Mortgage Banker Magazine April 2020 by ambizmedia

THE

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

MAGAZINE April 2020

CORONAVIRUS THE PANDEMICâ&#x20AC;&#x2122;S THREAT AGAINST MORTGAGE BANKING

You Never Saw It Coming pg. 16

Three of the Biggest Challenges Facing the Mortgage Industry pg. 50

Published monthly by Twelve 11 Publishing, LLC 9720 Royal Lamb Drive Las Vegas, NV 89145 Phone: 512.879.4363 Email: INFO@MORTGAGEBANKERMAG.com www.TheMORTGAGEBANKERMagazine.com SUBSCRIPTIONS This publication is for the benefit of mortgage banking professionals involved in all phases of the residential mortgage industry. If you are a mortgage banking industry professional and you do not currently receive The MORTGAGE BANKER Magazine, please go to www.themortgagebankermagazine.com and subscribe for FREE. The MORTGAGE BANKER Magazine is a digital monthly magazine that is sent directly to professionals' computers and hand-held devices. The subscription is FREE to all mortgage banking industry professionals. For additional copies for your colleagues and co-workers, please visit our website at www. themortgagebankermagazine.com and complete the online subscription form. To opt out of receiving The MORTGAGE BANKER Magazine, please send your request to “UNSUBSCRIBE” with your name, company name, and address to SUBSCRIPTIONS@ twelve11media.com.

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EDITORIALS / ARTICLES To submit an article for consideration in The MORTGAGE BANKER Magazine, please send an email to Editor@ MortgageBankerMag.com. We are interested in original writings relevant to the residential mortgage banking industry. If you have a comment or question about an article or editorial published in The MORTGAGE BANKER Magazine, or if you have a suggestion for a topic you would like to see featured in a future issue, please send an email the editor.

THE MORTGAGE BANKER MAGAZINE POLICY The information and opinions expressed by contributing authors and advertisers within The MORTGAGE BANKER Magazine do not necessarily reflect those of Twelve 11 Publishing, LLC’s, management and /or employees and should not be considered as endorsed or recommended by Twelve 11 Publishing, LLC.

The MORTGAGE BANKER Magazine

April 2020

SERVING THE MORTGAGE BANKING COMMUNITY FOR MORE THAN THREE DECADES 202.628.2000

PROVIDING COUNSEL TO THE FINANCIAL SERVICES INDUSTRY FOR MORE THAN THIRTY YEARS SERVING THE REVERSE MORTGAGE INDUSTRY SINCE ITS INCEPTION

202.628.2000 WASHINGTON DC | DALLAS TX | IRVINE CA

202.628.2000

April 2020

FEATURES 8

Coronavirus: The Pandemic's Threat Against Mortgage Banking The coronavirus, or COVID-19, pandemic has swept the globe. The federal and state governments have taken drastic measures that include shutting down businesses they deem “nonessential,” and those actions have left the economy in shambles. BRIAN HONEA

Flattened by Unmanaged or Unanticipated Risk: WeWork, Facebook, Boeing, Wells Fargo … The List Goes On. The case for enterprise risk management is stronger than ever and it’s easier than you think.

Do loan officers ask the right set of questions to become informed counselors or are they order takers and assume they know the right answer going in to the first interaction? Loan originators know that they are one of the top three reasons that a customer works with your firm. Yet, they cannot guarantee that every customer gets the right loan every time.

The Best Benefit of Cloud Adoption: Security

Closing the Gaps in Your Contingency Plan

Financial institutions realize they must invest in security to avoid costly breaches and protect their customers’ data. The cost of security will continue to rise because threats and regulatory requirements are moving targets. Most businesses can no longer justify the non-strategic expense of maintaining security at the required levels with internal resources.

Does anyone remember the Seinfeld series and the “close talker”? Jerry ended up wearing the unflattering puffy shirt as a result of his experience with this individual. Close talking has been replaced with a new phrase, social distancing. I have a feeling that this phrase and its implications will not end when this pandemic is over.

RUSSELL MOSLEY

FELECIA BOWERS

You Never Saw It Coming!

STEVE SPIES

Whose Loan is it, Anyway?

ROB SPELLMAN

The MORTGAGE BANKER Magazine

April 2020

Special

SECTIONS

MORTGAGE OPERATIONS

Ten Things to Do in 2020 JOE GARRETT & MICHAEL MCAULEY

LOAN ORIGINATION

Mortgage Refinance Applications Triple from a Year Ago, But Will They All Fund? COLIN ROBERTSON

16 LEGAL

CFPB Brings Clarity to the "Abusiveness Standard Under UDAAP PETER IDZIAK

Mortgage Banking Lawyers

THE C-SUITE

Three of the Biggest Challenges Facing the Mortgage Industry

PHIL BRACKEN

TECHNOLOGY

Here's Why State of the Art Mortgage Lending Now Relies on CloudBased Services ERIC DRATTELL

PROFILE: Brett Arsta

PROFILE: Debra Still

COMPLIANCE

CEO GUARANTY HOME MORTGAGE

PRESIDENT AND CEO PULTE MORTGAGE

From the Desk of the Om-Bobs-man BOB NIEMI

Monthly

Compliance Alphabet Soups - HMDA

58 MBA Education & Training

DEPARTMENTS Calendar

60 White Papers & Webinars

CAPTIAL MARKETS

A Systemic Problem How the Coronavirus Pandemic is Affecting Capital Markets ROB CHRISMAN

62 Data Download 64 Business Services Directory 65 Sponsors Corner

The MORTGAGE BANKER Magazine

April 2020

THE

BANKER

MAGAZINE

Our Mission The MORTGAGE BANKER magazine is dedicated to providing quality informational/educational content that betters the mortgage process at every step. The content is oriented to help professionals progress their understanding of the residential mortgage banking business and develop their skills at improving the efficiency and profitability at all levels. PUBLISHER Ben Slayton BSlayton@MortgageBankerMag.com MANAGING EDITOR Brian Honea Editor@MortgageBankerMag.com SENIOR EDITOR Jill Emerson JEmerson@MortgageBankerMag.com OPERATIONS DIRECTOR Dawn Slayton DVSlayton@MortgageBankerMag.com ADVERTISING David Hoierman Hoierman@MortgageBankerMag.com PRODUCTION Henry Suchman HSuchman@MortgageBankerMag.com

FROM THE EDITOR Not one corner of the U.S. has been unscathed by the recent global pandemic brought on by the potential spread of the coronavirus (COVID-19). The country has been effectively shut down while public gatherings are suspended, companies are requiring employees to work remotely, grocery store shelves are empty, schools are conducting classes virtually, and restaurants are temporarily closing their dine-in areas. Businesses are taking every precaution imaginable to minimize the financial damage that could potentially be done by a lengthy shutdown. And one of the countryâ&#x20AC;&#x2122;s most profitable industries, mortgage banking, is no exception. The COVID-19 crisis has left many burning questions in the minds of everyone who works in the mortgage banking industry: How are we going to continue to effectively perform day-to-day operations and be profitable when we cannot conduct business face-to-face? Or, what about potential buyers who cannot leave their homes at all to look at homes to buy? What will be the ultimate impact of all of this? Hopefully this issue contains some useful information that will help you continue your business as usual as possible during this trying time for everyone. Or perhaps you have taken some actions to adjust the way you do business that you did not read about here. What did you do to adjust? Let us know; we are always listening. You can always drop us a line via the email address below.

DIGITAL MEDIA Eric Souza ESouza@MortgageBankerMag.com COLUMNISTS & CONTRIBUTING AUTHORS Felecia Bowers Phil Bracken Rob Chrisman Eric Drattell Joe Garrett Peter Idziak

Michael McAuley Russell Mosley Bob Niemi Colin Robertson Rob Spellman Steve Spies

The MORTGAGE BANKER Magazine is the official publication of the Mortgage Compliance Professionals Association of America.

. Brian Honea Managing Editor Editor@MortgageBankerMag.com The MORTGAGE BANKER Magazine welcomes your feedback. If you have comments, questions, criticisms, praise, or information to share with us and our readers, please write us at Editor@MortgageBankerMag.com.

April 2020

AUTHORS

Phil Bracken

Rob Chrisman

Eric Drattell

Joe Garrett

Peter Idziak

Phil Bracken is the managing director of Government and Mortgage Industry Relations at VantageScore Solutions. A senior financial services executive, Phil holds more than 40 years of experience in leading large financial institutions and managing complex government and industry relations initiatives.

Rob Chrisman has been in the mortgage industry for 35 years, primarily capital markets. He is known for the daily commentary that he sends out on current industry topics with a dash of humor.

Eric Drattell is Roostify’s general counsel and chief compliance officer, where he leads the company’s global compliance and legal services team. He joined Roostify in 2018 after 12 years combined with Intapp and Risk Management Solutions where, in addition to having led each company’s respective compliance and legal services team, he also headed the company’s information security team.

Joe Garrett is a principal with Garrett, McAuley & Co. He has more than 35 years of banking and mortgage banking experience and was the CEO of two successful commercial banks. He has been on the board of directors of four banks, two as chairman.

Peter Idziak is an associate in the Dallas office of Polunsky Beitel Green LLP. He has represented clients in all areas of residential mortgage lending for more than a decade. Lenders regularly call Mr. Idziak for his advice on regulatory matters and compliance issues concerning all aspects of consumer lending and real property law.

Michael McAuley

Russell Mosley

Rob Spellman

Steve Spies

Michael McAuley is a principal at Garrett, McAuley & Co. He is a senior banking executive and mortgage industry consultant with more than twenty years’ experience in developing and managing credit and depository and other income-producing relationships with small and medium-sized businesses.

Russell Mosley is the chief information security officer at TISTA Science & Technology Corporation, with 20 years’ experience in Software as a Service, data center and information security operations, audits, and regulatory compliance. He is a hands-on technology leader who is active in the information security community as a conference organizer, volunteer, and speaker.

Rob Spellman has been in mortgage banking since 1984. His experience includes sales leadership, product development, strategy, secondary marketing, and risk management. He is the founder of RMSpellman Consulting LLC.

Steve Spies, CMB, CFE, JD is principal and founder of SWS Risk Advisory LLC. His firm enables lenders to profitably manage the entire spectrum of risk in the mortgage industry. Steve was formerly a risk and QC leader at Fannie Mae with 35 total years in the industry.

Colin Robertson Colin Robertson is the owner of The Truth About Mortgage, a mortgage and real estate blog founded in 2006.

The MORTGAGE BANKER Magazine

April 2020

Mortgage Operations

CORONAVIRUS

THE PANDEMIC’S THREAT AGAINST MORTGAGE BANKING By Brian Honea, The Mortgage Banker Magazine

he coronavirus, or COVID-19, pandemic has swept the globe. The federal and state governments have taken drastic measures that include shutting down businesses they deem “non-essential,” and those actions have left the economy in shambles. At this point, as the situation changes by the day and sometimes by the hour or even the minute, the only thing that is certain is uncertainty. For everyone. Including the mortgage banking industry. “There is already lots of speculation on how long this will last and what the effects will be, not only on mortgage banking, but the economy as a whole,” said Kristy Fercho, CEO of Detroit areabased Flagstar Bank. “We’re already seeing job losses and huge spikes in unemployment.” Will there be a repeat of 2008, when the market collapsed that resulted in a year-long crisis that resulted in millions losing their homes to foreclosure and has gone down in history as “the Great Recession”? That is yet to be seen. But what is known is that regulators have suspended foreclosures and evictions and encouraged servicers to be lenient. As was the case during 2008 until the middle of the previous decade, some lenders are turning to certain loss mitigation measures, such as mortgage modifications, as a solution. The MORTGAGE BANKER Magazine

“Several large financial institutions are projecting that the economy will fall into recession,” wrote Sanjiv Das, CEO of Dallas area-based Caliber Home Loans (and CEO of CitiMortgage during the Great Recession years), in a blog post on March 23rd. “Coronavirus-related layoffs have already hit ports and travel agencies, and more industries are likely to follow. When someone gets laid off, they lose their principal way of paying their mortgage and can easily start to miss payments. At CitiMortgage, we realized that it was important to keep people in their homes, so we created a robust mortgage modification program that mandated smaller balances. My firm currently is in the midst of evaluating various options from payment holidays to mortgage modifications. While we can’t control market events, we and other lenders can and should take swift and immediate actions now to keep homeowners in their homes.” Those actions did keep millions of homeowners in their homes during the Great Recession years, and likely will again in the aftermath of the COVID-19 fallout, especially if it continues for any length of time. “For mortgage banking, (a spike in unemployment) will impact credit scores, the purchase market, and drive a need for effective loss mitigation,” Fercho said. “As it relates to default management, we have a lot of experience with the 8

April 2020

national disasters. While COVID-19 is different and much broader, we’ve steadily strengthened our capabilities in default servicing to the point where at the end of last year, we brought the operation we had outsourced during the housing crisis back under Flagstar’s roof. Now we have end-to-end control of the life cycle of every loan. We are following the agencies guidelines, but we are also doing what we think is right for our borrowers. This is an unprecedented time and we aren’t reluctant to take unprecedented action.” Borrowers have been a primary concern for the Mortgage Bankers Association. “MBA is also working with various federal regulatory agencies, including HUD and Ginnie Mae, as well as FHFA and the GSEs, to streamline policies and procedures that will allow lenders to assist borrowers throughout this current situation,” MBA CEO Bob Broeksmit said. “Everyone at the MBA remains committed to working on behalf of The MORTGAGE BANKER Magazine

our members and the industry as we navigate this ongoing situation.”

