Category Archives: Mortgage Banking

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.



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.


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.


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.


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.


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 :

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.


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


Like Mortgage Compliance Magazine and the weekly “NewsLINES”? Tell your friends and colleagues about us! Send them this link for their free subscription.

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.”


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.


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


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.”


Mortgage Insurance and TRID – Helpful Compliance Answers

The Dodd-Frank Act required the CFPB to propose regulation that combines RESPA-TILA disclosures (GFE, TIL, HUD-1). The proposed rules were released July 2012, and on November 20, 2013, the CFPB issued the final Rule. The effective date of the Rule was October 3, 2015.

The Good Faith Estimate (GFE) and the initial Truth in Lending disclosure (initial TIL) have been combined into a new form, the Loan Estimate (LE). The Loan Estimate form is designed to provide disclosures that will be helpful to consumers in understanding the key features, costs, and risks of the mortgage loan for which they are applying, and must be provided to consumers no later than the third business day after they submit a loan application.

The HUD-1 and final Truth in Lending have been combined into another new form, the Closing Disclosure (CD), which is designed to provide disclosures that will be helpful to consumers in understanding all of the costs of the transaction. This form must be provided to consumers at least three business days before consummation of the loan.


Where do I disclose MI on the LE and CD?

MI will be disclosed in at least one of the following locations:

  • Projected Payments – Payment Calculation
  • Loan Costs – B. Services You Cannot Shop For
  • Other Costs – F. Prepaids
  • Other Costs – G. Initial Escrow Payment at Closing

What is a triggering event? When completing the ‘Projected Payments’ section, how should I disclose MI payments over time?

A triggering event occurs when a lender must terminate MI under applicable law. Declines in MI premiums are not considered a triggering event. The lender should use the date on which automatic cancellation occurs, even if the borrower may cancel the insurance earlier.

Does the lender have an obligation to send a revised LE if the MI amount changes?

With BPMI Zero Monthly, no payment will be due at consummation. Therefore the MI premiums should not be disclosed as a closing cost on page 2 of the LE or CD. If the creditor is providing a revised LE because a cost unrelated to MI has changed, the creditor should also then re-disclose any MI premium rate change.

What types of MI fall under the 0% tolerance cost?

Any BPMI payment that is not escrowed must be disclosed on the LE and CD, and is subject to 0% tolerance. BPMI Single Premium, the Annual Premium due at closing, the non-escrowed portion of Monthly, and the upfront portion of BPMI Split Premium are subject to 0% tolerance.

Do any types of MI fall under the 10% tolerance cost?


What types of MI fall under the no tolerance cost (best info available)?

Any MI payment that is escrowed, including BPMI Monthly or Zero Monthly, the monthly portion of Split Premium, the escrowed annual portion of Annual Premium, and any Lender Paid MI (LPMI), is NOT subject to a tolerance rule. These MI premiums must be based on best information reasonably available, but are otherwise not subject to tolerance limitations.

Has the new definition of a loan application changed anything for how I do business with Genworth?


Where do I disclose LPMI?

LPMI does not need to be disclosed on the LE. But it will need to be disclosed on the CD as follows:

  • LPMI Single and LPMI Split premium paid at consummation must be disclosed on page 2, section B. “Services Borrower Did Not Shop For” as “Paid by Others.”
  • LPMI Monthly or Annual premium payment made at consummation disclosed on page 2, section F. “Prepaids” as “Paid by Others.”

If the LE initially includes Monthly BPMI, but then switches to a Single Premium MI premium plan, does the creditor need to re-disclose?

Yes. You will need to issue a revised LE within three business days of receiving “information sufficient to establish” that the borrower has opted for BPMI Single and disclose that under section B. “Services You Cannot Shop For.” However, if the initial LE includes the BPMI Single, and then the borrower opts for Zero Monthly, the opposite is not true. The creditor does not need to re-disclose.

Will Genworth still offer Amortized (Declining) Renewal on their MI premium plans?

Yes, we will still offer Declining as well as Level (Constant) renewals. For Amortized (Declining) Renewal, the renewal rate is applied annually to the outstanding loan balance for years 1 – term. Declines in MI payments are not considered “triggering events” and therefore do not need to be disclosed on the Projected Payments section of the new forms.

Where can I go to learn more about TRID and how it impacts mortgage insurance?

A: Check out Genworth Mortgage Insurance’s pre-recorded TRID webinar here delivered by MaryKay Scully, Director of Customer Education. MaryKay’s training will cover an introduction to the timeline for disclosure, implementation, and regulation as well as online resources for more detailed information, and the new definition of an “Application”.

