Mortgage Banker Magazine December 2020

THE

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

MAGAZINE

December 2020

EDITOR'S CHOICE

BEST READS OF 2020

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.

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EDITORIALS / ARTICLES To submit an article for consideration in The MORTGAGE BANKER Magazine, please send an email to Brian@ twelve11media.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.

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December 2020

SERVING THE MORTGAGE BANKING COMMUNITY FOR MORE THAN THREE DECADES 202.628.2000

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Editor's Choice

2020

LOAN ORIGINATION

8

QUALITY CONTROL & RISK MANAGEMENT

FEBRUARY: The New First-Time Homebuyer: What We Need to Know and How We Can Help Them on their Journey to Homeownership

20

TED CLAYPOOLE & DOMINIC PANAKAL

BRIEN MCMAHON

10

MORTGAGE OPERATIONS

MARCH: Reducing False Claims Act Risk in FHA Lending

24

BOB BROEKSMIT

12

AUGUST: Trust in Every Transaction: RON, RIN, and Digital Closings During COVID and Beyond

JANUARY: Achieving Operational Excellence in Mortgage Lending TOM HUGHES

27

ANDREW MACDOUGALL

QUALITY CONTROL & RISK MANAGEMENT

16

MARCH: Security Risk: Fraudulent Closing Transfer Instructions Stealing Mortgage Pay-Offs

FEBRUARY: Taking a Critical Look at Operations: How Partnering With a Consultant Might Save Your Business PETE BUTLER

JANUARY: Kill the Kumbaya And Improve Decision Making and Risk Management

TECHNOLOGY

30

STEVE SPIES

AUGUST: The Next Big Thing in Loan Efficiency: Reducing Friction Between Borrowers and Investors JOHN KERATSIS

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December 2020

Special

SECTIONS

TECHNOLOGY

34

OCTOBER: The Digital Difference is Being SMART

COMPLIANCE

52

PAUL ANSELMO

LEGAL

38

BOB NIEMI

LEGAL

JULY: Where We Have Come From — And Where We Are Going

54

DANIEL CHILTON

The Mortgage Counselors

MITCH KIDER AND MICHAEL KIEVAL

THE C-SUITE

MORTGAGE SERVICING

40

From the Desk of the Om-Bobs-man

JULY: Putting the ‘Service’ Back in Mortgage Servicing SUSAN GRAHAM

58

PROFILE: Paulina McGrath

60

PROFILE: Michael Sema

PRESIDENT REPUBLIC STATE MORTGAGE

FOUNDER AND CEO GET A RATE

CAPITAL MARKETS

44

Monthly

APRIL: A Systemic Problem How the Coronavirus Pandemic is Affecting Capital Markets

DEPARTMENTS 6 From the Editor

57 Mortgage Banking Lawyers 62 MBA Education & Training

ROB CHRISMAN

Calendar

REGULATORS & AGENCIES

46

63 64 66 67 69

NOVEMBER: A Banner Year

AN INTERVIEW WITH JEFFREY LONDON

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White Papers & Webinars Data Download Business Services Directory Sponsors Corner Editorial Index

December 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@twelve11media.com MANAGING EDITOR Brian Honea Brian@twelve11media.com SENIOR EDITOR Jill Emerson Jill@twelve11media.com OPERATIONS DIRECTOR Dawn Slayton Dawn@twelve11media.com ADVERTISING David Hoierman David@twelve11media.com PRODUCTION Henry Suchman Henry@twelve11media.com

FROM THE EDITOR It would be an understatement to say 2020 has been a strange year for everyone and every kind of business, and that includes the mortgage industry. Starting in mid-March when many businesses were forced to change the way they operated in order to stay afloat, mortgage industry professionals turned to technology to help them close deals while complying with various social distancing edicts.

In this issue we’ll review the year by taking a look back at some of the most read articles in 2020 from our publication so you can see what went on and what some of the most talked about topics were in the industry. We’ll cover everything from Tom Hughes’ (Banker’s Mortgage Consulting) piece in January on achieving operational excellence in lending, to an article by John Keratsis (Incenter) from August on the next big tech thing in loan efficiency, to a revisit of an interview with Jeffrey London of the U.S. Department of Veteran’s Affairs from our November issue on the record-setting year that 2020 was for VA loans.

What was business like for you in 2020? What were some challenges you faced this year as you tried to adapt to doing business during a pandemic? We want to hear about your experiences. We are always listening. You can always drop us a line via the email address below.

DIGITAL MEDIA Lucas Luna LLuna@twelve11media.com COLUMNISTS & CONTRIBUTING AUTHORS Paul Anselmo John Keratsis Pete Butler Mitch Kider Robert Broeksmit Michael Kieval Daniel Chilton Andrew MacDougall Ted Claypoole Brien McMahon Rob Chrisman Bob Niemi Susan Graham Dominic Panakal Tom Hughes 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.

Editor's Choice

AUTHORS

Paul Anselmo

Pete Butler

Robert Broeksmit

Daniel C. Chilton

Paul Anselmo is the CEO and founder of Evolve Mortgage Services, a top provider of outsourced mortgage solutions. He has more than 30 years of experience in the banking and mortgage industries. In 2019, Paul was honored as a “Lending Luminary” by the PROGRESS in Lending Association.

He can be reached at paul.anselmo@ evolvemortgageservices. com.

Pete Butler is the executive managing director and oversees Wipro Mortgage Digital Operations/Platforms which serves the complete mortgage industry lifecycle and Opus Capital Markets Consultants, a specialized risk management and quality control service provider for a wide range of participants in the mortgage and consumer lending industries.

Robert (Bob) Broeksmit is president and CEO of the Mortgage Bankers Association (MBA). Bob is a senior finance executive and corporate officer with a 33-year career in the mortgage sector. He has directed all aspects of lending activities, including marketing, sales, operations, secondary marketing, loan servicing, and default management.

Daniel C. Chilton is a partner at RAS Legal Group, PLLC. Mr. Chilton is an experienced financial services attorney and has served on numerous financial services panels because of his extensive experience and expertise in the areas of auto default law, mortgage servicing, financial regulatory compliance and debt collections.

Tom Hughes Tom Hughes is a founder and is currently serving as Managing Partner of Bankers Mortgage Consulting, LLC. He also serves as CEO of sister company, Mortgage Insource Services, LLC. He can be reached at thughes@ bankersmortgage consulting.com.

John Keratsis John Keratsis is senior managing director of Lender Services for Incenter, a Blackstone Portfolio company focused on using ideation, technology, and processing expertise to optimize productivity and financial performance for mortgage and specialty lenders.

Andrew MacDougall Andrew MacDougall is the digital marketing manager at Notarize, the first company to enable an entirely online mortgage closing process – where he writes about the intersection of technology, accessibility, and digital trust.

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Rob Chrisman 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.

Ted Claypoole

Susan Graham

Ted Claypoole, partner with Womble Bond Dickinson, practices technology, data management, and internet business law.

He leads the firm’s FinTech team, edits the www.heydatadata. com blog, and has published books, including editing The Law of Artificial Intelligence and Smart Machines, released last year by the American Bar Association.

Susan Graham is president and chief operating officer of FICS® (Financial Industry Computer Systems, Inc.), a mortgage-software company specializing in mortgage origination, residential mortgage servicing and commercial mortgage servicing software for mortgage lenders, banks and credit unions.

Brien McMahon

Dominic Panakal

Steve Spies

As executive vice president and chief franchise officer for Radian Guaranty Inc., Brien McMahon is responsible for leading the company's sales, marketing, and customer experience strategies. Brien has served in the financial services industry for more than 25 years.

Dominic Panakal is an associate in Womble Bond Dickinson’s IP transactions, and privacy and cybersecurity practice groups. Dominic advises clients on international and domestic data privacy laws and technology transactions. He is a frequent contributor to the firm’s https:// heydatadata.com/ blog.

Steve Spies is principal and founder of the risk management consulting firm SWS Risk Advisory. SWS Risk Advisory LLC enables clients to build a culture of constructive creation, instead of destructive conflict.

He can be reached at stevespies@swsrisk. com.

December 2020

Loan Origination

THE NEW FIRST-TIME HOMEBUYER: What We Need to Know and How We Can Help Them on their Journey to Homeownership

By Brien McMahon, Radian Guaranty

C

onsiderable time and thought have been spent on the position millennials hold in the housing market and for good reason.

According to a 2019 report from the National Association of Realtors, millennials now make up one-third of the home buying market and will remain a central force in the housing market for decades to come. But as we turn the calendar to the launch of a new decade, it’s also time to start looking at the next wave of first-time home buyers: Gen Z. Born between 1995 and 2010, Gen Z will be the largest U.S. demographic group by 2026, constituting approximately 82 million consumers.

While millennials came of age during the Great Recession and the lean years that followed, Gen Z has emerged during a time of record highs in the stock market, extremely low unemployment, and rock-bottom interest rates.

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As we approach the next generations of firsttime homebuyers, both millennials and Gen Z, it is vitally important to understand, more granularly, who these potential homebuyers are. The demographic makeup of the U.S. is shifting, and those changes are well represented in the evolving pool of consumers looking to take the plunge on their first home purchase.

A TRUE MELTING POT

Harvard University’s Joint Center for Housing Studies estimates that nearly 77 percent of our nation’s household growth over the next decade will come from minority-headed households. As a comparison, as recently as 2012, fewer than 30 percent of U.S. households were headed by minorities. The Asian American/Pacific Islander community is the fastest growing segment of the U.S. population, according to the 2018-2019 State of Asia America report produced by the Asian Real 8

December 2020

February Estate Association of America, in conjunction with RE/MAX and Freddie Mac. Connecting directly with these communities is the best way for lenders and agents to serve potential borrowers, and strategic partnerships is an effective way of doing that. However, it’s important that these efforts feel genuine. Having a team that mirrors your target audience in age, race, and language skills, can help a company be better positioned for success. This may require retraining professionals from other industries, mentoring young talent, or creating and/or partnering with professional groups.

Industry participants can benefit from partnering with top diverse real estate trade associations, including the National Association of Hispanic Real Estate Professionals (NAHREP), Asian Real Estate Association of America (AREAA), and the National Association of Real Estate Brokers (NAREB). Each of these organizations has a mission to expand homeownership for their respective minority constituents through education and advocacy.

Even though younger adults are known for being internet savvy, there continues to be an opportunity to better educate borrowers about down payment assistance or grant programs that states, municipalities, and nonprofits offer firsttime homebuyers. Properly educating borrowers about financial assistance options can help with affordability and distill the 20 percent down myth.

TECHNOLOGY IS AT THE CENTER

Taking a closer look at Gen Z, according to a Business Insider survey, this group of young people have a reputation of being a highly practical, optimistic generation. Indeed, a recent survey conducted by Homes.com reported that 87 percent of Gen Z members report they want to own their own homes before age 35.

And unlike any generation before them, Gen Z, like Millennials, has grown up in a world where technology has been incorporated into every aspect of their lives. The new generation of homebuyers has experienced the confluence of technology, automation, and increased personalized contact, and demands the same from the housing industry.

First-time borrowers want to learn about, view, and purchase a home all on one, conveniently accessed screen. Those are characteristics lenders and agents should keep in mind when working with and marketing to these first-time buyers.

This increased level of connectivity also means housing professionals have an opportunity to leverage technology to reach their target audiences.

Among all populations, referrals from friends and family drive business in the real estate market. In the age of “going viral,” that statement rings truer now more than ever before. Housing professionals, from realtors to marketers to sales teams, should thoughtfully and strategically embrace technology, keeping in mind the influence that it holds.

The growth of minority populations and projected increases in their homeownership provide significant opportunities for mortgage lenders. Young, diverse households are seeking solutions across the entire mortgage value chain, including tailored products and services. For lenders, it boils down to being a valuable financial partner, with a focus on serving the specific needs of these populations. MBM

DOWN PAYMENTS STILL A CHALLENGE

Even when considering the positive conditions of the current market compared to years’ past, the dream of owning a home is still frustratingly out of reach for too many people.

Determining whether to rent or buy, city versus suburbs, starter home or dream home, these are just some of the basic challenges facing first-time homebuyers. However, even once those decisions have been made, saving enough money for a large down payment continues to be the greatest hurdle to homeownership. This is especially challenging for first-time homebuyers and can be particularly true for minority borrowers who are often unaware of their options.

Many consumers appear to be misinformed about down payment requirements and may believe that a 20 percent down payment is mandatory.

Helping borrowers understand their options can help more homebuyers realize their dream is within reach. For example, many young individuals may not realize that private mortgage insurance is a financial tool that can allow qualified homebuyers to purchase a home sooner, with less money down.

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December 2020

Loan Origination

REDUCING FALSE CLAIMS ACT RISK IN FHA LENDING

By Robert Broeksmit, MBA

Important aspects of the 2020 housing outlook, in addition to demand, supply, and rates, are the various changes to the regulatory environment that will affect lenders and borrowers.

Improvements to FHA’s defect taxonomy, the method used to identify defects at the loan level and the remedies for such shortcomings, are one of the more positive developments, particularly for first-time homebuyers and low- and moderate-income borrowers.

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December 2020

March

These changes are part of a larger effort by HUD to revise the loan review process and simplify the certifications that lenders make in connection with the FHA program in order to reduce the risk of False Claims Act enforcement for immaterial loan origination errors.

MBA has championed reforming the taxonomy for some time. Our posture has been that FHA does not need new rules and regulations to govern our industry, but rather more clarity and transparency in the ones that are already on the books.

Since the crisis, the legal and reputational risks associated with originating FHA-insured loans have substantially increased through hyper-technical enforcement of FHA’s lending requirements, driving many lenders –, particularly banks, away from offering FHA loans to their customers.

To address these concerns, the just-released final defect taxonomy includes specific remedies for various tiers of defect severity. This will allow lenders to understand in advance the remedies for different types of loan defects.

