If you ever want to see a puzzled look on someone’s face, ask them the difference between a “deed of trust” and a “mortgage.” Fashion mavens can debate the difference between a “Snuggie” and a “blanket.” I mention this because the tariff for importing blankets into the U.S. is 8.5 percent. It’s 14.9 percent for “pullover apparel.” (Does the CFPB know about this disparate situation?) So where does this leave the Snuggie, the blanket one wears like a poncho? That’s up to the U.S. Court of International Trade to decide since the government wants to tax the Snuggie like clothing but Allstar Marketing Group, which makes the Snuggie, is fighting it. See? Lenders aren’t the only one spending time in courts.
(Before going on, the basic difference between the mortgage as a security instrument and a Deed of Trust is that in a DOT there are three parties involved, the borrower, the lender, and a trustee, whereas in a mortgage document there are only two parties involved, the borrower and the lender. Also, in the event of default, if a deed of trust is used courts can be bypassed.)
Who can you trust these days? In an effort to gain access to inside information, cybercriminals are posing as Securities and Exchange Commission officials in emails to corporate executives, lawyers, compliance officers and others who have roles in submitting documents to the SEC. FireEye, the security firm that spotted the practice, said the online scammers are probably part of an Eastern European criminal organization that profits by basing trading on inside information.
Any mortgage company doing business in New York should be aware of its new cybersecurity rules. “The New York Department of Financial Services has new cybersecurity regulations “designed to promote the protection of customer information as well as the information technology systems of regulated entities [financial institutions].” These are the first state-enacted financial institution regulations of their kind in the country, and the final set of regulations can be accessed here.”
Shifting to residential lending, Aaron Ninness, a Branch Manager with New American Funding, had some thoughts on pay rates for appraisers. “Rob, your commentary struck an interesting tone when quoting the lender from the West on appraisers. Specifically, when they compare the wages and income of an established appraiser at 200k with lenders and agents earning more.
“This comparison doesn’t make any sense to me. Appraisers are currently shielded by AMCs or Chief Appraisers within each company from actually having to deal with humans. Most appraisers dodge phone calls and provide updates via electronic portal systems or email. And it is because of this system and the inability for us to communicate with them that the wages they are paid are fair.
“Take for example the current Denver market. We consistently see offers far over asking price, and thus appraisals coming in low. Now in no way am I suggesting that it is an appraiser’s fault, or they did something wrong, but they are still compensated for that report regardless if the file closes. A lender or agent is not paid in those circumstances of a closing falling through. In fact, we get to restart and do it again. But there is another large difference. Appraisers do not have to contact a borrower and tell them that an appraisal came in $35,000 low and that the deal is going to ‘die.’ Is that not worth something?
“How many lenders or agents work with buyers who end up deciding not to buy or simply can’t get a property under contract and rent for another year? All those clients are worked with in equal parts with the same respect and service as any other client – but again with no compensation.
“In the end, there needs to be an understanding that if you are not required to have the tough conversations that come along with our business, that fact will be adjusted in the compensation. This is very similar to an underwriter. They are paid a good wage but less than the originators because they don’t have to do ‘the dirty work’ of finding business or speaking to a real live human on the other side. And an appraiser can manage their own schedule and control their business as they see fit – a reward for having a degree perhaps?
“Something certainly does need to change on the appraisal front for us to be able to handle larger volumes of business. I completely agree. But we need to keep in check the comparisons of how their business runs in comparison to an agent or lender.” Thank you, Aaron!
If you’d like actual numbers, and who wouldn’t, Joan Trice, Founder and CEO of Clearbox LLC, sent, “For appraiser information, including compensation levels, your readers should go to www.appraisalbuzz.com and look at ‘Surveys.’ It is free to download, and presents the information from the survey we conduct annually.”
But collateral is only one part of the credit process. Michael Vitali, SVP and Chief Compliance Officer of LoanLogics, answers the question, “With rates rising should credit standards drop?” “Mortgage lenders are facing challenges in 2017 from rising interest rates, rising home prices and fewer refinances. These add up to result in less business. The big question is should lenders relax credit standards to help qualify more homebuyers for financing? Here we go again.
