikely to approve borrowers whose debt-to-income ratios exceed 36%. DTI is your total monthly debt obligations divided by your gross monthly income. It was the cause of 26% of mortgage denials in our study.

3. Taking out new credit before closing

Most borrowers know to avoid applying for new accounts in the run-up to their mortgage application. That advice still applies once you are approved and are on the way to closing on a home. The length of time between initial application and closing is about 45 to 60 days. Lenders will check your credit again just prior to closing, and material changes could affect the cost of the loan or even lead to an approval being reversed. Avoid new applications for other credit during this time.

4. The property is not worth the price

The lending decision evaluates two things: the borrower and the property, which is the collateral the lender will receive in the event the borrower defaults. In our analysis, collateral was the third-leading cause of mortgage denials, indicating the home was not worth enough to justify the financing requested. Make sure you have a look at the property and have a trusted home inspector look it over, too.

5. Sloppiness and lack of documentation

The days of loans with little to no documentation are long gone. Make sure everything in your application, from your tax records to your employment history, is accurate and you have documentation. Be proactive and gather all the typical documentation you’ll need before you apply, so you aren’t denied a loan or delayed in closing.

Tendayi Kapfidze is LendingTree’s chief economist. He oversees the online lending exchange’s analysis of the U.S. economy with a focus on housing and mortgage market trends. 

Source:https://www.cbsnews.com/news/5-things-that-can-torpedo-your-mortgage-application/

Risks and Compliance in Commercial Banking Today

In today’s news cycle, it seems barely a week goes by before another headline flitters across a social news feed about a data breach at some major U.S. or foreign company. Hackers and scams seem to abound across the marketplace, regardless of industry or any defining factor.

Cybersecurity itself has become an increasingly important issue for bank boards—84 percent of directors and executives responding to Bank Director’s 2018 Risk Survey earlier this year cited cybersecurity as one of the top categories of risk they worry about most. Facing the industry’s cyber threats has become a principal focus for many audit and risk committees as well, along with their oversight of other external and internal threats.

Technology’s influence in banking has forced institutions to come to terms with both the inevitability of not just integrating technology somewhere within the bank’s operation, but the risk that’s involved with that enhancement. Add to that the percolating influence of blockchain and cryptocurrency and the impending implementation of the new current expected credit loss (CECL) standards issued by the Financial Accounting Standards Board, and bank boards—especially the audit and risk committees within those boards—have been thrust into uncharted waters in many ways and have few points of reference on which to guide them, other than what might be general provisions in their charters.

And lest we forget, audit and risk committees still face conventional yet equally important duties related to identifying and hiring the independent auditor, oversight of the internal and external audit function, and managing interest rate risk and credit risk for the bank—all still top priorities for individual banks and their regulators.

The industry is also in a welcome period of transition as the economy has regained its health, which has influenced interest rates and driven competition to new heights, and the current administration is bent on rolling back regulations imposed in the wake of the 2008 crisis that have affected institutions of all sizes.

These topics and more will be addressed at Bank Director’s 2018 Audit & Risk Committees Conference, held June 12-13 at Swissôtel in Chicago, covering everything from politics and the economy to stress testing, CECL and fintech partnerships.

Among the headlining moments of the conference will be a moderated discussion with Thomas Curry, a former director of the Federal Deposit Insurance Corp. who later became the 30th Comptroller of the Currency, serving a 5-year term under President Barack Obama and, briefly, President Donald Trump.

Curry was at the helm of the OCC during a key time in the post-crisis recovery. Among the topics to come up in the discussion with Bank Director Editor in Chief Jack Milligan are Curry’s views on the risks facing the banking system and his advice for CEOs, boards and committees, and his thoughts about more contemporary influences, including the recently passed regulatory reform package and the shifting regulatory landscape.

Source: https://www.bankdirector.com/index.php/issues/risk/good-and-bad-facing-audit-and-risk-committees-today/

Commercial Banks and Their Share of the Mortgage Industry

The five largest U.S. banks originated residential mortgages worth less than $87 billion in Q1 2018. This marks a sharp reduction from the figure of $110 billion in the previous quarter, and is also well below the $96 billion in mortgages originated a year ago. In fact, this was one of the worst quarters on record for these banks in the last twenty years. The only instance where these banks fared worse was in Q1 2014, when the end of the mortgage refinancing wave resulted in total originations dropping to $75 billion.

