March 2018 Issue by HousingWire

HOUSINGWIRE MAGAZINE ❱ MARCH 2018

ARRESTED DEVELOPMENT How the student loan debt crisis is affecting the entire housing economy.

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VALUATION MVPS Companies delivering a fast, accurate valuation process. HOUSINGWIRE MAGAZINE ❱ MARCH 2018

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THE FUTURE OF VALUATIONS WHAT AUTOMATION MEANS FOR APPRAISERS AND APPRAISAL COMPANIES P. 34

HOUSINGWIRE MARCH 2018 EDITORIAL EDITOR-IN-CHIEF Jacob Gaffney MANAGING EDITOR Sarah Wheeler ASSOCIATE EDITOR Caroline Basile SENIOR FINANCIAL REPORTER Ben Lane REPORTER Kelsey Ramírez CONTRIBUTORS Danielle Chavez, Casey Cunningham and Jeff Jonas

CREATIVE CREATIVE ASSOCIATE Chantae Arrington

SALES AND MARKETING NATIONAL SALES DIRECTOR Jennifer Watson Laws jlaws@HousingWire.com MARKETING DIRECTOR C. Scott Smith DIGITAL MARKETING SPECIALIST Caren Karris SALES DIRECTORS Christi Lingard clingard@HousingWire.com Tyson Bennett tbennett@HousingWire.com Mark Adams madams@HousingWire.com

THE ROCKY ROAD TO BETTER VALUATIONS IS THERE ANY INDUSTRY MORE maligned than the appraisal industry? During the course of writing the cover story on the valuation industry, I hinted at a personal journey where I began to embrace the appraiser’s struggles. As editor-in-chief of HousingWire, my connections often deal with executives at lenders and AMCs and rarely with those who are actually providing the vital fieldwork necessary to make valuations accurate. The best part of writing the cover story was being able to speak with appraisers, to hear their issues and to present them in this publication for your review. The good news is this: We are listening. Everyone I spoke to is dedicated to a wholesale improvement of the valuation industry. It’s a fascinating journey to chronicle — the implementation of data and tech into the embrace of everyone at all steps of the valuation industry. The bad news is that appraisers are still taking a beating. In 2012, The Wall Street Journal ran a story, Fighting Back Against Lowball Home Appraisals. John Walsh, then president of DataQuick, sent a detailed letter to the Wall Street Journal. Walsh is now CEO of LERETA, a national provider of property tax and flood hazard data for the real estate industry. “Unfortunately, this article reflects a serious misunderstanding of the causes of the housing crisis, the lending process, and the current challenges in the housing market,” he wrote. “This misunderstanding is pervasive both in the press and in Washington. It is driving poor legislation and outrage at the parties least responsible for the current predicament.” Not much seems to have changed in the mainstream media. What has changed is the valuations industry, and this cover story will bring you back up to speed. Enjoy.

AD OPERATIONS MANAGER Jessica Fly SALES AND CLIENT SUCCESS COORDINATOR Haley Knighton

CORPORATE PRESIDENT AND CEO

Jacob Gaffney Editor-in-Chief @jacobgaffney

Clayton Collins

Subscriptions are available for $149.00 for one year. A subscription includes the print magazine and online access to the digital magazine. Canada and foreign are only eligible to purchase the “Digital Only” subscription plan at $149 for one year. For subscription orders, call 1-800869-6882 or email HW@kmpsgroup.com. Postmaster: Send change of address to HW Media, P.O. Box 47627, Plymouth, MN 55447. Subscribers: Please send last magazine label along with change of address requests. The information contained within should not be construed as a recommendation for any course of action regarding legal, financial or accounting matters. All written materials are disseminated with the understanding that the publisher is not engaged in rendering legal advice or other professional services. HW Media does not guarantee the accuracy of information provided, and is not liable for any damages, losses or other detriment that may result from the use of these materials.

Tweets From The Streets The VIX had been so low for so long, it didn’t take much of a rise for it to double. Bam! Your anti-volatility bet’s value goes from awesome to basically zero. #

by The Motley Fool @TheMotleyFool

HOUSINGWIRE ❱ MARCH 2018 7

MARCH ‘18 40 ARRESTED DEVELOPMENT Student loan debt continues to grow, pushing homeownership further down the road for Millennials. What kind of long-term consequences will that debt have on housing? By Kelsey Ramirez

THE FUTURE OF VALUATIONS What automation means for appraisers and appraisal companies By Jacob Gaffney

46 VALUATION MVPs Determining the accurate value of properties is a complicated process. We profile four companies in our Valuation MVP feature that are trusted, proven leaders. By Sarah Wheeler HOUSINGWIRE ❱ MARCH 2018 9

CONTENTS 14 THE LINEUP 14 PEOPLE MOVERS Amy Brandt is promoted to CEO at Docutech after being named COO and president last year.

16 EVENT CALENDAR CBA Live and Ellie Mae Experience gather the mortgage industry in Orlando and Vegas.

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17 ON THE SHELF Life is uncertain, but Thinking in Bets, written by a pro poker player, can help with the odds.

18 DISPATCH 1

VIEWPOINTS

UWM gives mortgage brokers an all-access mortgage pass with its improved website.

26 HYBRID PRODUCTS

20 DISPATCH 2

Jeff Jonas of Red Bell Real Estate discusses using hybrid appraisal tools.

Mortgage brokers continue to BRAWL with wholesale lenders who engage in “shady tactics.”

28 FIRST-YEAR FAILURE

22 DISPATCH 3

Casey Cunningham of Xinnix explores how to keep first-year professionals in the business.

Auction.com explains the value of investing in foreclosed properties to improve communities.

30 TEAMWORK

24 HOT OR NOT

Danielle Chavez of Mountain West Financial on lenders and appraisers working together.

The Mortgage Choice Act gets through the House of Representatives for the third time.

Tweets From The Streets Davis: Many believe that retail is struggling, and all these companies are going to go bankrupt. The reality is: only one retailer was in the top 20 bankruptcies in 2016 and 2017. 9 of the top 10 bankruptcies in 2017 were financial services companies.

byNRF Foundation @NRFFoundation

HOUSINGWIRE ❱ MARCH 2018 11

CONTENTS

BACK DEPARTMENTS 52 INSIDE BASEBALL Find out what’s happening in M&A and which company is getting out of servicing.

56 KUDOS Safeguard launches a new photo app and DocMagic reaches 300 million eSignatures.

58 INDUSTRY PULSE Ginnie Mae’s tighter regulations on targeting veterans has some unintended consequences.

62 CFPB WATCH The Trump administration continues to defang the CFPB with new stance on fair lending laws.

66 LAW & ORDER The Court of Appeals rules on the PHH case, and both sides get something they wanted.

70 KNOWLEDGE CENTER Ellie Mae provides a blueprint for protecting your business from cyberattacks.

72 KNOWLEDGE CENTER XDOC outlines three ways lenders can increase originations by making it easy for borrowers.

74 KNOWLEDGE CENTER

Auction.com helps sellers more effectively manage disposition and mitigate blight.

76 COMPANIES/ PEOPLE INDEX 77 AD INDEX 78 PARTING SHOT The NEXT Mortgage Tech Conference for Women held its inaugural meeting in January. HOUSINGWIRE ❱ MARCH 2018 13

Amy Brandt Docutech

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HARBOUR

HOLBROOK SMALLEY

COX OWEN

ULTI-CHANNEL lender and servicer Home Point Financial has appointed two to executive leadership positions. Richard Bradfield was named the company’s enterprise chief financial officer and Bill Shuler was named chief information officer. Both executives will report directly to Home Point Financial President and CEO Willie Newman. Prior to joining Home Point, Bradfield spent more than 25 years at PHH Corp., most recently serving as its senior vice president, head of originations for the corporation’s financial institutions group. Shuler previously served as president of WPS Advisors, and before that, he was the chief operating officer at Genesis Pure. Solut ions prov ider In for mat ive Research has announced the addition of Tim Cox as the company’s new senior vice president of operations. Before joining Informative Research, Cox served as the chief administrative officer at LoanBeam and the chief strategy officer for Mortgage Quality Management and Research. Earlier in his career, Cox built up his experience working at Citibank for eight

SHULER

BRADFIELD MCKONE

Amy Brandt, a 2011 and 2013 HousingWire Woman of Influence, was appointed CEO of Docutech. Brandt joined the company in 2017 as president and COO and will remain president in addition to her new role.

years, and at Lenders One as a senior manager of national programs. Property preservation and REO management firm First Rate Field Services announced that Collin Harbour joined the company as its senior vice president of business development. Harbour previously worked for DIMONT as vice president of business development following a four-year stint with the company as a senior client relations manager. Waterstone Mortgage Corp. recently appointed David Holbrook, Dustin Owen and Michael Smalley as regional vice presidents for the southeastern area of the nation. All three new appointees previously served as co-managers for the Waterston Mortgage Winter Park region for the past 10 years. National lender Land Home Financial Services announced the addition of Joe McKone as its new area manager for the Bay Area, Southern California and Nevada. McKone is a 20-year mortgage industry veteran and joins Land Home after serving as an executive vice president for First California Mortgage Company, where he oversaw the lender’s wholesale, retail,

consumer direct, affinity sales and operations teams. He has more than 15 years of executive level production and operations team management experience. Wells Fargo hired Sarah Dahlgren to serve as head of regulatory relations. Dahlgren comes to Wells Fargo from McKinsey & Company, where she was a partner in the risk practice. Prior to joining McKinsey, Dahlgren spent 25 years at the Federal Reserve Bank of New York. Dahlgren began at the New York Fed as an examiner and rose to become executive vice president and head of financial-institution supervision. Lima One Capital hired Jeff Tennyson as the company’s new CEO. Tennyson was formerly president of Clayton, a principal subsidiary of Radian Group, where he succeeded Joe D'Urso in 2016. Tennyson will succeed Lima One Founder and current CEO John Warren, who will remain with the company as chairman. Guaranteed Rate hired Craig Lombardi, formerly an executive at Quicken Loans, to oversee the company’s loan origination from leads generated by the company’s online marketing and advertising channels. Lombardi replaces Scott Stephen, who was promoted to chief growth officer. LoanLogics hired industry veteran Bill Neville as its president and chief operating officer. Neville has more than 25 years of experience in the financial services industry, most recently serving as president for Finastra’s North American area. Previously, he served as a board director and later president of U.S. business to its predecessor company, D+H. Neville has also served as managing director and head of Citi's North American hedge fund servicing business.

EVENT CALENDAR

CBA LIVE 2018 MARCH 12-14, 2018 Host: Consumer Bankers Association Location: Hilton Bonnet Creek Resort, Orlando, Florida Cost: $995 to $3,495 On the agenda: The Consumer Bankers Association’s annual CBA Live conference will feature 90 hours of programming with 11 diverse forums on issues facing retail bankers. Speakers include Gen. Michael Hayden, principal of The Chertoff Group and former director of both the National Security Agency and the Central Intelligence Agency; Alistair Rennie, general manager, solutions at IBM Watson Financial Services; and executives from Wells Fargo, Bank of the West, Citizens Financial Group, SunTrust and Chase. The conference features several networking events with senior level retail bankers and ample opportunities to engage with solution providers.

ORLANDO Sandwiched between Mardi Gras and St. Patrick’s Day, the conference dates actually give you the opportunity to experience both at the city’s most famous theme parks. Universal Studios is holding Mardi Gras events throughout March including 12 live concerts, Cajun food and of course Mardi Gras parades included as part of its regular park admission. Down the road at Disney Springs (formerly called Downtown Disney), Raglan Road Irish Pub and Restaurant features four elaborate bars, traditional dancing and storytelling, and live Irish music to set the tone.

ELLIE MAE EXPERIENCE MARCH 19-21, 2018 Host: Ellie Mae Location: The Wynn Resort, Las Vegas, Nevada Cost: $1,495-$2,490 On the agenda: Ellie Mae Experience continues its run at The Wynn Resort and Casino with eight program tracks that include executive, compliance, digital mortgage and best practices and networking. The goal of the conference is to equip Ellie Mae users to originate more loans, lower origination costs and reduce time to close. Practical workshops and training are combined with networking opportunities and charity events for three action-packed days. Featured speakers are Gen. Stan McChrystal, former commander of U.S. and international forces in Afghanistan and co-founder of the McChrystal Group, and Amy Purdy, 2014 Paralympic bronze medalist in snowboarding. 16 HOUSINGWIRE ❱ MARCH 2018

LAS VEGAS Vegas brings together some of the best musical artists from around the world for short-term concert series or long-term residencies. Concerts around the conference dates include the Psychedelic Furs, Bon Jovi, Ricky Martin, Lionel Richie, Reba, Brooks & Dunn, Kid Rock and Jennifer Lopez. If you’re looking for a culinary treat, or the opportunity to see someone get yelled at about risotto, Gordon Ramsay’s new Hell’s Kitchen restaurant recently opened at Caesar’s Palace, featuring signature menu items from the show and views of the strip from floor-to-ceiling windows.

ON THE SHELF Thinking in Bets: Making Smarter Decisions When You Don’t Have All the Facts ANNIE DUKE PENGUIN

Annie Duke is a former World Series of Poker champion who draws on her experience in assessing risks and placing bets to share tools that anyone can use to make better business decisions when faced with uncertainty. Duke's key to long-term success is to think in bets, asking questions like: How sure am I? Did I land in the unlucky 10% on the strategy that works 90% of the time?

Crushing It! How Great Entrepreneurs Build Their Business and Influence — and How You Can, Too GARY VAYNERCHUK HARPER BUSINESS

In this follow up to his 2009 bestseller "Crush It," Gary Vaynerchuk expounds on the keys to building a vibrant personal brand, and how that translates to entrepreneurial success. The book is a primer on understanding social media platforms, with practical advice on how to use interactions across the social media universe to build a business. The book also contains stories from a number of entrepreneurs on their experiences using Vaynerchuck’s principles to reach professional and personal goals.

