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Maybe NMLS Numbers Weren't so Scary; Recent CFPB Proposals and Implications
Posted to: Pipeline Press
Monday, May 19, 2014 6:11 AM

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People here at the Secondary Marketing conference are keenly interested in an insider's view of what the MBA is focused on, and what is causing a stir. I am no insider, but can safely say that the MBA is working on "a ton" of things. A "common security" for Freddie and Fannie loans is high on the list. The MBA appears to support access for all lenders (including small ones) to the securities market, and a deeper risk share. Probably also on the wish list is rep and warrant expansion for the GSE business, and, oh, wouldn't it be nice if we had some additional MIP relief from the FHA. But write to the folks at the MBA - they are certainly approachable. And while we're talking about what folks are discussing here, also on the list is Freedom buying up the market, Wells Fargo's 7-1 and 10-1 government ARM programs (borrowers qualify at the note rate), and Citadel Servicing's state program. More later!

On the expansion and jobs front, Republic Mortgage Home Loans recently announced the addition of 16 new branches in 10 states, continuing their aggressive expansion nationwide. "Incoming branch managers cite the unique company culture, exceptional management team, and innovative marketing platform as the main reasons they joined Republic." Republic is looking for more production teams in the WA, OR, CA, AZ, NV, UT, NM, ID, IL, CO, WI, IN, OH, GA, FL, TX and TN who are well established and looking for an opportunity to grow their spheres of influence. For more information interested parties should reach out to Ray Harvey at rharvey@republicmortgage. com for the Pacific Northwest or John Owens at jowens@republicmortgage. com for the other areas of the country.

And Maverick Funding Corp. is rapidly expanding! Maverick is currently in the process of recruiting the best mortgage professionals in the industry for up and coming branch locations. Management is looking for qualified self-sourced loan officers and aggressive sales teams to help Maverick continue its tremendous growth streak and propel its success to new heights. Mortgage Executive Magazine recently declared Maverick one of the 50 Best Companies to Work For! "Over the last 60 days, we added a total of 77 employees and have recently added over 6,000 sq. ft. of workspace to our Corporate Headquarters Office. We are currently licensed in 32 states and hold GNMA, FHA, and FNMA approval. Join our award winning team!" For Retail Branch Management, Team, and Loan Officer Opportunities contact Careers@Maverickfunding. com. For Account Executive Positions in our Wholesale Division, contact National Wholesale Manager Reno Heine, at Rheine@maverickfunding. com. And for opportunities in Maverick's Newport Beach Marina, CA Division, contact Careers@Maverickfunding. com.

Late last week the commentary discussed the recent NMLS report, and about the seemingly large number of LOs given the limited number of loans in each state. I received a few comments from astute readers about something I failed to consider: that not every licensed individual is an actual LO. Mike R. wrote, "Regarding the number of MLOs in Washington (or anywhere else for that matter), I believe that many bank employees (customer service reps in branches, etc...) are required by their employers to be federally registered simply because they may have discussions with consumers about mortgages within their day to day activities. If I am right about this, it would overstate the number of true MLOs. That said, there still aren't enough purchase transactions to go around and I'd expect continued attrition."

And a reader from Michigan chimed in, "At our federally registered institution only 30% of 'active MLOs' are first mortgage originators - the rest are branch staff. The poorly written SAFE Act requires staff who 'take applications' and 'negotiate rates' for firsts AND/OR seconds to be registered. There is a 'carve out" for staff members who refer applicants to published rates on our website, they don't have to register. However, it would be poor service to tell applicants - sorry I can't tell you the rate you qualify for, but here is a link to our website. We feel it is absurd that branch staff, who have no say in rate (strictly driven by an applicant's credit score) or fees (there are none unless an appraisal is required), have to register. I believe those that constructed this system realized in order to foot the bill they had to broaden the reach, just think if federal registrations were only 30% of what they currently are. We are in the process of working with our trade association and local Congressman to amend the requirements (not holding my breath). As an aside all of bankers I have met with think it's ridiculous their branch staff have to register as well!"

The CFPB has been busy. Recently it was, "We're launching an intuitive, easy-to-navigate electronic format of Truth in Lending regulations (Regulation Z), which will make it easier to implement and use the recently adopted mortgage rules. The eRegulations tool presents the text in clear, readable form, is easy to navigate and allows the user to compare different versions to identify changes. Check out the eRegulations tool.

This follows on the heels of, "We're implementing changes to the format of the Examination Reports and Supervisory Letters that we send to supervised entities after our reviews of their compliance with federal consumer financial laws. The main change is the creation of a single section in the report that includes all of the items that we expect the entity to address when a review identifies violations of law or weaknesses in compliance management. This entire section will be referred to as "Matters Requiring Attention," regardless of whether the Bureau is requiring specific attention by an entity's Board of Directors.

Every lender, big or small, has exposure to the CFPB. (In fact, many believe that arguably any financial transaction involving a consumer has exposure to the CFPB.) The last thing that the Agency/Bureau wants is to be accused of restricting access to credit, right? "The proposal includes two changes that would help certain nonprofit organizations continue to provide mortgage credit and servicing to underserved populations. The proposal also lays out limited circumstances where lenders that exceed the points and fees cap can refund the excess amount to consumers and still have the loan be considered a Qualified Mortgage." Here you go: Nonprofits in the lending biz.

