Category Archives: Mortgage Banking

How to Tighten Timelines and Streamline the Mortgage Origination Process

Thirty years ago, mortgage origination was a simple process. An application was taken at the local savings and loan branch, documents were prepared within 48 hours, sent to a title company with a note to close, and then the entire deal was sealed within days with a congratulatory handshake to the happy new homeowner.

What once took less than a week to complete now takes approximately 50 days—with plenty of hoops for lenders to jump through. In today’s environment, lenders are responsible for complex data management and hundreds of active compliance regulations, with steep fines if they get it wrong.

To succeed in an environment of increasingly narrow margins, broad competition, and ever-more complex regulation, lenders must take a methodical approach to loan origination, adding dynamic, optimized workflow technology. This need for compliance, data, technology, and management to exist within the same ecosystem is greater than ever. The good news is that, in an increasingly digital world, achieving such operational control is becoming more manageable. Best-in-class solutions are crossbred compliance management systems (CMSs) built by software engineers and maintained by a team of experts well versed in financial law and regulatory compliance knowledge.

For an industry that has been slow to adapt, this emergence of sustainable, smart, and reliable digital compliance ecosystems fosters an environment that can effectively improve the way the industry manages regulatory changes. These expertise-fueled solutions empower financial institutions to respond with agility to the ever-growing regulatory landscape. Alleviating the burden of managing the overwhelming compliance infrastructure frees lenders to focus on profitability and look to the future, instead of over their shoulders.

The key lies in finding the right tool that combines most, if not all, compliance management and delivery needs into a single CMS. As regulation continues to impact the financial services industry with a near-constant cycle of updates, new regulations, and processes, the pressure compresses down to the finance and compliance professionals. In addition to existing job responsibilities, the mortgage banking industry at large balances a myriad of siloed tools that slow them down and lead to decreased productivity across the board.

Today’s comprehensive CMS solutions, however, are designed to keep institutions safe, cost-effective, and on pace with regulators in one seamless platform.



Update on Fair Lending in Mortgage Originations

The Senate is poised to pass a bill this week that would weaken the government’s ability to enforce fair-lending requirements, making it easier for community banks to hide discrimination against minority mortgage applicants and harder for regulators to root out predatory lenders.

The sweeping bill would roll back banking rules passed after the 2008 financial crisis, including a little-known part of the Dodd-Frank Act requiring banks and credit unions to report more detailed lending data so abuses could be spotted.

The bipartisan plan, which is expected to pass, would exempt 85% of banks and credit unions from the new requirement, according to a Consumer Financial Protection Bureau analysis of 2013 data.

The mortgage industry says the expanded data requirements are onerous and costly, especially for small lenders. But civil rights and consumer advocates say the information is critical to identifying troubling patterns that warrant further investigation by regulators.

“The data operates as a canary in the coal mine, functioning as a check on banks’ practices,” said Catherine Lhamon, chair of the U.S. Commission on Civil Rights. “The loss of that sunlight allows discrimination to proliferate undetected.”

For decades, banks have been required under the 1975 Home Mortgage Disclosure Act to report borrowers’ race, ethnicity and ZIP Code so officials could tell whether lenders were serving the communities in which they are located and identify racist lending practices such as redlining.

But discriminatory practices continued, with the financial industry disproportionately targeting black and Latino borrowers with subprime mortgages loaded with high fees and adjustable interest rates that skyrocketed after the stock market crashed in 2008.

“The experience of the financial crisis taught us that we really need to know more about the loan terms and conditions, not just a borrower’s race,” said Josh Silver, senior advisor at the National Community Reinvestment Coalition.

Lenders were supposed to start gathering extra information about borrowers’ ages and credit scores, as well as interest rates and other loan-pricing features in January.

Congress had charged the Consumer Financial Protection Bureau, an independent watchdog agency formed after the financial crisis, with collecting, analyzing and publishing the data. But White House budget director Mick Mulvaney, named the CFPB’s acting director last November, said the agency plans to reconsider the new requirements and that banks would not be penalized for data collection errors in 2018. He also stripped the bureau’s fair-lending office of its enforcement powers.

The Senate bill would repeal many of the new reporting requirements, exempting small lenders making 500 or fewer mortgages a year from the expanded data disclosure.

“Banks say they don’t treat borrowers differently, but the data shows a different story,” Sen. Catherine Cortez Masto (D-Nev.) said on the Senate floor Thursday. “Redlining remains a major problem for communities of color.”

A February report by the Center for Investigative Reporting showed that redlining persists in 61 metro areas — from Detroit and Philadelphia to Little Rock, Ark., and Tacoma, Wash. — even when controlling for applicants’ income, loan amount and neighborhood, according to its analysis of Home Mortgage Disclosure Act records.

