Mortgage Banker Magazine April 2021

LIVE EVENTS RETURN

FLOOD INSURANCE Q&A

FIND MORTGAGE JOBS APRIL 2021

MortgageBanker MAGAZINE

ISHBIA’S

SECRET

STRATEGY WHY A DECADE-OLD MOVE

BY ELLIE MAE COULD BE THE WINNING PLAN IN THE NEW WHOLESALE WARS

GET YOUR SALES TEAM PREPPED FOR

RATE RESETS

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April 2021 CONTENTS Special

FEATURE 6

Rate Rollercoaster

No one yet has a lock on what interest rates are going to do this year. But the smart money is planning for an increase.

Here’s what that means for mortgage bank strategic planning

BY ROB CHRISMAN

COVER STORY

14

Inside The Decade-Old Secret Plan That May Spell Success For UWM’s Wholesale Power Play.

RISK MANAGEMENT

22

Why Compliance Pros Need To Grab A Seat At The Table

6

BY FELECIA BOWERS

COMPLIANCE

21

From The Desk Of The ‘OmBobs’Man’: Home Is Where The Workspace Is

BY BOB NIEMI

14

BY DR. RICK ROQUE

MORTGAGE REGULATION

26

The Rules Are Strict When It Comes To Servicemember Loans

BY ROY KAUFMANN

Monthly

DEPARTMENTS

4

Editor Foreword: Inside Secrets

5

April 2021 Authors

26

11 Mortgage Banker Calendar of Events 13 Databank 18 Mortgage Banking Lawyers 28 Regulatory

MORTGAGE BANKER | APRIL 2021 3

MortgageBanker OUR MISSION 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.

VINCENT VALVO, CEO, Publisher & Editor-in-Chief vvalvo@ambizmedia.com ASSOCIATE PUBLISHER Beverly Bolnick bbolnick@ambizmedia.com FOUNDING PUBLISHER Ben Slayton BSlayton@ambizmedia.com STAFF WRITER Katie Jensen kjensen@ambizmedia.com SENIOR EDITOR Jill Emerson Jill@ambizmedia.com ADVERTISING David Hoierman David@ambizmedia.com GRAPHIC DESIGN Stacy Murray smurray@ambizmedia.com HEAD OF ENGAGEMENT AND OUTREACH Andrew Berman andrew@ambizmedia.com INTERACTIVE DESIGN DIRECTOR Alison Valvo avalvo@ambizmedia.com ONLINE CONTENT DIRECTOR Navindra Persaud npersaud@ambizmedia.com USER EXPERIENCE DESIGNER Billy Valvo bvalvo@ambizmedia.com MARKETING & EVENTS ASSOCIATE Melissa Pianin mpianin@ambizmedia.com www.ambizmedia.com

© 2021 American Business Media LLC All rights reserved. Mortgage Banker magazine is a trademark of American Business Media LLC. No part of this publication may be reproduced in any form or by any means, electronic or mechanical, including photocopying, recording, or by any information storage and retrieval system, without written permission from the publisher.

Advertising, editorial and production inquiries should be directed to: American Business Media LLC 345 North Main St., Suite 313, West Hartford, CT 06117 Phone: (860) 719-1991 | info@ambizmedia.com

4 MORTGAGE BANKER | APRIL 2021

L ET T ER FR O M T H E EDI TO R

I

Inside Secrets

n March, United Wholesale Mortgage threw a grenade into the brokerage industry when it announced an “Us v. Them” policy. Brokers could write loans with Rocket Mortgage and Fairway Independent, or they could write loans with UWM. But they can’t write loans with both. Try, and face fines of between $5,000 to $50,000.

It’s a highly controversial move, and the mortgage industry across the board went into a frenzy. Is UWM standing up for brokers, or setting itself up as kingmaker? Is this a benign competitive posture, or a RESPA-violating, antitrustbruising feint?

Lots of people chimed in with their opinion. But a couple of big questions so far unanswered are: what’s the real underlying strategy here? And, most importantly, will it work?

INSIGHT READERS NEED A couple of months ago, we set out to do a revamp of Mortgage Banker Magazine. We’ve made some significant design changes – after all, we want the publication to be both visually pleasing and engaging. But design can only do so much. What’s really important is a focus on great content.

To get that, we’re putting a lot of effort into attracting great contributors.

Last month, industry legend Rob Chrisman joined us as a monthly contributor, and promptly turned in a fascinating analysis of why so many mortgage companies are suddenly swooning over becoming public companies, and what the longer-term implications of that can be. His monthly column this issue now turns to the strategies necessary should interest rates take a longer-term tick up.

Now, we’re delighted this month to bring on board Dr. Rick Roque, head of M&A advisory Menlo and also corporate vice president of Shamrock Homeloans in Rhode Island. Or, perhaps we should clarify, bring back on board. Long-time readers may remember that Rick was the original editor of Mortgage Compliance Magazine, our predecessor.

Like Rob last month, Rick’s debut is a blockbuster. Exclusively here, he details the secret strategy he was part of when the Great Recession took down the mortgage industry more than a decade ago. That strategy was used by Ellie Mae to turn distress to advantage. Now, it looks like UWM is following a similar playbook.

So for those wondering, “will it work?”, Rick Roque’s piece is a must read. Finally, someone shows you what that answer is likely to be.

V IN C E N T M . VALVO

CEO, Publisher & Editor-in-Chief

April 2021 AUTHORS Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 35 years ago in 1985 with First California Mortgage. Since then, he’s held a variety of high-level positions at mortgage banks across the country.

Currently, he writes a daily commentary subscribed to by mortgage leaders nationally. He is on the board of directors of Inheritance Funding Corporation, a financial services company which advances capital to heirs, of Doorway Home Loans, of AXIS Appraisal Management, and of the California MBA. He is also a member of the Secure Settlements Advisory Board, an associate of the STRATMOR Group, and of the Mortgage Bankers Association of the Carolinas and its membership committee. Rob has provided expert witness services for mortgage and real estate-related cases, has lectured to groups around the country. He holds a BS from Cal Poly, San Luis Obispo, and an MBA from UC Berkeley.

ROB CHRISMAN

BOB NIEMI

Bob Niemi

Bob Niemi is a Senior Advisor for Financial Services at Bradley, a national law firm. He was formerly Ohio’s chief lending regulator. He has served as the NMLS Ombudsman, a state regulator, a mortgage leader, and now a regulatory compliance advisor.

Roy Kaufmann

Roy Kaufmann is an attorney and director of the Servicemembers Civil Relief Act Centralized Verification Service. He has written extensively on the SCRA.

ROY KAUFMANN

Dr. Rick Roque

DR. RICK ROQUE

FELECIA BOWERS

Dr. Rick Roque is a 20 year veteran of the Mortgage Industry and founder of Menlo, a M&A and Capital Fundraising firm, and Corporate Vice President of Shamrock Homeloans based in Rhode Island. he has spoken to industry groups and state associations across the United States, and has consulted with mortgage companies across the United States on retail growth efforts.