LEGAL DISCLAIMER: Genworth Mortgage Insurance believes the information contained in this publication to be accurate as of 11/2/2015. However, this information is not intended to be legal advice. Genworth is providing this information without any representations or warranties, express or implied, and shall not be liable for any direct, indirect, incidental, punitive or consequential damages due to any person’s reliance on the information. Lender should satisfy itself that this guidance is adequate for its purposes.


State Regulation & Compliance Updates

Electronic Notary Public Act – The state of Arkansas enacted provisions (House Bill 1479) creating the Electronic Notary Public Act. These provisions are effective on August 18, 2017 (or 91 days after adjournment of the current legislative session).


MLOs and Mortgage Companies – The Colorado Department of Regulatory Agencies, Division of Real Estate, adopted provisions (REG: 4 CCR 725-3) regarding mortgage loan originators and mortgage companies including updates and repeals to its definitions and professional standards. These provisions are effective on March 17, 2017.


Surety Bond Information – The Oregon Department of Consumer and Business Services, Finance and Securities Regulation, adopted provisions (REG: OAR 441-730-0026; -860-0020, -0025, -0050; 885-0010)  allowing licensees to submit required surety bond information through the Nationwide Mortgage Licensing System and Registry. These provisions were effective on April 1, 2017.

South Dakota

Nonresidential Mortgage Loans – The state of South Dakota enacted provisions (HB 1179) relating to exemptions from licensure for nonresidential mortgage loans that do not exceed a specified amount. These provisions are effective on July 1, 2017.


Uniform Fiduciary Access to Digital Assets Act – The state of Virginia enacted provisions (HB 1608) regarding its Uniform Fiduciary Access to Digital Assets Act. These provisions are effective on July 1, 2017.

Tenants by the Entireties – The state of Virginia amended its provisions (HB 2050) by providing that no interest in real property held as tenants by the entireties may be severed by written instrument unless it is a deed signed by both spouses as grantors. These provisions are effective on July 1, 2017.

Electronic Filing of Land Records – The state of Virginia modified its provisions (SB 870) relating to the electronic filing of land records. These provisions are effective on July 1, 2017.

Protection of Escrow Funds and Security Deposits of Tenants Post-Foreclosure Sale – The state of Virginia amended its provisions (SB 866) relating to the protection of escrow funds and security deposits for tenants after a foreclosure sale. These provisions are effective on July 1, 2017.

Notice to Tenant in Event of Foreclosure – The state of Virginia amended its provisions (HB 1623) regarding residential rental properties by providing that a notice of foreclosure acts as a termination of the rental agreement by the landlord and the tenant may remain in possession on a monthly basis until the new owner provides a notice of termination of the monthly occupancy. These provisions are effective on July 1, 2017.

Residential Property Disclosure Act – The state of Virginia modified its provisions (HB 2034) relating to its Residential Property Disclosure Act. These provisions are effective on July 1, 2017.


Uniform Consumer Credit Code – The Wyoming Department of Audit, Division of Banking, adopted provisions (Chapters 1, 3 and 5: Uniform Consumer Credit Code) regarding licensing fees as well as updating obsolete language and consolidating other existing rules. These provisions are effective immediately.

Uniform Power of Attorney Act – The state of Wyoming enacted provisions (Senate File 105) creating its Uniform Power of Attorney Act that includes providing for applicability, sample forms and the repeal of provisions relating to durable powers of attorney. These provisions are effective on January 1, 2018.

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Current Technology Developments and the Impact on Mortgage Operations

Mayela and Ben Scott couldn’t wait to refinance their home. They had purchased it in 2014, when they were expecting a baby, and were only able to make a small down payment. Their FHA mortgage came with a steep monthly insurance payment.

By early 2017, they thought they were ready. The value of the home had increased, and the couple had built up some equity, bringing their stake in the house over 20% and qualifying them for a conventional loan with no monthly mortgage-insurance premiums.

Refinancing also seemed like a chance to try something different. “The original process was eye-opening because I had no idea all the financial reporting that went into it,” Ben said in an interview. “But I did feel the process was a bit archaic given that you can do everything else on line. I remember coming away thinking, Did we need to have four or five meetings with a lender?”

Then a high-school classmate of Ben’s mentioned on social media that he’d just worked with a startup called Morty to refinance his mortgage. Intrigued, Ben and Mayela contacted Morty, and completed the refi “piece by piece,” uploading documentation and e-signing forms whenever they found a few minutes between work and taking care of their toddler.