The sharp decline is primarily because of the reduction in overall activity levels across the mortgage industry from an increase in interest rates – something that can be attributed to the Fed’s ongoing rate hike process. While total mortgage originations for the industry also fell to $346 billion from $361 billion a year ago, a sharper decline in origination activity for the largest banks led their market share lower to 25% from 27% in Q1 2017.

We capture the impact of changes in mortgage banking performance on the share price of the banks with the largest mortgage operations in the U.S. – Wells FargoU.S. BancorpJPMorgan Chase and Bank of America – in a series of interactive dashboards. Total U.S. Originations includes fresh mortgages as well as mortgage refinances as compiled by the Mortgage Bankers Association

The mortgage industry in the U.S. witnessed a sharp reduction in origination volumes since Q4 2016, as a series of interest rate hikes by the Fed weighed on mortgage refinancing activity even as an increase in mortgage rates hurt the number of fresh mortgage applications. This led to total mortgage originations falling from $561 billion in Q3 2016 to just $346 billion in Q1 2018. There was a notable uptick in mortgage activity over Q2-Q3 2017, though, as a small reduction in long-term mortgage rates helped boost demand over this period.

Wells Fargo Maintains Its Lead

Wells Fargo has remained the largest mortgage originator in the country since before the economic downturn. While the bank was always focused on the mortgage business, it tightened its grip in the industry after the recession thanks to its acquisition of Wachovia – originating one in every four mortgages in the country in early 2010. Although weak conditions in the mortgage space dragged down Wells Fargo’s market share to a low of 11% in Q4 2015, the bank’s market share has largely remained around 12.5% over recent quarters.

That said, the combined market share of these five banks has fallen drastically from over 50% in 2011 to around 25% now. This was primarily due to a sizable reduction in mortgage operations by Bank of America and Citigroup to curtail losses they incurred in the wake of the recession. In fact, Bank of America’s mortgage banking division has shrunk to an insignificant part of its business model – leading to a decision by its management to no longer report mortgage banking revenues separately starting in Q1 2018.

s://www.forbes.com/sites/greatspeculations/2018/06/07/largest-u-s-commercial-banks-continue-to-lose-market-share-in-the-mortgage-industry/#72ac9d1d9e86

Regulation Compliance Bruden Now Quantified

How much does your bank spend on regulatory compliance?

A recent Fed district bank study found that community bank compliance costs averaged 7.2% of non-interest expense. While significant by itself, that average hides a trend with significant implications—but let’s not get ahead of the story.

When S. 2155, the Economic Growth, Regulatory Relief, and Consumer Protection Act was signed into law, the industry breathed a big sigh of relief. But getting rid of some of the Dodd-Frank Act rules, or easing them, won’t solve the totality of the regulatory burden banks face—not by a long shot. There was plenty to do before Dodd-Frank came about, and most previous relief laws merely nibbled around the edges of compliance duties.

Compliance isn’t fading away

In fact, it has been pointed out by some in the compliance fraternity that, in the wake of S. 2155, banks initially will face additional costs in unwinding systems and procedures built at a significant cost to handle the rules that have been eliminated or amended.

Indeed, in an analysis of S. 2155 on BankingExchange.com by Zach Fox of S&P Global Market Intelligence, “Still engulfed by regs,” the writer states:

“For smaller banks, the relief appears more modest. Some of the law’s provisions meant to ease regulatory burden will have little impact for a simple reason: Small banks were already exempt. Provisions, such as qualified mortgage status for loans held in portfolio, higher leverage at bank holding companies, a lengthier exam cycle, and a shorter call report, were already available to banks with less than $1 billion of assets.”

The hopes for further relief through Senate consideration of other financial legislation sent over by the House remain just that—hopes. Political promises from Senate leadership to House Financial Services Commission Chairman Jeb Hensarling have been made in a midterm election year that may exert unusual gravitational pull on legislation.

Burden’s costs and implications

And that makes the findings of a Federal Reserve Bank of St. Louis study about community banks’ regulatory costs especially interesting.