UNITED WHOLESALE | SPONSORED CONTENT

United Wholesale Mortgage gives brokers an all-access mortgage pass Improved website provides one-stop access to essentials

t takes a lot of effort to be a well-informed and well-equipped mortgage broker in today’s world. There are a ton of different websites brokers have to visit for a variety of purposes – comparing rates between lenders, searching mortgage guidelines, using specific mortgage tools, or browsing several trade publications for all the latest news. All of those resources create a cluttered browser full of open tabs, and to top it off, a lot of it comes at a cost. That’s exhausting. As a mortgage professional, wouldn’t it be easier if you could eliminate all that web browsing and get all the information and tools you need from just one website? Consider it done. United Wholesale Mortgage took care of that for you. Now you can spend less time surfing the web and more time helping clients and obtaining new business. UWM has introduced its new-and-improved UWM.com, an all-encompassing and fully integrated website that has been built to provide one-stop access to literally anything a mortgage professional needs. Mortgage brokers will be able to: 18 HOUSINGWIRE ❱ MARCH 2018

• Pull all-encompassing home value reports • “Ask UWM” to find answers to any mortgage-related question • Monitor current market trends with lock alerts • Compare interest rates and fees between multiple lenders • Read the latest mortgage industry news The new website still seamlessly integrates with UWM’s industry-renowned EASE loan origination system, which is widely viewed as the easiest and most user-friendly site in the industry. Users will have one-click access to improved tools that enable them to start a loan, manage their pipeline and grow their business. The organized accumulation of all those often-used and important resources has transformed UWM.com from being “just another mortgage lender website” to essentially being the single hub of resources that mortgage brokers need to do their jobs. It’s the new face of efficiency and convenience in your day-today routine. It’s your all-access mortgage pass to everything you’ll need. For the first time ever, a website has been built with your best interests in mind. Take advantage of it. Take a tour and learn more at www.UWM.com.

BRAWL | SPONSORED CONTENT

Mortgage brokers BRAWL with untrustworthy wholesale lenders who target retail customers Advocacy group goes one step further and defines "good" wholesale partners

ortgage companies posing as broker-friendly wholesale lenders but functioning as retail lenders are now, after years of anonymity, the talk of the industry. They’ve been outed by a growing faction of mortgage brokers that have dubbed themselves with the moniker of “BRAWL” (standing for “Brokers Rallying Against Whole-tail Lending”). BRAWL introduced itself to the industry in fall 2017, and made a splash with coverage in numerous mortgage outlets. The group was a topic of a lot of discussion at NAMB National, a well-attended conference by brokers nationwide, and it has received

20 HOUSINGWIRE ❱ MARCH 2018

an overwhelmingly positive response from brokers and lenders. “There was a big sense of excitement and, quite frankly, relief, when BRAWL was announced,” said Anthony Casa, president of Garden State Home Loans and a founding member of BRAWL. “Mortgage brokers have known about whole-tailers’ shady tactics for years, but we just didn’t have a voice before. We’re speaking up now, and urging brokers to avoid doing business with whole-tailers, because they’re setting themselves up for long-term failure by doing so.” BRAWL penned an open letter to voice the frustrations felt

BRAWL | SPONSORED CONTENT

by the broker community over the years, including it with the group’s creation of a petition on Change.org. The petition asks mortgage brokers to sign their names in support of the group’s rallying cry against “lenders who appear to offer both wholesale and retail services, when the truth is that their wholesale divisions exist for one reason only: to feed their retail machines.” Nearly 500 people have signed the petition already. An excerpt from BRAWL’s open letter: Let’s get to the truth about lending. Whole-tailers are stealing our customers, but we’re the ones handing them the keys to the front door. Let’s pledge to partner only with true wholesale lenders until the whole-tailers put an end to their selfish and greedy ways. Let’s work together in the best interest of our borrowers and ourselves. Let’s keep wholesale true. And the group doesn't stop there, they’re also naming names. “The data is out there on what kind of business each lender does,” said Casa. “Right there in fine print you can see the names

of companies that call us every day talking about how we’re their top priority. And then you look them up and see that the majority of their overall business is retail. It makes you wonder how many clients you’ve lost to them over the years when you thought they had your back.” The group has submitted a BRAWL-endorsed list of wholesale lenders that do wholesale business the “right way” – wholesale lenders that support the broker channel and do no more than 20% of their business on the retail side. On the flip side, they also named the lenders that are notorious for flipping leads over to their retail channels and permanently stealing customers. The wholesale lenders BRAWL identifies as good: • Angel Oak • MB Financial • Nations Direct Mortgage • Orion Mortgage • Parkside Lending • Plaza Home Mortgage • United Wholesale Mortgage The group also compiled a list on its Facebook community of lenders they say are notorious for being “whole-tail” lenders. To label a lender as a committed wholesaler versus a wholetailer, BRAWL evaluates companies using a five-part checklist. If a wholesale lender does no more than 20% of its business in retail and checks the following boxes, they’re viewed as the “good guys”: • Routes all customers originated by brokers through the wholesale channel back to the originating broker, with no time limit • No solicitation by the retail division, under any circumstances, of customers originated by brokers through the wholesale channel • Communicates to broker when a previous customer orders or requests a payoff • Non-compete policy for lender retail division on any customer registered through a wholesale channel that contacts the lender directly • No solicitation of any broker employees for any employment opportunities with the lender In addition to BRAWL's Facebook community for brokers and wholesale lenders that are committed to helping the broker channel grow, the group created a Change.org petition for people to sign showing their commitment to BRAWL. After years of quietly falling back, mortgage brokers are speaking up louder these days. And from the looks of things, this BRAWL is just getting started. According to BRAWL, it’s ultimately up to mortgage brokers to make the decision not to use any lenders on the whole-tailers list. Lenders that want to be included on the list of “good” wholesalers can reach out to StopWholetailLending@gmail.com to request a commitment letter, as the list will continue to be updated. HOUSINGWIRE ❱ MARCH 2018 21

AUCTION.COM | SPONSORED CONTENT

The value of investing in foreclosed properties Auction.com makes it easy to find properties and buyers

eal estate investors have long understood the positive impact of investing in foreclosed real estate and the resulting benefits of doing so. While the volume of foreclosed properties has returned to a level closer to pre-2008 norms, the market still contains approximately 600,000 foreclosed or bank-owned properties â&#x20AC;&#x201C; each of which requires an investor to transform the property back into a home. Previously, investors were often hindered by the difficulty of finding information relative to a foreclosed property, but as the auction process continues to move online, it becomes much easier for investors to find foreclosed properties that match their wants 22 HOUSINGWIRE â?ą MARCH 2018

and allow them to gain access to information regarding the property through the same platform. With the robust ability of an online real estate marketplace, like Auction.com, investors are more confident in investing in foreclosed real estate and as a result, better positioned to realize the benefits these investments bring much faster, which also stabilizes communities sooner.

THE COMMUNITY IMPACT OF INVESTING AND RESELLING The blight associated with foreclosed assets can permanently damage the quality of life for a community and its residents. As a

AUCTION.COM | SPONSORED CONTENT

practical example, until recently, most vacant homes were boarded up with plywood in an attempt to deter vandals. This process, along with the lack of proper ongoing maintenance, resulted in an inevitable deterioration of the property. Whether wildlife living in unkempt yards, or vacant properties serving as havens for criminal activity, foreclosed properties have for too long threatened the long-term stability of local communities. Foreclosed and vacant properties also tend to negatively impact local economies by creating new burdens on resources, such as police and fire departments. Additionally, as a property sits in foreclosure, the previous homeowner may fall behind on paying property taxes, which in turn puts a drain on emergency services and schools that rely on taxes for funding. If there are multiple foreclosed assets in an area, this issue is compounded exponentially. In today’s market, many investors appreciate foreclosed properties’ value as investments because they are generally more affordable to obtain and later renovate for resale. Particularly when marketed on an online real estate marketplace, foreclosure properties are often easier to locate as a wellequipped platform maximizes the number of views a property receives, and is accompanied by valuable information about the properties’ condition, tax liens, etc. What’s more, investors looking to resell foreclosed assets now have greater access to an ever-growing number of construction and rehabilitation contractors that can expedite the time needed to rehab a property and put it back on the market. Perhaps most importantly, investing in (and rehabbing) a foreclosed property provides investors with an opportunity to generate a profit while also contributing to the health and stability of a neighborhood sooner. By investing in an existing home, the property value for both the home being renovated and the surrounding properties increases.

FINDING ADDITIONAL INCOME THROUGH RENTING The American dream has long centered on the idea of homeownership. Today, that dream has expanded to include the possibility of owning multiple residential properties that can provide a second income. Investors look to gain the best ROI possible on an asset, and increasingly, that comes through the opportunity to build a portfolio of rental properties – ones that can generate regular income through rental and provide meaningful income tax deductions with relatively low overhead required to manage those properties. Rather than navigating the traditional foreclosure process to do so, investors who leverage an online platform like Auction. com can expect to benefit from the more optimal, streamlined and transparent experience that is offered. The online platform also contains property details, due diligence documents and property value information that enables an investor to gain confidence to bid on a particular asset in auction.

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When investors choose foreclosed, vacant properties to rehabilitate, they are not only positioned to profit, they are active participants in making local communities safer. "

In addition, investors who utilize the online platform are able to view multiple properties at once, saving time and shortening the period needed to ‘flip’ the property. While investors may initially pay for structural and cosmetic improvements, they ultimately benefit from the long-term return on that investment through renting. In some cases, investors are finding renters in the form of the existing homeowner of the property. This strategy is preferable as it enables the bank to avoid the eviction process altogether while ensuring that the property remains occupied. The homeowner (now renter) benefits as he or she may now be able to more affordably stay in their home, providing additional peace of mind for the occupants as they no longer need to look for a new residence, and, if children are involved, transfer to new schools.

A POSITIVE IMPACT ON THE COMMUNITY A stable home is the cornerstone of a vibrant community and as such, it’s critically important to remain occupied in order to deter the risk of crime, contribute to the local tax base and mitigate blight commonly associated with vacant properties. When investors choose foreclosed, vacant properties to rehabilitate, they are not only positioned to profit from the resell value or from rent from a resident, but they are active participants in making local communities safer. Even during the rehabilitation process, this is true. Criminals are keenly aware that investors retrofit their properties with security systems such as alarms, lights, cameras, etc. to closely monitor the grounds as construction ensues. This serves as an effective deterrent. When the project is complete, these systems may be left in place to give the new resident the same level of protection. The key to success in saving America’s neighborhoods lies in leveraging technology and market intelligence to provide a marketplace, like Auction.com, where investors can confidently do business. The positive impact that investors generate when they work to convert foreclosed real estate can be profound. These properties, which a family once called home, gain a second chance at again becoming a home – perhaps even one that a family, and a community, will enjoy for generations. HOUSINGWIRE ❱ MARCH 2018 23

Hot SIZZLE? Not FIZZLE? 1 1 WHY THE

WHY THE

HOME AS AN ASSET

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Short-term rental service Airbnb is partnering with with Fannie Mae, Quicken Loans, Better Mortgage and Citizens Bank to allow host income to be used in mortgage applications. When Airbnb hosts apply for a refinance, they can include their proof of income from Airbnb in the application. The initiative was developed with Fannie Mae in order to identify new ways of utilizing home-sharing income and make it possible for homeowners to maximize their investment. Despite some in the housing industry seeing Airbnb as a disruptor, lenders are supporting the new program.

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THE MORTGAGE CHOICE ACT The House of Representatives voted in February to pass the Mortgage Choice Act of 2017, which would adjust the Truth in Lending Act’s definitions of points and fees under the Ability to Repay/Qualified Mortgage rule. This is actually the third time that the House has passed a “Mortgage Choice Act” that contained similar provisions. Back in 2015, Rep. Bill Huizenga, R-Michigan, first introduced the bill, H.R. 685, which was identical to a bill introduced in 2013. Both bills made it past the House, but died in the Senate.

INTEREST RATE INCREASES The Mortgage Bankers Association expects the Federal Reserve to increase interest rates four times over the course of this year. Joel Han, MBA’s associate vice president of industry surveys and forecasts, told servicing conference attendees that the organization expects four increases in 2018 and another two increases in 2019. Han said there is an expectation for a rising rate environment, given the domestic economic fundamentals against the job market. Increasing inflation and a strengthening economy feeds into the assumption that the Fed will raise rates, Han said.

24 HOUSINGWIRE ❱ MARCH 2018

TEXT NOTIFICATIONS

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At the MBA Servicing conference in February, Joe Dombrowski, director of product management for Fiserv, explained borrower communication preferences from Fiserv’s Expectations and Experiences quarterly report. Fiserv’s report shows that six in 10 borrowers receive payment confirmation and reminders via email but only three in 10 receive text message reminders. According to Fiserv’s data, few borrowers currently receive any texts related to their loans and more than half of borrowers surveyed said they are not interested in receiving them at all.

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WELLS FARGO The Federal Reserve announced in February that it would restrict the growth of Wells Fargo until it "sufficiently improves its governance and controls." The Fed cited what it called compliance breakdowns and widespread consumer abuses as the primary motivations for the order."We cannot tolerate pervasive and persistent misconduct at any bank and the consumers harmed by Wells Fargo expect that robust and comprehensive reforms will be put in place to make certain that the abuses do not occur again," said outgoing Fed Chair Janet Yellen.

HOME PRICE INCREASES Recent data from NAR, the Census Bureau and the Department of Housing and Urban Development showed that 2017 was the best year for new home sales and existing home sales in a decade. But the shortage of housing inventory looks like it might derail that momentum. NAR Chief Economist Lawrence Yun said that while tight inventories are still expected to put upward pressure on prices in most areas this year, he expects overall price growth to shrink, with some states even experiencing a decline, due to the negative effect of the changes to the mortgage interest deduction and state deductions under the new tax law.

