JUNE 2022
Vol. 14, Issue 6 $20.00
WHERE’S iBUYING
HEADED
THE GREAT ZILLOW SURPRISE
UNCLEAN CREDIT WASHING TRAIN YOURSELF TO TRAIN YOUR LOs A LIFE PRESERVER FOR DYING LOANS
A PUBL ICAT ION OF A ME RICA N BUS INE SS MEDI A
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JUNE 2022
Vol. 14, Issue 6 $20.00
WHERE’S iBUYING
HEADED
THE GREAT ZILLOW SURPRISE
UNCLEAN CREDIT WASHING TRAIN YOURSELF TO TRAIN YOUR LOs A LIFE PRESERVER FOR DYING LOANS
A PUBL ICAT ION OF A ME RICA N BUS INE SS MEDI A
JUNE 2022
Volume 14 Issue 6
CONTENTS
nationalmortgageprofessional.com
COVER STORY PAGE 44 It’s Not Dead; It’s Booming All those reports of the death of iBuying? Seems like they may be premature. A surge in home prices is making the segment valuable, even for those like Zillow getting out of the business.
4 Uncovering The Truth Falsehoods abound in the mortgage industry, either from intentional bad actors or misinformed speculation. 6 Non-Productive Newbies Understanding why some new loan originators aren’t being productive. 8 Practice, Practice, Practice Take these steps to be a master of networking. 10 Don’t Let Good Loans RIP Resuscitate loans that otherwise might be given death sentences.
15 People on the Move See who the movers and shakers are in the mortgage industry. 16 Build-A-Broker: Take These Steps Legal issues can be avoided by limiting your liability exposure. 18 Build-A-Broker: The Challenges of Condo Lending Public data can be a hindrance unless you understand the process.
20 Build-A-Broker: Unique Workforce Tried-and-true methods will leave you constantly recruiting new workers. 22 Benchmarks And Best Practices What Young LOs Are Missing Best practices of veteran loan originators need to be shared for future success. 24 My First Million: Eyes Upfront Please Pay attention where you look to be an effective communicator.
26 Non-QM Lender Resource Guide 30 Wholesale Lender Resource Guide 32 DataBank 34 Pick The Best Cash-Out Option Select the right choice for your clients based on their future needs 50 Non-QM Lender Directory 51 Resource Directories 54 Facebook Thoughts: Successful Mortgage Exec Seeks Mate
36 Credit Washing Is The New Fraud Trend Learn how to spot fraudsters illegitimately boosting their low FICO scores.
nationalmortgageprofessional.com
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
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STAFF
JUNE 2022
Vincent M. Valvo CEO, PUBLISHER, EDITOR-IN-CHIEF Beverly Bolnick ASSOCIATE PUBLISHER
Volume 14, Issue 6
LETTER FROM THE PUBLISHER
Stripped Of Falsity
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Christine Stuart EDITORIAL DIRECTOR David Krechevsky EDITOR Keith Griffin SENIOR EDITOR Mike Savino HEAD OF MULTIMEDIA
he world, it seems, is full of things that are not as they seem. Whether it’s outright fraud, or misapprehension, or misunderstanding, we’re too often inundated with knowledge that’s just not true. Take, for instance, the news a few months ago that Zillow was bailing on its business group that just bought up homes on the internet — or iBuying, for short. When the realty behemoth ditched the sector, snickering ensued from those who wanted to opine that not even Zillow’s vaunted Zestimates could accurately predict what a house was going to be worth. And if Zillow couldn’t make it work, then it was likely the whole iBuying industry was headed for a grisly demise. But, it turns out, that’s not true. NMP Magazine staff writer Steve Goode tore through the layers of bad analysis and failed forecasting to discover that, contrary to conventional thought, the iBuying marketplace remains strong, and continues to heavily influence the overall marketplace.
Katie Jensen, Steven Goode, Douglas Page, Sarah Wolak STAFF WRITERS
CREDIT CRACKDOWN
Tigi Kuttamperoor, Matthew Mullins MULTIMEDIA SPECIALISTS
Meanwhile, our reporter Katie Jensen does some digging of her own in her feature this month on credit washing. The origination industry dealt for years with issues surrounding credit repair claims, a sector that appears to have mostly receded. But not wholly, and it’s looking for a resurgence in a new variation called credit washing — where borrowers don’t try to fix their bad credit; they try to get out from under it altogether by claiming identity fraud. It’s the “someone else did it,” defense. While it is not particularly successful in the long run, it may be successful long enough for someone to game the system and qualify for a mortgage. Insight and understanding, it’s what you expect from NMP. We’re committed to bringing you the best, most actionable information every month. Steve and Katie are taking point this issue, but please check out the many fine contributions from writers across the mortgage marketplace. It’s top journalism for top origination pros.
Rob Chrisman, Dave Hershman, Erica LaCentra, Nick Roberson, Lew Sichelman, Mary Kay Scully CONTRIBUTING WRITERS Alison Valvo DIRECTOR OF STRATEGIC GROWTH Meghan Hogan DESIGN MANAGER Christopher Wallace, Stacy Murray GRAPHIC DESIGN MANAGERS Navindra Persaud DIRECTOR OF EVENTS William Valvo UX DESIGN DIRECTOR Andrew Berman HEAD OF CUSTOMER OUTREACH AND ENGAGEMENT
Melissa Pianin MARKETING & EVENTS ASSOCIATE Kristie Woods-Lindig ONLINE ENGAGEMENT SPECIALIST Michael Castro MARKETING MANAGER Joel Berman FOUNDING PUBLISHER Submit your news to editorial@ambizmedia.com If you would like additional copies of National Mortgage Professional Call (860) 719-1991 or email info@ambizmedia.com
www.ambizmedia.com V INCEN T M. VALVO Publisher, Editor-in-Chief
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| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
© 2022 American Business Media LLC. All rights reserved. National Mortgage Professional magazine is a trademark of American Business Media LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher. Advertising, editorial and production inquiries should be directed to: American Business Media LLC 88 Hopmeadow St. Simsbury, CT 06089 Phone: (860) 719-1991 info@ambizmedia.com
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DAVE HERSHMAN
RECRUITING, TRAINING, AND MENTORING CORNER
The Conundrum Of Coaching Loan Officers Steps to understand why new loan officers are not producing BY DAVE HERSHMAN, CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
T
he issue of coaching loan officers is a major conundrum in this industry. Most managers spend most of their time producing and this leaves little time for coaching. Add the fact that often “street” loan officers are working at least part of the time remotely, the ability to affect the behavior of sales personnel is limited. In the next few articles, we will cover several issues we face, as well as possible solutions which may help you develop a more effective coaching plan.
HOW DO WE KNOW WHY THEY ARE NOT PRODUCING? The training of sales personnel provides additional challenges because it is difficult to measure the skills necessary to provide results. When we hire and/or train an originator and he/ she goes out on the street: how do we know why they are not producing? • Are they making calls but not asking for the business? • Are they calling on the wrong targets? • Are they saying the wrong things
and turning people off? • Are they too aggressive? • Are they hiding out in a bar all day?
HOW DO WE KNOW WHAT THEY ARE SAYING? We can train and monitor all we want, but we are not going to know what an originator is saying out on the street in order to help or hurt the cause. Coaching calls will not necessarily tell us what is wrong because we will not see true behavior while we are present.
COACHING CALLS — ON THE STREET OR ON THE PHONE Just because coaching calls will not be 100% effective, does not mean that they are not important. Basically, there are three types of coaching calls: • Training Calls. We bring a rookie out on the street with us or have them listen to us handling inquiry calls. They are to observe our behavior. This is a training exercise, and the goal is learning. In technical terms — this is called the process of benchmarking. • Monitoring Calls. We are observing a salesperson’s behavior. It is up to us to let the other person do the talking — even if we are approached by a person, attempt to defer. Our goal is to observe true behavior (not exactly as effective as having a hidden video or audio tape). Many telemarketing firms do monitor calls blindly for training purposes.
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• Joint Calls. Whether a conference call or a joint sales visit, many of our sales personnel will rely upon us to help them seal important deals. Perhaps you have a previous relationship with a particular client or office. Perhaps you have a great sales meeting presentation that you can deliver on behalf of your employee.
IDENTIFYING RELUCTANCES Every salesperson has some type of reluctance. This reluctance could be defined as a type of call reluctance, marketing reluctance or even communication reluctance such as the fear of public speaking. These reluctances can be crippling to the average salesperson and an important part of the manager’s job is to not only identify this reluctance, but format solutions to help the salesperson overcome this handicap. For example, it is important for a salesperson to stay in contact with previous customers. And the most effective contact in this regard is over the phone rather than sending notes. But if the salesperson has a
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
reluctance to make telephone calls for marketing and/or customer service purposes, this is an issue. The question is — how do you overcome this? Before finding an alternative means of communication, there are many tools you can use: • By making sure they schedule activities which they are likely to overlook if they are not specifically on their calendar. • By helping the loan officer eliminate obstacles that are being used as excuses for keeping us from doing what they need to do. For example — showing them that their pipeline does not need a babysitter. • By pairing up with “buddies” or “coaches” who will give them daily encouragement to take certain actions. • By making it fun. Contests, challenges and games may be seen as “infantile” by some,
We can train and monitor all we want, but we are not going to know what an originator is saying out on the street in order to help or hurt the cause. but they are really major sales tools. In reality, if they do not like what we are doing, they are less likely to accomplish the task. • By helping them be honest with themselves. If they are going to overcome an obstacle they must admit that their call reluctance (and perhaps attitude) is the problem, not all the other things we have been blaming — such as paperwork and the competition. Next month we will continue to introduce tools that will help you
develop more effective coaching techniques. n
Dave Hershman, senior vice-president of sales for Weichert Financial Services, is a leading author in this industry with seven books published as well as founder of the OriginationPro Marketing System and the OriginationPro Mortgage School — the online choice for mortgage learning and marketing content. His site is www.OriginationPro.com and he can be reached at dave@hershmangroup.com.
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ERICA LACENTRA
RECRUITING, TRAINING, AND MENTORING CORNER
Go Back To Basics For Better Networking
Like other skills, practice and repetition makes perfect BY ERICA LACENTRA | CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
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Doing more legwork upfront rather than a heavy sales pitch is a much better strategy.
ith trade shows and conferences ramping up for the summer and into the fall, now is a perfect time to prepare yourself and make sure your networking skills are topnotch. Especially since the pandemic and with virtual interactions being more common, it does feel like interacting face to face has become more challenging in a lot of cases. However, networking is a skill, and just like any other skill, can be improved with practice. Here are some simple ways to go back to basics and improve your networking skills to make sure you are making the most out of your events.
potential prospects while you are at the event. You can also research which companies and vendors will be onsite so you can make a plan of attack to know what booths you want to visit while you are there to be most efficient with your time on the trade show
floor. Making sure you have a well-planned day ensures you are accomplishing everything that you want to at a conference. On the flip side, if you are a vendor or sponsor at a show, make sure that you are making sure that attendees are aware you will be exhibiting at the conference. Pre-show marketing is crucial to ensure you stand out from the dozens of other exhibitors on the show floor. Sending out emails to pre-attendee lists with opportunities to
MAKE YOUR PRESENCE KNOWN Being proactive is always a good strategy for making yourself stand out at conferences and trade shows. If you can scope out an early attendee list this is a great way for you to do outreach ahead of the conference and set up meetings with
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set up on-site meetings, take advantage of event specials or unique offerings at the show, or watch conference speaking sessions and panel sessions are just some of the ways that you can engage potential clients before you get onsite. These are all great ways that attendees will feel compelled to scope out your company as soon as they get to the conference.