He has facilitated over $6B in acquisitions since 2016. He has launched a weekly Video-cast entitled The Wave. He holds a BS in Engineering from University of Steubenville, studied Physics at UC Berkeley, Masters in Business from University of St. Thomas and a Doctorate in Ed. Finance, from American International College.

Felecia Bowers

Felecia Bowers has spent more than 40 years as a bank examiner and chief compliance officer, working exclusively with mortgage banks for the past 35 years.

MORTGAGE BANKER | APRIL 2021 5

T H E M O RTG AG E I N S I DER

Originators Need To Be Ready For A Mortgage Restart AS RATES ROIL THE MARKET OUTLOOK, IT’S TIME TO PREP THE SALES TEAM TO KNOW THE OPTIONS

I

By R O B CHR IS M A N, M ORTG AGE BAN KE R M AG A ZIN E CON TRIB U TIN G WRITER

n late February, the bond dling, purchase business remains market threw lender’s rate as strong as ever given inventory sheets a major curveball. constraints. All across America, Namely, the “economics of we are seeing bidding wars for the restart” took over, and properties, consistently with mulrates shot higher. The rate move tiple offers over asking. This is also was not based on fundamental helping spur the demand for new news to a large degree, but instead construction, and purchase pipeon the hopes of an economic lines are bursting at the seams for ROB CHRISMAN recovery, post-pandemic, and lenders of all sizes. fears of inflation from the stimulus It may be worth devoting some of packages coming out of Washington DC. your resources that were geared toward refiLenders saw floating pipelines evaporate, nances toward purchases. Remember, there free extensions vanish, and borrowers no are 70+ million millennials, many of whom longer benefit from current rates. Most are finally moving out of their parents’ agree that there is more pressure on rates to homes or costly city apartments, looking to move higher versus moving lower, but 30start building home equity. Keep your name year rates in the 3 percent range is not the in front of local real estate agents and always end of the world and in fact lenders across ask for referrals. the nation are already planning for upward pressure on rates by dusting off programs POCKET EQUITY & training manuals and eyeing picking up Even with rate-and-term refinance applicamarket share. Let’s look at a few of the ways tions likely dropping off due to the recent this could be accomplished. rise in rates, cash out refinances remain an attractive option for borrowers given appreBUY, BUY BABY ciation around the nation.

While many lenders are fretting about total A cash-out refinance replaces a borrower’s refinance volume in their pipeline dwinexisting mortgage with a new loan for more

than the current mortgage (provided the borrower has equity built up in the home), with the difference going to the borrower in cash. That can be spent on home improvements, general debt consolidation or other financial needs. Borrowers can usually “cash out” up to 80 percent of their home’s equity, which may be higher than many think due to recent home price appreciation.

Usually the transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property, or be a new mortgage on a property that does not have a mortgage lien against it. Lenders should check investor requirements and be well-versed in them for discussions with previous clients.

PDA FOR DPAS

All 50 states offer some sort of DPA (down payment assistance program) for borrowers. The Biden Administration has made it clear that first-time home buyers and affordable housing initiatives are paramount.

A thorough knowledge of these programs is mission critical, as they can vary wildly from payments that are forgiven, those that are deferred, or even those that are subsi-

THERE ARE 70+ MILLION MILLENNIALS, MANY OF WHOM ARE FINALLY MOVING OUT OF THEIR PARENTS’ HOMES OR COSTLY CITY APARTMENTS, LOOKING TO START BUILDING HOME EQUITY. 6 MORTGAGE BANKER | APRIL 2021

dized in some manner until eventual resale of the mortgaged property. Loan officers and local lenders can add value over internet lenders by knowing DPA ins and outs.

HELLO HELOCS

Home equity lines of credit (HELOCs) can help borrowers to tap into the equity of their home as an alternative to cash-out refinancing. The HELOC is a second mortgage that provides access to cash based on the value of the home. The line of credit can be drawn from, and then repaid, similar to a credit card. Same as a cash out, one borrows against their equity in the residence.

Unfortunately, the home is still pledged as collateral and can go through foreclosure if the borrower does not make payments.

TWICE AT THE WELL

A second mortgage is yet another way to help borrowers tap into the equity of their home. We are talking about home equity loans rather than HELOCs now. While

the loan to purchase a home is usually the first mortgage, a second mortgage is another lien taken against a property that is already mortgaged. It is usually a lump-sum loan with a fixed term and rate. Homeowners may use the money from these second mortgages for any purpose. Deciding between a HELOC and a home equity loan for a second mortgage depends on the loan’s purpose and a borrower’s personal spending habits. And loan officers should know the options that their company offers.

THE MORTGAGE PAYS YOU

Finally, let’s look at reverse mortgages.

Roughly ten thousand people a day turn 62 in the United States, and many of them are homeowners. A reverse mortgage is only for that age group (and up) and provides another way to tap into equity by once again borrowing against the home. Borrowers receive funds as either a lump sum, a fixed monthly payment, or a line of credit simi-

lar to a HELOC. Dissimilar to a forward mortgage, a reverse mortgage does not require the homeowner to make any loan payments. Rather, the entire loan balance becomes due and payable when the borrower dies, moves, or sells the property. The loan amount cannot exceed the home’s value and one benefit is the borrower will not be held responsible for paying the difference if that becomes the case, such as through a drop in the home’s market value or the borrower living a long time.

None of these options should surprise any loan officer. But an MLO who is aware of them and knows the lender’s guidelines will have an advantage over those that don’t, or an internet-based lender. Adding value is critical to an originator, regardless of interest rate environment. And as we know, you can’t control interest rates, but you can control your knowledge of which programs can help your client and be flexible.

MORTGAGE BANKER | APRIL 2021 7

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MortgageBanker Calendar of Events APRIL 2021

JUNE 2021

JULY 2021

Tuesday-Thursday, April 27-29 2021 Mid-Atlantic Regional Conference MBA/MW + MMBBA MGM National Harbor 101 MGM National Ave. Oxon Hill, Maryland MARCMBA.org

Thursday-Friday, June. 10-11 2021 New England Mortgage Expo Mohegan Sun Resort & Casino 1 Mohegan Sun Blvd.

Uncasville, Connecticut NEMortgageExpo.com

Tuesday, July 13 2020 Carolinas Connect Mortgage Expo Embassy Suites Hilton Charlotte 4800 South Tryon St. Charlotte, North Carolina CarolinasConnectMortgage.com

Tuesday, June 15, 2021 Great North West Mortgage Expo — Portland Holiday Inn Portland South 25425 SW 95th Ave., Wilsonville, OR 97070 www.greatnorthwestexpo.com

Thursday, July 22 2021 Arizona Mortgage Expo Wild Horse Pass Resort & Casino 5040 Wild Horse Pass Boulevard Chandler, AZ 85226 2021 Arizona Mortgage Expo www.azmortgageexpo.com

Tuesday, June 22 2021 Chicago Mortgage Originators Expo Holiday Inn Chicago SW 6201 Jollet Road Countryside, Illinois ChicagoOriginators.com

AUGUST 2021

Sunday-Thursday, April 11-15 2021 Regional Conference of Mortgage Banker Associations Hard Rock Hotel Casino 1000 Boardwalk Atlantic City, New Jersey mbanj.com

MAY 2021

Tuesday-Thursday, May 4-6 Mortgage Star Conference for Women Sheraton Memphis Downtown 250 N Main St, Memphis, TN 38103 www.mortgage-star.net Wednesday, May 5 Mid-South Mortgage Expo Sheraton Memphis Downtown 250 N Main St, Memphis, TN 38103 www.midsouthmortgageexpo.com

Thursday, June 3 2021 California Mortgage Expo— Irvine Hilton Irvine/Orange County Airport 18800 MacArthur Blvd.