Not only did HUD work

to make changes to the loan review process, but last October, HUD Secretary Ben Carson announced a joint memorandum of understanding (MOU) between HUD and the Department of Justice (DOJ). This MOU stated that the DOJ would defer primarily to HUD’s administrative proceedings to evaluate and remediate loan origination errors, rather than pursuing the draconian damages allowed in the Civil War-era False Claims Act. It also provided for closer coordination between HUD and the DOJ throughout the investigative process.

In addition, HUD revised the certifications that lenders provide annually and on each loan. The changes to the loan-level and annual certifications more closely link them to relevant regulations, as opposed to every requirement found in the FHA Handbook. They also stress that the underwriting process should allow for judgment and discretion on the part of underwriters. Lastly, the loanlevel certification ties into the defect taxonomy as the remedy for any defects, and thus limits the risk that errors will be adjudicated through

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December 2020

the False Claims Act. Taken together, these changes represent a significant effort by HUD to resolve longstanding concerns about exposure to False Claims Act penalties, and to bring lenders back to the program. HUD took steps to make these changes durable by providing lenders with some certainty that a future administration could not easily return to the indiscriminate use of the False Claims Act to pursue lenders for immaterial defects on FHA loans. While individual lenders must consider when and how to return to FHA lending or increase their participation in the program, these reforms represent very positive progress in restoring clarity and certainty.

Housing market stability is strengthened when key programs like FHA are supported by a deep pool of participating lenders, depository institutions, and independent mortgage banks alike. I commend HUD for these steps and encourage them to continue their efforts in other areas, particularly on FHA servicing reforms. MBM

Loan Origination

TRUST IN EVERY TRANSACTION:

RON, RIN, AND DIGITAL CLOSINGS DURING COVID AND BEYOND

By Andrew MacDougall, Notarize

On-demand services have grown increasingly important as we continue to battle the novel coronavirus (COVID-19), especially in the mortgage industry. Contactless closings and remote online notarization (RON) solutions became necessities overnight, and the numbers show the mortgage industry buying into the benefits of a fully digital home-buying experience. From January to June, the number of electronic promissory notes registered to the MERSÂŽ eRegistry has grown 141 percent.

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December 2020

August But the pandemic has also introduced us to remote ink notarization (RIN), a new way to close online using audio-video technologies like Zoom, Skype, and GoToMeeting. Governors across the country have issued Executive Orders authorizing RIN in an effort to promote access to notaries and “flatten the curve” in communities. Although well intended, RIN strips away the fundamental guardrails that make online notarizations safer and more secure than traditional paper notarizations.

Here’s what you need to know about using RON and RIN, and how to decide the best course of action for your business and customers.

How can you turn the keys over to the buyer if you can’t trust the integrity of the closing process? validated, there is no audit trail, and neither the notary nor the signer ever interacts with the same document at the same time.

CONVENIENCE WITHOUT COMPROMISING SECURITY

MAINTAIN CONTROL OF YOUR ORIGINAL DOCUMENTS

Remote online notarization is a fully digital experience that mirrors the traditional notarial act. A signer appears before a notary on a video call, and together, they complete, sign, and notarize the document. Each video session is recorded and retained along with an audit trail of the transaction.

Signers only connect with a notary after completing several additional security measures, including personal identity challenge questions and credential analysis of their governmentissued ID. These features help strengthen the notarial act.

In contrast, RIN lacks almost all the benefits of a notarization, whether it be online or in person. The notary serves more like a witness than an agent of trust.

In a RIN transaction, signers connect with a notary through any convenient audio-video platform, such as Skype, Zoom, or Google Hangouts, to sign and notarize paper documents from a separate location. These platforms have been having some trouble of their own that should raise some real alarm for you and your business.

And although notaries are asked to record and retain the notary session, that’s really their only responsibility. The signer’s ID is held up to the webcam, but never closely scrutinized or

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That last point is a critical one. Signers in a RIN transaction are asked to physically mail their signed documents to have them notarized, which occurs at a later date and outside of their signing session with the notary.

Since the documents are wet-signed and then delivered by mail, there’s no way to prove the documents that the notary receives are the documents they watched the signer complete.

And if the signer tries to save time by faxing or emailing their signed paper documents to the notary, the document that is notarized isn’t actually the original; it’s a copy of the original.

You may wonder how this is any different than “papering out” in states where it’s allowed.

When you paper-out, the original documents are electronically signed and sealed. When the document is copied into paper form, breaking the audit trail and tamper seal, a notary is present and certifies that the copied document once had these features. This chain of custody is entirely absent from RIN transactions, which instead weakens the notarial act for the sake of convenience.

In RON transactions, original documents are stored, signed, notarized, and delivered digitally.

For example, upon completion, eNotes are immediately registered in the MERS® eRegistry

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December 2020

Loan Origination New technology needs to benefit your business first and foremost. All other benefits come through increased operational excellence.

First, the notary witnesses the document signing via the audio-video call. Days later, the notary receives the original documents by mail and completes the paper ink notarization.

The RIN process is more costly and timeconsuming than even mail-away or hybrid closings because you need to ship the original documents to two destinations: the signers and the notary. The RIN process also allows for the same errors and delays that hinder paper closings today.

and returned to a lender’s eVault for storage.

There’s no concern about the integrity or the originality of documents because RON retains all the important elements of an in-person notarization; it’s just online.

Almost every Executive Order that allows for RIN has the same stipulation: When the pandemic is over and people can safely resume their daily lives, the expectation is that notarizations in these states will return to the inperson model.

This means RIN is a temporary solution that could have a damaging effect on the integrity of the remote notarial act. For hundreds of years, notarizations have held their value regardless of time or location. How can that be the case if they are achieved by temporary means?

We believe that you are better positioned to serve your communities with RON as a permanent solution. More than half of all states have passed laws allowing their notaries to tap into the online notarization marketplace. Most states now allow signers to close online using a remote notary, while hybrid closings can occur in all 50 states.

That being said, investing in RON doesn’t mean you have to exclusively offer digital closings. There’s value in operational flexibility.

There’s value in providing a seamless customer experience. There’s value in becoming familiar with new technology and having it available to you if and when you need it.

That way, when the market changes, or a pandemic pushes your business completely online, you’ll be ready. MBM

INVEST IN THE LONG-TERM SOLUTION

ACHIEVE AND MAINTAIN OPERATIONAL EXCELLENCE New technology needs to benefit your business first and foremost. All other benefits, such as enhanced security, elevated customer experience, and reduced environmental impact, come through increased operational excellence.

Operational excellence is the most immediate benefit of RON because it’s a process that impacts every aspect of your business. It’s a single service that can maximize human capital, streamline mundane tasks, provide a class-leading customer experience, and save you money, all without overhauling your existing workflow.

Saving money is especially important. One survey found 98 percent of companies reported some revenue impact due to poor transaction management, with 57 percent of companies estimating their losses to be between 6 percent and 25 percent of their total revenue.

With the right vendor, RON can be the chameleon within your day-to-day operations.

During RIN closings, recorded documents require two distinct, separate acts by the notary.

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December 2020

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December 2020

TO BED

Quality Control & Risk Management

Kill the Kumbaya And Improve Decision Making and Risk Management

Dilbert appears courtesy of Scott Adams

By Steve Spies, SWS Risk Advisory

“Confirmation bias is a powerful drug”

Y

ou just made a decision with your leadership team to enter a new market.

The analytics say it’s a nobrainer and nary a dissenting word was heard from your managers.

All good, right? In reality, it’s time to hit the pause button. Not hearing a single concern about the decision is often a sign that your culture is suffering from confirmation bias, or the natural tendency to encourage only positive perspectives and data that support what you want to do in the first place.

Confirmation bias might be the most toxic cultural risk because it rarely acknowledges

failure, seldom leads to course corrections, and causes companies to double down on bad decisions. When I heard a speaker equate confirmation bias with drug addiction, I thought they were not overstating the case.

The graveyard is full of companies or initiatives where some clear, objective thinking might have avoided disaster. The Takata air bag failure is likely an example of “something where nobody wanted to admit something is wrong” and while the Boeing 737 Max story is still unfolding it appears there were too many unchallenged assumptions and a “can’t be wrong” pressure influenced leaders to act contrary to facts. A dead center example in the mortgage world is we now know a candid assessment of the

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December 2020

wisdom of no doc/subprime loan parameters surely would have mitigated the mortgage crisis.

I recently finished reading the March of Folly by twotime Pulitzer Prize winning historian Barbara Tuchman. She examined four events in history for understanding why leaders clearly made decisions contrary to reason and the self-interest of everyone involved. She starts by saying that while examples of “wooden-headedness” as she calls it, and confirmation bias throughout history are too numerous to count, she chose four classic examples to prove her point: the Greeks with the Trojan horse, the Renaissance Popes and church corruption, the British and the American Revolution, and finally America and the Vietnam

January

War. It was stunning to read in all four cases the persistence in “self-deception… of assessing a situation in terms of preconceived notions while ignoring or rejecting contrary signs. It is acting according to wish, while not allowing oneself to be deflected by the facts” (Tuchman, Barbara, March of Folly 1984, Random House, e-book). This “folly” of group think that so often plagues governments worms its way into many an organization meeting room.

With a collaborative culture and team building all the rage, we increasingly see no room for the doubters or devil’s advocates because no one wants to be the spoil sport, or worse, derail their careers by crossing their boss or antagonizing their peers.

Tuchman notes “…it is better for subordinates to not make waves, or press evidence that the chief will find painful to accept. This cognitive dissonance is really a “don’t confuse me with the facts” mind set which creates the tendency to suppress, gloss over, water down or waffle issues that produce psychological pain in an organization… that causes alternatives to be deselected since even thinking about them causes conflicts”. But how do you enable more objective decision making without inviting divisive conflict into the room? Here are five disciplined ways that will help surface the contrary view, without isolating on the contrary person:

How do you enable more objective decision making without inviting divisive conflict into the room?

1. Use Lean Management root cause problem solving 2. Assign a Champion and a Challenger for each idea 3. Always require the assumptions used in any analytics to be fully vetted and challenged, especially when the assumption is about human behavior 4. On top of vetting the assumptions, require a sensitivity analysis of how each variable may react under different market conditions, including how they may help or hurt when acting together 5. Require everyone to bring a reason not to do the project, reward the best one A Lean Management System strength is stating every change initiative, new project, or campaign in a problem-solving format. This system uncovers

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December 2020

real motivations behind projects under consideration.

More importantly, Lean problem solving requires quantified estimates of desired future states. This means mapping the proposed actions to desired outcomes. If the reason for entering the new market is to increase sales and profits by 20 percent, structured problemsolving exposes actions not aligning with desired, quantified results. A great place to start learning about the virtues of Lean problem solving is Art Smalley’s book on the Toyota inspired approach to developing solutions.

Smalley details how “A3” problem solving drives out “assumptions, biases and misconceptions” and shines a light on “opinion and wishful thinking.”

A second simple construct is appointing one person for every initiative to make the case for acting, then one devil’s advocate.

Designating roles up front takes away the stigma and legitimizes those voices in the room. Rotate the roles, it’s fun and empowering for the team. Perhaps even more empowering is honestly assessing the success of previous decisions. Admitting something is not working might be the hardest thing in business because of our vested interest in seeing it succeed. As Tuchman noted, even though John Kennedy knew he did not get America into Vietnam, he could not call off the war because “… he was impelled by the awful momentum that make carrying through easier

Quality Control & Risk Management

than calling off a folly…”. The Vietnam War apparatchik was also consumed by a data driven approach to decision making that crowded out debate. Those decision makers in the 1960s were a harbinger of how data would eventually overwhelm organizational dialogue.

The Big Data era supplies us with endless information but seemingly makes us dumber. We can’t consume and process all the data coming at us. Therefore, cherry-picking data is the path of least resistance to supporting our point of view and more often encourages incorrectly supported assumptions about the unknowns. Once an assumption seems reasonably justified, it may start to weaken if subjected to a high, medium, and low sensitivity assessment. Further, investigating how assumptions impact and layer on each other can reveal the lack of even basic logical support. If the first assumption is flawed or highly variable, then the dependent or layered assumption is doubly so.

Rigorously challenging assumptions may turn any previous conclusions on their head and mixing in predictions about human behavior exponentially increases the perils of decision making.

Assumptions further fall apart when they expect humans to behave rationally in all scenarios.

This simple flaw in thinking may render an entire analysis

Assumptions further fall apart when they expect humans to behave rationally in all scenarios. meaningless. Tuchman tangibly explores this problem by examining Vietnam war planner Robert McNamara whose “… appreciation of the human factor was not his strong point, and the possibility that humankind is not rational was too eccentric and disruptive to be programmed into his analysis.” Time might be better spent modeling possible irrational behavior and conflicts of interests that often provoke seemingly unexpected and unintended consequences. We saw a painful example during the mortgage crisis when borrowers time and again closed on homes they could not afford. Without a job, income, or reserves, they still bought homes, partly driven by greed, but more irrationally thinking it all works out in the end.

Lastly, before moving forward on a strategic decision, ask each person for at least one reason

The MORTGAGE BANKER Magazine

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December 2020

not to take on the project.

This makes hard conversations and constructive conflict the norm, not the exception. Have the group recognize the most powerful concern. It takes leadership to weigh the pros and cons and the courage to say no.

If you have not said no recently, and if time allows you the luxury, intentionally table the next close call. Time alone can reveal cracks in decision making. If you are looking for an immediate application of these five problem solving techniques, then look no further than the dizzying world of technology systems, software, and apps. In evaluating tech vendors, you can’t do enough to eliminate pre-conceived ideas.

Confirmation bias can be intentionally managed to provide positive influence on decision making. After all, we want to apply our hard earned and informed expertise to future actions.