PERFECT YOUR PITCH Whether you are an attendee, a sponsor, or an exhibitor, having a welldefined pitch about your company is incredibly important to have while you are at a tradeshow or conference. That pitch is what you will be using to sell yourself to potential clients and what you will also be using as a springboard to launch conversations that will allow you to learn more about attendees and other vendors and how you can best work with them in the future. Once you have your
down, make sure you can end your pitch with a leading question. That will help you not only continue the conversation with whoever you are speaking with, but it will also help you learn more about the person’s business and if they are truly in need
Networking and interacting with attendees are as much about them liking your company and you as a person as it is about them liking your products. of your services, and how you can best develop a mutually beneficial partnership. Remember, while it’s great to be able to get business for yourself while attending events, being able to develop long-term partnerships will pay dividends. So doing more legwork upfront rather than a heavy sales pitch is a much better strategy.
KEEP IT LIGHT
pitch
them liking your products, so take the time to actually get to know people before getting down to business. People typically like to talk about what they know best, themselves. Ask about the basics: where are they from, is it their first time at this conference, what do they do, etc. This will get people talking and comfortable with you and get a cadence before getting into the nitty-gritty of things. Also, certain settings at conferences tend to be more conducive to different styles of networking as well. While the tradeshow floor can be more business-oriented and fast-paced pitching, a lot of networking takes place at events off the show floor at dinners, or even at the hotel bar. These environments are much more relaxed and offer more casual conversations for folks to get to know each other and discuss business in a setting where you can often have more meaningful discussions without the pressure of having to run to a session or another meeting, so take advantage of these opportunities even if you are technically “off the clock.”
At the end of the day, while you’re at tradeshows and conferences ultimately to do business and get a return on whatever amount of money you’ve spent to attend, exhibit, or sponsor the event, that doesn’t mean that you have to get straight to your sales pitch. Networking and interacting with attendees are as much about them liking your company and you as a person as it is about
RINSE AND REPEAT As previously mentioned, networking is a skill and like all other skills, takes practice and repetition to perfect. So test out different methods until you find one that works best for you. Developing a solid elevator pitch, and having some prepared opening line or questions to ask attendees will go a long way to making it feel more natural time and time again. Do your research ahead of time, get yourself ready, pack plenty of business cards and have some fun with it and you’re on your way to having a successful event season. n
Erica LaCentra is Chief Marketing Officer for RCN Capital.
LEW SICHELMAN
RECRUITING, TRAINING, AND MENTORING CORNER
Are You Allowing Good Loans To Die?
There are plenty of ways through down payment assistance to save loans currently being turned down BY LEW SICHELMAN, CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
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ould it surprise you to know you could close maybe a third or more of all the loans you might otherwise decline? One large financial institution sure was taken aback when Down Payment Resource showed them that by letting their borrowers in on how to find some help accumulating their down payments, they could have “salvaged” roughly 33% of loan applications they ended up throwing in the circular file. “It was eye-opening,” says Rob Chrane, CEO of DPR, an Atlanta-based company which tracks and maintains a comprehensive database of eligibility criteria for more than 2,200 home ownership programs from throughout the country and licenses its tools to lenders. “They were amazed they were leaving so much money on the table.” Even more “shocking” is that this lender already had gone to the expense of onboarding a list of assistance programs its loan officers could
recommend to marginal borrowers. Chrane would not disclose the client’s identity. But he did say that “they had a solution already in place but were declining loans without someone going back” to see if the lender had something to offer that could keep applicants moving forward. To sell its services to new clients, DPA often looks at a sample of rejected loans — some small, some made up of a couple of thousand — to determine if the lack of cash for a down payment or perhaps even closing costs was the reason they were turned down. Sometimes it looks at whether the would-be borrower’s debt-to-income ratio was to blame. Over the years, it has analyzed such samples from various size lenders, and has found the average of unnecessarily lost loans to be 33% — but sometimes more. “It’s not scientific, but it’s as scientific as you can get considering the limited sample size,” Chrane says of DPA’s missed opportunity index. Cherry Creek Mortgage isn’t losing loans it might otherwise close. The folks at DPR are “amazing” to work with, says Angel Romero, national housing partner at the Englewood, Col.-based lender. “They help open up so many doors in regard to options available and how to access those options.” Mark Svihel, a loan officer with Movement Mortgage in the greater Minneapolis-St. Paul region, works regularly with down payment assistance programs. He says he’s “impressed” with the accuracy and detail DPR provides and “get the word out” about “valuable” down payment help in his market.
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This isn’t to tout DPR, though it is the most complete source of the thousands of programs available to borrowers that I know of. Rather, it is to get the word out that these programs exist. Most consumers don’t have a clue about them, and many realty agents don’t either. The latter even though 16 multiple listing services with some 458,000 agent and broker-members license DPR’s service. In addition, three Realtor associations totaling 269,000 agents and brokers use a basic widget which is not tied to
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property listings. While there may be some overlap, that’s a total of 727,000 who should — but often are not — aware of what programs might fit their clients’ needs. But even when they are cognizant, they are just as apt to turn their noses up because these programs are “not worth the trouble” or are encumbered by too much red tape. There’s also an application for individual agents, but few solos have signed up. But programs are not necessarily more paperwork intensive, according to the state housing finance agencies that administer many of them. Not only less so, says Dirk Swift from the Arizona Industrial Development Authority, but safer than when down payment funds come from family or friends. And Charles White of Florida’s HFC notes that borrowers are “completely underwritten” to be certain they meet program requirement.” Anyway, if realty agents aren’t in the know, it leaves the job to lenders and
their agents. So, with that in mind, here’s what you should know: As of April 1, there was a total of 2,238 assistance programs nationwide — the actual number changes frequently as some programs end and others are added — and 85% had funds available for home buyers. “The count has been on the rise for several quarters,” Chrane reports. Every state has at least one assistance program, not just for help with a down payment but also support for closing costs. But many have multiple plans. California has the most with 334, followed by Florida with 150 and Texas with 113. Delaware, Hawaii, Maine and North Dakota have the least at six each. (The state counts don’t include any national or regional programs also offered in the state.) Nearly half of the programs are run by local municipalities or state and county governments and about a fourth are administered by state housing agencies. To a lesser extent, employers (18%) and
non-profits (2.5%) also offer programs. Roughly 73% of the programs currently listed in the database offer help with down payments and closing costs. These include grants which need not be paid back as well as low or no-interest or second mortgages with payments that may be deferred or totally forgiven. Blue Springs, Missouri, will fund half of any down payment up to $3,000 and pay for up to $3,000 of the buyer’s normal closing costs. And in Janesville, Wisconsin, loans of up to $10,000 are forgiven, one-fifth per year. So, after five years, they are wiped off the books. Money isn’t just handed out, though. Many of these assistance programs come with eligibility requirements. For example, close to 20% are aimed at special groups such as veterans, first responders, educators and persons with disabilities or other special circumstances. About two-thirds are confined to first-time buyers. In Roseville, Minn., for example, rookie buyers could be eligible for loans of up to $25,000 that are payable when the borrower moves on. There often are other restrictions, too, including limits on purchase price, location, property type, credit scores, history of home ownership, qualifying ratios and liquid assets. In Gaithersburg, Maryland, buyers in an Opportunity Zone within the city limits are eligible for down-payment help of up to 10% of the purchase price, not to exceed $25,000. Many plans also have income limits, but those can be deceiving. In certain high-cost markets, the income ceiling can exceed 180% of the median income for the area. And 38% don’t include a first-time buyer requirement. Even with income limits, though, the benefit can run up to tens of thousands. In Miami-Dade County, Florida, for example, the 53 down payment assistance programs currently available range in benefits from $2,125 to $150,000. In Austin, Tex., a family of three-to-six people earning up to $80,000 has access to 24 different programs, including a $2,000 per year federal income tax credit for the life of the mortgage, a grant of 6% CONTINUED ON PAGE 12
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RECRUITING, TRAINING, AND MENTORING CORNER
ALLOWING GOOD LOANS TO DIE? CONTINUED FROM PAGE 11
of the loan amount to use to cover a down payment and closing costs, or an interest-free loan of 5% of the loan amount to use as part of the down payment and closing costs. In Denver, Colorado, a three-person household with a veteran or military applicant making $100,000 a year and buying a $300,00 house has access to 21 programs, including a non-first-time buyer program offering up to a threeyear, $17,100 forgivable second mortgage
and a below-market-rate primary loan. And in Jacksonville, Florida, a oneperson household who is a teacher with an annual income of $70,000 has access to 17 programs, including a $15,000 “silent” second mortgage, a “forgivable” second mortgage for up to 5% of the loan amount for down payment and closing cost assistance and a $2,000 a year federal income tax credit for the life of the mortgage. Nationally, according to DPR’s latest
Over the years, [DPR] has analyzed such samples from various size lenders, and has found the average of unnecessarily lost loans to be 33% — but sometimes more.
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count, the average down payment benefit is $15,664. And across all 2,065 programs that are flush with cash, the average benefit of all kinds, not just down payment assistance, is a whopping $24,263. Certainly, that kind of money is enough to save at least some deals on which you are currently turning down. n EDITOR’S NOTE: A recent column indicated Freddie Mac was currently involved in a single-family rental pilot program, but that short-lived initiative ended in 2018.
Lew Sichelman is a contributing writer to National Mortgage Professional magazine. He has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been real estate editor at two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.
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HOW NMP’S MONTHLY SECTION OF HANDS-ON PRACTICAL ADVICE
BUILD A BROKER Limiting Your Liabilities As A Small Business YOUR FIRST MILLION DOLLARS Public Data Creates Private Headaches Take Meaningful Measures To Maintain A Talented Workforce All Those New LOs Need To Learn Your Best Practices It’s Old Fashion (Think Ancient Greece) But Eye Contact Still Works CAREER TICKER: People On The Move
PEOPLE ON THE MOVE //
> Xactus
announced that Kevin Ryan has been appointed as the company’s CFO.
> Xactus
has also announced that James Owens has joined the company as chief technology officer.
> CMG
Financial hired David Crowder as a Midwest area sales manager.