Irvine, California CAMortgageExpo.com

Tuesday, July 6 2021 Ultimate Mortgage Expo Hotel Monteleone 214 Royal St New Orleans, LA 70130 www.ultimatemortgageexpo.com

Thursday, August 12 2021 California Mortgage Expo— San Diego Hyatt Regency La Jolla 3777 La Jolla Village Dr. San Diego, California CAMortgageExpo.com

Tuesday, May 18 Texas Mortgage Roundup – San Antonio Wyndham San Antonio Riverwalk, 111 E Pecan St San Antonio, TX txmortgageroundup.com

See www.mortgageconferences.com for more events.

To submit your entry for inclusion in the Mortgage Banker magazine calendar of events, please e-mail the details of your event, along with contact information, to editorial@ambizmedia.com.

All events are as of April 1, 2021 and are subject to change.

MORTGAGE BANKER | APRIL 2021 11

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MortgageBanker

DATABANK Housing Starts Historical Chart Mactrotrends

Blank Unemployment Rate Mactrotrends

REAL GDP: Percent Change From Preceding Quarter

MORTGAGE BANKER | APRIL 2021 13

COVE R STORY

CLASSIFIED STRATEGIES

History Says UWM Offense Looks Like A Winner WHY A SECRET ELLIE MAE PROGRAM MAY SHED LIGHT ON HOW UWM COULD WIN THE WHOLESALE WAR

I

By R ICK R O Q U E, M ORTG AG E BAN KE R M AG A ZIN E CON TRIB U TIN G WRITER

t was October 2009, and I was driving through the canyons of the East Bay, in northern California, heading to the Ellie Mae headquarters in Dublin, California.

The market had crashed a year earlier, Indymac, Lehman Brothers, Wamu and First Magnus had all shut the doors, unemployment was at 10%, and $498 billion in targeted federal bail-out funding (via The Troubled Asset Relief Program, or TARP) had passed to bail-out auto-manufacturers and America’s largest banks.

The markets were illiquid, state and federal regulators were shifting mortgage market demand toward depositories while negotiating an appropriate regulatory framework to oversee brokers and non-depository mortgage banks.

The future of the mortgage industry was deeply uncertain.

The Implode-O-Meter became a daily site to get updates on companies that had failed. As banks shut their doors, the market threat was a shutdown of cashflow to all businesses, large and small.

I was thinking of all of that as I made that drive to Ellie Mae, an important meeting and they had emphasized the confidential nature of the discussion. It was the start of the Great Recession and there were many shadows and backroom discussions being had. Everyone needed a plan, but it was difficult to see the future amidst so much uncertainty.

A

HATCHING A PLAN

s I walked in, Jonathan Corr, the president of Ellie Mae, greeted me at the front door and proceeded to escort me to a private conference room where Sig Anderman, CEO and founder, and Joe Langner, chief sales officer, sat around a large conference table. It was strange. Despite the mortgage industry

in eclipse, walking into the Ellie Mae headquarters, there was a fresh vibe in the air. The activity was busy, even disregarding the many empty cubicles. Jonathan reassured me those would be full again in the coming months; Ellie was poised for growth.

It is difficult to explain, but while outside of the doors, there was the American economic system in chaos, and yet, inside Ellie Mae’s walls, there was extreme confidence in the future. Why? Sig, the company CEO, closed the door to the conference room, and proceeded to outline the plan. But first, he summarized the market outlook. In 2008-2009, many mortgage originators – and potential clients of the firm-- had gone out of business. Ellie had lost money in 2008: it had revenues of approximately $33M, but it’s bottom line still showed red ink of more than $1 million.

The Loan Origination System (LOS) wars were at their epic peak – Calyx, Mortgagebot, Byte, Avista, Open/Close, Mortgage Cadence, Harland E3, Blueberry, PCLender, Mortgage Builder, to name a few. It was a crowded field to say it mildly, but everyone was losing clients. Sig saw the market contraction as an opportunity, since these events were hurting his competitors, especially market leader Calyx. Calyx’s revenue contraction was severe, falling from about $40 million to a historic low of roughly $9 million; it existed anemically, he argued.

S

TURNING POINT

till confused, I peered over to Jonathan seeking for some direction as the more Sig summarized the problem statement, the more confused I grew. I did not see the strategy. I saw an uncertain market, a crowded field of competitors and a long uphill climb to get marketshare from mortgage companies that may not weather the market storm.

CONTINUED ON PAGE 16

14 MORTGAGE BANKER | APRIL 2021

YOU CAN SEE ELLIE’S APPROACH TO THE MARKET IN THIS MOVE BY MATT ISHBIA AND UWM. In the Great Recession, Jonathan Corr of Ellie Mae came up with a plan to sweep up market share. United Wholesale Mortgage CEO Mat Ishbia may be plotting a similar strategy.

PHOTO BY JENNY ISHER

MORTGAGE BANKER | APRIL 2021 15

WHY UWM MAY WIN WHOLESALE WAR CONTINUED FROM PAGE 15

Jonathan nodded to pay attention, like every good storyteller, Sig was getting to the main point. Sig laid out a strategy that was a radical departure from the way the LOS wars were fought. Sig wrote down the following on a white board: • Transition Users from per-seat licensing to per-user per-month licensing • Focus on prospective clients and their volume, and not number of users • Project Promontory The first two bullets were a vastly different perspective on the LOS market and how LOS vendors looked at mortgage companies. I was on the leadership team at Calyx from 2007-2009, and our business model at the time was based on a charge per seat. Additionally, the LOS world view was based on “number of accounts”, not accounts who did the most volume. Jonathan didn’t care about the number of mortgage company clients or accounts. He was focused on a smaller number of companies whose loan volume was high.

The first two bullets, while innovative in sales focus, weren’t entirely new – software as a service was almost a decade old. This was co-opted from Salesforce and applied to the mortgage space. But, still, from the LOS standard, it was a radical shift to target a list of companies focusing exclusively on loan volume. At this point, I understood the plan. But…..

W

ELLIE MAE’S SECRET PROGRAM

hat was the third bullet point, Project Promontory, about? Ellie Mae had decided to get into the lending business -- sort of. With so many mortgage companies going out of business, why not partner with a few larger Ellie Mae clients, and then help them acquire other companies more vulnerable to market conditions to effectively grow their sales organization?

About 80% of Ellie Mae’s broker users and 30% of mortgage banking clients went out of business in 2008. If an Ellie Mae client was going to go out of business, then it made sense to help that client transfer their sales talent to another larger, better capitalized Ellie Mae client. In this scenario, it was a win-win for Ellie Mae and for their larger clients.