VIEWPOINTS

By Jeff Jonas

Valuation: Evolution or revolution? Hybrid appraisal products provide alternatives that can save time and money

For decades, getting a valuation on a home for origination or default was a simple process: You ordered an appraisal. You waited a few days to get the appraisal scheduled and completed. Then, voila! You received a report to sift through and extract what you need. Our industry accepted and embraced this as standard practice. Fast forward to today. Itâ&#x20AC;&#x2122;s well-documented that the traditional appraisal business is challenged with an aging appraiser population and state li26 HOUSINGWIRE â?ą MARCH 2018

censing and certification obstacles, which have translated into delayed turn times, valuation-driven repurchase risk and a less-than-ideal consumer experience. We

live in a world where smartphones, the availability of all the data in the world at your fingertips and agile technology development are helping to fuel an all-out assault to digitize the mortgage process, and valuation is no exception. Big data and technology are coming together to build tools to enable traditional appraisers to be more effective and streamline their process in terms of Forms 1004 and 2055. Additionally, there has been a leap for-

Jeff Jonas is president of Red Bell Real Estate, which is wholly owned by Clayton Holdings, a subsidiary of Radian Group.

ward in recent years by lenders, the GSEs and the efforts of leading data and technology providers to drive development and acceptance of alternative valuations to traditional appraisals. In fact, regulations have been updated and many mortgage transactions under $250,000, like home equity and streamline refinances, can be originated using alternative valuations versus traditional appraisals. The default side of the business arguably set the trend by using alternative valuations to lower costs and turn times. Recent technological enhancements have also improved accuracy for broker price opinions and comparative market analyses. There has been a conscious and rapid shift to broaden the use of alternative valuation products for origination. To augment these efforts, new tools, which I’ll refer to as hybrid appraisal products, are being developed to respond to a market demanding lower costs along with improved response and fulfillment turn times. The most obvious benefits are cost and time. Not every decision needs a $500, full-blown 1004 interior appraisal. And in some markets where appraisers are short in number, the turn times can stretch from days to weeks. What these new alternative, some would say disruptive, valuation products do is enable lenders and servicers to better match the product to the risk by harnessing big data and technology. Over time, this will lead to better quality control, identifying inaccurate valuations immediately, and even detecting fraud patterns. So how do lenders know which product to use based on their particular needs? I’ll share a few examples of various pain points we’ve discussed with our clients and how you can leverage hybrid valuations in your mortgage operation. Home equity: With the appreciation of home prices, home equity has become attractive and many lenders want to conduct marketing campaigns to identify potential customers within their mortgage portfolio or deposit base. However, traditional appraisals can take

a long time and are expensive. In some cases, the appraisals come back informing the borrower there is no equity in the property, and now your loan officer or bank officer has wasted time and must charge the customer for the expense of the appraisal. And you probably lose the customer. Using a precise automated valuation tool, you can immediately evaluate whether there is equity in the subject property and make an informed decision on walk-in and telephone applications, or, better yet, proactively reach out to customers with lendable equity.

praisal risk review, whereby another appraiser is given verified data and comps to assess the original appraisal. This product is available at a fraction of the cost of a second full appraisal. And that’s just scratching the surface of how these hybrid valuation and appraisal products can be leveraged today. Loan officers, underwriters, quality control and risk managers can use these products in lending decisioning, MI cancellation, repurchase disputes, appraisal quality control, and home equity pre-screening and decisioning. Loan

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The default side of the business arguably set the trend by using alternative valuations to lower costs and turn times. Recent technological enhancements have aslo improved accuracy for BPOs and comparative market analyses."

Refinance loans: Most existing home loans were originated with a traditional 1004 appraisal. When a performing customer decides to make a change in a loan product or to take advantage of lower interest rates, and the customer’s area has seen improving real estate price trends, the risk associated with originating a new loan may not justify the cost and time associated with a full appraisal. Many lenders are now leveraging a hybrid appraisal product in these instances for loans under $250,000. It saves the customer time and money and provides the lender with confirmation that the collateral value is appropriate for the loan being provided. Questionable comparables: You’ve recently underwritten a loan, and ordered an appraisal where the comps seemed a bit off, leaving you to question the quality of the appraisal itself, which results in ordering another full appraisal as a second opinion. Using available data and technology, this can now be accomplished with an ap-

officers and marketing departments can generate quality leads for customer and loan officer retention. Risk management can perform portfolio monitoring, and prepayment monitoring. Default servicing can determine the value for loss mitigation decisioning, foreclosure sale bid price decisioning, REO listing strategy and offer management. Portfolio and asset managers and NPL/RPL buyers and sellers can perform pre-purchase or pre-sale valuation assessment, ongoing investment strategy status, analysis and validation. As regulatory regimes come to understand and appreciate the efficiencies presented, we can expect the opportunities for these products to further increase. For an industry that sometimes has been criticized as being resistant to change, the evolution, or maybe better stated, the revolution of valuation is helping the mortgage industry to become more efficient, while reducing costs and mitigating risk. I think it’s safe to say this isn’t your father’s appraisal any more. HOUSINGWIRE ❱ MARCH 2018 27

VIEWPOINTS

By Casey Cunningham

Why first-year mortgage professionals fail What should be an exciting start to their career often becomes their only year in the business

At XINNIX, The Mortgage Academy, we have developed thousands of new loan officers entering the industry, and their first year is one of the most pivotal times of their career. It is when they develop the habits, practices and strategies that will determine their future success. This time should be incredibly exciting for new professionals as they consider the potential rewards, benefits and satisfaction that come with a career in mortgage lending. However, any seasoned manager can attest that for many rookies, their first year will be their only year in the business. What should be a period full of growth, development and learning is instead an experience that convinces them to get out of the industry for good. 28 HOUSINGWIRE â?ą MARCH 2018

Casey Cunningham is the CEO and founder of XINNIX, the top mortgage academy in the nation.

The 2017 Retention Report from Work Institute, a Tennessee-based retention consulting agency, states that 34% of all turnover is from first-year employees. Additionally, a 2014 study across multiple industries from BambooHR, a top HR software provider, states that roughly one third of employees quit within the first six months of starting a new job. Out of these, 16% to 17% quit within their first three months. That means one out of six employees lasts three months or less after accepting a new position. A similar trend of high turnover has impacted the mortgage industry for decades. While many executives report a yearly turnover around the national average of 30%, some companies report rookie turnover between 60% and 80%. We are losing loan officers, particularly new loan officers, faster than we can replace them. Our industry needs to be working diligently to raise up the next generation of originators. We cannot afford to lose the majority of our rookies year over year if we are to build the business of tomorrow. We must energize our efforts to nurture and retain the new talent that comes through our doors. The first step toward reaching a higher rate of retention is understanding what factors are causing our first-year loan officers to leave. You might think these factors would be related to pay or benefits. However, BambooHR reports that 23% of professionals who quit their jobs within six months said they would have been more likely to stay if they had been given clear direction on what their job expectations and responsibilities were. Another 21% said they might have stayed if they had received more effective training. According to these numbers, 44% of new employees leave their jobs because they do not feel properly equipped to succeed.If our loan officers do not feel like they are being primed for success, what is the specific reason they are experiencing failure? To answer this question, XINNIX has looked to pioneering researchers George Dudley and Shannon Goodson and their

“

While many executives report a yearly turnover around the national average of 30%, some companies report rookie turnover between 60% and 80%."

book “The Psychology of Sales Call Reluctance.” According to their research, 80% of salespeople who fail in their first year do so because of a lack of prospecting, an issue that affects mortgage professionals of all experience levels. Prospecting is still a difficult task for seasoned originators. How much more challenging is it for our newest loan officers? Stacy Wayman is a XINNIX performance specialist who works with first-year mortgage professionals through ORIGINATOR, XINNIX’s training program for new loan officers. According to Wayman, “First-year loan officers don’t always realize that prospecting is the most important factor in building their business. They get a little activity and start to slack on calling and meeting potential partners. “Prospecting always has to be their priority, especially when they are first trying to establish name recognition in their market. Everything else in their day has to revolve around it.” She has also seen firsthand the way sales call reluctance can be especially difficult for new originators. “Most rookies are hesitant to make phone calls because they’re not confident yet. They might have come out of another industry where they were the resident expert. “Now, they’re brand new and don’t know everything, so they’re nervous about putting themselves in front of a client who is going to ask them a tough question.” Wayman says the first step toward overcoming call reluctance for rookies is education. “At XINNIX, we start by teaching the foundations of the mortgage industry. They cannot effectively go out into the marketplace and have important

conversations that will lead to business if they don’t confidently know what they’re talking about. “Then they need practice to speak with clients more effectively. We’re not talking about knowing products or compliance. They have to learn how to actually hold an effective mortgage sales conversation.” Ralph Remy, training manager at XINNIX, says an additional contributing factor to the high failure rate of first-year employees is the absence of a business plan. “When new loan officers don’t have a business plan, they are essentially trying to drive to a new location without a GPS. They need a guide to help them reach their destination. “And creating the plan shouldn’t just be a one-time activity. Unexpected things are going to come up, and they will need to make detours and find alternate routes. Especially very early in their career when they’re learning their market, they are going to need to pivot. A consistent review of their business plan is crucial, at least quarterly, if not monthly.” I have been in the mortgage industry for over 30 years and trained thousands of new loan officers. Simply put, first-year originators cannot thrive in their careers without guidance from seasoned, successful mortgage professionals. Our investment in the upcoming generation must be stronger than ever if we want our industry to continue into the next era. Businesses in nearly all fields are struggling to retain their rookie workforce. However, if we take the time to develop our new loan officers with dedicated mentorship and powerful training, we can make the mortgage business the exception and transform our industry. HOUSINGWIRE ❱ MARCH 2018 29

VIEWPOINTS

Danielle Chavez

Who cares about valuations? Working as a team is the only way mortgage professionals reach the goal: more homeowners

From the real estate agent who lists a property for sale to the underwriter approving a loan file, property valuations are an integral part of the mortgage loan process. The majority of the mortgage industry relies greatly on the valuation outcome in order to determine loan amounts for financing and potential risk. Without knowing the market value of a property, a lender would be “going in blind” so to speak, and could be putting their reputation and resources at risk. The mortgage industry players include, but are not limited to, real estate agents, loan officers, brokers, underwriters, investors, appraisers, buyers and sellers. We need to realize that we’re all on the same team, headed toward the same goal; that goal is to close loans. So why do some players seem to make it their personal mission to push and fight against the other team members, especially the appraiser? In order to reach the goal, it takes each player’s specialized skills and knowledge 30 HOUSINGWIRE ❱ MARCH 2018

working together. Developing a credible property valuation is key to getting to that goal, as it is vital in the loan decision-making process. An appraisal is necessary to determine the market value of the property in question. The final opinion of market value determines the loan amount, which is required as part of the risk-based decision-making process for lenders, investors and all industry players. Most mortgage lenders will not approve a loan amount greater than the market

value of a property, just as most buyers don’t want to pay more for a property than it’s worth. Market value is defined by the Appraisal Institute as, “The most probable price which a property should bring in a competitive and open market under all conditions requisite to a fair sale, the buyer and seller, each acting prudently, knowledgeably and assuming the price is not affected by undue stimulus. “Implicit in this definition is the consummation of a sale as of a specified date

Danielle Chavez is a staff review appraiser at Mountain West Financial.

and the passing of title from seller to buyer under conditions whereby: (a) buyer and seller are typically motivated: (b) both parties are well informed or well advised, and each acting in what he considers his own best interest; (c) a reasonable time is allowed for exposure in the open market; (d) payment is made in terms of cash in U.S. dollars or in terms of financial arrangements comparable thereto; and (e) the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale.” In order to accomplish our goal of closing loans, each player must accept that they are part of a larger team and acknowledge the other players, their strengths and weaknesses, and allow them to perform their jobs. Rather than the listing agent loading the appraiser up with 20 potential “comps” at the time of the inspection, or the loan officer continually calling the appraiser to see when the report will be completed, why not trust that they are competent in their area of expertise and let them perform their job without interference or pressure? It can be quite a challenge to work together as a team. It requires each player to place past conflicts aside, trust the other players, keep their egos in check, show humility and behave professionally. This is much easier said than done. Each player has different life experiences that cause them to have a difference perspective. Also, numerous industry-wide terms are misused or used interchangeably so they mean different things to different players, such as the term “appraisal rebuttal.” Many mortgage industry players understand this to mean a reconsideration of value, but in fact it actually means to dispute the reported data in an appraisal report, not necessarily the value. I would say the biggest challenge is the lack of communication. Part of working together as a team includes communicating status with the other players, asking for assistance, accepting that assistance when necessary and keeping one anoth-

er informed. Otherwise, chaos is likely to ensue. Another common challenge is that not each team player will have the same values, priorities and/or motivation. An overly proud player who does not admit his/ her shortcomings will hinder the success of the entire team. All the players need to act in the best interest of the team to reach the goal. Unfortunately, there can also be players who are unable or even unwilling to work as a team due to their own self-interests. These are not the kind of players we should be working with. When self-interest is prioritized over the ultimate goal of the team, reaching the goal will be more difficult, more stressful and will likely diminish each player’s sense of accomplishment once the goal is finally reached. Each player has their specific role, set of skills and knowledge base, which make them vital to reaching the goal. The real estate agents who write up and deliver the purchase contract to the broker or loan officer is an expert at what he/she does. They know the property, the neighborhood, and the market trends, therefore, they should be able to determine a realistic list price fairly easily. Once the offer is in the hands of the broker or loan officer, they will collect and verify the borrower’s creditworthiness and will build a loan file to present to the lender or underwriter. The underwriter will then analyze the loan file to determine the level of risk for the lender and will either approve or deny the loan. The valuation or appraisal is part of that loan file. Therefore, the appraiser’s role is to inspect the property, analyze the data, report his/her findings and determine a final opinion of value. The appraiser is considered “the eyes and ears” of the lender. The findings within the appraisal report do not just pertain to value, but also risk. This risk extends to the lender, the investor and also the borrower. The appraiser is required to report any potential or obvious health and safety issues and concerns. Keep in mind that the

appraiser is an expert in the valuation process, as they had to obtain numerous years of education and work experience required by their governing state agency and had to pass an extensive state exam to be allowed to perform residential appraisals for mortgage loan transactions. Without each industry player performing their vital roles, the loan process will not work. If an appraisal is not completed and a final opinion of market value and potential risks are not determined, the repercussions — such as lender re-purchases or borrower default — are great. Though errors and incompetency exist in every industry, we need to make sure that each player we have a working business relationship with is given the courtesy to perform. Without this courtesy, we experience more unnecessary stress, fewer closed loans and even additional regulatory constraints. This is evident by Fannie Mae’s creation of Appraiser Independence Requirements, better known as AIR, which went into effect October 15, 2010. AIR was implemented in an attempt to “protect appraiser independence and prevent pressure from being applied to appraisers to produce a desired property value,” according to Fannie Mae. The policy specifies that members of loan production, such as the real estate agents, brokers and loan officers, cannot communicate with the appraiser when an AMC is involved, which is how the majority of appraisals are now ordered. This was the result of the pressure placed on appraisers to determine values that were higher than their true market value, which was motivated by the self-interests of others — others meaning various players in the transaction. No mortgage industry player segment is without blame in sometimes not acknowledging the value of another’s role in the loan process. However, I challenge all of us mortgage industry players to work together, appreciate and respect one another’s purpose in the process and see the worth in the valuation process to get some loans closed. HOUSINGWIRE ❱ MARCH 2018 31

THE FUTURE OF

VALUATI

34 HOUSINGWIRE ❱ MARCH 2018

ONS

WHAT AUTOMATION MEANS FOR APPRAISERS AND APPRAISAL COMPANIES BY JACOB GAFFNEY

hen Facebook launched its Initial Public Offering, the CEO of Veros, Darius Bozorgi, joked that his wife used the social media platform so often, he felt obliged to invest.