> Newrez
has brought Neenu Kainth on as chief digital officer.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
15
BUILD-A-BROKER: HANDS ON PRACTICAL ADVICE BUILD-A-BROKER
10 Legal Steps Every Small Business Should Take Stay guarded to limit your liability SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
T
hinking of opening your own mortgage brokerage? As an entrepreneur, you are a special breed. Not afraid to dream big and take risks, you also know that a dash of common sense is the key to the best job in the world: owning your own business. Before turning your inspiration into reality, make sure you stay grounded by following these simple steps to launch your small business, boost your sales and limit your liability. 1. Decide on a Business Type The type of entity you choose for your business—whether it’s a sole proprietorship, partnership, limited liability corporation, or s-corporation — determines how you file taxes, sets up legal protections, and most importantly limits your liability. Incorporating your business also records these details with the government. 2. Protect Yourself With a Business Prenup Launching with a partner? A buysell agreement protects everybody from situations that could complicate ownership. If one partner wants out, gets divorced or passes away, the buy-sell agreement can protect against
sticky situations when ownership shares transfer to the wrong person.
and meeting schedule. It’s basically the blueprint of your company.
3. Map Out a Corporate Blueprint Corporate bylaws specify the structure for your small business. Will you have a board of directors, shareholders or other company officers? Corporate bylaws get these ducks in a row and specify the rules
4. Draft a Solid Business Plan Business plans wear two hats: they provide you with an outline to help you stay focused on your small business goals and strategies, and they can be used to present to banks and investors when you need to drum up some financing.
PEOPLE ON THE MOVE //
> Reference
Point has hired Vicki Bott as a director leading the housing finance offering.
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> OriginPoint
has hired John Stewart as its new executive vice president of national sales.
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
> Flagstar
Bank has named Jim Linnane president of Flagstar’s retail mortgage division.
> First
Community Mortgage’s wholesale division has selected Jeff Raich as regional sales manager.
5. Protect Your Secrets As you start to hire folks and form partnerships with other businesses and contractors, a non-disclosure agreement keeps your confidential information from getting in the wrong hands. It also specifies the info that’s OK to share. 6. Stay Compliant With Corporate Minutes States require that some kind of record is made of what’s discussed and directed at official board and shareholder meetings. A corporate minutes document can get all these details down for the record so your small business stays in line with all the rules. 7. M anage Expectations With an Employment Agreement People make a small business successful, and an employment agreement protects everyone involved by putting expectations in writing. Injury and discrimination claims are on the rise, and though employment agreements can’t prevent all lawsuits, they reduce risk by outlining rules, responsibilities, and defining everyone’s expectations. 8. Expand Your Abilities With Independent Contractors Some situations call for specialized help, like graphic design or public relations. If you hire a non-employee for some support, an independent contractor agreement can make sure everyone is on the same page going forward. 9. Settle on a Location They say location is everything, especially if your business receives clients, sells products or provides services on site. A commercial real estate lease helps make sure the rental agreement is airtight and that the tenant/landlord relationship is solid. 10. Plan Ahead Your small business is an important asset and a source of personal income. Should something happen, a last will and testament can shield your business and family from unnecessary expenses, estate taxes and potential disagreements. As you follow the path to entrepreneurship, you might encounter situations where you could use a little guidance from a professional. Work with a SCORE mentor who can lead you in the right direction. n
> Guild
Mortgage has added Paul Camenzind as senior loan officer, to its team in Overland Park, Kansas.
> Guild
Mortgage has also added Tim Kay as branch manager to its team in Overland Park, Kansas.
We Have Mortgage Jobs.
• Branch Manager • Business Development Manager • Client Relationship Manager • Client Relationship Specialist • Collateral Asset Manager • Commercial Loan Officer • Credit Analyst • Licensing Assistant • Loan Officer • Loan Mitigation • Post Closing QC Expert • Loan Administration Manager • Processor • Regional Vice President • REO Closer • Retail Branch Manager • Reverse Mortgage Specialist • Sales Manager • Underwriter • Wholesale Account Exec • And MORE! Resposes are from highly-qualified candidates. Your ad can also be [osted on Indeed and SimplyHired as a FEATURED JOB, on Craigslist in most cities, Googlebase, Oodle, Juju, CareerMetaSearch, TopUSAJobs, Jobalot and MORE! Pay-per-use RESUME BANK.
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
17
BUILD-A-BROKER: HANDS ON PRACTICAL ADVICE BUILD-A-BROKER
New GSE Guidelines Challenge Condo/Co-op Lenders Lenders have a terrible time obtaining up-to-date and accurate info from public data BY OREST TOMASELLI, CONTRIBUTOR, NATIONAL MORTGAGE PROFESSIONAL
I
t’s not very often that condominium and coop properties make mortgage industry headlines — but there is a very good reason why they are. In January 2022, Fannie Mae rolled out new temporary guidelines for lending in condo and co-op properties in response to the tragic collapse of the Champlain Towers condominium in Surfside, Florida, that took 98 lives. So far, the new guidelines have had a Orest Tomaselli massive impact on borrowers, lenders, condo and co-op boards. The focus of these new guidelines is squarely on ensuring that Fannie Mae and Freddie Mac do not lend on properties that are unsafe — and equally important, to ensure that associations have enough capital to repair problems that may exist. While these new guidelines create more transparency into the condition and
financial health of condo and co-op properties, they have wreaked havoc on lenders trying to comply with these new directives for lending. So far, lenders are having a terrible time obtaining up-to-date and accurate information from public data,
property managers and board members when vetting properties. For example, before lenders can sell a condo or co-op loan to Fannie Mae, they are required to use Fannie Mae’s new condo questionnaire and addendum, which requires lenders to document a
PEOPLE ON THE MOVE //
> Gateless
has promoted Bryan Jackson, the company’s head of product delivery, to chief technology officer.
18
> RiskSpan
has appointed Daniel Fleishman as managing director in its mortgage servicing rights unit.
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
> Open
Mortgage has hired Charith Rodrigo as national director of reverse sales.
> Richey May
has hired Seth Sprague as director of mortgage banking consulting services.
property’s structural and mechanical components, deferred maintenance, and special assessments. Meanwhile, boards and managers are pushing back hard. Under advice from legal counsel, many are refusing to answer many of the questions about the buildings they represent. When that happens, lenders are forced to either reject the loan or investigate the property on their own. The latter choice takes a lot of time and effort, and there’s no guarantee they’ll be able to close the loan. To make the GSEs’ new lending guidelines easier to understand, I’ve broken down the requirements into five main categories.
DEFERRED MAINTENANCE Fannie Mae and Freddie Mac require lenders to determine whether a property has deferred maintenance, and if so, what possible impact it may have on the habitability and financial health of a development. Obviously, not making needed repairs could create long-term problems, from higher repair costs to the kind of disaster that occurred in Surfside. The big question is, “What do Fannie and Freddie consider deferred maintenance?” The GSEs define “significant deferred maintenance” as maintenance that may impact a unit’s safety and soundness or its marketability or impact to the financial stability or physical safety of the overall development. Examples may include “full or partial evacuation of the building to complete repairs as required for more than seven days,” or improvements that involve “many major components,” or improvements
that impede the functioning of a building’s foundation, roof, electrical system, plumbing or HVAC. It can also include developments that don’t have an acceptable certificate of occupancy or were unable to pass local regulatory inspections.
THE UNAVAILABLE LIST Fannie Mae has also created an “unavailable” list of condominium and cooperative properties that do not meet one or more of the newly issued guidelines. Once Fannie Mae has been made aware that a property does not meet its new lending guidelines, the property is added to this “unavailable” list and mortgage financing is no longer available. Being added to the “unavailable” list creates additional issues, too, such as limited access for borrowers to non-Fannie/Freddie loan products, the borrower not being able to access lines of credit, and most importantly, decreased unit value.
THE 10% RESERVE REQUIREMENT Fannie Mae’s newest guideline change has an increased focus on requiring condo and co-op boards to maintain a 10% reserve line item for future maintenance. Although this requirement has been in place for years, the 10% reserve line-item has often been left out of condo and co-op budgets so unit owners could enjoy lower monthly common charges. Some condo and co-op boards have flat-out refused to add the reserve line item to their operating budget. Fannie Mae has also removed the ability for lenders to use a development’s reserve study to get around the 10% reserve line item. This means lenders are now forced to analyze properties based only on their compliance without factoring in how much capital they’ve amassed. The only way around the Fannie Mae rule is to submit the entire condo or co-op project for Project Eligibility Review Service (PERS) review and approval. Freddie Mac seems to be more reasonable on this issue, as the agency still accepts a reserve study to outline appropriate and accurate reserve funding in lieu of the 10% reserve line item.
SPECIAL ASSESSMENTS Special assessments are typically used to pay for unforeseen expenses on a condo or co-op property. Although lending guidelines haven’t changed very much regarding special assessments, when coupled with the new Fannie/ Freddie lending guidelines, they can stop a condo property from obtaining lending approval. Both agencies are primarily concerned that the special assessment isn’t tied to a deferred maintenance item and if it is, that the components that warranted the special assessment were in fact replaced.
QUESTIONNAIRE ADDENDUM Fannie Mae’s new condo questionnaire addendum asks several additional questions regarding building safety, soundness, structural integrity, habitability, deferred maintenance, and special assessments. So far, most condo and co-op managers and attorneys have called these questions an overreach, as boards want to avoid attesting to the structural condition of the property. As a result, the questions are creating significant delays—but because they are required for both Fannie Mae’s limited and full reviews, there’s no way of getting around it. Suffice to say, the GSEs’ new guidelines have dramatically changed the landscape for condo and co-op lending and are forcing lenders to be the new gatekeepers — a role no lender appreciates. Fortunately, there is help available to lenders who want to continue lending on condo and coop properties and do the right thing. There’s also the likelihood that the GSEs’ new guidelines may be adjusted in the future to reduce some of their more frustrating aspects for lenders. At the end of the day, however, it’s hard to argue with the spirit of the new guidelines, especially after last year’s tragedy. If it saves lives by preventing another catastrophe, then they may be well worth it. n
Orest Tomaselli is the president of project review at Condotek, a national technology firm that provides condo/co-op documents and warranted review services.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
19
BUILD-A-BROKER: HANDS ON PRACTICAL ADVICE
BUILD-A-BROKER
Hire Ground
Attracting and retaining talent in today’s unique workforce moment BY TIM PASCARELLA, CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
W
hen it comes to staffing and hiring challenges, the mortgage business is hardly unique in facing some challenging circumstances in recent years. The pandemic has been more than just a disruption — it has prompted a profound shift in the personal and professional circumstances of so many Americans. Coming at Tim Pascarella a time when professional stability and longevity were already waning, the result is a labor market that is both more challenging and competitive than at any other time in recent memory. In an industry where experience and hard-earned expertise is so important to give homebuyers the insight they deserve, maintaining a team of knowledgeable and experienced professionals is arguably more important than ever. The question is how. It is not enough for decision-makers and executives to simply declare that they will prioritize hiring and retention. Hiring and retaining good people and talented professionals takes meaningful measures and sustained commitment. Here’s what that looks like:
WORK ON YOUR CORE Core values are only as good as your willingness to apply them. In hiring and retention, that means identifying candidates who are a good fit with your team and your culture. Alignment with core values is so critically important that there is a strong argument to be
20
made that it should be the single biggest criteria for any hire: given more weight than experience or education. Developing and establishing clearly defined core values creates a framework for employees to do their best work. My own company’s core values include the following: We are hard working. We ensure that the promise to the customer is kept and that that hard work delivers an unparalleled customer experience. We are knowledgeable. The more we know, the better we can deliver for our clients and professional partners. We are helpful. Not everyone can get financing, but we are committed to helping everyone we engage with make progress along the path to home ownership. We don’t just do things right — we do the right thing. We take pains to operate ethically and honorably, making sure we don’t put someone in a bad situation they can’t afford, etc. The key is to use your core values to identify prospective candidates whose mindset and work best reflects those ideals. If those things are consistent with our core values, we’re confident we can train them and help them grow and become successful professionals.
