MANAGING COMPLIANCE
ADVANCING CRMS
HYBRID OUTSOURCING FEBRUARY 2021
MortgageBanker SERVICERS FEELING PRESSURE OUTING
BAD
ACTORS
DEFYING
gravity
Why CoreLogic Economist Selma Hepp Says Sky-High Housing Prices Are Remaking The Market A PUBLIC ATI O N O F A M E R I C A N B U S IN ES S M ED IA
LIBOR PAINS
INSIDE: THE FUTURE OF FORBEARANCE
SERVING THE MORTGAGE BANKING COMMUNITY FOR MORE THAN THREE DECADES 202.628.2000
PROVIDING COUNSEL TO THE FINANCIAL SERVICES INDUSTRY FOR MORE THAN THIRTY YEARS SERVING THE REVERSE MORTGAGE INDUSTRY SINCE ITS INCEPTION
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MORTGAGE BANKER | FEBRUARY 2021 3
February 2021 FEATURES 8
Unstoppable Momentum BRIAN HONEA
A Q&A with CoreLogic Deputy Chief Economist Selma Hepp on rising house prices and why there won’t be another housing bubble
14
18
20
The Near Future of Forbearance
Under Pressure
A Fast-Moving Target
The new year will usher in additional pressure on servicing platforms and people in general. Businesses are still closed, more are closing, states have extended lockdown protocols, and the pandemic rages on and has morphed with a new version of the virus.
Believe it or not, there was a time when keeping a financial institution in compliance was much simpler. Today, the fast pace of new technology adoption and an enhanced regulatory focus on protecting consumers at any cost has changed the way we manage compliance.
FELECIA BOWERS
LEONARD RYAN
The jury is still out about how all of this will end, even while nondefault servicing continues alongside increased default servicing, due to increased originations caused by low interest rates. MICHELLE GARCIA GILBERT
4 MORTGAGE BANKER | FEBRUARY 2021
Special
SECTIONS
LOAN ORIGINATION
24
Diversification: A Tried and True Strategy for Uncertain Times
C SUITE
12
BY BRUNO PASCERI
37
Preparing for Life after LIBOR BY JOEL BERG
26
PROFILE:
Amy Moser, VP of Mortgage Services, Mountain America Credit Union
14
PROFILE:
Jason Bateman, Head of Mortgage, Redfin
24
MORTGAGE OPERATIONS
28
A Compelling Strategy: A Case for a Hybrid Approach to Outsourcing BY SANJAY AGNIHOTRI
LEGAL
32
The Mortgage Counselors: The Importance and Limits of Expertise BY MITCH KIDER AND MICHAEL KIEVAL
COMPLIANCE
39
From the Desk of the ‘Om-Bobs-Man’: Hopin on Board the NMLS Train BY BOB NIEMI
Monthly
DEPARTMENTS 6
EDITOR FOREWORD:
7
February 2021 Authors
The Better Answers Are Here
10 nmpTV Schedule
28
11 Mortgage Banker Calendar of Events 34 Mortgage Banking Lawyers 41 Business Services Directory 42 Databank
MORTGAGE BANKER | FEBRUARY 2021 5
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@twelve11media.com MANAGING EDITOR Brian Honea Brian@twelve11media.com SENIOR EDITOR Jill Emerson Jill@twelve11media.com ADVERTISING David Hoierman David@twelve11media.com GRAPHIC DESIGN Stacy Murray smurray@ambizmedia.com DIGITAL MEDIA Lucas Luna LLuna@twelve11media.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
L ET T ER FR O M T H E EDI TO R
The Better Answers Are Here
I
t has been suggested that successful people ask better questions and therefore get better answers. In this issue, we asked the better questions, and our contributors have provided the better answers.
For instance, with the explosion in origination volumes over the last year, for our cover story we asked economist Selma Hepp of CoreLogic whether or not we are headed for another housing bubble a la 2008 and whether or not house prices will continue to trend upward. Also in this issue: The pandemic resulted in legions of homeowners who could not make their mortgage payments due to financial difficulties, which in turn created hardships for mortgage servicers who had to offer forbearance to many borrowers. What does the future hold for forbearance? Michelle Gilbert of the Gilbert Garcia Group provides the answer. Then we delve into the answer to the question, “Why are mortgage servicing problems on the uptick?” with an insightful piece from Felecia Bowers of Homeowners Financial Group. That is just the tip of the proverbial iceberg. The answers to the above questions and much more lie within these pages. What questions do you have about how you can do business better or about the industry now that we are a month into 2021? We’ll help you find the answers in the pages of upcoming issues. We want to hear about your experiences. We are always listening. You can always drop us a line via the email address below.
COLUMNISTS & CONTRIBUTING AUTHORS Sanjay Agnihotri, Joel Berg, Felecia Bowers, Michelle
Garcia Gilbert, Mitch Kider, Michael Kieval,
6 MORTGAGE BANKER | JANUARY 2021
Bob Niemi, Bruno Pasceri, Leonard Ryan
B R I AN H O N E A
Managing Editor Editor@MortgageBankerMag.com
February 2021 AUTHORS Sanjay Agnihotri Sanjay Agnihotri is vice president of Operations at Sourcepoint, a leading provider of product and service solutions for the U.S. mortgage industry, where he is responsible for the company’s global originations business.
Joel Berg
Joel Berg has been a businessto-business reporter and editor for more than 20 years, both in-house and freelance, covering finance, healthcare, environmental regulation and general business news for local, regional and national publications.
Felecia Bowers
Felecia Bowers has spent more than 40 years as a bank examiner and chief compliance officer, working specifically with mortgage bankers for over 35 years.
Michelle Garcia Gilbert
Michelle Garcia Gilbert is managing partner of Gilbert Garcia Group, P.A. in Tampa, where she oversees Gilbert Garcia Group’s foreclosure, real estate transactional and litigation, probate, estate planning, guardianship, business transactional and litigation, and corporate law practices.
Bruno Pasceri
Bruno Pasceri is president of Incenter, a company based on Fort Washington, Pennsylvania which ideates and deploys innovative solutions for optimizing business performance in the mortgage and specialty finance industries.
Leonard Ryan
Leonard Ryan is the founder and general manager of QuestSoft Corporation. He has been associated with the mortgage industry for over 30 years and, for the past 25 years, has been a major compliance software leader.
MORTGAGE BANKER | FEBRUARY 2021 7
LOA N O R I G I N AT I O N
Unstoppable Momentum
R
CORELOGIC ECONOMIST SAYS GRAVITY WON’T HALT RISING MORTGAGE VOLUME
ecord-low mortgage interest rates meant record-high origination volumes for many mortgage lenders across the country in 2020. Not even a surge in home price acceleration slowed origination activity. But with those high volumes comes a new series of questions. How long will the interest rates stay this low? Will home prices level off this year? Are we headed for a repeat of 2008, which was preceded for a couple of years by a huge boom in originations only to be followed by an equally huge crash that resulted in record foreclosure activity and a period of several years known as the “Great Recession”? How different, or similar, is 2020’s origination explosion different from the one the industry experienced in 2006-08 before the crash? Mortgage Banker magazine recently discussed accelerating house prices and the possibility of another bubble with Selma Hepp, Executive, Research & Insights and Deputy Chief Economist with CoreLogic. MBM: The latest Case-Shiller data shows that house prices are accelerating at the fastest rate since June 2014. What does the recent surge in house prices mean for the market? SELMA HEPP: The recent surge in home prices reflects a convergence of several factors that even on their own could drive home prices higher but are now amplified in combination with each other. Hence, the home price acceleration picked up pace in recent months. The surge also means that despite the economic challenges brought on by the pandemic, there is strong demand for home ownership, even more so than before the pandemic, one could argue. The surge also highlights the imbalance in the housing market from extended period of slow new construction and demographic tailwind 8 MORTGAGE BANKER | FEBRUARY 2021
By B RIA N HON EA bubble? Are there any similarities between now and 2008?