THE REFI BOOM One of the effects of the pandemic on the industry is near-record low interest rates. In early March amid fears of the pandemic, the 30-year fixed-rate interest fell to 3.29 percent, according to Freddie Mac, the lowest since the GSE started tracking the rate in 1971. The low rates, inviting to borrowers, triggered a spike in refi volume that, by some accounts, mortgage bankers were having a tough time handling. The rates rose slightly throughout March, but the 30-year fixed rate was still under four percent by the end of the month. If in fact lenders cannot keep up with the refi volume, is it tempting to raise the interest rates to curb that volume? Rumor has it… “I would say that rumor needs to be dispelled. It’s not about raising the rates,” said Brett 9

April 2020

Mortgage Operations approval process, you close, and hopefully you’ve made a good decision for the long term. If you missed out on an eighth or a quarter on the low side, you could have very well missed out on threeeighths of going higher. It’s just like buying a stock. If you’re not prepared or ready to move, then you shouldn’t take that step of locking in a rate.” It may not be the borrower who makes the decision not to lock in the rate, however. According to Dallas area-based attorney Tom Black of Black, Mann & Graham LLP, who worked as the national production manager for top 20 lender Empire Realty Credit Corp. in the 1980s, “One of the things I think you’re going to see happen is what I did in 1986 at Empire. I stopped locking refinances. At a bank-related mortgage company, it was really dangerous to give a rate lock where you couldn’t control all the pieces yourself. You might well have to break the lock. If the interest rates went up, you were in trouble. I think you’ll see more and more of that happening in the industry, especially because of these variables like the title companies.” If in fact lenders can’t handle the volume, vendors have said they are prepared to step in. “We are ready to support our customers and their refinance volume, and we will continue to add capacity as needed to stay ahead of demand for customers and partners,” Ellie Mae CEO Jonathan Corr said. “Also, as a highly distributed, global cloud company, our services are all separate from our physical office locations, enabling our people to productively and efficiently work remotely as their health and safety is our number one concern.”

Arsta, CEO of Nashville-based Guaranty Home Mortgage. “There’s a lot of misconception about the 10-year (Treasury yield) and where mortgage rates stand. We’ve seen a floor in MBS securities, around the three percent range, and when we saw that floor, what happens is pipeline risk goes up dramatically. When I say pipeline risk, the amount of refinance business that’s on the street today, the pull-through mechanisms of refinance transactions are much lower than purchase. With that comes additional hedge costs, and that’s all lumped into one pool. People aren’t sitting back getting fat and happy just raising rates for no reason. There are a lot of other things that go into it.” Then there is the possible scenario where the borrower locks in a rate, then the lender hedges it, the rate goes down and the borrower wants the lower rate. How does the lender handle that situation? “Everybody who is in this space is very passionate about people,” Arsta said. “And they’re passionate about completing transactions. We’re not about pushing people into loans where the rates are higher. But as long as you’re in a range, there is no way to pick the lowest. There is no way to guarantee the lowest. You pick what works for you, you make a commitment, you go through the The MORTGAGE BANKER Magazine

WAREHOUSE LENDERS

Mortgage bankers and lenders are understandably focused on taking care of their borrowers to help them weather the peripheral effects of the virus. But what about other factors to consider? “According to The Brookings Institution, the U.S. housing sector is not prepared for this stress scenario, which is now materializing,” Das warned in his March 23rd blog post. “HSLs (housing specialty lenders, aka non-bank lenders) need to get ahead of what may be coming. They can do this by checking in with their warehouse lenders 10

April 2020

to make sure that they can access lending at affordable rates. In addition, HSLs can make the case that even if their hedges have lost money, they should be able to access the value of their MSRs (mortgage servicing rights), particularly if they are outperforming. In other words, HSLs need to investigate their liquidity situation and have a sobering call with their warehouse lenders to make sure that funding doesn’t dry up.” But what happens if warehouse lender funding does dry up? A sobering thought, but perhaps a long way off. “There are several very wellrun organizations here where the warehouse facilities remain strong,” Arsta said. “They’ve contacted us and actually raised our limits without questions. In doing so, we still have a very healthy relationship with our warehouse facilities. I’m not going to say inevitable, but that all goes with who you’re partnering with early on. We’ve had meetings daily with our warehouse providers, and we’re in a comfortable position with where those companies are from a financial health standpoint.” For many companies, it’s come down to just trying to survive, and that means going to wherever the liquidity is. “We’re emphasizing our products that we can deliver directly to Fannie Mae, Freddie Mac, and Ginnie Mae,” said David Battany, EVP of Capital Markets for San Diego-based Guild Mortgage. “For the most part, that’s the only real liquidity left in the industry, because so many private investors and correspondent investors either just shut down or backed off. This week, our direct deliveries to Fannie, Freddie, and Ginnie Mae where we deliver direct to retain the servicing has been our primary focus for most of our production.”

on completing face-to-face transactions to do business. “In the face of COVID-19, our first concern is the safety of our employees,” Fercho said. “Flagstar has suspended all business air travel, restricted common areas, implemented virtual-only meetings, increased the frequency and intensity of cleanings at all sites, and provided employee guidance on self-quarantine and/or work from home requirements. Currently, over 95 percent of our workforce can work remotely via their Flagstar laptop and secure VPN (virtual private network) connection, which allows us to load balance and continue providing uninterrupted service under multiple scenarios. For those still in the office, we are practicing social distancing, encouraging frequent hand washing, and thoroughly cleaning work areas every evening.” U.S. Bank Chairman, President, and CEO Andy Cecere, said, “Like many companies, we have already limited employee travel, postponed large events and asked our employees to stay home if they aren’t feeling well. We have expanded our flexible leave policies to allow them the time they need to take care of themselves and their family members, and we are giving them the tools they need to stay healthy.” With most of the industry employees now working remotely, that creates a whole new set of potential challenges. "To enable the industry to deliver both economic stimulus and hardship relief, a number of issues need to be addressed, including streamlined appraisal processes, potential liquidity backstops for servicers, increased adoption of remote online notarization, and solving for title insurance issues given the growing number of county recorder office closings,” Broeksmit said in a March 17th announcement. “To achieve this, we are working with a broad range of stakeholders, including regulatory agencies and the GSEs, to help mitigate economic impacts as Americans are encouraged to

For many companies, it’s come down to just trying to survive, and that means going to wherever the liquidity is.

THE SHIFT TO VIRTUAL BUSINESS

Businesses everywhere are asking employees to work remotely, which on the surface seems like it would cause problems for those who rely The MORTGAGE BANKER Magazine

April 2020

Mortgage Operations limit their social interactions.” One area of the business that seems to be making the shift to virtual is showing homes to potential buyers. With physical contact strongly discouraged and, in many markets forbidden, that part of the industry has begun making the transition to virtual. “I’ve seen several advertisements promoting virtual walk-throughs,” Arsta said. “You can see a home where the agent will actually go in and do a virtual walk through for people. I think the virtual tour is gaining a lot of popularity quickly. The borrowers don’t have to get out. That’s the passionate side of the real estate industry and the side I’m in. People are very accommodating and they will do what it takes to get the job done.” Even after a potential buyer does a virtual walk through and chooses a house, there is the matter of completing the endless stream of paperwork, some of which is required to be notarized. How do loan officers complete the notarized part of the paperwork when physical contact is forbidden? Remote online notarization (RON) has been around since 2012, but in the last few weeks has come to prominence as mortgage lenders have been scrambling to implement it. “(RON) allows a notary to witness an online signing session remotely through an audio/video connection and not be present with the borrower, so all of a sudden every lender in the country is highly aware of RON and wants to be enabled with it overnight,” said Harry Gardner, EVP of eStrategies at Docutech and chair of the Electronic Signature and Records Association (ESRA). “It provides a safe solution under the current situation the country is in for borrowers to be able to sign their mortgages and have someone witness it remotely rather than have to meet with someone face to face.” Docutech began a partnership with one of the leading RON providers in the industry, NotaryCam, with the goal of making RON available to more lenders, but they had no idea that a few months later, there would be such a sudden and widespread need for the technology. “Fortunately, we’re at the very end of that integration process and getting ready to go live in a couple of weeks,”

The MORTGAGE BANKER Magazine

Gardner said. “We’ve been working very hard to accelerate the completion of our project and it’s looking pretty good right now. The timing is pretty good in terms of what lenders really need right this minute.”

A MATTER OF ADJUSTING The MBA has created a resource page for its members to help them adjust to the drastic changes brought on by the pandemic. “The MBA is continuing to monitor the spread and impact of the coronavirus (COVID-19) on our industry,” Broeksmit said. “To that end, we have developed this resource page to assist our member companies as they plan and prepare to protect their staff and meet customer needs. It includes information from the health/disease control agencies; suggested approaches to business continuity plans; relevant information from the GSEs, FHA/VA, and financial regulatory agencies; and, guidance on how companies should communicate with employees, their customers, and the public.” No one has seen anything like the current pandemic, at least not in the last hundred years or so. But many businesses recognize the need to “expect the unexpected” as the cliché goes, and were prepared for anything that might happen before the COVID-19 pandemic. “Through a combination of phone, email, and video conferencing, our loan advisors continue to be available to our customers for home financing questions and solutions,” Fercho said. “Our Operations team continues to function remotely and is well equipped to manage fluctuations in mortgage volume. Additionally, our leadership team is actively working with third-party suppliers and the government to continue services in areas that are most affected. Whatever the threat, health, security, weather, or otherwise, all departments throughout Flagstar have comprehensive business continuity plans that are regularly reviewed and updated.” Brian Honea is the Managing Editor of The MORTGAGE BANKER Magazine. 12

April 2020

Mortgage Operations

Memo to the CEO TEN THINGS TO DO IN 2020 By Joe Garrett & Michael McAuley, Garrett-McAuley Report

Now that we’re kicking off the new year, it’s a good time to set goals and establish priorities. Here are ten things we hope you’re already doing, but if not, this can be a good reminder for the rest of the year. 1. Consider getting out of servicing. Servicing revenue can help you break your dependence on production income, but it requires a lot of cash. Sometimes too much. If you’re not highly liquid, it might make sense to get rid of your servicing. And remember that if you sell your servicing, the cash you receive will never pre-pay. 2. Develop an IT plan. Figure out all the ways you want technology to make life easier for your borrowers and your loan officers. Create a written plan to meet these goals. Have a timeline and a budget. 3. Be stingy with overrides. Don’t pay too much in overrides, and make certain that they sunset after a reasonable period of time. The higher you go up the production hierarchy, the smaller the overrides should be. 4. Get serious about scorecards. Produce monthly scorecards on each loan officer, wholesale rep, branch, and region. With loan officers, volume should be just one of many ways you analyze how profitable each one is to the company. Weight pull-through and concessions heavily. Give more weight to total revenue generated than to mere volume. Issue scorecards every month. 5. Better use excess cash. If you have excess cash, you should give yourself a bigger haircut on each loan. You’ll be saving on your interest expense, which means you’ll make more money per loan. Even an extra 2-3 points haircut per loan will add up. Create a separate line item on your P&L for this. 6. Learn key functions. Too many owners never take the time to learn about every area of the company. You might be the world’s best production person, but it’s critical that you also understand accounting, secondary, compliance, IT, and operations. 7. Know your hedge positions. The hedge advisers prepare daily management summary reports. Understand everything on them, and read them every day. 8. Calculate your cost-to-originate. You need to have your finance people re-calculate this every month, and you need to understand all the detail that goes into it. Do it for every branch and channel. Mortgage banking is a low-margin business, and you need to know where every dollar is going. Calculate it in dollars and in basis points. Set a goal of lowering it by 15 percent. Look at every single general ledger item. Once you’ve cut costs by 15 percent, cut them another 10 percent. 9. Reduce concessions. The most profitable companies give away the least in concessions and the least profitable companies give away the most. Create a culture where concessions are rare and hard to get. Consider using LO scorecards to make loan officers earn greater or lesser use of concessions. 10. Manage your liquidity. When mortgage companies fail, they almost always fail because they run out of cash. Develop a model to project your cash inflows and outflows looking out seven, 14, and 21 days. See what your cash will be in each of these time periods, do it every day, and test its accuracy every day. The MORTGAGE BANKER Magazine

April 2020

Quality Control & Risk Management

YOU NEVER SAW IT COMING!

Flattened by Unmanaged or Unanticipated Risk: WeWork, Facebook, Boeing, Wells Fargo … The List Goes On The case for enterprise risk management is stronger than ever and it’s easier than you think.

