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Servicing Law Changes; A Flashback to Servicing 10 Years Ago

By: Rob Chrisman
Posted Wed, Oct 4 2017, 9:19 AM

Hey, I am all in favor of the tiny house movement…if I have room for my bottle cap collection, antique banks, gumball machines, Spirograph and Battling Tops games, Santa in the manger nativity scene for the roof in December, several old copper fire extinguishers, and my father’s navy memorabilia from WWII and Korea. And Myrtle’s litter box. I mention this (tiny houses, not the litter box) because Clayton Homes just unveiled a 452 square foot home affixed to a permanent foundation. (In other words, it doesn't have a license plate.) At the low $100s, there must be some appeal for first-time home buyers out there...

Servicing Snippets

What was going on ten years ago? Here's a piece from my commentary in August 2007. "Of the $10.4 trillion, which companies are servicing the most residential loans out there? Countrywide is #1 with over $1.4 trillion, almost a 14% market share. Wells is #2, followed by Citi, Chase, and WAMU. Interestingly, for FHA & VA loans (with $423 billion outstanding), Wells is #1 with a 32% market share. Of the $10.4 trillion in mortgages, only 13% are subprime and, of that, only about 14% are delinquent. And only about 5% (of the 13%) are in foreclosure."

Remember when, much more recently, mortgage originator and servicer Walter Investment got slammed after the CEO resigned. Regulatory difficulties and costs were the catalyst. The stock had lost 82% of its value over the past year to that point.

Yes, because borrowers think about servicing every month, or when it is transferred, it is a lightning rod for consumer complaints. Like it or not, Ocwen has drawn a lot of attention to itself because of servicing: recall that in April more than 20 states issued cease-and-desist orders against Ocwen (New Co. spelled backwards). Last week brought a settlement with ten of them. You can find additional information in the Company's SEC 8K filing by clicking here.  

Ocwen was accused of mishandling customer escrow accounts. The C&D orders forbade the company from servicing or originating loans in those states. Soon after, the CFPB sued the company for allegedly "failing borrowers at every stage of the mortgage process." But Ocwen can cross GA, ID, IL, MA, MI, MS, MT, RI, SC, and WI off the list. (Nevada and Indiana either withdrew their cease-and-desist orders or allowed them to expire.)

Ocwen neither admitted nor denied liability in any of the settlements, but the settlements have similar terms. Ocwen won't acquire new residential mortgage servicing rights in the states until April 30, 2018. Ocwen will develop a plan to transition to a new servicing system. The company will not board any new loans to REALServicing, its proprietary servicing platform. Ocwen will get an auditor to perform an escrow review of between 8,000 and 10,000 loans.

Prestwick Mortgage Group's recent $1.8 Billion Midwest FNMA/GNMA was a $166,805 average unpaid principal balance, 3.887% WAC, 0.2633% weighted average net service fee, 98% Retail, 42 mos WaSeasoning, 775/698 FNMA/GNMA WaFICO and Top States: Missouri (50%), Illinois (28%) and Colorado (10%).

Incenter Mortgage Advisors #104343, a Scratch and Dent package, is $3.1MM (14 loan count), 4.39% WAC, 88.70% CLTV, 357 WaRemaining Term, 700 FICO, 33.58% DTI, 33.5% DTI, 83% Owner Occupied, with Top States: TX (33%), MI (17%), and AZ (13%).

Incenter Mortgage Advisors #104328, $3.94MM of Seasoned Loans (24 1st liens, 6 2nd liens) 4.48% WAC, 86.49% WaCLTV, 261 WaRemaining Term, 97 mos WaLA, 92% Owner Occupied, and Top States: TX (30%), VA (16%) and TN (15%)

Incenter Mortgage Advisors #104354, $16.5MM (74 loan count) Seasoned Bridge and Term Loans, 5.29% WAC, 64% CLTV, 15 mos WaRemaining Term, 27 mos WaLA, and 87% Owner Occupied.

