Insider Perspective: Reg Z Reform, Compliance Procedures, Realtor Pay


For anyone out there who thinks
the mortgage biz in the US has become confusing, spend 15 seconds scrolling
down this story on establishing the mortgage business in Saudi Arabia.
“The Saudi government target is for 80 percent home ownership by Saudi
citizens by the year 2024…” Sound familiar? SaudiMortgageProposals

MetLife Home Loans has
recently been increasing its market share, especially in the wholesale channel,
so yesterday’s announcement that it was “consolidating” its fulfillment
centers and making some structural changes was viewed by great interest, and
some surprise, by brokers. “…we are overhauling and redesigning our
Fulfillment Centers and processes…Create a single point of contact for
communication, limit the number of team members that will handle your
loans…MLHL has consolidated its previous nine Wholesale Fulfillment Centers
into six primary Fulfillment Centers; two in each of our three divisions.”

One question that agents are
often asked about is, “Do you still make loans on condos?”
Especially if the borrower has less than 10% to put down, this almost
automatically puts them into running for an FHA loan. The HUD site that
agents turn to first, to see if the project is even approved, is CondoLook. Select the state,
zip code/city, and then “send.” You’ll receive a list, and keep an
eye on the expiration date to make sure that it is farther out than the lock

I have received a fair amount of reader
recently on various topics, with various opinions:

“Lending and compliance
procedures have become incredibly complex. When is a major lender or two
just going to say, ‘No’?
Just make a public announcement. ‘Based on new
regulations enacted in (whatever jurisdiction), we will no longer accept home
loan applications and fund mortgage loans in (whatever jurisdiction). We
appreciate our past customers and regret having to make a business decision
that impacts them to protect the interests of the bank. If at such time in the
future (whatever jurisdiction) repeals this new regulation, we will be happy to
once again accept mortgage applications in (whatever jurisdiction).’ Barney
Frank would have a stroke if that happened.” (Editor’s note: What tends to
happen, of course, is that a lender drops their pricing in that area, often
through the servicing value, making their product less attractive. Does that
help the borrower?)

“It seems the industry is so
tired from the comp issue that lenders are not seeing the next big issue
staring them in the face
: the Fed issuing a proposed amendment to Reg. Z
(TILA) to require creditors to determine a consumer’s ability to repay a
mortgage before making a loan, and to establish minimum mortgage underwriting
standards. We have until 7/22 to comment on it, at which point the CFPB takes
over. These “ability to repay” requirements will impact all consumer
purpose mortgages except home equity lines of credit, timeshare plans, reverse
mortgages and temporary loans. The proposal indicates that creditors will have
four options to comply. The first is the “general ability to repay
standard”, where the creditor would consider income or assets, employment,
size of the borrower’s monthly payments and other debt, and credit history. The
second option would be to originate a “qualified mortgage,” (no Neg
Am, IO, balloon, or a term longer than 30 years AND if: total points and fees
do not exceed 3% of the total loan amount, income or assets are verified, and
underwriting of the mortgage is based on the maximum interest rate that may apply
in the first five years, uses a payment schedule that fully amortizes the loan
over the loan term and takes into account any mortgage-related obligations).
The third option and fourth options involve rural/underserved areas not being
subject to the balloon loan issue, or refinancing someone out of a non-standard
mortgage with risky features into a standard mortgage that has limits on loan
fees and that does not contain ‘risky’ features. Your readers should watch this
carefully, as it is full of potential ‘unintended consequences’.”

Daniel Shlufman, president and
general counsel for FCMC Mortgage, writes, “There are changes that I
believe need to be required by real estate agents
.  For real change
there will need to be some requirements and disclosures placed on the sale of
real estate (which are unlikely to happen). No blind bidding, i.e. each bidder
should know what and who they are bidding against to avoid the farce of
“highest and best offer” (this practice is prohibited in most other
Western countries). Enforcement of conflict rules against Realtors vis-à-vis
owning title companies and mortgage companies. ‘Dis-incentivizing’ agents from
stifling competition and selling their own listings. Training on qualification
(i.e. affordability), and responsibility on ability to repay, which would
involve financial training on ratios similar to mortgages