For those who predict that compliance costs will continue to encourage consolidation at the small end of the industry spectrum, the study provides more evidence.

Indeed, the study reports that 85% of bankers in the most-recent sampling in its database indicated that regulatory costs were important in considering acquisition offers.

The project makes it clear that regulatory burden hits smaller community banks harder than larger community banks, and that the impetus to merge for compliance efficiency will not go away, even though the recent regulatory reforms may help some institutions.

Major findings

The Fed study, entitled Compliance Costs, Economies Of Scale, And Compliance Performance, was published in April. The project was based on survey data compiled from among nearly 1,100 community banks by the Conference of State Bank Supervisors in 2015, 2016, and 2017. (All institutions in the sample were under $10 billion in assets.) Interestingly, the researchers also referenced multiple studies of banking compliance costs that have been performed in recent years by agencies, academics, and associations to give a full picture around their own findings and arguments.

The survey looked at regulatory costs in multiple ways and at multiple levels. Among the findings:

• Economies of scale exist in compliance.

Many forms of compliance have incremental costs—suspicious activity reporting, mortgage transactions, etc., cost more with increasing volume—but the ongoing fundamental systems costs and the costs of keeping current apply to all institutions.

“Banks with assets of less than $100 million reported compliance costs that averaged almost 10% of non-interest expense,” the study reports, “while the largest banks in the study reported compliance costs that averaged 5%. In other words, the compliance cost burden for the smallest community banks is double that of the largest community banks.” [Emphasis added.] The largest banks referred to were those with between $1 billion and $10 billion in assets.

• Bank Secrecy Act compliance costs lead the way among expenses tied to specific regulations.

In the 2017 survey results, based on 2016 numbers, BSA expenses dwarfed all other compliance costs, with the exception of those related to RESPA, TILA, and Regulation Z. This is interesting because Comptroller of the Currency Joseph Otting, a former banker, identified BSA costs early on as a priority. While banking agencies can’t directly change the rules, Otting has spearheaded efforts to discuss these issues with the agency that does, the Financial Crimes Enforcement Network, or FinCEN.

As the exhibit below indicates, mortgage-related rules would supplant BSA as the leading categories if the RESPA, TILA, and Regulation Z, Qualified Mortgage, and Ability to Repay rule bar were combined into one, totaling almost 36%.

 

Source: Compliance Costs, Economies Of Scale, And Compliance Performance

• Personnel expenses account for the majority of community bank compliance costs.

The study found that this was followed, in order, by data processing, accounting, consulting, and legal expenses. The report states that personnel costs—coming to 5.1% of average non-interest expense—represent almost seven times more than the other four categories combined.

 

Source: Compliance Costs, Economies Of Scale, And Compliance Performance

“Compliance expenses for personnel appear to be more subjective than expenses in the other categories,” the report says. “For example, it may be difficult to estimate just how much time a loan officer spends filling out compliance forms versus drumming up new business. Respondents may account differently for the time and attention devoted to compliance by chief executive officers or boards of directors.”

• Compliance spending and compliance ratings bear little relationship to each other.

For this analysis, the researchers looked at both compliance ratings and the M—for management—component of the CAMELS ratings, which includes consideration of the management and board oversight of the compliance function.

 

Source: Compliance Costs, Economies Of Scale, And Compliance Performance

The analysis found that “within a given size category, compliance expenses as percentages of non-interest expense do not appear to vary systematically for banks with different performance ratings. For banks with assets of less than $100 million, for example, relative compliance expenses at the highest-rated banks were lower than for other banks, while for banks with assets between $500 million and $1 billion, relative compliance expenses were higher for the highest-rated banks than for other banks. This suggests that compliance performance is based on factors other than what is spent on it.”

Source: http://m.bankingexchange.com/news-feed/item/7605-reg-burden-hits-small-hardest?Itemid=638

Top Napa Valley Wineries to Visit

Alpha Omega

This family-owned winery on the main tourist route along Highway 29 has made its name with high-end single-vineyard Cabernets from famous vineyards like Beckstoffer To Kalon and Beckstoffer Dr. Crane. The rustic-chic, barn-like tasting room offers current releases for $50 and a tour and tasting for $65; there are also private tastings by appointment. Arrive in nice weather and sip on the panoramic terrace.

