Community Commentary

Housing Utopia

2011-10-14T19:36:59Z

I'm as guilty of participating in the blame game as anybody, but I want to evolve beyond it. It accomplishes nothing for our industry and has hardened the hearts of a lot of the players. So I hope the following fictional narrative sparks some conversation towards a more unified housing finance industry, and in the future, i hope it turns out to be less fictional, both for myself, and for you.

It has been another great week in the mortgage business.

Monday I had a great closing with a first time homebuyer. The look of relief on her face as she reviewed the Affordability Analysis we had agreed to before she started looking at houses (as her kids argued over who would get the bigger room) was worth the effort it had taken to convince her to wait an extra month to buy this house until her new raise kicked in. She would have an extra $200/month towards the unpredictable, and with two rambunctious boys, the unpredictable was all but a certainty. Even better, our plan to lock her rate in, and watch the MBS market, which she actually had begun to check every once in a while on her own, had resulted in an extra .25% float down to her 30 year rate a week before closing.   It gets even better though. She works at an accounting firm, and the senior partner wants to meet me about the MBS analysis I provide as part of a new financial planning education workshop he is offering to all of his clients.

As I was leaving the office, I ran into my mortgage banking buddy. He thanked me for referring him a credit challenged borrower that he was closing down the hallway. I laughed and thanked him for keeping his net worth above a million so he could get those kinds of loans closed. I also thanked him for the referral of a high net worth borrower with a really high FICO who wanted a rate that only one of my wholesale lenders offered. This particular wholesaler is a pain in the butt to work with, and my mortgage banking buddy just doesn’t need the hassle with all the ‘skin in the game’ business he now enjoys with A- products and common sense stated income programs he can offer.

On Tuesday I had several refinance presentations outlining the new “cost/benefit” disclosure to my client base. I laugh thinking of the old 3 page RESPA form with all of its lump sum fees, and then the TILA form with the mysterious APR calculation. Ever since our industry had pitched the easy to read “cost/benefit” form that we sign along with the borrower at application, predatory refinance lending had all but disappeared. Any loan officer who didn’t want to sign his name to the benefit of the refinance along with calculating the cost breakeven at application, and then sign it again at closing to deliver that benefit had long since left the business.

Wednesday was the appraisal institute meeting with other mortgage and realtor professionals. We looked at graphs of how values were shaping up based on the relocation of a major defense contractor in the area that would be providing some higher paying jobs.   The 5% year over year increase in values, although a little higher than what the historical graphs showed, was still justified by the higher incomes being paid to relocating employees and local citizens who were also enjoying increasing income. We decided not to sound the “bubble alarm” until we saw how the next quarter rolled out.

At the meeting, we did get wind of a potential appraisal inflation scheme from a title company that had noticed several sales between LLCs in a short time period driving up values in some zip codes just outside of where the new defense contractor was going to be located. The appraisal institute and realtors agreed we should keep an eye on these sales to see if the AVM values started going up, as none of the sales had required financing nor had they been reported through the local MLS.

Thursday was our realtor meeting and we began the referral process for our preapproved borrowers. Although it had been a challenge to implement, the homebuyer education courses we take our clients to through the local nonprofits have resulted in far less fall out from uncommitted and/or unqualified buyers.   The money management courses some of those borrowers end up taking actually result in even more qualified buyers as the nonprofits help them build budgets and repair credit issues before they ever even think about looking for a house. Realtors report that DFTs are almost nonexistent.

Friday my mortgage banking buddy and I met with the retail banks about the community reinvestment efforts. We brought some of our buy/keep investors to the meetings to discuss the new neighborhood building program.   The investors, many of which have been managing properties for a decade or more but have been boxed out of lending because of the “more than 10 financed property” rule are more than happy to put down 25% for a rate that is only about 1% above the best investor rate. They aren’t even complaining about the 5-4-3-2-1 prepayment penalty, as they have been so used to balloon financing and multi-unit graduated prepayment penalty financing, that just to be able to buy, rehab, get max occupancy and max market rents again means a return to the old style long term investment strategies they have always embraced before the boom and bust buy flip craziness took hold. The first six months of the program have been an amazing success—clearing out hundreds of units of foreclosed inventory. These neighborhoods have never looked better.

At lunch we talk about how well the new “modification option” products are working as well. In fact, I just got off the phone with a client who had chosen to pay an extra premium for a “modification” option built into his note. Much like the old “conversion” options we used to sell with ARMs, my client had exercised his modification option when his employer laid him off while they were restructuring their corporation for a new product line.