Secondly, since there were so many Calyx and non Ellie Mae mortgage clients going out of business, the same market opportunity existed – engage with these weaker non Ellie Mae mortgage companies and help facilitate an acquisition with the larger existing clients of Ellie.

T

WORKING PLAN

his strategy accomplished several objectives: it helped build loyalty with Ellie Mae’s larger customer base; it grew Ellie Mae’s marketshare by centering a strategy around specific mortgage companies using Encompass and it cut at the heart of Ellie Mae’s competitors and their marketshare. It was a brilliant idea.

The first two Ellie Mae clients we focused on growing were Primary Residential Mortgage (PRMI), based in Salt Lake City, Utah, and Freedom Mortgage, out of New Jersey. The risk that Sig took with this strategy could not be underestimated. The gamble was by partnering with two large Ellie Mae clients, Ellie ran the risk of alienating other 16 MORTGAGE BANKER | APRIL 2021

Ellie Mae clients that weren’t part of the program, and it could have had the opposite effect by driving them to other LOS platforms. The program had to be secret. So we maintained its secrecy by facilitating it through my consulting company, Menlo Advisors, an M&A firm I founded in 2009.

W

MARKET DIVSION

e carved up the country targeting companies whose net worth or cash on hand was light, and by facilitating introductions and applying an acquisition model, we successfully accumulated companies and teams of loan officers across the United States to join well-capitalized Ellie Mae clients. We gave presentations to dozens of large lenders in major cities across the United States.

These efforts helped curb Ellie Mae’s attrition in loan volume by amassing production from both Encompass and non-Encompass users, these moves increased Ellie Mae’s marketshare and most importantly, increase production volume, which drove Ellie’s revenues now based on cost per closed loan.

In 2009 Ellie Mae was a $37 million company, with a net income of $1.7 million. In September 2020, Ellie Mae sold for $11 billion. I’d say the strategy worked.

I

UWM SEES ADVANTAGE

see Ellie’s approach to the market in this move by Matt Ishbia and UWM, in which they’ve told the broker community that they can write with UWM, or they can write with Rocket Mortgage or Fairway, but if they choose either of those latter two, UWM is out of the game for them.

It is innovative, aggressive, and forward thinking. Amidst an uncertain economic market, on the heels of a $1.9 trillion dollar stimulus bill, UWM has decided to circle the wagons around a slightly smaller set of broker channel partners. It is an aggressive and high-risk strategy. On March 15th, UWM severed ties with brokers who failed to sign its updated agreement prohibiting (and penalizing) brokers in their network from selling loans to Fairway and Rocket. Reportedly, more than 90% of UWM’s brokers have signed the addendum.

UWM is the largest lender in the broker channel. This move targets and places tremendous pressure on the 30% of Rocket’s production income which comes from the same channel. Ishbia may also understand that in the rising rate environment, the broker channel contracts. In 2008, rates were mid 5% and brokers had a 35% marketshare. Regulations and compliance costs drove the broker channel to 6-7% marketshare between 2009-2013, with modest gains, culminating to an impressive 19% today.

As rates rise, the value proposition of a low-cost broker diminishes. With lower inventory, refinances lose steam and the competitive purchase market favors independent mortgage banks (IMBs). Ishbia knows this. His end game is to apply this market pressure to force his competitors out of wholesale, and to consolidate the marketshare before the overall broker channel contracts to a normalized 10-14%.

Ishbia of UWM, like Jonathan Corr of Ellie Mae, has a “you are with us or against us strategy”; It worked for Ellie Mae, it is quite possible it will work for UWM.

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L EGAL

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

Ja Mort

tvetters@ravdocs.com 512-617-6374

kider@thewbkfirm.com 202-557-3511

tblack@bmandg.com 972-353-4174

jbrod

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.

James Br the comp litigation matters f Brody’s e legal issu originati loan secu bankrupt indemnifi his B.A. i from Dra his J.D., in Advoc of the Pa of Law. H American Whitney practice been adm the Unite the Centr Southern addition, lead litig mortgage related d and feder or on a p FL, MD, PA, TN, a

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.

18 MORTGAGE BANKER | APRIL 2021

ames W. Brody, Esq. tgage Banking Practice Group Chair dy@johnstonthomas.com 415-246-3995

rody actively manages all plex mortgage banking n, mitigation, and compliance for Johnston Thomas. Mr. experience centers on those ues that arise during loan ions, loan purchase sales, uritizations, foreclosures, tcy, and repurchase & fication claims. He received in International Relations ake University and received with a certified concentration cacy, from the University acific, McGeorge School He was a recipient of the n Jurisprudence BancroftAward. He is licensed to law in California and has mitted to practice in front of ed States District Courts for ral, Eastern, Northern, and n Districts of California. In , Mr. Brody has served as gation counsel for numerous e banking and commercial disputes venued in both state ral courts, in a direct capacity pro hac vice basis, in AZ, CA, , MI, MN, MO, OR, NJ, NY, and TX.

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

Memphis May 5, 2021

+ Free NMLS Renewal May 6th

www.midsouthmortgageexpo.com Enjoy free registration using our code OCNFREE

Complimentary registration available to NMLS-licensed active LOs and their support staff. Show producers resereve the right to determine final eligibility.

MORTGAGE BANKER | APRIL 2021 19

ADVERTORIAL

THOUGHT LEADER 7 Social Media Risk Management Practices for Mortgage Lenders to keep records of marketing communications for compliance.

If you are using social media for marketing your products or services, now is a good time to revisit your social media risk management practices to avoid legal, regulatory or reputational risk.

A

s the stay-at-home era extends into 2021, home buying continues to see steady growth. According to Forbes, Zillow expects 6.9 million existing home sales this year — the highest since 2005.

One of the factors driving the surge in real estate sales is social media. The combination of time at home, popular hashtags like #dreamhome and #mortgage, and social-media-savvy millennials and Gen Z entering the homebuying market in record numbers makes social media a prime venue for marketing mortgage services.

Social media platforms are a great way to connect with the next generation of homeowners, but public communications invite regulatory or legal scrutiny. In keeping with the Mortgage Acts and Practices (MAP) Advertising Rules, companies selling mortgage products or services are required 20 MORTGAGE BANKER | APRIL 2021

Establish a code of conduct. Without a formal and documented training program, your organization can be exposed to various legal, compliance and reputational risks from misuse of social media.

1) Form a governance structure.

Companies need clear social media roles and responsibilities. Leadership should decide how social media will contribute to strategic business goals, and then create controls and perform regular risk assessments.

Without this structure social media can become misaligned with corporate strategies.

5) Monitor social media use.

Archiving and oversight of the content posted to your company’s social media channels is required to ensure social media content reflects internal policies and industry regulations. Without this, reputational damage can result based on fraud, misrepresentation of your brand, mismanagement of consumer comments, and other compliance and legal risks.

2) Develop social media use policies and procedures.