SELMA HEPP which was accelerated by the pandemic. Lastly, I also think it brings to light economic gains that were accumulated by the longest economic expansion which ended with the pandemic, and which were reflected in heightened demand for second/vacation homes across the country. MBM: Will house prices level off at some point this year? SELMA HEPP: Home price growth is likely to take a breather in the coming months. According to CoreLogic HPI forecast, home price growth will slow to 2.5 percent by the latter part of next year but will still remain positive. Still, there are variations in expectations as some metro areas have been harder hit by the pandemic. MBM: How long do you think interest rates will stay this low? SELMA HEPP: We do expect the mortgage rates to remain below 3 percent thru the end of 2021. MBM: Are we headed for a housing
SELMA HEPP: We are unlikely to be heading into a housing bubble though some of the housing markets that were negatively impacted by the pandemic and/or job losses related to local industries (such as Texas markets dependent on oil/mining) may see a slight home price correction over the next year. There are very few similarities between now and 2008. Unlike 2008, current housing demand is driven by owner occupants and demographic trends that were under way prior to the pandemic, namely millennials reaching home buying age. Also, under-construction of new homes has contributed to lowest inventories of homes for sale going back to at least 1980. Current forsale inventory is at 40 percent of pre-Great Recession levels. Lastly, underwriting conditions are much more demanding than was the case in 2008, with requirements further tightening since the onset of the pandemic. Most of the problematic loans prevalent in 2008 are not around anymore. Also, current homeowners have accumulated notable equity over the last decade which helps buffer them in case of financial distress. Thus, the foreclosure crisis that was experienced post 2008 is a very unlikely outcome of the current economic situation. On the other hand, continual decline in mortgage rates to record low levels has helped spur demand and extend affordability options for home buyers with limited budgets. A concern remains that as home prices continue to rise, low mortgage rates will be eventually offset by higher prices thus reducing affordability further. Narrowing of potential pool of homebuyers will alleviate the pressure on home prices and bring down the rate of growth.
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The following events are from Mortgage Banker magazine’s sister organization, the Originator Connect Network
10 MORTGAGE BANKER | FEBRUARY 2021
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 11 2021 Motor City Mortgage Expo DoubleTree by Hilton Detroit— Dearborn 5801 Southfield Expressway Dearborn, Michigan MotorCityMortgageExpo.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 February 1, 2021 and are subject to change.
MORTGAGE BANKER | FEBRUARY 2021 11
T HE C- SU I T E
“IT’S NOT JUST ABOUT CLOSING A LOAN; IT’S ABOUT MAKING THE PROCESS EASIER AND FASTER, FOR BOTH BORROWERS AND EMPLOYEES, MAKING IT ENJOYABLE.”
AMY MOSER
VP of Mortgage Services Mountain America Credit Union
12 MORTGAGE BANKER | FEBRUARY 2021
What is the most rewarding thing about your position? Helping borrowers do more than just dream about owning a home and instead make it a reality. That’s the end goal. But it’s not just about closing a loan; it’s about making the process easier and faster, for both borrowers and employees, making it enjoyable. It’s no secret that it is challenging to put all the pieces together for a mortgage loan AND make it a pleasant experience. We do that for our members and it’s immensely rewarding. What do you think is the biggest challenge for the mortgage banking industry currently? The pandemic and housing inventory are the biggest challenges. During the next several months, any headline relative to a cure and/or vaccine for COVID-19 is likely to cause volatility in the markets. Mortgage rates should remain low through 2021, which encourages purchase activity.
Unfortunately, housing demand far outweighs inventory which is driving home prices up at a rapid pace. The rapidly rising cost of housing and lack of quality homes in desirable markets will discourage some buyers and put them back on the sidelines. Additional increases in lumber costs and other building materials will also contribute to rising home prices in 2021. What time do you get up? I’m an early riser as I only need four to five hours of sleep at most. It’s not uncommon for me to get up around 4:00 or 4:30 a.m. to start my day. What is the first thing you do in the morning? I try and take a few minutes to clear my mind and mentally review what is on my schedule for the day and if there is anything left to prepare for. I also check the news (local, national, and international) for updates on politics and the economy. The world is so connected
so it’s vital to understand what’s going on in the world. What is your mantra? Never give up and always do your best. What is on your desk? My laptop is usually front and center with a space to take notes at the ready. I always have ice water. What time do you go to bed? I usually go to bed around 10:30 or 11 p.m. What is your best habit? Having a proactive approach. I don’t procrastinate and I’m very organized so that allows me to continually move forward with purpose. What is the last thing you do at night? I usually listen to music to clear my mind. My mind is busy and constantly working on problems, so music helps me relax and unwind.
Each month, Mortgage Banker magazine features two mortgage banking executives in the C-Suite.
MORTGAGE BANKER | FEBRUARY 2021 13
E R U T U F R A E N E C N THE A R A E B R O F OF
B
By M ICHEL L E G A R CIA G IL B ERT, G IL B ERT G A RCIA G ROU P P. A .
eginning March 27, 2020, when President Trump signed the CARES Act into law, a moratorium, now extended through January 31, 2021, was placed on foreclosures and evictions for loans owned by Fannie Mae and Freddie Mac, and now extended through February 28, 2021 for VA, FHA and USDA loans, affecting about twothirds of the single-family residential lending market. The Federal Housing Administration, the U.S. Department of Veterans Affairs, the Department of Agriculture, Fannie Mae and Freddie Mac issued foreclosure and eviction moratoria that cover households living in properties insured or guaranteed by these agencies, which
14 MORTGAGE BANKER | FEBRUARY 2021
cover about 70 percent of all outstanding mortgage holders, or 33.4 million homeowners. Homeowners with fully private mortgages held by banks or private investors, about 14.6 million homeowners, were not covered. In addition to the moratorium, the CARES Act provided 180 days forbearances to borrowers of these federally held/insured loans, upon request by the borrower, with the availability of an additional 180-day forbearance. Generally, forbearance encompasses the reduction or suspension of a borrower’s contractual payment for a specific period of time, as well as suspension of foreclosure activity. Historically, servicers follow previously determined guidelines for allowing forbearances and workout options. Under the CARES Act, servicers of federallybacked single family mortgages are required to provide forbearances to borrowers who affirm they suffered financial hardship during the COVID-19 pandemic, not necessarily due to the pandemic. Upon receiving this forbearance request from a borrower, a servicer must grant the request, with no additional documentation required. Anecdotally, servicers accept any attestation of a COVID-19 related hardship provided verbally or in writing. Servicers of privately owned loans have mirrored this CARES Act standard, though they may request additional documentation. Overall, a standard pandemic approach avoids risk of disparate treatment claims and adverse publicity. Furthermore, the CARES Act moratorium makes enforcement of these loans almost impossible during “covered period” running from January 31, 2020 through later of 120 days after enactment on March 27, 2020 or 120 days after corona virus national emergency terminates.
PRESENT STATE OF FORBEARANCES
Borrowers may request forbearance regardless of whether they were in default prior to the pandemic, and those requests must be honored under the prevailing interpretation of the CARES Act. Notably, borrowers already in a foreclosure process are not specifically excluded under the Act, so servicers have stayed pending cases upon request, which is more problematic. COVID-19 forbearances bump up against CFPB loss mitigation and Fair Credit Reporting Act (FCRA) rules too. The CFPB’s complete/incomplete loss mitigation application and short-term forbearance rules require servicers to take certain actions to acknowledge or complete an application. Servicers are required to send notice to borrowers within five days confirming
receipt of an application and lack of documents, if any, along with providing a deadline by which additional documents are due. The rules also prohibit a servicer from offering loss mitigation based upon an incomplete application, except for a short-term forbearance plan. In theory, the CARES Act does not violate this CFPB rule, because the act requires that 180-day successive forbearance plans be provided upon borrowers’ requests, but forbearance plans should not exceed the six-month period allowed by the CFPB. The CARES Act added requirements under the FCRA that require a servicer to report a current forbearance as “current,” but to continue to report a prior delinquent account now in forbearance as “delinquent.” As credit reporting is not mandatory, the requirement to report seems to put servicers at risk, so best practice is to review current guidance form the CFPB about whether to note a COVID-19 forbearance.