My mortgage buddy and I briefly reminisce about the days when we acted like arch enemies, and laugh thinking how much time we spent working against each other, when the truth is our businesses are much more successful now serving the clients we each have the business model to cater to the best.   And to think that it has only been a year since that fateful April 1st deadline, when we all thought mortgage lending as we knew it was over.

Instead, the unified vision of a sustainable housing platform we pitched to Congress, designed by and with the support of brokers, bankers, MBS analysts, underwriters, realtors, title companies, appraisers, non profits, government housing agencies and retail banks and credit unions across the country resulted in the housing utopia we now enjoy every day.

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'Realtor' Is 2 Syllables

2011-10-07T17:27:00Z

After too many years of hearing people say real-uh-ter in reference to real estate agents, it's time to set the record straight. 'Realtor' is two syllables, not three. It's pronounced real-ter. Period.

You might chuckle, but I'll use some other improper speaking to make the point: it ain't no joke.

Here's why: Realtor is a trademark of the National Association of Realtors. They've set the standard for professional conduct in the real estate industry since 1908---one of which is "truthfulness in statements and advertising."

So if you're a mortgage or real estate pro going around saying real-uh-ter, you're not exactly up to standard.

Of course not every real estate agent is an NAR member, but Realtor is to real estate agents what Kleenex is to facial tissue---it's become so pervasive since the trademark was secured in 1950, the word is now used to describe any real estate agent.

Most dictionaries confirm this by defining 'Realtor' as a real estate agent. This includes all Merriam Webster dictionaries, and here's their pronunciation of Realtor.

So if you're a three-syllable holdout, click that link over and over and over until it sinks in.

And yes, I'll admit the topic is worthy of a chuckle. But only if you're the person laughing at the guy down the hall who still says real-uh-ter.

Julian Hebron is San Francisco branch manager and a top producer for RPM Mortgage and also runs mortgage and housing blog The Basis Point.

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Loan Disclosure Reform Incomplete without Borrower Education

2011-05-27T19:30:00Z

Today is the deadline to submit feedback on the Consumer Financial Protection Bureau's first attempt at combining the Good Faith Estimate and Truth in Lending statement. If you haven't shared your thoughts on the matter, I urge you to do so, especially if you're an industry professional.

HERE is the feedback portal

In the process of developing my own personal perspective on mortgage disclosure reform I took an approach that some folks mind find a bit odd; I sought out a consultant with no direct involvement in the housing industry. In choosing that fresh viewpoint I focused on one factor, this outsider must share a passion for improving financial literacy in America. Why? This is a key step toward preventing another housing crisis. Borrowers must be fully aware of both the benefits and disadvantages they face when deciding whether or not homeownership is right for them.

Sustainable homeownership depends on consumers being able to make well-informed decisions. Combining disclosures into a "simple form" doesn't mean the borrower actually understands what they're getting into when they go to closing. If a consumer isn't capable of describing the pros and cons of their homeownership decision, how is a "simplified form" going to make the situation any better?

To ensure an in-depth understanding is taken away by the borrower before their loan goes to closing, I would propose a three-step loan application process.

Step 1 -- Budget and Borrower Benefit Analysis
This is an analysis of monthly cash-inflows vs. monthly cash-outflows. Does the consumer know what they can afford (DTI)? If a refinance, what benefit does the transaction offer? On a purchase deal, does the borrower need to come up with more cash, look for a less expensive home, or continue saving until homeownership makes more sense? Answering these questions seems like common sense, unfortunately all too often the explanation and education that goes along with it is left out.

Step 2: -- Financing Options in Multiple Home Price Environments
This is where a borrower's financing options could be weighed out in varying home price environments. Does one product carry more risk than another if home prices are expected to fall? If home prices are in question, does putting more money down make sense? (For example: FHA vs. Conventional). In the years ahead, as foreclosure inventory is released into the market, this conversation will remain very relevant.

Step 3 -- What to Expect at Closing
This is where the CFPB's simplified GFE/TIL comes into play, after the borrower fully understands the decision they're making, but the new form should include the findings of steps 1 and 2 listed above. In regard to the actual GFE/TIL itself, I've shared a considerable amount of feedback on the CFPB's first attempt at combining the GFE/TIL. You can read it HERE and share your feedback too.

Simplified home loan disclosures do nothing to promote sustainable homeownership if borrowers don't understand the information presented in the form. We must do more to protect homeownership in America. Borrower education is key.

