Category Archives: Mortgage Banking

CFPB Issues Policy Guidance and Technical Corrections for Loan Servicing Rule Amendments

The CFPB recently issued two updates for its Mortgage Servicing Rule amendments to Regulations X and Z.  Issued on August 4, 2016, the Mortgage Servicing Final Rule amended various aspects of the existing Mortgage Servicing Rules.  These changes will become effective either on October 19, 2017 or April 19, 2018.

First, the CFPB issued non-substantive, technical corrections to the Mortgage Servicing Final Rule issued in 2016.  The corrections include several typographical errors, revisions to show the correct effective date for certain provisions, and a citation correction.

The CFPB also issued non-binding policy guidance for a three-day period of early compliance with the amended Mortgage Servicing Rules.  According to the Bureau, the policy guidance was issued in response to industry concerns over operational challenges presented by the mid-week effective date.  Industry participants sought the ability to implement and test these changes over the weekend prior to the effective date.

Accordingly, the non-binding policy guidance states that the CFPB does not intend to take supervisory or enforcement action for violations of existing Regulation X or Regulation Z provisions, resulting from a servicer’s compliance with the new requirements, up to three days before the applicable effective dates.  Therefore, for amendments that become effective on October 19, 2017, the three-day period will cover Monday, October 16 through Wednesday, October 18.  For amendments that will take effect on April 19, 2018, the three-day period will cover Monday, April 16 through Wednesday, April 18.

 

Source: http://www.jdsupra.com/legalnews/cfpb-issues-policy-guidance-and-24696/

Potential HELOC Compliance Changes on the Horizon

Community banks and credit unions may soon be subject to new guidelines that will require them to report information on home equity lines of credit, due to Home Mortgage Disclosure Act (HMDA) reporting requirements. Under rules scheduled to go into effect, credit unions and community banks are exempt from the requirement if they have originated fewer than 100 HELOCs during each of the previous two years.

The Consumer Financial Protection Bureau (CFPB) is proposing a two-year test run of a higher threshold. The new proposal would increase the rule’s threshold to 500 loans in each of the previous two years. The change would be temporary, in use through calendar years 2018 and 2019, so that the Bureau can consider whether to make a permanent adjustment.

“Home-equity lines of credit worsened the foreclosure crisis that swept the country in 2008 and 2009,” said CFPB Director Richard Cordray. “We need to keep track of the responsible use of these loans for consumers, but after hearing from community banks and credit unions we want to reconsider whether that goal can be achieved with a higher reporting threshold.”

HMDA, originally enacted in 1975, requires most lenders to report information on loan applications they receive and on loans they originate or purchase.  The data collected is made available so that banking regulators and the public can monitor whether financial institutions are serving the housing needs of their communities, identify possible discriminatory lending patterns and assist in distributing public-sector investment to attract private investment to needed areas.

The Dodd-Frank Wall Street Reform and Consumer Protection Act transferred responsibility for HMDA reporting to CFPB, and the Bureau has updated the regulations to improve the quality and type of data collected.  The requirement to report data on HELOCs and other dwelling-secured open-end lines of credit is one of the more significant changes to the regulations.

CFPB said including these loans in the reporting requirements is important because, just like traditional mortgage, a customer can lose their home if they default.  Over leverage and defaults due to these products contributed to the foreclosure crises that many communities experienced in the late 2000s but this type of lending was not visible in the HMDA data or in any other publicly available data source collected at the time.

CFPB said that, while revamping HMDA it heard from community banks and credit unions that the new HELOC requirements represented a new, and in some cases, significant compliance burden for them. The original threshold of 100 dwelling-secured open-end lines in each of the previous two years was proposed for small-volume lenders where the benefits of the data do not justify the costs, Now CFPB is hearing that this threshold may still present challenges and costs greater than the Bureau had estimated.  Additionally, analysis of more recent data suggests changes in open-end origination trends that may result in more institutions reporting open-end lines of credit than was initially estimated. The Bureau estimates that the temporary 500-loan threshold would still capture about three-quarters of the home-equity lending market, down from about 88 percent at the 100-loan threshold.  