Beaulieu Vineyard

One of the oldest producers in the valley, BV offers tours of the original winery building, which dates back to 1885. These are followed by barrel samples of Cabernet and a stop in the new Heritage Room, which chronicles the history of wine in Napa.

Beringer

One of the top large wineries in the world, Beringer has long done an exceptional job of producing a substantial volume of reliably high-quality wine, from the entry level bottlings to the often extraordinary Private Reserves. Its impressive, 1884 fieldstone Rhine House, housing the tasting room, is a Napa Valley landmark. There are various tasting and tour options; try the $55 Taste of Beringer Tour, which includes a barrel sampling in the old, hand-dug caves and a guided, sit-down tasting.

Black Stallion

Visitors can assess leaf shape and cluster size and otherwise analyze 17 grape varieties in the demonstration vineyard here. Drop by for a walk-in tasting room ($20-$50 depending on the flight).

Buehler Vineyards

The nicely understated Cabs at this family-owned vineyard are some of the valley’s best values. Plus, private tours and tastings are hosted by the Buehler family.

Cade Estate

The views of the valley floor are glorious from this super-sustainable, LEED Gold–certified winery, located on Howell Mountain. Guests can taste Cade’s superb Sauvignon Blanc in its chic outdoor living room.

Cakebread

Cakebread, a familiar sight on Highway 29 in Rutherford, was one of the moving forces behind Napa’s revival in the 1970s, and scored a runaway success with its luscious style of Chardonnay, plus full-flavored reds. Cakebread (it’s the family name, by the way, not a wine descriptor) is serious about its guest experience, and offers a range of tastings, tours, educational experiences and food pairings.

Brasswood

This sleek winery in St. Helena is a destination in itself, with the Brasswood Bar + Kitchen serving “Wine country comfort food” Wednesdays through Sundays, the Rosgal Gallery (call ahead), and of course the tasting room itself, plus the clubby Winemaker’s Den private room, available by appointment.

Caymus

Caymus’ velvety, full-throttle Special Selection Cabernet Sauvignon was among Napa’s first “cult Cabernets” back in the 1970s, and it’s still going strong under the third generation of the Wagner family to run the operation. Visitors to their beautiful old fieldstone winery, tucked away off Conn Creek Rd. pay a $50 per person tasting fee to sample five wines produced by the Wagner family (who also make Conundrum, and Mer Soleil among other labels).

Chappellet

This is the oldest winery on Pritchard Hill, a stunning, high-elevation area known for producing some of Napa’s best Cabs. Chappellet’s extensive 90-minute Vineyard Tour and Tasting includes a walk through the organic vineyards and a seated tasting of new releases.

Chateau Montelena

This winery is famous as a location in the movie Bottle Shock, a fictionalized account of the famous 1976 Judgement of Paris tasting, when Montelena’s Chardonnay upset a roster of great French wines. The Chardonnay is still very worthy, but most visitors will arrive at Montelena’s gorgeously sited, 19th century stone château thirsty for the famous Cabernets and Zinfandels. There are numerous tasting and tour experiences on tap, from the $30 current release tasting (reserve ahead) on up.

Clif Family Winery

The Clif family, of energy bar fame, makes excellent wine as well. Rent a road bike from the Velo Vino tasting room and do the 24-mile Cold Springs Loop, past Clif’s organic farm and vineyards, with espresso before and a wine tasting after. Clif Family Winery has also introduced a food truck, The Clif Family Bruschetteria, which is typically parked outside their tasting room. The truck serves numerous variations of bruschetta along with other Northern Italy–inspired fare. Much of the produce is sourced directly from the Clif Family Farm.

Cliff Lede

Each of Cliff Lede’s vineyard blocks is named for a rock song. Get a backstage pass for access to limited production wines, including “High Fidelity” and “Rock Block” offerings. The lounge also features rotating art exhibits. Prior reservation required.

Clos du Val

For many years this foundational Stags Leap District winery was known for an austere style favored by its fans, but at odds with many of its neighbors. But beginning with the superb 2012 vintage, the winery started to produce reds in a richer, more velvety style that, as the winery puts it, “embraces the Napa Valleyness” of the wines. You can taste the evolution at the lovely winery in a variety of settings—there are picnic tables, pre-reserved private cabanas, and a just-drop-in tasting room with current releases.