The Scotts’ monthly mortgage payment fell from $3,100 to $2,600, and the entire process was completed on their schedule. There hadn’t been anything wrong with the original mortgage process, which they completed with a local mortgage broker recommended by family, they said. But there was something not quite right about it, either — a sense that the endless paper shuffling wasn’t necessary for compliance or regulation. It felt like make-work.

“It almost seemed to me that the system was in place to justify [the broker’s] position,” Ben told MarketWatch.

‘Kayak for mortgages’

Morty was founded in 2016 by Brian Faux, a mortgage-industry veteran, and Nora Apsel and Adam Rothblatt, both programmers. Rothblatt and Apsel were both interested in online consumer marketplaces, and Faux wanted to wring the inefficiencies and the patronage out of mortgage lending.

(It’s worth noting that none of the three founders, all 32 years old, has ever taken out a mortgage or bought a home. Here’s Rothblatt on why: “The millennial generation are now the single largest segment of first-time home buyers, and urban dwellers still lag behind, so statistically speaking we will all buy eventually, just later, and probably more expensive homes.”)

Faux sometimes describes Morty’s business model as a “Kayak for mortgages.” Most people know mortgages can be obtained online — thanks in part to the aggressive marketing of Quicken Loans and others — but are less aware that most online providers are lenders that offer only their own products. Morty currently works with 12 lenders and can offer hundreds of products to any borrower.

The founders want Morty to be as self-directed, or not, as customers want it to be. They still remember the email from a customer who’d completed a refinance in nine minutes and was convinced he’d done something wrong. Borrowers who don’t want or need to talk to a Morty employee never have to — but they’re welcome to ask for help.

What the founders are evangelical about is bringing transparency to the process. They want borrowers to understand what’s going on, and how all the mortgage-market players are making money from the transaction. They want Morty to be not as much a salesman as an “honest broker.”

The person who helped the Scotts with the original mortgage may have been a mortgage broker — a category of professionals that’s been heavily regulated since the financial crisis. Or he may have been what’s often called a loan officer.

Anyone who brokers a mortgage is paid a commission on the mortgage that’s a percentage of the loan and often also profits from an administrative fee, which can exist under all kinds of names: as “rate-lock fee” or an “origination fee” and so on. Morty’s fee is equivalent to 1.5% of the loan amount — and it’s paid by the lender.


As Rothblatt put it, that jargon makes it impossible for borrowers to do an “apples-to-apples comparison.” Phrases like “rate-lock fee,” to many borrowers, are meaningless.

“It’s a zero-sum game — the lender’s going to make their money, it’s just a matter of what they call it and where it is,” he said. “It’s completely opaque to the borrower, and the only thing that they understand is how it’s being described to them in a very salesman-like way.”


Faux had left Washington and was working for a lender in Connecticut when he connected with Rothblatt, who convinced him to try something new. Shortly after, Apsel joined the effort — and, shortly after that, they were selected to participate in the Techstars venture-capital incubator funded by Barclays. Morty has raised $3 million from investors including Techstars, MetaProp, SV Angel and others.

Jenny Fielding, the Techstars manager who recruited the trio, told MarketWatch that it was the founders, even more than their product, that made Morty compelling. “I thought the product was interesting — they’re doing something that hasn’t been done before — but the most exciting thing was the three of them. Brian with his incredible background in D.C., and Nora and Adam being stellar developers. The support and respect they have for each other was unprecedented.”

That’s not to say Fielding isn’t focused on the scale of the opportunity in Morty’s business plan, which was reinforced when she discovered her bank was of no use lining up financing when she was buying a co-op in New York. “I have perfect credit, I make a really good income, I literally have been a private client for 30 years, and they still couldn’t help me with a mortgage. I just thought, seriously? This is so broken.”

Fielding was stuck going to a broker. As she put it, he “was nice, but I had no idea what was going on behind the scenes, no idea who he was making deals with.”

‘What do people really want?’

The ranks of mortgage brokers thinned considerably after the financial crisis set of 2008, for which they shouldered a good bit of blame. Brokers originated fewer than 10% of all mortgages in the fourth quarter of last year, according to Inside Mortgage Finance, down from about 30% in the years leading up to the crisis.

Still, other players in the lending space behave a lot like brokers do, steering borrowers to a particular lender or type of product.

Fred Kreger, who heads the National Association of Mortgage Brokers’ board of directors, said he has watched the rise of technology-first companies like Morty with some skepticism.

“What do people really want? If they’re going to be investing the largest amount of money in their life, they want a person behind it,” he said in an interview. “The danger is financial services being commoditized. The consumer only knows what they know. They don’t know every product out there. If they do, great. Go online.”

It may come as a bit of a surprise that the three millennials who’ve never owned homes and want to bring lending into the digital age have thrown themselves into the intricacies of personal-finance counseling that go along with mortgage shopping.