Source: http://www.mortgagenewsdaily.com/07142017_cfpb_rulemaking.asp

Why the Mortgage Market is Hard To Conquer with New Technologies

Mortgage lending has proven to be a tough industry for new companies to make waves in, and the sudden shutdown last week of San Francisco mortgage startup Sindeo helps show why.

Sindeo was one of more than two dozen startups seeking to streamline the cumbersome mortgage application, origination and closing process. Despite having what many described as top-flight technology and executives, it took down its website Tuesday night and replaced it with a brief note saying it had “made the difficult decision to wind down Sindeo.”

It didn’t say why, but a note from CEO Nick Stamos to investors obtained by Housing Wire said an investor who had committed to fund it tacked on a last-minute requirement to close the deal that it couldn’t meet. “My subsequent efforts to secure emergency bridge financing from this investor and others were also not successful,” he wrote.

Stamos said the company laid off 61 of its 70 employees Tuesday, keeping a small team to deal with loans already in process.

According to CB Insights, Sindeo had raised $25.5 million from investors including Renren, the Chinese social networking company.

Sindeo was a mortgage broker, which means it originated loans for others, but did not fund them itself. Its website formerly said it offered access to “40+ lenders & 1,000+ loan programs to best meet your specific needs and goals” and “closings in as few as 15 days.”

Borrowers, it said, could apply for a loan on a smartphone, tablet or desktop computer and get a preapproval letter in just five minutes. Unlike other companies offering only automated service, Sindeo also had human advisers whose pay was based not on commission but on “customer satisfaction.”

Eric Boyenga, whose South Bay real estate firm had a marketing partnership with Sindeo, had more than 20 clients who got mortgages through Sindeo. “The technology behind it was great. They had really top talent,” Boyenga said. But “the whole tech industry is tightening a bit. All you hear about is Google, Amazon, Facebook and Apple. If you look at the startups, investors wanted to see a higher return, faster.” With Sindeo, “they weren’t seeing what they were looking for.”

Getting a mortgage is a time-consuming process that involves shopping for a loan; choosing from various rates and terms; filling out an application; submitting pay stubs, tax returns and financial statements; waiting for approval; and, finally, closing the loan.

It is highly regulated by federal and state governments and requires coordination with appraisers, title companies, county recorders’ offices and investors, who buy most loans.

Mortgage-tech companies are attempting to save people time and money by letting them shop and apply online and either upload their documentation or give the mortgage company permission to pull it directly from employers, financial institutions and the IRS. But it’s still a Herculean task.

A true digital mortgage “lets consumers run the loan from application to funding from any device, with the choice of working on their own or having a loan adviser jump in at any time — and enabling the lender to have a fully documented loan that passes all rules and regulations from both lawmakers and investors,” said Julian Hebron, an executive vice president with RPM Mortgage.

On top of hiring engineers and attorneys, “you need a huge investment in customer acquisition. In the end, it proved to be too much for Sindeo, and it will prove too much for the other mortgage disruptors.”

To compete, a company needs lending, technology, regulatory and marketing infrastructure, Hebron said.

The company that has all four is Quicken Loans, the nation’s largest nonbank mortgage lender and the third biggest overall after Wells Fargo and Chase, according to Inside Mortgage Finance.

Quicken makes loans directly to borrowers, traditionally over the phone. In early 2016, it launched Rocket Mortgage, an all-digital loan whose ads are hard to miss. In 2016, Rocket accounted for $7 billion of the company’s $96 billion in loans.

About two-thirds of those getting Rocket loans are buying rather than refinancing and about half are Millennials, said Regis Hadiaris, Rocket Mortgage product lead at Quicken.

He said Rocket customers are closing loans in as few as nine days for refis and 16 days for purchase mortgages. That compares with an industry average of 45 days.

“Because of the complicated nature of the industry, we took a very deliberate path to roll it out,” Hadiaris said. “We had a public (test) in 2013. We kept learning and adding to it.”