Wisdom is what you want in the room, defined by Tuchman as “the exercise of judgment acting on experience, common sense and available information…”

Amen. Don’t be overwhelmed on where to start, pick a problem right in front of you like your next tech make or buy decision.

As Smalley writes “there are an infinite number of problems to solve, but a finite amount of resources to tackle them.” MBM

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Quality Control & Risk Management

SECURITY RISK:

Fraudulent Closing Transfer Instructions Stealing Mortgage Pay-Offs

By Ted Claypoole & Dominic Panakal, Womble Bond Dickinson

The past decade has seen the growth of an especially painful and pernicious type of fraud.

Criminals have been inserting themselves into the middle of real estate closings, sending believable money transfer instructions to the buyer’s bank or the escrow agent, and absconding with the money. This money was supposed to pay off the remainder of the seller’s mortgage, and has the potential to affect any mortgage banker.

Court cases in this space describe a third party pretending to be a known and trusted vendor and instructing purchase payments sent to a supposedly new account, and the payer bank following that instruction without verifying the account change.1 This article will define and explain this problem, legal underpinnings of claims against The MORTGAGE BANKER Magazine

the criminals, and how companies are guarding against this type of disaster. We also discuss what mortgage bankers should do to minimize their risks of taking the loss for such thefts at the end of the day.

HOW COULD THIS HAPPEN AND HOW CAN WE STOP IT? Consumers, real estate agents, and closing lawyers are vulnerable to these attacks through automated phone calls and phishing text messages. Sophisticated versions of these attacks will trick the recipient into clicking a link or installing or downloading an infected attachment. Bad guys gather information that will make their fraudulent instructions look like they genuinely arise from the appropriate parties, such 20

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March

as the lawyer handling the closing or the agent representing the buyer. Fraudulent email or other official-seeming correspondence contain wire transfer payment instructions usually regarding the down payment or closing costs.

With the money gone, all the parties scramble to avoid being left holding the bag for the error, and forced to pay for their mistakes by paying the home buyers back their missing money. The bank paying the money or the lawyer/agent who was impersonated by the fraudsters are the most likely patsies in the chain, as they dealt most closely with the wrongdoer and had the greatest opportunity to catch the fraud before money was lost.

For buyers’ bankers, a confirming phone call to the right party, not using the number on the fraudulent request, but looking up that number directly, is the best move to minimize risk for all parties and to avoid liability for the loss. At this stage, ANY change of payment data or suspicious looking payment request should be questioned with a follow-up call before payments are made.

Adding this one step to the mortgage payment process can save immeasurable heartbreak and entirely measurable money losses.

possession, without lawful authority, of a means of identification, such as an individual’s social security number or date of birth, of another person with the intent to commit a crime.”4 This statute has been used in the past to prosecute fraudulent real estate transaction schemes, upholding wire fraud conviction for transferring $22,000 via wire with the intent to defraud their creditor.5 Why do they target real estate transactions?

The Gentleman Thief, Willy Sutton, claimed that he robbed backs because “that’s where the money is.” Think how much money can be skimmed by stealing the final payouts of residential house sales, at least hundreds of thousands of dollars each time. And if you convince the buyer’s bank to transfer to a safe account overseas, or you can quickly move the money to one remotely, then the risks are minimal.

Home sales involve significant amount of money that can be easily diverted. The median price of homes that have sold now exceeds $220,000.6 The market value of the commercial and industrial real estate in the United States is approximately $2.655 trillion, according to the Real Estate Investor's Deskbook § 1:5 (3d ed.).

Because there are multiple parties in every real estate transaction with no definite party to always provide payment information, that data may come to the payor bank from the closing lawyer, the alleged receiving bank or mortgage company, any real estate agent in the transaction, or from the buyers themselves; fraudsters can rely on the confusing array of options to fool a payor bank.

Much of the information a bad actor needs to impersonate the parties and launch this fraud can be found online.

The issue of wire fraud in real estate is metastasizing. The FBI reported that from 2015 to 2017, there was over an 1,100 percent rise in the number of crimes using business e-mails in the real estate transaction context and an almost 2,200 percent rise in the reported monetary loss.

WHAT LAWS ARE VIOLATED?

In 2018, cyber-crime victims across the United States lost an estimated $1.2 billion. In the last quarter of 2018, the companies most targeted received approximately 120 fraudulent emails. In fiscal year 2017, $969 million was either diverted or attempted to be diverted from real estate purchase transactions to fraudulent accounts.2 This criminal conduct falls squarely into the wire fraud statute, but the accounts receiving the payments usually belong to criminals overseas, and out of the reach of U.S. law enforcement according to Rahul Gupta.3 Federal law “prohibits, during and in relation to felony violations of certain laws (including, but not limited to, embezzlement or misapplication of bank funds; fraud or false statements; mail, bank, and wire fraud), the knowing use, transfer or The MORTGAGE BANKER Magazine

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Quality Control & Risk Management WHAT IS BEING DONE ABOUT IT?

The FBI also reported nearly $150 million in real estate fraud losses in 2018. According to the FTC, consumers reported losing $1.48 billion to fraud in 2018, which marks an increase of 38 percent over 2017. The FTC defines wire fraud is any event where an individual is tricked into sending money via wire transfer to a fraudster.

As participants in real estate transactions, lawyers and real estate brokers are vulnerable to information theft leading to impersonation.

According to the Ponemon Institute’s report, 2017 State of Cybersecurity in Small and Medium Sized Businesses, 61 percent of small businesses experienced a cyberattack in 2017, up from 55 percent in 2016. That same research indicated that 43 percent of malware victims are small businesses. During the course of a recent real estate transaction, an associate of a large North American law firm wired $2.5 million of a client's money to a Hong Kong bank account.7 Cybercriminals had set up the account and induced the associate to send the funds by pretending to be employees of a legitimate mortgage company.

State and local governments are beginning to raise awareness of the issue of wire fraud in the real estate industry. The Utah Division of Real Estate, for example, launched a campaign to call attention to email scams that “target property transactions to force people into wiring down payments and other high dollar real estate proceeds to con artists’ accounts.” According to its website, the Colorado Division of Real Estate at the Department of Regulatory Agencies also warned Colorado consumers to “beware of a national cyber-scam currently taking place that steals money directly from home buyers and sellers.”

In July 2019, American Land Title Association, Community Mortgage Lenders of America, American Escrow Association, Real Estate Services Providers Counsel, created a group called a Coalition to Stop Real Estate Wire Fraud. The group has a stated goal of educating consumers and real estate professionals about the risks of wire fraud.

However, much of the risk of these crimes can be reduced or eliminated by a few extra incidences of careful communication between the payor bank and either its client or the client’s representative in the transaction. The bad guys profit from the complexities of the payment instruction process and lazy assumptions made by all parties. Minimizing your risks of this fraud may be as easy as a phone call. MBM

WHAT ABOUT INSURANCE?

Victims of this type of crime may expect their insurance to assist in compensating for the stolen payment. However, the insurance industry has made adjustments as a result of the prevalence of this crime. Direct mail or email fraud is generally not covered under cyber insurance policies, even though the crucial information to impersonate a legitimate party may have been secured through hacking or phishing. A payor bank’s errors and omissions policies may cover this, although more insurance companies are requiring a set of procedures to confirm payment destinations before money is sent. If your bank does not have the right procedures, it may not be insured for the loss.

Insurance companies have reacted to this wave of crime by adjusting coverage types and caps to minimize their exposure. Bankers, buyers, brokers, and lawyers should carefully review their insurance policies to find coverage, risk allocation, and coverage limitations.

The MORTGAGE BANKER Magazine

END NOTES Am. Tooling Ctr., Inc. v. Travelers Cas. & Sur. Co. of Am., No. 16-12108, 2017 WL 3263356 (E.D. Mich.), appeal docketed, No. 17-2014 (6th Cir. Aug. 29, 2017) 1

TXCLE-ARED 5.I, 2018 WL 3447285. In 2016, $19 million in wire transfer frauds affected home buyers. Id. 2

Business Email Compromise (BEC): The Cyber Crime Threat Turning Dreams into Nightmares, Orange County Law., August 2019 3

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18 U.S.C. § 1028A

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United States v. Van Doren, 800 F.3d 998 (8th Cir. 2015)

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50 No. 4 Mortgage & Real Estate Executives Report NL 2

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30 No. 6 Tex. Emp. L. Letter 6

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Mortgage Operations

Achieving Operational Excellence in Mortgage Lending

By Tom Hughes, Bankers Mortgage Consulting

D

ad, why does it take six weeks to close a home loan? My son asked this question after a visit to a local bank. “I just don’t understand,” he continued to state in frustration, “I have 30 percent down, my credit score is over 800, and I have more in savings than the loan amount requested. I borrowed my farm production loan for three times as much as the loan requested and it only took 30 minutes!”

Having managed a mortgage operation that guaranteed 15- day closings, I know six weeks is too long, even post-TRID. Unfortunately, the sixweek estimate by the local community bank is close to the current national average of 46 days.

“ability-to-repay” rule requires companies to verify and document the borrower’s ability to repay the loan; however, we cannot blame regulation as a major culprit for the time it takes to close a mortgage loan. The mortgage lending industry has dealt with compliance issues for years.

2. Volume. Low interest rates mean more applications straining the capacity of a lender’s processing and underwriting functions. Unfortunately, in many operations, as volume increases, service decreases.

3. Standards Required for Securitization.

Mortgage loans must meet high standards to become investment quality for securitization.

It is the underwriter’s responsibility to assure the quality of the loan. In order to do this, the paperwork relating to the loan, the borrower, and the property go through several screening processes. The lack of documentation or missing documentation greatly slows down the process.

WHY DOES IT TAKE SO LONG?

While there are varying answers to this question, lenders often give the following reasons for delayed loan closings: 1. The Burden of Regulatory Compliance.

Granted, the TRID rule specifies time frames for disclosures and the CFPB’s QM or The MORTGAGE BANKER Magazine

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4. Appraisal & Title Exam. The time it takes for these two services to be completed is often cited as factors in time to close. Appraisers and title companies often have trouble keeping up with demand. Providing good, complete information and documentation to each service provider can speed delivery.

information for submission to the underwriter and then chases missing or unsatisfactory documentation from applicable sources once the loan has been underwritten. Like the other functions of the process, measurement of performance will give management insight into the quality and speed of the individual. Processor productivity can be measured by the following KPIs:

HOW DO WE SPEED UP THE PROCESS?

As participants in the mortgage industry, we should be customer focused, which means reengineering the process to reduce turn times.

Often borrowers are disgruntled or confused by the whole application-to-closing process. We can make the process easier, faster, and less stressful for our customers.

Improvement begins with clearly understanding your application process and current workflow, setting objectives, measuring your current performance by using Key Performance Indicators (KPIs), and utilizing a system to ensure quality of the initial loan application.

• Completeness of mortgage loan package submitted to underwriting (number of files with conditions) • Turn time by processor (time file received to submission to underwriting) • Number of files processed per month • Mortgage application approval rate Stage 3. Underwriting is tasked with the responsibility of reviewing a file and determining investment quality. Complete file documentation must be reviewed to determine the risk in the application and determine if it meets investor guidelines. As with a processor, there are indicators to a successful underwriter. An underwriter can be measured by using the following KPIs:

Stage 1. The success of the mortgage loan process starts with the MLO and a welldocumented, complete application. A poor application that passes to the processing state will cause problems that not only affect the loan but cause delays in the entire loan pipeline.

In order to avoid this, the MLO needs to be trained on lender requirements and be held accountable for the quality of applications submitted. When offering 15-day guaranteed closings back in the day, our operation implemented an MLO Scorecard with hard stops for applications that did not meet the quality standard. The MLO Scorecard was the first measurement and one of the most important steps in achieving a successful operation. If you measure it, expect improvement!

• Defaults on repurchases for individuals • Turn time by underwriter (time file is received to posting of decision status) • Number of files underwritten per month • Findings in QC review State 4. A closer assembles, prepares, and reviews critical closing documents for a loan once it has been approved for underwriting to close. A detail-oriented, well organized individual will act as a point of contact between parties involved in the loan transaction, coordinate closing, and ensure compliance. As with the other functions, a closer can be measured by using the following KPIs:

Stage 2. A well-trained, efficient processor is also key to getting a loan closed in a timely manner.

It is this individual that must gather missing The MORTGAGE BANKER Magazine

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Mortgage Operations • Number of files closed per month • Turn time by closer (time file received to closing package) • Findings in QC review We cannot overlook the importance of technology in this process of faster-close, higher quality loans. The mastery of technology is the key to a highly productive, efficient, and profitable mortgage operation. You must have it and know how to use it! Current and future adaptation of Artificial Intelligence (AI) technology is rapidly changing the mortgage industry. It affects how we currently do business and how we will do business tomorrow. It is and will continue to be a huge factor in the reduction of application-to-closing turn times.

The solution to faster mortgage closings involves the knowledge and implementation of the following: • A clear, understandable workflow describing an efficient loan manufacturing process • Well-defined, measurable objectives for process improvement • Complete, fully documented loan application with MLO accountability • Measurement and quality checks during the process to indicate areas needing improvement (not waiting for QC after the loan closes) • Staff education and set expectations • Outsource processing and/or underwriting in times of excess volume • Adaptation and openness to the future of technology • The Big One - strive for perfection and when you think you have achieved it, improve it! MBM

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February

Taking a Critical Look at Operations: How Partnering With a Consultant Might Save Your Business

By Pete Butler, Opus Capital Markets Consultants

S

By working with a consulting group, individual lenders earn an industry-wide perspective based on consultants’ understanding of marketplace best practices. In addition to this, lenders frequently learn ways to make better use of their staff, deploy their technology more successfully, and reduce their compliance risks, all while lowering operational costs.

ince 2008, the mortgage industry has changed drastically, and continues to evolve with a current uptick of volume. As new buyers enter the market and residential prices continue to increase, so has the cost per loan, which has risen steadily year over year. As lenders look to handle higher volume and streamline processes, they should also think strategically about the best ways to reduce their overhead and create lean operations to manage seasonal peaks and valleys.