Nevada saw the highest foreclosure rate for 62 straight months during the Great Recession, especially in minority communities, said Cortez Masto, a former state attorney general. More than 219,000 families lost their homes. Whole neighborhoods were hollowed out — with boarded-up homes, for-sale signs and empty lots dotting Las Vegas and Reno, she said.

“With everything we saw 10 years ago, I cannot now believe that we’re considering restricting access to this kind of data,” said Cortez Masto, who has introduced an amendment to preserve the expanded information. “I’ve seen what happens when you don’t have strong enough protections against housing discrimination.”

But 12 of her Democratic colleagues have co-sponsored the bill, which would be the most significant revision of banking rules since Dodd-Frank. Five more from the Senate Democratic caucus voted last week to advance the legislation. Sponsors of the financial regulation rollbacks include 2016 vice presidential candidate Tim Kaine (D-Va.), a former fair-housing lawyer. The bill’s supporters say they don’t think it would widen the door for discriminatory lending, arguing that mortgage data such as race and gender collected before Dodd-Frank would still be gathered.

The mortgage industry says the proposed deregulation would cut costs and help smaller community banks remain competitive, enabling them to make even more loans. The Mortgage Bankers Assn. estimates that expanded data would still be collected on 95% of loans.

“If you want to provide some regulatory relief, it makes sense to do it for these institutions that aren’t making a lot of loans,” said Mike Fratantoni, chief economist for the Mortgage Bankers Assn. “You’re not losing much in terms of your visibility into trends in the market.”

The problem with the former reporting requirements, advocates say, is that banks often blamed racial lending discrepancies on borrowers’ credit scores or other characteristics that were impossible to verify without additional reported data that lenders already collect as part of the mortgage application and underwriting process.

The rollback in reporting requirements would potentially hurt not only minority borrowers, but also older applicants and those living in rural communities and small towns that are disproportionately served by community banks, advocates say.

“Lending discrimination is occurring in real time, and we have to have the tools to be able to address it,” said Vanita Gupta, who headed the Justice Department’s civil rights division during the Obama administration and now is the president of the Leadership Conference on Civil and Human Rights. “It’s not just happening in the context of big banks, it’s also happening in community banks and credit unions.”

CFPB Regulations and Your Compliance Management System

PERSON OF THE WEEK: New rules from the Consumer Financial Protection Bureau (CFPB) require that all mortgage lenders maintain compliance management systems (CMS) – which is not, as some people think, software but rather a set of practices and policies that ensure a lender is meeting regulatory compliance in all areas of federal consumer financial law.

Essentially, a CMS is a plan for how a lender will meet compliance. The plan’s structure is relative to the lender’s business model. And the plan must change as regulations change, are reinterpreted, or as the lender’s business model changes.

Continuity’s software platform is used to automate as many parts of a lender’s CMS as possible – or, put another way, as many parts as the lender wishes – but its purpose is to do so holistically. Among its key features and capabilities is its ability to house hundreds of pre-built procedures spanning dozens of program areas.

It includes procedures for examination areas including consumer compliance, BSA/AML, lending operations, deposit operations, and Community Reinvestment Act and Fair Lending compliance, and also contains a large collection of risk assessments including BSA, Fair Lending, electronic banking, identify theft, and more.

Such tools have become critical in order for lenders to effectively meet compliance because they aid greatly when to comes time for a compliance audit. Because a majority of the tasks associated with compliance are automated and tracked by the platform, it provides a powerful tool for delivering compliance data to examiners.

Such tools also have also enabled lenders to take a much more holistic approach to compliance. So much so, they have led to the development of what Continuity calls the “Unified Compliance Management System” (UCMS) model.

To learn more about this new model, MortgageOrb recently interviewed Pam Perdue, chief regulatory officer and executive vice president for Continuity.

Q: What is this “holistic” approach to regulatory compliance we are starting to hear about?

Perdue: The holistic approach relies on adopting the UCMS model, which allows lenders to quickly adapt to and implement any type of regulatory change. Whether those changes come from the outside, such as the recent HMDA implementation deadline, or are internal adjustments, like the addition of an office or a shift in key personnel, applying the UCMS model ensures nothing falls through the cracks.

An effective CMS includes the preventive, detective and corrective controls a lender needs to have in place. It’s “unified” because everything is in one place, and thought about as part of a process and an integrated framework, rather than scattered on disparate systems with various owners and vague accountability.

The UCMS model starts when a change occurs. First comes an understanding of the risk that a new regulation poses to the organization, then adapting its policies to comply. After re-evaluating organizational policies, building new or updating existing procedures is critical. Implementing technology upgrades and providing training for employees impacted by the regulation comes next. Finally, ensuring that monitoring and audit programs have incorporated the new or revised standards completes the change cycle.