NEAR FUTURE—WHAT HAPPENS NEXT
As of mid-January 2021, there are approximately 2.74 million loans, 5.2 percent of all mortgages, representing $547 billion in unpaid principle, in forbearance, down 92,000 loans from the first week in January, 2021. Typically, forbearance industry standards require borrowers to repay the forborne amounts as lump sum at end of forbearance period, or agree to some type of loss mitigation, such as reinstatement, repayment plan, payment deferral with a partial claim, and loan modification. Investors and insurers owning almost two-thirds of the residential mortgage market established workout options during the pandemic. On April 1, 2020, FHA announced its COVID-19 National Emergency Standalone Partial Claim, where borrowers can defer repayment of forborne amounts through interest-free subordinate mortgage which is due when first mortgage is due. On May 13, 2020, Fannie Mae and Freddie Mac announced similar programs which allow servicers to defer up to 12 months of delinquent mortgage payments to the end of the loan. Each of these programs has certain eligibility requirements, for example, they generally require that the mortgage is current or less than 30 days past due as of March 1, 2020, the borrower has the ability to resume making on-time payments, and the property is owner occupied. These investors/insurers seem to have loosened the documentation required to qualify borrowers too, requiring mostly proof of income, but guidance is inconsistent. Servicers for these investors must complete timely outreach with borrowers in forbearance and must CONTINUED ON PAGE 16
MORTGAGE BANKER | FEBRUARY 2021 15
CONTINUED FROM PAGE 15
RECOGNIZING THE UNPRECEDENTED NATURE OF PANDEMIC MORTGAGE FORBEARANCES, THE BUREAU ISSUED AN INTERIM FINAL RULE ON COVID-19 RELATED LOSS MITIGATION OPTIONS WHICH GIVES SERVICERS MORE FLEXIBILITY WITH COVID-19 RELIEF OPTIONS. follow a COVID-19 specific and lengthy loss mitigation hierarchy developed by investors/insurers late spring and early summer, 2020. Servicers of all mortgages also must comply with CFPB/Regulation X’s anti-evasion clause which limits the loss mitigation options that can be offered with an incomplete loss mitigation package. Recognizing the unprecedented nature of pandemic mortgage forbearances, the bureau issued an interim final rule on COVID-19 related loss mitigation options which gives servicers more flexibility with COVID-19 relief options. This interim rule excuses servicers from continuing with an incomplete package process if a borrower accepts a workout option that is consistent with COVID-19 payment deferral, limited only to deferral and partial claim workouts, but not to loan modifications.
LATEST NEWS
President Joe Biden proposes extending foreclosure and eviction moratorium until September 30, 2021. Coming into the end of 2020, servicers struggled
16 MORTGAGE BANKER | FEBRUARY 2021
with credit reporting issues as well as the interplay between investor/insurer COVID-19 new rules and CFPB loss mitigation requirements. Servicers continue to navigate federal, state, and investor/insurer requirements to determine best options for borrowers while offering these options legally and efficiently. The jury is still out about how all of this will end, even while nondefault servicing continues alongside increased default servicing, due to increased originations caused by low interest rates. Given the low interest rate environment, many people have chosen to refinance their mortgage or
purchase a new home. Some borrowers were concerned if they requested a loan forbearance, they may not be able to take advantage of lower interest rates. Fannie Mae, Freddie Mac, and HUD put out guidance that after three consecutive payments post-forbearance, consumers are eligible to buy a new home and are eligible for some types of mortgage refinances. As mentioned earlier, given that almost two-thirds of residential mortgages in the United States are owned or insured by federal institutions (Freddie, Fannie, FHA, VA, USDA), there may be uniform relief stemming from the COVID-19 crisis forbearances and workouts. Coupled with increasing property values and low interest rates, the long-term impact on mortgage servicing and the housing market may turn out to be better than expected.
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MORTGAGE BANKER | FEBRUARY 2021 17
CO M PL I A N C E
Under Pressure
A
WHY MORTGAGE SERVICING PROBLEMS ARE ON THE UPTICK By FEL ECIA B O W ER S, HOM EOWN ERS F IN A N CIA L G ROU P
lmost 12 months into this virus we are starting to see an uptick in servicing problems reported in the press, including CFPB consent orders and alleged violations against some of the country’s largest servicing entities. If the larger servicing houses are struggling to be compliant, I can imagine that a smaller servicing enterprise is being crushed under the plethora of federal regulations, state rules, GSE and agency requirements, and the temporary amendments in each of these areas due to COVID. They are operating with fewer resources but have the same, if not more, pressure.
FEELING THE PRESSURE
Servicing pressure is not left to servicing enterprises either. About two months ago I received a phone call from a customer threatening to sue because he did not like the company who was taking over the servicing of his loan. This individual’s experience with the prior loan servicer and the reason for his anger was based on one thing: they took too long to get the settlement agent the payoff statement. For the previous 5-plus years there were no problems, so his biased opinion was based on one simple aspect of the relationship. My investigation revealed they met federal and state deadlines and details for issuing the payoff statement but that was not acceptable to him. Trying to reason or explain the process to him was futile as he would not stop his obscenity laced tirade. When he finally took a breath, I simply advised that he could take whatever legal action he thought was necessary, but we were 100 percent compliant with federal and state laws. I offered to send him references to federal and state code which he did not want. I also offered my services if he has a problem down the road, which he also did not want. He would settle for nothing less than us repurchasing the loan and selling it somewhere else. Not gonna happen! It has been 18 MORTGAGE BANKER | FEBRUARY 2021
two months so hopefully things have settled down. But his angst and anxiety over something so simple was a wake up call for me reinforcing that the struggle is real and won’t be going away anytime soon.
BO customers or those with a private transaction do not have specific options available and must obviously work with their servicing agents for relief assistance.
NEW YEAR, MORE PRESSURE
As a servicer, with relief plans in process, you could likely be faced with the need to discuss an exit program with a customer. Can the customer reinstate the loan back to the original contract terms? Servicers may need to re-evaluate the customers qualifying debt to income ratios to see if they can afford to make the payments based on the original contract terms PLUS any deferred amounts under the forbearance plan. If they have been living on credit cards, depleted their savings, and are still unemployed, additional options may need to be negotiated/discussed. In some cases, a permanent modification may be needed to establish a payment that the customer can afford now and into the future. Modifications can take the form of an interest rate reduction, loan term extension, or capital-
The new year will usher in additional pressure on servicing platforms and people in general. Businesses are still closed, more are closing, states have extended lockdown protocols, and the pandemic rages on and has morphed with a new version of the virus. As I write this article in December, the federal government has signed a bill providing an additional stimulus stipend and resurrecting weekly enhanced federal unemployment benefits for millions of American still on unemployment. The benefits will pay $300 per week on top of the state benefits for up to an additional 11 weeks. Unfortunately, this amount is half of the original $600 weekly payment that the CARES Act sent jobless Americans through late July.
A NOTE ABOUT RELIEF…
“A COMPREHENSIVE SERVICING QC PROGRAM SHOULD FUNCTION IN MUCH THE SAME WAY AS IT DOES FOR THE ORIGINATION PROCESS.” December 30th was the deadline in which someone could request a distribution from their 401K due to COVID. Forbearance plans that were originally initiated Q2 or later in 2020 may have sunset or are about to sunset. The agency guides were allowing plans in the 90–180-day range in anticipation that some sense of “normal” would be on the horizon. FHFA and HUD announced an extension on foreclosures and evictions but right now, that extension is only through January 2021. Bear in mind that this forbearance guide impacts federally backed mortgages. JUM-
izing the amount in arrears, aka assessing the amount the customer needs to pay to become current and adding it to the principal amount of the loan. Sometimes, all three options may be needed.
WHAT ABOUT CREDIT REPORTING?