Partnering with consultants to identify potential process improvements is one ideal method to create better operations and reduce the cost per loan. Often, when looking inward, many lenders miss out on best practices and do not realize their own blind spots in processes and procedures.

The MORTGAGE BANKER Magazine

WORKING WITH A CONSULTANT

Many businesses are hesitant to embrace any significant change; however, in this competitive environment, lenders should be comfortable with the idea that their operations need to evolve over time. When working with consultants, lenders need to dedicate a certain amount of time to the consultants’ discovery processes, which can include extensive onsite evaluations and a review of the 27

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Mortgage Operations current technology.

By looking at an individual loan’s lifecycle, consultants will evaluate points of potential inefficiency or processes that need to change, first in origination operations, then in servicing. During this consulting process, these experts can also help lenders identify regulatory compliance best practices for end-toend operations, including how to create change management procedures for the inevitable regulatory changes in the industry. Similarly, consultants can identify areas of potential risk, whether related to regulatory issues or data management, and offer solutions to reduce those risks.

processes and reduce manual labor, further freeing valuable staff. By focusing employees on more strategic tasks, such as quality control instead of data entry, these employees often show a dramatic increase in job satisfaction.

SHIFTING TEAM STRUCTURES

Many times, consultants recommend implementing team structures as a source of improvement. In particular, they recommend that the originations department have structured teams instead of having underwriters, processors, and closers working in isolation. Similarly, having loan officers assigned to groups can be most efficient.

These teams work best if all members are located in the same physical office, with the exception of underwriters, who can operate successfully from remote locations, yet still be teamed.

TAKING ADVANTAGE OF A FRESH PERSPECTIVE

While consulting with experts can disrupt operations, it is difficult to overstate the value of bringing in outsiders for a fresh point of view. These unbiased consultants have no personal agenda or political objectives other than identifying best practices to save the lender time and resources.

Many times, the changes consultants recommend may disrupt processes that important individuals in the company recommended years ago, and lower level employees have been too afraid to question.

These personal ties to operational procedures, or even technology contracts, are one of the obstacles to a company’s success, and an unbiased outsider can easily recommend change without fallout.

THE POTENTIAL FOR OFFSHORING

Consultants may recommend building a hybrid onshore/offshore approach to underwriting, especially if lenders are concerned about the rising cost per loan. In most cases, the quality of work from these underwriters is as high as onshore workers, but at a reduced cost. For those concerned about quality control, taking the entire process primarily offshore may not be the best solution due to various challenges, not the least of which are licensing requirements by some states. By using this hybrid approach, some lenders have reported reducing their cost per loan to below half of the national average, and depending on the product type, it could be below $2,000 per loan.

TAKING A STRATEGIC LOOK AT STAFF

Occasionally, the presence of consultants can make employees uneasy, since consulting and reorganization or downsizing departments are often unfairly correlated. However, during this period of low unemployment, talented employees are hard to find, and employers are often eager to reallocate any talented employees whose roles might be disrupted by change. This reallocation can often be one of the biggest benefits of process improvement, through which lenders can identify which departments are understaffed and shift resources to address those needs as other departments create better operational efficiencies.

As consultants review operations, they often make recommendations on leading edge technology solutions that can work in harmony with existing lender technology, if desired, to help streamline The MORTGAGE BANKER Magazine

IMPLEMENTING NEW TECHNOLOGY

As with staffing structures, consultants often look closely at the technology a lender uses for origination and servicing. During this process of identifying areas of improvement, they may recommend origination technology and/or configuration changes that eliminates significant portions of manual tasks, particularly solutions that rely on Artificial Intelligence or “AI.” For servicing, many consultants find this department often relies on the most antiquated processes and technology, since much of the innovation in the industry focuses on originations. Consultants often recommend the use of technology for smarter 28

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February data and document transfers from originations to servicing. By deploying technology strategically, as consultants are looking to transform operations in these departments to focus on single touch processes, instead of multiple manual processes for overworked employees.

engagement tends to drag out further and can be much more costly for the lender, while also yielding reduced results. Furthermore, clients that do provide adequate resources tend to have less down time implementing changes and have a more seamless transition to improved processes.

Ideally, lenders should engage with consultants as early as possible, allowing for UAT, stress testing, and adjustments leading to steady state in order to have new operational processes in place before higher volumes of activity come in the Spring.

Consulting relationships often yield results over time, instead of immediately. Evaluating the success of an engagement should happen gradually over phases, especially as any technology or staffing changes will involve training and retraining. While lenders look for new ways to compete, embracing change, even in a short period of time, can yield huge results, particularly in reducing the cost per loan and the amount of time employees spend on manual tasks; thus, creating new and improved metric goals. MBM

HOW TO MAKE THE MOST OF YOUR CONSULTING RELATIONSHIP

The most successful consulting relationships have transparency on both sides, which is vital from the inception. The client in this relationship should be prepared for numerous questions from the consultants, and must answer as honestly as possible. Some clients make the mistake of underestimating the depth of these relationships and do not commit fully on the front end. To make this transformation a success, they must dedicate time and personnel to these efforts.

Occasionally, clients fail to provide consultants with an advisor figure, who can serve as a point person for questions. When this happens, the

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The MORTGAGE BANKER Magazine

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December 2020

Technology

The Next Big Thing in

LOAN EFFICIENCY: Reducing Friction Between Borrowers and Investors

By John Keratsis, Incenter

The MORTGAGE BANKER Magazine

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August

I

f you’re gulping a cold brew while trying to keep up with refinancing applications, you undoubtedly appreciate the purchasing app from your favorite coffee franchise.

Specify hot or cold, sweetened or unsweetened, almond or soy, pay, pick up at the curbside, and repeat the next day. The transaction is quick and dependable. Both parties, the franchisee and the customer, get what they expect without any delays, speed bumps, or mistakes along the way. The experience is so standardized that it scales exponentially and consistently across vast retail operations with tens of thousands of locations where hundreds of thousands of customers get their daily caffeine fix.

If only our industry could apply this level of universal standardization to the end-to-end mortgage process it would fix one of its biggest issues: friction between borrowers and investors that causes delays and makes it difficult to accurately assess loan portfolio risk and future performance.

The Mortgage Bankers Association predicts about $1.23 trillion in refinancing originations this year, and loan modifications due to COVID-19 are expected to skyrocket, further stressing processing capacity. An end-to-end solution with universal standards for loan origination and title processing, enabled by across-theboard access to common customer credit and property databases using standardized AI technologies to interpret the data, would eliminate the tollgates in today’s mortgage The MORTGAGE BANKER Magazine

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lifecycle that cause delays and friction points between borrowers and investors.

Such a process would provide straight and smooth pathways for credentialing borrowers, individual mortgage assets, and aggregated portfolios, at scale. It would provide a clear, wide, accurate and realtime window into the granular data needed to gauge the risks and upsides of every investment, in hopes of enjoying predictable and attractive returns. This would inject more confidence into the secondary markets, which routinely hold back 5-20 percent of their trading price, based on reservations about trailing documents and other undiscovered issues that could become problematic when transferring custody.

HOW FAR AWAY ARE WE? NOT AS FAR AS YOU THINK. The central availability of standardized data described above is the Holy Grail for reducing friction between borrowers and investors, but it’s a vision that could take decades given the important regulatory and compliance requirements our industry must follow. Or maybe not.

AI and machine learning platforms at discrete points in the end-to-end process are already overcoming some hurdles, helping to eliminate idiosyncratic variances in data sharing and providing tailwinds at selected points in the cycle, such as the title search.

Known as a huge logjam, this process has long been plagued by

December 2020

Technology ROADBLOCKS TO TACKLE

inaccuracies and delays, as searches surface the wrong “John Smith” or miss the “John E. Smith” with a background of liens and defaults. New “search and decision engines” that apply AI to borrower and property credentialing are now able to plow through large sets of public and private data in multiple forms, access complete and accurate borrower and property information, and determine within seconds whether files are clear to close.

These “search and decision engines” speed the cycle for both lenders and title examiners.

For the latter group that are accustomed to handling 20-25 searches per day, each taking 15 minutes, reducing the search time per file to a minute or two can instantly boost productivity tenfold. AI generated reports that reveal title issues point the way to exactly what the examiner needs to focus on and why, which significantly reduces curative turn times and flattens the clear-to-close speed bump for clouded titles.

Newer engines are clearing as many as 87 percent of consumers and more than 60 percent of properties on the spot. Lenders are also able to pull up the same information within a short timeframe and tell happy clients that they are clear to close at the point of sale.

The end result is faster loan processing and assets that can be more accurately credentialed for the investors’ benefit, too. The impact of clearing hurdles like these, on steroids, can be significant over time: One major lender reports that every day shaved off its loan cycle represents $3 million in savings.

Now imagine these technologies drawing on even richer sets of data in standard formats throughout the loan cycle, enabling originators and then investors to immediately fine tune their risk analyses and performance projections while accelerating decision-making. When adopted industry-wide, the opportunities for processing as well as asset performance and pricing optimization would be astronomical.

The MORTGAGE BANKER Magazine

What are the significant roadblocks to achieving true, end-to-end mortgage processing standardization?

The many disparate Loan Origination Systems (LOS) that lenders use, which collect and display data and images in highly variable ways, add not just friction, but quicksand.

Just one small but telling example: In order to comply with specific investor protocols, loans have to be re-indexed and re-stacked for risk and performance analysis because different LOS platforms collect and store customer and loan information and imaging into so many disparate databases. The process can be time-intensive and riddled with holes through which potential performance indicators may drop.

Once AI-driven standardization to end-toend mortgage processing is implemented, you can imagine how it would open the door to fundamental changes for streamlining related processes and costs. For example, loans would be so accurately credentialed and bucketed that the need for some types of insurance wrappers would go away altogether. Risk profiles for loan and MSR portfolios would become so detailed and fine-tuned that sellers could include “umbrella wrappers” that, combined with the appropriate type and level of insurance (PMI, title, hazard), basically guarantee portfolio performance. Imagine the impact on pricing!

And no more hold-backs until after transfer, either!

CAFFEINATING THE INDUSTRY The biggest friction point of all may be industry reluctance to make a wholesale change.

But that doesn’t preclude continued iterative progress. In the meantime, during a mortgage process where “the customer feels everything,” unfettered access to standardized data also turns every loan origination into an opportunity to optimize the borrower experience and lay the foundation for a long-term relationship. Of course, it doesn’t hurt to offer them a cup of coffee, too. Just the way they like it. MBM

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Vladimir Bien-Aime, CEO and President

The appraisal process has numerous moving parts and compliance requirements, which would be simplified using automation technology, that’s traditionally riddled with manual processes and inefficiencies. Lenders understand that creating a protective firewall between the loan production staff and their appraisers is required for compliance (AIR), but this is also essential for both a sound loan program and selling to the secondary market.

The appraisal process has many segments that provide significant opportunities for improvement in performance and countless other ongoing issues. A simple appraisal order request, for example, often requires an external website visit and separate credentials, including a manual rekeying of the basic information already kept in the Loan Origination System (LOS). This

manual process typically involves using the organization’s standalone order form, email, fax or logging on to an AMC website.

This becomes more challenging in a team environment and lacks control, transparency and is subject to costly duplicate ordering and incorrect appraisal product selection.

Furthermore, some lender’s processes require them to utilize a third-party to provide the borrower with a credit card payment option.

Global DMS’ next-generation appraisal management technology, EVO™, provides complete automation of the appraisal process and plug and play integrations to the LOS. Lenders can order appraisals and charge the borrower’s credit card directly within their LOS, such as Ellie Mae’s Encompass®, without re-keying data. In addition, completed appraisal reports and the GSE’s UCDP® Submission Summary Reports (SSR) are returned seamlessly to the LOS with all relevant communication documented, eliminating the need for human intervention – thus eliminating human error.

Lenders that manage their own appraiser panel have the additional responsibilities of selecting licensed, qualified and available real estate appraisers daily. It is beyond challenging to execute basic daily tasks, such as verify licensing, identifying coverage, confirming quoted fees and ultimately assigning the appraiser. These manual processes are only exacerbated with peak volumes and result in overstaffing, increased overhead and compliance risk.

Lenders with an appraisal department are often overwhelmed with trying to find the right

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appraisers to place their assignment, while maintaining consistent communications to help chase down any issues in a timely manner.

However, those lenders who embrace workflow automation technologies like EVO can reallocate staff to more productive and profitable tasks, forgoing the usual mundane “place and chase” activity that’s pervasive throughout the mortgage industry.

EVO’s unique ability to instantly facilitate the lender’s personalized assignment approach by emulating the thought process of an actual staff member finally opens the door for a completely automated and transparent process.

Mortgage lenders are aware of the ECOA Valuations Rule that requires them to share copies of the appraisal and other written valuations with the borrower. Surprisingly, the number of lenders that continue to fulfill this regulatory requirement manually is staggering! Lenders that leverage EVO’s ECOA solution not only provide a better borrower experience, they also eliminate the hard cost of paper and postage – plus the hours of labor to locate, print, mail and document each loan file.

It’s clear that the right appraisal management solution can deliver an amazing return on investment by automating manual processes, connecting systems, cutting hardcosts and reducing man-hours. The EVO difference is a “custom software experience right out of the box” that offers a painless transition, guaranteed compliance and requires absolutely no customizations or IT participation. EVO’s effortless interface and 100% configurable design make it easy to learn, quick to implement and fun to use.

Technology

The Digital Difference is Being

SMART

By Paul Anselmo, Evolve Mortgage Services

I

ELIMINATING ‘STARE AND COMPARE’ AND ‘RECOGNIZE AND EXTRACT’

t’s no secret that digital processes are more efficient, less costly, safer, and more accurate than doing things manually. And, in recent months, with everyone trying to originate and close loans remotely and abide by social distancing protocols, the value of digitizing the mortgage industry has never been clearer.

