LOS Primer; VA Loan Changes Coming? Appraisers to Have Comp Set in Stone? San Bernardino Bankrupt
That commercial sector is rockin' and rollin', up 25% for the 2nd quarter
from a year ago. Granted, most of that was due to increases in originations for
retail and hotel properties. The MBA noted that, "The increase included a
56% increase in the dollar volume of loans for retail properties, a 22%
increase for hotel properties, a 19% increase for multifamily properties, a 15%
increase for office properties, an 11% increase in health care property loans.
These gains offset a 5% decrease in industrial property loans." Here you
go.
Remember New Century? Formed in 1995 from some folks from Option One, it
fell into bankruptcy during the first half of 2007. Reuters reported that the
Public Employees' Retirement System of Mississippi led a group of investors in
a lawsuit against Goldman Sachs Group in which they claimed they were misled by
the bank into purchasing mortgage securities from New Century Financial, which went
bankrupt in 2007. Goldman has agreed to settle the suit by paying $20 million
to $21.3 million to investors, depending on whether a Dutch pension fund
decides to join the class action suit. Goldman will pay another $5.3 million in
legal fees and expenses.
Whether it is a yellow pad, or a highly complex vendor-generated program,
every originator needs a way to track his or her pipeline. But LOS (Loan
Origination Software) is a tricky subject. "Rob, I've used excel in the past to
compare loan options, our LOS doesn't really do a very good job of selling the
client on their best solution. Our company recently said that we can't
use tools that we create ourselves, and they want to approve any client facing
materials. Why is that? What are your thoughts on presenting loan options
to clients?"
I am going to preface this by saying that I am not an expert in LOS, but
I know how it fits in with the industry. Lenders are responsible for the
actions of their loan officers, and logical or mathematical mistakes could put
your company at risk. Lenders are learning from the financial planning
industry, and in that industry the company provides the platform or solution
that the financial advisor uses for asset management. Having loan
officers using home grown solutions creates a real headache if a future client
presentation needs to be reviewed by a compliance officer in an audit, or legal
issue. In other words I think you'll see in the future that most
companies provide the liability management tools for their loan officers, just
like the big financial planning firms have for years. There's too much
risk to you and your company using home grown solutions.
A LOS conversion is one of the most important projects a mortgage company
can undertake. The advent of the hosted platforms, where a low initial
investment can get a client onto their "dream" software in a very short time,
can lead to flawed implementations and ongoing reconfiguration efforts.
There is a low barrier of entry for vendors offering new systems, and "in the
old days" mortgage companies only had to consider the cost of the software
(licensing and maintenance costs are not cheap), cost of the hardware (upgrading
software also meant upgrading servers which required pouring money into a
diminishing asset), and the cost of the implementation (IT guys' time isn't
cheap). A mid-sized lender could easily spend 9-12 months on implementations
with a minimum investment of $500k.
Today, things are different. Bankers can get access to excellent
software through a hosted platform for a minimal investment. But it still
takes time, and experts will tell you the more time the better. It would be a
mistake to think that a low cost, hosted platform, with a pay as you go formula
leads to a successful implementation. Hosted or non-hosted
implementations both require a detailed project plan and manager to lead all
efforts. Until recently this has been the IT director, but with the
hosted platform, their value is somewhat minimized to simply obtaining a strong
internet connection and installing the software to desktops. These implementations
now require a "mortgage mind" who also understands technology so it can be
customized to match the proper workflow. You don't want to implement
something that the LO's can't or won't use, or rush through it, trying to meet
that 90-day deadline, and miss out learning (and teaching the LO's) about the "bells
and whistles" a system offers. It seems that a lot of functionality goes
unnoticed or under-utilized as nobody ever took the time to build a holistic
workflow within the LOS from the start. The lack of a true implementation
manager who "gets it" leads to inefficient and manual processes,
taken from the old LOS, and inserted into the new.
It
seems that most originators are looking at new LOS, because they've outgrown or
are unhappy with it, or have just added new LOS. (Take a
poll some time with a bunch of lenders in the room.) The LOS should be a game
changer for every firm, allowing for a streamlined, user-friendly origination
process. It should provide the engine needed to support current and
future volume, eliminate manual processes through automation, eliminate the
need for tracking spreadsheets, and allow enforcement of corporate policies in
today's compliance/regulatory environment.
How long does this take? Banks and other lenders need to invest in a
workflow analysis, a thorough decision making process, a strong testing plan
for the new LOS and an in-depth migration plan. If you think you can roll
one out successfully, given the planning and analysis, in a month or two, it is
highly unlikely. Really breaking down and understanding underwriting and
processing is 30 days alone, secondary and post-closing is another 30, and
there's still sales, QC, accounting, testing, training, etc.
