“I can’t remember how to write 1, 1000, 51, and 500 in Roman Numerals! IM LIVID.” Some in the industry may be livid over Associated Bank’s announcement yesterday to not accept applications taken by an LO that has been granted the “temporary authority to operate.” But Associated is not the only one. More below on the Act, and a random sample about who is doing what when it comes to licensing. And, in general, the term “livid” is rarely used these days around the world as many believe 2019, despite the mainstream press focusing on bad news, was the best year ever around the world when looking at literacy, poverty, and health.
When a mortgage lender hires a large group of loan officers from a bank and that transition includes handling their licensing requirements, what can the lender do to transfer the loan officers from their bank registration to become licensed loan officers and not produce a myriad of state licensing requirement delays?
Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act is designed to reduce the barriers for mortgage loan originators (“MLOs”) who are licensed in one state to temporarily work in another state while waiting for licensing approval in the new state, and, for our purposes, specifically also grants MLOs a grace period to complete the necessary licensing, when they move from a depository institution (where loan officers do not need to be state licensed) to a non-depository institution (where they do need to be state licensed).
The Economic Growth, Regulatory Relief, and Consumer Protection Act amended the Secure and Fair Enforcement for Mortgage Licensing (SAFE) Act, and becomes effective in just a few days, on November 24, 2019. Beginning on November 24, 2019, an MLO who satisfies the Loan Originator with Temporary Authority eligibility criteria may act as a loan originator in a state where the loan originator has submitted an application for a state loan originator license, regardless of whether the state has amended its SAFE Act implementing law to reflect the Economic Growth, Regulatory Relief, and Consumer Protection Act amendments.
A loan originator applying for a state license must follow the application procedures established by the state, and generally must wait to begin acting as a loan originator until the state grants the application, including transitional license situations. Loan originators who are eligible for temporary authority may act as a loan originator in the application state while the state is considering the application. The Economic Growth, Regulatory Relief, and Consumer Protection Act amendments establish temporary authority, which provides a way for eligible loan originators who have applied for a new state loan originator license to act as a loan originator in the application state while the state considers the application.
Attorney Brian Levy addressed the topic in his latest Musings. “I’m pretty sure TAO temporary whatever will prove to be another example of the 80/20 Rule (a/k/a The Pareto principal) operating in the mortgage business. Everyone knows 20% of your originators produce 80% of the volume. Conversely, TAO is likely to work like a charm for about 80% of originators who can follow your compliance/licensing team instructions and who breeze through the background checks and testing. The team, however, will be challenged by the 20% who don’t follow the instructions, can’t pass the test, or who have some skeletons in their closet. I’m not going to go into the details (see that MBA Guide for that), but those details and time frames are very important, so make sure any (formerly registered) bank originators and internal originators looking to get licensed in another state have their ducks in a row when the compliance staff asks for it.”
The NMLS Policy Guidebook was recently updated to add a new section on Temporary Authority to Operate concerning “qualified MLOs who are changing employment from a depository institution to a state-licensed mortgage company, and qualified state licensed MLOs seeking licensure in another state.”
The Georgia Department of Banking and Finance recently published a proposed rule which would add several state-specific requirements for mortgage loan originators (MLOs) seeking to utilize temporary authority in Georgia under Section 106 of the Economic Growth, Regulatory Relief, and Consumer Protection Act (which took effect on November 24, 2019).
Wisconsin recently enacted a bill, Senate Bill 457, which, among other things, amends its mortgage loan originator (MLO) licensing provisions.
Lakeview Wholesale will not allow loans originated under the temporary authority of the SAFE Act Regulations amendments in effective as of November 24th. It will continue to monitor and evaluate any compliance risks related to temporary authority and loan origination practices.
“The Economic Growth, Regulatory Relief, and Consumer Protection Act of 2018 (EGRRCPA) made amendments to the SAFE Act, effective November 24, 2019. These amendments permit certain individuals who were previously registered or State-licensed for a certain period of time pursuant to the SAFE Act to act as a loan originator in a State, if they have a applied for a loan originator license in the State (“loan originators with temporary authority”) [12 U.S.C. 5117]. At this time, Associated Bank has made the decision not to accept applications taken by a loan originator that has been granted the ‘temporary authority to operate.’”
AmeriHome will accept loans where the MLO was operating under the “Temporary Authority” granted to certain loan officers by the Economic Growth, Regulatory Relief and Consumer Protection Act (S. 2155). Sellers should be prepared to provide proof of the Temporary Authority, should this be requested by AmeriHome.
Plaza is accepting loans that have been originated by MLOs operating under the new Temporary Authority rules that went into effect on November 24, 2019. Under the new rules, MLOs who have applied for a license and completed their education and testing requirements, are permitted to engage in origination activities in that state for up to 120 days while they await full license approval. Correspondents utilizing this new rule must provide evidence of temporary authorization issued by the state.