Executing this step-by-step process not just helpful when a new regulation is issued, it promotes efficiency throughout the compliance function. Even if no changes to the rule occur, lenders need to preserve evidence that they have done their best to ensure compliance, in case they encounter future regulatory or legal challenges about their performance. A solid CMS is essential to a lender’s ability to defend itself against allegations or accusations of wrongdoing, whether the source is a single angry consumer, a regulator on the warpath or a group of hungry class-action plaintiffs.

In addition, being able to work backward through the cycle when something goes wrong, is helpful at ensuring thorough remediation. Doing so exposes lapses in monitoring or training that may have occurred, or places where system upgrades may have been to blame. Inspecting procedures and policies to see where they may have contributed to weaknesses in execution ensures the root causes for deficiencies are properly identified and addressed. Again – nothing falls through the cracks using the UCMS Model.

Q: What are some of the common mistakes in lenders’ approaches to regulatory compliance?

Perdue: Common mistakes we see over and over again fall into three categories: over-reliance on one or a few staff; failure to embed compliance into business processes; and lack of standardized compliance processes.

Many lenders exhibit a very disjointed, almost haphazard, approach to managing compliance. These lenders often rely on one or a few mid-level executives to answer for the organization’s compliance program, instead of involving all of upper management to help to build a culture of compliance. Furthermore, placing the entire burden of regulatory interpretation and application in the hands of a select few increases the risk that something will be overlooked or misinterpreted along the way.

A second common mistake is thinking of compliance as an added step. Viewing compliance as a “necessary evil” relegates it to always being an afterthought. The most effective organizations embed the compliance work steps into their processes for originating, funding and servicing loans, so that it is just another step in doing business. Not only does this combination tend to streamline the workflow, it also promotes better compliance outcomes.

Third is standardization. Many lenders have built their compliance programs around the misconception that merely checking the right boxes for individual regulations is enough. Lenders following this reactionary approach to each new regulation tend to have costly and time-intensive practices, since compliance is treated differently each time, and is often not integrated seamlessly throughout the organization. This type of “reactionary” approach relies on time-consuming manual processes that, even if they are accurate, may deliver compliance at too high of a cost.

Consistently applying the unified CMS model reduces the time, energy and expense – as well as the hassle and worry – over addressing and implementing regulatory or other types of change. A poorly executed compliance program can expose the lenders to penalties and the loss of borrowers’ trust.

Q: Since passage of the Dodd-Frank Act, lenders and servicers have had to ramp up staff hiring to keep up with regulatory compliance. Has that helped or has it created a new set of issues?

Perdue: Hiring more people seems like an easy and obvious solution to capacity challenges. However, a peek beneath the surface reveals that adding new staff creates its own series of challenges and constraints.

Of course, there are the obvious distractions of recruitment: finding qualified, competent people in a highly competitive marketplace and given any applicable geographic constraints. But beyond this – and especially during busy periods – training new hires distracts key staff from their own work.

Even though more people may lessen the overall burden over time, these human resources are expensive financially and psychologically up-front, because they consume others’ time. I have observed that combining the right technology and key staff yields a more effective compliance management system than just staff alone. When lenders embrace the idea – however wrong it is – that the only solution to a capacity problem is to add staff, then they have effectively ensured the problem will persist in perpetuity.

Why? Because they have not actually made processes more efficient or outcomes more accurate. Adding technology forces the standardization of consistent and repeatable approaches, which can really ramp up operations in a lean and effective way.

Why You Should Learn About HUD 232 Loans

There are about 75 million people in the baby-boomer generation and about 3 million of them will reach retirement age each year for the next two decades. Many may eventually end up in a senior-housing facility, such as an assisted-living, memory-care or skilled-nursing home.

A commercial mortgage broker advising the owner of a senior-housing facility about financing should know the industry is strong in terms of profitability and that the broker can play a key role in assuring excellent financing terms. The U.S. Department of Housing and Urban Development (HUD) 232 loan program, for example, offers what many believe to be one of the best health care financing vehicles for both refinances and new-construction loans.

The HUD 232 223(f) program is for refinance and acquisition loans, but is most readily used on a refinance. The lending constraints on 223(f) refinancing include the greater of 80 percent loan-to-value (LTV) or 100 percent of the total cost of refinancing the existing debt, and a minimum 1.45 debt-service coverage ratio (DCSR), which is usually based on a 35-year term.

With HUD — more aptly the Federal Housing Administration (FHA) under HUD — insuring a loan for up to 35 years, value is created based on a cash-on-cash equation and an internal-rate-of-return model, and ultimately the amount of net cash flow an owner can take home. In fact, it may be wise to explore two amortization schedules, one using a 30-year loan term and one using a 35-year term.