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The Implications of SAFE Act Fingerprinting

2011-01-31T14:53:49Z

The Bill of Rights within the Constitution of the United States is a precious thing to Americans who value freedom. It serves to protect us from what our founders recognized as the inherent potential for abuse found in all forms of government.

Since the SAFE Act is be foisted upon the financial industry, I thought it an appropriate time to reflect on our values, and to remind us all of a short, but incredibly important portion of that Bill of Rights; the fourth amendment, where the following words appear:

“The right of the people to be secure in their persons, houses, papers, and effects, against unreasonable search and seizures, shall not be violated, and no warrants shall issue, but upon probable cause, supported by oath or affirmation, and particularly describing the place to be searched, and the persons or things to be seized.”

Regarding the fingerprint portion of the SAFE Act; the federal government’s requirement for fingerprints (obtained for their database with the Federal Bureau of Investigation according to the registration form) is absolutely and without question unlawful. The fourth amendment to the Constitution of the United States makes that clear.

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The Fatal Flaw in HAMP: Lack of Servicer Oversight

2010-12-10T19:13:00Z

Twenty months into HAMP, nagging administrative issues are still prevalent and the program seems to have run out of steam. This is evident from the plethora of processing problems we see and hear on a daily basis. From lost documents, improper calculation of income, poor knowledge and implementation of underwriting guidelines, long approval times, and more recently the robo-signing scandal. The list goes on and on... To Treasury's credit they have put forth an effort to work out some of these problems. They implemented directive after directive to deal with the challenges and shortfalls of the original program. But no progress has been made. Servicers say they are doing everything possible to comply, but in the end they claim their operations to not be set up for broad based loss mitigation...(read more)

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Redefining Sustainable Homeownership: Lessons Learned from the VA

2010-10-22T14:57:47Z

A long, hard look at the continuing stability of the VA Loan Guaranty program should be requisite for those helping to reshape and redefine sustainable homeownership in America. These flexible loans continue to outperform the field in terms of delinquencies and defaults, despite the fact that nine in 10 are no-down payment mortgages. At the same time, VA loan volume has soared the last two years, helping thousands of American service members purchase or refinance amid an increasingly tighter lending environment. VA loans have more than weathered the subprime crisis and ensuing fiscal tumult. They've emerged as " a model of stability ," as Thomas J. Pamperin, a VA deputy under secretary, told a House subcommittee meeting this spring. To be sure, VA loans remain a small minority when it comes...(read more)

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How Do Reverse Mortgages Compare to Conventional Mortgages?

2010-10-04T17:19:47Z

A Reverse Mortgage is similar to a conventional mortgage because it is a lien against the property and the title remains in the name of the borrower. As with the conventional mortgage, the borrower is responsible for maintaining the property and paying the property taxes and insurance and association dues if applicable. The costs are also similar to the conventional loan including an appraisal, title insurance, settlement fees, origination fee, and recording fees. Additional costs with the HUD Home Equity Conversion Mortgage (HECM) reverse mortgage are the FHA Mortgage Insurance Premium (MIP) and a monthly service fee. Note that on a conventional loan the servicing fee is included in the interest rate, whereas it is a separate fee with the reverse mortgage. If one is doing a "forward" FHA loan...(read more)

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Borrower Feedback: The Bank Won't Help Me Keep My Home!

2010-09-15T18:16:20Z

My sister-in-law works in the mortgage department of a very large respected bank. I recently asked her at a family function why the bank she works for wants my house back so badly. I explained how I wrote and submitted three application packets to the bank. The first one was "lost" but I insisted that the women look one more time and she was able to find it. She said she would make sure it got to the right place. Two weeks later I received letter that I was rejected because I did not submit all the material. I called again and a representative said that the problem was that both my wife and my signature was not on all the forms. I found my copies, signed them all, put the loan # on each page and faxed it this time. In the interest of time, I will not describe each telephone conversation. There...(read more)

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HECM Saver: Enough To Save the Reverse Mortgage Industry From Imploding?

2010-09-13T18:39:00Z

While the HECM reverse mortgage industry is banking on the HECM saver, a reverse mortgage program with lower costs and less benefits, some wonder whether this is a case of "too little too late" . Let me explain.... 1. The HECM program was thrown out of the General Insurance Fund and placed into the Mutual Mortgage Insurance Fund, pursuant to the Housing & Economic Recovery Act. This means funded benefit amounts will continue to be at risk. This change while incorporated as a way to keep the program strong is really precluding more and more of our elders from benefiting from the program. 2. Seniors living in condominium projects are having a difficult time accessing the program after the shift away from the use of the condo questionnaire. All condominium projects now have to be approved...(read more)

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Are HECM Regulators Acting Unethically Toward the Reverse Mortgage Program?