Mortgage lenders should establish social media processes and communication policies to protect against non-compliance with consumer protection laws and regulations. Policies should address what employees are, and are not, allowed to communicate in their official capacity. Without this, your company may be exposed to legal and compliance risks.

6) Have strong social media audit and compliance functions. To ensure ongoing compliance with laws, regulations and your corporate internal policies, involve your compliance or audit team to identify and mitigate social media risks. Make sure your social media practices continue to comply with evolving laws and regulations. Without these functions, your company can be vulnerable to compliance and legal risks.

3) Know the platforms you’re using. Perform due diligence prior to engaging with any social media platform to be aware of company’s reputation and risk management policies. Without this, your company might be made vulnerable to operational risks like theft of consumer information resulting from a social media provider’s compromised IT infrastructure.

7) Report on and oversee your social media risk management program. Leadership must actively supervise the risk program and have access to reporting to determine if social media initiatives are meeting company objectives. Without this, you won’t be able to ensure that corporate, legal and reputational goals are met.

4) Establish and maintain an employee training program. Social media training needs to be provided to all employees who use social media on behalf of your company.

Smarsh provides electronic communications archiving and monitoring solutions for financial services organizations.

Visit Smarsh.com to learn more.

FROM THE DESK OF THE ‘OM-BOBS-MAN’

Location, Location, Location

F

FOR MORTGAGE LENDERS, WORKSPACE FLEXIBILITY MATTERS

By B O B NIEM I, M ORTG AG E BAN KE R M AG A ZIN E CON TRIB U TIN G WRITER

lexibility Matters in life and more. Business and personal plans can change by choice and by impact.

Certainly, after a yearlong period of working from home, we should all understand the need to adapt and pivot when circumstances mandate.

While mortgage licensing flexibility has been a critical component to protect mortgage employees and our customers during the pandemic, the need for flexibility with Work From Home will continue well beyond.

The investment in technology by mortgage companies in the last ten years has rapidly evolved how today’s mortgage business is conducted. Consumers drive the time and location well beyond the 9:00 to 5:00 office world. Working with consumers via the telephone, internet or application-based system has become common place and not reserved for the licensed branch location.

Mortgage companies today utilize business models that promote faster and safer processes when the right technology, secure access and training are in place. This provides homebuyers an enhanced process if not the same experience with the mortgage originator working from a branch. Authorizing remote work merely allows licensed mortgage companies to provide critical financial services to today’s homebuyer.

employee’s home. The employee of the licensed mortgage company is supervised and is providing the same telephone or internet-based services as if they were physically sitting in a licensed branch location.

The Mortgage Bankers Association (MBA) and American Financial Services Associations (AFSA) both the support Work From Home initiative beyond the pandemic. Both AFSA and MBA have come out with model language to allow supervised employees to work from home or another remote location. The model language of both AFSA and MBA both have common message that branch licensing is not impacted. Only the ability to meet the needs of the customer at a time and place determined by the consumer. These actions would be prohibited in more than twenty states today.

SAFEGUARDS REMAIN

There are safeguards in both model statutes as well to ensure consumer information if protected with cybersecurity protocols, data security, and secure connections as included in the company’s written policies and procedures. Customer interactions and conversations about consumers must be conducted in compliance with all federal and state information security requirements.

MORTGAGE COMPANIES TODAY UTILIZE BUSINESS MODELS THAT PROMOTE FASTER AND SAFER PROCESSES.

WFH RULES THE DAY

Work From Home is NOT about unlicensed branching. While there are several states that do not license individual locations, Work From Home is not a mandate to open unlicensed offices to evade state licensing requirements.

Work From Home is an effort to allow originators, processors, servicing representatives to all work from a time and location that meets the needs of their customer. Again, this is not customers making an application or making mortgage payments in an

While we hope this pandemic is drawing near a close, the need for flexibility will continue. We have all seen regional and national disasters like hurricanes, wildfires and winter storms. These all impact how a mortgage company could provide essential financial services to homebuyers and impacted homeowners. Flexibility provides answers in advance of the next emergency.

For more information including the MBA model language, visit mba.org/LicensingFlexibility

MORTGAGE BANKER | APRIL 2021 21

How To Make Sure Reward Follows Risk TAKING ON NEW INITIATIVES MEANS TAKING ON NEW RISK. BE READY

E

By F EL ECIA B O W ER S , M ORTG AGE BAN KE R M AG A ZIN E CON TRIB U TIN G WRITER

very year brings with new companyis almost back to birth! An exaggeration, but it does cover wide initiatives. You have heard me and an extensive period. And, if you are licensed in Washinga plethora of other compliance profeston, underwriters and processors are required to report to sionals mention that, as the compliance a licensed loan originator. That LO can be licensed in any manager for your company, you should state, but it must be a licensed LO. Plus, WA requires a ensure you have a seat at the table to unsupervisory plan for these individuals. derstand the initiatives, the design, and the flow if proLoan originators are the target of headhunters offering cesses are changing. While you are listening, take notes the latest, greatest, and sometimes non-compliant combecause those notes will come in handy later. pensation proposals. The C-Suite wants to retain these FELECIA BOWERS For example, does your company have an initiative to individuals for obvious reasons, but you will become modify current staffing models? What exactly does that the “heavy” when you tell them that their proposal is not mean? If it means the company is considering outsourcing underlegal. Sign-on bonuses, percentages of profits, LOs with their own writing, this initiative has a lot of underlying vetting to consider. balance sheets, and net-branching are all being offered. If you are With no disrespect to the C-Suite, the idea of getting more loans not proficient in compensation law, then you should encourage, if through underwriting is the vision before them and not the undernot insist on, engaging a third-party attorney proficient in the rules. lying review process. The S.A.F.E. Act requires the licensing of independent contractor underwriters or processors if they perform THE WHOLESALE MARKET certain tasks. If the company is engaging the services of a third-party Maybe your company is considering entering the wholesale marcompany to handle underwriting overflow, you now must look at ket to work with brokers. If so, we must circle right back to that vetting that company through your third-party vendor management third-party vendor management program because they fit the defiprogram. nition. Contract, privacy, data security, compensation options for Chances are the one-off 1099 independent contractor does not lender paid compensation or borrower paid compensation, and the have a contract, but they too must be vetted under your vendor mandisclosures process are but a few of the things to consider. agement program as they are a vendor performing a service. Do Remember, the broker must perform a minimum of services to not forget privacy, data security (think automated activity timeout), receive compensation under RESPA. And remember TRID disclointernal controls, background checks for LDP, EPLS-SAM, FHFA, sures: if the broker issues them, the lender name at the top must be and OFAC. your name or blank. What if the disclosures are grossly understated, If you are licensed in Georgia, that background check’s look back will you reject the submission? Or will your company require submission of a skinny package of the six items to issue TRID disclosures 24 to 48 hours after receipt of the application.

Be prepared for grousing from your retail channel if you are approving brokers within their market. They are basically competing against the broker for the same business which will end up with your company through one channel or another. Been there and done that and it is difficult to work with.