The question facing the industry, he said, is, “Will the large established companies with scale become innovative, or will the smaller, new entrants be able to scale?”

To succeed, “you need a lot more than a front-end user interface or mobile app. People’s financial lives are complicated. Mortgage underwriting is complicated. Building simple technology that lets people do this on their own is like putting someone who doesn’t know how to fly in the seat of a 747.”

That may be true, but it won’t stop companies from trying to break into the industry, which originated almost $2 trillion in mortgages last year.

CB Insights identified 25 “mortgage startups transforming the mortgage industry.”

Unlike Sindeo, which was purely a broker, some are mortgage banks that initially fund the loans they make, although they quickly sell most or all of them. They include Lenda and Clara Lending (both in San Francisco), and Better Mortgage (New York).

Lenda and Clara both distance themselves from Sindeo. “As a broker, you can’t control the price. You can’t control the speed” at which loans are closed, said Jason van den Brand, CEO of Lenda. “You can build something snazzy on the front end and give it to whoever you are brokering it to. But they could take two months to get it done. This is a business where time is money. We control the entire process.”

Others are business-to-business companies that provide software to mortgage originators who want to provide a digital experience. They include Blend (San Francisco), Roostify (Burlingame) and Cloudvirga (Irvine).

The industry is “so big and so complicated” that if you try to disrupt it all at once “you will probably die of indigestion,” said Blend CEO Nima Ghamsari. That’s why his company is focusing on one area. Sindeo, he said, “tried to disrupt it all at once.”

 

Source :  http://www.sfchronicle.com/business/networth/article/Sindeo-shutdown-shows-why-mortgage-industry-is-11243444.php

How Did YOUR Credit Union Perform in the Mortgage Market against California ?

California credit unions witnessed an uptick in mortgages over the past year, according to the latest snapshot report from the California Credit Union League that analyzed the year-over-year data trends for credit unions.

Credit unions in the state reported a 14% increase in first-mortgages year-over-year, which includes a mixture of fixed-rate, adjustable-rate, purchase, traditional refinance, and cash-out refinance.

Most notably, mortgages hit a record high outstanding dollar amount of $58 billion, rising 69% from the most recent low in 2011 of $34 billion. For added context, the last historical peak was $36 billion in 2009.

However, despite the record high in dollar amount, credit unions also posted an 8% year-over-year decrease in originations, falling to $2.82 billion.

This doesn’t come as too much of a surprise given the steady rise in home prices. According to S&P Dow Jones and CoreLogic’s latest report, home prices increased 5.5% in April.

Meanwhile, credit unions posted a 3% increase in the combined category of Home Equity Lines of Credit and home equity loans (second-mortgages). In total, the outstanding dollar amount hit $9.9 billion, rising 10% from the most recent low in 2014 of $9 billion. The record high was $14.2 billion in 2009.

As of late, regulatory pressure has hindered credit union growth. But, this doesn’t mean they aren’t doing well, as seen in the above numbers. Matt Kershaw, CEO of Clark County Credit Union, explained this in a recent interview with HousingWire.  Kershaw noted that while credit unions have grown since the crisis, it’s not proof that regulations are not damaging the industry.

 

Source: https://www.housingwire.com/articles/40598-heres-a-snapshot-of-how-california-credit-unions-performed-in-the-mortgage-market

Summary of Upcoming TRID Amendments for 2018

The CFPB finalized the long-awaited initial round of amendments to the TILA/RESPA Integrated Disclosure (TRID) rule, also known as the Know Before Your Owe rule.  However, instead of addressing the so-called “black hole” issue, which refers to situations in which a lender may not be able to use a Closing Disclosure to reset fee tolerances, the CFPB punted by releasing a proposed rule on the issue.

The proposed amendments were posted on the CFPB’s website at the end of July 2016.  Although the CFPB planned to finalize amendments in March, the final amendments, along with the related proposal, were not issued until the beginning of July.  While the amendments will become effective 60 days after publication in the Federal Register, mandatory compliance with the amendments will not be required until October 1, 2018.  The CFPB has been urged to take this approach to implementing regulations by industry members, as it allows for the testing of changes on a pilot basis before going live across a company’s entire platform.