There are dozens of systems out there, and I am not going to list every
one. But one of the more popular solutions that is gaining a lot of
traction in the industry is the Borrow Smart sales presentation system at
Mortgage Success Source. As I mentioned, I am no expert, but I've seen
it myself, and it's designed for the loan officer to sell more while offering
greater protection to the company. Overall, it could increase LO
conversion rates, and that's a win/win for you and your company. Contact
Bill Bodnar, bbodnar@mssllc .com for a demo.
Or contact Len Tichy at STRATMOR - he makes it his job to keep up on these
things: len.tichy@stratmorgroup .com.
Huh? They're changing the VA program? Well, here's something else for us
to be concerned about.
And what about appraiser fees - why should LO comp be so regulated, and
appraiser comp not? Change could be in the wind.
(Thanks to Brian Coester with Coester Valuation Management Service for sending
this.)
On to something almost as much fun, like bankruptcies. Ally Financial
swung to a loss (almost $900 million) in the second quarter as its mortgage
unit Residential Capital limped through bankruptcy. Ally took a $1.2 billion
charge from placing ResCap into bankruptcy in May, and reports indicate that Berkshire
Hathaway replaced Ally as the stalking horse bidder on the failed mortgage
unit's loan portfolio. ResCap aside, the Ally mortgage unit originated $5.9
billion in residential mortgages during the quarter versus $12.3 billion in
last year's quarter - 82% of that was refinances. And for something near
and dear to every CEO's heart, Ally holds $124 million in reserves for
repurchases and has roughly $82 million in buyback claims outstanding as of
June 30.
Along the bankruptcy lines, the Southern California city of San
Bernardino (pop. 200,000) declared Chapter 9 bankruptcy yesterday, joining
Stockton (pop. 300,000) and Mammoth Lakes (pop. 8,000). They, like other
places in the U.S., have been hit by the slow economy and by huge pension and government
service obligations. On the other side of the income statement, property tax
revenues have also declined due to dropping values. (Mammoth Lakes sought
protection July 2 after a property developer won a $43 million court judgment
against the resort town. Experts say this filing should not be lumped in with
the other two California municipal bankruptcies since it was an unusual
circumstance.) The County of San Bernardino, along with the cities of Fontana
and Ontario, has been in the news lately due to considering using eminent
domain as a way to seize non-agency mortgages out of pools - something that
would set a dangerous precedent for the securitization business.
Taxes are a problem for everyone. "I've got the IRS auditing my
company right now (I know, how pleasant). In the state of Virginia
business performed at ANY location mandates a license, so I reimburse our
employees for their home office expenses to the tune of $1500 per month,
because they regularly conduct business at home. This was determined to
be the cost per square foot if we opened our own office nearby. The IRS is
claiming that we can't deduct for home office reimbursement even if it is
mandated by the state. They say that we should only be allowed to
reimburse them for the license fee of $150. The auditor is saying, 'No
documentation was provided substantiating that payment to employees for a home
office is a common or customary expense of the mortgage industry'. So the
question is: Anyone else have experience with paying for home offices or
dealing with the IRS over this issue? Or any blog I can turn to for
others in this scenario?" Write to Robert Lee at rlee@1nmc .com.
After much-ado-about-nothing, the Federal Open Market Committee did not
take any easing action at its current meeting. The committee made some small
changes to its statement that are consistent with a dovish bias yet remaining
in watch-and-wait mode, and indicated they will "closely monitor incoming
information" and "will provide accommodation as needed." We have
nearly a month and a half until the next meeting on September 13, and plenty of
economists think things may weaken further before that, which will prompt more
Fed action. But do more asset & MBS purchases really spur the jobs market
or the economy?
Now everyone can wait until tomorrow's jobs data, with Non-farm Payroll
expected to come in around +100k. Unfortunately for the current administration and
the economy, +100k does not help reduce unemployment. And looking at Europe, the
suspense will finally "end" today when ECB president Mario Draghi sits down
before reporters and outlines a plan to save Europe. And once again the markets
and the media have elevated a singular European event, billing it as a major
"make-or-break" moment for the Continent. I'll call B.S. - excuse the language
- in reality, this is simply the latest summit/meeting of many going back years
at which officials are (slowly) shifting the fundamentals of the EMU and it
won't be the last.
This morning's Initial Jobless Claims came in at 365k versus estimates of
370k, below the 400k level. Yesterday's 10-yr Treasury note went out at 1.53%,
and in the early going we're a shade better with the 10-yr down to 1.50%. MBS Prices
I was visiting my son and daughter-in-law last night when I asked if I could
borrow a newspaper.
"This is the 21st century, old man," he said. "We don't waste
money on newspapers. Here, you can borrow my iPad."
I can tell you, that fly never knew what hit it...