‘FULFILLMENT INTELLIGENCE’

I heard a new term a few weeks ago called “Fulfillment Intelligence.” I listened intently as if I knew what they were talking about while on my second computer screen, the internet was hard at work finding me a definition I could understand. I felt pretty darn intelliCONTINUED ON PAGE 30

22 MORTGAGE BANKER | APRIL 2021

MORTGAGE BANKER | APRIL 2021 23

Academy Mortgage Corporation

American Financial Network, Inc.

What makes you a top employer?

Academy’s sole reason for being in business is to help our teams deliver the dream of homeownership. From technology to training, all our systems and processes are designed to achieve this goal and support you in your desire to be in business for yourself but not by yourself.

What makes you a top employer?

American Financial Network, Inc. is one of America’s top mortgage lending employers because our employees’ success is our success and everyone on Team AFN knows it. The mere acknowledgment of this symbiotic relationship encourages everyone to give that little something extra to ensure their individual, team, department, and company’s success.

Company CEO/President: James Mac Pherson Website: http://joinacademymortgage.com Location: Draper, UT

What do employees love about this company?

Our teams love working at Academy because of our people-centric culture, local decisionmaking, potential-driven career growth, lifechanging service experiences, bucket-list Sales Conferences, cutting-edge technology, solutionoriented products, industry-leading marketing, open-door access to leadership, and focus on work-life balance.

Company Mission Statement Inspire Hope. Deliver Dreams. Build Prosperity.

Angel Oak Mortgage Solutions

CMG Financial

Company CEO/President: John Sherman Website:http://afnretailbranch.com/ Location: Brea, CA

What do employees love about this company?

Employees love the comradery, respect, and team mentality that permeate the company. Although it has grown exponentially and now serves communities from coast to coast as a nationwide lender, AFN maintains a family-oriented vibe. The leadership team enjoys award-winning success and guides employees down their own paths of success.

Company Mission Statement We will be the BEST, MOST TRUSTED, and ADMIRED mortgage banker, providing the best experience to our Team AFN members and our customers through technology and efficient operations.

Gershman Mortgage

Company CEO/President: Mike Fierman Website:http://www.angeloakms.com Location: Atlanta, Georgia

Company CEO/President: Chris George Website: http://www.cmgfi.com Location: San Ramon, CA

Company CEO/President: Adam Mason Website: http://www.gershman.com Location: Chesterfield, MO

What makes you a top employer?

We are known as an educator in the market with strong values providing excellent training that helps our employees succeed. We are the leader in non-QM and with that comes responsibility from all of us. Our employees are trained to be leaders in a friendly and professional environment.

What makes you a top employer?

CMG Financial is an originator-centric company with an executive team who has experience in sales and operations. We focus on making loans work first and foremost and giving our loan officers room to grow.

What makes you a top employer?

Our company’s performance in 2020 shattered all previous company records and performance metrics.

Our customer satisfaction numbers are exceptional; we increased new borrower and agent relationships, solidified existing relationships, and still made improving our processes and internal relationships a priority. We live our customer-centric Mission and commit to excellence daily.

What do employees love about this company?

Our employees love that our company feels like an extended family. We care about each other and the success of each individual. That sentiment is felt and consistently remarked upon. We hear praises about our training and resources to succeed.

Leadership is accessible to listen and act on their needs.

Company Mission Statement ”Angel Oak Mortgage Solutions is the leader in the non-QM mortgage space. We offer alternative specialized mortgage solutions for brokers throughout the country helping borrowers who don’t fit conventional guidelines. We are pioneering a fresh approach to today’s mortgage lending challenges helping partners to grow their business.”

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What do employees love about this company?

Our employees love having the ability to operate independently and leverage support when they need it. With a single-shareholder, we are able to adapt quickly and pioneer new loan products. We promote open communication and our attentive leaders are interested in our employees’ goals and ideas.

Company Mission Statement CMG Financial makes home financing simple, through personalized, local service, and regional operational support. CMG is known for reliable preapprovals, ease of transaction, on-time closings, and transparency and communication throughout the mortgage process. CMG is committed to Every Customer, Every Time. No Exceptions, No Excuses.

What do employees love about this company?

Employees of Gershman Mortgage know we are leaders in the industry and want to be a part of that. We continually celebrate the success of our employees. Employees earn the credit of success with their contributions, knowledge, experience and commitment to providing the utmost in service to our communities.

Company Mission Statement Communities, families, and homes are at the heart of what we do at Gershman Mortgage. Our founding principles are based on the core values of honesty, integrity, the entrepreneurial spirit, and putting our customers first. We are passionate and committed to customer service.

MiMutual Mortgage

Company CEO/President: Bruce Carr Website: http://www.mimutual.com Location: Port Huron, Michigan What makes you a top employer?

We’ve elevated the mortgage experience by asking our team members and our clients to think bigger and expect more. We’re dedicated to providing outstanding customer service experiences to every client, every time.

What do employees love about this company?

With MiMutual, you’re more than just a number.

YOUR talents matter. YOUR values matter.

YOUR passions and your strengths matter. YOU matter.

Company Mission Statement To become one of the nation’s most trusted and respected mortgage lenders.

Nationwide Title Clearing

Company CEO/President: John Hillman Website: http://www.nwtc.com Location: Palm Harbor, FL What makes you a top employer?

NTC provides different competitive benefit plans, 401k, flexible schedules, and voluntary benefits.

We offer wellness programs, acknowledgment rewards, internal events, and catered lunches to our employees. NTC hosts fundraisers to collect supplies for its community partners. NTC supports its LGBTQ community and are active members of the AMDC and NAACP. What do employees love about this company?

Our employees love the flex schedule, being involved with the community through engaging events, and the ability to grow within the company. They also love the fact that NTC is a team-oriented environment.

Company Mission Statement NTC’s mission is to deliver the highest level of accuracy in research and document processing services that protect homeowners and assist the mortgage banking industry while also preserving the nation’s land records.

NotaryCam

Company CEO/President: Rick Triola Website: https://www.notarycam.com Location: Newport Beach, CA & Nationwide (remote)

Residential Mortgage Services, Inc. Company CEO/President: James Seely Website: http://www.rmsmortgage.com Location: South Portland, Maine

What makes you a top employer?

As the leader in RON and mortgage eClosing solutions, NotaryCam is able to provide an extremely flexible environment, allowing employees to work from almost anywhere in the world. Founder and CEO Rick Triola strives to ensure that every NotaryCam employee has all the tools for excellence at their disposal.

What makes you a top employer?

Having a clearly articulated set of core values is the bedrock of our distinct and strong RMS company culture. Our employees value the shared commitment and focus on delivering an exceptional customer experience, striving for market leadership, and being actively involved in and giving back to the communities we serve.

What do employees love about this company?

In addition to the flexible work environment, NotaryCam employees appreciate the ways large and small in which the company seeks to recognize individuals’ contributions – contractors included.

Employees also feel empowered and heard in their jobs, as Triola makes it a point to accept feedback from his staff regularly.

What do employees love about this company?

RMS employees appreciate that the Leadership Team engages in daily communication focused on providing quick answers to questions and real-time deployment of additional support and resources where needed. This process allows RMS employees to work effectively and efficiently in providing the best possible home financing experience for our customers.