2010-07-29T16:06:00Z

I recently spoke on two interesting panels at the American Conference Institute’s two day symposium on Reverse Mortgages. The conference was held at the famed Helmsley Park Lane Hotel in the heart of Manhattan. The conference attracted a virtual who’s who in the mortgage and reverse mortgage industry. The speakers and the attendees formed an eclectic group which ranged from major law firms, title companies, quality control experts, compliance examiners, HECM counseling experts and state and federal regulators and various enforcement agencies. There was a genuine desire to understand the program so that enacted policy could be effective. On the first day of speaking, I was joined by Dave Adkins, OTS, Matthew Yoon, Esq. and Arthur Axelson, Esq. I pointed out that HERA could prevent...(read more)

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Tax and Insurance Responsibilities of a Reverse Mortgage Borrower

2010-06-28T17:01:00Z

When loan documents are signed at closing, borrowers agree to the terms of the loan. Whether the borrower took out a conventional loan or a Home Equity Conversion Mortgage (HECM), the reverse mortgage insured by HUD, the title of the home remains in the borrower's name, the bank doesn't own the home, nor do they want to own the home. The reverse mortgage has helped seniors 62 and older remain in their home with their security, independence, dignity and control but not without responsibilities to adhere to the terms of the loan. The main responsibilities are to not violate terms of the loan, generally these include: Paying property taxes Keeping hazard insurance on the property Maintaining the property Paying association dues if appropriate not changing/transferring the title Paying...(read more)

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Understanding Reverse Mortgage Closing Costs

2010-05-27T19:56:06Z

As with a conventional mortgage, there are costs associated with a reverse mortgage. While they are generally perceived as being high, once you get a bit more pespective you’ll see that the cost of a reverse mortgage is comparable to a conventional loan. One difference is that with the HUD insured reverse mortgage, the Home Equity Conversion Mortgage (HECM), HUD regulates the fees and does not allow marked up or “junk fees,” borrowers only pay the actual costs. To be clear I am using Minnesota's fees as an example... Fee Explanation Cost/Charge Origination Fee Covers the lender’s time and costs associated with originating the loan including: loan officer’s and staff’s salary, administrative costs, business overhead (computers, office space, utilities...(read more)

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USDA Rural Housing Update: Fundings Dry Up Across the Country

2010-05-20T19:34:00Z

In March we learned that USDA Rural Housing funds were expected to run dry by the end of April . Here is a quote from the story: "Every year USDA runs out of money for their fundings and normally you are not affected by this however, this year is very different. The USDA Section 502 guaranteed Rural Housing Program will have exhausted there 2010 fiscal funds by the end of April. The USDA would need to receive about $150 million in funding to be able to continue funding loans for the rest of fiscal year 2010. " USDA Section 502 Single Family Housing Guaranteed Loans are primarily used to help low-income individuals or households purchase homes in rural areas. Funds can be used to build, repair, renovate or relocate a home, or to purchase and prepare sites, including providing water...(read more)

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Misguided "High Cost" Rules Limit Access to Affordable Housing Funds

2010-05-13T19:08:00Z

This week USDA announced that lenders could continue to fund loans despite a budget shortfall that had threatened to put an early end to 2010 USDA loans. As opposed to being the actual “lender,” the USDA “guarantees” loans by charging borrowers an upfront financed fee, similar to FHA. Before the government subsidy dried up, that fee stood at 2%. To continue the funding, USDA was authorized to raise the fee 3.5% which offsets Uncle Sam’s previous contribution. For borrowers in North Carolina, my home state, this is very bad. North Carolina already has one of the most restrictive calculations in the country for determining whether a loan is “high cost” (when fees exceed 5% of the loan amount). Now North Carolina has implemented a law that requires lenders...(read more)

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Fixing the Housing Market: Subsidize Responsible Homeowners

2010-05-04T19:14:49Z

Here’s a novel idea, let's help the employed, good credit home owners who are making their payments and want to stay in their homes. Let's help these borrowers save money on their mortgages. Imagine putting $300 dollars a month into the hands of a person who can actually meet all of their obligations, that $300 would become real disposable spending money. Wouldn’t that help the economy? We are dumping millions of dollars to support people who are in trouble on their mortgages, in many cases these are people who over stretched, underemployed and really can’t be helped because they never qualified for their mortgage obligations in the first place. But what about the others... There are at least three categories of responsible homeowners who deserve some support and cannot...(read more)

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