In its press release announcing the amendments, the CFPB notes that it adopted (1) tolerances for the Total of Payments disclosure that are based on the existing finance charge tolerances, (2) a change to the partial exemption for certain down-payment and related assistance loans by excluding recording fees and transfer taxes from the fee limitation that applies to the exemption, (3) a change in the scope of the rule to cover loans on cooperative units, whether or not the cooperative is considered real property under applicable state law, and (4) clarifications on how to provide separate Closing Disclosures to the consumer and the seller.

The final rule is 560 pages in length and the proposal is 41 pages in length.  We will be analyzing the final rule and proposal and will provide a more detailed analysis in a future edition of our Mortgage Banking Update.

Source:  http://www.jdsupra.com/legalnews/cfpb-finalizes-trid-rule-amendments-76978/

Major Shifts in the Mortgage Industry

Maine’s residential mortgage lending industry bears little resemblance to its prerecession version as changing conditions have shuffled the deck of top lenders and created new choices for borrowers.

Gone is the dominance of mega-banks such as Bank of America, and in their place are regional community banks and non-bank lenders that specialize in home mortgages.

Two of the biggest non-bank players in Maine today are South Portland-based Residential Mortgage Services Inc. and Detroit-based Quicken Loans Inc., both of which have risen from the ashes of the Great Recession.

In July 2009, Bank of America was the top mortgage lender in Cumberland County, according to county records. In July 2016, Residential Mortgage Services was the top lender, followed by Bangor Savings Bank. Bank of America barely cracked the top 10.

“Dodd-Frank changed the landscape for residential lending – forever,” said Maine Bankers Association CEO Christopher Pinkham, referring to the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. “The largest financial institutions have said, … ‘We’re getting out of that business.’ ”

The purpose of Dodd-Frank was to improve the country’s financial stability by increasing transparency and accountability in the financial system and protecting consumers from abusive bank practices. Among other things, it added new regulations for banks and organizations that issue residential mortgage loans.

In its wake, big national banks have shifted their focus away from originating home mortgages. Instead, they have decided to largely forgo the regulatory red tape by purchasing loans originated by third parties. Their exodus from the market has created opportunities for both community banks and non-bank lenders.

SHIFTING DYNAMIC

With major banks backing out of home mortgage originations, a group of innovative non-bank companies have risen to prominence within the industry.

Residential Mortgage Services, or RMS, has become a tremendous success story in Maine. The South Portland company was founded in 1991 as a small mortgage brokerage, and it was converted into a home mortgage lender in 2001.

Now the company has nearly 900 employees working at 70 branch locations from Bangor to Virginia Beach. Most of its growth has happened in the wake of the financial crisis, said Michael Ianno, the company’s executive vice president of retail production.

“We’re one of the few that survived,” Ianno said. “We actually grew through it.”

Ianno attributed the growth of RMS to its singular focus on mortgages and its ability to process loan applications in person, over the phone or online.

“We just deliver superior customer service,” he said. “This is all we do.”

In 2016, RMS originated nearly 17,500 home purchase and refinance mortgages, worth a total of $3.83 billion, Ianno said.

In Maine, RMS originated 450 mortgages valued at $89 million in the first quarter, the third-highest among all mortgage lenders in the state. It was surpassed only by Bangor Savings Bank with 795 loans worth $112.9 million, and Camden National Bank with 545 loans worth $99.3 million, according to Boston-based real estate and financial data provider The Warren Group.

Some banking industry representatives expressed concern that non-bank lenders aren’t as heavily regulated as banks.

“No one really knows what their level of compliance or noncompliance is,” Pinkham said.

But Ianno took issue with the claim. He said loans originated by RMS meet the same strict standards as bank-issued mortgages, as evidenced by the fact that it sells 90 percent of its loans to major banks and government-sponsored enterprises such as the Federal National Mortgage Association, or Fannie Mae.