Company Mission Statement NotaryCam’s mission is to modernize the archaic notarial workflow through its patented eClose360® platform to deliver the “perfect” online mortgage closing in every jurisdiction. eClose360 supports all eClosing scenarios – RON, IPEN or hybrids – with unparalleled flexibility, identity verification, security and convenience, earning it a 99.8% customer satisfaction rating.

Company Mission Statement The RMS Company mission is to consistently deliver an exceptional home financing experience by educating and simplifying the process for our clients. We focus on fulfilling our We’ll Guide You Home RMS brand promise, and giving back to the communities in which we operate.

Washington First Mortgage Loan Corp Company CEO/President: Tryg Satterlee Website: http://www.wafirstmortgage.com Location: Kirkland, WA

What makes you a top employer?

WA First was founded on creating a positive company culture, providing smart options to borrowers while maintaining a high level of customer service & sustainability in an everchanging market. We value teamwork, respect & motivation. We strive for growing knowledge & to inspire ourselves as well as those around us.

What do employees love about this company? ”I’m not going anywhere. When recruiters call me, I say, ”I am working at my dream company now.” ”It feels like Family here” ”My favorite part of this company is not being micromanaged and having the freedom to do my job and excel at it.”

Company Mission Statement Our core value is to always do right by others; Our employees, our co-workers, and our clients.

MORTGAGE BANKER | APRIL 2021 25

CO M P LI A N C E

‘Thank You For Your Service’ Comes With Rules For Lenders

I

MAKE SURE YOUR COMPLIANCE TEAM KNOWS THE RULES OF MILITARY ENGAGEMENT

By R OY KAU FM A NN, S PECIA L TO M ORTGAGE BAN KE R M AG A ZIN E

n these days of peaks and troughs of the lending cycle, prudent mortgage professionals are keeping a close eye on compliance. The Servicemembers Civil Relief Act ranks high in list of regulatory requirements with some of the most severe consequences for failures.

Setting up your compliance risk management system, policies, and handbooks for implementing the procedures is important, but sensitizing and training of front-line personnel is essential.

If something slips through the cracks, it is important to have a process to correct them and to examine how the failure occurred.

The risks of non-compliance with the SCRA go beyond possible massive fines and protracted court cases. There is additional risk to the reputation of the lender and loss of confidence of business partners

26 MORTGAGE BANKER | APRIL 2021

and potential customers (or Oceanic and Atmospheric members of credit unions).

Administration (seven agencies The SCRA is a federal in total) have personnel who statute passed in 2003 to may be protected under the Act. replace the old Soldiers’ and Further, activated reservists Sailors’ Civil Relief Act. The and national guardsmen may goal behind the SCRA was have protections. “Active Duty to allow servicemembers “ is defined to include fullsome peace of mind as they time duty, full-time training, performed their duties. annual training, and attendance ROY KAUFMANN Obligations they had before at certain designated schools. entering active duty were National Guard and Reservists given limitations. For example, a loan have their own subset of qualifications. that originally had a 7% interest rate National Guard members would only enjoy would have to be reduced to 6% for active protections if called up by the President servicemembers. (as opposed to by a state Governor) and the call-up is for at least 30 days and the protection starts at the call-up, as opposed WHO IS PROTECTED? to the date they report for duty.

Generally, all active servicemembers What about dependents?

A in the Army, Air Force, Navy, Marines, servicemember’s dependents (including some members of the National Guard, spouse, children, and anyone the Public Health Service and the National

servicemember has been providing at least one-half of the support for during the 180 days before applying for SCRA protections). It should be noted that, for dependents to assert protections, they generally must go to court. If a court grants a stay or other relief to a servicemember, it is likely that the co-borrowers would get the same postponement.

Who is generally NOT covered?

Generally, not covered are retired personnel (after the expiration of benefits like the one-year protection for foreclosures), National guard troops called to duty by a state Governor, civilian employees of DoD or the armed forces, contractors, and active Guard Reserve Soldiers and Airmen under title 32.

PROTECTIONS UNDER SCRA

There are several basic protections, but the six percent rule is one of most interest to the lending industry. An active duty servicemember who has a loan that predates his active status (or in the case of the National Guard, the call-up date) is entitled to have his lender reduce the interest rate to no more than 6% on all loans, including mortgages, car loans, and credit card bills for the entire period of his active service. Joint loans with a spouse are covered under the SCRA. All excess interest must be forgiven and not deferred, nor should the maturity date be extended to get to a lower payment or accelerated. Interest includes “service charges, renewal charges, fees, or any other charges (except bona fide insurance) with respect to an obligation or liability. “ That would include late charges and NSF fees, but excludes the costs of bona fide insurance. If the borrower already paid excess interest, it should be refunded. The cap could be extinguished if a court finds that the servicemember has the ability to pay more and that the ability is not materially affected by their military service. There are very few cases where a creditor went to court for that determination.

There are other requirements involving foreclosure, eviction from REO, and assignments of life insurance policies, most of which require a court order before proceeding against a servicemember.

How long do protections last? Not all SCRA protections end when the servicemember retires. For example,

THERE ARE SEVERAL BASIC PROTECTIONS, BUT THE SIX PERCENT RULE IS ONE OF MOST INTEREST TO THE LENDING INDUSTRY. foreclosure protections now extend for a full year post-service. In earlier versions of the SCRA, that period had been 90 days.

PROACTIVE COMMUNICATION

Certain protections are effective automatically when a person enters into active duty. The lender is responsible for knowing the military status before it forecloses, evicts, or orders a repossession.

On the interest rate cap, the SCRA says that the servicemember should provide written notice, with copy of orders any time up to 180 days after end of military service to get the protections. However, prudent lenders are being more proactive.

Lenders are relaxing the requirements for orders and are accepting communications from commanding officers and similar, alternate proof of military service.

Lenders are becoming more proactive in researching whether existing customers are in the military and reaching out to confirm and offering rate reductions.

STATUS VERIFICATION

Most lenders prefer to have a third-party verify military status and select from: If you need a military or SCRA affidavit, if you need an affidavit of due diligence, or if you do not have the person’s social security number, www. servicecmemberscivilreliefact.com (“SCRACVS”) is your best resource and processes thousands of verification requests each year for lenders, lawyers, landlords, and others.

The U.S. Department of Defense’s Defense Manpower Data Center (“DMDC”) at is a resource if you have the social security number and do not require an affidavit. You may also provide a dateof-birth only, but the results will have a disclaimer that limits the value of the

certification. DMDC will ignore requests if no SSN or date of birth is provided.

Batch or “scrubbing “ is when the lender submits a data file with names, social security numbers, and other information. Both the SCRACVS and DMDC can accept these files and send back response files. For lenders that already have integrated platforms with national service providers, such as CoreLogic, there are often modules that can be added for SCRA inquiries.

RIGHTS WAIVER

Can lenders ask borrowers to Waive SCRA rights? Yes, but exercise caution.

Before addressing the requirements, decide whether there are non-legal considerations, such as the public perception that you are conditioning a loan on a person giving up valuable rights.