By Steve Spies, SWS Risk Advisory

on’t use this lender again!” screamed the tweet. The Fed just raised rates again, murdering your pipeline. Your top west coast broker closed up shop over night as regulators found them laundering money. You mistakenly foreclosed on a senior couple. A successful Phishing attack exposed a few thousand Social Security Numbers… and so it goes. Not long ago all we had to worry about was whether the borrower would pay the loan back. Now, we turn on our laptops wondering what crisis emerged overnight. Strong credit risk management has always been the heart of a mortgage lender’s value proposition, The MORTGAGE BANKER Magazine

but getting that right is just table stakes. Dealing with a long list of operational, technological, or headline risks potentially overwhelms us. Spending too much to mitigate, or being overly cautious to avoid them, can’t be the answer either. Lenders have no choice but to invest in a holistic enterprise risk control framework. Not creating and sustaining a framework that proactively evaluates all potential risks is just “whistling past the graveyard” and hoping for the best. The great news is that with a small amount of focused organizational commitment, lenders gain more control over the future and better preparation for what hits next. 16

April 2020

First, to cheer you up (not), let’s do a quick tour across the universe of risks. Here is an exhausting, but non-exhaustive, list of risks we face on a daily basis: • Credit – The mainstay, they don’t pay you don’t stay (in business) • Interest Rate – Up generally bad, down generally good • Pipeline\Fallout Risk – Can you hang onto your applicants? • Reputation\Headline Risk – Potentially lethal, churning and burning refi’s lately? • Regulatory\Compliance\Legal – The 3,000-pound gorilla • Information Security – If this fails, see headline risk • Technological Obsolescence – Seems like a bottomless money pit to keep up • Operational – Murphy’s law holds here “what can go wrong, will go wrong” • Business Resiliency – Tornados, hurricanes, and fires oh my! • Fraud – Only takes one event to sink you • Industry - GSEs, friend, foe, or soon to be forgotten? • Market\Competition – Oh no, they stole our LOs! It’s a daunting array of risks we face. I’ve plotted them on this heat map, giving a fifty-thousand-foot estimate of the likelihood and severity of each risk. Lenders need to use the heat map approach to dive into each risk individually. And, of course, risks often influence or accentuate one another. Fortunately, there are effective solutions for lenders small and large, and with risk resources at a premium, the challenges and solutions are best applied against organizational size:

The MORTGAGE BANKER Magazine

April 2020

Quality Control & Risk Management • For small shops that are game and growing – The virtual ERO approach recognizes that a formal enterprise risk function may not be affordable or necessary. Using your existing leadership team in a “virtual” way enables staying on top of your risks and adapting as you grow. The key idea is by using online collaboration tools, an Enterprise Risk Oversight (ERO) function exists in real time, while limiting funding of full-time risk positions. Begin by appointing an ERO committee and rotate the lead every six months. Members prepare deep dive heat maps for individual risks. By analyzing factors and variables underneath each risk, a heat map reveals the potential impact of both incidental and cumulative risks. The committee assesses the combined heat maps to prioritize risk prevention and mitigation. Then, the committee sets limits on how much exposure to each risk the company is willing to tolerate. Next, establish action triggering metrics by asking each team member, “what is the risk’s break glass event?” That catastrophic moment requiring a crisis team response. Start with the hottest risks and create prevention, mitigation and response plans. The plan establishes the accountable person for status updates and deliverables. A 30-minute weekly Lean management style huddle using a Kanban board facilitates oversight. The CEO or COO should be a permanent member, and internal auditors supply committee governance. If done well, virtual ERO methodology requires small incremental time from everyone, with unmeasurable return from better risk management. Risk management software tools assist ERO administration and recordkeeping, but a simple SharePoint site with accountability and progress tracking is good enough for smaller organizations.

• Middle sized, expanding and often in no man’s land – Too big not to formalize risk management, but not profitable enough for the added expense. The primary challenge for growing mid-size companies is controlling the expanding risk landscape. Rapid growth and increasing operational breakdowns don’t have to go hand-in-hand. This point on a company’s growth curve is a good time for using SWS Risk Advisory LLC’s fifteen question Risk Culture Self-Assessment. It’s is a great way to assess your organization’s vulnerability. It’s likely a chief risk officer is needed at this stage, but rather than building a large risk organization, focus on enhancing Virtual ERO effectiveness. • Big and broad – Lenders of this size most likely have adopted an enterprise risk approach, but is it working? It’s a daunting task ensuring an effective three lines of defense model with thousands of employees and dozens of units. Large lenders must be disciplined to objectively assess how well each risk is being managed. A tell-tale weakness is no concrete action planning to improve risk controls. A strong risk culture can mean life or death for large organizations as WeWork, Boeing, and others are finding out. The ERO must be empowered to call out signs of confirmation bias, politics, and CYA mentality. You can’t manage all the risks, and you shouldn’t try. The imperative is awareness and prioritization. Sleeping better at night only requires commitment and small steps focusing on managing enterprise risk. Outside expertise often helps break through the “tyranny of the urgent,” enabling attention to this non-negotiable, fundamental business discipline. MBM

o Pro Tip – Robust reporting is the most important prerequisite for controlling risk. If you can’t effectively report on a risk, minimize or avoid it entirely.

The MORTGAGE BANKER Magazine

April 2020

QUALITY CONTROL GUIDE KEY PERSONNEL & CONTACT INFORMATION Dru Jacobs, President 1-800-888-0456 Sales@adfitech.com www.adfitech.com BUSINESS SERVICES & PRODUCTS

CORPORATE PROFILE Since 1983, Adfitech, Inc. has been the go-to source for premier post-closing and pre-funding quality control services for more than five hundred mortgage lenders, banks, and credit unions throughout the United States. Located in the heartland of America, Adfitech, Inc. is known for concierge-level service in delivering trustworthy results, expert regulatory oversight, and improving overall loan quality for the clients we serve. Adfitech, Inc.’s online reporting and rebuttal platform is the easiest, most transparent online rebuttal process the industry has to offer. Our simple per-file pricing eliminates the need for long-term and minimum contracts, enabling Adfitech, Inc. to operate as your company’s full-service quality control partner. For more information or to schedule a demo, please visit us at www.adfitech.com.

Performing oversight from application to payoff, Adfitech, Inc. offers review service products to meet every need. Post closing Quality Control that meets the requirements of Fannie Mae, Freddie Mac, FHA and VA, as well as, Non-QM/ATR products. Pre-Funding Quality Control to review the accuracy and quality of the loan application and approval before funding. Mortgage Fulfillment to handle the delivery of a complete closed loan file to an investor or collateral package to custodian with imaging and/or file storage options. Servicing Quality Control Reviews consisting of several distinct QC programs based on the areas of servicing in which you wish to identify and control operational risk. Mortgage Due Diligence that is rating agency reviewed and offers Pre-Securitization, Private Transfer, and NPL / RPL reviews.

KEY BENEFITS & VALUE

Experience Counts! With 35 years of service, Adfitech, Inc. is committed to providing timely response to all inquires as well as proactive solutions in order to meet client specific demands. Our innovative approach to client satisfaction allows us to remain agile in an ever-changing industry as we continually work to exceed expectations of our partners. With no long-term or minimum contracts and competitive and simple per-file pricing, Adfitech, Inc. gives your company a full-service quality control department as well as a variableprice solution based on your company’s production volume.

KEY PERSONNEL & CONTACT INFORMATION Claudia Duncan, President 615.591.2528 ext 124 info@qcmortgage.com www.qcmortgage.com BUSINESS SERVICES & PRODUCTS

CORPORATE PROFILE Quality Mortgage Services, LLC (QMS) is a well-established leader of mortgage quality control audit solutions and proprietary mortgage auditing software, MARS (Mortgage Analyst Review Software). With over 20 years of experience and specialized knowledge in the mortgage banking industry, QMS is a boutique risk management and mortgage quality control solutions company that provides full service mortgage loan analysis results for banks, credit unions, lenders, brokers and housing authorities. QMS is a proven industry partner, with a dedicated commitment to our clients. The QMS vow is to shine in customer service, responsiveness, support and flexibility.

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QMS delivers reports and analytical tools that assist clients in assessing loan quality and maintaining organizational compliance. Our audit reviews are in line with agency requirements and QC services include: Post-Closing, Pre-Funding, Federal Regulatory, Pre-Purchase/Due Diligence, Early Payment Default, Denials, Servicing, Repurchase Defense, HMDA, Anti-money Laundering and MERS® audits. Additionally, QMS offers a secure reverification platform, QCVerify, and our MARS QC software can be leased to manage QC efforts inhouse.

KEY BENEFITS & VALUE Audits, QC plans and verification solutions that meet today’s organizational compliance needs…. We guarantee 4-6-week report delivery. At QMS we are progressive in nature, committed to service, and always evolve to better assist our clients in meeting industry requirements and their unique needs. All solutions are competitively priced and supported by our MARS software, providing transparency to every phase of the quality control process.

April 2020

Loan Origination

WHOSE LOAN IS IT ANYWAY?

By Rob Spellman, RM Spellman Consulting

Does your sales team understand their customersâ&#x20AC;&#x2122; needs as well as their own? Do loan officers ask the right set of questions to become informed counselors or are they order takers and assume they know the right answer going in to the first interaction? Loan originators know that they are one of the top three reasons that a customer works with your firm. Yet, they cannot guarantee that every customer gets the right loan every time. Not transitioning from order taker to counselor is not a new phenomenon. I started in mortgage banking as an intern in 1984. Fixed rates were 16 percent, Adjustable Rate Mortgages, or Variable Rate Mortgages if you prefer, were 9 percent, yet over 50 percent of industry production was fixed rate mortgages.

The MORTGAGE BANKER Magazine

April 2020

If your company offers VA loans, I can predict that the number one factor differentiating your top VA originator from the rest of the pack is that they ask every potential borrower the following question: Are you a veteran? This simple difference shows that most of your sales team is not actually putting themselves out there as subject matter

experts. Taking the time to create an experience that truly differentiates the originator from the competition is the key to future referrals. From a customer standpoint, mortgages are complicated. First time homebuyers are overwhelmed with jargon, angst, and worry that they won’t be able to get their dream home. Repeat customers are sure that the rules have changed from the last time. We can’t expect our customers to know what the right set of loan terms are without guiding them through a discovery process. Imagine for the moment the differentiation from the competition that would exist in a referral sources opinion of your production staff if they knew that EVERY time they sent a customer to them, they knew that the first step in the process would be to discover what their customer needed from the new mortgage. As a realtor, if I knew that by sending my customer to Jane Producer at XYZ Lending they would be put into a loan they would be happy about, that’s a partner I want to use. For decades, the operations teams in your organization have focused

The MORTGAGE BANKER Magazine

April 2020

on process efficiency improvements. The cycle is similar throughout the country: Create an improved workflow, review effectiveness, improve where possible, and repeat this cycle over and over. Yet, when it comes to non-call center originations, we avoid this process like the plague. We assume that originations are not a process, are unique every time, and therefore are somehow immune to process improvements. However, when searching the web for “sales is a process,” over 9.9 million results popped up.

NEEDS INQUIRY – STEP ONE IN DEVELOPING YOUR SALES PROCESS Current Situation balanced by longer term goals. We are all a jumble of current vs. longer term goals. Buy the house today, fund college education for children, fit qualifying ratios, pay off the house quickly, reserve requirements, charitable giving, rainy day funds, vacation around the world... Knowing these goals allows for a customized experience. Offering an 85percent LTV loan vs. 80 percent is a good example. How powerful would it be if your sales team was always

Loan Origination able to say, “Based on our interview, your situation may be best served by only putting 15 percent down to allow you to start your daughter’s 529 account.” This can be as simple as developing an Interview Plan in a Google Doc to as complicated as an artificial intelligence-aided app that generates multiple possible solutions. The key to success starts with alignment with your sales team, which should be developed with input from your sales stars and front-line sales managers. It won’t be successful without buy in and use. The benefit comes from always using this process and not jumping into the assumed solution. Again, you want to build the reputation that you always go through your needs determination process. Who, What, Why, and When are a great way to start the development of an interview tool: • Who o Borrower and co-borrower information, including contact information o Age, focusing on both borrowers and their dependents o Current financial situation • What o Transaction desired

o Primary needs – Short=term and long-term (5 – 15 years) - Low payments to qualify - Low interest paid over life - Pay off the loan by 20XX - Build equity - Savings needs • Why o Refinance to lower cost or cash out o Purchase first house or house we can live in forever o Expect to be in the home for XX years o Risk willingness – conservative or aggressive • When o ASAP o Expect to close by XX o Starting home purchase search Focus on what your team wants to know to generate great options. Again, their input and involvement in developing and owning this tool is critical to the adoption of the tool. Once your team knows the specifics of this customer’s situation, they can use their knowledge to offer a customized solution. Product knowledge is different than Sales knowledge. Product knowledge includes loan parameters, qualifying criteria, rates, and fees. Sales knowledge goes further to understand when, how, and

The MORTGAGE BANKER Magazine

April 2020

why the product fits the needs of a specific customer. However, you can’t always apply sales knowledge if you don’t first know every customer’s situation. Now that you’ve implemented a repeatable process into your sales organization, you can then reap all the benefits that come from process improvement: • • • •

Manage to it Review it Refine it Repeat it

An interview plan that you use for all potential customers creates a value differentiator between your loan originator and all others. Millennials are looking for an experience they can recommend. Realtors want to know that they will earn future business from their buyer as well as their social network because they recommended an originator who took the time to know their customer’s needs. By being a true counselor and not just an order taker, your team will have a repeatable customer experience that delivers value and creates future business. To answer the question in the headline, ‘Whose Loan Is It Anyway,’ it is always this unique customer’s loan. MBM

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Loan Origination

Mortgage Refinance Applications Triple from a Year Ago, But Will They All Fund? By Colin Robertson, The Truth About Mortgage

While the mortgage market has become a bit of a mess lately, lenders are apparently still totally slammed and doing record business. For example, Quicken Loans CEO Jay Farner told Bloomberg today that, “March will be the largest closing month in our company’s history and we imagine April will be even bigger.” Amazingly, loan applications are only taking an extra day or two to process, with the average 30 or 31 days, per Farner. That’s significant because they are the nation’s top retail mortgage lender, so it bodes well for the industry as a whole. This despite some 98 percent of Quicken’s 18,000-strong workforce doing it from home, The MORTGAGE BANKER Magazine

including Farner. The reason is obvious—mortgage rates are super cheap, and had actually hit all-time record lows in early March before a flood of applications oddly crippled the market. Then came the coronavirus outbreak, which further complicated matters, forcing the Fed to take action and start a new round of quantitative easing known as QE4 to boost liquidity on the secondary market. It has also forced Quicken to double its call center workforce in anticipation of the many calls it will receive from borrowers about loan forbearance and loan modifications as job losses surge. 24

April 2020

LOTS OF MORTGAGE APPLICATIONS, BUT ALSO PLENTY OF QUESTIONS

However, while the coronavirus may have initially led to a mortgage rate swoon, lenders are now grappling with issued related to the many stay-at-home orders enacted throughout the country.