Incenter Mortgage Advisors $9.63 Billion FNMA/FHLMC servicing offering (39,852 loans), with a $241k average loan balance, 3.936% WAC, 756 WaFICO, 74.5% WaLTV, 59% SFR, 23% PUD, 13% Condo, 47% Purchase, 36% R/T, with Top States: CA (26%), FL (10%), MI (7%) and CO (5%).

Incenter Mortgage Advisors #104374 $32MM Prime Jumbo & Hybrids (36 loan count). 30YR Fixed rate: $28,298,875, 4.26%, 72.85% CLTV, 359 WaRemaining Term, 1 WaLA, 766 FICO, 49.13 Months of Reserves; Hybrid ARMs: $3,626,500, 3.710% WAC, 70.11 CLTV, 3.60 WaRemaining Term, 754 FICO, with 17 mos of Reserves.

States certainly write state-specific laws governing servicing. The Montana Department of Administration amended its rules relating to surety bond, table funding, application of financial standards, and reporting forms for mortgage servicers. These provisions became effective July 8, 2017. Regarding the surety bond, it must be issued by a surety company that is authorized to do business in Montana and must be placed on file with the NMLS and includes all riders and endorsements executed after the effective date of the bond. The entity name on the application must exactly match the name on the surety bond and be continuous. The bond is deemed one continuous obligation whether it is renewed, continued, reinstated, reissued, or otherwise extended, replaced, or modified. The surety on the bond is not liable in an aggregate or cumulative amount exceeding the penal sum set forth on the face of the bond.

Illinois has modified two of its provisions regarding foreclosure sales, under the Illinois Counties Code and the Mortgage Foreclosure Article of the Code of Civil Procedure. Both provisions are effective immediately. The first foreclosure modification affects three sections of the Illinois Counties Code. The language of Sections 4-5001, 4-12001, and 4-12001.1 has been altered so that references to "action of forcible entry and detainer" and "action for possession of property" now read "eviction action."

The state of Oregon enacted provisions regarding its Mortgage Loan Servicer Practices Act that include, but is not limited to, licensing application and renewal requirements and required fees. These provisions become operative on January 1, 2018. The amendment of section 2 requires certain persons that service residential mortgage loans to obtain or renew a license but exempts state and federally chartered banks and credit unions, anyone who is servicing loans they originated or purchased both the loan and the servicing rights.  In addition, it exempts up to an additional servicing of 5000 loans that one did not originate or purchase. Section 4 of the amendment specifies license application, renewal procedures and required fees. Section 7 requires disclosure by a mortgage loan servicer to the director of certain significant events such as relocating or closing the licensee's principal place of business, opening a new branch office, filing for bankruptcy or reorganization and any change in the licensee's operations or governance. Section 13 permits the director to suspend or remove any member of licensee's governing body or licensee's officer who violate any provisions under the Mortgage Loan Servicer Practices Act.

Effective September 21, 2017, New Jersey amended its Fair Foreclosure Act by defining servicers and their duties during a short sale. Servicing is defined as Managing the mortgage loan account daily, including collecting and crediting periodic loan payment, managing escrow accounts, or enforcing the terms of the mortgage note. Individuals who fit within the confines of the definitions will be required to engage with sellers, seller's agents, and/or authorized third parties purchasing properties through a short sale. To do so (1) the servicer must respond to good faith offers; (2) the response must include an approval, denial or request for further information; and (3) the response must be provided within 60 days of the date of the offer.

Should the servicer deny the offer or fail to respond within the required time, then the buyer is entitled to be refunded, in its entirety, any deposits made. The buyer will also be released from any further obligations - promissory notes, bonds or other similar evidence of a duty to pay - with respect to the transaction.


Capital Markets

Tuesday was very quiet for the Treasury & MBS markets, which ended the day on a slightly higher note. Overnight action coming into yesterday morning saw some light selling, pushing prices down and lifting the 10-yr yield to 2.36%, its highest level since the middle of July. Interestingly, Spain's 10-yr yield rose 10 basis points to 1.71% on Tuesday, pausing just below its July high as there are many concerns surrounding Spain's economic stability with the recent Catalan independence referendum. Other news of note from yesterday, Treasury Secretary Steven Mnuchin's preferred candidate to replace Fed Chair Janet Yellen, Fed Governor Jerome Powell, spoke on regulatory reform.