This was during his opening remarks at the Predictive Methods Conference in Laguna Beach, Calif., back in June 2012. The Facebook stock price opened at $38, but was falling rapidly as Bozorgi was speaking. By any measure, his Facebook investment certainly proved to be a sound decision, as it now trades above $130 per share, but the industry he works in faced upheaval at the time. But, just as the wizened Facebook investors may tell you, “good things come to those who wait.” Marianne Sullivan, senior vice president of credit portfolio strategy underwriting and pricing for Fannie Mae, used her time at that conference to espouse the advent of the eMortgage, a technological feat seemingly unreachable at the time. Now, six years later, digital mortgages are expected by many potential first-time homebuyers. Valuations, to put it kindly, are hardly keeping pace. And here’s why. Sitting across from me at that conference was an individual from the Appraisal Institute and I asked him if he felt tech could solve the problems facing the valuations industry. He replied frankly, “Our problem is with individuals, not with processes,” which is no less true today. The only difference is, at the time, I took his comment on “individuals” to be implicitly directed at “appraisers.” And for years, that sentence guided my view on the valuation industry: appraisers are the ones with the problem. HOUSINGWIRE ❱ MARCH 2018 35

THE STORY SO FAR Jonathan Miller is president and CEO of Miller Samuel Inc., a real estate appraisal and consulting firm he co-founded in 1986. He is a state-certified real estate appraiser in New York and Connecticut, performing court testimony as an expert witness in various local, state and federal courts. In his spare time, Miller keeps me apprised on the valuations industry from a boots-on-the-ground perspective. He has done more to proactively educate me on the trials and tribulations of those who work in the valuations industry than anyone else. However, he falls squarely on the side of the appraisers and once took HousingWire to task for suggesting there is a so-called appraiser shortage in the valuations industry. Blaming appraisers, he argues, is an easy way out when judging the challenges in the valuations business. Writing in HousingWire last year, Miller put it this way: We haven’t been very good at speaking up for ourselves, so other industries stepped in long ago and did it for us. I’ve characterized us as ‘lone wolves’ who don’t have anyone representing us. Sure we have some trade groups, but they are no match for the lobbying juggernauts behind real estate agents, appraisal management companies, GSEs and the mortgage banking industry.

We [appraisers] haven’t been very good at speaking up for ourselves, so other industries stepped in long ago and did it for us. I’ve characterized us as ‘lone wolves’ who don’t have anyone representing us. Sure we have some trade groups, but they are no match for the lobbying juggernauts behind real estate agents, appraisal management companies, GSEs and the mortgage banking industry.

36 HOUSINGWIRE ❱ MARCH 2018

Speaking to me by phone from his office in New York City, Miller filled me in on what has changed since that blog was written. “2017 was a big year for valuation, mainly with the emergence of a grassroots movement for appraisers to join together to influence the overall direction of the industry,” Miller said. It appears the Appraisal Institute is falling somewhat out of favor and appraisers are taking matters into their own hands. They want change and they’re using social media tools to demand it more and more. “Some lessons from the housing bubble have not yet been learned. HVCC and Dodd-Frank all damaged the valuations industry and we continue to fight a perception problem. We still need to convince others about what it is we do and the value we bring,” Miller added. And he’s not alone in that opinion. “To better address the challenges we all face, we must develop a greater sense of empathy for our counterparts in the industry,” said Kevin Marshall, president and co-founder of Clear Capital. “We should rise above finger pointing and instead invent new tools and processes to lift all boats.” The current environment of deregulation isn’t helping, Miller argues. The idea that federal regulation is becoming more lax may be emboldening nationals lenders to push the envelope more on what fees they are willing to pay appraisal management companies to commission appraisals. But while appraisers fight state boards for what they say is a fairer fee structure, the federal law remains ambiguous: Under current law, mortgage lenders are required to compensate property appraisers at a “customary and reasonable” rate for performing appraisal services. Ask someone in the valuations industry what a “customary and reasonable” rate is for an appraisal and the response varies depending on where you sit in the valuations industry. “All appraiser experiences aren’t created equal,” said First American President Kevin Wall. “Some appraisers work directly with lenders, while others work with AMCs. Some work independently, while others work as staff appraisers for a firm. So, if you ask them about their experience in the business, you’re bound to get different answers.” Clear Capital’s Marshall said the ambiguity of appraiser compensation is harmful for everyone, especially those whom they ultimately seek to serve — the potential homeowner. “Too many borrowers are let down by the appraisal process and too many appraisers are being asked to do more for less money — we should continue to bring technology and process solutions to market that help everyone work more efficiently,” Marshall said.

SITTING AT THE TECH ROUNDTABLE Midwinter gripped the nation in two hard ways at the start of 2018. Arctic weather pushed temperatures down across the country and this year’s influenza strain was particularly virulent. Hardly ideal conditions to be working outside, exposed. In the middle of the worst of the weather, I sat down with three valuations experts from First American to ask about ways data and technology can keep appraisers working, when it felt like half the nation was either snowed in or under the weather. Wall was there. As was George Opelka, senior vice president of sales and marketing for ACI, a member of the First American family of companies, as well as Alan Hummel, chief appraiser and vice president of valuations for First American Mortgage Solutions. First American is notable as it is willing to consider almost any technology if it thinks it may increase efficiency in the valuations process. A tour of their facility in the Dallas area appears to support this ethos: great care and thought is given to the comfort of the worker. There are standing desks, healthy food options and creative office designs. The feeling is energetic and focused with everyone rowing in the same direction. On the logistics side, Wall is willing to speak about leveraging bot technology to improve valuations — a subject of moral hazard not many in the valuations business want to explore. But, why? When you talk of tech advancements these days you are only a few steps from suggesting artificial intelligence could soon replace appraisers. According to a website called Will Robots Take My Job?, developed by Mubashar Iqbal and designed by Dimitar Raykov, robots will indeed take over. By some estimations, millions of jobs are at risk across the nation. For those in appraisals, Iqbak and Raykov estimated 90% of these jobs will be lost to robots soon. And in the meantime, good, decent hard-working appraisers are being pushed aside by brokers using Google street maps, or worse, low-wage workers in India. Furthermore, if you take your cues from much of the mainstream media, you’d almost be inclined to agree that replacing appraisers is a good idea. A recent article in The Wall Street Journal by Ryan Dezember and Peter Rudegeair suggests it is already happening, with the headline: “What’s a House Worth? Wall Street Turns to Drive-By ‘Appraisals.’”

From the article: BPOs have been used to value collateral in the more than $20 billion of bonds sold by institutional landlords, such as Blackstone’s Invitation Homes Inc., and in the fast-growing business of lending to individual house flippers. Banks request them when considering whether to foreclose or negotiate repayment plans with delinquent homeowners. Their popularity shows how Wall Street is finding ways to adapt to government efforts to crack down on some of the excesses that contributed to the housing crisis. Critics say BPOs are ill-suited to gauge home values and could leave debtholders with less collateral than they thought. Properties worth less than their debt could result in losses for investors, while inaccurate price information might misguide a lender in a foreclosure process. “BPOs are a creature of financial institutions that want deals to close fast, and so they don’t have to use an appraiser,” said Donald Epley, a retired University of South Alabama professor who helped write national appraisal standards after the 1980s savings-and-loan collapse. “You’re just dumbing down the standards to make the loan.”

BPOs are a creature of financial institutions that want deals to close fast, and so they don’t have to use an appraiser.

HOUSINGWIRE ❱ MARCH 2018 37

WE BELIEVE THERE REMAINS A BETTER WAY TO PERFORM VALUATIONS AND THE USE OF DATA AND TECHNOLOGY ENABLES THAT. — First American President Kevin Wall

“When Fannie Mae last year guaranteed about $1 billion of Invitation Homes debt, it accepted BPOs for the 7,204 houses serving as collateral,” wrote Dezember and Rudegeair. “Assuming a typical appraisal price of $450 and the $95 that Invitation Homes pays per BPO, the company saved about $2.6 million.” So good people are being replaced by poor technology just so greedy “Wall Street” firms can make a quick buck? In reality, at least on the residential valuations side, things are much less alarming. Jay Kingsley, an executive at CoreLogic Valuation Solutions, said, “CoreLogic employs hundreds of staff appraisers, many of whom have worked for us for years. We go to great lengths to enable, empower and support what they do.” Far from replacing appraisers, CoreLogic is seeking to make their jobs easier. “Innovation is a critical part of our strategy and we are combining data, technology and analytics with the human component to drive connectivity across the valuation workflow. What we are doing isn’t just enhancing the process but helping it evolve to better serve our clients. Our clients are excited about the possibilities of what we are building.” Devi Mateti, another CoreLogic executive, expounded on their strategy. “There is an increased use of software that is improving the interactions between lenders, AMCs and appraisers. This is leading to three notable, significant improvements,” Mateti said. “First, technology can enable the streamlining of entire collateral valuations workflow, all the way from smart work assignment, to appointment scheduling, to collection of payments. This means that the appraiser spends less time on overhead and can turn around appraisals quicker. This improves efficiency, enhances consumer experience and is in our collective best interest. “Second, mobile tools are improving. For example, data-enabled tablets and sketch tools are enhancing the quality of the valuation that is being produced. “Third, the collection of data and analytics is more vital, especially when it comes to automating the QC process.” In fact, during the roundtable discussion with First American, the positivity about the valuations industry was actually infectious — and logical. “By combining field technology with universal data access and cloud-based applications, multiple stakeholders can work on the same appraisal report simultaneously,” said Opelka. “So, instead of throwing new technology at the old way, we’re leveraging new technology to create a better way.” 38 HOUSINGWIRE ❱ MARCH 2018

Opelka knows a thing or two about the valuation business. He likes to joke that after more than 30 years in the business he now has to answer to more than 30,000 appraisers in his employ. So where is the pain point? Can the valuations industry fully adopt new technology? First American thinks so. “We believe there remains a better way to perform valuations and the use of data and technology enables that,”Wall said. “And it’s a myth that appraisers don’t want to change,” he added. “Many are open to using a cloud or SaaS model to allow for a more collaborative approach in collecting data, and many want the ability to complete their analysis from their desktop.” How does First American do it? For one, they said the appraiser needs to be given a choice, a guiding light, as it were. “We push factual data to the appraiser and he/she can choose to use it, amend it, or ignore it. In our experience, appraisers are receptive to this approach, as the data is factual and it represents an immediate time savings,” Hummel said. “Keep in mind, this editor versus author approach gives the appraiser complete control over the data, which allows the appraiser to be more efficient and spend time on the greatest value, the professional analysis.” By leveraging the use of data, via technology, First American said its appraisers have never been busier, or more efficient. “Using a team approach, a seasoned appraiser can create and deliver several credible appraisal reports a day, instead of laboring to complete one assignment,” concluded Opelka. “The appraisers win, in fact all participants in the transaction win, including the consumer.” ■

WHAT DO APPRAISERS REALLY THINK? HousingWire recently hosted a live Twitter chat to talk about some of the thorny issues facing the industry. Here’s the #AppraisalAnswers conversation from Jan. 31 between Lori Noble, SRA, and Jacob Gaffney, HousingWire editor-in-chief, edited for format.

value outcomes), not as a profession. Access to credit has not normalized since the crash yet lenders seek the cheap & fast, knowing quality from AMCs is typically poor. These institutions do not represent the appraisal profession, they represent the widget commodity model, which is not what appraisers are.

@JacobGaffney

Lori, you’ve often stood up for the appraisal community. Do you feel there could be an even stronger unified voice?

Well, hopefully conversations such as these are helping to fix those appraiser perception problems. OK, a toughie @ noble1_lori! Is the current de-regulatory attitude toward the mortgage industry creating more problems than it solves?

Lori Noble, SRA @noble1_lori

@noble1_lori

We have some great organizations. Until recently, trade groups & financial institutions have spoken on our behalf. Today, there are more than 30 state appraiser coalitions. It’s working to grow a stronger more unified voice. Now, there is a full movement by fee appraisers. The #APPRAISERFEST Economic Forum this fall; the State Coalitions and the Network of Coalitions are the organizations for information and in the trenches at the state legislative level to impact good change.

It’s strange to have an institution in receivership trying to expand the credit box. The GSEs PiW (appraisal waivers) set a tone that implies no appraisals on collateral is ok. If we want the secondary market to come back & history shows they follow GSE protocol, the detachment from risk will become widespread. I suppose it would not be an issue if the legacy of a government backstop were not in place. The deregulations in our sector of the loan process defies the logic of FIRREA & spirit for which it was written. Financial markets simply aren’t disciplined enough for the leniency, especially the waiver of appraisals all together. Can you imagine how the brokerage community will react when home buyers find out that no appraisal was done and later sue the brokers if they feel they overpaid?

JacobGaffney @JacobGaffney

@JacobGaffney Why is the appraisal industry so often maligned in the press? I know I’ve been guilty of doing this myself in the past.

@noble1_lori Easy, we are always the fall guy. We have no gravitas in the lending process, are sole practitioners, & last to the party. Since 2008, our image was damaged by financial institutions who make appraising a commodity (to control us &

@JacobGaffney I agree that getting sued is no good for anyone! @noble1_lori So you say there

isn’t an appraiser shortage, rather a raft of qualified individuals who are unwilling to devalue their appraisals. What can lure them back into the valuations industry?

@noble1_lori There was never a shortage, only a shortage of appraisers willing to work at 50% or less the market rate. Lenders and AMCs make it nearly impossible for appraisers to compete in the free market with the monopoly they enjoy in many markets AMCs and some lenders are in effect, blaming appraisers for responding to the forces of supply & demand which is against their interests, which is to commoditize a profession.

@JacobGaffney It’s getting to a point, to be honest, where the blame game is coming to an end... hopefully. OK, last question @noble1_lori More and more lenders are looking to outsource BPOs to countries like India. WCGW?