NEW PROBLEMS MORTGAGE LENDERS FACE • Home appraisal issues as social distancing measures are in place • Rate lock issues due to disruptions in the secondary market • Fallout if mortgage rates rise from application to closing • Title insurance, real estate attorneys, and recordings as offices close • Poor liquidity for jumbo loans and non-QM loans This makes it more difficult for appraisers to do their jobs, with alternatives now in place that no longer require them to enter the borrower’s home. The same goes for getting verifications of employment (VOEs), which ensure the borrower is still employed at the company they say they work for, an important consideration when handing out hundreds of thousands of dollars. Then there’s the issue of title insurance, with some county recorder’s offices closed while the lockdown measures are in place. Similarly, notaries and real estate attorneys might be unable to do their work if remote solutions are not made available. Another issue is rate locks—some lenders are now making borrowers wait until they’re effectively clear to close before allowing them to lock in a mortgage rate. This presents another risk to the loan, assuming pricing has worsened from the beginning of loan origination to closing. Aside from a higher mortgage rate potentially making a borrower ineligible for financing, depending on DTI constraints and affordability, it could also make the loan less favorable to the borrower. If they began the process expecting a rate of 3.25 percent on a 30-year fixed, only to be told they can lock at 3.75 percent or higher, they might balk and simply walk from the loan.

Mortgage refinance applications have tripled from a year ago, per a new report released today by LendingTree. The company noted that it’s based on applications submitted on the LendingTree mortgage shopping platform, which includes more than 500 mortgage lenders nationwide. In San Francisco, such requests were up a whopping 417 percent from a year earlier, which might explain why lenders are inundated. On the state level, Nebraska surprisingly led the way with refi apps up 338 percent from the same period in 2019, granted loan volume is probably low relative to other states. The MORTGAGE BANKER Magazine

April 2020

Loan Origination So while there’s been a flood of mortgage applications, we may see some higher fallout than usual if these friction points aren’t resolved. Let’s not forget non-agency loans, such as jumbo loans and non-QM, which are facing a liquidity crisis of their own. The Fed is buying agency mortgagebacked securities (MBS), but there’s nothing in place to help those selling jumbo MBS or nonQM MBS. Assuming a lender is still originating jumbo loans, expect mortgage rates to be higher, all else being equal. Speaking of non-QM loans, scores of lenders have suspended operations, stopped rate locks, and basically pivoted to agency stuff until the dust clears. It feels like 2006, to the point where I could start a list of closed lenders again.

• Home purchase apps decreased 15 percent as buyers sit on the sidelines • Purchase activity has slowed tremendously in hard-hit area like CA and NY • Silver lining might be a more resilient and adaptive mortgage industry going forward Meanwhile, the MBA said this morning that home loan applications plummeted 29.4 percent from a week earlier as mortgage rates climbed higher due the issues mentioned above. That pushed refinance apps down a massive 34 percent, though considering how busy lenders are, it’s probably a good thing, at least temporarily. The bigger issue is home purchase applications, which fell 15 percent from a week ago, a sign that the spring home buying season is essentially frozen thanks to COVID-19. The numbers have really tanked in California (-23 percent), New York (-17 percent), and Washington (-15 percent), areas severely impacted by coronavirus. And it’s bound to get worse as more states and municipalities declare emergencies and shelter in place directives. Sure, you might be able to attend a virtual showing on your tablet or smartphone, but it’s pretty tough to really get a feel for a home remotely. This partially explains why all the major iBuyers put their own home purchases on hold earlier this week. Everyday Americans will probably follow suit, which means we might wind up with a fall home buying bonanza. That’s the upside at least. The other potential silver lining here is the mortgage industry might evolve as it’s forced to embrace new technologies. This could make it more resilient and better able to handle all types of different scenarios/crises in the future. It could also make the process of obtaining a home loan a lot less painful.

WEEKLY MORTGAGE APPLICATIONS TANKED • Refinance apps fell 34 percent from a week ago as mortgage rates increased

Editor's note: This article was originally published in The Truth About Mortgage.

The MORTGAGE BANKER Magazine

April 2020

Technology

The Best Benefit of Cloud Adoption: Security By Russell Mosley, TISTA Science & Technology

inancial institutions realize they must invest in security to avoid costly breaches and protect their customersâ&#x20AC;&#x2122; data. The cost of security will continue to rise because threats and regulatory requirements are moving targets. Most businesses can no longer justify the nonstrategic expense of maintaining security at the required levels with internal resources. A core asset of cloud services is securing data. A significant way to reduce security concerns in the financial industry is to consider migrating applications to the cloud. Outsource the protection of data and the increasing workload to meet privacy regulations and data security requirements to the experts who maintain cloud services. It might seem counterintuitive at first, although migrating your applications to the cloud, for most companies, will result in better data security and easier compliance. Whether The MORTGAGE BANKER Magazine

you are looking to move your application to a cloud infrastructure or migrate to a cloudbased Software as a Service (SaaS), this article will demonstrate how security and compliance should be leading drivers in the move to cloud adoption, and give you knowledge to help evaluate which cloud providers have the best security program in place.

WHAT MAKES CLOUD PROVIDERS SO SECURE?

The entire business model of cloud service providers depends on providing highly reliable and secure services. Cloud vendors are forced to approach security differently. They have poured billions of dollars into research and development because a major breach would irreparably damage their reputation. They architect cloud infrastructure with redundancy, performance, and security at the core of the offering. Custom applications, especially those built more than ten or twenty years ago, arenâ&#x20AC;&#x2122;t 28

April 2020

CLOUD ADOPTION DOES NOT RELINQUISH YOUR RESPONSIBILITY TO PROTECT THE DATA.

comparable in the level of security planning, architecture, redundancy, and layers of defenses included in today’s cloud infrastructure. Information security teams are expensive to maintain. Thanks to their size and scale, cloud service providers have more resources, including security experts, than their general client base. During a disruption of service or natural disaster, localized or widespread, cloud adoption allows you to disperse the resources and responsibility to keep systems available and secure.

Particularly when migrating in-house applications to cloud-based systems, keep in mind that using cloud services does not relinquish your responsibility to protect the data. Cloud security is based on a shared responsibility model. You inherit the cloud provider’s controls over the infrastructure, and your application has to have proper security built-in and be well maintained to protect the access to that data. You also can’t use the cloud provider’s audit report to avoid a complete audit of your system and your organizational governance. Yes, the cloud provider’s report will reduce the scope of your audit, but you will still need to show governance (policies, management reviews), risk assessments, and security controls at your organization and in your application.

CLOUD MAKES COMPLIANCE EASIER. In order to comply with government security and privacy regulations, controls must be established to protect the processing and the storage of sensitive data, network connectivity, and applications, which have access to that data. Generally, the systems and networks where the data are processed or stored are “in scope” for audit and compliance. When financial data is stored and processed on inhouse applications, the site must maintain expensive controls around this environment, the systems, the storage, and backups; and, even your company’s operational networks may be in scope. When you migrate applications to the cloud, you can isolate the scope and inherit the controls the cloud provider has in place to protect the data. Cloud service providers undergo annual audits which you can use to supplement your compliance requirements. The Payment Card Industry Data Security Standard (PCI DSS) evolved in the mid 2000s applicable to organizations that process credit card payments. Every online business used to process credit cards. Hackers targeted poorly maintained, low-budget sites and there were massive credit card breaches. The credit card industry announced the PCI DSS and most businesses realized it was cost prohibitive to become “PCI compliant” since it requires a tremendous investment in security controls and review. As a result, most companies outsource credit card processing to dedicated card processing vendors and transfer the risk. Similarly, cloud services will transfer some of the risk and compliance regulations in the mortgage and finance industry. The MORTGAGE BANKER Magazine

HOW DO I EVALUATE THE SECURITY OF CLOUD PROVIDERS? Standards like ISO/IEC 27001 and CMMI are important, and have their value, although these certifications can be provided by audit firms that don’t hold vendors to the standards. Use cloud vendors that have a third-party conduct an annual SSAE SOC 2 audit, preferably a Type 2 audit. A SOC 2, Type 1 audit is a point-in-time audit that you can pass by proving you have safeguards in place at the time of the audit. A SOC 2, Type 2 audit covers a time period, typically the twelve months since the last SOC 2, Type 2 audit. In order to pass, you have to provide evidence that you have ongoing processes and procedures that you follow which meet the standard.

WHAT ABOUT THE PRIVACY OF OUR DATA? Look for cloud vendors with a simple, transparent, easy to read Privacy Policy that’s linked right on its homepage. It should basically say, ‘we don’t use your data for anything other than the application, and we don’t sell your data.’ If the privacy policy doesn’t explicitly say ‘we don’t sell your data,’ guess what? They probably sell your data. I recently reviewed 29

April 2020

Technology the application, SnapComms, that has a good Privacy Policy that clearly explains everything (https://www.snapcomms.com/privacy-policy), and the mobile app “Lockdown,” (https:// lockdownhq.com/privacy) which is even simpler. Compare these privacy policies to your cloud vendors’ privacy policies. Lastly, these are a few more technical details worth consideration as you assess potential cloud vendors:

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• On whose cloud does the application actually run? Stick with applications that run on AWS or Microsoft Azure. They are the most mature cloud providers today.

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• Where is the data stored? Cloud providers store copies or fragments of your data across data centers and geographic areas for redundancy, which sometimes includes other countries. Ask if any of your data will live outside of the U.S. and consider if that’s a risk you're willing to take.

FULFILLMENT Funding Services (funds request & funding review) and Post-Closing Services including shipping, purchase conditions, trailing docs, and more

• How is your data segmented from other customer data? This is a big one. You don’t want any chance of another customer having visibility into your data in the event of a bug or breach. Your data should be physically or logically separate from other customer’s data. You might want to ask an information security pro to help you review the responses to this question.

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• How frequently do they perform backups, where are the backups stored, and are they encrypted? Online backups are at risk of loss in the event of a ransomware attack. It’s best to maintain offline backups at a geographically-disparate location. And back to my earlier suggestion, ask them to provide you with a third-party audit report in order to assess the controls they have in place.

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I hope this article has been helpful and you will use this information to assess potential cloud vendors and to improve the security and privacy within your organization. MBM The MORTGAGE BANKER Magazine

April 2020

Experience Counts

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Technology

Hereâ&#x20AC;&#x2122;s Why State of the Art Mortgage Lending Now Relies on Cloud-Based Services By Eric Drattell, Roostify

The decision to move to the digital mortgage application processing seems like it should be an easy one, never more so than today when the benefits of a digital mortgage platform have never been clearer. However, once mortgage company executives have made the decision to go digital, they are faced with a new set of questions, the answers to which have broad-based implications. Should they leverage the ubiquitous public cloud or elect instead for the private cloud option? Should they build or should they buy? The MORTGAGE BANKER Magazine

This article explores the key questions mortgage executives, including the heads of the mortgage business, the CIO and the CFO, have to consider, and suggests how some of these questions can be best answered.

THE HEAD OF MORTGAGE This executive is concerned primarily with making sure the move from paper-based mortgage applications and a loan officer-driven process to a digital mortgage platform drives customer satisfaction, creates stickiness with customers who are able to access the lenders non-mortgage products, including personal and auto loans, and reduces origination costs. The improvement to customer satisfaction is, to coin a phrase, the greatest no-brainer in the history of mankind. After all, how many customers have said they enjoyed the process of copying all 32

April 2020

inconsistent channels. For example, a surprising percent of homebuyers also buy a car at the same time. Imagine offering the customer the ability to get a car loan or personal loan (‘I will also need window treatments’) in the same portal without the customer having to again upload docs. And, of course, there are the cost savings in the origination process that result from reducing dependence on loan officers and processors. The reduction in costs that comes with the process is obvious: Technology provides everyone involved in originating a mortgage, the real estate agents to the loan officers and beyond, with a seamless, more efficient experience.