But while most home lenders, title companies, and closing providers have migrated from preparing paper documents to digital PDFs, many are nowhere near realizing the full benefits that digital processes provide. The key to unlocking the industry’s digital future is to transition from PDFs to SMART Docs and to start by understanding the difference between the two.

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To be sure, it’s much easier to manage documents stored electronically as PDFs than it is to manage paper files. Yet the benefits of PDFs begin and end there. PDFs may save physical space, but processors, underwriters, auditors, and increasingly machines, still have to examine them to make any sense of them.

PDFs are also incredibly time-consuming to handle for signing. In order to be signed by borrowers, they must first be tagged somehow by a loan processor, closing agent, or a machine.

This process leaves the potential for errors or missing signature or initial points. Additionally, 34

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PDFs cannot automatically be read and verified with 100 percent accuracy; they have to be visually inspected by humans or run through some AI platform using optical character recognition (OCR) or machine vision. This also creates the potential for oversight and mistakes, which, again, must be reviewed by humans, with no guarantee of 100 percent accuracy in either case.

SMART Docs are completely different. While everyone has heard of them, few can remember what SMART actually stands for: Securable, Manageable, Archivable, Retrievable and Transferable. It’s these traits that make SMART Docs so valuable and guarantee that whatever information the borrower sees, is the exact same The MORTGAGE BANKER Magazine

information lenders will use in downstream processes.

Unlike PDFs, SMART Docs contain an almost unlimited amount of data that can be instantly read by computer systems without requiring OCR tools.

This enables all parties involved in the transaction to identify and extract the data they need without human intervention with absolute, unequivocal accuracy. And they include a secure record of everything that has happened to the document: when it was created and modified and where it has been sent, etc.

SMART Docs are also vital for remote online notarizations (RONs), which have never been more valuable than they are today. When used in 35

December 2020

Technology accordance with state requirements for RONs, borrowers can sign their closing documents from the comfort and safety of their home under the virtual presence of a certified notary. Nearly half of all U.S. states had made RONs legal before the pandemic began, and more than a dozen states have since joined them. Let’s also remember that electronic recording capabilities at the county levels have increased dramatically to accompany RON adoption.

This potential for a truly end-to-end digital experience wouldn’t be possible without SMART Docs. But in order to realize this potential, it can be challenging to know where to begin.

HOW TO GET ‘SMART’ When it comes to taking advantage of SMART Docs, most lenders need the help of a trusted eMortgage partner. Two places to find them are Fannie Mae and Freddie Mac, both of which maintain a list of eMortgage vendors that have been approved for submitting electronic files to the GSEs. All the vendors on these lists have eNote delivery systems that have been tested and proven capable of meeting the GSEs’ requirements. At the same time, however, neither Fannie nor Freddie endorse eMortgage vendors, so it’s up to lenders to perform their own due diligence when choosing a partner.

Unfortunately, most venders, including those that are on the GSEs’ lists, only create eNotes in SMART Doc format, not other types of documents. We all recognize the importance of the note in a mortgage transaction, but what about the other documents that support the transaction? While the agencies only care about the note, others in the transaction such as originators, sellers/securitizers, and servicers must care about and are responsible for the accuracy of the entire loan documentation.

Getting the most value out of SMART Docs requires a full library of MISMO Category 1 SMART Docs that includes the most common loan documents lenders use. Category 1

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SMART Docs are essential because they enable lenders to choose between XML or PDF formats depending on the requirements of a specific investor or trading partner. And a full library of SMART Docs enables electronic due diligence of an entire loan closing file.

When we couple a full library of Category 1 SMART Docs with the advances made in the other half of a loan file, such as the credit side, appraisal data, income and employment data, and assets where available, we are closer and closer to truly digital loan files as opposed to “digital image” loan files. Closing documentation and, for that matter, disclosure documentation can all be SMART. Think of it this way: Why would anyone take digital information from a source platform and lose the opportunity to remain digital only to produce more digital images that require “stare and compare” or machine/human reading and extraction?

With SMART Docs, the data is the loan documentation, only it comes with a view for the consumer so it is familiar to them. In fact, the borrower’s view of a SMART Doc and their view of a digital image of that document look exactly the same. The difference is that your closing docs are SMART after closing.

Thanks to the pandemic, SMART Docs have never been more popular than they are today.

According to a Fitch Ratings report, the volume of eNotes registered on the MERS eRegistry is up 267 percent so far this year compared to 2019. Yet, even with a pandemic driving the increase in SMART Docs, overall eMortgage adoption remains low, as the total percentage of agency loans fully utilizing eMortgage technology is only 4 percent.

In a post-pandemic market, however, adopting SMART Docs will be even more beneficial for lenders and servicers, simply because they provide an unequaled level of efficiency, accuracy, and security. In other words, SMART Docs are smart business. MBM

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ADVERTORIAL

She's Got It [EXPERT ANALYSIS]

ASSESSING CONSUMER RESILIENCE: A GAME-CHANGER FOR MORTGAGE UNDERWRITING

Joanne Gaskin

VP of Scores & Analytics JoanneGaskin@fico.com

If 2020 has proven anything, it’s that crises — whether health, economic or otherwise — can strike at any time, without advance warning.

For mortgage lenders, measuring risk in the face of so many unknowns has always been at the heart of their business, and COVID-19 has laid bare just how unpredictable the world can be. The inability to fully assess the credit risk associated with major economic shocks has made it difficult to both prepare adequately and respond efficiently. But thanks to new innovations, that is beginning to change.

FICO’s focus on this challenge started before the pandemic struck and today, we’re putting our data analytics expertise to work helping lenders and investors more precisely identify consumers across credit score segments that are more resilient during unexpected economic disruptions. The FICO®

Resilience Index, in tandem with the industry-standard FICO® Score, allows financial institutions to better assess this risk and lend more confidently to more consumers as a result.

minimum of 620 but below 680 who are likely to be most resilient to a downturn, expanding their pool of prospective borrowers.

BRINGING RESILIENCE INTO UNDERWRITING

Analysis of FICO® Resilience Index data by Tom Parrent, former chief risk officer for Genworth Financial, shows that from 2010 to 2015, nearly 600,000 additional mortgages could have been originated to consumers with FICO® Scores between 680 and 699, had the FICO® Resilience Index been available to lenders at the time.

In a white paper analyzing the index, Mr. Parrent calls it “a significant step forward in consumer credit modeling” and “a significant addition to the toolkits used by risk managers, portfolio managers, loan servicers, originators and regulators,” with a wide range of use cases for the mortgage industry, ranging from stress testing to riskbased pricing to loan servicing.

In January 2020, few could imagine what the year ahead would look like.

But while COVID-19 will eventually be in our rearview mirror, there is no way to remove unknown risks from the system.

Instead, new tools to measure consumer resilience are essential for continued lending — in good economic times and bad.

The FICO Resilience Index® is one such tool. When paired with the trusted FICO Score®, the index gives mortgage lenders deeper, more actionable insights than ever, helping them lend more confidently to more borrowers, no matter the economic conditions.

The FICO® Resilience Index represents a potential sea change for mortgage lending. Using data from across the economic cycle, our product developers determined that even within the same narrow FICO® Score bands, consumers who demonstrate certain characteristics when it comes to their credit history (such as more experience managing credit, fewer active accounts, and fewer credit inquiries in the last year) are more resilient to a sudden shift in economic conditions.

Until now, lenders have had limited options to adjust their risk appetite during an economic downturn, typically resulting in a wholesale credit tightening. The FICO® Resilience Index provides a new approach. Now lenders can keep more credit flowing during good times and bad. Instead of introducing broad restrictions, lenders can prepare for both current and future downturns by adjusting their strategies to more precisely account for the consumers who are most and least resilient to changes in economic conditions.

For example, if a mortgage lender typically institutes a 680 FICO® Score cutoff for borrowers, even during normal economic conditions, the FICO® Resilience Index allows those lenders to take a closer look at consumers who have FICO® Scores above the GSE

The MORTGAGE BANKER Magazine

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December 2020

‘A SIGNIFICANT STEP FORWARD’

Legal

Where We Have Come From — And Where We Are Going ..

By Daniel Chilton, RAS Legal Group

T

he world did not see it coming in Q1 2020.

WHO knew? The infamous pandemic known as the Coronavirus rocked global financial markets as information and understanding of the dangers posed by the virus came to fruition around February 21. Markets began a free fall in late-February, bounced back in late-March as a result of the Coronavirus Aid, Relief, and Economic Security (CARES) Act, and have seen a steady increase since then on a hope and a prayer. The mortgage industry, so critical to financial markets, received its blessings and curses. From the Fed's reactive monetary policy, to the passing of the CARES Act, to the cascade of consumerfocused regulatory policies, this article walks us through where we have come from and provides some speculative insights on where we are likely going.

MORTGAGE RATES AND THE FLOW OF MONEY

In March, the Federal Reserve moved to keep liquidity in the mortgage industry by rates cuts and mortgage purchases.

In an effort to guard against a contagion impact towards market liquidity, two rate cuts were quickly implemented as well as the Fed's pledge to

purchase billions of mortgagebacked securities to support smooth market functioning. On April 28, the Federal Reserve announced it would maintain its quantitative easing strategy by maintaining its fed funds rate to near zero levels until confidence in the economy and maximum employment and price stability is back on track.

Despite these preventative actions, and most would applaud the effective results, lenders have still seen a decrease in mortgage applications, driven by a drop in demand for new homes on the market and by less traffic from prospective buyers as compliance with stay-at-home orders are in effect.

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THE CARES ACT AND THE DISTRESSED HOMEOWNER Title IV of the CARES Act was designed to address protections for distressed homeowners with federally-backed mortgages.

First, lenders or servicers are not allowed to conduct any foreclose activity, whether judicial or nonjudicial, on a consumer for 60 days after March 18. Second, for those distressed homeowners experiencing financial hardship due to the coronavirus pandemic, a forbearance or extension request can be made up to 180 days after March 18. Additionally, landlords are prohibited from starting eviction or charging penalties and fees related to their tenants not paying rent if the mortgage is federally backed.

July On May 12, 2020, the Consumer Financial Protection Bureau (CFPB), Federal Housing Finance Agency (FHFA), and the Department of Housing and Urban Development (HUD) released a joint-article providing mortgage and housing assistance through a website tool to consumers. “This invisible enemy has a lot of Americans concerned about how they are going to stay safe and make ends meet,” said HUD Secretary Ben Carson.

“No one should lose their home because of Coronavirus, and this new website is full of resources to help property owners and renters navigate these unprecedented times.

HUD is continuing to monitor the needs of our FHA borrowers and HUD-assisted families, and we are prepared to take additional actions as needed.”

In addition to the federal guidelines, states also took up their sovereign act to opine as to the ability to foreclose or evict a tenant during the national state of emergency.

Examples include Alabama Governor's Sixth Supplemental State of Emergency; Connecticut statement from Chief Court Admin on March 19, 2020; Florida Governor's Executive Order No. 20-94; and, Massachusetts HB 4647.

California, in particular, has pending Assembly Bill 2501 that would extend a 180-day stay of foreclosure beginning with the end of the COVID-19 emergency period, requiring servicers to automatically approve consumers who are 60 days in arrears for forbearance,

as well as a list of do's and don'ts from servicers. The law makes misrepresentations and non-disclosures of a servicer’s forbearance and end-offorbearance loss mitigation options a violation of the state’s unfair and deceptive practices act; there is no similar requirement on consumers.

IMPACT TO THE DEFAULT AND COLLECTIONS INDUSTRY

On a personal note, I have maintained diligent review of combing through pending laws, regulations, or orders impacting the mortgage, automobile, and credit card default industry.

Prior to being an attorney, I was a financial analyst for a national bank; I looked for trends in laws that projected the psychological perception of the legal and regulatory community for the default industry. The best example can be expressed from the 2009 collapse of the financial markets. Unpredictable defaults occurred in every type of asset: mortgage, credit card, automobile, and student loans.

Demand for how to handle defaulted assets through loss mitigation, foreclosures, or otherwise also spiked. The Home Affordable Modification Program (HAMP) and numerous state laws directed new ways of what could or could not be accomplished during a mortgage default process; there was a focused concern over how consumers were treated during this process.

As a result, and over the next 10 years, and leading up to the pandemic, the default industry

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maintained a consumer-focused approach. A truly great story of making something good out of something unexpected.

When we turn to recent events, the legal and regulatory communities' actions make for a clear message to the default industry: do not exercise the default or collection clause within the lending agreement during the pandemic. If there is a consumer setback during the period of the pandemic, then there is strict liability on the pandemic itself.

No proof of impact is being requested; the pandemic has been so omnipresent that any condition is attributable. However, another message from the legal and regulatory communities has also been apparent; the stoppage of foreclosure activity is not a sustainable model to maintain market liquidity. Just as action was taken by the Federal Reserve in March and April to open one side of the financial pipe, so too must the default end of the pipe be free and clear to function. If you plug either side of a pipe, the free flow of liquidity will cease, causing market rate adjustments and cost of capital increases caused by default risk, deflation of home values, new home demand due to higher rates, and a potential contagion of moral hazard. By maintaining transparent dates to lifting the moratoriums in place today, consumers know where they stand. Moreover, the tens of thousands of jobs in the default mortgage industry will know how to keep those jobs working for all.

MBM

Mortgage Servicing

Putting the ‘SERVICE’ Back in Mortgage

Servicing

By Susan Graham, FICS

The year 2020 is shaping up to be a challenging one for mortgage servicers.

Economic pressures caused by the COVID-19 pandemic are creating uncertainty for borrowers and servicers alike. The Coronavirus Aid, Relief and Economic Security Act (CARES Act), passed in March, requires servicers to provide up to 12 months of forbearance to COVID-19-affected borrowers who have single-family federally-backed mortgage loans and up to three months for borrowers that have multifamily loans.

