Category Archives: Mortgage Banking

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.


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.


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 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. 


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.”


Have Housing Prices Peaked ? Here is the Latest

The early stages of a housing bubble are fun for pretty much everyone. Homeowners see their equity start to rise and feel smart for having bought; home seekers have to pay up, but not too much, and fully expect their new home to keep appreciating. People with modest incomes feel a bit of pinch but can still afford to stick around.

But later on, the bad starts to outweigh the good. Existing homeowners still enjoy the ride, but would-be buyers find themselves priced out of their top-choice neighborhoods. And residents who aren’t tech millionaires find that they can no longer afford to live where they work. Consider the plight of a teacher or cop pretty much anywhere in California these days:

Drew Barclay has a master’s degree in education and three years of experience as an English teacher, but, like most new teachers in Davis, he can’t afford to live there.

Instead, Barclay, 31, shares a rental in Sacramento that costs him $950 a month – about 40 percent of the $2,550 he brings home each month after taxes.

He is so certain that he won’t be able to qualify for a loan for a home in Davis on his $47,000 annual salary that he hasn’t bothered to house hunt. The median price for a house in the city in March was $682,500, according to tracking firm CoreLogic. Renting also is prohibitive, with the average rent in Davis about $2,500 a month, according to Zillow, a real estate website.

Davis Joint Unified officials hope to get a little help from state legislators. Last week, the state Senate voted 24-8 to waive the annual school district parcel tax of $620 for teachers and other employees of the Yolo County school district.

Davis school board member Alan Fernandes said that about two-thirds of the district’s teachers live outside Davis where housing is less expensive. He said the bill would encourage more of the district’s teachers to live in the community they serve.

Davis Joint Unified regularly passes parcel taxes to keep class sizes down and to support classroom programs. In 2016, 71 percent of Davis voters approved Measure H, a yearly tax of $620 on each parcel of taxable real property in the district for eight years. The measure raises $9.5 million a year to support math, reading and science programs and reduced class sizes for elementary grades.

But the roughly $50 a month exemption isn’t likely to help Davis Joint Unified teachers enough to make buying a house affordable. The teachers are some of the lowest-paid educators in the region, with some of the highest health care costs.

Barclay said he knows teachers 10 or 15 years older than he is who are renting rooms in other educators’ homes to get by. He said some teachers have weekend jobs to make enough money to pay their bills.

“Because I’m fairly certain I can’t put down permanent roots here, I don’t see this position as a permanent one,” Barclay said of his job as an English teacher at Davis Senior High School.

California school districts have responded by offering signing bonuses, housing stipends, computers and free tuition to educators who sign up with their districts.


AML / BSA for Mortgage Lenders – Are You Compliant ?

BLOG VIEW: The U.S. Department of the Treasury, through the Financial Crimes Enforcement Network (FinCEN), issued a final rule in February 2012 requiring nonbank residential mortgage lenders and originators to establish anti-money laundering (AML) programs and to report suspicious activities under the Bank Secrecy Act (BSA). The BSA is designed to alert law enforcement of criminal and terrorist activity. The BSA requires U.S. financial institutions (including non-bank residential mortgage lenders/brokers) to assist U.S. government agencies in detecting and preventing money laundering.

Despite the issuance of this final rule more than six years ago, many nonbank mortgage lenders/brokers are not complying with the requirements of the BSA and, as a result, regulators are beginning to take note in their examinations.

A compliant AML program for a residential mortgage lender/broker includes: 1) designating a competent individual to serve as the company’s BSA/AML compliance officer; 2) conducting an AML Risk Assessment; 3) drafting and implementing written internal policies and procedures; 4) establishing an ongoing training program; and 5) conducting an independent audit of the company’s AML program every 12 to 18 months. An AML program must also include the maintenance of a “red flags” program and a customer identification program, the filing of suspicious activity reports (SARs), when required, and compliance with Section 314 of the U.S. Patriot Act and Office of Foreign Assets Control (OFAC) regulations.