Corison

Make an appointment to taste through library samples of older vintages of winemaker Cathy Corison’s fantastic Cabernet Sauvignons. Tasting flights include our current release and selected library vintages, available exclusively at the winery.

Domaine Carneros

Founded by Champagne Taittinger in 1989, Domaine Carneros’s impressive, largely solar-powered château amid the rolling hills on Route 12 was modeled on Taittinger’s Château de la Marquetterie back in France. You must reserve ahead for even the basic tasting. But it is worth it, both for the educational experience (the $50 tour, offered three times a day, takes you from the vineyard to the cellar), and for the laid-back atmosphere—you can sip away at a table on the terrace with its sweeping vineyard views. Top-notch bubbly is the thing here, but the still wines are lovely as well.

Domaine Chandon

Chandon is one of the few wineries in Napa Valley with a food menu to complement its sparkling wine list. Purchase wine buy the flight, glass or bottle then settle into the festive patio or find a quiet spot in an Adirondack on the expansive lawn under the oak trees.

Duckhorn

Duckhorn, one of the pioneers of Napa’s modern era, first struck gold with Merlot, notably its famous luxury bottling from Three Palms Vineyard, which remains its flagship. The winery also has a following for palate-flattering Cabs and Sauvignon Blancs. Though the main portfolio tends toward the expensive, there are more affordable wines well worth enjoying under the Decoy and Canvasback labels. Reserve ahead and taste five current releases for $35, or opt for various limited bottle tastings.

Etude

Etude’s deck is idyllic, with bright white umbrellas and tastings of excellent Chardonnay and Pinot Noirs.

Failla

It’s a little strange that Failla even allows visitors, considering how sought-after its wines are. Ehren Jordan, one of Napa’s most lauded winemakers, often hangs out with guests in his courtyard. Taste single-vineyard Pinots (made with grapes from around the state) in the restored farmhouse or 15,000-square-foot cave.

Far Niente

At $75 per person, this tour and tasting may actually be one of the best bargains in the Valley. The fieldstone winery, an 1885 National Register landmark was lavishly restored by the Nickel family, who own the property, dug its famous wine caves and planted its lovely gardens. The tour takes it all in, but the wines themselves are the real draw.

Flora Springs

If you’ve driven up Highway 29 into St. Helena you’ve surely seen the Las Vegas-worthy, wavy façade (a cutaway soil profile?) of Flora Spring’s multi-venue tasting room, which is a lovely, drop-in tasting room inside (with some premium tastings requiring reservations.) But it’s also worth bushwhacking a bit off the main drag to the actual winery, a once-abandoned 19th-century stone structure that is also home to the family proprietors. You’ll need an appointment to access its slate of tours and experiences.

Frank Family Vineyards

Proprietor Rich Frank’s resume as one of Hollywood’s long-running inside players includes nearly a decade as president of Walt Disney Studios. His historic Calistoga winery has a notable history of its own—it is on the site of the old Kornell Champagne Cellars and the 19th-century Larkmead before that. The pretty frame house that serves as the tasting room offers a four-wine tasting, including one of the Cabernets that have quickly put Frank on the map; the $40 tasting includes its often-overlooked, but excellent artisan sparkling wine.

Grgich Hills Estate

Creamy, full-flavored Chardonnays were this Napa icon’s first signatures, and are still the standard-bearers—the basic $25 tasting flight is all Chardonnay—but visitors to this easy-going valley-floor winery (Hills is a partner’s name, not a geographical description) should be sure to get a taste of the lively Fumé Blanc, or the graceful, medium-rich Cab or Zinfandel to get the winery’s approach to making wines of finesse.

HdV

Winemaker Stéphane Vivier, a French expat, uses Burgundian winemaking techniques, like fermenting in enormous French foudres and meticulously sorting grapes after harvest, to make his fantastic Carneros Chardonnays.

Heitz Cellar

When your palate is tired out from tasting dozens of Cabernets, try this fantastic winery. It has Cab, too, but it is definitely the only winery in Napa making floral, strawberry-scented and light-bodied Grignolino, an obscure Italian variety.