Ideally, every employee should recognize that your company is the best place for them: providing the products, services, and support to fulfill their potential and realize sustained success.
TOOLS AND TECH Invest in training and technology. The right tools can help your team not only operate more efficiently and do their job more easily, but also strengthen their relationships
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
with realtors and homebuyers and improve the customer experience. Homebuying is a low frequency/ high-risk transaction and establishing trust and building relationships are essential. The more you can make that experience seamless and hassle-free, the easier it is to build that rapport. Investing in the tech stack with a trusted, secure, and user-friendly point-of-sale system is a great way to make that happen. Make sure you are investing in a loan origination system and a post-closing customer
relationship manager platform to help keep in touch with closed clients. It’s all about reducing the friction that can occur in the mortgage process and building and leveraging relationships in the long run. Training is also an essential part of building confident, productive and successful employees. Consider carving out a position for a full-time in-house trainer to put together personalized training programs and monitor the progress of both new and existing employees. On the tech side, I strongly
Alignment with core values is so critically important that there is a strong argument to be made that it should be the single biggest criteria for any hire: given more weight than experience or education.
recommend a system like our Knowledge Coop, a repository of training materials and programs that is regularly updated with new regulatory and licensing requirements. A product like that allows you to create training programs and series into a searchable archive. You can assign to-dos for companywide compliance requirements, or individual refreshers. Because your own instructors and experienced employees are helping design these programs, you’re facilitating critical knowledge sharing from inhouse experts.
SPREAD THE WORD
Review your internal communications and employee engagement programs to ensure you are communicating clearly with your team, getting honest feedback to improve the employee experience, and meet their needs. Another tactic to consider is to establish a culture ambassador program or something similar. The idea is to
designate specific employees who not only consistently demonstrate and reinforce core values, but partner with new employees and give them a resource to answer questions and help with the onboarding process. A culture ambassador is a kind of core values liaison, making the initial employee experience welcoming and positive from day one.
CONNECT AND ENGAGE Professional memberships like the Veteran Lending Council and the Mortgage Bankers Association can offer invaluable training, tools, information, and even recognition for your top performers. Those professional partnerships can be another tool you can arm your team with to give them the skills and the confidence to be successful. Strong relationships within the real estate community can also pay off. We regularly embed loan officers as lending resources in different real estate offices, a mutually beneficial engagement that exposes those individuals to a host of new insights and opportunities. In other words: leave no stone unturned in your efforts to find new ways to identify opportunities to show your expertise and differentiate your people, your products, and your services. You won’t just become more indispensable to your clients — you will empower your people. Ideally, every employee should recognize that your company is the best place for them: providing the products, services, and support to fulfill their potential and realize sustained success. Ultimately, recruiting and retention is a two-way street. The best companies in this industry make a substantive and sustained commitment to their people, with the belief that the effort will empower and inspire them to make a correspondingly strong commitment to the company that helped them become successful. n
Tim Pascarella is president of Michiganbased Ross Mortgage Corporation, an independent lender in the Midwest.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
21
BUILD-A-BROKER: HANDS ON PRACTICAL ADVICE
MARY KAY SCULLY
BENCHMARKS & BEST PRACTICES
Paying It Forward Within The Industry
Mentor young LOs by sharing best practices they may be missing BY MARY KAY SCULLY, CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
L
ast month, we talked about paying it forward outside your business. This month, I want to dive into more ways to pay it forward within the industry. I’m looking at you, all you seasoned professionals. Let’s talk about important ways you can use your experience and expertise to give back to your company and to our industry.
REASONS TO MENTOR There are so many young professionals who have entered the business lately. The average age of loan officers has dropped from 54–59 (2014 per CCowan & Associates recruiting firm) to 47 years old (2019 per STRATMOR data), but new loan officers (LOs) join the industry every day. Before you begin to retire, share all your insights so others can benefit from it and carry on the good work you’ve been doing for years. Ultimately, it’s important to give back to the industry that has given to you. I recently hosted a loan officer
bootcamp where no one in the room had been in the industry for more than two years. These new professionals are excited about the opportunities in the industry and most of them are eager to learn more and grow in their careers. With so much fresh talent comes a host of opportunities to impart the wisdom you’ve gained over the years onto someone new.
BEST PRACTICES While it’s not realistic to try to dump everything you know onto one person, start with the basics. When you find a young LO to mentor, an easy place to start teaching them is by sharing best practices that they may be missing: • Taking a complete application can, at times, be an issue with new LOs — share your experiences and explain to them why this is so critical. Helping them understand the problems that can occur down the road when a complete application is not taken will motivate them to do what’s needed to start off on the right foot. • New LOs may not
22
think to figure out each borrower’s communication expectations, but you know how important it is. Share your own stories about knowing what works best for the borrower and figuring out where they are most responsive. • Setting borrower expectations may not be second nature to new LOs — explain how setting expectations upfront can smooth the entire process and let them know the most important ones to convey, such as documentation requirements and timelines. According to Mike Seminari, Director of Customer Experience at STRATMOR, the number one complaint borrowers have about the loan process is poor communication. • Best practices like setting a sched-
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
ule for when to reach out can make a huge difference in an LO’s success — some LOs may stop regular communications once the loan goes to the processor but losing touch at this stage can be harmful. Explain why they should, at a minimum, reach out at the big milestones in the life of the loan such as approval, receipt of the appraisal, etc. Each touchpoint is a marketing opportunity, so they must understand that the more the borrower hears from them, the more likely they are to be remembered and to get that referral. Practices that may seem so simple to you can be important lessons for younger professionals to learn. By sharing what you’ve learned, you set up your mentee for success, and help their homebuyers have a better experience as well.
TECHNOLOGY It also can be important to share your experience with technology. You may be thinking, what have I got to teach a younger person about technology? Don’t they already know it better? As with anything, there is good and bad — there are trade-offs everyone must make. Educate new LOs about these trade-offs and advise them on their choices using your experience over the years. For example, technology can make everything convenient, but the trade-off is there is less of a personal connection between the LO and the borrower. Help them understand when it’s better to be face-to-face and when tech can help them out and save time. Every borrower and situation will be different. You have hundreds of different experiences under your belt — share them. While it may sound like “extra work,” mentoring younger LOs is critical for the health of your business and the health of the industry. Think of the professionals who helped you over the course of your career. If you wouldn’t be where you are today without them, how important is it that you be that person for someone else? Mentoring isn’t only beneficial for the mentee, but mentors who are open to learning receive benefits from the relationship as well. Sharing your expertise not only gives back to your mentee, but it betters the industry as a whole for the good of the homebuyers that we serve every day. n
Help them understand when it’s better to be face-to-face and when tech can help them out and save time.
Mary Kay Scully is the director of customer education at Enact, leading the development of the company’s customer education curriculum. The statements in this article are solely the opinions of Mary Kay Scully and do not necessarily reflect the views of Enact or its management.
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eal estate investing, like most things in life, is not without its difficulties. Finding available and affordable funding options, as well as assessing the right deals, are all challenges that all real estate investors face at some time. Acra Lending has an option built specifically for first time and seasoned realty Investors. The business purpose program offers the ability for borrowers to qualify with rent rather than their income in addition to closing in a Corporation (LLC). The program allows lending options on Condotels, Airbnb and Daily Rentals.
Visit www.acralending.com or call (888) 800-7661 to learn more about Acra Lending’s business purpose program
BUILD-A-BROKER: HANDS ON PRACTICAL ADVICE
YOUR FIRST MILLION DOLLARS
Eyes Are Windows To The Soul
Eye contact is important in both verbal and non-verbal communication BY HARVEY MACKAY, SPECIAL TO NATIONAL MORTGAGE PROFESSIONAL
A
Russian poet who was visiting a wealthy American in his home noticed a huge, magnificent moose head mounted on the wall. He asked his host how he could shoot such an impressive animal. “It was easy,” said the American. “He didn’t look me in the eye. If he had looked me in the eye, I couldn’t have shot him.” My good friend Nido Qubein, president of High Point University, told me this story to illustrate the power of establishing eye contact. Harvey Mackay “When you look people in the eye, they become more than passing acquaintances,” Nido said. “They become people with whom you interact, if only briefly.” He added: “When speaking to anyone, whether it’s your mother or an audience of thousands, try to establish eye contact. If you don’t, your listeners may tune you out.” Numerous studies conducted over the years have confirmed that eye contact plays an important role in both verbal and non-verbal communication. A person can communicate with their eyes and never say a word. Susan Young, in her book “The Art of Body Language: 8 Ways to Optimize Non-Verbal Communication for Positive Impact,” writes: “One simple glance can convey to your recipient that you are … present, interested, paying attention, being respectful, listening, confident, engaged, caring, dedicated, appreciative, emphatic, focused, supportive, trustworthy, acknowledging, excited. This list barely scratches the surface; however, it opens the conversation
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about how vital your eye contact is for making positive first impressions.” Unfortunately, eye contact has become somewhat of a lost skill. Many people seem to be constantly looking down at their smart phone, even though individuals are right in front of them. You might need to disconnect to connect with people. Making eye contact is a skill that can be learned. It might take a little practice but can have a significant impact on your work and personal life. The first step is to just relax and smile. A smile generally puts others at ease. Everything seems much easier with a smile. Next, practice eye contact with people you trust, such as family and friends, even pets. You want to practice with people you can form a connection. Use a mirror or record yourself on your smart phone. Practicing will help you overcome nervousness and gain confidence. No one said this is easy, so practice regularly to increase your comfort level. Over time eye contact should become automatic, but you must challenge yourself to improve and push the boundaries to continue to grow. Studies show that you should maintain eye contact twice as much when listening than when you are talking to show you are paying attention. People expect you to look them in the eyes, because if you don’t, they think you are rude. Also, lean in and show that you are interested. Caution: Don’t overdo it! You don’t want to stare, so look away every once in a while, to the side, not up or down. Pick a focal point near the eyes. Some suggestions are to look at only one eye,
as I have done for years, or eyebrows, forehead, mouth or one ear. The important point is to shift your gaze. Be careful not to be robotic. Remember that the other person may be feeling just as awkward. There is nothing wrong with putting a little space between you and the other person. Observe the masters or role models like news anchors. When you are watching and listening to a speaker,
The first step is to just relax and smile. A smile generally puts others at ease. Everything seems much easier with a smile.