Most mortgage companies have designated a BSA/AML compliance officer and have an AML policy and procedure in place; however, many mortgage companies do not comply with one or more of the other AML requirements.

For example, more often than not, mortgage companies are not conducting an AML risk assessment. This needs to be completed at least every 12 to 18 months, and lenders should be modifying identified activities based on the company’s operations and growth. The risk assessment should consider the current and future state of items such as the company’s size, products, customer base and geographic area of operation. The Conference for State Bank Supervisors (CSBS) has issued a tool to assist mortgage companies in completing such risk assessments. This tool can be found at

Another BSA requirement that is frequently lacking or unfulfilled is ongoing training. Mortgage companies must train their personnel at least annually in all applicable aspects of AML regulations. A best practice for lenders is to provide AML training to all new employees within 30 days of hire.

Additionally, the BSA/AML compliance officer must receive periodic training that is relevant and appropriate given changes to regulatory requirements, as well as the activities and overall AML risk profile of the company. All AML training needs to be adequately tailored to a company’s operations. For example, mortgage companies should specifically train their personnel on the types of suspicious activity and “red flags” they are likely to come across, such as mortgage fraud related items.

Finally, mortgage companies must document their training programs by maintaining training and testing materials, the dates of training sessions and attendance records. Lenders that are not conducting this annual training should immediately do so, and there are a host of vendors that can assist in providing AML training and tracking tools at a fairly reasonable cost.

Another aspect lenders seem to be overlooking is independent testing/audits. Although the specific nature of the testing will be somewhat dependent on the company’s size and risk profile, the AML audit can be performed by an independent third party or an employee of the company, provided the employee has no role whatsoever in the AML functions being tested (including reporting to the BSA/AML officer), and possesses enough knowledge of BSA regulations to be qualified to perform the audit.

By far, the area of most noncompliance by mortgage companies pertaining to AML requirements is with regard to the filing of SARs. FinCEN highlights the importance of SAR filing by mortgage companies indicating that mortgage companies are the, “primary providers of mortgage finance … and are in a unique position to assess and identify money laundering risks and fraud.”

The BSA lists several situations where a mortgage company must file a SAR. A SAR requires basic company information, information about the individuals involved and information about the suspicious activity or transaction. FinCEN requires all filings to be submitted electronically through its website.

Many mortgage companies take the view that transactions are only reportable only if they involve currency. Not only is this view incorrect, it’s also quite risky. While many of the requirements for the filing of a SAR involve currency, there is also a requirement for a transaction to be reported if a mortgage company knows, suspects or has reason to suspect that a transaction involves the use of the loan or company to facilitate criminal activity.

Given this, mortgage companies must file a SAR every time they suspect fraud – whether it is income, employment, occupancy or some other type of fraud. If a mortgage company has not filed any SARs, or only a few, in the past six years, it could be a sign that the company does not have a compliant AML program or a weak one for that matter.

As such, it is not uncommon for an examiner to ask to review any adverse action notices for the past several years or to speak with the underwriting department to discuss whether they have denied any transactions for suspected or known fraud. In most instances, such fraudulent or suspicious situations are reported to an employee’s manager and not the BSA/AML compliance officer.

It is not surprising that these companies are often the ones that either do not conduct AML training or do not customize their AML training to specifically discuss mortgage fraud, rather than just situations involving large money laundering schemes and currency. Furthermore, it is a best practice for the BSA/AML compliance officer to review all QC reports in an effort to identify any activity that could require the filing of a SAR.

There are many mortgage companies with strong AML programs in place. These companies expend the resources, time and money to ensure they comply with all the BSA requirements. Given the substantial civil and criminal penalties set forth in the statute and the significant increase in state examination questions related to AML items, it is recommended that lenders take a long, hard look at their AML programs and ensure all requirements are properly satisfied.

Michael Barone is executive director of compliance for MQMR, where he oversees all compliance and regulatory guidance with clients and prospective clients.

What are Hybrid Home Appraisals ?