New rules

The amount of upfront savings using a 35-year term loan are staggering. Throw in the fact that rates on HUD/FHA loans are often 75 to 100 basis points lower than other conventional financing, and you’ve added substantial value with additional dollars your clients can put toward the bottom line, just by advising them on the correct program.

The HUD 232 loan term and amortization are based on a property-condition report. A rule of thumb is that the term of the loan can be up to 75 percent of the remaining useful life of the property. Therefore, the loan term can be up to 35 years so long as the remaining useful life of the property is 47 years. With capital improvements, the useful life of the property also can be extended.

In order to maintain credibility and add value to the process, mortgage brokers should understand what condition their client’s property is in for its vintage, and what is needed to extend the asset’s useful life. Oftentimes, these improvements can bolster the marketability and performance of the property, raising its value.

Additionally, within the past year, HUD revamped the health care financing rules for 223(f). It’s now possible to take out equity from a property without carrying debt for a full two years. To be clear, HUD still does not directly provide cash-out loans, but it will allow less-seasoned debt refinances, and refinances of intermediate bridge loans.

Essentially, the new rules state that 60 percent LTV refinances will be allowed with less than two years of seasoned debt when less than 50 percent of the mortgage proceeds are used for the benefit of the project and repayment of seasoned debt. A 70 percent LTV refinance will be allowed with less than two years of seasoned debt when more than 50 percent of the mortgage proceeds are used for the benefit of the project and repayment of seasoned debt.

To receive a full 80 percent LTV loan, debt on the facility must be seasoned for a full two years and other 223(f) criteria must be met. Experienced owner-operators with multiple facilities are typically sitting on a portfolio that has a large amount of equity tied up in the assets, which can be recouped through HUD refinancing, if processed correctly and managed appropriately with the right lender.

Construction loans

The HUD 232 New Construction and Substantial Rehabilitation program also is an attractive financing option for health care property developers and owners with the requisite amount of experience and financial wherewithal. The HUD program allows for a new-construction loan for a profit-motivated entity that includes the following limits based on a maximum 40-year amortization period: up to 90 percent of replacement cost; 75 percent LTV for an assisted-living building and 80 percent for a skilled-nursing facility; and a 1.45 DSCR.

The HUD construction loan can take some time to close. It’s a construction loan with an interest-only period of typically 18 to 22 months that rolls into an amortizing loan upon cost certification.

As banks continue to get direction from regulators to reduce risk, they have reacted accordingly by limiting new-construction loans and/or leverage levels. This is making the HUD 232 construction-loan program more attractive every day, even with the challenge of time to close. It would be prudent to get together with a solid HUD 232 lender to understand the benefits and drawbacks of this program compared with traditional bank products.

•  •  •

Commercial mortgage brokers seeking to add value for their clients should contact a HUD expert to better understand the financing terms available for its various products, and help advise their clients on how to maximize the value of their properties in order to achieve the best financing execution.

Banks’ and Credit Unions’ New Advantage in Originating Mortgages

Following the financial meltdown that rocked the U.S. economy a decade ago, Congress enacted a variety of regulations in the sweeping Dodd-Frank Act of 2010 to better protect consumers from risky mortgages. Loans that were little understood or that ended up being unaffordable contributed to millions of homeowners losing their homes to foreclosure.

One of the things implemented by Dodd-Frank was the creation of a “qualified mortgage.” Basically, if lenders meet a variety of strict guidelines — such as ensuring a borrower’s loan is no more than 43 percent of their income — they get legal protection if a consumer later makes a claim that they were sold an inappropriate mortgage.

The Senate bill now under consideration (S. 2155) would let those smaller banks and credit unions still qualify for those legal protections without meeting all of the requirements that typically go with underwriting qualified mortgages.

However, the bill would still require them to assess the borrower’s financial resources and debt as part of the underwriting process.

The loan also could not be interest-only or one whose balance could grow over time (so-called negative amortization). Those types of loans proliferated leading up to the mortgage crisis and contributed to homeowners’ inability to keep up with their payments.



Update on Fair Lending & the CFPB

Nestled inside the Consumer Financial Protection Bureau is an office that goes after financial companies whenever they discriminate against Americans.

That office just lost its teeth.

Mick Mulvaney, who was appointed by President Trump as the agency’s interim director two months ago, is moving a powerful division of the bureau, the Office of Fair Lending and Equal Opportunity, under his own direct oversight and stripping the office of its enforcement authority.

That means the office won’t be able to go after lenders that charge higher interest rates to minorities than to whites or otherwise discriminate. Instead, staff will now focus on “advocacy, coordination and education,” according to a memo emailed to employees Tuesday.