@noble1_lori This isn’t the same situation we saw with the housing bubble. Cheap and quick = value as an afterthought. Wall Street now owns many AMCs now driving mortgage lending valuation and I am confident in saying that Wall Street has never understood housing. Consumers are equally vulnerable because they don’t understand how much our role is being changed in the mortgage process. When they do realize, real estate agents may be sued. It seems the key effort by institutions is to automate & outsource to save money with no credible concern for quality and risk. ■ HOUSINGWIRE ❱ MARCH 2018 39

40 HOUSINGWIRE ❱ MARCH 2018

ARRESTED DEVELOPMENT The long-term consequences of student debt on the housing economy BY KELSEY RAMIREZ

HOUSINGWIRE ❱ MARCH 2018 41

recently returned to my alma mater, the University of Texas at Arlington, for graduation ceremonies. As I watched my friends walk across the stage, my heart swelled with pride at being back, singing our fight song, and of course, wearing the blue and white.

But I’m one of the lucky ones. I found a good job when I got out of school and my student debt is lower than average, and most importantly, manageable. Even so, it took me a few years after graduating to finally feel like I was on solid ground financially. Not everyone in my generation is so fortunate. Many Millennials struggle in their post-college life as the cost of higher education continues to skyrocket. As Millennials grapple with paying off student loans, their opportunity to buy a home gets pushed further and further into the future. That delay has consequences far beyond individual students — the growing student debt crisis impacts every part of the economy. THE STUDENT DEBT CRISIS

Homebuyer demand exploded in 2017, and is expected to continue to surge in 2018, according to RE/Max and other real estate experts, fueling rising home prices, low inventory levels and increased competition. Millennials, those who were born between 1980 and 1995, are now increasingly entering the housing market, according to numerous reports, including Ellie Mae’s Millennial Tracker. However, for would-be first-time buyers, student debt remains the biggest obstacle to homeownership. Currently, an overwhelming majority of Millennials with student debt do not own a home, and believe this debt is the cause for the delay, a recent study from the National Association of Realtors and nonprofit American Student Assistance showed. NAR estimates this student debt could be delaying homeownership for up to seven years. And a new study shows the student debt crisis could be even worse than experts originally thought. Currently, at nearly $1.4 trillion in outstanding loans, student debt is the second-largest source of household debt after housing, and the only form of consumer debt that continued 42 HOUSINGWIRE ❱ MARCH 2018

to grow after the Great Recession, according to a report from The Brookings Institution, a nonprofit public policy organization. The Brookings report analyzes new data on student debt and repayment released by the U.S. Department of Education in October 2017. The study found that a shocking 40% of students who entered college in 2004 will default on their student loans by 2023. And students who attend for-profit universities are even worse off. Of these students, a full 52% are expected to default on their loans after 12 years, versus the already high 26% of public borrowers. That’s because the six-year graduation rate for those who attend for-profit colleges is only 23%, compared with 59% at public schools and 66% at private nonprofit schools, according to the National Center for Education Statistics as quoted in a 2017 Slate article. That means that the vast majority of those former students still work in low-paying jobs, but also have to figure out how to pay off the debt they accumulated. The cost of attending college anywhere has become increasingly unaffordable. Since 1982, the typical family income increased 147% more than inflation, according to the National Center for Public Policy and Higher Education. However, the costs of a college education from 1985 have risen nearly 500%. To put that in dollar terms, that means if the cost of tuition was $10,000 in 1986, it should cost that same student $21,500 today if it moved at the same rate of inflation. However, today a college education would cost that student $59,800, or more than 2.5 times the inflation rate, according to Gordon Wadsworth, author of “The College Trap.” But despite the rising costs of tuition, more Millennials attend college than any other previous generation. Data from the Pew Research Center shows 21% of Millennial men and 27% of Millennial women had completed at least a bachelor’s

degree at the ages of 18 to Of students who attend for-profit universities, 33, compared to 18% of Gen a full 52% are expected to default on their loans after 12 years, Xer men and 20% of Gen Xer women. versus the already high 26% of public borrowers. Thatâ&#x20AC;&#x2122;s because The gap grows even wider the six-year graduation rate for those who attend for-profit when reaching back to older generations, such as Baby colleges is only 23%, compared to 59% at public schools Boomers, where 17% of men and 66% at private nonprofit schools. and 14% of women completed their bachelorâ&#x20AC;&#x2122;s degree between the ages of 18 and 33, or the Silent Generation, where 12% of men and 7% of women ership rate is significantly higher at 75.3% for completed their degree. Millennials not only spend considerate- those aged 55 to 64 years and 79.2% for those ly more on their education than other gen- aged 65 years and older. But not only does it pale in comparison to erations had to, they also have to compete the current homeownership rate of the older with more college graduates for the same jobs. generations, but it is also historically low for All of this combines to make this generation the 35 and younger age group. This group hit less equipped than previous generations to fully enter into the U.S. economy after graduating. a record low in 2016 with its rate of 34.1%. Many live at home longer than previous gener- During the recession, the under-35 homeownership rate dipped below 40% for the first ations or choose to rent rather than stepping up time since before the turn of the millennium, to a mortgage payment. and continued to decrease into 2016. The latest homeownership report from the U.S. Census Bureau showed that among the younger generation, usually first-time home- B R E A K I N G I T D O W N buyers, the homeownership rate rests at just As the student debt crisis deepens, minority 36%. As is to be expected, this is much lower groups are hit the hardest. In 2013, the methan older generations, where the homeown- dian net worth of blacks in the United States HOUSINGWIRE â?ą MARCH 2018 43

was $11,030 — far below the median net worth of whites at $134,230, according to data from the Economic Policy Institute. Even when looking at college graduates, that gap remains, as black college graduates in 2013 had a median net worth of $23,400, while white college graduates had a median net worth of $180,500. And unfortunately, the gap persists even when considering those with advanced degrees. Among blacks with a graduate or professional degree, the median net worth was $84,000 in 2013, compared to $293,100 for whites. The net worth gap becomes clearer when you consider that the black homeownership rate is only 42.1%, significantly below the white homeownership rate of 72.7%, according to the U.S. Census Bureau. During 2015, the most frequently cited reasons black applicants were turned down for mortgages included 31% for credit history, 25% for debt-to-income ratio and 13% for collateral, according to data analyzed by the Pew Research Center.

are the generation with the greatest burden. Millennials currently hold about 65% all student debt, but the fastest-growing population of student borrowers are over 60, although they still make up only 5% of total borrowers. Gen Xers hold the second-highest share of student debt, and a report from iontuition, which provides student loan counselors and other repayment tools, shows 50% of Gen Xers and 14% of Baby Boomers are still repaying their student loans. What’s more, nearly 40% of federal student loan borrowers age 65 and older are in default, according to a report by the Consumer Financial Protection Bureau. Student debt, including debt taken on for children, is causing even older generations to delay key milestones such as having a family, buying a home or retiring. THE SOLUTION

As the student loan crisis continues, the housing and mortgage finance industry should be espe-

If the cost of tuition was $10,000 in 1986, it should cost that same student $21,500 today if it moved at the same rate of inflation. However, today a college education would cost that student $59,800, or more than 2.5 times the inflation rate.

This is compared to the most frequently cited reasons white applicants were turned down for mortgages, where debt-to-income was the No. 1 reason at 25%, followed by credit history at 21% and collateral at 18%. The statistics illustrate a vicious circle. Black students entering college with lower net worth may need more loans, but have less of a fallback when they graduate, raising the odds of default. The Brookings report showed default rates among black first-time college students in the 2004 cohort at 38%, and projected the 20year default rate at as much as 70%. Defaulting on student loans impacts credit history, cited above as the main obstacle for getting a mortgage loan. Over the long haul, the financial consequences of renting instead of owning a home are significant, contributing even more to the gap in net worth. And the crisis extends not only through races, but also through generations. As it turns out, Millennials are not the only generation struggling with student loans, though they 44 HOUSINGWIRE ❱ MARCH 2018

cially concerned with finding a solution in order to help improve the homeownership rate among younger generations and minorities. Currently, some lenders offer programs which allow those with student debt more options when it comes to home buying, including lenders who use Fannie Mae’s recently adopted products which allow for student loan cash-out refinances and other options. The Fannie Mae program expands on an initiative the GSE rolled out with SoFi back in November 2016. Eagle Home Mortgage, a mortgage lender and a subsidiary of Lennar, announced that it is rolling out a new mortgage program that will help homebuyers pay off their student debt. The program offers borrowers 3% of the price of their Lennar home, or as much as $13,000, that can be used to pay off student loan debt. And one school, City College in San Francisco, announced it will now be free of charge to all the city’s residents. But while this could help students graduate without debt, solutions such as this could also place homeownership even

further out of reach as it increases property taxes in the surrounding area. Of course, lenders are already trying to help the student loan crisis by offering more information on srepayment terms and conditions, available repayment plans, student loan interest rates and help determining what monthly student loan payments should be. Business owners are also in a place to help student borrowers through the benefit packages they offer. According to a survey conducted by iontuition, many respondents indicated that they would prefer loan repayment assistance over retirement or health care benefits. But despite 60% of borrowers saying they preferred this, only 4% of employers offered this benefit in 2016. Whatâ&#x20AC;&#x2122;s more, data from iontuition shows that, based on a $60,000 salary, the cost of student loan assistance would only total $1,200 per year, which is less than the $1,800 cost of matching a 401k at 3% and the $3,200 cost of three weeks of paid vacation.

Student debt is causing even older generations to delay key milestones such as having a family, buying a home and retiring.

Respondents from iontuitionâ&#x20AC;&#x2122;s survey showed even simple solutions such as online tools from lenders could be helpful in lowering financial stress. While there are ways forward in dealing with the student debt crisis, it will take first recognizing the problem and its consequences, and then innovating new products and benefits that will help Millennials and even older generations move forward. Overall, 40% of college entrants could struggle to repay their loans, and eventually fall into default. This represents a severe crisis for the student loan market, and could have devastating impacts on their ability to purchase a home. But lenders have the unique opportunity to reach student debt borrowers and offer new and unique solutions that wrap student loan debt into the purchase of the home. Current estimates show Millennials will be paying off their student loans for years to come. While it currently means delaying homeownership for several years, as times goes on, it could begin to delay retirement plans and affect other areas of the economy. And the crisis could continue to worsen, as there are still no solutions in sight for Generation Z, the oldest of whom are now entering their college years. However, there is hope. Even though total student loan debt more than tripled over the last 10 years, with a serious delinquency rate of at least 90 days late surpassing any other type of debt, a study by Fannie Mae also showed those who graduate college are about 43% more likely to eventually buy a home than those who never attend college. HOUSINGWIRE â?ą MARCH 2018 45

VALUATIONMVPs THEIMPORTANCEOF

determiningaccurateproperty valuations in the mortgage loan process is hard to overstate. But calculating the correct value is a complicated process that requires the right mix of technology and local expertise. The companies in our Valuation MVPs have proven they have the right formula for providing lenders and investors with this

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critical metric in markets across the country. Whether it’s a two-bedroom bungalow in Colorado or a sprawling mansion in the Hamptons, these companies are leveraging tech to drive accurate, fast valuations for every loan type. Trusted, proven leaders in the valuation space — these are HousingWire’s Valuation MVPs.

34 ACTAPPRAISAL 35 CLEARCAPITAL 36 FIRSTAMERICAN MORTGAGE SOLUTIONS 37 VEROSREALESTATE SOLUTIONS

HOUSINGWIRE ❱ MARCH 2018 47

VALUATIONMVP ACT Appraisal’s hands-on customer service lets lenders focus on growth ACT Appraisal 1141 E. Main St. Suite 102 East Dundee, IL. 60118 actappraisal.com

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Through experience, growth and our unwavering commitment to each partner, we promise to help optimize your results, save you time and money and keep you compliant.”

CT Appraisal has a long history as an appraisal management company, serving the residential mortgage market in all 50 states with a national network of certified licensed appraisers. The company’s focus on providing excellent customer service starts with its in-house staff of experienced appraisers, who leverage their knowledge of valuations to provide the support lenders need for quick, accurate results. “ACT has been a functioning AMC for 20 years now, and that is all we do,” said Bryan Franks, founder. “Residential mortgage originated appraisals is our main thrust and will continue to be.” ACT assigns specific team members to work with each lender. This team selects appraisers based on their proximity to the subject property, certifications, experience and a proprietary ranking/rating system. ACT also uses its inhouse appraisers to perform a manual quality-control check on every appraisal, applying not only industry standards but also specific client overlays. “Our processing software, combined with personal service, adds value to the appraisal process by allowing us to compete with larger AMC’s, yet, maintain a small-town feel,” Franks expressed. “Our customer service and QC quality is unsurpassed — just ask our clients.” One of those clients, an account executive in wholesale, said, “Appraisal issues can sting an AE’s pipeline. However, with ACT Appraisal, I saw my volume grow to $150 million in 2014 and then to $325 million in 2015. I attribute this growth to my ability to focus on my business and not on appraisal issues.

“ACT Appraisal is my Wingman. I can’t speak highly enough of ACT Appraisal – from management to customer service, outstanding in every way. Just call their general number. Someone picks up the phone directly every time!” Another customer detailed how the support from ACT made a difference in his business. “I can guarantee that your company can grow your business if you make ACT Appraisal your principal AMC. I did that and my business doubled. Once your clients can trust that they can get a quality appraisal, you can focus on other important things like growing your business. He continued, “No company can grow without a quality vendor partner. I cannot recommend highly enough ACT Appraisal as an AMC and I can’t emphasize enough my deepest gratitude for their help in allowing me to grow my business.” ACT Appraisal maintains close contact with clients, offering live support for extended hours Monday through Saturday, as well as online status updates that are available 24/7. The company continues to expand existing clientele to new geographic areas and is reaching new clients outside of the normal channels of mortgage banking, such as hard money lenders, credit unions and non-QM lenders. “Through experience, growth and our unwavering commitment to each partner, we promise to help optimize your results, save you time and money and keep you compliant,” Franks concluded.

Sponsored Content 48 HOUSINGWIRE ❱ MONTH MARCH 2018 2018

VALUATIONMVP Clear Capital’s technology provides analytics-driven workflow Clear Capital 300 E 2nd St. Suite 1405 Reno, NV 89501 clearcapital.com

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The ClearCollateral Platform provides the first valuation order management solution that’s ready to solve modern challenges with modern technology.”