Inglenook

The elegant, ivy-covered Inglenook Château is a Napa icon, dating back to the 1800s; it was purchased from the Niebaum family by Francis Ford Coppola in 1975. Small-group tours ($75/person) end with a seated tasting paired with artisanal cheeses. Afterward, stop by the perfectly curated shop for tabletop pieces from designers like William Yeoward and L’Objet pour Fortuny.

Long Meadow Ranch

All of the tastings here include samples of the estate’s wonderful olive oils, too. Reserve a spot for the Chef’s Table ($145), which occurs in a private room and is served with wine pairings. Dishes are tailored to the wines, from Sauvignon Blanc to Cabernet.

Long Meadow Ranch, 707-963-4555 

Louis M. Martini

This over 80-year-old winery continues to make exceptional, value-driven Cabernet from both Sonoma and Napa for every vintage. Its tasting room offers a rotating selection of 10 wines.

Ma(i)sonry

20 small California wineries offer tastings at the Ma(i)sonry collective. Guests can taste from whichever wineries they choose in whichever setting they prefer, from a steampunk-art gallery to a contemporary sculpture garden to a blanket on the lawn.

Newton Vineyard

The vineyard tour of Newton’s sustainably farmed property on Spring Mountain is epically beautiful. Wander through classical English gardens, ride around in a six-wheeler, then look out over all of Napa from beside Pino Solo (a lone pine at the peak of the estate), while tasting Newton’s wines. At $100, it’s expensive but worth it.

Odette Estate

A high-style, new Stag’s Leap winery from the high-profile team (Gordon Getty, Gavin Newsom and Napa Valley veteran John Conover) behind PlumpJack and Cade, this is a gorgeous contemporary winery in a dramatic location under the Stags Leap Palisades. Make an appointment to taste the extraordinary, top-level Cabernet Sauvignon (though taking a bottle home will cost you in the triple digits).

Truchard

Truchard makes 15 small-batch bottlings of Cabernet, Pinot Noir and Chardonnay, several of which are available only in its tasting room. Tours here (sometimes led by a Truchard family member) take guests around the vineyards and wine caves, including samples of four wines along the way.

Whetstone

Whetstone’s tasting room is situated in a real live Napa Valley château built in 1885. Sit around a big stone fireplace and taste current-release Chardonnays and Syrah while snacking on rosemary almonds.

Whitehall Lane

The Leonardini family’s high-quality winery has remained surprisingly under many wine lovers’ radar. But those who linger awhile at the tasting room off Highway 29 south of St. Helena can taste their portfolio of wines—notably the Cabernets and Merlots—offered at realistic prices. A drop in tasting of four wines is just $25, but those with more time should consult the website for a roster of options, including tastings outdoors in the vineyards.

Source: https://www.foodandwine.com/slideshows/best-napa-valley-wineries-visit#1

Secrets of Quicken Mortgage Loans Success

Quicken Loans recently overtook embattled Wells Fargo to become the leading direct-to-consumer mortgage lender in the nation.

It is the first time a Detroit-based firm has ever held that title.

Yet being No. 1 in mortgages is a lot different than being tops in other industries, such as automotive. In the highly fragmented mortgage sector, where prospective borrowers can visit some 30,000 bank branches and credit unions across the country for a home loan, Quicken commands a market share of just 5.4 percent.

“Every time we start to get a big head, I remind our people, ‘You know that 19 out of 20 people who wake up this morning and get a home loan aren’t coming here?’ ” Dan Gilbert, 56, Quicken’s founder and chairman, said in a one-on-one interview in the firm’s bright downtown headquarters with windows facing the Renaissance Center and the Detroit River. “We’ve got a long ways to go.”

Gilbert said he thinks Quicken can grow to 10 percent of the market — perhaps even 20 percent or more. The key, he said, is to keep improving Quicken’s edge in technology and customer service.

“That’ll take time,” Gilbert said from his 10th floor office in One Campus Martius, previously known as the Compuware building, in Detroit. “But we have the platform and infrastructure in place to do that. We really think we do.”