In this challenging economic climate, communication between mortgage professionals and borrowers is more important than ever.

Borrowers need convenient, immediate access to their up-to-date mortgage information. Digital mortgage technology such as mortgage servicing software and web applications can provide loan information “on-demand,” but human interaction is still an essential part of the “service” equation.

Servicers that embrace a hybrid approach, blending self-service technology with support from welltrained mortgage professionals, will have more loyal, satisfied customers.

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SERVICING TECHNOLOGY ENABLES HIGH QUALITY IN-HOUSE SERVICING Selling loan servicing retained to the Government Sponsored Enterprises (GSEs) allows a lender to originate more loans and gives borrowers the comfort of knowing their servicer is the lender they originally selected, and quite possibly the financial institution where they have other accounts.

The best way to put service back into servicing is to manage servicing In-house, which generates service fee income and provides cross-selling opportunities that enable credit unions, banks, and mortgage companies to provide better, more December 2020

July

personalized customer service. When servicing is outsourced, the lender has no control over the quality of the customer service provided by the third-party provider. Too often, outsourced servicing companies treat the borrower as just one of many “accounts” instead of providing the personalized service that is required in today’s competitive lending environment. COVID-19 has placed many borrowers in the difficult position of not being able to make their mortgage payments because of a reduction or total loss of income. During times like this, when many borrowers need personalized attention and assistance from their lender, in-house servicing has even greater value.

To make in-house servicing efficient and effective, servicers should use leading-edge mortgage servicing software that integrates with the loan origination system (LOS) and core system. Mortgage servicing software and web The MORTGAGE BANKER Magazine

applications facilitate paperless servicing that improves the overall borrower experience. Today’s environmentally conscious borrowers may view lengthy paper documents as wasteful and even annoying, especially as their preference for and reliance on technology continues to increase.

According to a survey of 1,000 Millennials by the Shelton Group, 70 percent consider a company’s environmental practices when deciding whether to purchase its products.1 Another report, the WeSpire “15 Critical Insights into Gen Z,” found that Gen Z individuals consider the environment their second most important issue.2 Mortgage servicers should offer borrowers several convenient ways to pay. Many borrowers prefer making online payments via online portals and web applications. Mortgage servicing software should also support the processing of phone, inperson, or mailed payments. Web applications 41

December 2020

Mortgage Servicing give borrowers online access to their mortgage loan information, allow borrowers to make online payments, and facilitate communication between borrowers and servicers. According to a recent JD Power survey of mortgage servicing customers, mobile customers are more satisfied and more likely to be mortgage company brand promoters than non-mobile users. Unfortunately, only 20 percent of mortgage customers use mobile technology, so it is important to engage borrowers and encourage its use.3 Increasing the use of mobile technology may increase borrowers’ satisfaction and increase engagement. Account alerts are an underutilized way to provide exceptional customer service, engage the customer on a regular basis, and promote customer satisfaction. According to the JD Power survey, receiving account alerts via text messages, secure messages, on the servicer’s website or email was associated with high customer satisfaction. Unfortunately, 50 percent of survey respondents said their servicer either does not have account alerts or they are unaware the service is available.4 For financial institutions or companies that offer another website requiring login credentials to access other accounts, single sign-on technology can be incorporated to make the borrower web application access seamless, as if the borrower’s financial information were on one system.

survey of 7,374 mortgage servicing customers, customer satisfaction drops when borrowers believe their time is being wasted. Among individuals who believe their time is wasted, 66 percent are dissatisfied when they must wait five minutes or more to speak with a customer service representative.6 Customer complaints are a valuable source of information, providing an opportunity to improve the borrower experience. Resolving complaints is crucial for preventing other future grievances. For every person who calls to complain, there may be five other dissatisfied customers who don’t pick up the phone. According to panelists at the Mortgage Bankers Association conference, the biggest complaints involve payment and escrow. Servicers may need to improve their processes, or they may need to educate borrowers to help them better understand and navigate the payment or escrow processes.7 By using mortgage servicing software and web applications to improve the efficiency of mortgage servicing processes, servicers are taking the first step toward improving the customer experience.

As more borrowers inquire about complicated issues or request loan modifications, servicers must also provide exceptional human-touch support.

By responding promptly to borrower inquiries, addressing complaints, and educating borrowers, servicers can create loyal, satisfied customers for life. MBM

SUPPLEMENT TECHNOLOGY WITH THE HUMAN TOUCH

While they may prefer to check their balance or make payments online, many borrowers still want to interact with real, live mortgage professionals, at least occasionally. Surveys show that even millennials, known to prefer technology, still want personal assistance when paperwork and terminology get complicated.5 ]. This need for inperson service will only increase as more borrowers request forbearance due to the COVID-19 pandemic.

To provide an outstanding service experience, mortgage servicers must respond promptly to borrower requests. According to a JD Power

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END NOTES https://www.prnewswire.com/news-releases/survey-millennials-less-likely-torecycle-but-more-likely-to-buy-from-companies-that-go-green-300522713.html 1

2

http://www.wespire.com/wp-content/uploads/2018/07/WeSpire_GenZ-2.pdf

https://www.jdpower.com/business/press-releases/2018-primary-mortgageservicer-satisfaction-study 3

https://www.jdpower.com/business/press-releases/2018-primary-mortgageservicer-satisfaction-study 4

5

https://thefinancialbrand.com/62142/millennial-digital-mortgage-lending/

https://www.jdpower.com/business/press-releases/jd-power-2017-us-primarymortgage-servicer-satisfaction-study 6

https://www.mba.org/mba-newslinks/2017/february/mba-newslinktuesday-2-21-17/residential/using-customer-feedback-to-improve-servicingexperience 7

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leased their Borrower Engagement module, a customizable workflow with a plug & play widget that can be embedded directly into Servicer web sites. This facilitates seamless interaction between the borrower and servicing operations, driving AI enabled decisioning, total transparency, and scalable response speeds. Talk to Aspen Grove solutions today to find out how you can

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enhance customer engagement, promote improved retention, lower costs and build deeper relationships with your homeowners.

Ask for more information on the Borrower Engagement Platform sales@aspengrovesolutions.com

Capital Markets

A SYSTEMIC PROBLEM How the Coronavirus Pandemic is Affecting Capital Markets

By Rob Chrisman, Capital Markets

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T

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

The MORTGAGE BANKER Magazine

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

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Regulators and Agencies

A The Digital BANNER Difference is Being YEAR

SMART

Jeffrey London, VA’s Executive Director, Loan Guaranty Service, Reviews a Record-Setting 2020

By Paul Anselmo, Evolve Mortgage Services

By Brian Honea

Through all the uncertainty that the year 2020 has presented to us, one thing is certain: COVID-19 has not slowed VA lending at all. Not only has it not slowed it down, loans are being guaranteed by the U.S. Department of Veterans Affairs in record numbers.

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November loans, and that's the program record, “London said. “The previous program record was in 2017 where we guaranteed 740,000 loans, a 62 percent increase. But what I'm most proud about those 1.2 million loans is we also had record volume for purchase loans. We guaranteed a little over 428,000 purchase homes so veterans and service members were not only able to utilize their benefits to refinance loans, they also used the benefit to purchase homes. We're extremely proud of those numbers.”

To put those numbers into perspective, those 1.2 million loans represent about $375 billion in loan volume, and the 428,000 purchase loans make up about $130 billion of that.

“We've leaned in and really had flexible processes and policies to enable our veterans and service members to utilize

All of this means that more of our country’s servicemen and women are utilizing the benefits that VA is offering to them.

More and more members of our military are obtaining mortgage loans, which means they are achieving homeownership with the government’s help.

Not only that, but VA’s loss mitigation programs are helping veterans that can’t make their mortgage payments due to COVID-19 stay in their homes and avoid foreclosure.

In all, 2020 has been a banner year for VA guaranteed loans.

With the fiscal year that ended September 30, VA is coming off of its best year ever for the loan guaranty program, according to Jeffrey London, MPA, the executive director of VA’s Loan Guaranty Service. “We guaranteed over 1.2 million

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November December 2020

Regulators and Agencies their earned benefit,” London said. “I'm also proud of the fact that over the years, including this past year, we implemented our process improvements to make it even easier for veterans to utilize the benefit and for lenders to work with us.”

As an example of VA’s more flexible policies working to make it easier for veterans to obtain a mortgage, London said out of the two million requests they had received for eligibility determination, 75 percent of them were determined automatically without human intervention, whether requested by the lender or the veteran himself or herself. And even out of the requests that VA had to touch, 85 percent determined eligibility within one day and all of them were determined within five days.

The MORTGAGE BANKER Magazine

Not only that, but VA has streamlined the appraisal process to where the majority of appraisal requests made by lenders are approved instantaneously and the assignments are completed within the timely standards VA has set.

“One of the things that we're really proud of is the fact that to add on to our process improvements, we also are embarking on many technological advances,” London stated. “We've been awarded a new information technology contract this year where we're going to implement the safe methodology and really focus on product management to improve our systems and processes.”

Also assisting veterans with getting mortgages is the Blue Water Navy Act, which took effect on January 1, 2020, and

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December 2020

November effectively eliminated the FHFA’s conforming loan limits, which were raised to $510,400 this year. This provision allows veterans and service members to obtain a VA guaranteed loan for any amount, even above the conforming loan limit. That, along with the no down payment option, has not only helped veterans obtain mortgage loans in high cost areas, but also “beyond the high cost areas, we're really making sure that veterans can choose to live wherever they choose to live and whatever type of loan they want to purchase. As long as they qualify, they can utilize their VA home loan benefit to do so,” according to London.

The main driver of the record-setting 2020 for VA loan guaranty department is rates. Historically, low interest rates are pushing veterans into the market place to purchase homes as well as providing an incentive for service members who already own homes to refinance their loans to lower their monthly payments and the amount they pay out over the life of their loan. Not only that, London said, but many veterans have been able to tap into their personal equity in order to take care of personal needs.

Yet, another driver of this year’s VA loan boom is that VA’s loan product has been priced lower than conventional and FHA loans for the last five years. Low closing costs are another driver; and, since 80 percent of VA guaranteed loans are the no down payment variety, the requirement for private mortgage insurance is eliminated, which alone makes for a combined savings of approximately $73 billion over the life of those loans, according to London.

“If you take all of those factors together about the buying power that veterans and service members have, along with the process improvements that we have made, we’ve made it easy for lenders to partner with VA to close those homes,” London said.

“Because, as you know, we've delegated

The MORTGAGE BANKER Magazine

authority to the industry to close loans on behalf of VA.” Another factor that has come into play during 2020, largely due to the COVID-19 pandemic that has resulted in the loss of income for many, is protecting veterans from losing their homes in the event that they can’t make their monthly mortgage payments.

VA has those loans covered with a “host of options and activities” for loss mitigation, according to London. When veterans face financial difficulties, VA has a dedicated team that assigns a loan technician to the veteran whose loan is in default to intervene on that veteran’s behalf and work directly with the loan servicer. And that technician’s job includes oversight of the loan servicer to make sure that everything possible is being done to cure the default and avoid foreclosure.

“Just last year alone, we helped over 85 percent of veterans whose loans were in default to avoid foreclosure,” London said.

“We pay incentives to servicers for the loss mitigation options that are available. We have our traditional repayment plans, we have a suite of loan modification programs that veterans can take advantage of, and certainly during the national emergency, we've leaned in and made it much easier for servicers to help those veterans who are in financial distress.”

And one of the things VA has done to make it easier recently is relaxing regulatory requirements to defer missed mortgage payments until the end of a mortgage loan, so that when veterans get back on their feet, they “do not have to worry about paying any missed payments right away.”

With 2020 having been a record-setting year for VA as far as mortgage loans in the midst of a pandemic, it will be interesting to if the pace continues in 2021. MBM Brian Honea is the managing editor of The MORTGAGE BANKER Magazine.

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December 2020

Compliance

REGULATORY CORNER FEDERAL COMPLIANCE FHFA: COVID-19-RELATED LOAN FLEXIBILITIES EXTENDED The Federal Housing Finance Agency announced in November that Fannie Mae and Freddie Mac will extend several loan origination flexibilities through December 31, 2020. The changes are to ensure continued support for borrowers during the COVID-19 national emergency. The flexibilities were set to expire on November 30, 2020. Extended flexibilities include: • Alternative appraisals on purchase and rate term refinance loans: • Alternative methods for documenting income and verifying employment before loan closing; and • Expanding the use of powers of attorney to assist with loan closings.

FHFA: CLASSIC FICO VALIDATED FOR FANNIE AND FREDDIE The Federal Housing Finance Agency also announced in November the validation and approval of the Classic FICO credit score model for use by Fannie Mae and Freddie Mac. The validation and approval of Classic FICO by the Enterprises allows them to continue supporting the mortgage market while assessing more modern credit score models that were submitted in response to the 2020 Joint Enterprise Credit Score Solicitation.

FHFA: STRATEGIC PLAN FOR FY 2021-2024 FINALIZED The Federal Housing Finance Agency recently announced its adoption of the FHFA Strategic Plan: Fiscal Years 2021-2024. The Strategic Plan establishes new goals needed for FHFA to fulfill its statutory duties, which include responsibly ending the conservatorships of Fannie Mae and Freddie Mac (the Enterprises). The FHFA said it carefully reviewed all comments submitted on the Plan. The agency fulfilled one of the most common comment requests on October 19, when it released a proposed rule on new Enterprise products and activities.

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December 2020

The Strategic Plan formalizes the new direction of the agency and its regulated entities by updating the agency’s mission, vision, and values, and by establishing three new strategic goals: 1. Ensuring safe and sound regulated entities through world-class supervision; 2. Fostering competitive, liquid, efficient, and resilient (CLEAR) national housing finance markets; and 3. Positioning the agency as a model of operational excellence by strengthening its workforce and infrastructure.