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
observe their eye contact and make note of what works best. Study people who have strong social skills like eye contact. In this era of video calls, eye contact is still important. I can’t tell you how many people look up or down during Zoom meetings. Put your laptop on a pile of books so the camera is directly across from your eyes. And one of my biggest complaints on Zoom calls is individuals who are always looking at their other devices. Fine if you want to check occasionally but be attentive to the people who are virtually in front of you. Looking someone in the eye is hardly a new concept. According to Greek philosopher Aristotle, good eye contact shows the intangible characteristic of integrity. In other words, when you’re telling the truth, good eye contact translates to another person that you are credible. Mackay’s Moral: Looking into someone’s eyes changes the entire conversation. n
There’s a lot more to say about
Unite Mortgage:
We’re growing in the TPO space and expanding our sales team across the country. With our competitive compensation plan and sales-oriented company culture, you could say it’s time to join Unite. Consider: > We Offer Mortgage Brokers the Best
Agency and Government Pricing in the Country > We’re an Industry Leader in Wholesale Lending across 45 states! > We’re Home to The Non-QM Product Series Bank Statement | Alt-Doc DSCR | Asset Depletion We also can say, proudly, that Unite Mortgage has fast become a top-tier
Wholesale Lender. Come work with Unite!
Our New 12-Day Purchase Pledge Gives You Even More Advantages. Ask For Details. 800.777.1207 | info@unitemortgage.com unitemortgage.com ©2021 Unite Mortgage is a DBA of Home Mortgage Alliance Corporation (HMAC) 4 Hutton Centre Drive | Suite 500 | Santa Ana, CA 92707 800.900.7040. HMAC is an Equal Housing Lender. NMLS License # 1165808. www.nmlsconsumeraccess.org. 06.2022
“Let’s Unite!”
N O N - Q M L E N DE R RE SOU RC E GU IDE
Acra Lending
Angel Oak Mortgage Solutions
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Road Trip! J
oin Originator Connect Network as we traverse the country, bringing together hundreds of mortgage brokers, loan originators and bank and credit union lending officers, for an event full of education, networking and fun.
See our partial sample of upcoming events here, or visit our site for our full calendar at originatorconnectnetwork.com.
Take your place as the ultimate mortgage pro.
N O N - Q M L E N D E R RE S O URC E GU IDE
Civic Financial Services Redondo Beach, CA
CIVIC delivers fast, honest, simple lending for real estate investors. Description of your products or services. CIVIC Financial Services is a private money lender, specializing in the financing of non-owner occupied residential investment properties. CIVIC provides Mortgage Brokers and Real Estate Investors with a fast and cost effective funding source for their real estate investment needs. civicfs.com (877) 472-4842 info@civicfs.com LICENSED IN: AZ, CA, CO, FL, GA, HI, ID, IL, IN, LA, MD, MA, MI, MN, NV, NJ, NC, OH, OK, OR, PA, SC, TN, TX, UT, VA, WA, WI
Deephaven Mortgage Charlotte, North Carolina Founded in 2012, Deephaven is a national, Non-Agency/Non-QM mortgage provider. A full-service innovator in the NonAgency/Non-QM mortgage space helping millions of Americans unable to qualify for a traditional, government-backed mortgage to
T
he mortgage industry is going through a significant change. For mortgage origination professionals, it’s a struggle to keep on top of all the changes, and to keep your sales strategies and marketing initiatives at their peak. We’ve brought together the best in the business to create a top tier event specifically designed for mortgage origination pros.
achieve their dreams of homeownership. Available through both wholesale and correspondent channels, our differentiator is our borrower-centric culture and service delivery model. Particular strengths include our own in-house underwriting and collaborative teams that directly support our national network of independent mortgage brokers and loan officers. deephavenmortgage.com (800) 983-0457 info@deephavenmortgage.com LICENSED IN: AL, AK, AZ, AR, CA, CO, CT, DC, DE, FL, GA, HI, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MS, MT, NE, NV, NH, NJ, NM, NC, ND, OH, OK, OR, PA, RI, SC, SD, TN, TX, UT, VT, VA, WA, WI, WY
JUL
7
Ultimate Mortgage Expo NEW O R L E A N S , L A NMLS RENEWA L CL ASS
Non-QM Lender Resource Guide cont’d. next pg.
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JUN
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Great Northwest Mortgage Expo P ORTL A ND, O R N M LS R E NEWA L CL A SS
JUL
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Arizona Mortgage Expo PHO E NIX , A Z NMLS RENEWA L CL A SS
N O N - Q M LE N DE R RE SOU RC E GU IDE
First National Bank of America
Global Integrity Finance LLC
Luxury Mortgage Corp.
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| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | APRIL 2022
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CURRENT STATUS OF COVID-19 RELATED FORBEARANCES
8.2 Million Forbearances
Removed/Expired Performing 4,335,000 53%
Removed/Expired - Delinquent Active Loss Mit 368,000 5% Removed/Expired Delinquent 279,000 4%
Active Forbearance Term Extended 500,000 6% Active Forbearance Original Term 189,000 2%
Paid Off 2,381,000 29%
Removed/Expired Active FC 78,000 1%
Source: McDash Flash Data as of April 19, 2022
NUMBER OF ACTIVE ARM MORTGAGES IN MILLIONS 15.0M
Already Reset
Has Not Reset
14.0M 13.0M 12.0M 11.0M 10.0M
1.1
1.3 1.7
1.4
1.5
1.7
2.2
1.9
1.4
1.5
2.9
2.4
1.5
1.6
3.6
3.4
1.6 4.4
1.4
4.4
4.2
5.8 4.0
3.3
2.8
2.3
5.0 2.2
3.3
1.9
1.0M
2.0
2.0M
2.6
3.0M
2.1
1
1.1
3.3
4.0M
3.2
5.0M
4.0
3.1
2.4
4.3
6.0M
4.2
8.6
7.0M
10.3
9.9
8.0M
8.3
9.0M
20 00 -0 2 20 01 -0 2 20 02 -0 2 20 03 -0 2 20 04 -0 2 20 05 -0 2 20 06 -0 2 20 07 -0 2 20 08 -0 2 20 09 -0 2 20 10 -0 2 20 11 -0 2 20 12 -0 2 20 13 -0 2 20 14 -0 2 20 15 -0 2 20 16 -0 2 20 17 -0 2 20 18 -0 2 20 19 -0 2 20 20 -0 2 20 21 -0 2 20 22 -0 2
.0M
Source: McDash
32
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
DATABANK BLACK KNIGHT HOME PRICE INDEX
For-Sale Inventory | March 2022 1-Month Home Price Change
REGION NAME
4.0%
Annual Home Price Growth Rate
+19.9%
+20%
United States
3.5%
3.0%
Annual Home Price Growth Rate
2.5%
2.0%
+10%
1.5%
1.0%
+5%
0.5%
1-Month % Change in Avg Home Price
+15%
LEVEL
YoY
1,500,000
0.0%
-10... 1,000,000 754,395 -20...
0.0%
0%
500,000
-0.5%
-30... -5% 2022-03
2021-12
2021-09
2021-06
2021-03
2020-12
2020-09
2020-06
2020-03
2019-12
2019-09
2019-06
2019-03
2018-12
2018-09
2018-06
2018-03
2017-12
2017-09
2017-06
2017-03
2016-12
2016-09
2016-06
2016-03
2015-12
2015-09
2015-06
2015-03
2014-12
2014-09
2014-06
2014-03
2013-12
2013-09
2013-06
2013-03
2012-12
2012-09
2012-06
2012-03
-1.0%
0 Jan 2018
Jan 2020
Jan 2022
Jan 2019
Jan
Jan 2019
Jan
Source: Black Knight Home Price Index
Zillow Economic Research
For-Sale Inventory | March 2022 REGION NAME United States MONTHLY P&I PAYMENT TO PURCHASE AVERAGE PRICED HOME (WITH 20% DOWNPAYMENT AT PREVAILING 30-YEAR INTEREST RATE)
YoY For-Sale Inventory | March 2022
$1,809
LEVEL
REGION NAME
$1,800
$1,372
$1,400
United 0.0% States
1,500,000
$1,600
LEVEL -10...
YoY
1,000,000 754,395 -20... 1,500,000
$1,000
500,000 $800
$600
$400
$200
-22.5%
-30...
0.0%
-10...
1,000,000
0 Jan 2018
Jan 2020
Jan 2022
Jan 2019
Jan 2020
Jan 2021
754,395 Jan 2022 -20...
Zillow Economic Research
500,000 -30...
$0 19 96 -0 4 19 97 -0 4 19 98 -0 4 19 99 -0 4 20 00 -0 4 20 01 -0 4 20 02 -0 4 20 03 -0 4 20 04 -0 4 20 05 -0 4 20 06 -0 4 20 07 -0 4 20 08 -0 4 20 09 -0 4 20 10 -0 4 20 11 -0 4 20 12 -0 4 20 13 -0 4 20 14 -0 4 20 15 -0 4 20 16 -0 4 20 17 -0 4 20 18 -0 4 20 19 -0 4 20 20 -0 4 20 21 -0 4 20 22 -0 4
Monthly P&I Payment
$1,200
0 Jan 2018
Source: Black Knight Assumes a 20% down payment and utilization of a 30-year fixed rate mortgage at the prevailing interest rate
Jan 2020
Jan 2022
Zillow Economic Research
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
33
CASH-OUT REFINANCE
HOME EQUITY LOAN
?
HOME EQUITY LINE OF CREDIT
EQUITY SHARE AGREEMENT
Eeny, Meeny, Miny, Moe, Which Cash-Out Option Is Best Way To Go? How to sort through the myriad of cash-out products for clients in a rising rate environment
T
BY RALPH MCLAUGHLIN, CONTIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL
wo rare things are simultaneously happening in today’s housing market: home prices are climbing rapidly while interest rates tick upward. This is putting existing homeowners — who’ve seen extraordinary gains in home equity over the past two years — in a unique predicament. There’s plenty Ralph Mclaughlin of equity to tap, but doing so will come at a price not seen since before the pandemic. In this tricky climate, homeowners need to weigh several factors before they determine the best product for their particular financial circumstances. Let’s dig in to see where loan originators should steer their clients.
34
METHODS OF EQUITY ACCESS First, a quick review. There are three traditional options for homeowners to tap equity, plus an increasingly popular but new fourth option: a cash-out refinance, a home equity loan, a home equity line of credit, and an equity share agreement. With a cash-out refinance, the homeowner essentially trades in their current mortgage for a new mortgage with a new interest rate at a higher balance than what they owe, pocketing the difference in cash. Or there’s the home equity loan that is a second mortgage for the amount a homeowner would like to cash-out. Like a cash-out refinance, these loans provide homeowners access to a lump sum of cash at a fixed interest rate. A home equity line of credit, or HELOC, is like a credit card-home equity loan hybrid, where cash is made available to the homeowner through a line of credit that they can draw upon (and pay back) if needed, usually for a 10-year period, during
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
which interest-only payments are made. After the 10 years, the balance is typically amortized into a fixedrate, 20-year mortgage with principal and interest payments. Most recent on the home finance scene are home equity sharing agreements. With these types of agreements, the homeowner trades an interest in their home to a third party in exchange for cash. Typically, payments are either zero or much lower than your traditional cash-out products, since the third parties profit from taking a share of your home price appreciation over time.