Fannie Mae wants to get mortgages in people’s hand in a speedier manner, and as a result, it is testing so-called hybrid home appraisals in which the appraiser doesn’t actually visit the house.

Citing unnamed sources, National Mortgage News reported that Fannie Mae is requesting appraisers use local market data and details about the specific property to come up with the home value. These hybrid appraisals are quicker for the lenders and cost less for the mortgage borrowers than getting an appraisal in which the appraiser visits the home. National Mortgage News noted that sources said Fannie Mae is currently involved in a pilot, although it declined to comment on the efforts.

[Find out how much home you can afford with Investopedia’s  mortgage calculator.]

The move on the part of Fannie Mae comes at a time when mortgage rates are rising, home property values are increasing and price wars are breaking out in certain parts of the country. With many first-time buyers looking to purchase a home during the spring selling season, they could be priced out of the market because of the current conditions. Offering a lower-cost option for appraisals could help these borrowers get into a new home.

Still, if the appraiser isn’t entering the home, it could raise questions about the quality of the data and the accuracy of the appraisal. After all, the quality of the appraisal will be based on the expertise of the home inspector.

Testing hybrid appraisal isn’t the only way Fannie Mae has been helping would-be borrowers get into a new home. The Wall Street Journal recently reported that Fannie Mae and Freddie Mac have been doing things such as backing loans by lenders that pay down a buyer’s student loans and making it easier for self-employed borrowers to get a mortgage. In the summer, Fannie Mae raised the debt-to-income limit on mortgages to 50%, which is higher than the 45% industry norm. Freddie Mac is also beginning to follow suit, noted The Wall Street Journal.

As a result of the higher debt-to-income levels, the Urban Institute said that there were 100,000 new mortgages that otherwise would not have been issued. The percentage of borrowers with high debt-to-income ratios and low credit scores that have Fannie Mae-backed loans went to 25% in the first two months of 2018 from 19% a year ago.



Is Your Mortgage Company Getting Financial Assistance from FREDDIE ?

Freddie Mac has quietly started extending credit to nonbanks that issue mortgages, a move it says will help the companies maintain access to a crucial stockpile of cash if their home loans go sour.

But critics say the financing could create an unfair market advantage that allows preferred lenders to muscle out competitors.

Fannie and Freddie Died But Were Reborn, Profitably: QuickTake

The new Freddie credit lines, which haven’t been publicly announced, are meant to support nonbanks’ mortgage-servicing operations. That’s the lucrative business of managing a home loan after it’s been issued.

Although banks dominated mortgage lending immediately after the 2008 financial crisis, now they are facing stiff competition from companies such as Quicken Loans, Freedom Mortgage, LoanDepot and Caliber Home Loans. Nonbanks issued nearly half of mortgages sold to Fannie Mae and Freddie in 2016, compared with 8 percent a decade ago.

Cash Crunch

The industry typically functions like this: A lender makes a mortgage and then Fannie or Freddie packages it with other loans into securities that are sold to third-party investors. The lender continues to make a steady stream of income for collecting monthly payments from borrowers and sending the payments on to the third-party investors.

Things can turn problematic for a mortgage servicer if a borrower defaults. The servicer is still obligated to keep sending monthly payments to the mortgage investors even though it’s no longer collecting any money from the borrower. Eventually, Fannie or Freddie reimburses the servicer. But in the meantime, there can be a serious cash crunch.

To make sure they have sufficient liquidity, nonbanks often borrow money against their mortgage-servicing rights. Freddie is now getting into the business of providing nonbanks that kind of credit. Banks, in contrast, don’t often need such financing because they have deposits and other business lines to fall back on.

Freddie Chief Executive Officer Don Layton said in an interview last week that the credit will fill in gaps not served by the private market and that Freddie’s risk exposure won’t increase, since the company already is vulnerable when one of its servicers goes under. He said Freddie has closed one transaction so far and that it partnered with other lenders on the deal.

“We’re not trying to undercut the private market,” Layton said. “If it works, you’ve got another lender in the marketplace.”