Apsel ticked off a laundry list of borrower considerations: How big should a down payment be? Should closing costs be rolled into the mortgage? Should borrowers necessarily buy homes that are as expensive as the amount they’re approved for?

As Rothblatt put it, “We only reserve the human component to the meaningful part, which is the hand holding and the advice and the expertise in the products. We want to build an education into the product as well, but we think there will always be a role for the human adviser and the expertise.”

A ‘scary’ transaction

But most participants in the mortgage industry agree it’s more than prime for disruption. “It’s pretty clear there’s a need to do something about the fact that no one shops for mortgages,” said Ellen Seidman, a senior fellow at the Urban Institute’s housing finance policy center.

“This is an incredibly difficult, scary, emotional, transaction. You only do it a few times in your life. There’s an enormous trust factor. You want to work with someone you can trust. One of the things that makes a good salesperson is being able to gain trust. Some earn it, some don’t.”

It can be hard to pre-shop for mortgages before going out on the market looking for property, in part because the information can change, and in part because pulling credit scores too many times can be a red flag for lenders. But by the time most buyers have found a property to bid on, they’re too frazzled to start shopping for a loan.

Dave Stevens, president of the Mortgage Bankers Association, the influential lobbyist for lenders, hired Faux for one of his first jobs in the mortgage business — as a summer intern at Freddie Mac FMCC, +1.56% — and then kept on hiring him, right up to a top-level role at FHA .

“I never count Brian out. I always assume he’s going to be successful,” Stevens told MarketWatch. “He knows that fintech is clearly a much larger part of the mortgage finance system, and millennials are far more likely to shop online than with some mortgage guy in a suit.”

Still, Stevens said there can be inertia rooted in the layers of bureaucracy that the residential real-estate industry has set up.

“I still believe most real-estate agents are going to recommend their person unless the buyer comes in with a predetermined selection and you don’t want to upset the apple cart. The secret sauce is in the generational shift with millennials. Are they going to keep using the traditional methods that we’ve been using all our lives or is there going to be a break?”

The trend seems clear, Stevens said. “All markets shift, and this is a pretty archaic market. The vast majority of financial products emerge into online.”

Going beyond early adopters

Seidman sees parallels, she said, between the mortgage-brokerage model and the current tussle over the fiduciary rule that the Obama administration tried to enact to govern investment advisers. Mortgages are complicated not just because they’re such enormous transactions that happen so infrequently, she said, but because there are huge numbers of very personal variables, from credit-scoring models to the size of the down payment. A technology-based model like Morty “could be really useful” in bringing some order to that marketplace, Seidman said.

She sees another possible application of Morty’s technology, as well, she said. So far, the company has been content to operate under the radar as the founders finalize the website and the loan process. Most borrowers have found Morty by online word of mouth.

Almost by definition, the high-tech early adopters who’ve used Morty are more affluent than average. As Faux put it, “Lenders love us. We are essentially delivering highly qualified, high-quality gift-wrapped loans to them.”

But that pool of customers isn’t unlimited — and a lower-cost service provider like Morty will need to make revenue in volume, Seidman suggested. It’s also questionable how disruptive Morty can be if it continues to serve only borrowers privileged enough to seek out the best deals and make sense of complex financial information.

Her idea: to pair a tool like Morty with the thousands of housing counseling agencies that work with first-time and other marginalized borrowers around the country. “A mission-oriented trusted intermediary on the customers’ side making use of a complex product,” Seidman said. “There are real opportunities there.”

For now, Faux isn’t worried about scale. Morty is building the model, and the customers will come, he said. Neither is he, or his fellow founders, worried about a newer startup catching Morty from behind.

“The more, the merrier. If we can make the process better for consumers throughout the country and raise awareness, great,” Apsel said. “There can be a lot of winners in this industry.”

Faux put it differently: “I wish them luck going through the state licensing process.”

As the mortgage industry veteran on the leadership team, it falls to him to study — and sit — for licensing exams in each state, a tedious process that’s accompanied by legal paperwork and more.

Morty launches this week after an initial pilot phase. Faux said that no other originator has been able to beat Morty’s rate offerings, and that no customer has walked away from a Morty application after starting it.

Faux also has an olive branch for the “mortgage guys” he wants to put out of business, especially from the perspective of the post-financial-crisis lending landscape.

“Do I think they’re overcharging and getting rich? No, but they’re inadvertently doing so by not modernizing and realizing that there are digital automated processes that can not only lower costs, but make a better mortgage overall.This is a better way to do it, top to bottom.”


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