Ianno acknowledged that non-bank lenders have a reputation for being major contributors to the 2008 financial crisis, which began with an erosion of underwriting standards and companies issuing loans to homebuyers who could not realistically afford to pay them back.

However, he said all financial institutions, including traditional banks, share responsibility for the crisis, and that regulators have imposed new rules to prevent another catastrophe.

“The credit standards are so much stricter today,” Ianno said.

MORTGAGES GO ONLINE

Another non-bank mortgage lender that has risen to prominence in Maine since the financial crisis is Detroit-based Quicken Loans, which operates online under the brand name Rocket Mortgage.

The company advertises aggressively online, targeting millennials and others who turn to the internet to conduct their research before applying for a home loan. Typing “mortgage loan” into a Google search brings up Rocket Mortgage as one of the top results.

Bill Emerson, vice chairman of Rock Holdings Inc., the parent company of Quicken Loans, said the company did about $96 billion of mortgage loan originations in 2016. In Maine, Quicken Loans originated 399 mortgages valued at $62.9 million in the first quarter, the fourth-highest among lenders in the state.

A large percentage of Rocket Mortgage customers are first-time homebuyers who are unfamiliar with the application process and may be apprehensive about it, Emerson said. The company has designed a simple, user-friendly online application process that is designed to improve transparency and eliminate the applicant’s anxiety. The average time to complete the application is just nine minutes, he said.

“We decided many years ago that the way the loan process works is broken,” Emerson said, and the company set out to fix it.

Pinkham said he is skeptical about the ability of online lenders such as Rocket Mortgage to provide excellent customer service, especially if something goes wrong with the application process. However, he acknowledged that a growing number of consumers want the ability to conduct all of their financial transactions online, and that traditional banks need to provide that ability if they want to compete.

One Maine-based bank that recently launched its own online mortgage application is Camden National, the state’s second-biggest mortgage lender in the first quarter. Others are likely to follow suit.

“There’s no way Camden is going to put that kind of money into that kind of product unless they have already established that that’s what people want,” Pinkham said.

A NEW FRONTIER?

Camden National President and CEO Greg Dufour said the online mortgage product, called MortgageTouch, is the latest step in the bank’s efforts to “build a digital gateway” to banking services.

In the past, mortgage applications always have been paper-intensive, he said, but now banks can access all of the verification data needed to complete the application process digitally. It reduces the application time down to about 15 minutes, Dufour said.

The primary driver of digital applications is customer demand, he said. To compete with companies such as Quicken Loans and the larger banks, Camden National decided it needed to add the online option.

“What we have found is that millennials are much more open to using technology (such as computers and mobile devices) for financial transactions,” Dufour said. “They’re very comfortable with that.”

The goal is not to replace face-to-face transactions but to provide an online alternative for those who would rather not visit a bank branch, he said, adding that Camden National is committed to growing its mortgage business and does not want to lose market share to online-only lenders.

“We have to really compete head-to-head with big companies, technology-wise,” Dufour said.

Bangor Savings, Maine’s largest mortgage lender in the first quarter, also offers an online mortgage application. Company Senior Vice President and Director of Mortgage Lending Bruce Ocko said Bangor Savings’ strategy is to distinguish itself from competitors by offering both high-tech and high-touch options for customers. The product itself is almost irrelevant.

“We’re all selling a widget,” Ocko said. “Our 30-year fixed rate is the same as their 30-year fixed rate.”

Source :http://www.pressherald.com/2017/05/22/new-players-products-shape-maines-mortgage-lending-industry/

The Latest on the Protection of Consumer Confidential Information

The Financial Services Modernization Act of 1999 is commonly known as the “Gramm Leach Bliley Act” (GLBA) named for the members of Congress instrumental in its creation. GLBA included requirements for privacy of consumer financial information, including disclosures about collecting, maintaining, sharing, and using the information, and security of the information. ‘The Privacy Act,’ as it is commonly called, is codified in Regulation P – Privacy of Consumer Financial Information.