“Regarding the comment that
real estate commissions are split 4 ways and a Realtor gets around 1.25% to
1.5%, that is as false as the belief that LO comp is good for the
consumer.  I own a real estate company and my Realtors get 100% commission
with a flat $695 taken out per deal.  There are many companies that now
compensate this way. In my area, the average purchase price is $225,000 and the
average commission is still close to 3%, giving my agents an average net
commission of $6,055 in their pocket on each deal. The average deal takes about
20 hours of showing homes and another 20-30 hours of paperwork to the
close.  That is a max 50 hours of actual time working on a deal or $121
per hour for a job that requires no college degree, you can set your own hours
and just 1 closing per month puts you at $72,000 take home pay per year.  Please
do not feel that Realtors are in the same boat or even ocean as loan officers

“I have been in lending for 25 years and have seen both bad LO’s and bad
Realtors come and go over the years. One of the more troubling Realtor
strategies is to threaten the business relationship with a LO if a loan does
not go through, or is not on time, regardless of whether or not the loan makes
sense for the buyer.  During the mayhem of rising property values, I
received many calls indicating that if I was unwilling to do a stated
income/state asset loan for someone who clearly did not make the income
‘stated’, they would find another lender who would do it and they would make
sure that no other Realtors used my company in the future.  I know I’m not
the only manager to have ever received that call.”

Are borrowers really
better off with the decline in mortgage brokers?
Mortgage brokers have
access to wholesale mortgage rates, which are priced below those offered by
retail banks. They’re able to offer lower mortgage rates because they don’t
need to pay a sales team to sell those rates, as mortgage brokers run their own
businesses and earn money off of commissions. Many borrowers are able to get a
better deal if you work with a mortgage broker as opposed to walking into your
local bank branch since mortgage brokers have the ability to ‘shop the rate’
with multiple mortgage lenders simultaneously, meaning more options for the

“The mortgage banking
profession is no different than others, in that the majority of the people in
the mortgage industry are hardworking, honest individuals that do treat their
borrowers with respect, honesty and fairness.  Whoever doesn’t believe
that may not want to believe it. Some companies did go way over the line and
did commit fraud and these individuals and companies should be punished, but
don’t punish the entire industry for the wrong doings of a few.”

“I remember being at a state
ethics meeting I chaired in 1999, speaking with our state’s head mortgage
lending regulator who attended our meetings and discussing what we needed to do
to establish a more ‘professional’ mortgage loan officer in our state. I
suggested $100,000 individual bonding, strong testing, licensing with
background checks, brick mortar in the state, and personal liability for
wrongdoing in statute for the loan officer. The regulator told the audience
that lowering competition like that, and the creation of high barriers to
entry, would harm the state’s borrowers in restricting their choices, and that
we needed as much competition as possible to keep rates and fees down for its
citizens. For many borrowers ‘Stated’ income documentation was acceptable, as
was ‘100% or higher LTV,’ ‘Neg Am,’ and loans for ‘low credit score’ borrowers
all had their place. But layering on risk and combining 2-3 of these factors
was poor judgment; combining all 4 was irresponsible
. We had our cake, and
ate it too, for decades. Now they’ve taken away most of the cake and put us on
a big FRB diet of how much we can eat.”

To get to the point, yesterday
the markets did not move much, although for the week we had some nice price
improvement. The fixed-income markets closed early, and are closed today
(usually leading to, if an investor is even offering rate locks, conservative
pricing). Traders reported very light mortgage selling yesterday, suggesting that
next week’s MBA application index will be on the light side. In fact, it has
been a quiet week in mortgages for several reasons: vacations, high price and
low yield levels keeping buyers on the sidelines, and limited data and events.
Yesterday both agency MBS prices and the 10-yr closed nearly unchanged (3.40%),
so we’ll see where they come in Monday morning after this 3-day (for the
markets) weekend.


“How come we choose from
just two people to run for president and 50 for Miss America?”
“Now that food has replaced sex in my life, I can’t even get into my own
“Marriage changes passion. Suddenly you’re in bed with a relative.”
“Sign in a Chinese Pet Store: ‘Buy one dog, get one flea.'”
“If flying is so safe, why do they call the airport the terminal?”
“I don’t approve of political jokes. I’ve seen too many of them get
“I love being married. It’s so great to find that one special person you
want to annoy for the rest of your life.”
“I am a nobody, and nobody is perfect; therefore I am perfect.”
“Every day I beat my own previous record for number of consecutive days
I’ve stayed alive.”

“What part of a fish is Napoleon? The boney part.”

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