Related: Trump official: Regulators don’t have a ‘blank check’

Those responsibilities — while not completely wiped out at the agency — will be part of a broader division that oversees financial companies. The change was reported earlier by The Wall Street Journal.

Alan Kaplinsky, a co-leader of the consumer financial services practice at the law firm Ballard Spahr, said the move is the latest illustration that Mulvaney is keeping his word that the agency will not overreach its powers.

“They won’t be ‘pushing the envelope’ in the fair lending area to go after companies where they are not on very solid ground,” Kaplinksy said. “Those days are over now.”

Under former Director Richard Cordray, an appointee of President Barack Obama, the office aggressively pursued discriminatory practices by auto dealers even though automakers fell outside the CFPB’s jurisdiction.

Consumer advocates argue the restructuring will weaken the office’s ability to pursue lawsuits.

Related: Trump consumer protection chief requests $0 in funding

Mulvaney’s changes “send a troubling message about the enforcement of civil rights laws and will harm people — especially in communities of color — who are wronged by payday lenders, debt collectors, or auto dealers, among others,” Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights and former acting head of the Civil Rights Division at the Justice Department, said in a statement.

A spokesman for the agency disputed those claims, arguing Mulvaney’s goal was to increase efficiency and combine efforts under one roof.

“It never made sense to have two separate and duplicative supervision and enforcement functions within the same agency — one for all cases except fair lending, and the other only for fair lending cases,” said John Czwartacki, a CFPB spokesman.

But progressive Democratic Senator Elizabeth Warren of Massachusetts said Mulvaney has long opposed the agency’s efforts to fight discrimination — and the latest step was a way to undermine those efforts.

Related: CFPB says it will reconsider its rule on payday lending

“Mulvaney is putting the Office of Fair Lending under his control so that he can weaken it — leaving neighborhoods and consumers across the country more vulnerable to bias,” Warren saidin a statement to CNNMoney.

The consumer bureau has already begun rethinking Obama-era rules since Mulvaney took over. Last month, it said would reconsider rules to protect consumers from payday-lending traps. It also launched a formal review of how the agency investigates and enforces rules on big banks and predatory lenders.

And most recently the agency said mortgage lenders would not need to comply with new rules that would have forced them to provide detailed information about consumers, like their credit score or age. Regulators use that information to ensure that lenders are not discriminating against minorities.



Beware of This Sneaky New Mortgage Scam

We’ve heard of scams that often cost victims hundreds or thousands of dollars, which is bad enough.

But a mortgage title scam that almost victimized an Akron-area man could have cost him what could have been a life savings for many — tens of thousands of dollars, in the high five figures.

Luckily, he and his credit union mortgage specialist realized what was happening before the money was wired.

This scam apparently has been around for a few years, but may just be hitting the Akron area.

The Akron man is no stranger to buying houses. He’s bought two other houses in his lifetime.

He asked for anonymity and didn’t want to publicize the exact amount he could have lost since he felt violated by the potential scam.

Nationally, the scam has victimized others, including a couple who lost $1.5 million, according to an August Associated Press story.

Here’s what happened to our local homebuyer, and it’s very similar to the national scam:

He was going to close on an Akron-area house on a recent Monday. On the Friday before, he went into Towpath Credit Union to meet with Amanda Sibera, his mortgage specialist, to go over paperwork.

He needed to wire money to a bank in California. Federal rules require any payments over $10,000 to be wired.

As the homebuyer was sitting with Sibera on that Friday morning a few weeks ago, the two were reviewing the wiring instructions that Sibera had from previous transactions. All they needed was to confirm the loan number and bank routing numbers.

“It’s good to have another set of eyes on this. This is a lot of money,” the homebuyer told me. “We literally touched each letter and number with a pen.”

Here’s where it gets weird and scary.

They were on the phone with the title company representative. She said she would email the wire instructions within two minutes.

When the buyer opened his email, he already had a message that appeared to be from the title company representative. He did not immediately notice that the email had actually come a few hours earlier.

“This had the correct dollar amount to the loan to the penny. Even though I had opened it, Gmail had flagged it as suspicious,” he said.

Sibera said the email also instructed the homebuyer to wire the money on Friday “to not cause a delay in the closing. That was the trigger word. It was Friday. He wasn’t closing until Monday. The title company didn’t technically need the funds until Monday.”

When the homebuyer and Sibera phoned the title agent back, they asked if she had sent her email. She said no, she was working on it.

When they looked more closely, they noticed though the email appeared to come from the title agent, the reply message was to a random Gmail account. The listed bank also was in a different state than the actual bank he was using.

The homebuyer “was obviously very afraid of what was happening. He felt like his whole life could have just been gone,” Sibera said.