THE PROS AND CONS But with rising interest rates affecting how much it will cost to tap your equity, how can you know which option is best for your clients? Let’s weigh the pros and cons. A significant plus for cash-out refis is that homeowners can gain quick access to cash without taking a second lien on their property, meaning
one loan and one monthly payment. And, because it modifies the existing mortgage rather than adding a second lien to the property, cash-outs have the lowest interest rate of all three traditional options. But they are not without their drawbacks. Cash-outs present the homeowner with a new interest rate, which may be significantly higher than the previous rate, especially if they were able to lock in a mortgage during post-pandemic interest-rate lows. Home equity loans, on the other hand, allow borrowers to keep their existing interest rate for their original mortgage balance, and only apply a new interest rate to the cash they extract. But the con is that borrowers must immediately begin to pay back the loan, which will be at a higher mortgage rate than a cash-out refi. HELOCs may stand out as the most appealing feature for some borrowers, especially those who do not know what they’ll use the funds for or will not use the funds immediately. Plus, borrowers only have to pay interest on what they use, and they and can pay off the loan at any time. But with HELOCs, interest rates are often higher than cash-outs or home equity loans. And when the 10-year draw period is up and both principal and interest are due, they are rolled into a fixed-rate, 20-year mortgage and the credit line dries up. Last, home equity sharing agreements are great for homeowners who need cash but can’t or don’t necessarily want a monthly payment. The con for the consumer’s view, of course, is that the third parties originating these products take a percentage of the interest in the home, and thus capture that exact percentage of its value increase over time, until the home is sold, or the loan paid back.
HELOCs can be especially attractive to homeowners who want to use the funds on home improvements, since it means they can deduct the loan’s interest from their federal taxes. worth a higher mortgage balance. For those taking a home equity loan, their current home is also likely their forever home. But they like their interest rates, and they are only willing to accept a new rate on the cash they are extracting. They also want the flexibility to use the funds however they choose, since interest on home equity loans remain tax deductible, regardless of how the funds are used. The HELOC borrower thinks it’s possible they may move in 10 years, but in the meantime, they want to do some renovations. They like the flexibility of the line of credit because they don’t know exactly how much money they’ll need, and they aren’t susceptible to rising rates (which would increase the monthly payment on the HELOC). HELOCs can be especially attractive to homeowners who want to use the funds on home improvements, since it means they can deduct the loan’s interest from their federal taxes. Those considering home renovations can access tools to
help them make the best decision to increase their home value. Apps like the Kukun’s Home Renovation Cost Estimator can evaluate a number of influential factors, including the borrower’s ZIP code and the types of finishes or appliances they’re considering, to determine where the money is best spent. And finally, the home equity agreement partner is mostly interested in getting quick cash without a monthly payment and either doesn’t care about giving up a share of their home value gains or doesn’t think their home will grow much in value over time. It’s also not a bad option for homeowners who think interest rates are going rise rapidly, since there’s no monthly payment and home value growth tends to moderate as rates rise. n
Ralph McLaughlin is the Chief Economist at Kukun, a proptech platform and originator of property data, home valuations, and homeowner investment solutions.
WHICH LOAN IS RIGHT? Cash-out refis make the most sense for those consumers who think the home they are borrowing from is likely their forever home. The ideal cash-out candidate needs fast access to cash and isn’t too in love with their current mortgage interest rate, willing to trade it in for a new rate in exchange for that cash. For them, the idea of having one loan, rather than a second lien, is
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
35
A Tidal Wave Of Fraud Approaches Credit washing involves future homebuyers unwittingly being tricked into committing fraud BY KATIE JENSEN, STAFF WRITER, NATIONAL MORTGAGE PROFESSIONAL
36
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
A
s we enter an ultra-competitive housing market with its combination of rising rates and a lack of inventory, people are going to get more creative in getting their mortgage applications approved. There are multiple types of fraud lenders need to look out for, especially in a highly competitive purchase market. In a study by Point Predictive — an AI technology company geared towards mortgage lenders — lenders were surveyed on which types of fraud were driving losses in 2021; income and employment representation were found to be key pain points. So, lenders may have operations set up to mitigate these types of fraud, but are they prepared for an upcoming tidal wave of credit-washing fraud on applications? Credit washing occurs when someone fraudulently claims that they were a victim of identity theft and they systematically dispute every negative item on their credit report. When the negative items are removed, the fraudster applies for a loan with an inflated credit rating. Mortgage lenders reported a 400% increase in identity theft claims over the past several years, according to Point Predictive. Since 2018, approximately 96% to 98% of those claims are determined to be unsubstantiated, or in other words, credit-washing. Similar to synthetic fraud where consumers or companies dispute individual charges, credit-washing happens when consumers or companies dispute the actual account itself. For example, a consumer might say they never applied for a Capital One credit card. Credit bureaus would then have to remove that account from the credit report, then the lender investigates the claim and has the opportunity to put the account back on if needed. Credit washing fraud is a common tactic for auto loan fraudsters, but now it’s increasing in mortgage lending. Fraud investigators began to notice the shift from auto loans to mortgage loans
“According to the FTC, the CFPB, and the Attorney General of the United States, there really isn’t a legitimate credit repair company.” – Terry Clemans, National Consumer Reporting Association as more credit repair companies aimed their advertising towards homebuyers. This particular type of fraud began to take off in 2018 after the Federal Trade Commission (FTC) made it easier for people to file claims of identity theft. Instead of filing a police report and calling up banks to dispute each fraudulent charge one-by-one, consumers could go online and fill out an affidavit to dispute everything at once. This ended up creating a loophole for the credit repair industry. “In today’s competitive housing market, it’s getting harder and harder for people to get a mortgage, and people have to get creative,” Frank McKenna, chief strategist at Point Predictive, said. “Whenever that happens, fraud increases in general, credit-washing, though, would be seen as an effective method for making it on the system. So lenders should definitely be watching out for this.”
MORE INFO THE BETTER Yet, McKenna says he’s not sure if mortgage lenders are aware of this issue. Unless the lender has history
with the borrower, it would have no way of knowing their credit score is illegitimate once it’s been successfully added to the system. The more information the lender has about the borrower, the better it’ll be able to determine whether identity theft claims are truthful or not. But since so many homeowners refinanced in the past two years, possibly with a new lender, borrower information would be harder to track. Borrowers with fake credit scores might try to do a cash-out refinance, but this fraud mainly occurs among borrowers looking to purchase a home. The investigators in charge of validating these claims for identity theft found that 98% were not legitimate, according to data collected by Point Predictive. “Basically, the consumer or the credit repair company on behalf of the consumer was disputing claims that were illegitimate,” said McKenna. “This created a big opportunity for credit repair companies to make a lot of money for borrowers who can’t CONTINUED ON PAGE 38
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
37
A TIDAL WAVE OF FRAUD CONTINUED FROM PAGE 37
formerly known as Alex Miller Financial Services Inc., which has done business as Alex Miller Credit Repair. The owner, officer, director, and manager of Turbo Solutions, Alex Miller, who would go directly on the FTC website and fill out forms on behalf of the consumer. The lawsuit states that, “Defendants falsely claim that, for a fee ranging from several hundred dollars to more than $1,500, they can improve consumers’ credit scores. Defendants attempt to improve the credit scores of their customers by filing false identity theft reports on the
he’s removing all the negative stuff while adding authorized tradelines to the consumers ’bureau,” McKenna explained. “So for a fee of $250 they’ll boost your credit with other tradelines.” Credit tradelines are accounts that appear on your credit reports, such as credit cards, auto loans, and a mortgage. These tradelines provide much of the data used to create a consumer’s credit score. A tradeline is an entry on a credit report, so every time a consumer opens an account with a creditor that reports to the credit bureau, the credit bureau opens a tradeline on the consumer’s credit report.
3 ROUND BURST IS LIKE 3 CARD MONTE Alex Miller specifically came up with the “3 round burst,” which was touted as “a unique protocol that helped repair even the worst credit score,” according to an article – Alex Miller, alleged fraudster by the Deccan Chronicle, an Indian English-language daily FTC’s identitytheft.gov website and by newspaper. other means, all of which are either Yet, Point Predictive’s McKenna ineffective or unlawful.” says all Miller would do is “Go on the Although Alex Miller’s company FTC website to dispute everything and website seems to be taken down, when the lenders rejected the claim, his Instagram account is still he’d go back on the FTC site to dispute advertising to consumers. everything again, lenders reject the Most of the posts show claim, then do the same thing a third Miller standing in front of time. He called this a 3 round burst, expensive cars, sporting designed to tire the lender out until they gold watches, with a eventually throw up their hands and caption claiming that say, ‘Fine, we’re going to remove it.’” consumers could afford It’s debatable whether any credit the same lavish lifestyle by repair company should be considered allowing him to improve their legitimate, according to National credit score. Consumer Reporting Association Even with a lawsuit pending, Miller (NCRA) Executive Director Terry continues to advertise on social media. Clemans. “According to the FTC, the “They taking [sic] my baby away,” he CFPB, and the Attorney General of stated, referring to the FTC, and “I ain’t the United States, there really isn’t did nothing but try to help people.” a legitimate credit repair company,” It does not take a sophisticated he said. scammer to commit credit-washing “Before anyone considers utilizing fraud. According to McKenna, any type of credit repair firm they borrowers or credit repair companies need to take a look at the FTC website, don’t have to do much to dispute a the Attorney General website, or CFPB claim; all of the onus is on the lenders website, and see what they say about to prove whether it’s legitimate or not. credit repair firms, because you’ll find “Miller, for instance, would advertise pretty much everyone one of the warns ‘Your score will increase according you that most of these companies to the positive accounts you have are described with some unfavorable after I delete all the negatives.’ So, adjectives,” Clemans continued.