THE CIO

The CIO has a number of issues to consider. No doubt the CIO has already concluded that the cloud is the right way to go. No more on-premises data centers that are particularly susceptible to manmade and natural disasters. Anyone remember Superstorm Sandy and what that storm did to New York metro area data centers? No more data centers that could be taken down by a ransomware attack. Perhaps the question that most often keeps the CIO awake at night is whether the lender’s data is secure. Not only is the CIO concerned about data breaches where data is exfiltrated, they are also concerned about malware and ransomware that corrupts or locks down data, but they're also worried about meeting legal requirements when customers exercise their rights under privacy laws such as the California Consumer Privacy Act. The virtual environment in which we now operate is fraught with cyber threats from brazen attackers. While in the past these malevolent individuals were known to brandish tools such as malware and spyware, they are increasingly turning to ransomware as they seek to extort payments from lenders to regain access to their data. A Verizon Business 2018 Data Breach Investigations report disclosed ransomware as the fifth-highest overall cybersecurity threat during the previous year, more prevalent than traditional malware and spyware. The number and sheer boldness of cyber

of their docs, scanning them, and emailing them to the loan officer? None, I am certain. The head of mortgage will sleep better knowing that the customer will have a friction-free experience being able to submit all required documents by merely clicking a button to enable the digital platform to pull in key documentation, including verification of incomes, assets, and employment docs. This state-of-the-art process will appeal especially to millennials, who are currently less than 10 percent of the homebuying population, and who have lived online virtually their entire lives. The head of mortgage will also be a hero because a ‘single-window’ platform through which a customer can get a first mortgage loan, HELOC, car loan, or personal loan enables customers to satisfy all of their loan needs from a single lender, something that has been nearly impossible without the customer having to navigate multiple, often

The MORTGAGE BANKER Magazine

April 2020

Technology threats is growing. Barclays and other banks recently went for an extended time without the ability to make foreign currency conversions for customers when Travelex was hit by ransomware. The BBC reported that the hackers demanded $6 million. And it’s not just financial services that are the targets for ransomware attacks. Across the breadth of industries and services, companies and even government bodies have been victimized. The New York Times has reported on attacks on the New Orleans’s city government, a maritime cargo facility, hospitals, and small businesses. So how does a CIO mitigate the growing risk of cyber threats? There is no simple answer. However, many CIOs have come to recognize that outsourcing to a best-in-class SaaS vendor running on a public cloud service provider, such as AWS, Azure, or Google, can significantly reduce the risk. This is largely because privacy and security of their clients' data is absolutely core to the business of these firms, whereas lending and servicing loans is absolutely core to the business of the lender. And as visionary organizational theorist and management consultant, Geoffrey Moore, observed, a firm should focus on what truly distinguishes the firm in the eyes of its customers (i.e., ‘core’) and consider outsourcing to others what is otherwise necessary to run its business (also known as ‘context’). No lender has ever said that prospective borrowers should choose it because it runs world class data centers. Every reputable SaaS vendor of lending platforms has the typical certifications, including the ISO 27001 and SOC-2 certifications. These certifications attest to their ability to manage security risks consistent with ISO requirements and have in place controls addressing security, availability, and processing integrity. The SOC 2 certification, in particular, is only a ‘point-intime’ certification. More sophisticated vendors obtain a SOC 2, Type II certification that attests to the quality of the vendor’s practices over

The MORTGAGE BANKER Magazine

a period of time. Why do vendors get these certifications and spend a lot of money each year to maintain them? Because without these certifications, their customers have no objective, third-party assurances that their data will be safe, and that threats of ransomware and other forms of malware are appropriately mitigated and managed.

THE CFO The CFO is, as always, worried about the cost of building instead of buying a SaaS solution. And the factors considered are not limited only to the initial costs. For example, if a lender were to build its own lending platform, it likely would have to capitalize those costs, amortizing them over the useful life of the platform. On the other hand, contracting with a SaaS vendor for the platform will be an operating expense, which many CFOs find preferable. Even if capex vs. opex were not a factor, there’s the costs of building the platform. A well-architected platform, using microservices as building blocks, likely costs in the tens of millions of dollars, and that’s not even accounting for enhancements and upgrades. Moreover, for a web-based platform to meaningfully enhance customer satisfaction by making it seamless for the borrower to pull in documents from third parties, the platform will need integrations with VOA/E/I vendors, credit services, and a raft of other data and information providers. That work, while not necessarily technically challenging, takes a lot of time. Then there is the cost to have in place world-class privacy and security capabilities. Companies that operate their own infrastructure often find out about nascent threats only when they are affected. SaaS vendors, however, often are able to spot threats before they pose a risk to their clients because of the vast networks they manage and maintain. MBM

April 2020

Compliance

CLOSING THE GAPS IN YOUR CONTINGENCY PLAN

BY FELECIA BOWERS, HOMEOWNERS FINANCIAL GROUP

oes anyone remember the Seinfeld series and the “close talker”? Jerry ended up wearing the unflattering puffy shirt as a result of his experience with this individual. Close talking has been replaced with a new phrase, social distancing. I have a feeling that this phrase and its implications will not end when this pandemic is over. We received a few COVID-19 emails in January and February with our email folder exploding in March. By now you have probably all activated your contingency disaster plans

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or if you had no plan, you quickly punted to develop and roll out a plan. Who would have thought that our contingency plan would need to include the following? • Addressing recording the security instrument for our transaction because of county closures, inability to e-record, or delayed recordings. • Dusting off gap insurance with the title insurance industry. • Inability to verify continued employment 10 days before COE due to businesses across the country shutting down. Flexibility has been granted by the Agencies as I write this, but we have yet to fully see

April 2020

the repercussion in the employment data since public-facing information is running behind. We continue to exhibit deterioration in the job market via job loss or hours being cut.

• Who are they key players in planning and deployment? Now is not the time for someone to attempt to take the “savior” role with no clue on what or how to implement the plan. These plans require the whole team.

• Appraisers not being allowed to access homes to complete interior inspections. Thankfully the agencies issued some flexibility with property waivers, desk reviews, and drive-by appraisals.

• Prioritization of the workload. Deploying a remote workforce causes additional strains on systems as well as home systems especially when families are sharing the internet with kids gaming, streaming movies, and cell phones. Staggered hours with the remote workforce may be needed.

• The repercussion of what happens if one or more investors pull out of a specialized market; for instance, non-QM, and you have no source in which to sell these loans. Do we risk reputational damage or the wrath of our regulators?

• Weather and natural disasters such as tornadoes, blizzards, flooding, mudslides, avalanches, extreme heatwaves, volcanoes, and earthquakes. Heatwaves? The last main heatwave was in 1936 with temperatures reaching 121 degrees. Think about how far we have progressed since 1936 with computers. Then think about what would happen of an electrical grid failure and the impact on AC units in the office or server rooms.

• The construction industry has been impacted with lenders deploying a remote workforce, sales office visitors drastically cut with people sheltering-in-place, security instruments can’t be recorded, inspectors are off or back-logged, etc. • IT staffers are also working remotely and trying to handle incident problems with a remote workforce.

• Fire. I’m certain the Town of Paradise, CA did not plan for their entire town to be impacted by wildfires in the area, but it happened.

These are but a few of the current challenges we are facing. So, why am I reminding you of these things? These issues and others that continue to pop up should be noted and incorporated into what is sure to be, future modifications in your contingency disaster plans. Now is the time to identify weaknesses in the current plan and how to ensure those weak points do not occur again and how to close the gaps. Now is also the time to look at your plan to ensure you have covered other possible hiccups that may occur. Let me give you some examples of what I’ve had to build into plans or experienced:

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• Do you have one or more offices located near railway tracks? While at a former employer, the tracks ran through our back parking lot. We had to have an evacuation plan in place, plans for hazardous spills, and derailments. • Trains carry a lot of unknown cargo also. I was unfortunate enough to experience one such disaster in 1973 in Roseville, CA. A freight train with 20 cars carrying live bombs caught on fire. For over five hours,

April 2020

Compliance bombs were exploding, ripping through homes and businesses, and completely leveling the area immediately surrounding the railyard. Evacuations were mandatory because shrapnel was everywhere. The impact of the explosions caused some unexploded bombs to be driven deep into the ground creating more issues trying to locate and detonate those bombs. As drastic as this sounds,no one lost their life. That was a blessing.

licensing for a new office? • Are your back-up servers far enough in distance that one disaster will not impact all back-up servers? • Have you identified essential and nonessential personnel by levels? • At a former employer, we even had travel limitations, meaning no more than two executives could be on the same plane or car. • HIPPA privacy should be of concern such as the one involving this pandemic. WARN Act implications?

• Do you have back-up generators and how often are they tested? At a former employer, we had an electrical hiccup causing our back-up generator to kick in. About two hours later, we had a visit from several environmental agencies as well as the fire department. It seems our generator leaked gasoline into a creek, a salmon habitat, and the gas flowed down the creek to the next town about 15 miles away. The fire department walked back up the creek to the source of the gasoline, our bank. Environmental clean-ups are not cheap, and negligence is not covered by insurance. We also found out we could not suit up and clean the creek ourselves.

• Ensure your cyber insurance coverage is current and reviewed frequently as the company expands or contracts with staff, new processes, new vendors, etc. • Do you have a centralized place for employees to get updates when the plan is deployed? Phone or a texting tree? Identified critical third-party vendors? Who will be responsible for communicating to employees and vendors, state agencies, GSEs, the CDC, or OSHA issues? Your plans need to focus on the immediate need, what to do if something goes wrong and the long-term impact. And, don’t forget that usually, the rest of the demands on your organization are still popping up such as filing annual reports with state SOS offices, annual state reports, MCR filings, HMDA filings, business license renewals, CE requirements, exams, etc. There is so much to consider and the best way to address these suggestions, plus any that are significant to your organization, is to create a task force, identify the possible situations and break things down into small pieces. And don’t forget to test and update frequently. I suspect that very few of us had a world-wide pandemic in our contingency plan. MBM

• Have you ever had your office surrounded by the police? Been there, done that. We were in a meeting in a beautiful atrium room when we received word there was a shooter on the roof. The funny part of this story is that all the men in the room jumped up and ran into the hallway closing the door behind them. I was standing in the atrium with the other two women, dumbstruck when I decided to loudly state, “So much for women and children first motto!” The door slowly open and we were allowed into the inner sanctum of the hallway. • Will an event create the need to contact a state licensing agency to seek emergency

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April 2020

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Compliance From the Desk of the ‘Om-Bobs-man’

"Om-Bobs-Man" is the nickname Bob Niemi earned while serving as the NMLS Ombudsman in 2014 and 2015. Bob is a former Ohio state regulator and now an expert consultant on NMLS and state regulatory matters. Bob can be reached at BNiemi@Bradley.com.

You’ve Got to Fight for Your Regulator

he 2020 NMLS Annual Conference took place in mid-February with record attendance in San Francisco. The featured sessions were Networked Supervision, State Examination System, Licensing, Temporary Authority and the Ombudsman Meeting. The one topic on everyone’s mind was the re-engagement for the NMLS. A new ‘modernized’ NMLS will be developed with data driven and intuitive functions, but also a phased implementation plan. The modernized NMLS is founded in Networked Supervision, where a core-state reviews the common license requirements. Then state specific requirements are reviewed prior to approval in each subsequent state. The concept has been utilized in the money services business and will be phased in money services prior to mortgage licensing. The State Examination System, or SES, received positive reports from regulators and industry users during the fall pilot. The SES will allow regulators to maintain oversight while making the process more efficient by using a single system for the industry and regulators during exams. A single technology platform provides this

collaboration between states and the industry as well as additional state acceptance. The outstanding question will be the adoption of consistent policies to utilize the SES efficiently and state willingness to accept completed exams. Licensing sessions covered a deeper discussion on Networked Supervision, though state policy and process are still in development. Another panel discussed current branch licensing and cloud-based originations systems. The session featured good interaction on how regulators can keep pace but also how better to supervise a lender today. The session also reviewed how the streamlined branch licensing would be implemented with networked supervision. The Temporary Authority (TA) Panel shared an update on the utilization of the new authority. The session shared that of the 44,458 MLO applications, over 21,000 were eligible, while almost one-third required some additional background review. The session also covered reporting and enhancements that should be released in April. The Ombudsman meeting was highlighted by discussions on TA, Mortgage Call Reports, and

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April 2020

expiration of the ombudsman’s term. I submitted a letter for the creation of a regulatory tracker of the overlays made by states when implementing Temporary Authority, which would provide direct links on the TA Resource Page to state rules or regulations. Kobie Pruitt of the MBA reviewed some of the modifications made to implement TA. He also questioned the Georgia TA disclosure and lack of inclusion regarding consumer access. He also advocated for similar authority when moving from licensed mortgage companies within the same state. Rich Cortes from Connecticut and chair of the MCR working group requested that the latest update to the Mortgage Call Report be implemented as soon as possible. The revision has been delayed for NMLS2.0 but cannot be delayed any longer. This will provide required financial information and reduce burden on smaller- and medium-sized mortgage companies. Last, Scott Corscadden became the first ombudsman to complete the four-year term. He received a standing ovation for his service from both the industry and regulators. Now the search for a new ombudsman begins. MBM

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Compliance

Compliance Alphabet Soups Each month we will serve up cans of Alphabet Soup applicable to the mortgage industry. Each flavor of Alphabet Soup will include the soup’s acronym and its actual name, and a hyperlink to the regulation, law, or rule from the agency that administers it. It’s all right here; relax and enjoy reading your favorite bowl of Mortgage Compliance Alphabet Soup.