Such a feat is rare and hard to achieve. Few lenders ever capture more than 10 percent of the retail mortgage market, a category that excludes loans made through brokers, according to Guy Cecala, CEO and publisher of Inside Mortgage Finance, which produces closely followed lender rankings.

Wells Fargo, in fact, still holds the top ranking for mortgage originations in a broader category that includes loans from brokers and those bought from other lenders.

“It is a lot more of a challenge if you are an online or direct-to-consumer lender like Quicken,” Cecala said. “They are going to need to keep up the advertising, they are going to need to be a lender of choice.”

Major employers are important in any city. However, Quicken’s success has had an outsize impact on Detroit, which is  recovering from decades of disinvestment and a 2013-14 municipal bankruptcy.

If Gilbert’s mortgage machine ever sputters out, so could the city’s rebound.

Quicken says it employs nearly 13,000 people in Detroit, making it one of the city’s largest employers. The mortgage firm accounts for close to three-quarters of the total head count in Detroit for all businesses within Gilbert’s family of companies.

Those businesses number more than 100 and range from real estate firm Bedrock to StockX, an online stock market for sneakers, sports apparel and other goods. Gilbert’s real estate holdings include more than 100 buildings and new development projects in and around downtown.

Quicken, though, “is still the absolute flagship, most important business — most people, most revenue, most profit,” Gilbert said.

Don’t say ‘nonbank’

Many in the financial industry now classify Quicken as a so-called “nonbank.” That distinguishes the firm from traditional banks that take deposits, offer checking accounts and have ATM machines.

Gilbert absolutely hates the term.

He feels that “nonbank” gives the wrong impression of Quicken’s business model — and the quality of the $20.4 billion in residential mortgages it originated in the first quarter — as being riskier. Mostly, he thinks it strange to define Quicken by something it is not.

“You know, I’m a non-zebra talking right now — it’s just the weirdest thing,” Gilbert said. “In what other category in the world is someone a non-something? It’s an irrelevant term for both bank and nonbank as it refers to mortgages.”

Quicken is the first nonbank to become the top retail mortgage lender since the 2008 financial crisis.

Gilbert says Quicken has achieved its success through an obsessive focus on customer service, a company culture centered on constant improvement, and the innovative online selling and processing of “very vanilla” mortgages — none of the free-wheeling loan products that led to last decade’s market meltdown.

About 95 percent of all Quicken’s mortgages have explicit government backing through Fannie Mae, Freddie Mac, Ginnie Mae or the Federal Housing Administration, which generally insure loans against homeowner defaults.

Most of Quicken’s other loans are so-called jumbo mortgages, Gilbert said, which are those above $453,100 in value (or $679,650 in higher-cost regions) and therefore aren’t eligible for government backing.

Defending the title

How long Quicken can stay No. 1 could depend on its adjustment to the mortgage industry’s shift away from mortgage refinancings. The number of refinancings has been plummeting nationwide as interest rates inch up.

The shift also has resulted in lower mortgage origination volume across the industry.

The Mortgage Bankers Association forecast that refinancings will fall another 30 percent this year, following a 33 percent year-over-year drop in 2017. The rate on a 30-year, fixed-rate mortgage was 4.56 percent Thursday, up from 3.94 percent a year ago, according to Freddie Mac.

Quicken’s strong first-quarter results, achieved in a purchase-oriented mortgage market, suggest that it is making the transition.

“They managed to thrive in a home purchase market, which would suggest (the refinancings fade) is not an issue,” Cecala said. “But it will be easier to tell after 2018 is in the record book.”

Quicken also has gotten more involved in the business of servicing mortgages, which generates revenue for the firm. Servicing involves collecting payments from homeowners on behalf of the owners or investors in the mortgage.

“They are the seventh largest servicer in the country now and that is phenomenal given that they really weren’t servicing loans six years ago,” Cecala said.

Gilbert said Quicken has no plans to loosen its lending standards to compensate for lost refinancing business.

“We won’t,” he said. “Our reputation is not worth any short-term money that you might make from that.”

No subprime

Gilbert has long insisted that Quicken did not partake in the subprime mortgage boom that culminated in last decade’s market crash. He points to the company’s survival through that era when numerous lenders, such as No. 1-ranked Countrywide Financial, disappeared.

“That’s why we’re alive,” he said.

