Disturbing News in Latest NMLS Report; Primer on Unfair and Deceptive Acts and Practices


Census Bureau tells us that American families formed 423,000 new
during the 12 months ending 3/31/14. 79% of the new
households formed (333,000) were renters and 21% of the new households
formed (90,000) were homeowners.

So we’re seeing some household formation – a good thing for lenders and Realtors.
Some of them are buying houses, and some of those are obtaining loans
to do so (although cash purchases account for over 1/3 of home buying!).
What is happening on the licensed originator (non-bank) side of the
equation? The recent NMLS report sheds some interesting light on the subject – not all of it good for LOs.
During 2013, the number of state-licensed mortgage companies remained
essentially flat, but the number of mortgage loan originators grew by 8%
and the number of licenses held by MLO’s grew by 28%. Every state saw
net growth in the number of MLOs operating in their state. Mortgage
originations by state-licensed MLOs declined significantly during the
2nd and 3rd quarter of 2013 due largely to a decline in refinance
transactions. Federally registered institutions and mortgage loan
originators remained flat in 2013.

(Read More: Mortgage Industry Increasingly Concentrated Based on NMLS Stats)

most state-licensed companies and individuals work in just one state,
the number of entities working in multiple states is growing at a faster
rate. The total number of state-licensed MLOs grew 8% over the past
year, while the total number of MLO licenses grew 28%. The average
number of state licenses held by an MLO in 2013 was 2.54 licenses per
MLO, up from 1.8 licenses per MLO in 2011. The total number of
state-licensed companies declined, but the number of company licenses
held grew over the past year.

report has some fascinating state-level stats. Let’s take a look at one
state, since I was just there yesterday: Washington. Washington saw a
30% increase in licensed originators last year, up to nearly 12,000.
There are 9,200 that are “Federally Registered.” (The population, by the
way, is about 7 million.) Last year Washington saw about 46,000
purchase transactions, and the average loan size was about $248,000.
Ladies and gentlemen, I know that I am simplifying things, but if
there are 12,000 MLOs in Washington, and purchase transactions remain
constant at 46,000, that is about 4 transactions per LO for the year. Don’t take my word for it – here is the Industry Report so you can take a look at your own state.

…I’ve got good news and bad news. The good news is that Johnson
Crapo passed through the Senate Banking Committee. The bad news is that
it still has to go through the Senate, the House, and the President –
all before the election in six months. Experts think that the odds of that happening are slim at best. And after the election, well, the make-up of Congress changes.

(Read More: Johnson-Crapo Bill passes Banking Committee, Margins Smaller than Hoped)

interest rates are attracting some attention. Yes, companies are still
focused on lowering costs, improving efficiencies, and eking every basis
point out of every loan. But with the U.S. economy seeming to muddle
along, rates seem more inclined to drop than to increase. I was recently
speaking with a portfolio manager who explained to me that the Federal
Reserve has an obligation to keep interest rates low. Maybe, but
“obligation” is a strong word. While most believe that it is likely that
the Fed will maintain the current target range for the federal funds
rate for a considerable time, even after the asset purchase program
ends, there is always uncertainty in duration the further out you look.
Keynes said it best, “we’re all dead in the long run.”  But
that doesn’t stop “yield chasers” or anyone looking for reasonable ROI,
which is a good place to be if you manage ETF funds. According to a
Bloomberg article earlier this month, investment flowing into
exchange-traded funds focused on real estate this year has already
eclipsed the 2013 total
as concern over rising interest rates subsides
and property markets improve. Brian Louis and Alexis Leondis write, “In
2014, 31 percent of money going into U.S. sector-focused exchange-traded
funds, or $3 billion through March 6, was for real estate, according to
data compiled by Bloomberg. That’s 43 percent more than the net
deposits the funds attracted in all of 2013, and a greater share of
total ETF contributions than any time since at least 2012.”

The Mortgage Bankers Association of the Carolinas sent out a blurb on “What Small Mortgage Lenders Can Learn from Credit Card Settlement.” “The Consumer Financial Protection Bureau has once again utilized its broadest and most powerful weapon to levy large fines: the Unfair and Deceptive Acts and Practices.
This time, it was Bank of America that received a $727 million dollar
fine for ‘illegal credit card practices.’ These practices included
alleged deceptive marketing by inaccurately describing the benefits of
certain add-on charges and the billing process for such charges. In
particular, it is alleged that telemarketers ‘went off script’ in
describing the benefits and charges of certain credit protection plans
to coax consumers into receiving them. Many smaller lenders still
utilize telemarketer driven leads for all or part of their business.
Even more lenders rely upon loan officers during initial conversations
with consumers to accurately communicate the benefits and risks of
certain loan products as well as describing the lending process.”

next we have a warning that keeps banks like Citi, BofA, Chase, and
Wells who have thousands of LOs up at night. “To the extent the CFPB can
apply the unfair and deceptive acts and practices label to ‘off script’
communications with consumers, lenders need to give particular attention to being able to prove what is said, by whom, and when.
When it involves telemarketing-whether it is done by the lenders or a
lead company they hire-lenders need to pay attention to the content of
the script and the manner in which the telemarketer ensures it is
followed, as well as a telemarketers’ compliance history (after all,
lenders could be held responsible for independent telemarketers through
third-party vendor rules). Addressing communications directly from
internal loan officers, lenders need to rely upon training and should
increasingly consider occasional monitoring to ensure proper
communications are maintained. Better yet, lenders should consider
integrating certain communications systems into the origination process
that ensure the lender is able to document the accuracy of
communications with borrowers. Such
processes do not detract from the origination process, but rather add
to it by removing loan officers from the compliance process, and
allowing them to focus on sales and customer service.
The last thing lenders want to consider these days is spending more on
compliance. However, there are new options emerging that protect lenders
and assist in origination efforts. More than ever, lenders should
consider new alternatives to avoid the risks of ‘off script’

How about some investor news and updates? As always, it is best to read the actual bulletin for details, but these will give us a sense of the trends out there.