UDAAP – Unfair, Deceptive, or Abusive Acts and Practices Unfair, deceptive, or abusive acts and practices can cause significant financial injury to consumers, erode consumer confidence, and undermine the financial marketplace. Under the Dodd-Frank Act, it is unlawful for any provider of consumer financial products or services or a service provider to engage in any unfair, deceptive, or abusive act or practice. The CFPB has rulemaking authority for UDAAP and, with respect to entities within its jurisdiction, it has enforcement authority to prevent unfair, deceptive, or abusive acts or practices in connection with any transaction with a consumer for a consumer financial product or service, or the offering of a consumer financial product or service. Unfair Acts of Practices – The standard for unfairness in the Dodd-Frank Act is that an act or practice is unfair when: • It causes or is likely to cause substantial injury to consumers; • The injury is not reasonably avoidable by consumers; and • The injury is not outweighed by countervailing benefits to consumers or to competition. Deceptive Acts or Practices – The Dodd-Frank Act specifies that a representation, omission, act or practice is deceptive when: • The representation, omission, act, or practice misleads or is likely to mislead the consumer; • The consumer’s interpretation of the representation, omission, act, or practice is reasonable under the circumstances; and, • The misleading representation, omission, act, or practice is material. Abusive Acts or Practices – The Dodd-Frank Act makes it unlawful for any covered person or service provider to engage in an “abusive act or practice.” An abusive act or practice: • Materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service or • Takes unreasonable advantage of: o A lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; o The inability of the consumer to protect its interests in selecting or using a consumer financial product or service; or o The reasonable reliance by the consumer on a covered person to act in the interests of the consumer.

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April 2020

Consumer Complaints and UDAAP Consumer complaints play a key role in the detection of unfair, deceptive, or abusive acts or practices. Consumer complaints have been an essential source of information for examinations, enforcement, and rule-making for regulators. As a general matter, consumer complaints can indicate weaknesses in elements of the institution’s compliance management system, such as training, internal controls, or monitoring. Part of an institution’s compliance program should include mortgage complaints resolution. Some complaints will be routed through regulatory agencies and the institution should establish a process to handle regulatory complaint resolution. Mortgage complaint filing may come from the CFPB, as the agency accepts such complaints through its online complaints portal. Regardless of the method by which the institution receives the mortgage complaint filing, it should ensure it documents the investigation, resolution, and communication as part of the mortgage complaint records to evidence compliance. UDAAP Compliance Financial institutions need to implement comprehensive and effective UDAAP compliance management programs. UDAAP implementation, training, and monitoring should be included throughout the compliance program with other laws and regulations. Coverage of UDAAP is broad. Its requirements and prohibitions should be included in, but not limited to: • Written policies and procedures in all areas; • Credit products, underwriting standards and procedures; • Deposit product terms and fees; • Internal or external collections; • Training; • Business development, marketing and advertising; • Product development, terms and conditions; • Third-Party Vendor management; • Enterprise Risk Management programs; • Communication channels, including social media; • Customer and consumer complaints; • Internal and external audits; • Compliance monitoring and review activities; and, • Board of Director and Senior Management discussions.

http://files.consumerfinance.gov/f/201307_cfpb_bulletin_unfair-deceptive-abusive-practices.pdf https://www.consumerfinance.gov/policy-compliance/guidance/supervision-examinations/

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April 2020

Capital Markets

A SYSTEMIC PROBLEM How the Coronavirus Pandemic is Affecting Capital Markets By Rob Chrisman, Captial Markets

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April 2020

he coronavirus has knocked the financial markets off their feet, including all facets of the mortgage origination process. Potential borrowers won’t meet with LOs, notaries are hesitant to perform their functions, and county recorders are partially staffed. It is a systemic problem. In the capital markets, no one wants to buy certain types of loans and certain types of servicing. Mortgage pricing has become erratic at every lender, and prices no longer move in tandem with U.S. Treasury securities. Investors that were paying higher-than-market prices for loans in 2019, and for the rights to service those loans, are watching those same loans refinance and the expected servicing income vanish. The bond market, and therefore interest rates, continues demonstrate concern about jobless claims, which might be understated as small companies (restaurants, retail etc.) are not offering employees hours. Some economists believe that our national unemployment rate, which was 3.5 percent in February, will hit 30 percent. (It hit 24.9 percent in 1933.) The good news? Some analysts believe they will snap back quicker than normal this time depending on the length of the pandemic. The Federal Reserve has put swap lines in place to enhance liquidity in the currency markets, and, on March 23rd, announced a basically limitless support of the Treasury and MBS markets. The Fed buying hundreds of billions of dollars of mortgages helps to calm markets. During stress in the world economy, central banks need liquidity as the demand for dollars skyrockets, and the swap lines will enable other currencies to remain supported. Throughout March, Agency MBS prices have been volatile enough. But in the non-Agency market, non-QM is now bleeding into the jumbo market. Most lenders shut down non-QM investors and products as no one wants to be the last retail or

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wholesale lender offering a particular product. NonQM and jumbo investors rely on capital markets for liquidity, and this dried up in the second half of March. One mantra for anyone in capital markets is to always have two or more investors for any loan type. Some warehouse banks feel the same way. The combination of liquidity in the non-Agency bond market drying up, Agency paper being very volatile, and lenders pricing to capacity, has driven mortgage rates back up. Lenders need a sound secondary market, but in the second half of March investors found MBS unattractive. No one knows how broad or what the duration of the economic effects of the coronavirus will be, or what will happen to credit risk, delinquencies, and foreclosures. The uncertainty causes lenders to offer higher rates compared to the traditional spreads. And there is an industry-wide capacity problem of trying to close five times the normal industry yearly average in three months. It isn’t going to happen. In this type of market and economy, the big fear lies in delinquencies and foreclosures. Put another way, rates are great, but if a borrower can’t make their payment, what difference does it make? We could easily see delinquencies reach 2008-2010 levels. Freddie Mac and Fannie Mae have put programs in place to help borrowers, help with verbal verifications of employment, and help with the appraisal process. Economists everywhere are lowering their forecasts for global economic growth to include a global recession that we can expect will be short but deep. This recession, while helping keep rates low, will hurt millions of potential borrowers across the United States in terms of their credit; thus, in qualifying for a refinance or purchase. Through all of this, lenders are concerned about having adequate warehouse lines and programs to fund their clients’ loans, and are doing the best they can to ride out the storm in the capital markets. MBM

April 2020

Legal

The CFPB Brings Some Clarity to the ‘Abusiveness’ Standard Under UDAAP By Peter Idziak, Polunsky Beitel Green

n January 24, 2020, the Consumer Financial Protection Bureau (CFPB) published a Policy Statement clarifying how it intends to apply the “abusiveness” standard in future enforcement and supervisory matters concerning unfair, deceptive, or abusive acts or practices (UDAAP). The Policy Statement provides that, going forward, the CFPB will generally direct its supervisory and enforcement actions in the following ways: • Focusing on citing or challenging conduct as abusive only if the CFPB concludes the harms to consumers from the conduct outweigh its benefits to consumers. The consideration of harms and benefits will be qualitative as well as quantitative. • Avoiding alleging an abusiveness violation that relies on all or nearly all the same facts as an unfairness or deceptive violation. • Not seeking certain types of monetary relief where the covered person was making a good-faith effort to comply with the abusiveness standard. The Policy Statement was issued in response to

long-running concerns from industry stakeholders that the statutory standard was unclear, that past CFPB guidance had been insufficient, and that past enforcement practices had inconsistently applied the abusiveness standard. For those of us within the mortgage industry, any clarity is welcome. Although to date the vast majority of CFPB actions alleging claims of abusive behavior have involved companies and individuals engaged in nonmortgage consumer lending, the abusiveness standard was included in the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), specifically in response to concerns that mortgage lenders, bankers, and brokers had taken unreasonable advantage of consumers by recommending mortgage products that were illsuited to the consumer. There is always risk that the regulator will decide a particular act or practice that was long thought acceptable by the industry is in fact unfair, deceptive, or abusive.

THE CFPB’S AUTHORITY TO REGULATE UNFAIR, DECEPTIVE, OR ABUSIVE ACTS OF PRACTICES

As part of Dodd-Frank, the CFPB was granted the power to prevent a covered person or service provider from “engag[ing]

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April 2020

in any unfair deceptive, or abusive act or practice.” This was an expansive grant of authority to the new regulator, with one scholar calling it “the most threatening” of all the CFPB’s powers. The standards for ‘unfair’ and ‘deceptive’ behavior are fairly well-developed in consumer protection law. For over 80 years, the Federal Trade Commission has used its authority under the FTC Act to address unfair and deceptive acts and practices that harm consumers, establishing a robust framework of regulation, caselaw, and agency policy statements that provide a reasonably clear definition of these concepts. However, the term ‘abusive’ was entirely new in consumer protection law, and the limited legislative history did not make clear Congress’ intent in adding the standard. As CFPB Director Kathleen L. Kraninger herself noted, the abusiveness standard “does not have the long and rich history of unfairness or deception,” which has led to “uncertainty creat[ing] impediments to innovation and other salutary developments in the marketplace.” Compounding the problem is that many find the statutory text unclear. Under Dodd-Frank, an “abusive act or practice” requires that the act or practice (1)

unfair or deceptive. This so-called “dual pleading” often meant that it was difficult to discern what conduct would only violate the abusiveness standard. The Policy Statement recognizes that past CFPB actions have caused uncertainty and states that the CFPB hopes its new focus will provide “more certainty” and “more clarity” to those subject to its supervision or enforcement.

THE POLICY STATEMENT DOES NOT PROVIDE PERFECT CLARITY WASHINGTON, DC - MARCH 14, 2019: Consumer Financial Protection Bureau entrance, aka the CFPB at sunset. Note logo through lobby window. 17th Street downtown DC.

materially interferes with the ability of a consumer to understand a term or condition of a consumer financial product or service; or (2) takes unreasonable advantage of (A) a lack of understanding on the part of the consumer of the material risks, costs, or conditions of the product or service; (B) the inability of the consumer to protect the interests of the consumer in selecting or using a consumer financial product or service; or (C) the reasonable reliance by the consumer on a covered person to act in the interests of the consumer. None of the underlined terms is defined in the statute, and none has been clearly defined either by the CFPB or through litigated court opinions. In fact, to date, there has been no circuit court opinion that has defined the abusiveness standard.

PRIOR CFPB ACTIONS INCREASED UNCERTAINTY

Prior to the issuance of the Policy Statement, the CFPB’s

supervisory and enforcement actions often either failed to clarify, or in some cases added to, industry uncertainty as to what the CFPB considered abusive conduct. For example, the CFPB’s Supervisory Manual section on UDAAP merely recites the statutory definition of “abusive” without providing any descriptions or examples of abusive conduct, in contrast to unfair and deceptive behavior, for which the Manual provides several examples of each. The CFPB’s enforcement actions have further confused the matter. Enforcement actions have inconsistently applied the abusiveness standard, alleging abusive behavior in some actions but not others, despite the underlying behavior at issue being highly similar. Perhaps even more frustrating, in 30 of 32 enforcement actions, the CFPB alleged that particular act or practice was both abusive and

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April 2020

As one appellate court judge stated, in issuing the Policy Statement, the CFPB has “provided for those seeking clarity a half victory.” Although the Policy Statement is a helpful step in clarifying the abusiveness standard, it is important for those subject to CFPB supervision and enforcement to remember that it was not issued subject to a formal rulemaking process; and, therefore, the CFPB is free to rescind the Policy Statement without formal notice or rulemaking. Perhaps more importantly, the CFPB makes clear in the Policy Statement that although it will “focus” its enforcement and supervisory actions on the areas indicated in the Policy Statement, it is still free to pursue actions against behavior it alleges to be abusive outside those areas. Therefore, lenders, bankers, and brokers must be mindful that although the Policy Statement does provide some clarity and outline of current CFPB priorities, in the future those priorities may change. MBM

Legal

Mortgage Banking Lawyers These attorneys are universally recognized by their peers as setting the highest standard for the legal profession, excelling in all fields – knowledge, analytical ability, judgment, communication, and ethics.

Thomas F. Vetters II Managing Partner

Mitchel H. Kider Managing Partner

Thomas E. Black, Jr. Managing Partner

tvetters@ravdocs.com 512-617-6374

kider@thewbkfirm.com 202-557-3511

tblack@bmandg.com 972-353-4174

Thomas Vetters is the managing partner of Robertson Anschutz Vetters, LLC (“RAV”) where he has spent his entire legal career developing a comprehensive expertise in the mortgage lending and compliance industry and helped develop the firm’s 50-state document software Docs on Demand®. Thomas is Board Certified in Residential Real Estate Law by the Texas Board of Legal Specialization.

In his 35 years as a practicing attorney, Mitch has represented banks, mortgage companies, residential homebuilders, real estate settlement service providers, credit card issuers, and other financial service companies in a broad range of matters. Mitch represents clients in investigations and enforcement actions before the Consumer Financial Protection Bureau, Department of Housing and Urban Development, Department of Veterans Affairs, Department of Justice, Federal Trade Commission, Ginnie Mae, Fannie Mae, Freddie Mac, and various state and local regulatory authorities and Attorneys General offices. In addition, Mitch acts as outside general counsel to smaller companies and special regulatory and litigation counsel to Fortune 500 companies.

Thomas E. Black, Jr. is managing partner of Black, Mann & Graham, LLP. Founded in 1997, the firm has offices in Dallas, Flower Mound, and Houston, Texas. Tom practices in the area of residential real estate law representing many of the nation’s largest banks and mortgage companies. He has been admitted to the practice of law in New York, Texas, Iowa and Washington. In 1976, Tom received a B.A. degree from the University of Notre Dame. He received his J.D. degree from the University at Buffalo in 1979 and an M.B.A. degree from The University of Notre Dame in 2008. After holding senior positions with a number of national mortgage companies, he returned to the practice of law in Texas in 1995. A frequent mortgage industry lecturer, he taught more than 25 years in the Mortgage Bankers Association’s School of Mortgage Banking. He is active in community service and held a variety of board positions, and serves as a Trustee of the University of Buffalo Foundation and of Saint Mary’s College, Notre Dame, Indiana.