Credit reporting is an issue during any workout program and after the customer has exited the workout program. The GSEs and the VA allowed servicers to suppress CONTINUED ON PAGE 39
MORTGAGE BANKER | FEBRUARY 2021 19
CO M P LI A N C E
A Fast-Moving Target
I
THE EVOLVING BUSINESS OF COMPLIANCE MANAGEMENT
f loan production provides the life blood of the modern lending enterprise, it’s the compliance department that keeps the company from bleeding to death. That’s what it can feel like when a regulator finds a compliance problem that has been hiding in your loan production process and impacted hundreds or even thousands of borrowers. Believe it or not, there was a time when keeping a financial institution in compliance was much simpler. Today, the fast pace of new technology adoption and an enhanced regulatory focus on protecting consumers at any cost has changed the way we manage compliance. Our business is all about providing tools and technology that make compliance management easier for lenders, but failure to fully embrace the concepts in this article can render even the best tools ineffective. Before I get into that, let me explain why compliance today is a fast-moving target and why it will likely be that way from now on.
By L EO NA RD RYA N , QU ESTSOF T nology partners make to the tools the lender is currently using. Over the past few years, we have watched lenders rapidly adopt new digital processes for loan origination. While that has not, in and of itself, changed the dynamics of compliance, it has introduced additional compliance risk to the loan origination process. As these new tools are added to the lender’s tech stack, the compliance management team must spring into action. Introducing unintended compliance problems into the lender’s process when updating technology is something we’re seeing more often. For instance, a lender could implement business rules inside systems to streamline processes, but that change could negatively impact compliance risk management efforts.
tion and quicker correction of compliance issues within loan records.
In fact, the rapid rate of change in digital origination technology means that it is now statistically more likely that a lender will unintentionally increase compliance risk than implement effective controls. Of course, companies like ours are constantly monitoring changes in the lender’s technology to identify and adapt compliance controls to limit risk. This allows earlier detec-
for compliance management has necessarily evolved. Today, lenders must monitor their people, processes, and technology on a constant basis, ever vigilant for the compliance issue that can be the precursor to many future problems. For example, we recently assisted a lender in building an integration to our reg-
THE IMPACT OF EVER-EVOLVING TECHNOLOGY
Automation has delivered a great many advantages to the mortgage industry and the borrowers it serves. Technology has largely delivered on its promise of better, faster, and cheaper, though not all tools have delivered all three, or even two. Automating a broken process is a sure way to fail in enhancing profitability and limiting compliance risk. Because every change made to a technology carries with it the risk of inserting an unintentional violation of law into the lender’s process, and because technology is constantly changing, the lender’s process
TWO REASONS COMPLIANCE IS REALLY HARD
Every time a new or modified rule is implemented by any regulatory agency, compliance officers must react. What we’re beginning to realize across the industry is that complications can also arise anytime a lender makes a change to the loan production tech stack. And issues related to that are happening more and more often. Today’s compliance management programs must monitor more than just changes coming out of the industry’s regulatory agencies. They also must monitor and measure the impacts of every change the company makes to its technology, products, and processes, as well as any changes its tech20 MORTGAGE BANKER | FEBRUARY 2021
MORTGAGE BANKER | FEBRUARY 2021 21
DEALING WITH A FAST-MOVING TARGET CONTINUED FROM PAGE 20
tech tool. Throughout the implementation, we monitored the lender’s compliance and just before the lender flipped the switch, we identified a high incidence of loans coming back with noncompliance flags. The lender went in search of possible human error but instead found that a different technology vendor had, in the process of adding a new feature to a tool, inadvertently adjusted calculations that were now causing loans to fall out of compliance. Had we not been in the process of completing our own integration and monitoring all lending activity as part of that process, the root cause might not have been found and the new automation installed by the lender’s technology partner could have led to a great many compliance violations. A problem that could have wreaked havoc for months was found and corrected in a matter of days, but only because the lender’s process was being actively monitored. This is the future of compliance management.
HOW WE DEAL WITH COMPLIANCE AS A MOVING TARGET
In the past, lending compliance was part of the quality control process. A subset of loans was checked by humans in the QA/ QC department. Documents in the loan file would be compared to a compliance checklist. Workers would stare and compare. That process falls woefully short today. Automation has changed the scope of noncompliance risk. No longer are these errors the result of an individual making a mistake on an individual loan, although this may still happen. More often, they are unintended consequences of changes made in the lender’s origination technology. We don’t expect to see the pace of new technology adoption slow anytime soon. There are too many advantages these tools still have to offer. This is true in terms of lower costs and higher efficiencies, but also in terms of compliance. Regtech has been instrumental in help-
ing lenders systematically and dynamically monitor for compliance risk. But to achieve this benefit, the technology must be programmed correctly and monitored carefully. A mistake in the programming can lead to automating noncompliance. This means that instead of noncompliance problems cropping up in a few loans across the enterprise, one misstep can result in regulators identifying a weak compliance program. To manage compliance in this environment, lenders can’t rely on human checkers looking at a subset of the company’s loan production manually. Lenders need an effective compliance management solution to deal with this level of complexity. Therefore lending compliance today is about using technology to constantly check results so that management is notified immediately about potential issues and corrective action needed. It’s important to note that noncompliance flags can be false positives and a good compliance management system is never a pure technology-based solution.
THREE KEYS TO BETTER COMPLIANCE MANAGEMENT
So, what then constitutes an effective system for compliance management? We find three keys to better compliance management that should be made a part of any lender system. • Good compliance management requires the right mental attitude. I don’t mean like a prize fighter getting ready to get into the ring. I mean understanding that compliance isn’t an “us versus them” proposition. So many lender shops are permeated with the attitude that the compliance team is out to kill deals. This attitude can lead some to withhold information or to otherwise work against compliance management, increasing the lender’s risk of noncompliance. While it is true that lenders should be very careful to ensure that compliance
COMPLIANCE MONITORING MUST BECOME A CONSTANT PRACTICE BECAUSE THE LENDER WILL NOT KNOW IN ADVANCE WHEN A SYSTEM CHANGE WILL INADVERTENTLY LEAD TO INCREASED COMPLIANCE RISK. 22 MORTGAGE BANKER | FEBRUARY 2021
decisions are not causing the company to lose business from borrowers that qualify, compliance should always be considered a “win-win” situation within the enterprise. • The old end-of-the-line compliance cycle must be thrown out in favor or checking loans as soon as they come in the door and then periodically throughout the loan origination process. In addition, the lender must shift from a process of checking a few loans to using technology to test every loan that flows through the lender’s pipeline. Compliance monitoring must become a constant practice because the lender will not know in advance when a system change will inadvertently lead to increased compliance risk. For instance, the Home Mortgage Disclosure Act (HMDA) is the basis for much of the loan reporting lenders are required to complete. But increasingly, various states are requesting access to the lender’s information that may or may not conform to the lender’s existing HMDA reporting. Today, about half of the data elements required on a state’s NMLS mortgage call report line up with data elements already reported for HMDA while another third are related but referred to differently by individual states. Finally, the lender may be required to provide additional information on the call report that represents a sub-delineation of an existing data element. Instead of the cash-out refinance purpose reported for HMDA, we may see a cash out loan that has a more specific requirement for the state call report. This kind of complexity will only increase as government agencies at all levels seek ever more information about the lender’s business and the impact on consumers. • A good compliance system will be designed around the lender’s business model and not the other way around. We have found that sitting down with company management and learning how they operate their lending business is an important first step in compliance system design and implementation. The right compliance technology partner will be flexible enough to adapt their existing tools to the lender’s needs without exposing their clients to unnecessary risk. Lenders can’t afford to settle for anything less.