“I ain’t did nothing but try to help people.”
get into homes or buy cars. So, they started to advertise that they could help consumers get homes and cars and fix their credit in about 30 days. And they made a ton of money doing so.” Non-credit savvy consumers end up falling for these advertisements because they are desperate to improve their credit score in order to get a loan on a car or home. Recently, the FTC filed a lawsuit against a Houstonbased company Turbo Solutions,
38
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
Point Predictive is beginning to see more credit repair advertising on social media aimed at getting consumers into homes. “It was mostly in auto,’ McKenna said, “but we’re seeing it trickle more into mortgages as well.” The consumers involved in these scams are not criminals for the most part, according to McKenna. Rather, they’re being led down a slippery slope. McKenna believes most of these consumers are not credit savvy and don’t know they’re engaging in fraud. A litany of poor customer Frank McKenna, reviews for Alex chief strategist, Miller’s Credit Point Predictive Repair company appear online. One particular review by Pharoah on birdseye said, “This company and Alex Miller is total fraud [sic] they scammed me out of 10K. I paid for the trade line they offered on IG and never got the trade line or my money back since 1/20.” The irony behind it all is that credit repair companies do not offer any legitimate service that consumers can do themselves for free or for a much lower cost. “Unless a credit repair company bends or breaks the law to an extreme there is nothing that they can do for a consumer that a consumer cannot do
themselves for free,” Clemans said. “Or, if they’re in the mortgage process, a mortgage credit reporting company will do it for them for a fraction of the fee within 48 to 72 hours, which is called re-scoring. There needs to be some kind of error, or pay down, or pay off from the consumer for the consumer reporting agency to change
to go after one of these companies can take years in some cases. Sometimes these companies change names so quickly, they don’t give enforcement entities enough time to build a case. “As one FTC enforcement officer put it, it’s like playing whack-a-mole at the county fair,” Clemans said. “You take down one and several more pop
“If a borrower has a credit score of 750 after credit-washing, there would be a 1% chance the person would stop paying. But if the actual credit score was more like 500, the rate of loss for lenders would go up to 10% or 15%.” – Frank McKenna, chief strategist, Point Predictive it. If there is a legitimate error, it will always be corrected for free.” A credit re-scoring or consumer initiated change typically costs between $40 to $50 per tradeline, Clemans said, whereas a credit repair company would not even speak with a customer for that kind of money. Clemans also explains the reason so many credit repair companies exist and continue operating is because there are too many of them to track and there are sometimes not enough complaints from customers, which is needed for the FTC to act. The litigation process
up. They just keep coming back with different names, as different corporate entities, and supposedly with different business practices.”
CREDIT WASHING HURTS LEGIT VICTIMS The proliferation of credit-washing fraud across industries hurts actual victims of identity theft. Since 98% of these claims are actually invalid, legitimate claims get grouped in with the fake ones which ultimately makes CONTINUED ON PAGE 40
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022 |
39
A TIDAL WAVE OF FRAUD CONTINUED FROM PAGE 39
it harder for companies to help the real victims. Typically, lenders and fraud investigators are able to flag identity theft when the information they provided does not match the consumer’s information on the loan application. A different phone number, home address, or other changed personal information are signs of identity theft. However, if a consumer claims identity theft on a credit card from over three years ago, but the lender sees the card was mailed to the correct address, a call was made to confirm the card was received, and all information matches up with the consumer’s information, then that’s an indication that it’s not a real identity theft claim. However, if a credit washer was able to get the negative accounts removed without the lender or investigators flagging the claim as illegitimate, they get added to the system with good credit scores that inaccurately represent what kind of borrower they are. Currently, there is no way to check these credit scores once they’ve been added to the system. In McKenna’s experience, the most vulnerable type of consumers to these
40
credit-washing scams are firsttime-homebuyers. That segment continues to grow as more Millennials and Gen Zers come into purchasing Terry Clemans, age, but increasing executive director rates, low National Consumer inventory, and Reporting high home prices Association are cranking up the desperation. A higher credit score means borrowers can get a lower rate on their mortgage. It’s also apparent through Alex Miller’s advertisements that he is attempting to sell a lifestyle credit-poor borrowers dream of. “When Alex Miller stands in front of super luxury cars or nice homes with his Versace gold watches, he’s advocating a lifestyle — a very attractive lifestyle to some,” McKenna said. In most cases it’s the consumers that are the true victims in creditwashing fraud, according to McKenna. The people most likely to fall for this type of scam are simply desperate
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
to buy a home or a car, which are not luxury items but necessities in many people’s lives. Most of the time the consumer believes that these fraudulent credit repair companies are legitimate, McKenna said. “It’d be a stretch to call lenders a victim in this situation,” McKenna said. “But they do suffer a loss whenever borrowers lie on their loan applications. Lenders don’t necessarily lose money through this type of fraud, rather they just don’t get paid as well as they should.” “If a borrower has a credit score of 750 after credit-washing, there would be a 1% chance the person would stop paying. But if the actual credit score was more like 500, the rate of loss for lenders would go up to 10% or 15%,” McKenna continued. “So, lenders are not able to price the loan right or collect the right amount of money if the credit score is inaccurate.” The rate of loss per credit-washing for auto loans ranges between $15,000 to $80,000, according to McKenna. For a home that gets foreclosed on that loss can be $250,000 or more based on the home’s sale price. “Any mortgage lender that hasn’t looked into this should, because this is a hidden, creeping problem that they probably haven’t seen,” McKenna said. n
In 2022, opportunity runs deep. Everything is changing. Shouldn’t your loan options? The number of homebuyers unable to qualify for a traditional mortgage is expected to hit an all-time high in 2022. Entrepreneurs, the self-employed, business owners, property investors — millions of creditworthy homebuyers will need a Non-Agency/Non-QM loan. Deephaven is there for them with a full suite of programs and products, each with its own set of flexible features and terms. By joining our network of independent mortgage bankers and brokers, you can be there for them too.
deephavenmortgage.com Deephaven Mortgage® LLC. All rights reserved. This material is intended solely for the use of licensed mortgage professionals. Distribution to consumers is strictly prohibited. Program and rates are subject to change without notice. Not available in all states. Terms subject to qualification. Nmlsconsumeraccess.org NMLS #958425 Deephavenmortgage.com
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ortgage News Network’s mission is to use the power of video and podcasts to compliment the written word and inform, educate, enable and empower mortgage professionals with the most relevant, up-to-date information and advances in the mortgage industry. It is our goal to offer worthwhile information to our viewers while delivering it with the utmost professionalism. E very weekday, we give you a heads up of what should be of interest to you now. The action is fast, and the information is up-to-date. Give us two minutes, and The Interest will give you the big picture. Watch at: nationalmortgageprofessional.com/video Great conversations start with great stories. Tune into The Principal podcast daily for your deep dive into the big issue of the day. Editors, reporters, and sources involved in the day’s top news take on topics with vigor and valor, unafraid to speak openly and honestly, so you get the truth about what’s changing the mortgage market. You’ll get an excellent payback for your time when you listen to The Principal. Listen at: nationalmortgageprofessional.com/ podcasts/principal Picture your dream home. Now look down. There’s a bright red line keeping you out. Join host Katie Jensen as we dive into redlining and the legacy of discrimination. You’ll hear first-hand accounts from those who’ve had to fight back to achieve their dreams. And we’ll challenge industry leaders on how to rewrite this legacy. Listen at: nationalmortgageprofessional.com/ podcasts/gated-communities
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Th
e D
i ra
Surge in home prices is making the segment more profitable — even for departing Zillow
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BY STEVEN GOODE, STAFF WRITER, NATIONAL MORTGAGE PROFESSIONAL
O
pendoor opened the door to the instant or iBuying way of buying and selling houses in 2014. The company was the first to use proprietary software that took the individual features of a home to compare it to hundreds of others in an area and make an educated offer to buy a home and make a profit in the same range as a real estate agent’s commission. The method represented a dramatic shift in home-buying and selling by offering a convenient and simple alternative to traditional home sales — eliminating open houses, haggling over the price with prospective buyers and making repairs. Opendoor owned, fixed-up, marketed and sold the house. Opendoor reported a first quarter of positive net income of $28 million, versus a loss of $270 million in the first quarter of 2021. It was the company’s firstever profitable quarter. The company is still among the most successful of its kind in iBuying, a contrast to Zillow’s short-lived and costly foray into the computerdriven, house flipping industry. Zillow launched Zillow Offers, its
own version of instant-buying in 2019, with far less success, discontinuing the program last November. In two short years the digital real estate company lost hundreds of millions on its home-flipping business and began laying off what will ultimately be expected to be 25% of its workforce. “We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipate,” Zillow CEO Rich Barton said at the time. “Continuing to scale Zillow Offers – Mike DelPrete, real would result in estate strategist too much earnings and scholar-inand balance-sheet residence at the volatility.” University of Colorado The decision Boulder’s real estate has led to several technology program lawsuits being filed by shareholders who lost money on the venture.
“[2021 was] a transformative, record breaking year in which more homes were bought and sold on the iBuying platform than ever before.”
WAS ZILLOW’S EXIT A SIGN THAT INSTANT-BUYING’S TIME HAD COME AND GONE? Not according to a recent report from Zillow itself. The company said the number of homes bought and sold by iBuyers soared to new heights in 2021. The final three months of 2021 saw a slowdown from the third quarter amid the typical winter housing market deceleration. CONTINUED ON PAGE 46
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iBUYING
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Yet, the fourth quarter still was the second-strongest in history in terms of the number of homes sold using an instant-buying service, according to Zillow’s report. Then came the first quarter of 2022. In the midst of saying goodbye to iBuying, Zillow made money hand over fist. Zillow sold 8,981 homes in the quarter, helping its Homes segment produce revenue of $3.7 billion. As of early May, the Seattle-based online real estate marketplace had just 100 homes not currently under contract to sell remaining on its books, after selling nearly 9,000 homes in the first quarter of 2022. That rapid selloff helped the company post $4.3 billion in revenue in the quarter, up 20% from $1.29 billion a year earlier. In a letter to shareholders, Co-Founder and CEO Rich Barton said the inventory of more than 20,000 homes the company owned when it decided to shutter its Zillow Offers unit in the third quarter of last year had been reduced much more rapidly than expected. In the 38 largest iBuyer markets, Zillow determined, homeowners sold 21,523 homes in the fourth quarter using one of the three largest iBuying services: Opendoor, Zillow Offers, and Offerpad Express. That figure represented 1.7% of all U.S. home sales in the fourth-quarter, down from 1.9% in the third. The three sold 21,398 homes during the third quarter.
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According to Zillow, iBuyers also purchased 70,402 homes in 2021, more than double the previous annual high of 32,726 homes, achieved in 2019. They also completed 44,933 home sales last year, exceeding the previous high of 28,265 homes sold in 2019. Offerpad officials said that in three of its markets — Greensboro, Phoenix and Tucson — iBuying reached 10% market share, highlighting the potential growth of this industry. Brian Bair, Offerpad chairman & CEO, has said that his company expects the market to remain strong in 2022. “With the current supply and demand imbalance expected to remain, buyers will likely continue to experience an ongoing sellers’ market. Our expectations in 2022 assume that many of the fundamentals driving the 2021 market will remain,” Bair said. “This includes tight supply levels, increasing yet historically low mortgage rates, and wage growth acceleration. Importantly, our growth and expectations for achieving sustainable profitability are the result of a multidimensional strategy that is not reliant on any singular market condition.”