Thomas currently serves on the Board of Directors for the Texas Mortgage Bankers Association and previously chaired their Regulatory Compliance Committee, Education Committee and served on their Executive Committee. Thomas has prepared and presented papers on Texas Home Equity, Privacy, Safeguards, Loan Originator Compensation, ATR/QM and the TILA/ RESPA Integrated Disclosures. He is admitted to practice in the State of Texas and the U.S. Western District of Texas. RAV’s offices include Houston, Austin, Plano, and The Woodlands.

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April 2020

James W. Brody, Esq. Mortgage Banking Practice Group Chair jbrody@johnstonthomas.com 415-246-3995

Roger Fendelman Principal

Marty Green Attorney

roger@garrishorn.com 636-399-0169

marty.green@mortgagelaw.com 214-691-4488 ext 203

James Brody actively manages all the complex mortgage banking litigation, mitigation, and compliance matters for Johnston Thomas. Mr. Brody’s experience centers on those legal issues that arise during loan originations, loan purchase sales, loan securitizations, foreclosures, bankruptcy, and repurchase & indemnification claims. He received his B.A. in International Relations from Drake University and received his J.D., with a certified concentration in Advocacy, from the University of the Pacific, McGeorge School of Law. He was a recipient of the American Jurisprudence BancroftWhitney Award. He is licensed to practice law in California and has been admitted to practice in front of the United States District Courts for the Central, Eastern, Northern, and Southern Districts of California. In addition, Mr. Brody has served as lead litigation counsel for numerous mortgage banking and commercial related disputes venued in both state and federal courts, in a direct capacity or on a pro hac vice basis, in AZ, CA, FL, MD, MI, MN, MO, OR, NJ, NY, PA, TN, and TX.

Roger Fendelman is a managing member of Garris Horn PLLC and CEO of Firstline Compliance. A mortgage compliance technology pioneer with more than 25 years of legal experience, Roger advises both mortgage originators and technology providers on compliance, technology, and automation challenges, with a focus on TILA, RESPA, QM, HOEPA, TRID, HMDA, ECOA and state consumer protection laws. For more than a decade, Roger served as the executive compliance leader of mortgage fraud and compliance technology innovator Interthinx and was the creative force behind PredProtect, one of the first cloud-based mortgage compliance automation solutions. Under Roger’s stewardship, the system became an industry standard for compliance, processing one million loans annually and earning a 2014 HousingWire AllStar award. He previously served in various capacities including compliance manager, processor and underwriter, providing him with an enhanced level of understanding for his clients’ day-today compliance needs.

Marty Green leads the Dallas office of Polunsky Beitel Green, one of the country's top residential mortgage law firms. Mr. Green is an accomplished attorney with more than 20 years of experience in the legal, banking and financial services industries. He is the former Executive Vice President and General Counsel for Dallas’ CTX Mortgage Co. and previously worked with the Baker Botts law firm in Dallas as Special Counsel. In his role as leader of the firm’s Dallas office, Mr. Green advises clients on the latest rules and regulations covering residential lending, in addition to building on Polunsky Beitel Green’s long tradition of delivering loan closing documents with speed and accuracy. Mr. Green is admitted to practice before all Texas state and federal district courts in addition to the U.S. Court of Appeals for the Fifth Circuit. An honors graduate of the University of Texas School of Law, he earned his undergraduate degree at Southern Utah University. Texas Monthly has selected him as a Super Lawyer multiple years.

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April 2020

The C-Suite

Three of the Biggest Challenges Currently Facing the Mortgage Industry BY PHIL BRACKEN, VANTAGESCORE

RAPIDLY CHANGING HOMEOWNER DEMOGRAPHICS

he mortgage industry is at a tipping point. Unalterable institutions and legacy systems that have defined the mortgage finance paradigm for decades are showing their age. As it stands today, millions of consumers canâ&#x20AC;&#x2122;t attain credit scores, real estate loans are more expensive to produce than ever before, and the United States has a full-fledged single-family home inventory crisis. These facts underscore three major underlying systemic issues facing the mortgage industry that have received little attention relative to their substantial impact. The MORTGAGE BANKER Magazine

The Harvard Joint Center for Housing Policy projects that approximately 75 percent of all new household formation in the United States over the next decade will be by people of color. While the U.S. has far to go with respect to eliminating racial income inequality and socioeconomic disparity, the fact is the American middle class is more diverse than it has ever been. Traditional mortgage credit scoring models, which remain in place and virtually unchanged since the 1990s, are increasingly 50

April 2020

THE SINGLE-FAMILY INVENTORY CRISIS

inadequate and fail to adequately account for the drastic shifts in credit behavior that are occurring among increasingly diverse millennial borrowers. These credit behaviors, many of which are clear signs of fiscally responsible, credit conscious borrowers, may nonetheless severely penalize or, in many cases, render these consumers entirely unscorable under currently used models. When up to 40 million people do not even qualify for a credit score, something is deeply wrong.

In many parts of America, there is a severe shortage of affordable single-family homes for owner-occupants. During the most recent 10-year period, the National Association of Home Builders (NAHB) reports that single family new construction is approximately 7 million units short of meeting the normal household demand. After the great recession, the combination of an oversupply of new homes and the wave of foreclosures hitting the market while demand plummeted resulted in home values dropping like no other time in the past 50 years. The Census Bureau reported that at year-end 2010, there were roughly 10 million single family homes sitting vacant in the U.S. Homebuilders were discouraged from building new homes as a result of the oversupply, as well as by tightened government policy and lending guidelines. More than a decade later, many of those tightened restrictions still exist, prohibiting builders from increasing production to meet demand. However, new construction is only half of the equation: Existing houses are not entering the marketplace as frequently because existing homeowners are not selling but are instead refinancing in droves to take advantage of historically low interest rates. Homeowners are staying in their homes longer, 13 years on average, and not releasing inventory for the next generation of homeowners. Combined with rising land, labor, lumber, regulatory, and compliance costs, American homebuilders are facing an uphill battle when it comes to closing the inventory gap. In fact, the NAHB reported recently that the average compliance and regulatory costs to build the average home in America has risen to $84,000 per house. That figure is unaffordable, unacceptable, and unsustainable.

SKYROCKETING MORTGAGE LOAN PRODUCTION COSTS Just a few years ago, it cost mortgage lenders about $4,500 to produce a home loan. Recently, the Mortgage Bankers Association reported those costs had risen to more than $10,000. These costs, incurred by the lender, are directly passed on to the borrower, acting as yet another deterrent to prospective home buyers and a drag on homeownership growth in the United States. There are many reasons for these exploding costs, but one component for certain is the added labor cost in manually processing mortgage applications for those consumers who are unscorable or underscored using traditional scoring models. Simply put, lenders are increasingly forced to process mortgage applications manually to account for the rise in applicants who canâ&#x20AC;&#x2122;t get through the automated portals. Without the ability to incorporate modern credit scoring methods, including the use of trended credit data, traditional scoring models deny millions of prospective borrowers the full benefit of their financial discipline. For example, in many cases, characteristics such as a low credit score, no credit score, or simply the absence of W-2 wages can prevent prospective borrowers from getting through automated underwriting portals, initiating a costly and timeconsuming manual assessment. With scenarios like this playing out on a substantial scale throughout the country, itâ&#x20AC;&#x2122;s clear that we have structural failures in the mortgage assembly line. However, even if a borrower is approved for a mortgage, itâ&#x20AC;&#x2122;s becoming harder and harder to find an affordable home to buy. The MORTGAGE BANKER Magazine

SOLUTIONS

These challenges, while formidable, are not insurmountable. Although much more remains to be done, progress has been made. First, the Fair Housing Finance Authority (FHFA) has recently reconsidered its stance on competition in credit score model development for the mortgage industry. By creating a pathway to allow credit score model developers like VantageScore and others to 51

April 2020

The C-Suite bring innovative credit score model development to the mortgage marketplace in a fair and responsible manner, lenders will be able to leverage more representative and predictive information about newly scoreable borrowers and their dynamic credit behaviors. Further, the competition created by this regulatory change will promote innovation in a historically stagnant sector, which should ultimately help to reduce the number of unscorable consumers and, in turn, decrease the volume of costly manual mortgage production. Fixing the single-family inventory crisis will require a multi-faceted set of solutions that minimize or eliminate overly-burdensome regulations and reduce the costs for new home construction. Helpful proposals would include “fast-tracking” the permitting for affordable homes, promoting manufactured pre-engineered home options, advocating for construction workforce incentives, and many other ideas. One key to implementing these proposals and other ideas is to continue to promote opportunities for builders, lenders, realtors, credit scoring companies, and other real estate industry participants to reach

The MORTGAGE BANKER Magazine

consensus on steps that should be undertaken and to advocate for proposals to be implemented by regulators and policymakers. The Affordable Homeownership Coalition, which VantageScore is a founding member, now includes more than 40 trade groups and other entities that are working together to help solve this crisis. While homeownership has ever slowly begun to rebound, neither can we indulge in complacency by ignoring the significant structural deficiencies in our mortgage industry nor can we wait for another recession to re-shuffle the deck. The common-sense solutions discussed above are necessary and reflect a universal truth of this industry: The only constant is change. Adaptation has and always will be the strategic imperative. The tsunami of changing consumer demographics requires our industry to continue to work hard, collaborate, and be willing to force meaningful change to meet these homeowners’ needs. We’ll have to battle against several menacing forces to fix these emerging crisis issues because, as we all know, these crisis issues won’t fix themselves. MBM

April 2020

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The C-Suite

BRETT ARSTA

What do you find most rewarding about your job?

Guaranty Home Mortgage CEO

What do you think is the biggest challenge currently facing the mortgage banking industry? Number one, the speed of our industry with technology and some of the leaders in our industry tackling that. Number two, responsible lending. Third, government regulations and compliance.

I would say that the most rewarding part of that is kind of multifaceted. Being able to see personal and professional development, creativity, and tackling daily problems along with strategic goals from people that I have the pleasure to lead. I’m a collaborative leader, meaning I like to listen to what everybody has to say and take a lot of different viewpoints, then bring them together so that they all align with the strategic viewpoint. I love seeing people rise up that have not been able to be in a position to where their leadership really matters and being able to see how they tackle problems and how they get creative and make things happen. I can’t do everybody’s job here at this organization. I have to totally impart my trust and trust that they’re doing what’s needed on the database. So, the most rewarding part is seeing the success of others. That’s the bottom line. That’s the surface of what I enjoy daily.

What time do you get up?

Somewhere between 5:00 and 6:00 every morning.

A mortgage is one of the most important decisions you’re going to make in your life and it shouldn’t happen at the click of a button. And it shouldn’t be like ordering a book from Amazon or buying something on eBay. There are a lot of things that I think people need to be aware of when getting a mortgage. It’s not just about your monthly payment. And mortgage professionals all over the country, especially the seasoned ones, know all of those things and that’s what sets them apart from the other people. It’s not about the speed of getting a mortgage. I think the speed of it has taken the personal touch and the relationship side of things out of it.

What is the first thing you do in the morning? I’m a music lover, always have been, and I’m a big believer in letting music kind of set my tone for different parts of the day. So, I’ll turn on my playlist first thing right when I wake up. And then I go on a walk on the treadmill and take a class. That’s the first thing I do before I do anything else.

There are certain people who know all the challenges and they make a habit out of buying many homes, and so they’re very familiar with the process. But that’s a very small percentage of the population that are buying homes. With first-time homebuyers, I think there’s a duty of responsible lending that takes place. You’re helping educate people that are getting into one of the biggest financial obligations they’ll ever have in their life. I think the biggest challenge is meshing those together. Keep the speed in line with what our competition’s doing, but also keep an eye on responsible lending and being able to meet government regulations and compliance.

What is your mantra? It’s a little bit long, but my fellow employees, customers, vendors, and business partners is how I start off every one of my messages to. I believe that everyone is important to the success of our company and I try to treat everyone regardless of their position, whether you’re in an entry-level position here or you are a 30-year veteran. It’s important to treat everyone with dignity and respect because there is no one person that’s critical. Everyone is critical to the success of what our goal and vision are.

The three of those things together sometimes make it very difficult. While there are customer-facing technologies on the back side when it comes to regulatory agencies as well as Fannie Mae and Freddie Mac and Ginnie Mae, there’s not any one technology that meshes all together. So, we have to jump around in different areas and make sure that we have all those covered every day. That’s the biggest challenge I see.

The MORTGAGE BANKER Magazine

April 2020

What is on your desk?

There’s one book that I’ve gone to every day when I run into problems. It’s a book by John Miller and it’s called the QBQ: Question Behind the Question. It’s all about personal accountability and what I can do. Each individual can ask, “what can I do to change the outcome of any specific situation?” It’s not laying blame and it’s not playing the victim; it’s all about personal accountability. I have that book. I have a copy of the latest National Business Journal. I have my notes from my weekly leadership meeting. I have my Bible that I carry with me pretty much everywhere. And then I have a book more recently that I’ve started reading that I go to quite a bit. It’s called called the Guac Is Extra But So Am I: The Reluctant Adult’s Handbook Sara Solomon.

What is your best habit?

My best habit is remaining calm in all situations. I always look at everything from front to back before I make any big decisions. I take every moment and look at it as a whole versus making quick or emotional decisions.

What is the last thing you do at night?

I go through my calendar and I go through my alarms. I have about 12 alarms pre-set on my phone and I’ll set four alarms attached to different songs, and they’re all very calming songs to wake up to. So, it’s not like I wake up with major anxiety.