Kinecta Federal Credit Union wholesale channel lowered the
maximum CLTV for the Piggyback HELOC and Fixed Seconds products from
90% to 89.90%. Additionally A new Certification of Resident Alien Status
form is posted on its Wholesale/Correspondent Lending website.

Sun West Mortgage Inc.
has posted additional FEMA disaster counties for the state of Florida
in compliance with FEMA’s disaster list for the Incident Period Date April
28, 2014 to May 6, 2014. For a complete list and information regarding
appraisals in affected areas, contact your sales representative.

US Bank Wholesale and Correspondent division posted program enhancements for Second Mortgages and LPMI Products effective May 6th. Please review its full product guidelines for complete program details. US Bank
is reminding Correspondent Lenders of valuable resources, and
introducing a new matrix that will simplify the processes when closing
an ARM loan product.  Contact your Account Executive for complete information.

Mountain West Financial
has expanded its DU High Balance guidelines to allow FICO scores that
are the more restrictive of 620 or per DU, remove LTV restrictions for
loan amounts below $625,500, and align borrower and interested party
contribution requirements with those of the Agencies, effective

is now offering a 2/2/5 cap structure option for its 5/1 Jumbo ARM
program and has removed the 75% limit on LTVs for all ARM and 15-year
Fixed transactions, the 10% LTV reduction for borrowers with more than
two financed properties, and the payment shock requirements who
borrowers who have owned a home in the last three years.  Guidelines
have also been updated to allow properties with more than ten but less
than 20 acres with a land to value ratio of 35 or below if typical for
the area, projects with fewer than ten units, and the inclusion of
HELOCs on the subject property to be included in the new loan amount on
rate/term refinances.

Impac Mortgage correspondent division is requiring the Fannie Mae Homepath fixed program and Fannie Mae fixed rate loans with
LTV 95% with DU 9.0 approval to be locked on or before June 10,
2014, and purchased by Impac no later than June 25, 2014.  The
Fannie Mae fixed product matrix has been updated to add “Primary
purchase for Elderly Parents by Adult Child” and “Primary purchase for
Disabled Adult Child by Parents”.

FHA 203K product has been revamped as well including clarification
regarding appraisal requirements for both purchase and refinance
transactions. Visit the Impac Mortgage website or contact your
representative for complete information.

is offering a couple new products that are of interest in today’s
constricted market. Its Expanded Guideline Program features include:  loan
amounts to $1,000,000, credit scores as low as 600, no mortgage
insurance required over 80% LTV, cash out to $250,000 on primary
residence transactions. Its Jumbo Core Program provides your borrowers
with the ability to obtain cash-out of their primary residence and
investment property for any purpose, access to higher loan amounts, no
second appraisal fee below $1,000,000 cash-out or $1,500,000 purchase
and rate/term. To find out more about these products and others, contact
your representative.

New Penn Financial Correspondent lending department has announced correspondent fee changes beginning May 12th. The
changes will effect agency purchases (FNMA/FHLMC/FHA/VA), portfolio
purchases (Jumbo Advantage/Foreign National), and Condo approval

will now purchase HUD REO transactions with LTV/CLTVs above 96.5% and
will accept Approve/Ineligible findings that are due to LTV.  Up
to 110% of the cost of repairs may be included in the mortgage amount
so long as it is under $5,000, and the property is required to have a
full “As Is” and to have the repairs completed per the 1004D or
Compliance Inspection Report HUD Form 92051. This is available only for
owner-occupied transactions and requires the property to have a title
policy. PennyMac will also purchase HUD’s $100 Down and Good Neighbor
Next Door loans.

will require all loans closed on or after June 15th to include 2013 tax
unless the file contains proof that an extension was filed
and a copy of the IRS notice showing “no record of return filed” for
2013.  This
does not apply to loans that do not require income or tax returns,
including non-credit qualifying FHA Streamlines and VA IRRRLs.

How ’bout these rates! Sure,
MBS prices are the best they’ve been since Thanksgiving, but the costs
of doing business have increased, and let us not forget the higher gfees
and loan level price adjustments – so the advantage of refinancing has
dropped for existing borrowers.
But hey, if rates keep dropping… Yesterday a combination of weaker than
expected Q1 growth in the euro zone (which increased odds the ECB would
announce further accommodation at its June meeting) and mixed data and
poor earnings news in the U.S. pushed rates lower. But do lenders really want lower rates due to a slow U.S. economy?
Probably not. But for now we’ll take the rally: yesterday the 10-yr
price improved by .375 (closing at a yield of 2.50%) but agency MBS
prices barely budged due to supply and demand issues. Investors are
keenly aware of whether or not a rate decline will result in more
refinancing, pushing up the supply, which may or may not be absorbed by
the tapering Fed and other investors.

we’ve seen the dynamic duo of April Housing Starts and Building Permits
(they showed some strength) and will see the preliminary May read on
Consumer Sentiment. Housing
starts were above expectations, jumping 13.2% to 1.072 million due to a
39.6% surge in multifamily starts. Single family was only up 0.8%. It
was the same
story for building permits. Headline permits were up 8% to 1.08 million
also driven by multifamily permits which were up 19.5%. Single family
permits were up 0.3%. The softness in single family build is consistent
with the weak message out of the NAHB index and sluggish new home sales.
The gain in multifamily construction is consistent with the shift
toward renting. In the early going we’re sitting at about 2.51% and agency MBS prices are slightly worse on the housing news.



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