If you do decide to request a waiver, there are requirements. A waiver is only valid after the servicemember is in military service. It must be a separate document (12-point font or larger), not stapled to any other document, and it must recite what promissory note, document, or other agreement is affected by the waiver.

What are the Risks of Non-Compliance?

Apart from the damage to reputation, the SCRA has teeth. A person who knowingly causes a foreclosure or seizure is subject to fines and imprisonment. Punitive damages can be assessed and one particular settlement agreement among the government and 5 large lenders for SCRA violations resulted in the lenders paying more than $2.5 Billion dollars.

What industry sectors should be concerned about SCRA compliance?

Mortgage servicers, originators, banks, lenders, credit unions, and credit card issuers should be vigilant about complying with the SCRA.

MORTGAGE BANKER | APRIL 2021 27

CO M P LI A N C E

REGULATORY CORNER FHFA EXTENDS FORBEARANCE FOR MULTIFAMILY OWNERS The FHFA announced that Fannie Mae and Freddie Mac will continue to offer COVID-19 forbearance to qualifying multifamily property owners through June 30, 2021, subject to the continued tenant protections FHFA has imposed during the pandemic.

The programs were set to expire March 31, 2021.

Property owners with Enterprisebacked multifamily mortgages can enter a new or, if qualified, modified forbearance if they experience a financial hardship due to the COVID-19 emergency. Property owners who enter into a new or modified forbearance agreement must: • Inform tenants in writing about tenant protections available during the property owner’s forbearance and repayment periods; and • Agree not to evict tenants solely for the nonpayment of rent while the property is in forbearance.

Additional tenant protections apply during the repayment periods.

These protections include: • Giving tenants at least a 30-day notice to vacate; • Not charging tenants late fees or penalties for nonpayment of rent; and • Allowing tenant flexibility in the repayment of back-rent over time, and not necessarily in a lump sum.

In addition to requiring written tenant notification, the Enterprises have posted the tenant protections to their respective online multifamily property lookup tool websites. The property lookup tools make it easier for tenants to find out if the multifamily property in which they reside has an Enterprisebacked mortgage.

28 MORTGAGE BANKER | APRIL 2021

CFPB PROPOSES DELAY OF COMPLIANCE DATE FOR GENERAL QM RULE The CFPB released a notice of proposed rulemaking at 86 FR 12839 to delay the mandatory compliance date of the General Qualified Mortgage (QM) final rule from July 1, 2021, to October 1, 2022. The CFPB is proposing to extend the compliance date to ensure homeowners struggling with the financial impacts of the COVID-19 pandemic have the options they need.

The CFPB’s press release states that extending the mandatory compliance date of the General QM final rule would allow lenders more time to offer QM loans based on the homeowners’ debt-to-income (DTI) ratio, and not solely based on a pricing cut-off.

Extending the compliance date of the General QM final rule would also give lenders more time to use the GSE Patch, which provides QM status to loans that are eligible for sale to Fannie Mae or Freddie Mac. If the NPRM is finalized as proposed, the old, DTI-based General QM definition; the new, price-based General QM definition; and the GSE Patch (unless the GSEs exit conservatorship prior to October 1, 2022) would all remain available if the lender received the consumer’s application prior to October 1, 2022.

Comments due by April 5, 2021.

CFPB ANNOUNCES INTERPRETIVE RULE ON PROHIBITION AGAINST SEX DISCRIMINATION The CFPB announced it has issued an interpretive rule clarifying that the prohibition against sex discrimination under the Equal Credit Opportunity Act and Regulation B includes sexual orientation discrimination and

gender identity discrimination. This prohibition also covers discrimination based on actual or perceived nonconformity with traditional sexor gender-based stereotypes, and discrimination based on an applicant’s social or other associations.

This interpretive rule is effective on March 16, 2021.

FEDERAL AGENCIES PROPOSE NEW PRIVATE FLOOD INSURANCE Q&AS The FRB, Farm Credit Administration, FDIC, NCUA, and OCC requested public comment on 24 proposed Interagency questions and answers regarding private flood insurance. The proposal is intended to help lenders comply with the agencies› 2019 joint rule to implement the private flood insurance provisions of the Biggert-Waters Flood Insurance Reform Act of 2012. The proposal incorporates new questions and answers in several areas including mandatory acceptance, discretionary acceptance and private flood insurance general compliance.

The proposed Q&As would supplement the 118 Interagency Questions and Answers Regarding Flood Insurance that the agencies proposed on July 6, 2020.

Comments are due 60 days following publication in the Federal Register.

WHITE PAPERS & WEBINARS REGULATORY COMPLIANCE RISK MANAGEMENT OPERATIONAL EXCELLENCE

Click below for information and details on white papers, webinars and knowledge-based content

Chicago

June 22, 2021

+ Free NMLS Renewal June 23rd

www.chicagooriginators.com Enjoy free registration* using our code OCNFREE

*Complimentary registration available to NMLS-licensed active LOs and their support staff. Show producers resereve the right to determine final eligibility.

MORTGAGE BANKER | APRIL 2021 29

COMPLIANCE NEEDS A SEAT AT THE TABLE CONTINUED FROM PAGE 22

gent at that moment because I had requested three computer screens to work from and IT thought I was crazy. It seems this term is not just a passing catchphrase. It has some meaning behind it with the top of list being automation.

Automation includes finding the best products that can integrate into all of your service channels and programs.

Seems simple enough in theory, and automation is obviously the way to improve efficiencies. However, as compliance geeks, the back of our minds is still remembering that automation cannot and will never substitute for knowledge.

An example of this one is that your organization has an automated process in place to issue disclosures within three business days of receipt of all six items required under TRID. What happens if there is a power outage and the program stops functioning or there is a programming hiccup that corrupts the calendar? Leap year comes to mind or even the hoops we jumped through for Y2K. Backup processes, including manual intervention, should be in place to ensure compliance requirements are met. I am still thinking through the additional sub-concept of “Fulfillment Intelligence” that includes “final not finalized reports.” Wouldn’t that be a preliminary report?

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Communication—Compliance communication begins at the top. An organization’s leaders must establish its ethical tone and state its values, then communicate these clearly to all personnel. Employees must receive a clear and consistent message.

Confirmation—Automated business systems function as they are programmed, without regard to error. A financial institution must make a commitment to building checks and balances into systems for accuracy and completeness.

Confirmation contributes to confidence that the compliance system is performing as desired and that bank staff is performing suitably.

Correction—Financial institutions must put processes in place to effectively handle compliance incidents that are detected, identify root cause(s) to violations or operational errors, and address the root cause(s) of each problem to preclude recurrence. Robust processes for correction build integrity into the compliance culture.

Everyone at a financial institution is responsible, in some part, for the strength and integrity of the compliance culture.

While automation rises with the demands of consistency, cost effectiveness, and efficiency, compliance culture boils down to people.

So, while the C-Suite is investing in sales and operations, make sure you are investing in yourself. We need to be aware of the initiatives so we can dedicate our continuing education and growth on the background compliance aspects of those initiatives. Risk management is foremost the most important thing a company can invest in -- or at least in my mind it is.

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