Mr. Cooper’s Correspondent Division sent out, “The SAFE Act was recently amended with a new status for MLOs. Known as ‘Temporary Authority to Operate,’ the new status streamlines the license application process for federally registered MLOs seeking state licensure, and state-licensed MLOs seeking licensure in another state. State laws have or will be updated with this new Temporary Authority status, which will define the state-specific requirements regarding eligibility and application requirements for a mortgage loan originator to operate thereunder in each state. Prior to loan purchase, Mr. Cooper validates MLO compliance with the SAFE Act policy (including applicable state licensing laws). Any non-compliance with the policy results in a stipulation on the loan. Lenders must provide documentation of compliance prior to loan purchase.”
The difficulty in assessing how the economy is currently doing stems from increased volatility recently. Take housing starts in the autumn. Housing starts fell 9.4 percent in September, a big drop that co-opted the school of thought that slowing job growth and an inverted yield curve had made lenders and developers cautious amid other recessionary fears. At the time, builders remained upbeat since starts of single-family homes rose, their fourth consecutive increase. Multifamily units accounted for all of the drop, falling over 28 percent. U.S. homebuilding then rebounded in October and permits for future home construction jumped to a more than 12-year high, with everyone singing praises of the housing market amid lower mortgage rates. That makes for the fifth straight month of single-family construction figures rising, and markets also reveled in the multi-family sector rebounding solidly.
Additionally, that poor report for September was revised upward by 10k units to paint a more positive outlook. If the report holds, it could help to ease a supply squeeze that has plagued the housing market. So how do we gauge the strength of the housing market from here?
Lenders have grown more cautious about extending credit for apartment projects. Condominium development has also slowed as limits on the deductibility of property and state income taxes have cooled sales in many condominium-dependent markets. In the South, builders have been unable to find the workers they need.
On the positive side, lower mortgage rates and a shift by homebuilders to focus on more affordable product appear to be bringing buyers back to the market. Builders expect sales to improve further, convinced that the Fed’s rate cuts are working to offset some of the trade war-related weakness of overall growth. So, what are some warning signs? Builders complained in the most recent survey about “a lack of labor and regulatory constraints,” adding that “lot shortages remain a serious problem, particularly among custom builders.”
Of course the impeachment continues to dominate the news. The House Judiciary Committee began the process by hearing evidence from lawyers of both parties as it considers whether President Trump’s actions rise to the level of impeachable offenses. The White House, which has argued that the inquiry is illegitimate, declined to participate, focusing instead on the trial that would follow in the Republican-controlled Senate if/when the House approved articles of impeachment are sent to it.
So how exactly does the impeachment process in Washington impact mortgage rates? It would be an easy question to dismiss by saying that, directly, there was little impact as a result of the inquiry. That is slightly shortsighted, as uncertainty in political affairs usually causes investors to “flee to safety,” or trade in a risk-on fashion. If investors consider impeachment a disruption that would impact the economy negatively, they will flee to safety, which usually involves selling riskier or more volatile investments (e.g. stocks) and purchasing relatively safer investments (e.g. bonds and other fixed rate investments).
Bonds issued by the U.S. Treasury are considered the safest investment available, with Mortgage Backed Securities comprised of residential mortgages are a close second. As investors purchase bonds and other fixed rate investments like MBS, those prices will rise, causing mortgage rates to drop. What happens in Washington impacts investor’s decisions only as much as they feel impeachment will disrupt or benefit the economy. While individual investors may have personal political bias, investors as a group are concerned only with the politics that impact the bottom line. The question moving forward with impeachment is will there be any significant impacts to the economy as a result in any change in policies that affect businesses and markets? From the market's muted reaction so far, in the unlikely event that President Trump is removed from office, the policies and actions of the new Pence Administration regarding business, trade, taxes and markets should not be much different from the current administration. That administration would take office for less than a year, so the larger effect will come from how markets think the 2020 U.S. election is going to play out.
Looking at the day-to-day bond market, the yield curve steepened on the last full trading day of 2019. Going into year-end there is often an urge to purge ‘losers” out of one’s portfolio to take the hit and start the new trading year on a clean slate without the unwanted risk exposure. The yield curve steepening is mainly due to the dumping of duration as the long end well underperforms in conjunction with thoughts of aggressive fiscal stimulus. Meanwhile, the front-end of the curve is much more sensitive to the actions of the global central banks, of which most expect to remain liberally accommodative for the foreseeable future. The purpose behind such a policy is to have inflation and inflation expectations trend higher even to the point where it exceeds their desired target for an extended period of time.
Markets today have a shortened session domestically, and all European markets are closed. The domestic calendar gets under way shortly with Redbook same store sales for the week ending December 28. Additional releases on the day include the October S&P Case-Shiller Home Price Index, October FHFA Housing Price Index, and December Consumer Confidence before the bond market closes one hour early. We begin the day with Agency MBS prices worse a few ticks and the 10-year unchanged yielding 1.90 percent: things are quiet.
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