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FOR HE LP WI TH YOU R E ME RGE N CY, CON TAC T: Kerriee | 858 . 35 4.15 07 kerriee@ a s eli t e. c o m Ta mi | 7 75.9 70 . 5 5 39 ta mi@ a s elite. c o m
R e gu l a ti ons T h at A f fe c t You
LOA N O R I G I N ATI O N
Diversification A TRIED AND TRUE STRATEGY FOR UNCERTAIN TIMES
H
ere we all are, halfway through winter, optimistic yet uneasy about what the next several months will bring. Despite the data-driven forecasts and projections, no one really has a handle on what’s ahead. We’ve never seen such a unique and confounding set of variables influencing our business. Purchase demand is high but inventory is so tight that the idea of home sales replacing the refi boom is simply not logical. Student debt is directly impacting the purchase timeline for first-time buyers. Will the anticipated default surge turn out to be a wave or just a big ripple? While the exact circumstances may not be identical, I’ve seen this movie before. And if there’s one thing that gets mortgage companies through uncertainty, it’s the ability to continuously diversify into new product lines and, even more importantly, new relationships. Emphasizing product expansion and relationships sounds like common sense, but after coasting on refinances pouring in without much marketing/sales effort,
By B R U N O PA SCERI, IN CEN TER proactive “friend making” will be far from intuitive for many. It’s time to pay closer attention to: • The products that will meet borrowers’ changing needs • Back-end technology to work smarter and faster • And most importantly, growing relationships within the industry ecosphere to widen your customer base
NEW PRODUCTS
As the industry migrates from a refi to a purchase market, diversification is clearly in order. The pace of first-time homebuying is still strong, and mortgage originations will continue to be an important source of revenue. But price appreciation, inventory shortages, unemployment, and student debt have driven many potential buyers from the market. Companies must diversify their products and engage with a new set of borrowers to fuel continued healthy performance. It’s time, for instance, to reach into the homeowner segment with a broader product shelf. Whether prospective borrowers need renovation mortgages to repair an older home, or home equity loans for a swimming pool, companies
COMPANIES MUST DIVERSIFY THEIR PRODUCTS AND ENGAGE WITH A NEW SET OF BORROWERS TO FUEL CONTINUED HEALTHY PERFORMANCE. 24 MORTGAGE BANKER | FEBRUARY 2021
need to be ready. Purchase reverse mortgages for Baby Boomers planning to downsize could become important sources of revenue, too. Unless companies cultivate and expand their referral networks, their more diverse range of products will stay on the shelf, gathering dust.
ADVANCING CUSTOMER RELATIONSHIPS
Take a moment to assess your relationship ecosphere. Does it include all gateway intermediaries who could send referrals your way? In addition to real estate professionals, how about developers, builders, attorneys, CPAs, and financial advisors? These referral sources are your true customers. If you already have a diverse mix of relationships, how are you proactively supporting the individuals in your network? Could they be wondering where you have been since the pandemic began? Do they know about the new products that you’re highlighting? Develop a new habit: Meet with these people regularly, in person or virtually, to catch up on how you can help one another. Educate them on changes to the buyer and property credentialing process. Empower them to pass qualified borrowers to you. Find ways to expand your referral pipeline, too. COVID-19, ironically, has broken down traditional networking barriers. For the first time, it’s easy to attend some of the breakfast meetings that were arduous to drive to. Pop in, scout out the people in allied professions, and invite them to meet virtually, one
walls, the degrees in their offices, and the photos that shed light on who they are and what they love to do. Then relax and get to know them better over coffee, asking questions about their families. Bond over common interests and then delve into mortgage details. In the process, your expertise will shine and these borrowers will want to work specifically with you. Prove that they made the right decision by attending every closing, physically or virtually, and their positive impression will be confirmed. You’ll gain profitable new borrowers for life and more business as the people who referred these borrowers hear their glowing reviews.
ROBUST TECHNOLOGY
While you’re delivering great care and service on the front end, technology can be hard at work on the back end, streamlining the mortgage process and helping to deliver a great borrower experience. For example, new AI-based decision engines shorten title searches from days on one. Get to know them socially and professionally, and expect a new source of referrals as you build mutual trust. Then service those referrals like your livelihood depends on it. It does.
DEMONSTRATING EXPERTISE
When borrowers are making the biggest financial decisions of their lives, including first-time homeownership, inperson service is the Holy Grail. I learned this years ago as a loan officer, and it still holds true. Early on, I remember being astonished at how anxious borrowers often looked. Even corporate giants would come to me quaking inside, worried that despite their high salaries, a single misstep with their mortgage application would prevent them from closing on their dream home. I understood then why in-person meetings are so powerful. No technology can replace the handholding these borrowers need and truly value.
WHILE YOU’RE DELIVERING GREAT CARE AND SERVICE ON THE FRONT END, TECHNOLOGY CAN BE HARD AT WORK ON THE BACK END. By
Every interaction is a chance for loan officers to demonstrate that they can bring these transactions to the finish line, addressing each “mysterious nuance” with unquestionable expertise.
or hours to minutes while appraisal management platforms are providing keen insight into appraiser turn times, report quality and borrower satisfaction.
STARTING IN THE KITCHEN
Who will lead the mortgage industry in the months ahead? I’m rooting for the companies that keep customers and borrowers close, understanding that no matter how markets change and products evolve, the value of relationships is evergreen.
It’s only fitting that the best place to build the relationships nervous borrowers are starving for is the kitchen, physical or virtual. Step into or take a digital tour of their homes, and notice the pictures on the
ALL ABOUT RELATIONSHIPS
MORTGAGE BANKER | FEBRUARY 2021 25
T HE C- SU I T E
JASON BATEMAN Head of Mortgage Redfin
26 MORTGAGE BANKER | FEBRUARY 2021
What do you find most rewarding about your job? Helping people put a roof over their heads, providing security for themselves and their loved ones, and establishing roots in a community where they can grow and thrive. There are three necessities of life: food, water, and shelter. Providing society with the first two is considered noble; the third unseemly. Unfortunately, our business is often portrayed in a negative light because of bad actors, but we have an opportunity to right the ship and put the mortgage business back in good standing with society. What do you think is the biggest challenge for the mortgage banking industry currently? Mortgage bankers have worked tirelessly to make the process of buying a
home easier and easier. We take care of matters that if left to the borrower would frighten most buyers away. We make sure their house isn’t in a flood zone, is actually owned by the seller, and is worth what they are paying for it. However, in doing so, we have made the lending process so opaque to the typical buyer that it now seems like ‘black magic’. We need to make this more understandable to the fireman and teacher who don’t have time to learn all this complexity. As an industry, we must also responsibly expand homeownership opportunities to people who have been left out, ensuring more people can benefit from the physical, emotional, and financial security that comes from owning a home.
What time do you get up? 5 a.m. What is the first thing you do in the morning? Exercise What is your mantra? Do good and do well. What is on your desk? Three monitors and a keyboard. What is your best habit? Only hiring people smarter than me. What is the last thing you do at night? Read. What time do you go to bed? 11 p.m.
“OUR BUSINESS IS OFTEN PORTRAYED IN A NEGATIVE LIGHT BECAUSE OF BAD ACTORS, BUT WE HAVE AN OPPORTUNITY TO RIGHT THE SHIP AND PUT THE MORTGAGE BUSINESS BACK IN GOOD STANDING WITH SOCIETY.”
Each month, Mortgage Banker magazine features two mortgage banking executives in the C-Suite.
MORTGAGE BANKER | FEBRUARY 2021 27
M O RTG AG E O P E R ATI O N S
A Compelling Strategy
T
A CASE FOR A HYBRID APPROACH TO OUTSOURCING
he mortgage industry has certainly seen its share of volatility and uncertainty in the past, but it’s almost impossible to have foreseen the market we’re experiencing today. Between historically low rates and a refi boom for the ages, coupled with capacity issues and a shortage of talented people, mortgage organizations have an extraordinary number of demands on their plate. Throw in a global pandemic and sunsetting forbearance plans and foreclosure moratoriums, and you have an anything-can-happen scenario that rivals any Hollywood movie script. There are multiple ways things could go wrong for lenders and servicers this year, and there are multiple strategies they can use to excel. One of the most compelling strategies is outsourcing work, either onshore or offshore. However, creating an ideal outsourcing strategy involves knowing your options and
28 MORTGAGE BANKER | FEBRUARY 2021
By S A NJAY AG N IHOTRI, SOU RCEPOIN T
how they can work to the benefit of your business.