WHAT DOES THE FUTURE LOOK LIKE? Officials at Opendoor, which still leads the market,
expressed similar sentiments about the recent past and future. “For the full year, we acquired a record 36,908 homes, up nearly 500% versus 2020,” said Eric Wu, Opendoor founder and CEO. “Over the course of the year, we saw total offers and real seller conversion reach all-time highs as Opendoor’s value proposition of simplicity, certainty and speed, combined with our robust pricing and operational capabilities, continued to accelerate consumer adoption across our markets.” Wu said his company “significantly outperformed” the high end of its revenue guidance, “delivering $3.8 billion of revenue in the fourth quarter of 2021 and 1,435% growth yearover year. This outperformance was fueled by the strength of our resale systems, as we leaned into strong market demand for the homes we had in inventory coming into the fourth quarter. For the full year, revenue was $8 billion, up 211% versus 2020. This revenue growth was driven by the aforementioned unit growth, as well as by higher revenue per home sold, up 42% versus 2020.” Offerpad officials said the company finished 2021 with record results capping off a remarkable year, exceeding growth targets and financial expectations as awareness of and demand for its services continue to grow. Revenue increased 289% to $867.5 million, and Offerpad acquired 3,049 homes, nearly a threefold increase from the fourth quarter of 2020, and an 11% sequential increase from the third quarter, according to the company. “The key to our continued success over the past year was growing in a responsible manner, while maintaining high quality, customizable, and valuable service offerings for our customers,” Bair said. “In 2021, we earned an outstanding customer satisfaction rating of 93%. Offerpad
is seeing market demand increase as more customers seek the convenience, certainty and control our offerings provide.” Mike DelPrete, a real estate strategist and scholar-in-residence at the University of Colorado Boulder’s real estate technology program, called 2021 “a transformative, record breaking year in which more homes were bought and sold on the iBuying platform than ever before.” He was also impressed by Opendoor’s ability to demonstrate an expanding operational capacity to repair and sell homes at scale. “It’s a critical metric, because buying the house is comparatively the easy part,” he said in a report on iBuying on his website. “Selling at scale is more difficult.” But DelPrete also pointed out that the major iBuyers sold approximately 20% of their inventory directly to investors in 2021, more than double the previous high in 2019. That amounted to nearly 8,000 sales, most of which DelPrete said, were turned into rental properties.
TRENDING IN THE WRONG DIRECTION?
“We’ve determined the unpredictability in forecasting home prices far exceeds what we anticipate. Continuing to scale Zillow Offers would result in too much earnings and balancesheet volatility.”
But the news, according to the Zillow report, was not all great. The company said the median price of homes sold using an iiBuying service dipped to $372,100 in the – Rich Barton, CEO of fourth quarter, but remained Zillow said of their above the overall U.S. median decision to discontinue sale price of $335,060. Zillow Offers, their iBuyers tend to operate iBuying division. in larger, more-expensive housing markets, helping skew the national numbers. In 24 of the 33 metro areas for which data was available, Zillow said, the median price of homes sold using an instant buying service was less than the overall median sale price in that metro. Also in the fourth quarter, the difference CONTINUED ON PAGE 48
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iBUYING
CONTINUED FROM PAGE 47
between the purchase price and sale price was 1.1%. That was up from a revised 0.7% in the third quarter, but is also the second-lowest number in any quarter since 2018, when Zillow began tracking the data. According to the company, the median markup was 7% in the fourth quarter of 2020 and reached its highest level ever in the first quarter of 2021 when the median markup reached 8.6%. iBuyers, Zillow said, are also taking longer to sell their homes. The time it took to get a home ready to sell, put it on the market and close reached 98 days in the fourth quarter of 2021, which is three weeks longer than a revised 79 days in the third quarter of 2021 and more than a month longer than the record low of 63 days in second quarter of 2021. The report pointed to winter slowing the housing market as well as labor and materials shortages that contribute to a new-home construction and delaying the speed of repairs and updates to existing homes iBuyers are preparing for sale. Officials at Offerpad and Opendoor acknowledged that they have experienced some supply-chain issues, but added they were not a major concern. Both companies are confident in the future of instant buying as well. “It is our fundamental belief that in a matter of years, millions of homebuyers and home sellers will pick a simple, certain, and fast experience and transact themselves, completely online,” Wu said. “More importantly, we know Opendoor’s digital, seamless experience is — and will continue to be —what consumers choose now and for decades to come.” Overall, DelPrete said he expects less competitive pressure on fees and acquisition prices on the remaining iBuyers with Zillow gone from the market. But there could be new competition from a group that he calls power buyers, companies like Homeward and Orchard that empower buyers with services that include cash offers, bridge financing, and trade-in programs. “Like iBuyers, these companies are transaction-focused, but most critically, target buyers instead of sellers,” he said. DelPrete believes that iBuying has a critical
In the midst of saying goodbye to iBuying, Zillow made money hand over fist. Zillow sold 8,981 homes in the quarter, helping its Homes segment produce revenue of $3.7 billion.
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flaw and that is that no one gets excited about selling a home, while the reverse is true for those buying one. Additionally, he said, power buyers have a much higher attach rate of financial products for mortgages, compared to iBuyers. According to DelPrete power buyers achieve a 70% attach rate while Opendoor managed only 2%. “They get the financing,” DelPrete said in a YouTube video. “They also don’t have to spend money buying thousands of (sellers) houses.” Bair, from Offerpad, told shareholders that the company had opened three of eight planned new markets for the year, added 600 new zip codes and increased its service area by 15%. The company is also planning to offer something that sounds a lot like a power-buyer model soon with “Buyer Boost,” a program that provides buyers with the advantage of making an Offerpad cash-backed offer on homes they’d like to buy, Bair said.
WHAT’S NEXT FOR THE MARKET? Offerpad officials said during the company’s six years of operation they have managed expansion based on their ability to stay months ahead of market trends and adjust accordingly. “We are a real estate technology company with a deep understanding of the cyclical nature of real estate. The market will always change. You change with it,” Bair said. “Offerpad knows how to buy, renovate, and sell homes quickly and at scale through changing real estate cycles.” Wu said that over the years he has been asked whether Opendoor’s vision and strategy had changed. “The short answer is no — we have always been focused on making it possible to buy, sell, and move at the tap of a button. In our view, the end state for the real estate marketplace will inevitably be a simple, certain, and fast transaction powered by technology. It is just a matter of when,” he said. DelPrete said that with the continued spike in housing prices, he expects the iBuyers to do well in the first half of 2022. That especially applies to Opendoor, whose houses, he said, were listed for a median of 17% — or $60,000 — higher than what they were purchased for on, on average, 72 days earlier. Buy-to-list, DelPrete said, is a good leading indicator of iBuyer profitability, and is usually a few percentage points higher than the eventual sales price. DelPrete also believes Opendoor’s contribution margin is easily on track to outpace 2021’s high of 10%. Eventually, home prices will come down, and DelPrete said, the iBuyers will need to read the market accurately to avoid the mistakes that prompted Zillow to leave it. n
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| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
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Now on tour! Join your fellow hard-working mortgage pros at one of our national Mortgage Expos.
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ive your career a boost by attending one of our many regional mortgage events for loan origination professionals. Network with hundreds of mortgage brokers, loan originators and bank and credit union lending officers from throughout your region for events full of education, networking and fun. These events includes a broad array of event partners from throughout the mortgage community, multiple education sessions and top speakers. You’ll be growing your business and your contacts in a setting packed with passion, professionalism and fun. Plus, earn your NMLS continuing education credits at FREE classes, happening the next day and open to all conference attendees.
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UPCOMING EVENTS
JUN
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JUL
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JUL
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JUL
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AUG
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Great Northwest Mortgage Expo P O RT L AN D, O R N MLS R EN EWA L CL A S S
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Originator Connect L A S VEG AS , NV N MLS R EN EWA L CL A S S
Non-QM Summit L A S VEG AS , NV N MLS R EN EWA L CL A S S
18
NOV
8
DEC
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Texas Mortgage Roundup DA LL A S , TX NM LS R E NEWA L C L A S S
Great Northwest Mortgage Expo SE AT TLE , WA NM LS R E NEWA L C L A S S
California Mortgage Expo PA SA DE NA , CA NM LS R E NEWA L C L A S S
California Mortgage Expo OA K L A ND, CA NM LS R E NEWA L C L A S S
Colorado Mortgage Summit DE NVE R, CO NM LS R E NEWA L C L A S S
Texas Mortgage Roundup HO USTO N, TX NM LS R E NEWA L C L A S S
OCN Mortgage Holiday Party I RVI NE , CA
FACEBOOK THOUGHTS
SWM Seeks Non-Serial Killer GF
NICK ROBERSON
Nick Roberson
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L
Nick Roberson is a long-time mortgage industry veteran and a board member of the California Association of Mortgage Professionals. He’s a forthcoming and giving guy, who shares his … unique … perspective on work and life on his Facebook account. Here are some of Nick’s FB thoughts this month:
ast night Savannah and I were on our way home from dinner. I said, “I don’t know what I am going to do when you head off to college. I guess I will have to get a life. Maybe I will find myself one of those quirky smart artsy girls to date.” Savannah quickly replied, “What you need to do is find a normal girl that isn’t crazy and doesn’t want to kill you! I’ve seen Gone Girl, and you attract crazy like moths to a flame.” I replied, “So, no quirky smart artsy girls?” And Savannah said, “Dad, you have a type and that type is CRAZY! So what say we break the cycle of dating serial killers for a bit.” Ummm, I guess I won’t be getting a life any time soon.
If you are not familiar with this guy’s website, you should check it out. He goes by Matty McTech. He has sourced hundreds of useful and free powerful websites you should know about. Such an amazingly powerful resource. I use it almost daily. I will warn you, you will lose hours there looking through them. It is worth the time though. He also has daily videos and posts. You’re welcome!
••• To quote Dean Martin, “I want to be remembered as a damn good entertainer, nothing spectacular. A good entertainer who made people enjoy themselves and made them laugh a little. I want them to think, ‘He was a nice guy. He did pretty good and we loved him.’”
••• I hate it when I pick up my online grocery order and half the stuff is missing because I forgot to order it.
••• Some of Nick’s wants:
•••
If anyone is missing a Myna bird, he is sitting in a tree in front of my house meowing and driving the neighbor’s dog nuts. True story.
••• I experienced a truly sad moment on my way home from the grocery store last night. As I sat at the stoplight a block from my house, I looked over and saw something sitting in the grass just beyond the sidewalk that nearly brought me to tears. There in the grass, was a pair of pants, 6 empty Corona bottles, and one flip flop. First, what epic party had I missed? Second, someone is walking around town with only one flip flop. Just breaks my heart.
••• Have you ever taken a bite of an ordinary sandwich, and suddenly realized you took a perfect bite? You know a bite where all of the flavors of the sandwich are in the same place at the same time. All coming together in perfect unison for a wonderful symphony of flavors delicately performing like a well-rehearsed flashmob for your taste buds. A bite so perfect it inspires you to take pause and be thankful for all the beauty this world beholds. Yes, my friends, I have just taken such a bite. With tears of joy in my eyes, I want to stand on a mountain, thrust my sandwich into the air, and shout at the top of my lungs, “Well Done, Sandwich Maker! Well Done!” Savannah just yelled at me to get off my desk and to wipe the mustard off my shirt. Some people just don’t appreciate these special moments.
•••
| NATIONAL MORTGAGE PROFESSIONAL MAGAZINE | JUNE 2022
They had me at floating taco bar.
n
To see more by Nick, just go to www.facebook.com/nickroberson.
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