And don't forget the CFPB's announcement a few weeks ago that said it was considering allowing a cure for mortgages that were closed as QM (qualified mortgages) but later lost their QM status. From what lenders have told me, most of these are due to issues with the upfront points and fees exceeding the 3% cap. The CFPB proposed a 120-day period wherein lenders could cure an "overcharge" exceeding the cap if certain conditions were met.

Obviously every lender out there is (overly) concerned about making the slightest mistake, and the costs of avoiding such mistakes are, of course, passed on to borrowers. So lenders are hopeful about the chance of correcting a loan was originated in good faith with the belief that the loan did not exceed the 3% cap (which can be demonstrated by policies meant to avoid mistakes). Lenders try to be consistent in loan pricing among similar loans, but of course mistakes can occur, and if a lender's post-closing review procedures identify the mistake before it is brought to the lenders' attention by the consumer or investor then perhaps it can be corrected.

The CFPB's proposed amendments to the Qualified Mortgage points and fees requirement in §1026.43(e)(3) to permit, under limited circumstances, the refunding of  excess points and fees within 120 days after closing in order for the loan to meet this Qualified Mortgage requirement. Notice it is a proposal - once it is published in the Federal Register everyone can comment on it. And here is one law firm's analysis of it.

Kristie D. Kully and Eric Mitzenmacher of KL Gates did a thorough write-up, regarding the proposals, "One of those amendments would, if finalized, allow creditors a limited opportunity to 'cure' a loan that inadvertently exceeds the three percent limit on points and fees for qualified mortgages ('QMs'). By making a residential mortgage loan that meets the QM criteria spelled out in the Dodd-Frank Act and TILA regulations, a creditor is presumed to comply with its obligation to determine the consumer's ability to repay the loan. Among those criteria, the points and fees for a QM are limited to three percent of the total loan amount. While keeping a loan's points and fees below that amount is difficult, determining what amounts must be included in the calculation is not an easy task either, particularly as a loan moves from its early application stage, through processing and underwriting, and ultimately to closing. The Bureau recognizes that 'the calculation of points and fees is complex and can involve the exercise of judgment that may lead to inadvertent errors.' It uses the example of amounts mistakenly excluded as bona fide discount points or private mortgage insurance premiums, and of miscalculated loan- originator compensation. A creditor may, despite its best efforts, miscalculate or exclude an amount that is later determined to be included in 'points and fees.'"

They remind us that "There is no prohibition under the Dodd Frank Act or TILA regulations against originating loans with points and fees that exceed three percent, or that otherwise are non-QMs. However, a creditor of a non-QM loan must be able to demonstrate that it otherwise complied with the ability-to-repay determination, including the consideration of all the factors in the regulations, which may be difficult for a creditor that intended to originate a QM. The creditor also, of course, loses the protection of QM status, and becomes subject to the increased uncertainty of an accusation by the consumer or a regulator that it made the determination improperly. Importantly, a creditor that agreed to deliver only QM loans to an investor could be stuck with a repurchase demand, even though the creditor is willing to fix the error by making the consumer whole."

There will be more about this tomorrow, but this is certainly a step in the right direction. The proposed CFPB rule change is available here.

Rates in 2014 continue to be lower than where we began the year, and agency MBS prices are back to Halloween levels. Is our economy really doing that poorly? Although some indicators, such as retail sales and industrial production, came in lower than expected, there is little reason to expect the Fed to alter its current course of monetary policy. The inflation numbers gave some folks something to cheer about (remember, a little inflation is good): inflationary pressures picked up in April, with both the PPI and CPI accelerating in the month. And lower jobless claims indicate the labor market continues to improve. Homebuilding has picked up, indicated by solid gains for starts and permits, though the housing recovery still remains on shaky ground.

Speaking of which, although prices have been appreciating the housing market had been a notable weak spot in the recovery this year, but homebuilding looks to be picking back up. Housing starts jumped 13.2 percent in April, thanks to a surge in the multifamily sector. Building permits picked up as well, posting its third straight month above a 1 million-unit pace. Despite the strong reading for April, the housing market recovery is expected to be a slow one. Single-family permits are still lower than they were a year ago. Furthermore, the NAHB Housing Market Index fell to 45 in May and home sales data continue to look relatively weak.

What about this week? There is no scheduled news until Wednesday (until then, expect rates to react to last week's news and whatever happens overseas). At the midweek point the Federal Open Market Committee (FOMC) will issue minutes of its previous meeting. On Thursday is Jobless Claims, just like every other week, but we'll also see Leading Economic Indicators and Existing Home Sales, followed by Friday's New Home Sales (an update on the number of newly constructed homes in which a sale occurred during the previous month). The yield on the 10-yr closed last week at 2.52%.




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Mortgage Rates:
  • 30 Yr FRM 4.16%
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  • 15 Yr FRM 3.30%
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  • Jumbo 30 Year Fixed 4.00%
MBS Prices:
  • 30YR FNMA 4.5 107-30 (-0-01)
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  • 30YR FNMA 5.0 110-09 (-0-01)
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  • 30YR FNMA 5.5 111-04 (-0-02)
Recent Housing Data:
  • Mortgage Apps 1.90%
  • |
  • Refinance Index 0.38%
  • |
  • FHFA Home Price Index 0.67%