He recalled the significant industry pressure at the time to extend loans to unqualified borrowers.

“I remember our guys bringing us stuff, our guys being our bankers, saying, ‘Hey look, Countrywide is offering 100% loan-to-value loans for 580 (credit) score borrowers with no income verification. I said, ‘We’re not doing these loans,’ ” Gilbert said.

“You have to look at it through the eyes of ‘would you loan your money.’ That’s how I ask people to look at it,” he added. “Because even if you could make some money in the short term and sell (the mortgage) off, we still have reps and warranties that we make, by the way, to whoever we sell to. And secondly, it’s not the right thing for the customer.”

More recently, Quicken has been battling the U.S. Department of Justice in federal court in a False Claims Act case alleging that, from 2007 through 2011, the firm fraudulently approved borrowers for Federal Housing Administration-backed mortgages.

Gilbert has strongly denied the allegations and, unlike other lenders, has refused to settle the case with a big payout to the government. A trial on the merits of the government’s claims isn’t expected to start until mid-2019 at the earliest.

Quicken continues to participate in the FHA mortgage program. Other lenders have scaled back or stopped doing FHA loans in recent years.

“The problem in this country is, if you’re going to treat the bad guys the same as the good guys, you’re not going to have a lot of good guys left,” Gilbert said earlier this year.

Rock to Rocket

Gilbert started Quicken Loans, then known as Rock Mortgage, in 1985 with his brother and a friend. Back then, business involved “bringing doughnuts into real estate offices and hoping they give you a referral,” he said.

Quicken became one of the first online mortgage lenders in the late 1990s and started shuttering its brick-and-mortar branches.

 More recently, through its new Rocket Mortgage mobile and online brand, the firm has shortened the time to closing a mortgage to as few as 16 days for a purchase and eight days for refinancing.

Quicken has won eight consecutive annual J.D. Power awards for client service in mortgage origination and four for mortgage servicing.

Out of suburbia

The start of Detroit’s rebound can be traced to Gilbert’s decision a decade ago to move Quicken’s headquarters from the suburbs and into downtown, bringing thousands of young employees.

Gilbert said he doesn’t consider the Detroit move as any sort of charitable act. Had Quicken stuck to the suburbs, today its workforce might be inconveniently spread across multiple buildings, separated 5 or 6 miles apart.

“There is no way we would be the company we are today spread out in the suburbs,” he said. “It’s been very profitable for us to be a business in the city.”

How it works

Unlike traditional banks, Quicken can’t rely on a base of customer deposits to make mortgages. Instead, it can either borrow the money for the loans from banks, tap lines of credit or use its own cash, Gilbert said.

“We carry quite a bit on our balance sheet,” he said.

Quicken runs the majority of the mortgages through the underwriting systems for the government-backed entities such as Fannie Mae. It then pools the mortgages and bundles them into securities, which Quicken goes on to sell into the secondary market.

It is common for all mortgage lenders — banks and nonbanks — to process and sell their mortgages that way.

Some market observers have raised concerns about the possible risks and dangers of nonbank mortgage lenders, contending that such firms are vulnerable to sudden dry-ups in their short-term credit lines.

Gilbert insists that Quicken is well-capitalized and less risky than many banks.

“We have more assets than 94 percent of FDIC-insured banks,” he said.

Moody’s Investors Services upgraded Quicken’s bond rating by a step in December, saying that “while profitability has declined from the exceptional levels of 2015 and 2016, we expect the company to continue to generate very strong profitability over the next several years.”

Gilbert also disputes claims that nonbanks are under-regulated. He says Quicken is actually more closely regulated than many traditional banks because it is overseen by regulators in all the 50 states where it makes mortgages, plus by government agencies including the Consumer Financial Protection Bureau and the government-backed mortgage entities.

Cecala of Inside Mortgage Finance said that few in the industry are worried about Quicken.

“Despite those general concerns about nonbanks, most people don’t have the concern about Quicken, just by their sheer size,” he said. “They are the largest nonbank by far, and even though they are privately held, everyone knows that they certainly have the wherewithal to make good on anything they need to.”

Source: https://www.freep.com/story/money/2018/05/31/quicken-loans-mortgage-dan-gilbert/647865002/

Web Statistics