"The most rewarding part is seeing the success of others. That’s the bottom line. That’s the surface of what I enjoy daily."

What time do you go to bed?

That’s going to fluctuate. Somewhere between 9:30 and 11:00.

The MORTGAGE BANKER Magazine

April 2020

The C-Suite

“Problems” are actually “opportunities” to improve how we run our business.

The MORTGAGE BANKER Magazine

April 2020

DEBRA STILL

Pulte Mortgage President and CEO

What do you think is the biggest challenge for the mortgage banking industry currently? Some challenges come immediately to mind. Clearly, effective planning for the COVID - 19 pandemic must be top of mind as the virus escalates. Ensuring the safety and well-being of our employees, customers, and communities must be our paramount concern.

What do you find most rewarding about your job? I personally love immersing myself in strategy and culture. I believe it is my job to understand the real estate finance landscape, figure out how to thrive in it, and then paint a vibrant vision for the future for our company. I want everyone to see and be excited about the important role we play in housing finance. When I moved into my role, I introduced a strategy architecture to provide clarity around our mission and core purpose, our vision for the future, five areas of strategic focus, and the values that define our inclusive culture. I wanted our entire organization to know who we are, where we are going, how we will get there, and the way we must interact and behave with each other and our customers. As a result, our team is very proud of its role in creating homeownership in America by supporting one of the nation’s oldest and largest homebuilders, PulteGroup, where we build and finance the homes where our customers can live their dreams.

Next, capacity challenges continue to confront our industry. Currently, with an environment of historically low interest rates, we are facing unexpectedly heavy refinance volume. While this is certainly advantageous to consumers, the industry is working well above maximum capacity. Competition for talent is at an all-time high. At about the time staffing levels catch up, demand could flatten, or interest rates rise. We must create more scalable organizations that can flex comfortably with the ever-present swings in production volume. Finally, a host of new and evolving cyber security threats has all of us in real estate finance on high alert. Evermore sophisticated cyber-attacks, specifically wire fraud and ransomware, can cripple our businesses and incapacitate the technology we depend upon to run our operations. With financial services as a target, as our dependence on technology continues to grow, and with most of us now working remotely, we must be extremely diligent in protecting our companies’ data and our customers’ personal information.

What is your best habit?

I am very curious and still love to learn.

What is your mantra?

“Problems” are actually “opportunities” to improve how we run our business.

What is on your desk? What time do you get up? 6:30am

What is the first thing you do in the morning?

Other than my phone and computer, I have an inbox and a silver note box I received from the MBA. I learned a long time ago to keep a very clear desk.

My day starts with a hot cup of coffee—I am not a morning person.

The MORTGAGE BANKER Magazine

April 2020

What is the last thing you do at night? Read the news.

What time do you go to bed?

About 10:30 p.m.

Education

Education & Training Calendar Date

Course Name

Dates

Link

Spring 2020

Apr 2

FTC Priorities and Potential Impacts to Mortgage Lenders

April 2

https://www.mba.org/store/events/webinar/ceftc-priorities-and-potential-impacts-to-mortgagelenders?check_for_mini_site=Y

Apr 8

Mortgage Accounting IV: Hedge Accounting and GAAP Reporting

April 8

https://www.mba.org/store/events/webinar/mortgageaccounting-iv-hedge-accounting-and-gaap-reportingx261163?check_for_mini_site=Y

Apr 15

Mortgage Accounting V: Cash Flow, MBS Prices, and IRLC Value

April 15

https://www.mba.org/store/events/webinar/mortgageaccounting-v-cash-flow-mbs-prices-and-irlc-value?check_ for_mini_site=Y

Apr 16

LIBOR 101: Transition Basics for the Single-Family Market

April 16

https://www.mba.org/store/events/webinar/libor-101transition-basics-for-the-single-family-market?check_for_ mini_site=Y

Apr 29

Affordable Housing Programs: Benefits & Considerations

April 29

https://www.mba.org/store/events/webinar/affordablehousing-programs-benefits-and-considerations?check_ for_mini_site=Y

Apr 30

mPower: Mentorship Matters Why Everyone Needs a Mentor

April 30

https://www.mba.org/store/events/webinar/ mpower-mentorship-matters-why-everyone-needs-amentor?check_for_mini_site=Y

MISMO: Blockchain Fundamentals for Mortgage Professionals

April 30

https://www.mba.org/store/events/webinar/ mismo-blockchain-fundamentals-for-mortgageprofessionals?check_for_mini_site=Y

May 30

Introduction To Mortgage Banking

May 12 - 26

https://www.mba.org/store/events/instructor-guidedonline-course/introduction-to-mortgage-banking-may2020?check_for_mini_site=Y

May 13

State of Play for Non-QM Lending in 2020 and Beyond

May 13

https://www.mba.org/store/events/webinar/state-of-playfor-non-qm-lending-in-2020-and-beyond?check_for_ mini_site=Y

Jun 1

School of Loan Origination

June 1 - 25

https://www.mba.org/store/events/instructor-guidedonline-course/school-of-loan-origination-june2020?check_for_mini_site=Y

Conferences/Conventions

Instructor Guided Online Course (IGOL)

MBA Research Events

Classroom Course

Webinar

MISMO Events

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April 2020

Other

Now on Sale NATIONAL REVERSE MORTGAGE LENDERS ASSOCIATION

2020 Western Regional Meeting LEARN. NETWORK. ENGAGE.

July 30 | Irvine, CA

Use Promo Code NRMLAMB for a $50 Registration Discount Off the Non-Member Rate

Education

WHITE PAPERS & WEBINARS

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READ, WATCH & LEARN ... ADVANCE YOUR KNOWLEDGE AND CAREER Click below for information and details on white papers, webinars and knowledge-based content

YOUR WHITE PAPER HERE

The MORTGAGE BANKER Magazine

April 2020

Data Download Top Origination Markets by Loan Volume Consolidated Metropolitan Statistical Area (CMSA)/ Metropolitan Statistical Area (MSA)

% of Lock Volume

MOM Growth

Avg Loan Amount (S)

Avg Rate

Avg FICO

Avg LTV

Purchase

Reﬁ

Los Angeles-Long Beach-Anaheim, CA

5.99%

19.38%

498,827

3.689

742

25%

75%

Washington-Arlington-Alexandria, DC-VA-MD-WV

5.19%

27.75%

430,193

3.491

745

36%

64%

New York-Newark-Jersey City, NY-NJ-PA

4.37%

25.74%

418,115

3.625

737

37%

63%

Chicago-Naperville-Elgin, IL-IN-WI

4.20%

32.76%

290,739

3.626

743

37%

63%

Boston-Cambridge-Newton, MA-NH

3.39%

33.42%

420,721

3.512

749

24%

76%

Seattle-Tacoma-Bellevue, WA

3.14%

23.94%

436,622

3.616

744

28%

72%

Phoenix-Mesa-Scottsdale, AZ

3.13%

13.45%

290,244

3.748

732

41%

59%

Denver-Aurora-Lakewood, CO

2.90%

16.24%

363,656

3.606

742

27%

73%

Dallas-Fort Worth-Arlington, TX

2.82%

14.73%

294,338

3.709

725

51%

49%

San Francisco-Oakland-Hayward, CA

2.55%

26.95%

590,131

3.577

754

19%

81%

San Diego-Carlsbad, CA

2.17%

21.56%

496,168

3.541

747

26%

74%

Riverside-San Bernardino-Ontario, CA

2.09%

12.93%

333,503

3.685

721

34%

66%

Minneapolis-St. Paul-Bloomington, MN-WI

1.98%

33.29%

292,815

3.556

749

35%

65%

Atlanta-Sandy Springs-Roswell, GA

1.80%

9.05%

263,953

3.708

722

49%

51%

Houston-The Woodlands-Sugar Land, TX

1.79%

13.14%

264,330

3.753

722

61%

39%

Philadelphia-Camden-Wilmington,PA-NJ-DE-MD

1.75%

28.10%

282,809

3.620

736

45%

55%

Miami-Fort Lauderdale-West Palm Beach, FL

1.59%

13.37%

324,711

3.825

720

52%

48%

Portland-Vancouver-Hillsboro, OR-WA

1.47%

15.80%

345,077

3.582

747

32%

68%

Baltimore-Columbia-Towson, MD

1.42%

22.94%

332,562

3.602

737

41%

59%

Sacramento--Roseville--Arden-Arcade, CA

1.39%

14.68%

360,280

3.601

739

29%

71%

SOURCE: Optimal Blue, Plano, TX. Data is based on loans locked within Optimal Blue’s Digital Mortgage Marketplace platform. Optimal Blue operates the leading Mortgage Marketplace Platform, connecting a network of originators and investors and facilitating a broad set of secondary market interactions. More than $750 billion of transactions are processed each year across the Optimal Blue platform. For more information, please visit www.optimalblue.com or email datasolutions@optimalblue.com. Through actionable data and analytics, Optimal Blue enable mortgage lenders and professionals to visualize and track performance, compare proﬁt margins, and assess the eﬀectiveness of secondary marketing strategies.

The MORTGAGE BANKER Magazine

April 2020

Feb-20

Month-overmonth change

Year-over-year change

3.28%

1.95%

-15.60%

Total U.S. foreclosure pre-sale inventory rate:

0.45%

-2.54%

-11.23%

Total U.S. foreclosure starts:

32,300

-24.53%

-20.05%

Monthly Prepayment Rate (SMM):

1.35%

7.78%

106.59%

Foreclosure Sales as % of 90+:

1.46%

-19.27%

-1.76%

Number of properties that are 30 or more days past due, but not in foreclosure:

1,737,000

32,000

-282,000

Number of properties that are 90 or more days past due, but not in foreclosure:

409,000

-10,000

-93,000

Number of properties in foreclosure pre-sale inventory:

239,000

-7,000

-25,000

1,976,000

25,000

-308,000

Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure):

Number of properties that are 30 or more days past due or in foreclosure:

•

Foreclosure starts fell 25% from January 2020, and 20% from the year prior, hitting their lowest level on record since Black Knight began publicly reporting the metric in January 2000 The national foreclosure rate also ticked lower in February, falling to 0.45%; the lowest it’s been since 2005, and within one basis point of an all-time low

12 Month Trend

•

Delinquencies were up slightly from January, but remain more than 15% below last year’s levels

•

Prepayment activity rose by nearly 8% monthover-month as early 2020 rate declines have begun to impact refinance activity

Totals are extrapolated based on Black Knight’s loan-level database of mortgage assets. All whole numbers are rounded to the nearest thousand, except foreclosure starts, which are rounded to the nearest hundred.

About Black Knight As a leading fintech, Black Knight is committed to being a premier business partner that clients rely on to achieve their strategic goals, realize greater success and better serve their customers by delivering best-in-class software, services and insights with a relentless commitment to excellence, innovation, integrity and leadership. For more information on Black Knight, please visit www.blackknightinc.com. Black Knight is a leading provider of integrated software, data and analytics solutions that facilitate and automate many of the business processes across the homeownership lifecycle.

The MORTGAGE BANKER Magazine

April 2020

B2B

BUSINESS SERVICES DIRECTORY Proctor Financial provides comprehensive insurance products and service solutions for financial institutions. While weaving compliance throughout all our applications and technologies, Proctor operates as an extension of our clients, where partnership meets innovation.

Amanda Bowers VP of Marketing abowers@pfic.com

Chenoa Fund is an affordable housing program provided through CBC Mortgage Agency (”CBCMA”), a uniquely created and organized government institution. CBCMA is a public-purpose driven governmental entity specializing in providing 100% financing for loans guaranteed by the FHA, with a focus on under-served borrowers. Our mission is to provide funding for affordable housing opportunities in communities nationwide. CBCMA partners with quality mortgage lenders on a correspondent basis to provide down payment assistance for qualified home buyers in the form of second mortgages and gifts. All assistance is provided in compliance with FHA guidelines.

Michael Whipple Vice President michael.whipple@ chenoafund.org

208.250.9132

Radian ensures the American dream through industry-leading mortgage insurance and a comprehensive suite of mortgage, risk, real estate, and title services. With the combined expertise of the entire Radian family—including Radian MI, Clayton, Green River Capital, Five Bridges Advisors, Independent Settlement Services, Red Bell Real Estate, LLC and Radian Title Services—we are a single trusted partner, delivering unparalleled value and efficiency across the mortgage and real estate spectrum. Visit www.radian.com to see how Radian is shaping the future of mortgage and real estate services.

Kristi Helmlinger Vice President Enterprise Sales, Mortgage and Real Estate Services

kristi.helmlinger@radian.com

215.231.1230

Weiner Brodsky Kider PC is a Washington, D.C.-based firm with a national practice focused on compliance, regulatory, transactional and litigation matters related to financial services concerns. We represent a broad client base, from start-up businesses to Fortune 500 companies, throughout the United States.

Mitchel H. Kider Managing Partner

kider@thewbkfirm.com

202.557.3511

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April 2020

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April 2020

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Articles inside

A Systemic Problem How the Coronavirus Pandemic is Affecting Capital Markets

Mortgage Banking Lawyers

Mortgage Refinance Applications Triple from a Year Ago, But Will They All Fund?

From the Desk of the Om-Bobs-man

Compliance Alphabet Soups - HMDA

Three of the Biggest Challenges Facing the Mortgage Industry

CFPB Brings Clarity to the "Abusiveness Standard Under UDAAP

Here's Why State of the Art Mortgage Lending Now Relies on CloudBased Services