According to other news reports and warnings from the Federal Trade Commission and the National Association of Realtors, the scammers are likely hacking into email systems of those associated with home closings and consumers’ emails in order to see in real time names and exact amounts of down payments in order to send what looks like a legitimate email.

The American Land Title Association, the national association for title companies, has been trying for two years to educate its members and consumers about the fraud, association spokesman Jeremy Yohe said.

“These hackers interject themselves at the moment when it seems legit. As the buyer, the person just wants to get the keys to their house,” Yohe told me. “We are hoping consumers become aware that this hacking is possible and could steal the funds for their home.”

The title company used in the local homebuyer’s case, First American Title, referred questions to its corporate headquarters. The corporate headquarters, in turn, referred me to Yohe’s organization.

“Our members — attorneys and title companies — have taken many steps to try to combat this problem … but these criminals are smart and are constantly altering their tactics to steal the money,” Yohe said. “Fortunately in this case, [the homebuyers] didn’t lose the money.”

First American Title has a fact sheet on its website warning its agents of the growing wire fraud scam at closing. It suggests agents use a safe phone number to contact the homebuyer, not to rely solely on emails. In some cases, agents have begun requiring an in-person meeting to finish the wiring instructions.

Additionally, the national organization said to be wary when wiring information changes at the last minute.

The homebuyer continued to get emails from the would-be scammer.

“I did get two other follow-up emails on late Saturday or Friday asking “Did you send it? You’re in danger of jeopardizing your closing,’ ” the homebuyer said.

In the end, he successfully closed on the house and wired the money to the right bank by the deadline.

He and the folks at Towpath Credit Union hope by sharing his story, it will prevent anyone else in our area from losing tens of thousands of dollars in this scam.

Said Sibera: “I hope this is the only time. [Closing is] never a fun process.… This should be one of the best days of their lives, not one of the worst.”

SCO update

Now for some housekeeping items. In Friday’s business section, I wrote a short story saying Dominion Energy Ohio’s annual auction to determine the formula for the monthly Standard Choice Offer (SCO), which I continue to recommend, came in at a low rate. It wasn’t as low as the previous year, which was 0 cents, but the new “adder” price to determine the monthly rate came in at 7 cents per thousand cubic feet (mcf). That translates to a $7 yearly increase since the average homeowner uses 100 mcf a year, and is much better than some years, when that adder was several dollars. You can read more about it at

Also, I have been getting questions about a letter from the NOPEC aggregation that many residents have received. I wrote a column two weeks ago about that aggregation. You can read it in the Jan. 27 newspaper or online.

Beacon Journal consumer columnist and medical reporter Betty Lin-Fisher can be reached at 330-996-3724 or Follow her @blinfisherABJ on Twitter or and see all her stories at


Source :

Originate VA Loans – There May Be Trouble on the Horizon

WASHINGTON — The U.S. government sent notices to nine lenders this week, warning them that they would be penalized for pressuring veterans into costly home loan refinancing.

The lenders were told they will be kicked out of Ginnie Mae’s mortgage program unless they prove they can correct their actions.

The notices are part of an effort between Ginnie Mae, formally known as the Government National Mortgage Association, and the Department of Veterans Affairs to stop predatory lenders from targeting veterans who use the VA home loan guarantee program.

The occurrence of rapidly and unnecessarily refinancing loans, known as “loan churning,” creates costly fees for veterans, lengthens their debt repayment and threatens the overall VA program, said Ginnie Mae Executive Vice President Michael Bright.

“We need to take these lenders who appear to be operating in a way that doesn’t make sense and put them into this penalty box,” he said.

Ginnie Mae amended its guidelines at the end of January, stating it would be investigating lenders whose actions appear to be out-of-step with other lenders without a logical reason. Regulators said the bad actors accounted for only a handful of outliers.

Removing those outliers is likely to have the effect of lowering borrowing rates for veterans and others who use Ginnie Mae-backed securities by as much as .5 percent, according to Ginnie Mae.

Ginnie Mae did not name the targeted lenders. Bloomberg Politics, citing a source familiar with the matter, reported NewDay Financial, Nations Lending Corp., Freedom Mortgage Corp., LLC and Flagstar Bank were among those notified.

“We expect issuers receiving these notices to respond quickly, produce a corrective action plan and come into compliance with our program,” Bright said.

Because of loan-churning, companies that provide capital for the VA program are increasingly weary of lenders taking advantage of veterans who use it, Bright said. Penalizing lenders for churning is likely to improve their confidence.

“People who are backing this program are mad at how these loans are performing,” Bright said. “When we actually do this, my hope is those people who were skeptical see that Ginnie Mae really means it, and that they come back to the program.”

The action could be just the first step in removing predatory lenders that target the VA program, which offers veterans a low-cost mortgage option.