CFPB: WASHINGTON FEDERAL BANK HIT WITH HMDA PENALTY The CFPB announced it has settled with Washington Federal Bank, N.A., a federally insured national bank, and issued a consent order to address the CFPB’s finding that the bank reported inaccurate HMDA data about its mortgage transactions for 2016 and 2017. The settlement requires Washington Federal to pay a $200,000 civil money penalty and develop and implement an effective compliance-management system to prevent future violations. The bank was previously issued a consent order in 2013 for HMDA filing violations. The consent order states: • An internal audit of Respondent’s 2016 HMDA LAR identified 40 files containing errors in a review of 100 files, a 40% error rate.

• The 2016 HMDA errors were caused by a lack of appropriate staff, insufficient staff training, and ineffective quality control.

• A CFPB review of 84 files in Respondent’s initial 2017 HMDA LAR identified 58 errors in 27 files, a 32% sample error rate.

• The 2017 HMDA errors are directly related to weaknesses in Respondent’s compliance-management system (CMS), especially in the areas of Board and management oversight, monitoring, and policies and procedures.

• With respect to Respondent’s resubmitted 2017 HMDA LAR, the CFPB reviewed 81 files and identified 21 errors in 13 files, a 16% sample error rate.

• In connection with its 2017 LAR resubmission, Respondent imposed an incorrect policy, which directly led to the errors in its resubmitted LAR. • The occurrence of errors in many different fields, rather than concentrated in one or two fields, indicates broad CMS failures and a lack of adequate resources, because the errors were not caught, and the errors cannot be directly attributed to one or two systemic failures • The CFPB entered a consent order against Respondent on October 9, 2013, finding that Respondent violated HMDA and Regulation C. The 2013 consent order required Respondent to review, correct, and resubmit its 2011 HMDA LAR and imposed a $34,000 penalty. MBM

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December 2020

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.

Looking Back and Ahead

T

he term “unprecedented” has been overused to describe the challenges of 2020, but this has been a most unique and impactful year. Certainly, the pandemic has brought sickness, loss of life, unemployment, and renewed focus on safety and family. Government efforts to slow the spread of the pandemic and keep the economy moving also brought unintended consequences.

Work from home mandates meant to protect employees and customers realigned the financial world. Fed buying of mortgage backed securities meant to calm markets spurred overnight interest rate drops and previously locked applications bailed for new lower rates. Unemployment claims also spiked and the combination triggered margin calls on hedge strategies as pipelines collapsed. Government forbearance programs to keep families in their homes and government calls for families to remain in their homes both slowed the economy and further increased concerns for mortgage servicers.

No one could have predicted all of these circumstances would come to fruition at the same point the mortgage world was implementing business continuity programs to comply with state work from home mandates.

Impacts went beyond mortgage originators with loan processors, underwriters, and mortgage servicing teams working 99.9 percent remote to provide essential financial services.

All while employment and bank validation services were not working, appraisers were forbidden from going inside homes, in-person closings were off limits, and county recorders and state regulator offices were all closed.

These layered effects went beyond standard business continuity programs.

If there is any silver lining from 2020, it would be the resourcefulness of mortgage companies across the country to survive and pivot to work from home environments despite these challenges. Business continuity programs evolved to allow companies to process and close loans, share information with borrowers, and provide forbearance options to impacted homeowners.

Regulators also layered data security and consumer privacy standards when allowing temporary work from home measures in states where work normally could only be performed from a licensed location. There was a common theme to these state requirements, but they did not actually layer any new regula-

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December 2020

tory mandates. All would be true for employees working from a licensed location.

Regulators also worked from home during 2020. This reality may have provided meaningful insights for future evolutions of branch licensing. Regulators are openly considering removal of commutable distance requirements for mortgage originators and mandates that work be performed from a licensed location.

Some states are also reworking branch licensing as a whole.

Regulators gained these insights while licensing, performing exams, and supervising licensees remotely to help arrive at this point. Next year will be a year where the digital mortgage process that enabled a remote work environment is validated.

The discussion of how to further evolve the licensing and examination processes are underway. More states will utilize the State Examination Survey and the concept of One Company – One Exam is rolled out.

These challenges and more will be considered as 2021 returns new, but not normal.

In closing to all whose family, businesses, and friends have suffered in 2020, prayers for healing and wishes for a better 2021. MBM

Legal

The Mortgage Counselors Mitchel H. Kider is the chairman and managing partner and Michael Kieval is a partner with Weiner Brodsky Kider PC, a national law firm specializing in the representation of financial institutions, residential homebuilders, and real estate settlement service providers.

The Future Will Be Better, But Different

T

his past year has been difficult – the illness and isolation, social and political upheaval, polarization and uncertainty. At the same time, our industry has seen unprecedented volume amid historically low interest rates, as mortgage lenders continue to provide a crucial service to our Nation. For many American families, the ability to refinance into a lower rate and payment has been an important source of savings during this very difficult time. And as we have all withdrawn from communal activities, to different degrees, our homes have become more central in all of our lives.

Now, as we look forward to the end of 2020, there are both rays of hope in the form of multiple successful vaccines, as well as clouds of darkness as we witness an increase in infections which threatens to bring the next wave of mortality.

The twin tasks for our industry, as for our country, are to keep holding on until a vaccine can be widely distributed, and to fully grasp the ways in which life will not return to the way it was even once we have vaccine. Many employees are working full time from home while also supervising young children (and this may increase if more schools halt in-person instruction in the coming weeks). That is likely to continue through much of the current school year, but hopefully will not bleed into the next.

But we as an industry need to

prepare for the ways in which things will not return to “normal� even after a vaccine is widely available. Policies on remote work, sick leave, and coming to work with minor symptoms will need to be revised for a reality in which a vaccine is available but the protection it provides is not complete, where many of our friends and neighbors may unfortunately refuse to be vaccinated, and where more children may have to stay home from school with what would previously have been considered the sniffles. Masks and distancing will continue to be important for some time. And we will also be monitoring regulatory changes that had been made temporarily during the pandemic and which may or may not be made permanent going forward.

From a big picture standpoint, we are concerned that while many have been able to work remotely and continue to earn an income, too many households have experienced illness and/or job loss, with resulting financial hardship. The economy as a whole has been massively propped up by necessary government intervention, but the missing economic activity will probably not fully come back next year. This may have an effect on homeownership rates long into the future.

Finally, this year has seen a significant spread of conspiracy theories and an increase in the number of Americans implicitly rejecting the concept of objective

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December 2020

factual truth. Truth is often under pressure when society is under severe stress, as during a pandemic, so this is not completely surprising.

Beyond the corrosive effect of this trend on our society as a whole, however, it is toxic for business. We as an industry rely on the rule of law. The need to enforce promissory notes and security interests in real property under difficult circumstances can be politically unpopular. But without those agreements and security interests, the mortgage credit markets would not function. Contracts between businesses also need to be enforced in a predictable way. If a society permits a bare assertion of power to be a sufficient response to factual truth, then companies and individuals cannot have faith that their rights will be enforced. There will be disagreements over what the truth is in any given instance, but if we cannot retain a shared concept of factual truth, then power replaces truth and the rule of law ends.

While these challenges are real, they are not more daunting than the many obstacles that our great country has overcome in its history. We as Americans can and will come together through hard work, ingenuity, and a commitment to doing right by others. We as an industry will be there to keep helping our fellow Americans of all races and creeds to realize the dream of home ownership and financial stability. MBM

THE TOOLS YOU WANT. THE TRAINING YOU NEED.

Recognition for Your Mortgage Compliance Expertise LEVEL II NOW AVAILABLE Enroll yourself or your team in MBA Education’s Certified Mortgage Compliance Professional (CMCP) program to enhance your knowledge, strengthen your Compliance Management System (CMS) and demonstrate your compliance commitment to state and federal regulators.

WHAT TO EXPECT The Level II curriculum includes 12 courses that focus on compliance in action, emphasizing practical application and featuring relevant business scenarios.

Students will be tested on topics such as: •

Reviewing Business Processes

•

Reviewing LO Comp Plans

•

Mastering HMDA Data

•

Managing an Effective CMS

•

Preparing for Regulatory Exams

By earning the CMCP Professional Certificate you will have the advanced knowledge of laws and regulations as well as the ability to apply them to the real-world business of mortgage lending.

PATH TO DIVERSITY SCHOLARSHIPS AVAILABLE Qualifying individuals may apply to cover registration fees to aid in your career advancement. Learn more at mba.org/PathToDiversity

Completion of Level I is required to move on to Level II.

Visit mba.org/CMCP to enroll today.

mba.org/cmcp 22073

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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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.

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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The C-Suite

Paulina McGrath President Republic State Mortgage

What do you find most rewarding about your job?

What is on your desk?

The families that we’re able to serve. Not just the folks that we’re able to help finance either with a new home or refinance in communities large and small across the country, but also the families we serve every day with our employees. We have about 200 employees, and they are our family, too. Being able to help them grow is very, very rewarding for us.

My laptop and my two giant monitors. I can’t work without two monitors. But I am still old school: I keep a notepad where I write down things from conversations and what I need to do. I write down the name of every person I’ve spoken to since 1999 and any notes from that conversation.

What do you think is the biggest challenge for the mortgage banking industry currently in pandemic times?

What is your best habit?

My family and the time we spend together. We love to cook dinners and sit around and do what we call Q & A, visit, and ask questions.

That’s not necessarily a habit but it’s definitely my favorite pastime.

We’re in sort of a unique position, unlike other industries that are struggling with business during the pandemic.

We are struggling in that it’s hard to keep up with all the mortgages right now. I’m not complaining; it’s certainly a blessing and we’ll take it while we have it, but I will say that it’s hard to stay properly staffed. We have to keep hiring people, and it’s very difficult to hire and train during the pandemic. Trying to keep up with demand while avoiding burnout from my staff has been the biggest challenge that we’re facing.

What is the last thing you do at night?

I make up a story to tell my son.

For some reason, he likes to have original stories told to him, so I have to make up something new every night and it’s tough for someone who’s not terribly creative. But it challenges my brain right before I go to sleep and it’s a lot of fun.

What time do you get up?

6:45 a.m., usually.

What is the first thing you do in the morning?

It depends on whether it’s a weekend or a weekday. On the weekdays, I wake up my kids, make breakfast, and pack lunches. If it’s the weekend, I’m going to sit and enjoy my tea and read the newspaper.

What time do you go to bed?

10:00 p.m.

What is your mantra?

To whom much is given, much is required.

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It’s very difficult to hire and train during the pandemic.

Trying to keep up with demand while avoiding burnout from my staff has been the biggest challenge that we’re facing.

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The C-Suite We’re all able to depend on one another and grow together to learn from each other, but also to have each other’s backs and be able to succeed.

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December 2020

Michael Sema Founder and CEO Get a Rate

What do you find most rewarding about your job?

The most rewarding part for me is seeing how our team members have personally but professionally evolved through the company's different growth stages. Our team has done an incredible job building a culture upon our core values and beliefs, which has created a layer of trust and interdependency across all channels.

What do you think is the biggest challenge for the mortgage banking industry currently in pandemic times?

Our goal is to continue to develop a better client experience by providing simple digital transparent solutions that help our clients save time and money.

The most significant issues the industry is dealing with today are adaptability and capacity. Most mortgage companies haven't built an online technology-based platform with a consumer-direct model. Many mortgage companies are still operating on a paper-based model, which has affected their ability to adapt quickly, especially with COVID-19.

The biggest issue we've had is handling the overall demand in a timely manner. We've been adapting, growing, and restructuring the back-end operations to handle the higher volume, which I'm thankful to say

What time do you get up?

6:30 a.m. every day.

What is the first thing you do in the morning?

What is your mantra?

Pray and meditate.

To be better, you have to be more.

What is the last thing you do at night?

What is on your desk?

What is your best habit?

Pray.

Coffee

My ability to learn. I'm very autodidactic. I'm continually asking questions. Exercising and meditating are daily habits.

Without a healthy mind, I find it challenging to be successful in anything.

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What time do you go to bed?

Weekdays around 11:00 p.m.

Weekends around 11:30 p.m. or midnight.