Regulation P requires financial institutions to provide notice to customers about its privacy policies and practices; describe the conditions under which a financial institution may disclose nonpublic personal information about consumers to nonaffiliated third parties; and, provide a method for consumers to prevent a financial institution from disclosing the information to most non-affiliated third parties by exercising the right to “opt out” of the disclosure.

For the purposes of Regulation P, definition of key terms is very important.  Financial institution means any institution the business of which is engaging in financial activities, including, but not limited to: a retailer that extends credit by issuing its own credit card; a personal property or real estate appraiser; an automobile dealership; a check cashing, wire transfer, or money order sales business; an entity that provides real estate settlement services or mortgage broker services; or an investment advisor.

Nonpublic personal information means personally identifiable financial information and any list, description, or other grouping of consumers (and publicly available information pertaining to them) that is derived using any personally identifiable financial information that is not publicly available.

Although most in the financial services industry may have ignored the Fixing America’s Surface Transportation (FAST) Act that was signed into law in December 2015, it contained a privacy notice provision based on H.R. 604, the Eliminate Privacy Notice Confusion Act. The provision changed the annual privacy notification requirements to a requirement to send privacy notifications (subsequent to the initial notice) only when the privacy policy is changed. It was previously required every year, regardless if a change occurred or not. FAST changed the previous annual notification requirements; however, other requirements of the Privacy Act remain in effect.

It is important to recognize that this regulatory process has not yet been completed. The federal law was passed and signed by the president, and, in July 2016, the CFPB proposed amendments to Regulation P to correspond to the law. The rule was expected to be finalized in November 2016; however, the rule still has not been finalized, perhaps because of the conversion to a new administration and corresponding changes in Washington.

The NCUA, FDIC, CFPB, and Federal Reserve Board have made issuances to their institutions to make it clear the agencies do not expect financial institutions that meet the requirements to send annual privacy notices. The OCC has not yet issued formal guidance to its institutions (although, conceivably, they would be covered by the change to the interagency examination procedures), and, if your organization is under the OCC’s jurisdiction, it is prudent to confirm how this issue will be addressed with your regional examination office.

Regulation P can be found here, and the Federal Trade Commission (FTC) gives a plain language guide to Privacy Act requirements here.

 

Around the Industry:

Effective Now:

Where is your institution in HMDA implementation? See this.

On the Horizon:

OCC issues guidance on policies and procedures for violations of laws and regulations effective July 1, 2017.

MCM Q&A

Is it permissible to pull that credit report? See this.

 

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Low Down-Payment Condo Mortgages Are Back

Could condos financed with low-down-payment government-backed mortgages stage a surprise comeback under the Trump administration, which generally seeks to reduce federal involvement in housing? Would this be promising news for millennials and buyers with moderate incomes looking to purchase their first homes?

You bet — provided you take Housing and Urban Development Secretary Ben Carson at his word. Speaking to a mid-May National Association of Realtors convention, Carson said he is “in lockstep” with proposals to revive the Federal Housing Administration‘s condo financing program, which has been bogged down with controversial regulations and low volumes in recent years.

Though Carson did not offer specifics, he appeared to endorse some version of proposals made during the closing months of the Obama administration aimed at enabling greater numbers of buyers and condominium associations to participate in FHA’s condo program. One of the changes would give a green light to financings of individual units in condo buildings lacking FHA “certifications.”

Allowing single units to be financed — a return to what once was known as “spot” loans — would have potentially far-reaching impacts across the country, since fewer than 7 percent of condo projects or buildings currently have FHA certification, according to estimates by the Community Associations Institute, a trade group. Under current rules, units in noncertified buildings are ineligible for FHA mortgages.

To become certified, condo association boards of directors must submit detailed information regarding financial reserves, insurance, budgets and numbers of renters, along with a long list of other requirements. Thousands of condo associations dropped out of the FHA certification process after the Obama administration imposed regulations that were considered overly strict. Though leaders at FHA repeatedly said they recognized the importance of condos as affordable housing options, especially for first-time buyers, the agency only began loosening its red tape and regulations last year.