Jeffrey London, director of the VA loan guaranty service, told lawmakers last month that the VA will soon propose rule changes to the program. The regulations could include a requirement for a lender’s refinancing proposal to meet a certain tangible net benefit for veterans, as the Federal Housing Administration already compels lenders to prove before refinancing loans that it insures.

But the process to implement new regulations could be lengthy. The VA must adhere to the federal rulemaking process, which includes a public comment period. London didn’t tell lawmakers an expected timeline and said only the VA would propose new regulations sometime in 2018.

Sens. Elizabeth Warren, D-Mass., and Thom Tillis, R-N.C., introduced legislation in January requiring lenders to demonstrate a benefit to veterans when refinancing their mortgage.

While reviewing VA data in recent months, Ginnie Mae found a fixed-rate refinance of a VA home loan cost veterans an average $6,000 in fees. Their average savings were $90 each month, meaning it would take veterans more than five years to break even on refinancing.

“The American Legion stands with Ginnie Mae and Senators Warren and Tillis as they work to protect veterans from predatory home lending and ensure veterans have an affordable pathway to home ownership,” Denise Rohan, national commander of the American Legion, said in a written statement. “Our veterans didn’t serve their country around the globe in order to be taken advantage of by unscrupulous lenders at home.”


Housing Prices – Current Red Flags You Need to Know

When real estate investors get this confident, money manager James Stack gets nervous.

U.S. home prices are surging to new records. Homebuilder stocks last year outperformed all other groups. And bears? They’re now an endangered species.

Stack, 66, who manages $1.3 billion for people with a high net worth, predicted the housing crash in 2005, just before prices reached their peak. Now, from his perch in Whitefish, Montana, he says his “Housing Bubble Bellwether Barometer” of homebuilder and mortgage company stocks, which jumped 80 percent in the past year, once again is flashing red.

“It is 2005 all over again in terms of the valuation extreme, the psychological excess and the denial,” said Stack, whose fireproof files of newspaper articles on bear markets date back to 1929. “People don’t believe housing is in a bubble and don’t want to hear talk about prices being a little bit bubblish.”

Bubble? What Bubble?

As the housing market approaches its key spring selling season, Stack is practically alone in his wariness. While price gains may slow, most analysts see no end in sight for the six-year-old recovery.

There are plenty of reasons to be optimistic. The housing needs of two massive generations — millennials aging into homeownership and baby boomers getting ready for retirement — are expected to fuel demand for years to come if employment remains strong. Sales in master-planned communities, many of which target buyers who are at least 55, reached a record last year, according to John Burns Real Estate Consulting. Last month, a gauge of confidence from the National Association of Home Builders/Wells Fargo rose to the highest level in 18 years, and starts of single-family homes in November were the strongest in a decade.

“As soon as homes are finished, they’re flying off the shelf,” said Matthew Pointon, Capital Economics Ltd.’s U.S. property economist.

Homebuilders, which have focused on pricier homes since the market bottomed in 2012, are now getting ready for a wave of first-time buyers left with little to choose from on the existing-home market. Investors are rushing to builders of starter homes, because lower-priced homes in the U.S. are in the shortest supply. Shares of LGI Homes Inc., which targets renters with ads that trumpet monthly payments instead of prices, rose 161 percent last year. D.R. Horton Inc., the biggest builder, powered by its fast-selling Express entry-level brand, gained 87 percent.

Overall, the S&P 500’s index of homebuilders increased 75 percent last year, about four times as much as the stock market as a whole. A subset that includes just the three largest builders was the best performer of the 158 S&P groups.

“Over the past year, we’ve really seen a pickup in the first-time buyer, and that’s what’s driving a lot of the stocks,” said Samantha McLemore, who co-manages Bill Miller’s Miller Opportunity Trust, which has stakes in PulteGroup Inc. and Lennar Corp. “In the long term, we continue to see strong earnings growth for years to come.”

‘Rot in the Woodwork’

Stack has a different perspective. While the market might gradually correct itself, history shows that it’s more likely to “come down hard” with the next recession, he said. He described the pattern as a steep run-up in housing prices spurred by low interest rates. The last downturn came about when economic growth slowed after a series of rate increases, exposing the “rot in the woodwork” and prompting loan defaults, Stack said.

He noted that the Fed has projected three rate increases for this year, and said that “raises the risk that today’s highly inflated housing market will again end badly.” He’s watching homebuilder stocks closely because they’re a leading indicator, peaking in 2005, the year he called the crash — and the year before home prices themselves hit a top.

Stack has been studying median home prices, too, which typically track long-term inflation as measured by the Consumer Price Index. Last summer, they were as high as 32 percent above the measure; in 2006, just before the housing bust, values were about 35 percent higher, according to data from the National Association of Realtors. Half of the 50 largest metropolitan areas were overvalued relative to incomes in November, compared with 36 percent two years earlier, according to an analysis by data provider CoreLogic.