Education

Education & Training Calendar

Date

Dec-Jan 2020

Course Name

Type

November 30 – December 21

School of Mortgage Banking I

Virtual Classroom

November 30 – December 18

School of Mortgage Banking III

Virtual Classroom

December 1 – December 22

School of Mortgage Banking II

Virtual Classroom

December 14

Mortgage Market Developments and Becoming a Public Company

Webinar

December 15

MISMO: Introduction: Uniform Closing Instructions Templates

Webinar

January 7 – January 21

Introduction to Mortgage Banking

Instructor-Guided Online

January 8 – February 19

Certified Mortgage Banker (CMB) Prep Course

Prep Course

January 13

Ten Things Your Company Must Do in 2021

Webinar

January 19 – February 11

School of Loan Origination

Instructor-Guided Online

To learn more about these and all upcoming offerings, visit https://www.mba.org/conferences-and-education/mba-education/upcoming-education

Conferences/Conventions

Instructor Guided Online Course (IGOL)

MBA Research Events

Classroom Course

Webinar

MISMO Events

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December 2020

Other

WHITE PAPERS & WEBINARS

REGULATORY COMPLIANCE • RISK MANAGEMENT • OPERATIONAL EXCELLENCE

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

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December 2020

Data Download Top Origination Markets by Loan Volume NOW PART OF

Consolidated Metropolitan Statistical Area (CMSA)/ Metropolitan Statistical Area (MSA)

% of Lock Volume

MOM Growth

Avg Loan Amount (S)

491,792

Avg Rate

Avg FICO

Avg LTV

Purchase

Refi

2.907

756

63

22%

78%

1

Los Angeles-Long Beach-Anaheim, CA

5.63%

-15.94%

2

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

4.72%

-2.98%

406,500

2.865

747

72

42%

58%

3

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

4.71%

-7.88%

418,994

2.784

751

76

34%

66%

4

Chicago-Naperville-Elgin, IL-IN-WI

3.41%

-9.73%

275,060

2.890

747

76

39%

61%

5

Seattle-Tacoma-Bellevue, WA

2.86%

-11.70%

425,252

2.886

752

69

30%

70%

6

San Francisco-Oakland-Hayward, CA

2.81%

-12.22%

585,566

2.893

765

60

22%

78%

7

Boston-Cambridge-Newton, MA-NH

2.72%

-6.72%

409,302

2.858

753

68

31%

69%

8

Phoenix-Mesa-Scottsdale, AZ

2.68%

-8.03%

298,633

2.942

741

75

38%

62%

9

Denver-Aurora-Lakewood, CO

2.48%

-11.89%

365,725

2.875

754

72

31%

69%

10

Dallas-Fort Worth-Arlington, TX

2.36%

-3.27%

302,530

2.914

739

78

46%

54%

11

San Diego-Carlsbad, CA

2.13%

-13.75%

483,998

2.811

755

68

23%

77%

12

Riverside-San Bernardino-Ontario, CA

2.06%

-12.46%

340,803

2.903

735

74

33%

67%

13

Atlanta-Sandy Springs-Roswell, GA

1.82%

-5.58%

278,009

2.905

733

80

48%

52%

14

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

1.78%

-2.21%

287,633

2.885

743

78

45%

55%

15

Houston-The Woodlands-Sugar Land, TX

1.74%

1.08%

276,862

2.904

734

81

55%

45%

16

Minneapolis-St. Paul-Bloomington, MN-WI

1.58%

-15.04%

285,753

2.842

754

76

38%

62%

17

Miami-Fort Lauderdale-West Palm Beach, FL

1.50%

-3.61%

323,678

2.954

733

77

51%

49%

18

Baltimore-Columbia-Towson, MD

1.38%

0.18%

332,006

2.859

745

79

42%

58%

19

Sacramento--Roseville--Arden-Arcade, CA

1.31%

-11.15%

365,136

2.918

749

71

31%

69%

20

Portland-Vancouver-Hillsboro, OR-WA

1.28%

-12.89%

347,578

2.902

754

72

34%

66%

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. Nearly $2 Trillion 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

64

December 2020

Total U.S. loan delinquency rate (loans 30 or more days past due, but not in foreclosure):​ Total U.S. foreclosure pre-sale inventory rate:​ Total U.S. foreclosure starts:

Oct-20

Month-overmonth change

Year-over-year change

6.44%

-3.30%

90.04%

0.33%

-1.64%

-31.02%

4,700

4.44%

-89.29%

Monthly Prepayment Rate (SMM):

3.17%

4.13%

75.29%

Foreclosure Sales as % of 90+:

0.07%

-10.03%

-96.11%

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

3,437,000

-105,000

1,651,000

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

2,259,000

-64,000

1,826,000

Number of properties in foreclosure pre-sale inventory:​ Number of properties that are 30 or more days past due or in foreclosure:​

178,000

-3,000

-77,000

3,616,000

-106,000

1,575,000

12 Month Trend

Mortgage Delinquencies Decline for Fifth Consecutive Month in October •

Mortgage delinquencies improved again in October, falling to 6.44%, the lowest level since March

•

Despite five consecutive months of improvement, there are still more than 3.4 million delinquent mortgages, nearly twice as many as there were entering the year

•

Serious delinquencies – loans 90 or more days past due – improved in October as well, but volumes remain at more than five times (+1.8 million) pre-pandemic levels

•

October’s 4,700 foreclosure starts marked a nearly 90% year-over-year reduction as

widespread moratoriums remain in place, while active foreclosure inventory set yet another record low at 178,000 •

Record-low interest rates again pushed prepayment activity higher, with October’s prepayment rate of 3.17% setting the highest single-month mark in more than 16 years

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

65

December 2020

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913.638.8247

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Mitchel H. Kider Managing Partner

kider@thewbkfirm.com

202.557.3511

The MORTGAGE BANKER Magazine

66

December 2020

SPONSORS CORNER Many thanks to these sponsors for supporting our mission of bringing you a magazine dedicated to informing and educating mortgage banking professionals.

The MORTGAGE BANKER Magazine

67

December 2020

THE

BANKER

MAGAZINE

THE

BANKER MAGAZINE

Covering the Entire Mortgage Lending Process and Everything In Between

GEARING UP

January 2020

THE

BANKER MAGAZINE

Covering the Entire Mortgage Lending Process and Everything In Between

THE

BANKER MAGAZINE

Covering the Entire Mortgage Lending Process and Everything In Between

February 2020

March 2020

FOR

TECHNOLOGY IN CUSTOMER SERVICE

GAPS

Achieving Operational Excellence in Mortgage Lending pg. 46 THE

Down Payment Assistance: Does it Hurt Loan Performance? pg. 58

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

MAGAZINE

It's Time to Rethink Your Pricing Calculus

Were You as Profitable as You Could Have Been?

pg. 18

pg. 20

THE

BANKER MAGAZINE

Covering the Entire Mortgage Lending Process and Everything In Between

THE PANDEMIC’S THREAT AGAINST MORTGAGE BANKING

pg. 16

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

MAGAZINE

DIGITAL MORTGAGES Pandemic Pushes eClosings and Remote Online Notarization Forward

The Need to Overcommunicate

Business as Usual ...

With a Mask?

pg. 8

pg. 34

THE

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

MAGAZINE

pg. 8

THE

Issue

The Digital Difference is Being SMART pg. 8

The Next Big Thing in Loan Efficiency pg. 16

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

MAGAZINE

November 2020

A BANNER YEAR FOR VA LENDING

TECH

Forbearance Relief CARES Act

pg. 20

Trust in Every Transaction

October 2020

The

Total Workflow Automation

MAGAZINE August 2020

NORMAL

Servicing During the Pandemic

pg. 8

BANKER

Covering the Entire Mortgage Lending Process and Everything In Between

The New Age of

September 2020

Adapting and Overcoming in COVID

pg. 14

THE

THE NEW

pg. 50

THE

pg. 10

Sustaining Your Business in a Post-Pandemic World page 20

Three of the Biggest Challenges Facing the Mortgage Industry

You Never Saw It Coming

Transforming Servicing Through Cloud Computing And Workflow Automation

July 2020

April 2020

CORONAVIRUS

A Cloud of Certainty for Loan Servicing

Jeffrey London Reviews a Record-Setting 2020

Flexibility of Working Remotely Exposes Cybersecurity Threats pg. 12

Eliminating the Unknowns from VA Loans pg. 32

How VA Lending has Changed pg. 36

2020 Editorial Index

2020 Editorial Index CAPITAL MARKETS

LOAN ORIGINATION (CONT)

A Systemic Problem: How the Coronavirus Pandemic is Affecting Capital Markets, April

New Age of Digital Mortgages, August Trust in Every Transaction, August

The Pursuit of Speed to Certainty, September

Not Wasting Any More Time, October

Making Hay While the Sun in Shining, November

Why Housing Market Potential Remains High, November

C-SUITE

How VA Lending Has Changed, November

The Tough Year of 2018: Why the Losers Did So Poorly, January

What Can You Do to Ramp Up Your Mortgage Marketing, November

New Decade Means Change for CMLA, February

GSES & REGULATORY AGENCIES

Three of the Biggest Challenges Facing the Mortgage Industry, April

Get to Know URLA, January

Three Urgent Compliance Matters for 2020, January

FHFA Proposes Updated Minimum Financial Eligibility Requirements for Fannie Mae and Freddie Mac Seller/ Servicers

Getting Ready for the California Consumer Privacy Act, January

Best Practices for Maintaining an Environment of Integrity with Ethical Values During COVID-19, August

Your 2020 Mortgage Compliance Roadmap, January

Six Ways to Help Borrowers Address Credit Scores, August

COMPLIANCE

What Do CRT Prices Tell Us About Implied G-Fees?

February

A Banner Year for VA Lending, November CFPB Continues Sweep of Investigations Related to VAguaranteed Mortgage Advertisements, November

Are You in Compliance with CCPA and ADA? February Is it Time to Re-evaluate Your CMS? March Closing the Gaps in Your Contingency Plan, April

Eliminating the Unknowns from VA Loans, November

Business as Usual—With a Mask? July

LEGAL

eSigned, Sealed, and Delivered, August Using Hindsight to Improve Foresight, September

CFPB Brings Clarity to the Abusiveness Standard Under UDAAP, April

Internal Audits: The Need for Flexibility, September

Where We Come From—And Where We Are Going, July

Seeing the Much Bigger Global Technology Picture, October

MORTGAGE OPERATIONS

The Importance of a Robust CMS Structure, November

Achieving Operational Excellence in Mortgage Lending, January

LOAN ORIGINATION

Taking a Critical Look at Operations, February

In a Noisy World Focus on the Message, Not the Tool, to be Noticed, January

The Land of Lincolns Wants More of Your Benjamins, February

Down Payment Assistance: Does it Hurt Loan Performance? January

Ten Things to Do in 2020, April

Inside the Millennial Refi Boom, January

Coronavirus: The Pandemic’s Threat Against Mortgage Banking, April

How to Tackle 2020: A Loan Officer’s Plan, February

Lessons from COVID-19 Will Remain, August

The New First-Time Homebuyers, February

It’s the New Now, Not the New Normal, October

Were You as Profitable as You Could Have Been? February

MORTGAGE SERVICING

It’s Time to Rethink Your Pricing Calculus, February

A Cloud of Certainty for Loan Servicing, March

Reducing False Claims Act Risk in FHA Lending, March

Transforming Servicing Through Cloud Computing and Workflow Automation, March

Mortgage Refinances Triple from a Year Ago, But Will They All Fund? April Whose Loan is it, Anyway? April

The Need to Overcommunicate, July

Navigating Pre-Negotiation and Forbearance Agreements in the New Economy, July

Adapting and Overcoming in COVID-19, September

The MORTGAGE BANKER Magazine

Putting the “Service” Back in Mortgage Servicing, July

70

December 2020

2020 Editorial Index MORTGAGE SERVICING (CONT)

TECHNOLOGY (CONT)

CARES Act Protections Affecting Residential Mortgage Servicers, September

Simplifying the Digital Imperative for Mortgage Lenders, November

QUALITY CONTROL & RISK MANAGEMENT

Beyond the Point-of-Sale: Benefits of an End-to-End Digital Mortgage in a Post-Pandemic World, November

Do You Know Your Collateral Risk? January Five Tips for Doing More with Less in Your Quality Control Department, January Kill the Kumbaya and Improve Decision Making and Risk Management, January QC 2.0—Next Generation of Quality Control for the Mortgage Industry, February Security Risk: Fraudulent Closing Transfer Instructions Stealing Mortgage Pay-Offs, March Will Advances in Mortgage Technology Over the Next 10 Years Relegate QC to a Minor Role? March

Operational Excellence: Transforming Employee Behavior, March

Weekly NEWSlines January 14 - Compliance Risk Management Check-Up January 28 - The Crossover with Your Borrowers and the SCRA February 11 - What Does Regulation E Have to Do with Mortgage Lending?

February 18 - An Overview of Underwriting

You Never Saw it Coming, April

March 10 - Risk Management: The Five Cs of Credit

Safeguarding Confidential Information and Other Work from Home Considerations, July

March 17 - Risk Management: The Five Cs of Credit

Pandemic Underscores Need for Stellar Customer Service in Loan Servicing, September

TECHNOLOGY Mortgage Mobile Apps, February Mortgage Technology Gap Still Exists, February Blockchain as a Link in Improving Mortgage Servicing, March Evolution and Status of Cloud-Based Mortgage Applications, March Here’s Why State-of-the-Art Mortgage Lending Now Relies on Cloud-Based Services, April The Best Benefit of Cloud Adoption: Security, April The New Reality—How Going Virtual Will Forever Change the Mortgage Industry, July Fintech Partnerships Facilitate Digital Adoption During and Post-COVID-19, July The Next Big Tech Thing in Loan Efficiency, August The Rapidly Changing World of eClosings, August Future-Proof Servicing Requires Total Workflow Automation, September Stepping Up the Fraud Prevention Game, October The Digital Difference is Being SMART, October Flexibility of Working Remotely Exposes Cybersecurity Threats, October

April 14 - Resources to Help You During This Unprecedented Time (Pt.2) April 21 - Know how your regulators are helping during this pandemic May 12 - Business Continuity and Pandemic Planning May 26 - CFPB: Easing up on TRID Requirements June 9 - Navigating COVID-19: Mortgage Relief and Other Concerns for Servicers June 23 - Putting Consumer Complaints On the Map, Literally July 7 - The New Norm for Compliance Risk July 14 - Waive Goodbye to Waiting Periods… Sort Of July 21 - Servicing: How Effective Is Your Process on Servicing Transfers?

July 28 - Compliance: Armed for the CHARM ?

August 17 - Are You Managing Your Social Media Risk?

August 25 - Servicing: Disputes and Information Requests September 8 - Compliance: Keeping Current with Qualified Mortgages September 15 - Risk: Mortgage Fraud Prevention September 22 - Operations: Process Efficiencies September 29 - Servicing: Regulatory Observations October 13 - Compliance: Force-Placed Insurance Are You Covered?

October 20 - Originations: Credit Report Analysis

Community Banks and Fintechs: The Perfect Match, October

October 27 - Operations: Training on Cyber Risk

Securing the Forbearance and Loan Modification Process Through Digitization, November

November 17 – Compliance: The Three T’s in Private Mortgage Insurance

The MORTGAGE BANKER Magazine

November 10 - Servicing: Forbearance Policy Changes

71

December 2020

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