Dawn Bauman, senior vice president of government affairs for the Community Associations Institute, said the return to individual-unit financings “will be very helpful” for unit owners, buyers and condo associations themselves. Norva Madden, an agent with Long & Foster Real Estate in Maryland, said low-down-payment FHA financing on individual units “could work for sellers as well as buyers” and bring more affordable units into the market for sale.

Madden recounted an experience she had last year. An elderly woman listed a condo unit with her that was located in a building that lacked FHA certification. “The listing price was fair market” and affordable, said Madden, but the fact that the unit was ineligible for buyers using FHA loans was “a serious problem,” since most shoppers wanted to make use of FHA’s low-down-payment requirement (3.5 percent minimum) and generous approach to credit issues. Ultimately the seller moved out and reluctantly agreed to a lowball price thousands of dollars under list.

“Those buyers got a real bargain,” Madden said, but her seller, “who really needed the money,” didn’t do so well — all because FHA’s onerous regulations had discouraged the condo board in the building from seeking certification.

John Meussner, a loan officer with Mason-McDuffie Mortgage in Laguna Hills, Calif., says the forthcoming rule changes should open “the door to a pool of buyers that may not have a large down payment but may otherwise be qualified.” Renters in high-priced markets now will be able to buy homes, he said, since they’ll have an “accessible and affordable product.”

Christopher L. Gardner, managing member of national consulting firm FHA Pros, cited federal estimates suggesting that 50,000 additional FHA mortgages could be insured under the revived program in the first year alone. And thanks to competitive loan terms, it should pull in buyers who otherwise might have opted for nongovernment, conventional financing.

But not everybody is convinced that resumption of spot loans automatically will solve FHA’s — or consumers’ — condo problems. Paul Skeens, president of Colonial Mortgage Group in Waldorf, Md., says the change will only be effective if the FHA makes it “very, very simple” for lenders. Under the program, lenders still will need to investigate the financial stability of the underlying condo association and property. If that requires too much time and red tape, it won’t work.

The takeaway: If you’re potentially interested in buying an affordable condo unit with a low-cash down payment, keep an eye on this issue. The FHA should announce its plans in the coming months, so start scoping out condos in your area — whether they’re FHA-certified or not.

Update on a previous column: “Zestimates” suit seeks class-action status. On May 19, plaintiff Barbara Andersen of Glenview, who was already challenging the legality of Zillow’s “Zestimates” realty valuation tool in court, filed a new lawsuit as co-counsel seeking class-action status, claiming violations of state privacy, deceptive business practices and appraisal statutes affecting millions of homeowners. Zillow called the charges in the original suit “without merit.”

Source: http://www.chicagotribune.com/classified/realestate/ct-re-0528-kenneth-harney-20170523-column.html

RESPA Kickbacks – Be Aware of These Common Pitfalls

Get your “kicks” on Route 66, not from RESPA!

The Real Estate Settlement Procedures Act (RESPA) was enacted by Congress in 1974 to regulate the disclosure of all costs and business arrangements in a real estate transaction settlement process. One purpose of RESPA is to regulate the referral of business between companies involved in a real estate transaction settlement. An example would be a title insurance company, with a real estate broker as one of the owners, receiving referral title business from that broker’s real estate business. For the referrals, the broker or the broker’s real estate company would receive a fee from the title insurance company. This type of relationship is not necessarily illegal, but the authors of RESPA recognized that they could bring clarity, convenience and/or savings to the consumer if the conduct of referrals was regulated and disclosed. Referral arrangements must pass muster under Section 8 of RESPA.

Section 8 of RESPA specifically addresses prohibitions on kickbacks and unearned fees given or accepted in connection with a settlement service for a federally related mortgage loan (loans covered by RESPA). RESPA prohibits any settlement service provider from giving or receiving anything of value for the referral of business in connection with a mortgage or charging fees or markups when no additional service has been provided. In plain language, to give or accept a fee, actual work must be performed and there must be evidence of the work exchanged for the fee documented in the file to evidence compliance. RESPA prohibits unearned fees for services not actually performed, including fee splitting.