Sponsored Content

lear Capital has been developing platforms for the past 17 years that improve the order and fulfillment of real estate valuations. As both a provider of real estate valuations and a technology company, Clear Capital has seen firsthand how people’s lives can improve when they have the right tools. In an industry that has too often been held hostage by inflexible solutions, data that can’t be leveraged and long waits to gain access to new functionality, Clear Capital’s ClearCollateral Platform changes the game for lenders, servicers and investors. “The ClearCollateral Platform provides the first valuation order management solution that’s ready to solve modern challenges with modern technology, with an analytics-driven workflow, configurable provider allocation and powerful valuation review tools built on SaaS technology,” said Kenon Chen, executive vice president of product at Clear Capital. “Whether you are involved in origination, investment or servicing, the platform unlocks radical efficiency, unmatched quality and complete synergy with a process you manage across multiple organizations.” ClearCollateral Platform was designed from the ground up to not only anticipate change, but to enable change at speed. Using the latest cloud and big data technology, all of a client’s data can now be leveraged and scale with their business. Clients can now make a quick allocation change based on the performance of valuation providers, add a product to the system before a rush order gets placed or reroute workflow to a different team based on UCDP results — all without having to engage a technology team. The ClearCollateral Platform is built around a near real-time property database. This means that when the local market changes, Clear Capital clients are the first to know. Property data and analytics are available right where they need them, whether it’s intelligence informing the right type of valuation to be ordered or context during collateral underwriting. “The ability to quickly create automated work-

flows based on great data enables you to stay ahead of the competition,” Chen said. “With a full set of modern APIs, our ClearCollateral Platform can integrate directly with your LOS and/or digital mortgage platform, giving visibility to the right people at the right place.” And consumers will benefit from the ability to reduce turn times through real-time capacity and allocation management. ClearCollateral Platform also provides full audit and activity logging. Each event and decision is preserved for future reporting and user management tools ensure permissions are aligned with training, role and skillset. “Clear Capital’s strong partnership with GSEs and a deep understanding of their expectations has greatly informed the design and functionality of the platform,” Chen said. “As a UCDP direct integrator, we are able to provide automated submission and review workflow based on Fannie Mae CU scores and Freddie Mac LCA scores.” ClearCollateral Platform can radically reduce turn times by changing the way valuations are manufactured. Because of the robust data tools available within the platform, desktop valuations can be performed without needing to wait for an outsourced provider and getting a value update to a portfolio asset becomes a painless experience. And through Clear Capital’s Modern Appraisal Program, true certainty of appraisal delivery can be achieved. The tight integration with this program will allow a standard appraisal form and data that conforms to GSE standards to be brought back to the lender and consumer. “Through the use of modern technology, analytics, in-house appraiser assistants and an army of highly trained third-party inspectors, there is an immediate improvement to turn time, predictability and consumer experience,” Chen said.

HOUSINGWIRE ❱ MARCH 2018 49

VALUATIONMVP Sponsored Content

First American Mortgage Solutions improves valuation quality and speed First American Mortgage Solutions 3 First American Way Santa Ana, CA 92707 firstamerican.com/ mortgagesolutions/

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We are at the leading edge of establishing collaborative approaches to completing appraisal assignments, infused with quality assurance checks throughout the valuation lifecycle.”

50 HOUSINGWIRE ❱ MARCH 2018

ithin the mortgage loan process, the need for faster valuation turn times continues to be a dilemma for lenders. The question for the industry has always been: How can valuations be done faster without sacrificing quality? Now, First American Mortgage Solutions, which is focused on developing innovative webbased, data-driven solutions, is changing the valuation landscape with its Smarter Valuations offering, a unique combination of assets that offers lenders increased efficiency and greater accuracy for a better, faster consumer experience. In initial testing, Smarter Valuations reduced appraisal turn times by 33%, while also improving quality. The company says it continues to see significant improvement and expects a further reduction in turn times. The new solution first helps identify the best appraiser for an individual job and then assists the appraiser with both research and reference data. “Smarter Valuations is our response to the increasing demand from lenders for a valuation partner that can deliver more accurate, data-enabled appraisals,” Alan Hummel, chief appraiser and vice president, said. “Our transformed Smarter Valuations workflow is exceeding consumer expectations for high-quality and timely appraisals.” First American Mortgage Solutions covers 100% of U.S. housing markets through its nationwide network of more than 20,000 credentialed appraisers — in addition to its own staff appraisers. This flexible staffing model, coupled with First American’s unique data assets, helps the company select the most qualified appraiser for every assignment. “Because the new valuation process is infused with our vast data assets and superior rules technology, we have been able to satisfy GSE regulations and compliance requirements,” Hummel said.

First American Mortgage Solutions has been steadily investing in its valuation assets through strategic acquisitions and building out its property database to be the leading source for property records in the U.S. It now holds 6 billion recorded document images that cover nationwide property data and homeownership information. The company also has a cloud-based suite of valuation technology used by more than 25,000 appraisers for a streamlined approach to managing forms, rules and data. “We’ve received overwhelmingly positive feedback about our efforts to achieve high-quality appraisals in record time, and appraisers are open to using tools that will make them more efficient and enable them to stay competitive,” Hummel said. “Lenders are excited at the prospect of expediting the appraisal process because it will allow them to offer a better consumer experience.” First American Mortgage Solutions continues to expand its SaaS capabilities to help connect lenders, appraisers and borrowers. The company is planning more data integrations to assist with quality assurance checks and to expedite property research, as well as exploring ways to continue accelerating the valuation process through auto-population of factual property data. “We are at the leading edge of establishing collaborative approaches to completing appraisal assignments, infused with quality assurance checks throughout the valuation lifecycle,” Hummel said. “We’re the only ones to offer lenders a complete suite of conventional and alternative valuation products combined with technology, data and analytics.”

VALUATIONMVP Sponsored Content

Veros applies AI to simplify and improve valuation decisions Veros Real Estate Solutions 2333 N. Broadway Suite 350 Santa Ana, CA 92706 veros.com

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Veros is proud to be the first mortgage technology provider to introduce property-specific AVM decision logic technology.”

ince 2001, Veros Real Estate Solutions has held a leading role in the mortgage industry’s collateral valuation space. Veros is widely acknowledged as a premium provider of automated valuation models and a thought leader in the field of mortgage analytics. In 2010, Veros’ background in innovation, expertise in technology development and reputation for transparent delivery of mortgage data was recognized when the company was chosen by the government-sponsored enterprises Freddie Mac and Fannie Mae to build, support and maintain the Uniform Collateral Data Portal (UCDP). This joint platform provides electronic appraisal data delivery to the GSEs and has been touted by industry experts as a significant step in establishing true transparency within the mortgage industry. In 2013, the company was selected to build a similar portal, the Electronic Appraisal Delivery (EAD) portal, on behalf of FHA. The company’s newest technology offering, VeroPRECISION, is the industry’s first property-specific Valuation Decision Engine designed to “cure the industry’s common cascade.” Unlike a traditional AVM cascade model, VeroPRECISION identifies upfront whether or not an AVM is a suitable valuation tool for the subject property and, if so, identifies the best AVM model for that property. “We are proud to offer our customers this next-generation solution, which leverages the latest artificial intelligence and deep machine learning engines to help simplify and improve valuation decisions,” said Charles Rumfola, senior vice president strategic initiatives at Veros. “Essentially, VeroPRECISION is an intelligent AVM decision assessment. Users can now be confident that the property is appropriate for AVM use, and that the resulting value conclusion is highly accurate for the specific property in question.” Based on Veros’ testing, approximately 70-80% of all properties are clear candidates for an AVM in lieu of an alternative appraisal. Therefore, about 20-30% of all properties are best assessed by traditional or hybrid valuation products and services. For these properties, VeroPRECISION

will indicate the assignment is best suited for an appraisal or hybrid product. Once the system determines whether or not the property is suitable for AVM use, it then scores the two independent and competing AVMs — Veros’ own VeroValue and Collateral Analytics’ CA Value — at the property level (versus state or county level) and returns the most accurate and strongest AVM. “VeroPRECISION is a game-changer for the mortgage industry, both from a compliance and performance standpoint. We are the first provider to answer the frequently asked question, ‘Is an AVM an appropriate valuation tool for the subject property?’” said Robert Walker, vice president of sales at Veros. “And once the suitability question has been answered, we then provide lenders with the best AVM product for that specific property, providing unprecedented accuracy.” Through a recently formed partnership with home equity valuation provider Valligent, Veros now offers a complete, end-to-end valuation solution for the HELOC marketplace as well. In those instances when an AVM is deemed unreliable, properties may now be automatically routed to Valligent, where a desktop appraisal will be performed by one of its own highly trained analysts or by a pre-screened outside appraiser, based on each client’s pre-determined preferences. “Veros is proud to be the first mortgage technology provider to introduce property-specific AVM decision logic technology,” said Darius Bozorgi, president and CEO at Veros. “As this field advances, Veros will continue to leverage artificial intelligence to develop new and increasingly competitive offerings within the property valuation space that will help our lender clients reduce risk, accelerate the valuation process, save money and enhance the consumer experience.”

HOUSINGWIRE ❱ MARCH 2018 51

Inside Baseball

52 HOUSINGWIRE ❱ MARCH 2018

Inside Baseball

M&A roundup WHICH COMPANIES ARE GETTING IN — A ND OUT — OF LENDING OR SERVICING BY BEN LANE

FISERV SELLS MAJORITY SHARE IN SERVICING BUSINESS TO WARBURG PINCUS

“Fiserv is committed to delivering value for clients, and we expect this partnership with Warburg Pincus to further enhance service and innovation across the lending marketplace,” Jeffery Yabuki, Fiserv’s president and chief executive officer, said. “In addition, we will continue to provide integration advantages to ensure that our collective clients get the best of both organizations to provide differentiated value for our clients, associates and shareholders.” The companies also expect the relationship to support the growth of the lending solutions business. “We are pleased to partner with Fiserv and the Lending Solutions leadership team on this new joint venture, which brings together two leading businesses that provide mission-critical solutions to a growing and attractive client base,” said Jim Neary, managing director, Warburg Pincus. “We see meaningful opportunity to further build this business into a leading platform in automotive and mortgage lending technology.” The deal is expected to close in the first quarter of 2018.

Last year, Fiserv, a provider of financial services technology solutions, grew its offerings by acquiring two businesses: Monitise, a London-based provider of financial services technology, and PCLender, a provider of internet-based mortgage solutions for community banks and credit unions. According to Fiserv, the acquisition of PCLender was designed to “enhance the Fiserv suite of mortgage origination services.” Just a few months later, it appears that Fiserv continues to shift its focus to mortgage origination, as the company announced in February that it was selling a majority share in its mortgage servicing business to private equity firm Warburg Pincus for $395 million. According to the company, Warburg Pincus will acquire a 55% share of Fiserv’s Lending Solutions business, which includes all of the company’s automotive loan origination and servicing products as well as its LoanServ mortgage and consumer loan servicing platform. Fiserv expects to receive approximately $395 million in net after-tax proceeds for the sale and will retain a 45% REVERSE MORTGAGE LENDER AAG EXPANDING INTO equity interest in the business. TRADITIONAL MORTGAGE LENDING Going forward, the lending solutions business will operate as American Advisors Group is one of the nation’s largest reverse a joint venture between Warburg Pincus and Fiserv. mortgage lenders, but in February the company announced that The business will continue under the leadership of Bret Leech, it is expanding into traditional forward mortgage lending as well. currently the president of Fiserv Lending Solutions, and will focus According to AAG, it began piloting forward lending in 2017, on “delivering a market-leading lending experience through in- setting up what it called a “test kitchen” to test demand for tradinovative, borrower-centric technology and processing solutions,” tional mortgages and to establish a real estate broker referral systhe company said. tem for customers who were interested in selling or buying homes. Fiserv will retain its Secure Lending product for e-contracting Now, the company is ready to roll out forward mortgages on a and its UniFi mortgage origination solution. large scale. HOUSINGWIRE ❱ MARCH 2018 53

Inside Baseball

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Last year, SoFi announced its intentions to break into banking by applying for a bank charter under the name SoFi Bank in Utah.”

To do so, AAG is expanding to a new 11,000-square-foot operations center in Folsom, California, which is in the Sacramento area. The Folsom location will house the company’s forward lending operation, where it plans to add 70 to 80 loan officers in 2018. According to the company, for some older Americans, taking out a reverse mortgage isn’t the ideal solution to their financial needs. Filling that gap is what drove this expansion, according to AAG CEO Reza Jahangiri. “For many retirees, income from savings and retirement accounts isn’t enough to cover expenses and they experience a significant drop in their quality of life,” Jahangiri said. “At the same time, older Americans have amassed over $6.5 trillion in home equity. What we’ve seen is that when seniors include home equity in their retirement planning, proactively, they have better outcomes,” Jahangiri said. “And by providing a variety of options for accessing home equity AAG is better able to serve our customers, especially those entering or in retirement.” AAG said that it finished 2017 with record revenues and loan originations, and sees this expansion as the right move for the company’s next phase. According to the company, it “interacts” with more than 400,000 older Americans every year, many of whom respond the company’s frequent TV ads featuring the company’s spokesman, Tom Selleck. “AAG’s new traditional mortgage option is designed for customers who are not eligible or choose not to move forward with a reverse mortgage loan, but want to use their home equity to achieve a better retirement,” said AAG Chief Sales Officer Paul Fiore. “AAG’s loan officers really understand the needs of seniors, and it’s clear that our customers appreciate having options, because options allow them to see the whole picture when planning their financial future.”