“If we see mortgage rates at more historical levels, house prices can’t stay where they are,” Stack said. Corp

A rate rise from 4 to 5 percent for a 30-year loan would drive up monthly mortgage costs by 12 percent. For buyers, that’s on top of the annual median price gain — 7 percent for existing homes in November, according to CoreLogic. By comparison, disposable income, or earnings adjusted for taxes and inflation, increased just 1.9 percent, according to data from the Bureau of Economic Analysis.

Bill McBride, who runs the Calculated Risk blog and also called the crash, doesn’t think home prices are inflated this time around. Unlike in 2005, lenders are acting responsibly and the Wild West of real estate speculation hasn’t returned, he said. There is less to speculate on, too. Compared with the overbuilding that preceded the bust, today’s pace of construction isn’t fast enough, he said.

“Lending standards are still pretty good,” McBride said, and he doesn’t expect mortgage rates to “take off” in the short term.

The Tax Twist

One wild card is the U.S. tax overhaul, which could cut both ways for homebuilders. They got a lower corporate rate, and many of their consumers will benefit from the doubling of the standard deduction. But it also caps the mortgage deduction at $750,000 instead of $1 million and limits deductions of property taxes, which mighthurt expensive markets such as New York, New Jersey and California.

As a result of the tax plan and an expected gradual rise in mortgage rates, existing-home sales will be flat this year and prices will rise only 1 or 2 percent, said Lawrence Yun, the chief economist for the National Association of Realtors, which opposed the tax bill.

“The housing market has been doing relatively well during the recovery,” Yun said. “But 2018 will be a year where we begin to see some change.”

Homebuilders have a lot going for them, said Carl Reichardt, an analyst for BTIG LLC. Still, he has a hold rating on most of them, a sell on KB Home and a buy only on Lennar and D.R. Horton. That’s because many of those positives are already baked into the share prices, he said, and home construction can grow only so much, given the tight supply of skilled laborers and finished lots.

Slow and Steady

“It’s almost better for the stocks if the general consensus is for moderate growth rather than supercharged growth,” Reichardt said. “It’s the sense that a slow and steady recovery creates more predictability.”

New-home sales will probably increase 8 to 12 percent this year after rising about 11 percent in 2017, said analyst Alex Barron with the Housing Research Center in El Paso, Texas. At 675,000 to 700,000 sales, that’s still almost 50 percent below peak levels in 2005.

“Ever since Trump took over, the mood has been incrementally positive,” Barron said. “Now that tax reform went through, people will have more money in their pockets.”

Bill Smead, whose Smead Capital Management has 11 percent of its $2.4 billion portfolio in NVR Inc. and Lennar, said stocks in general could fall in the short run and that will provide an opening for investors to buy homebuilder shares.

“Nobody wants to take their gains now,” Smead said. “There are no sellers.”

— With assistance by Charles Stein, and Vince Golle


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2018 HMDA Issues to Focus On

Banks and credit unions are markedly more worried about regulatory compliance and risk management, according to new data. The results of the Wolters Kluwer Regulatory and Risk Management Indicator revealed that overall risk management concern is up 13 percent over the year. Regulatory concerns are up 3 percent for the same period.

According to the Indicator, which polled more than 600 banks and credit unions across the country, top regulatory concerns include the fair lending exam, new Home Mortgage Disclosure Act rules, and the ability to track, maintain, and report to regulators. Just under 50 percent of respondents said they’ve noticed increased scrutiny based on their most recent fair lending exam, while HMDA changes came in as the single-biggest concern across the board.

As for risk management, cybersecurity and data security topped the list, with a whopping 83 percent of those surveyed saying they’re either “concerned” or “very concerned.” IT risk and regulatory risk also came in high.

According to Timothy R. Burniston, Senior Adviser and Principal Regulatory Strategist at Wolters Kluwer, 2017’s many data breaches are likely to blame.

“These results—compiled against a backdrop of highly publicized data breaches at well-known entities, and at a time when financial institutions are preparing for the implementation of the most significant set of HMDA changes in several decades—drove the increase in concerns expressed in this year’s survey,” Burniston said.

On the compliance front, respondents were mostly concerned with optimizing their compliance spend, reducing exposure to financial crime, and managing their compliance monitoring and testing efforts.

“These responses, when viewed collectively, reinforce for financial institutions the strategic imperative of having a proactive, well-staffed and supported corporate compliance program that operates across the three lines of defense —the business units, along with compliance/risk and audit areas—in tandem with an overarching risk management framework integrated with all lines of business,” Burniston said.


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