Violations of Section 8’s anti-kickback, referral fees, and unearned fees rules are subject to criminal and civil penalties. In a criminal case, a person who violates Section 8 of RESPA may be fined up to $10,000 and imprisoned up to one year. In a private law suit, a person who violates Section 8 may be liable to the person charged for the settlement service an amount equal to three times the amount of the charge paid for the service.

RESPA enforcement is alive and well. Here are some examples:

January 2014 – The CFPB initiated an administrative proceeding against PHH Corporation and its affiliates (PHH), alleging PHH harmed consumers through a mortgage insurance kickback scheme that started as early as 1995.

June 2014 – The CFPB ordered a New Jersey company, Stonebridge Title Services Inc., to pay $30,000 for paying illegal kickbacks for referrals.

January 2015 – The CFPB and the Maryland Attorney General took action against Wells Fargo and JPMorgan Chase for an illegal marketing-services-kickback scheme they participated in with Genuine Title, a now-defunct title company. The marketing-services-kickback scheme violated Section 8 of RESPA, which prohibits giving a “fee, kickback, or thing of value” in exchange for a referral of business related to a real-estate-settlement service.

February 2015 – The CFPB announced action against NewDay Financial, LLC for deceptive mortgage advertising (see Weekly NewsLINEs “Mortgage Advertising Compliance – A Path with Many Turns”) and Section 8 kickbacks. According to the order, NewDay deceived consumers about a veterans’ organization’s endorsement of NewDay products and participated in a scheme to pay kickbacks for customer referrals. NewDay is ordered to pay a $2 million civil money penalty for its actions.

NewDay sent direct mail solicitations that contained a recommendation from the veterans’ organization to its members, urging them to use NewDay’s products, which, together with other telephone and web-based referral activities, constituted a referral of settlement service business. NewDay’s payments to the veterans’ organization and the coordinating company for these referral activities constituted illegal kickbacks violated Section 8 of RESPA.

Be sure the Compliance Management System provides for periodic, broad-based checks for practices that could violate RESPA Section 8 compliance. As product offerings and marketing campaigns evolve, implement a compliance review before signing agreements with third-parties for marketing services, before launching promotional campaigns, and before new product terms and conditions are consecrated in stone. When it comes to “kicks,” take a detour on Route 66.

 

Around the Industry:

Effective Now:

CFPB enforcement and settlements – the gift that can keep on giving.

On the Horizon:

Are deeds in escrow the right option for your distressed loan workout? See this.

MCM Q&A

How might the CFPB’s five-year mortgage rule review change the regulatory landscape? See this.

Source: http://www.mortgagecompliancemagazine.com/weekly-newsline/respa-kickbacks/

The Latest Regulations on Non-QM Loans and Down Payments

Lenders can’t consider borrowers’ down payments among their assets for a non-QM loan, according to the Consumer Financial Protection Bureau.

In its latest guidance for lenders making non-QM loans, the CFPB clarified how a lender must consider a borrower’s assets when making a non-QM loan. A lender making a non-QM loan must make sure the borrower meets the “Ability to Repay” (ATR) standard. That means that the lender must consider eight underwriting factors and verify the borrower’s income or assets using “reasonably reliable” third-party records, according to a Lexology report.

Many non-QM borrowers are self-employed and have difficulty demonstrating income. So their assets become an important factor in a lender’s decision about whether they’re a good candidate for a loan. In the most recent guidelines for non-QM lenders, the CFPB “emphatically” stated that a down payment couldn’t be treated as an asset, Mayer Brown reported for Lexology.

“All else being equal, a larger down payment will lower the loan size and monthly payment and will in this way improve a consumer’s repayment ability,” the CFPB said. “However, the size of a down payment does not directly indicate a consumer’s ability to repay the loan.”

The agency added that it “cannot anticipate circumstances where a creditor could demonstrate that it reasonably and in good faith determined ATR for a consumer with no verified income or assets based solely on the down payment size.”

Source: http://www.mpamag.com/news/non-prime/nonqm-lenders-cant-consider-down-payments–cfpb-67148.aspx

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