Industry Angst

The move is causing angst among some industry trade groups that say Freddie will target its financing at the biggest servicers. The groups also predict Freddie will charge comparatively low interest rates, putting small servicers at a disadvantage.

Officials with the Mortgage Bankers Association, the largest mortgage trade group, say they and their members haven’t been told who’s eligible for the credit lines.

“There’s been no transparency about this,” said MBA chief economist Michael Fratantoni. “Our major concerns are around the unleveling of the playing field” between large and small lenders, he said.

Ed Wallace, executive director for the Community Mortgage Lenders of America, said he’s worried a program not available to small companies could “play into the national lenders’ hands.”

Regulators Worried

Some regulators have said they’re becoming increasingly concerned that nonbanks might fare badly in a downturn.

Last month, authors from the Federal Reserve and the University of California at Berkeley’s Haas School of Business wrote that the nonbank sector “in aggregate appears to have minimal resources to bring to bear in a stress scenario.”

Nancy Wallace, a Berkeley professor and one of the paper’s authors, said nonbanks are undercapitalized and rely too much on borrowed money. Being able to access credit lines from Freddie or Fannie wouldn’t solve that problem, she said.

“Fannie and Freddie should not be in the business of that kind of lending,” Wallace said.

The Federal Housing Finance Agency, which regulates Fannie and Freddie, approved Freddie’s request to provide financing to nonbanks. In its list of 2018 goals for the companies, the FHFA said they should find ways to support mortgage-servicing liquidity.

Fannie Response

Renee Schultz, Fannie’s senior vice president for capital markets, said Fannie is not planning a similar program to Freddie.

“We think there’s plenty of private capital out there for financing of servicing rights,” Schultz said.


CFPB Warns That RESPA Penalties May Be Coming

Nationstar Mortgage may face a Consumer Financial Protection Bureau enforcement action over alleged violations of the Real Estate Settlement Act and other regulations, the Mr. Cooper parent company said.

The potential enforcement action against Dallas-based Nationstar is based on “alleged violations of the Real Estate Settlement Procedures Act, the Consumer Financial Protection Act and the Homeowners Protection Act,” according to the company’s latest 10-Q filing with the Securities and Exchange Commission. Last week, the lender and servicer reported net income of $160 million for the first quarter of 2018

The alleged violations stem from a 2014 examination. RESPA regulates consumer costs and fees in real estate transactions. The Homeowners Protection Act is a 1998 law pertaining to private mortgage insurance cancellation. The Consumer Financial Protection Act is the law that created the CFPB and dictates oversight of fair lending laws, among other provisions.

The bureau notified Nationstar it was considering the enforcement action through its “Notice and Opportunity to Respond and Advise” process, through which investigated parties can present their position to the bureau before the CFPB decides whether to proceed with an enforcement action.

“There can be no assurance that the CFPB will not seek to exercise its enforcement authority through settlement, administrative proceedings or litigation and seek injunctive relief, damages restitution or civil money penalties, which could have a material adverse effect,” according to the SEC filing.

However, the company has not recorded an accrual related to the possible enforcement action and “does not believe a loss is probable.”

The CFPB last year fined Nationstar almost $2 million for Home Mortgage Disclosure Act violations. Although there was no evidence consumers were directly affected by its failure to accurately report the home mortgage data used to identify discrimination, and other type of CFPB fines can be much higher, this was a large civil penalty for a HMDA violation.

The bureau has dropped several pending investigations recently, including one involving Altisource, a mortgage servicing technology firm with ties to Nationstar competitor Ocwen.


What Does a Mortgage Loan Processor Do ?

Mortgage loan processor: definition

The mortgage loan processor is the link between you, your loan officer and your underwriter. And he or she is arguably the most important member of the team.

Many processors take your application so you don’t have to fill out forms

Processors pull all the pieces together – they may order open escrow, appraisals and inspections, pull credit reports, verify your income and document your assets

Processors submit your application package and follow up on requests from the underwriter

Of course, every lender has its own process and its own rules for processors.