BLACKSTONE’S INCENTER COMPLETES ACQUISITION OF AGENTS NATIONAL TITLE INSURANCE COMPANY Over the last few years, Incenter, a Blackstone Group portfolio company, expanded its business offerings through a series of deals. The company launched a mortgage-focused broker-dealer called Incenter Securities Group, invested in cloudvirga, a pro54 HOUSINGWIRE ❱ MARCH 2018

vider of mortgage process automation, and expanded into title and settlement services by acquiring Boston National. But the Boston National deal wasn’t Incenter’s only move into title and settlement services. Last year, Incenter also announced that it planned to acquire Agents National Title Insurance Company (ANTIC), a provider of residential and commercial title insurance services through a national network of independent title agents. That deal is now complete. Incenter announced in February that it finalized the acquisition of ANTIC, which was founded in 2005 and is headquartered in Columbia, Missouri. ANTIC holds licenses in 18 states and has regional offices in Indiana and Texas, supporting more than 150 agencies with over 3,000 employees. John Keratsis, senior managing director of lender services at Incenter, said that acquiring ANTIC will help Incenter provide improved services to its clients. “Our goal at Incenter is to partner with our clients to solve their most pressing business challenges. One of the largest challenges facing many of our clients is the time required to complete a transaction and how to shorten that timeframe while providing excellent customer service,” Keratsis said. “Our experience has shown that one of the solutions to tackle this challenge is title insurance, which has been a key driver for us bringing ANTIC into the Incenter family,”he added. “ANTIC has a demonstrated track record of helping title agents get loans closed as fast as possible while delivering meaningful service promises through talent and technology.” David Townsend, president of ANTIC, said that being backed by Incenter will allow the company to grow. “Our mission at ANTIC is to reset industry standards for what makes a great title underwriter,” Townsend said. “As part of the Incenter family, we will continue to support title agents with fast, reliable underwriting services. We are committed to the growth of the business and look forward to entering new markets and growing awareness in key geographies.” Financial terms of the deal were not disclosed.

GROWING PAINS FOR SOFI? ONLINE LENDER LAYS OFF MORTGAGE STAFFERS It appears that SoFi is suffering a bit of growing pains as it pushes to expand its mortgage lending operation. In late January, Bloomberg reported that SoFi was buying the engineering and product teams of Clara Lending, a mortgage startup founded in 2010. But as those new staffers come in, other staffers are being let go. The Wall Street Journal (and the San Francisco Business Times) reported in February that SoFi is laying off approximately

Inside Baseball

5% of its workforce, with the layoffs coming from the company’s mortgage division. From the WSJ report: The San Francisco-based financial-technology company told staffers on Tuesday it is cutting around 65 jobs, roughly 5% of its 1,300-person workforce, the people said. The layoffs are centered in SoFi’s mortgage-operations centers in Healdsburg, Calif., and Cottonwood Heights, Utah. A SoFi spokesman said the company “made some changes to staffing to ensure we have the right people in the right roles and locations to power our growth.” He added that SoFi is currently looking to fill more than 175 open jobs. The layoffs come on the heels of SoFi naming Twitter Chief Operating Officer Anthony Noto the company’s new CEO. Noto replaces Mike Cagney, who abruptly resigned as CEO back in September with the company embroiled in controversy surrounding sexual harassment allegations. Noto will take over as CEO and join SoFi’s board of directors on March 1, and he has a chore ahead of him to get SoFi back on firmer footing. Over the last few years, SoFi transitioned from specializing in student loans into becoming one of the largest online residential mortgage retailers. In 2016, SoFi shook up the mortgage business when it announced a partnership with Fannie Mae, which included a new loan option that allows homeowners to refinance their mortgage at a lower rate and pay down the balance of an existing student loan. Last year, SoFi announced its intentions to break into banking by applying for a bank charter under the name SoFi Bank in Utah. That move was met by resistance from other banks and members of Congress and the plan was abandoned after Cagney stepped down amid complaints about sexual harassment at the company. SoFi’s alleged toxic culture was the focus of national news coverage, which placed Cagney at the center of the issues. At the time, the company was dealing with claims that the company fired a former employee for reporting sexual harassment allegations to his superiors. The former employee, Brandon Charles, formerly a senior operations manager at SoFi, said in a lawsuit that he witnessed his female colleagues being harassed by managers. SoFi was once the apple of investors’ eye, including raising $500 million last year in its Series F financing led by Silver Lake. That capital raise came roughly 18 months after SoFi raised $1 billion, led by SoftBank. At the time, the capital raise was the largest single financing round in the fintech space to date. Now, it’s up to Soto to bring that feeling back.

FIRST AMERICAN FINANCIAL BUYS BANK OF AMERICA’S LIEN RELEASE BUSINESS First American Financial Corp., a provider of title insurance, settlement services and risk solutions, completed its acquisition of Bank of America’s lien release business on Feb. 1. First American first announced the deal back in December, saying the transaction would be completed during the first quarter of this year. The major deal makes Bank of America’s lien release business and its employees part of First American’s mortgage solutions division. As part of the agreement, the group will continue to provide lien release services to Bank of America. “We have taken our industry leadership in post-closing services and collateral file perfection another step forward,” said Kevin Wall, First American Mortgage Solutions president. “The acquisition affirms our ability and commitment to provide lenders, servicers and investors post-closing services at an unmatched scale and level of efficiency, supported by fraud detection, loan quality and compliance analytics, as well as First American’s No. 1 industry position in real property data coverage,” Wall said. First American explained the acquisition will complement its existing post-closing and document management capabilities, enhancing its ability to serve the lender, servicer and investor communities. HOUSINGWIRE ❱ MARCH 2018 55

Kudos LAUNCHES • Real estate tech provider ACCURATE GROUP launched a new real estate portfolio valuations tool for capital market firms. The technology solution is a combination of the company’s ValueNet appraisal tech platform and industry-compliant appraisal processes unique to capital market firms. It provides valuations on portfolios that include real estate, whole loan sales, mortgage portfolios, mortgage pools and mortgagebacked securities,. REDFIN is expanding its mortgage lending operation again, this time into Virginia. Last year, Redfin moved into mortgage lending, expanding on its digitalfocused real estate brokerage and title businesses. Initially, Redfin Mortgage was available in Texas, then expanded to Illinois, Washington, D.C. and Pennsylvania. Compliance solutions provider COMPLIANCEEASE has added California per diem interest testing to ComplianceAnalyzer with TRID Monitor. The compliance solution is now able to test TRID, RESPA 2010 and pre-2010 forms to validate California’s per diem interest calculations. The California Per Diem Interest Test in ComplianceAnalyzer is able to audit a lender’s calculation for the maximum allowable amount of additional per diem interest that may be charged (or the minimum amount of interest to be credited), and based on the data provided, will provide a “pass,” “fail,” or “not tested” result. LENDINGTREE will now 56 HOUSINGWIRE ❱ MARCH 2018

be able to offer a full digital mortgage experience to its users thanks to a new partnership with ROOSTIFY, a provider of automated mortgage transaction technology. Roostify already powers the digital mortgage process for lenders like GUILD MORTGAGE, and will also serve as the backbone of JPMORGAN CHASE’s digital mortgage process, which is set to roll out soon, according to JPM organ Chase CEO Jamie Dimon. Now, the lenders that appear on LendingTree will have the ability to use Roostify to create a “seamless path” from selecting a lender to actually applying for a loan, and beyond. CHURCHILL MORTGAGE announced the launch of its

Certified Homebuyer Program, aimed at improving how borrowers search for and purchase a home. Churchill is now offering borrowers the opportunity to be pre-underwritten for their mortgage. This initial step will enable those borrowers to get ahead of other buyers and have the confidence that any qualified offer they make on a house will go through in the most efficient manner possible, the company said in a release. In January LOANDEPOT launched a new service, called mello Home, that connects pre-approved homebuyers with verified real estate agents in their local market. mello Home is an expansion of mello, loanDepot’s proprietary digital lending platform

that the company introduced last year. mello includes three different segments: a web-based consumer portal, a mobile pointof-sale system and a fully digital mortgage loan application. mello Home, which will be free for consumers, will connect customers who’ve received credit and digital underwriting preapprovals from local loanDepot loan consultants with a local real estate agent to begin the process of selecting and purchasing a home. Real estate agents will not be required to pay up-front fees to join the mello Home network or to be connected with ready-totransact clients, but will pay a fee to mello Home on closed transactions. Independent mortgage cooperative THE MORTGAGE COLLABORATIVE has announced the addition of forecasting and analytics firm iEmergent to its preferred partner network. IEMERGENT, a 2017 HW Tech100 winner, offers TMC members market-based forecasts that can drill down into communities, making the intelligence relevant to both high-level strategic issues and specific market challenges. SAFEGUARD PROPERTIES launched its next-generation multimedia Photo Direct application, introducing the use of panoramic photos, video and audio to property preservation work in the field. The addition of video, audio and panoramic will provide servicers with valuable information necessary to assess property damage and validate bids.

Kudos

MILESTONES • Flood insurance provider NEPTUNE FLOOD recently secured more than $2 million in seed round funding. The investment was led by Trevor Burgess, the founder and former CEO of C1 BANK, with participation from existing investor and Neptune’s CEO, Jim Albert. The investment will help the company aggressively expand its sales and marketing efforts nationwide and accelerate the next generation of its data-driven, private flood insurance technology, it said. Burgess and Jonathan Carlon will also join Neptune Flood’s board of directors. INCENTER, a BLACKSTONE GROUP portfolio company, finalized its acquisition of AGENTS NATIONAL TITLE INSURANCE COMPANY (ANTIC). The company holds licenses in 18 states and has regional offices in Indiana and Texas, supporting more than 150 agencies with over 3,000 employees. Automated compensation software and systems integration solutions provider LBA WARE announced its sales incentive platform, CompenSafe, calculated $1 billion in lifetime origination commissions and operational bonuses in 2017. The company also experienced notable growth for the year, marked by a 152% increase in to-

tal compensation processed and a 130% increase in the number of lenders using the company’s systems integration solution, LOS Talker, LBA Ware explained in a press release. Portland-based WFG NATIONAL TITLE INSURANCE CO. is expanding its national commercial services division, appointing industry veteran Erin Sheckler to lead the effort for the company. Sheckler’s primary focus will be to grow WFG’s commercial market share by expanding the commercial presence in direct-owned western operations while leveraging the WFG agency network in the eastern states through the National Agency Commercial Services group, which is based in Orlando, Florida. Loan document solutions provider and HW Tech100 winner DOCMAGIC announced in January that it has processed more than 300 million mortgagerelated electronic signatures. The company’s milestone achievement is the direct result of increased adoption of several DocMagic technologies that feature its comprehensive eSigning platform, which can be accessed as a software-as-a-service or on-premise enterprise platform, the company said. DocMagic reported significant increases in volume for Smart-

CLOSE and Total eClose, two technologies that enable lenders to comply with TRID and Uniform Closing Dataset guidelines. Last year, online mortgage lender LENDA announced that it raised $5.25 million in its Series A round of funding, and planned to use the money to expand its business into new states. In January, Lenda announced that it’s done just that, adding four new states to its base of operations. Previously, the company operated in California, Oregon, Washington, Colorado, and Texas but will now also be available in

Illinois, Pennsylvania, Michigan, and Arizona. FLAGSTAR BANK announced it has received approval from the Office of the Comptroller of the Currency to finalize its acquisition of eight DESERT COMMUNITY BANK branches from EAST WEST BANK by the end of the first quarter of 2018. According to Flagstar, the branches, all located in San Bernardino County, Calif., have approximately $600 million in deposits and $70 million in loans. Flagstar said that “certain related assets” were also included in the deal.

GIVING BACK • In the aftermath of Hurricane Harvey, which affected 10% of its employees, NETWORK FUNDING raised more than $20,000. The money helped employees

to secure temporary homes, shelter extended family, cover lost income, demo flood damage and eventually move back into their homes. HOUSINGWIRE ❱ MARCH 208 57

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Industry Pulse

Targeting veterans TIGHTER GINNIE MAE SERVICING REGS HAVE UNINTENDED CONSEQUENCES BY JACOB GAFFNEY AND BEN LANE IN 2017, Ginnie Mae announced that it was launching an investigation into mortgage lenders who were aggressively targeting service members and military veterans for quick and potentially risky refinances of their mortgages. And in December Ginnie Mae started getting the word out that it was actively monitoring the pooling activity of issuers to identify behavior that violates the latest changes to issuer policies. Any issuer that does not comply with the program requirements will be subject to sanctions, Ginnie Mae said. So what’s the impact of these actions down the line? Brent Nyitray, director of capital markets for iServe Residential Lending, said in an email that loan officers are taking note of “lousy” pricing for Federal Housing Administration and Department of Veterans Affairs loans higher up in the rate stack.

“This is an industry-wide phenomenon,” D-Mass., who sent the agency a letter raisNyitray said in his morning report. “For ing concerns about lenders that may be some reason, there is not much demand “aggressively and misleadingly marketfor the higher coupon Ginnie Mae TBAs, ing the refinancing of mortgages backed which means borrowers aren’t seeing the by the VA, generating fees for themselves pickup in lender credit they would expect at the expense of veterans and American taxpayers.” as they go up in rate.” Warren’s letter to Ginnie Mae cited a Here is his full take: “It has been so bad, that we are seeing state November 2016 report from the Consumer downpayment assistance programs sus- Financial Protection Bureau which covpend pricing until things work themselves ered complaints received from veterans out. I am not sure what is driving this — the about VA mortgage refinancing. The report stated that the CFPB received knock on Ginnie mortgage backed securities “many” complaints from veterans who “behas always been prepayment speeds. Bet ween FHA streamlines and VA lieve they are being targeted with aggresIRRRLs, the prepay speeds have been sive solicitations by lenders to refinance much higher than trading desks have been using one of the VA programs.” In many cases, the report noted, the vetmodeling. Ginnie has issued new guidance and regulations in order to prevent serial eran in question did not want to refinance refinancings. So far, that hasn’t translated or had just refinanced, but were targeted into demand for the higher note rate TBAs.” by aggressive lenders nonetheless. Warren’s letter to Ginnie Mae also noted Ginnie Mae’s initial investigation came at the urging of Sen. Elizabeth Warren, that market analysis by JPMorgan Chase HOUSINGWIRE ❱ MONTH 2018 59

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showed that “certain VA mortgage servicers are significantly more likely to ‘churn’ loans,” which is the practice of convincing an existing borrower to refinance their mortgage. Warren’s letter also stated that the “share of ‘churning’ servicers” among newer Ginnie Mae mortgage pools remains “fairly high.” Ginnie Mae, like Fannie Mae and Freddie Mac, is a mortgage bond issuer, but focuses specifically on securitizing pools of government-backed mortgages insured by the VA, the FHA and other agencies, so issues related to refinancing VA loans would affect Ginnie Mae mortgage-backed securities. And according to Michael Bright, the 60 HOUSINGWIRE ❱ MONTH 2018

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When a refinance occurs, the lender collects refinance fees, but the borrower may be left no better off, and in some cases, worse off in the long term.” — Michael Bright

acting president and chief operations of- published its report nearly one year ago. “As the proportion of VA guaranteed ficer of Ginnie Mae, the agency has indeed found some issue with VA refinances. loans in our pools has grown in recent Bright responded to Warren’s letter with years, our attention to VA loan perfora letter of his own. Bright said that Ginnie mance has also increased,” Bright wrote. Mae had been aware of VA refinancing is- “Last year, Ginnie Mae noted unusually sues for some time, even before the CFPB fast prepayment speeds in our securities.”