“Lenders were blamed for relaxed credit standards that led to the crash of ‘08. As a result, we got Dodd-Frank with the QM and ATR rules. Remember them? Those rules required a lender to ensure a consumer’s the repayment ability for any mortgage financing. Many consumer groups, legislators, and lenders argued that the new rules excluded many consumers from obtaining home financing. These arguments fell on deaf ears as long as rates were low, refi’s were booming and housing was available at reasonable prices.
“The tide has turned. Rates and home prices are rising, homeownership is down, and refinances are all but gone. Once again everyone turns to the lenders to find a way to help qualify more consumers. FHA financing, low down payment, conventional loan programs and specialized programs for low to moderate and first-time buyers ain’t doing the trick. So, now the call comes to ease credit standards. But, how will lenders be protected from the ATR rules and required FHA certifications?
“Easing of credit standards translates into lending to less qualified consumers, increasing the lender’s risk for non-performing loans, indemnifications, and loan repurchases. Been there, done that and don’t want to go there again, thank you. Lenders want to lend. That’s what they do and how they make money. The additional rules and regulations have increased the cost to do so, but lenders have fought the good fight, complied with the rues and continued lending. Now, they’re asked to once again stick their necks out and be in the line of fire. Maybe they would take on more risk if regulators and FHA would ‘loosen the noose’ so lenders can loosen their credit standards.”
Some residential lenders are losing personnel, either voluntarily or involuntarily, while others are gaining staff. Some staffing and recruiting challenges were revealed by C-level executives in a recent survey of mortgage leaders conducted by recruiting expert Rick Glass (Rick Glass Executive Search). He conducted a confidential survey “among a select sampling of presidents and CEOs of well positioned mortgage bankers to determine their most important concerns and challenges for this year and beyond.”
“It is too simplistic to say they are concerned about loan volume. Of course they are. But to achieve and sustain growth, profitability and market share, executives are all-too aware that they must have the right people in place to lead their origination and operations teams. This is where the most meaningful challenges are to be found,” he said.
Glass’ survey revealed that senior leadership ranked their top four priorities to meet the needs of a rising rate environment: talent acquisition, leadership development, employee retention, and mergers and acquisitions leadership experience.
“This indicates that many mortgage bankers expect to grow their companies through acquisition as the industry continues to consolidate. Some of the smaller and mid-sized platforms with purchase lending penetration are being squeezed by a lack of cash for expansion and are at a premium today, particularly among non-bank mortgage lenders. Finding top field sales talent and developing the leaders to manage them while ensuring optimal integration with acquirers will be primary concerns, along with retaining the most valued team members. It is a tricky time. Companies will be competing for the best origination talent and that means they must be able to merchandise and deliver a meaningful value proposition while finding the right leadership to attract, manage and retain those high performers.”
“The most surprising trait executives indicated was missing from their leadership teams was ‘performance accountability.’ A startling 78 percent of respondents said they had concerns over the way their leaders accepted and embraced responsibility for their teams’ performance results. This would seem to indicate a cultural resistance from using traditional business metrics to identify performance success. C-level executives like leaders who seize opportunities, accept responsibility, drill down to root cause analysis and articulate solutions supported by data and analytics, and engage participation necessary to ensure results. This well-rounded ‘operator’ has a broader reach into multiple disciplines and is prepared to do everything possible to meet the objectives of the greater good. It indicates a prime recruiting challenge for senior leadership in our industry.”
“Of the respondents, 60 percent indicated that Millennial talent acquisition was among their highest priorities in terms of investment over the course of the year. I found this both surprising and expected. This young group has a somewhat different set of priorities and a global view that differs from previous generations. To recruit them effectively, C-level executives need leaders who can identify the top Millennial prospects and relate to them in a way that brings out their best. Recruiting and leading them are not necessarily as intuitive as in the past. They require a careful approach and new thinking on the part of management.”
Regarding the channel segregation climate for residential lenders, Tom Coale, SVP of Correspondent Lending at Envoy Mortgage, opined, “It seems that the new administration is focused on reigning in regulation(s). One might think that some emerging bankers and even some non-delegated lenders may consider going back to a broker wholesale execution. Only time will tell, but I have heard some rumors swirling around about that topic. I do find it interesting that on some business oriented social media sites, many that had been promoting themselves as Correspondent/Wholesale players are now posting primarily about their Wholesale opportunities. This points to what many have suspected… that many of the ‘investors’ over the last few years were wholesalers dressed as correspondent lenders and were helping to muddy the waters.”