Verify your new rate (Apr 22nd, 2018)

Mortgage loan processor roles

The National Association of Mortgage Processors says, “The primary function of the Loan Processor is to ensure the timely and accurate packaging of all loans originated by loan officers.” So it’s mostly an administrative role.

How do I know that I’ll be approved for a mortgage?

Mortgage loan processors typically:

Collect and collate all the information needed to approve a loan and make informed decisions concerning an application

Input that information into the lender’s IT systems

Verify information through documents you supply

Make third-party checks with credit bureaus, employers, accountants and so on

Order an appraisal of the home

Obtain title insurance and flood insurance (if needed)

Ensure the compliance of your case with regulatory requirements and internal policies

Order the final loan documents

Ensure the loan stays on track to close on time

Schedule appointment for closing

You can usually expect a mortgage loan processor to be involved throughout the application process: from pre-approval to closing.

Working with your loan processor

Some lenders see loan processing as an entirely “back-office” function. You may never even meet your processor and your only contact may be your loan officer.

However, other lenders encourage direct contact between processors and applicants. So what should you expect if you get a call or email from yours?

Mortgage closing: What happens at your signing?

What you should hope for is someone who’s an expert administrator with a focus on moving your mortgage application through the system in a timely way. In this sense, your processor’s goals overlap perfectly with yours.

Seeing it from your processor’s point of view

However, you risk coming into conflict over the minutiae of your case. You can’t understand why she’s so insistent on receiving January’s bank statement and last month’s pay stub (you know they’re somewhere) so urgently. And she can’t understand why you don’t just get on and send them.

The fact is, your processor is responsible for ensuring your application complies with a whole raft of external regulations and internal policies. And it’s highly unlikely she personally will have the discretion to overlook any compliance requirements.

Advantages of a good relationship

Having said that, a processor often has some workarounds. He might suggest an alternative that might get you out of a hole. For instance, it can be difficult proving that you’re receiving alimony if you don’t deposit it separately or keep copies of the checks. And who wants to have to ask their ex for canceled checks?

A processor may find a way around this, ordering copies of the actual deposits from your bank. So you need him on your side. The last thing you want is to be deliberately unhelpful or gratuitously rude.

In fact, building a good working relationship with her can help you. You want her to see you as a person rather than a case number each time she picks up your file. Even the most objective professionals work harder for those they like.

Self-help for mortgage applicants

Of course, the easiest way to get your mortgage loan processor to like you is to cause him as few headaches as possible. You can do that by supplying all the documents he needs upfront and anticipating any queries that might arise from them.

How to rush your mortgage to the closing table

No matter what sort of mortgage you’re applying for, your lender will want to satisfy itself over six areas of your life. It will need documents to support claims you make about your:

Identity — Photo ID, social security number, past residential addresses

Employment history and income stability

Credit and debt management ability

Expenses, payments and account balances

Assets, including cash, retirement and investment accounts

The source of funds for your down payment, if purchasing

Be prepared

Your lender will get your credit reports and scores itself. But you’ll be expected to supply it with the paperwork it needs to verify the other information.

You can do yourself a big favor by pulling together all the documents you’re going to need before you make your application for either a mortgage or pre-approval. It’s one less thing to worry about later when you’ll be under pressure. And it will give you a chance to get copies of anything that’s been lost in your filing system.

The documentation required for today’s best mortgage rates

Be patient

The extent to which lenders will crawl over your personal finances can feel intrusive. And their tick-box systems can feel overly rigid and bureaucratic. But remember:

You’re asking to borrow a huge amount of money so it’s only reasonable they’ll want to know all about you

They may not be asking for themselves. They often have to comply with third-party rules from regulators or loan guarantors, such as Fannie Mae, Freddie Mac, the VA, the FHA and so on

Their main objective is to make sure you can comfortably afford payments on your new mortgage and won’t get into financial trouble later

Your best way to navigate through this stressful time is with Zen-like calm. Taking out your irritation, resentment or frustration on your mortgage loan processor is unlikely to help.


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