But why does Janet Yellen need to be replaced, especially when there are so many unfilled positions in the government? Many hope that she stays. Fed Chair Yellen has been speaking and the markets are listening. She's made many points recently. For one, gradually raising interest rates is the most appropriate policy approach given increased uncertainty about inflation. The Fed has to be wary of moving too gradually on rate hikes. It is not prudent to keep monetary policy on hold until inflation is back to 2%, and it could be risky to move too gradually with interest rates.

Turning to today, we've have the weekly MBA Mortgage Index. Mortgage applications were -.4% (down 24% from a year ago, refis -2% and down 40% from a year ago, and FHA purchase applications are -8% from a year ago). The September ADP Employment Change (+135k, slow), and September ISM Services. We also have some Fed speak, with St. Louis Fed President James Bullard to deliver welcoming remarks at the Community Banking in the 21st Century Conference in St. Louis and Fed Chair Janet Yellen to follow him on stage. We start the day with the 10-year yielding 2.31% and agency MBS prices a shade better compared to last night.


Employment, Communications

Looking to see who your competition is? Then join Sierra Pacific Mortgage as they host a free webinar that covers all aspects of S.W.O.T. (Strength, Weakness, Opportunity, Threat). The class includes a case study and learning to create a S.W.O.T. on yourself. In this one-hour session you will discover steps to handle competitive issues in a logical and simple process. Weed out your competition and learn to be the best you on October 10th with Sierra Pacific Mortgage. Register today.

A privately-held western-based Mortgage Banking Company is seeking a VP of Operations to lead Underwriting, Loan Processing and Closing functions. Qualified candidates will have 7-10 years in management or a leadership role within mortgage underwriting and experience in building a successful operations team through effective talent selection and training. This role will also require the ability to manage and forecast staffing needs to support steady growth of service. Other functions that will be performed in this role include the design and implementation of work flow processes as needed, monitoring and reporting on productivity, efficiencies and quality of work product and stay abreast of changing regulations. For consideration, qualified candidates may confidentially send their resume to me for forwarding; please specify opportunity.

In TPO job news, "are you in need of a Divisional or National Sales Leader in your existing (or startup) Wholesale or Correspondent Channel? A seasoned Sales Executive is seeking a new opportunity to help lead a mortgage company into achieving their growth goals. All institution sizes and locations will be considered." Please send inquiries to me to pass along to the candidate, and specify the listing.

The growing population of Hispanic first-time homebuyers is hard to overlook. In a recent press release Envoy Mortgage, with over 150 branches in 49 states, recently reaffirmed its commitment to Hispanic home buying by appointing Jesus Cruz as their Vice President, National Diversity Market Specialist, in addition to launching "Envoy Va Contigo," a comprehensive digital and print marketing and educational program for Hispanic borrowers and real estate professionals. "We're committed to conducting business in an unbiased manner and strive to establish a close working relationship with a diverse set of borrowers nationwide," shared Pat Walden CEO and President of Envoy Mortgage. "We are dedicated to incorporating best-in-class educational programs and excited that Jesus Cruz will be leading the way." Envoy is aggressively hiring for sales and ops positions in TX and FL in support of this pledge to the Hispanic community. To learn more, visit their website or contact Jesus Cruz. 

It's time to start thinking about your marketing strategy for '18 and how to incorporate the latest technology and analytics. Have you considered what you need to do differently, or better, next year? If you're attending the MBA Annual Convention in Denver, set aside time to meet with Seroka, a certified brand development, digital and strategic communications agency. Learn how to embrace the new buyer path to more effectively engage with your target audiences, improve brand visibility, and increase ROI. Schedule a meeting with John Seroka during the convention to learn more or go to www.seroka.com for more information.

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