HOW THE PANDEMIC HAS CHANGED EVERYTHING
Due to the growth in outsourcing over the years, most mortgage organizations became familiar with remote work. Now, thanks to the COVID-19 pandemic, remote work has become common practice. The pandemic also fueled low mortgage rates, which in turn have led to enormous capacity constraints for lenders, a severe shortage of underwriters, and a need to combine underwriting with offshore support. Outsourcing is not a new concept in the mortgage industry, but the number of tasks and processes that can be effectively outsourced to offshore vendors at lower costs has soared recently. In fact, there are fully licensed outsourcing partners capable of decoupling the entire underwriting chain and performing virtually any component of the process, from
loan setup, income and appraisal component underwriting and lender-specific overlays to creating checklists, condition clearing, final approvals and more. This provides lenders with the option to create a customized approach to underwriting that works best for their organization. A popular way to do this is by combining remote underwriters in the U.S. with licensed offshore support. By outsourcing pieces of the underwriting process offshore and utilizing offshore work hours, files move much more quickly through the pipeline, which has become more important than ever.
A FASTER, BETTER EXPERIENCE
There’s no doubt about it – how quickly you close loans is the biggest factor behind borrower satisfaction. That’s particularly true today, as the pandemic has accelerated demand from borrowers for a more digital mortgage experience. Consumers who previously
thought that mortgages involved tons of paper are now realizing everything can be done remotely through their phone or computer. As a result, lenders must quickly engage customers and set their expectations. A good outsourcing partner can help lenders lower their customer acquisition costs and improve the borrower experience by responding to borrowers through text messages early in the process, while they have the customer’s attention. Our own analysis has found that doing this can increase borrower satisfaction by as much as 90 percent while improving borrower retention rates by an average of 20 to 25 percent, without spending anything on marketing. Outsourcing licensed loan processing and underwriting components is the other piece to accelerating loan production. The right offshore provider can resequence steps in a way that improves efficiency. This is achieved by automating clerical steps and leveraging human ingenuity to maximize borrower interactions and the customer experience. This gives lenders the ability to reduce costs and shave cycle times by 25 percent, often shortening the closing period from 30 days to just 20 or 21 days. Of course, borrowers are happier, too. This strategy has tremendous compliance benefits as well. By outsourcing to a licensed offshore vendor and simplifying and automating work, a lender’s team can focus their attention on its core activities. This is important, because the number of compliance challenges lenders will face in the near term will only grow. Due largely to soaring demand, today’s lenders are more likely to experience backlogs, hold-back funds, and increased repurchase risks, not to mention reputational risk.
UNDERSTANDING NEW COMPLIANCE OBSTACLES
By far the biggest compliance challenge will likely involve foreclosure moratoriums, as uncertainty and unexpected changes are not going away for lenders and servicers. But there are other hurdles, including the new Uniform Residential Loan Application (URLA),
2021 PROMISES TO BE AN EXCITING AND CHALLENGING YEAR FOR THE MORTGAGE INDUSTRY, WITH PLENTY OF PLOT TWISTS IN STORE. which is scheduled to go into effect in February. The new forms will require originators to “unlearn” past behaviors and adopt new procedures, which will take additional time and effort, at least initially. To make the adoption process easy, originators should give themselves at least a 60-day lead time before adopting the URLA on all loans. Another is to turn to the expertise of a proven third-party vendor that is already prepared to work with the new URLA form once it goes into effect, so lenders can hit the ground running. Outsourcing can certainly help lenders with compliance. Assuming you choose the right partner, outsourcing can have transformational benefits as well. The key to success is partnering with a fully licensed vendor with technologies that have been proven to both accelerate production and keep lenders out of regulatory crosshairs. First, it’s absolutely essential that the outsourcing vendor you choose should maintain licenses to perform complex processing and underwriting activities, both onshore and offshore, in every state in which you do business. Lenders can only use licensed vendors for origination and servicing activities, yet relatively few vendors have the licenses and certifications in all 50 states. Technology is the second piece of achieving transformational change. The best, most mature vendors can help clients re-engineer, globalize, and automate work to achieve much greater efficiency and value, as well as the highest levels of customer satisfaction that generate future business and sustained success. It’s pretty remarkable how much offshore loan processing has matured in recent years. For example, by blending artificial intelligence (AI) and optical
character recognition (OCR) technology, modern post-closing technology platforms used by the better outsourcing vendors are now capable of classifying more than 500 document types and more than 5,000 data elements within minutes. These platforms are also able to leverage both standard and client-specific checklists and automatically route missing documents to the right people for curing. And they can be integrated with most loan origination systems for a quick turnaround. To be sure, 2021 promises to be an exciting and challenging year for the mortgage industry, with plenty of plot twists in store. For most organizations, the ability to improve closing speeds and steer clear of regulatory trouble will depend on choosing the right provider and balancing offshore with onshore support. The right combination will be unique for every company. But once you’ve achieved it, you’ll be ready for anything.
MORTGAGE BANKER | FEBRUARY 2021 29
GREAT EVENTS START AT AMBIZ MEDIA LIVE, IN PERSON 2021 SHOWS
MAY 5
Mid South Mortgage Expo Memphis, TN
MAY 11
Motor City Mortgage Expo Detroit, MI
MAY 18
Texas Mortgage Roundup / SA San Antonio, TX
JUNE 10-11
New England Mortgage Expo Mohegan Sun, CT
JUNE 15
Great Northwest Mortgage Expo Portland, OR
JUNE 22
Chicago Mortgage Originators Expo Chicago, IL
JULY 6
Ultimate Mortgage Expo New Orleans, LA
JULY 13
Carolinas Connect Mortgage Expo Charlotte, NC
30 ORIGINATOR CONNECT MAGAZINE | SUMMER 2019 30 MORTGAGE BANKER | JANUARY 2021 mortgageconferences.com
JULY 22
Arizona Mortgage Expo Phoenix, AZ
AUG 3
AUG 12
NY Mortgage Expo CA Mortgage Expo Suffern, NY San Diego, CA
The Originator Connect Network is the nation’s largest coalition of mortgage conferences, reaching more mortgage originators in person than any other organization. Coast to coast, we offer many opportunities for companies to reach the front-line sales and origination professionals critical to you success. There’s nothing quite like standing faceto-face with potential new clients. At American Business Media, we produce some of the most successful and largest business-to-business conferences and trade shows in the nation. Visit www.mortgageconferences.com for a full listing of our shows and links to register your company as a sponsor, exhibitor or attendee.
SUN O OAST M O R TG AG E E X P O
AUG 20-22 Originator Connect Las Vegas, NV
SEPT 2
Texas Mortgage Roundup Dallas, TX
SEPT 9
CA Mortgage Expo North Glendale, CA
SEPT 14
Great Northwest Mortgage Expo Seattle, WA
OCT 7
Colorado Mortgage Summit Denver, CO
OCT 12
CA Mortgage Expo San Francisco, CA
OCT 19
Suncoast Mortgage Expo Tampa, FL
NOV 4
Utah Mortgage Expo Park City, UT
mortgageconferences.com
NOV 18
Texas Mortgage Roundup Houston, TX
DEC 8
OCN California Mortgage Holiday Party Irvine, CA
DEC 9
CA Mortgage Expo Irvine, CA
MORTGAGE BANKER | FEBRUARY 2021 31
L EGAL
The Importance And Limits Of Expertise
S
THE MORTGAGE COUNSELORS o much discourse in our country seems to pit those who would blindly follow the expertise of anyone with a fancy credential against those who reject the importance of expertise altogether. The past year has shown clearly how important it can be to get that balance right.
CASE IN POINT: COVID-19
THE MORTGAGE COUNSELORS Mitchel H. Kider is the chairman and managing partner and Michael Kieval is a partner with Weiner Brodsky Kider PC.
32 MORTGAGE BANKER | FEBRUARY 2021
The United States’ flawed response to the Coronavirus crisis resulted in part from some politicians’ and pundits’ rejection of scientific knowledge and analysis. By downplaying the seriousness of COVID-19, and by spreading a combination of wishful thinking and outright misinformation, many people who should have known better ignored or rejected the best information we had about a deadly virus spreading around the world. As a result, common sense steps like wearing masks and avoiding large indoor gatherings became politicized. But the solution was not, as some assert, merely to “listen to the experts,” who do not always agree. In fact, leading experts have repeatedly made errors in the Coronavirus crisis, including concerning how the virus spreads in the air, initial advice against wearing masks, the CDC’s botching of testing, and even now, according to leading analysts, by downplaying the effectiveness of the vaccines.
ADVICE IS MOST VALUABLE WHEN IT COMES FROM COMPLIANCE AND LEGAL PERSONNEL WITH DEEP INDUSTRY EXPERIENCE, WHO UNDERSTAND THE PRACTICAL IMPLICATIONS OF THEIR ANSWERS. These are all difficult issues and we do not mean to impugn the scientists and policymakers who worked tirelessly and in good faith to serve the public. But these missteps, including many that went against better analysis that others were publishing at the time, reveal the limitations of deference to expertise, standing alone. In the case of COVID-19, one might want analysis from epidemiologists, engineers specializing in ventilation systems, experts in fluid dynamics, supply chain experts, hospital administrators, and many others. Some of those experts may disagree with each other, and it is their data and reasoning
rather than merely their credentials that should help policymakers make decisions in light of those disagreements.
MORTGAGE INDUSTRY EXPERTISE
Companies in our industry are used to consulting with subject-matter experts in making their own business decisions, including about risk. Information technology and information security professionals provide crucial expertise that companies need, but unless they are also experienced in all aspects of the mortgage industry, their advice needs to be considered and integrated by the executives who are responsible for achieving the business goals that those functions support.
WHAT ABOUT COMPLIANCE?
Regulatory compliance is another area where subjectmatter expertise is crucial, and where some questions ultimately come down to risk assessment and execution. It is necessary but not sufficient to hire a smart, qualified compliance team and legal advisors. You also need to understand why they are saying what they are saying. They should be able to explain the reasons for their recommendations and whether those recommendations are based upon clear mandatory requirements, guidance interpreting ambiguous requirements, an assessment of the risk of a particular interpretation of requirements, or other factors. That advice is most valuable when it comes from compliance and legal personnel with deep industry experience, who understand the practical implications of their answers. It does not do to ignore the expert advice you may prefer not to hear; but good expert advice neither overstates nor understates its conclusions and clearly shows how those conclusions inform any practical recommendations.
Memphis May 5, 2021
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MORTGAGE BANKER | FEBRUARY 2021 33
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
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.
34 MORTGAGE BANKER | FEBRUARY 2021
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.
MORTGAGE BANKER | FEBRUARY 2021 35
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LOA N O R I G I N ATI O N
Preparing For Life After LIBOR LENDERS ARE MULLING POSSIBLE REPLACEMENTS FOR THE INDUSTRY’S STANDARD INDEX
Y
By J OEL B ERG
our customers this year might need more information about how the interest rate is being calculated on their reverse mortgage, a calculation that is typically an afterthought. A closely watched and long-running process has been remaking one of the key factors for adjusting the interest rate on a variable-rate HECM, the most common kind of reverse mortgage. While the process is highly technical, there is a clear bottom line: The end result will affect the amount that borrowers stand to receive after their HECMs close, as well as the profits that lenders earn. The factor in question is the underlying rate, or index rate, used to calculate changes in the variable rate. About 90 percent of HECMs are variable-rate loans, which let borrowers take out more of their equity than they would under a fixed rate. Until late last year, HECM rates rose and fell according to an index based on the London Inter-Bank Offered Rate, better known as LIBOR. Published daily, LIBOR represents the average interest rate that major banks expect to pay each other for short-term loans. It lost favor with regulators, however, after a 2012 scandal in which banks were discovered to be manipulating LIBOR to their advantage. LIBOR is slated to go away for all lenders at the end of 2021. But, thanks to a surprise move by Ginnie Mae, the index is already on the way out for HECM lenders. Ginnie Mae announced that starting on December 1, 2020, it would no longer buy loans tied to LIBOR. The move stemmed from a concern over the reliability of LIBOR going forward. In the place of LIBOR, HMBS issuers have turned to the Constant Maturity Treasury index, or CMT, which was used for HECMs until 2007. The CMT, published by the Federal Reserve Board, is based on the monthly average yield of a basket of Treasury securities such as government bonds. Based on how HECMs are securitized and sold on the secondary market, Ginnie Mae’s decision essentially meant that lenders had to switch to CMT by the end of November 2020, says Steve Irwin, president of NRMLA, which was fighting for more time.
Industry leaders see Ginnie Mae’s move as a step back. Use of the CMT index, for example, is likely to narrow the number of investors purchasing bonds backed by HECMs, relegating them to a niche product, Irwin warns. “We think that given the demographic trends in the country and around the world, the HECM marketplace should be part of the mainstream,” Irwin says. That mainstream is turning slowly toward indexes based on the Secured Overnight Funding Rate, or SOFR. Like LIBOR, SOFR is based on lending between banks, but it is culled from actual rates, not estimates.
THE END GOAL OF THE INDEX TRANSITION IS WHAT STAKEHOLDERS CALL MINIMIZING VALUE TRANSFER. However, the other lending products that use LIBOR—such as business loans and adjustablerate home mortgages—still have the rest of the year to find a replacement, which has been an arduous task, given the trillions of dollars in transactions that reference the index. For reverse mortgage industry leaders, work continues to try to make SOFR the default for HECMs.
IMPACT ON BORROWERS
The final decision rests with the Federal Housing Administration, says Irwin, who has been focusing on transition issues alongside NRMLA board members Joe DeMarkey and Tim Isgro of Reverse Mortgage Funding and Michael McCully of New View Advisors. They are part of a larger group known as the Alternative Reference Rates Committee, created by the Federal Reserve Board and the New York Fed to help smooth the transition away from LIBOR. Even though a shift from CMT to SOFR
could be disruptive because it would be yet another change, Irwin says, it would lead to a more robust secondary market for HECMs over the long term. Among borrowers, the ongoing index changes are likely to spur questions about the impact. The questions are not limited to reverse mortgages, nor are they unwarranted. If lenders and regulators are not careful, a new index could deliver a windfall to lenders or a bonus to borrowers depending on whether or how the new index diverges from the old. “SOFR is not a one-for-one replacement for LIBOR,” says John Button, CEO of technology provider ReverseVision, which is based in San Diego. “For new loans, you can manage that. But for existing loans, that’s a bit of a problem.” Borrowers could end up paying more under a new index than they would have under LIBOR—or they could end up paying less. The rate for borrowers is basically the index plus a fixed number referred to as the margin. If the margin is two, the borrower’s rate is two points higher than the index rate. For example, an index rate of 1.5 percent would translate into a rate of 3.5 percent for the borrower—and an expected amount of profit for the lender. The end goal of the index transition is what stakeholders call minimizing value transfer. NRMLA would like regulators to offer consumers an explanation of the index changes and why they are happening, Irwin says. It was regulators, after all, that prompted the change. “We hope that senior borrowers have access to independent, third-party information that clearly in plain language explains the situation,” Irwin says. “We don’t need to create confusion for the senior borrower.” Button adds: “I think it’s going to be important not only what that message is but who’s delivering that message, and that’s why I think it’s important that HUD play a role in communicating with the consumer.” Editor’s note: This article originally appeared in the January/February 2021 issue of Reverse Mortgage Magazine. MORTGAGE BANKER | FEBRUARY 2021 37
FROM THE DESK OF THE ‘OM-BOBS-MAN’
Hopin On Board The NMLS Train
T
"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.
38 MORTGAGE BANKER | FEBRUARY 2021
he NMLS Annual Conference and Training will be not be held in a location this year, but on a platform. The Hopin platform aims to replicate the same experiences and benefits normally shared by NMLS conference attendees. The virtual conference will provide traditional sessions, networking, share contact information, participant roundtables, attendee chat, and what is being billed as Accidental Networking. Accidental or Speed Networking is meant to simulate the random encounters that typically occur between meetings, during coffee breaks, or just walking the hallways. Networking time is also allocated at the end of each day to recreate one of the best rewards of attending the NMLS Conference. When ready, you can click the Ready Button under the Networking tab to be matched with a random fellow attendee who has also clicked their Ready Button. This video meeting can run up to five minutes, though either attendee can leave the meeting at any time. There will also be opportunities to chat, direct message with other attendees, and invite participants to join you on a video call. The NMLS conference will be held for five hours each day February 23rd through February 25th with sessions, break outs, and networking. On February 26th the focus will be on NMLS User Training and Regulator only workshops. In the world of Remote Supervision, the conference will feature breakout sessions of Networked Supervision, Prudential Standards for Nonbank Mortgage Servicers, State Examination System, and Data Security. The full agenda for the conference was not available and the timing of
the NMLS Ombudsman meeting, only noting that the Ombudsman meeting will occur after the NMLS Conference. The Regulator only sessions include Developing the Regulators of Tomorrow to focus on the lessons learned from the pandemic and skills development to “tackle current and future challenges”. Building Confidence in the Review Process builds on uniform standards and requirements of the networked supervision model. There is also a mid-week session on Challenging the Status Quo of State-Specific Requirements. The SES regulator only sessions include success stories and training workshops to promote using the system, complaint management, and managing the SES library. The heralded Meet Your Regulator session is one of the most attended sessions each year with the opportunities to visit state regulators, get questions answered, and have unscripted discussions with the people making the decisions. While there is a note in the FAQs the session, there is no placeholder in the agenda. The NMLS Conference will require users to register on the Hopin platform before the event. Users must accept and acknowledge the terms when registering for the event and utilize Chrome for best results. The week before the conference, attendees will receive an email and invitation to NMLS 2021. All told, though virtual, this conference looks to be well worth dressing up with a nice shirt and shorts to see who’s on mute, who’s not on mute, and how many kids, pets, and unaware spouses make appearances… BINGO!
PRESSURE? WHAT PRESSURE? CONTINUED FROM PAGE 18
negative credit reporting of a forbearance plan if the customer was current on their monthly payment prior to entering into the forbearance plan. The CARES Act provided the industry with additional and, at times, conflicting requirements by adding a new section to the FRCA, Section 623(a) (1) of which the intent was to prevent servicers from reporting customers as delinquent simply due to a hardship related to COVID. In brief, this new section allows the servicing agent to report accurately after the proclamation of the national pandemic, March 27, 2020, and ending 120 days after the national pandemic emergency terminates. If the servicer enters into a plan, the customer was not delinquent and the customer makes their payments as agreed in the plan documents, the servicer must report the debt as “current”. But, if the customer was delinquent before the plan started, the servicer must maintain the delinquent status while the plan is in effect. If the customer brings the delinquency current, then the servicer reports the loan as current. How many customers will be disputing their delinquency status before the COVID proclamation hoping for a change in that credit score?
LOAN PRODUCTIONS AND CLOSINGS
an inconsistent application of policies and procedures exposing the company to additional risk. QA can also aid in the review and segmenting of complaints which will help identify what, if any, additional training may be needed with staff to prevent QC problems. A comprehensive servicing QC program should function in much the same way as it does for the origination process, detecting a singular faux pas or a systemic problem. The QC process will test multiple, randomly selected transactions for: • Servicing transfer compliance. Did both parties notify the customer and all interested parties such as the insurance company, MERS, flood monitoring, and county tax collector for escrowed accounts? • The loan boarding process • Billing statements are accurate and have the correct disclosures • Disclosures in general including payment coupons and booklets • Escrow processing and periodic analysis • QWRs, complaints, and inquiries • ARM changes (using the right index) and notification requirements • Fees and charges • Remittances for PMI, property taxes and insurance are timely and accurate
• Tax and flood service monitoring • Forced-placed insurance • Compliance with the SCRA for individuals called up to active duty and that interim period when they return • Modifications and forbearance plans • Loan payoffs are handled timely • Default collections, phone calls, TCPA, FDCPA, FCRA. Listen in on collection phone calls for prohibited statements, threats, abusive language by staff. • Handling bankruptcies, deed-in-lieu, short-sales, key surrenders, foreclosures • Deceased customers or customers with POAs
A CALL FOR COMPASSION
Worthy of repeating from the September article on Servicing is the need for compassion. Customers calling for help are stressed, anxious, confused, depressed and who knows what else is going on in their life. We have been under the unprecedented impact, limitations, and strain of this pandemic for over nine months. Treat your customer with the same compassion and interest as you would want to be treated!
Loan production and closings have been trending at some of the highest levels we have seen in years, which all runs downhill to servicing. If you have not already done so, now is the time to re-evaluate the quality assurance program (preventing a problem) and quality control program (detecting a problem) with your servicing platform. The Agencies and GSEs provide general oversight requirements in their seller/servicer manuals which should be reviewed. Does your program need a little more TLC?
QUALITY ASSURANCE
The QA process will test controls for monetary transactions such as reconciliations, and custodial accounts and are beneficial in identifying systemic issues that have or could develop. A comprehensive QA program can help a company identify servicing costs and profit per loan, whether one work unit is overwhelmed by ascertaining the number of loans serviced per employee, streamline delinquency servicing costs, or identify areas where there is
MORTGAGE BANKER | FEBRUARY 2021 39
Get revved up, Detroit! Join us this spring for The Motor City Mortgage Expo! This event includes a lineup of educational sessions, business opportunities and networking events curated specifically for the entrepreneurial men and women of the Michigan mortgage industry. Workshops and sessions will include detailing today’s reverse mortgage opportunities, producing profits with private lenders and much more. Tuesday, May 11th, 2021
Detroit, MI
+ Free NMLS Renewal Class May 12th
www.motorcitymortgageexpo.com Enjoy free registration using our code OCNFREE .
PRESENTING SPONSOR
SHOW PRODUCER Safety is our top priority. Learn about the safety precautions we take at each of our events to earn us 100% safety satisfaction from our attendees at originatorconnectnetwork.com/covid19.
40 MORTGAGE BANKER | FEBRUARY 2021 registration available to NMLS-licensed active LOs and their support staff. Show producers Complimentary resereve the right to determine final eligibility.
B US I N E S S S ERVI C ES DI R ECTORY Amanda Bowers VP of Marketing
Proctor Financial provides comprehensive insurance products and service solutions for financial institutions. While weaving compliance throughout all our applications and technologies, Proctor operates as an extension of our clients, where partnership meets innovation.
Michael Whipple Vice President michael.whipple@ chenoafund.org 208.250.9132
Chenoa Fund is an affordable housing program provided through CBC Mortgage Agency (�CBCMA�), a uniquely created and organized government institution. CBCMA is a public-purpose driven governmental entity specializing in providing 100% financing for loans guaranteed by the FHA, with a focus on under-served borrowers. Our mission is to provide funding for affordable housing opportunities in communities nationwide. CBCMA partners with quality mortgage lenders on a correspondent basis to provide down payment assistance for qualified home buyers in the form of second mortgages and gifts. All assistance is provided in compliance with FHA guidelines.
Shawna Adams Managing Partner Co-Founder wecanhelp@aselite.com 913.638.8247
A&S Elite Consulting - Where your business is the focus of our business.
Mitchel H. Kider Managing Partner kider@thewbkfirm.com 202.557.3511
Weiner Brodsky Kider PC is a Washington, D.C.-based firm with a national practice focused on compliance, regulatory, transactional and litigation matters related to financial services concerns. We represent a broad client base, from start-up businesses to Fortune 500 companies, throughout the United States.
abowers@pfic.com
We partner with clients to solve complex strategic problems, achieve operational objectives, and complete critical projects. Our Elite team has successfully helped over 2000+ lenders select, implement, improve, and customize their LOS and lending technology. Collectively, we have beyond 200 years of experience in the mortgage industry. We are ready to help find solutions for your business!
MORTGAGE BANKER | FEBRUARY 2021 41
B U S I N E S S S E RVIC E S DIRE CTO RY
BUSINESS2BUSINESS
MortgageBanker DATABANK FEDERAL FUNDS RATE AND VOLUME
MORTGAGE RATES
CONSUMER LOAN RATES
EXPECTED INFLATION RATE IN THE NEXT 5 AND 10 YEARS
BANK PRIME LOAN RATE
INTEREST RATE SPREADS
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