Industry Pulse

In response, Bright said that Ginnie Mae began working with the VA, Ginnie Mae issuers, and the investment community to gather more information about the cause of the increased prepayment speeds. According to Bright, those conversations led Ginnie Mae to discover that the market for VA loans is “somewhat saturated with lenders and brokers making dozens of calls and sending dozens of letters to veterans” trying to get them to refinance their mortgages. “When a refinance occurs, the lender collects refinance fees, but the borrower may be left no better off and, in some cases, worse off in the long term,” Bright wrote. Bright said the agency put in new standards that limited the delivery of “streamline refinance” loans into standard Ginnie MBS until six consecutive monthly payments were made on the initial loan. These restrictions went into place in February of 2017 and Bright said that Ginnie Mae saw positive results during the first six months, but cautioned that issues still persist. Bright also said that some lenders were employing “evasive mechanisms” to pursue aggressive VA loan churning to avoid the consequences of the new rules. Specifically, Bright identified a number of tactics used by certain lenders to skirt the rules, including: • Waiting until six months and one day after origination and then originating a refinance. • Performing a fully underwritten (nonstreamlined) refinance within just a few months of the origination of the prior loan. • Marketing a cash-out refinance, since cash-outs are excluded from the definition of a “streamlined refinance” and are therefore excluded from the original moratorium on early refinancing. • Refinancing from fixed-rate loans to adjustable-rate mortgages. • Soliciting borrowers for a refinance with the promise that they can skip a month of mortgage payments.

Bright also said that Ginnie Mae’s investigation found “suspicious loan characteristics” on some of these fast refinances, including loans where the home values or credit scores increased substantially in just a few months. Bright acknowledged that the “churning” is negatively impacting Ginnie Mae securities. Ginnie Mae formed a joint Ginnie Mae-VA “Lender Abuse Task Force” to continue to review the situation and determine a course of action. As of press time, Ginnie Mae was threatening a small number of lenders with expulsion from its primary mortgage bond program if the lenders did not address their abnormally high prepayment speeds. “We expect issuers receiving these notices to respond quickly, produce a corrective action plan and come into compliance with our program,” Bright said. If these lenders don’t address their high prepayment speeds, Ginnie Mae said that they “risk being restricted from access to Ginnie Mae multi-issuer pools.” “We have an obligation to take necessary measures to prevent the lending practices of a few from impairing the performance of our multi-issuer securities, and thusraising the cost of homeownership for millions of Americans,” Bright said. In a report sent to clients after Ginnie Mae’s announcement, Wells Fargo analysts Vipul Jain, Anish Lohokare, and Randy Ahlgren wrote that Ginnie Mae appears nowhere close to being done with the VA loan churning issue, predicting more action from the agency. “Now that the conversation has started in earnest with select issuers, we will be monitoring prepayment speeds closely to see if this has the ability to effect change, especially at the steepest parts of the seasoning ramps,” the analysts said. “We believe this news should be a net benefit for (mortgage-backed securities), especially higher coupons where outlier speeds are most prevalent.”

HousingWire readers responded to Ginnie Mae’s actions in the comments section of HousingWire.com: DARREN CORDER: There has been rampant abuse of veterans via the IRRRL. I’m praying for another rate rise, to put the nail into the coffin of the “refi crack addicts,” and let the real pros do their jobs the right way. As a veteran personally, it sickens me the amount of unsolicited mail I get from lenders using deceptive language. I got one from NewDay, and they were so bold, they had a “mission statement” in the letter that said “our mission is for you to get access to 100% equity of your home.” That is lender speak for “we want every veteran to max out their debt through equity destruction.” This also then classifies the loan as “cash out” and the 210-day payment rules and TNB rules go out the window. It’s deplorable. BRENT NYITRAY Not only that, but that VA funding fee isn’t cheap.... Someone is going to get made an example of, and the optics will be terrible... MR. JAMES DUNCAN A big part of it is what Darren said, there aren’t takers on the secondary market willing to price things the way they were a year ago... So a lot of the “transactional” LO’s are having a hard time finding a home for their unnecessary refis. Another part of this is what’s going on with the 10yr bond. Most were expecting the correction we’re seeing, but I think many investors are waiting for some indication it’s going to switch course or at least level off.

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W H I T E PA PE R: Ellie M a e | SP ONSOR E D CON T E N T

Knowledge Center

Cyberattacks and the mortgage industry A BLUEPRINT FOR PROTECTING YOUR BUSINESS EVERYONE’S a potential target. Like any other business or industry these days, the mortgage industry is a target of cyberattacks from adversaries that can range from hacktivists, to organized criminals, to nation-states. These groups’ attack methods are constantly evolving and becoming more advanced. As a result, lenders need adaptive, rapidly evolving and comprehensive security solutions in order to protect themselves from these emerging threats. A wide range of motivations drive individual hackers, activists, organized criminals and governments. Some are committing espionage. Some seek financial gain. Others want to raise the profile of an ideology. The result is that attacks on government and company networks are increasing in both volume and severity. This paper provides a framework for a sound mortgage cybersecurity program.

FIVE FUNCTIONS OF A SOUND CYBERSECURITY PROGRAM The National Institute of Standards and Technology (NIST) defines the following functions as best strategic practices for a cybersecurity program: 1. Identify — Develop the institutional understanding to manage cybersecurity risk to organizational systems, assets, data, and capabilities. 2. Protect — Develop and implement the appropriate safeguards, prioritized through the organization’s risk management process, to ensure delivery of critical services. 3. Detect — Develop and implement the appropriate activities to identify the occurrence of a cybersecurity event. 4. Respond — Develop and implement the appropriate activities, prioritized through the organization’s risk management process, to take action regarding a detected cybersecurity event. 5. Recover — Develop and implement the appropriate activities,

prioritized through the organization’s risk management process, to restore the capabilities or critical infrastructure services that were impaired through a cybersecurity event. Any comprehensive cybersecurity program also requires board and senior management-level support, integration of security activities and controls throughout the organization’s business processes, as well as clear accountability for assigning cybersecurity responsibilities and programs.

FIVE PILLARS OF PROTECTION An effective cybersecurity strategy is built on five pillars. The first four follow the path of a data breach; the fifth pillar provides the necessary supporting functions for the other four pillars. 1. Endpoint defense: Endpoints (e.g., desktops, laptops) are the first point of attack and network vulnerability. 2. Perimeter defense: In order to get the broadest protection, it’s best to start at the perimeter where our systems interface with the rest of the world. 3. Access control defense: Protecting access to critical information assets in order to protect against malicious actors trying to perform credential harvesting or lateral movement. 4. Data control defense: Protecting customer data where it is stored (data-at-rest) is the last resort to protect those critical assets when all other security controls fail. 5. Assurance defense: For the other four defenses above to be effective, several policies and processes need to be in place (e.g., governance, risk, compliance, patch management, certificate management, penetration and red team testing, security awareness).

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com. HOUSINGWIRE ❱ MARCH 2018 71

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Knowledge Center

W H I T E PA PE R: X DOC | SP ONSOR E D CON T E N T

The top three ways lenders can increase originations MAKING IT EASIER FOR BORROWERS IS KEY MORTGAGE originations dropped sharply in the first quarter of 2017 thanks in large part to significant declines in refinance lending volumes. Overall mortgage originations fell 34% in the first quarter while first-lien mortgage originations totaled a mere $372 billion, the lowest quarterly volume originated since 2014. These low numbers can be largely attributed to a sharp drop in refinance originations thanks to homeowners shying away from higher interest rates. Borrowers with high-credit scores have recently made up the lion’s share of the refinance lending market but these borrowers are known to only “strike when the iron is hot,” refinancing when interest rates are low but holding back when there are fewer incentives to act. Originations among this group declined by 50%, contributing heavily to the quarterly drop. Borrowers with low credit scores also shied away from refinancing in the first quarter but the decrease was less severe at only 24%. Fortunately, one sector of the origination market continued to grow in 2017 despite higher interest rates. Purchase originations rose 3% overall from 2016 and 21% from the fourth quarter of the same year. This growth is not enough to offset the drop in refinancing but it does serve as a potential avenue of growth for lenders who have felt the sting from fewer originations. When refinance originations are down, it is crucial for lenders to differentiate themselves from their competitors. This paper explores a handful of ways to attract a higher volume of purchase and refinance originations in a leaner market.

HOW TO ATTRACT MORE MORTGAGE ORIGINATIONS 1) Streamline the Mortgage Process for Consumers The 2017 Borrower Insights Survey of Homeowners and Renters released by mortgage automation provider Ellie Mae found that today’s homebuyers place a premium on speed and simplicity when applying for a home loan.

Lenders who provide these two things by streamlining their application process will have the opportunity to attract wouldbe buyers and refinancers who are put off by onerous application requirements. The value placed on simplicity was uniform among all ages and genders, with everyone from Baby Boomers to Millennials placing a premium on speed and simplicity over other positive qualities like transparency and security.

INCREASING SIMPLICITY In-person applications still make up the majority of origination interactions, but an increasing number of consumers are turning to the internet to initiate the mortgage application process. Lenders who can offer easy-to-understand online application instructions in addition to the option to work directly with an associate have the potential to attract customers on either end of this spectrum. Regardless of medium, it is crucial that applications be comprehensive. Fifty-nine percent of borrowers in a recent study from the U.S. Department of Housing and Urban Development (HUD) expressed frustration with lenders who asked for additional documentation at least once during the approval process. 28% of those surveyed were asked for documentation they had already supplied, leading to a tumble in customer satisfaction. Providing consumers with an easy-to-understand, comprehensive application that is likely to require minimal requests for additional documentation is one of the best ways to attract new borrowers or consumers who are rate shopping and likely struggling with application fatigue. Once the original application is in, lenders can use other tools to court these potential borrowers.

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com. HOUSINGWIRE ❱ MARCH 2018 73

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W H I T E PA PE R: Auction.com | SP ONSOR E D CON T E N T

Knowledge Center

Rethinking disposition HELPING SELLERS MORE EFFECTIVELY MANAGE DISPOSITION AND MITIGATE BLIGHT

OVERVIEW Companies that operate in the home finance industry do so primarily to facilitate homeownership. Accepted for decades as the best avenue for wealth building by the majority of consumers, homeownership today has also been linked to confidence building as a new generation of homebuyers struggles to come of age and leave their parents for a home of their own. Today, homeownership is at the lowest level we’ve seen in a decade, but today’s lenders are working hard to increase it, through more home loans to first-time homebuyers and through the effective disposition of bank owned real estate. The reality is that foreclosure is sometimes required in order to ensure the long-term health of the communities the lender serves. At the height of the most recent recession, just following the financial crash of 2007-08, the foreclosure rate doubled, leading to as many as 50,000 former homeowners being evicted each month. The foreclosure crisis was an historic event that led to many changes in the ways servicers handled the default servicing, foreclosure and REO disposition functions. New technologies developed in the wake of this crisis have made it possible for buyers and sellers to connect much earlier in the disposition pipeline, improving the overall process. Additionally, technology is enabling sellers to operate more efficiently at lower costs in order to move distressed properties back into the market and into the hands of productive homeowners before blight can settle into the communities they serve. In this white paper, we will highlight one of these new developments, which has led to the nation’s first real estate marketplace for distressed properties. In addition, we’ll talk about the growing segment of real estate investors who are using these tools to buy properties to rent and flip and making a nice profit doing so.

IN SEARCH OF A BETTER SOLUTION With the foreclosure crisis behind us, REO and distressed property levels have returned to historical norms. However, the cost of servicing defaulted loans has increased substantially, driving

servicers to find operational efficiencies wherever possible. It remains a priority for bankers to effectively manage the still significant volume of properties going into default and potentially returning to their inventory post-foreclosure. This is, in fact, normal for our industry. Even at the height of the origination boom in 2005, the industry was still seeing 2,500 evictions each month. Mortgage loan servicers are finding that even with “normal” levels of REO and distressed property inventory, a best practices approach is required for success. This is true for a number of reasons. First, the seller (which can include banks, lending institutions and government agencies, among others) is always seeking better execution. Traditional disposition includes many layers of expense and time-consuming processes that result in an expensive, months-long effort to sell their real estate holdings. Sellers seek a method by which they can realize more value and reduce exposure through better overall execution. Second, the seller must increase efficiencies, not simply because it will improve execution, which is vitally important, but also as a risk mitigation strategy. Every day the real estate remains on the bank’s balance sheet, it poses risks the institution would much rather avoid. Properties must be sold quickly and at a higher net value than traditional net. The risks sellers face here go well beyond loss severity, though that financial risk is very real. In addition, they face legal and reputational risks that can lead to such great harm to the institution that it is forced to exit the home finance business or spend great sums to recover. Finally, a new reality that bankers face in the wake of the recession is that consumers have begun to end their relationships with financial institutions they feel are not a benefit, not just to themselves but also to their communities.

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com. HOUSINGWIRE ❱ MARCH 2018 75

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CFPB Watch

Mulvaney defangs the CFPB CHANGES AT THE FAIR HOUSING OFFICE MAY BE JUST THE BEGINNING BY BEN LANE

THE CONSUMER FINANCIAL PROTECTION BUREAU has been in the crosshairs of the Trump administration from day one, with drama worthy of a soap opera when two people claimed the title of acting director in November after Richard Cordray vacated the post. A federal judge intervened, deciding that President Trump had the right to nominate his choice, Mick Mulvaney. Since that time, efforts to defang the bureau have kicked in to high gear. In January, a leaked memo attributed to Mulvaney outlined the bureau’s pivot from a practice of regulation by enforcement to more formal rulemaking. From the memo: “So, what does all of this mean, in terms of how we will operate at the Bureau? Simply put, we will be reviewing everything that we do, from investigations to lawsuits and everything in between. When it comes to enforcement, we will be focusing on quantifiable and unavoidable harm to the consumer. If we find that it exists, you can count on us to vigorously pursue the appropriate remedies. If it doesn’t, we won’t go looking for excuses to bring lawsuits.” In early February, the bureau made waves again as reports surfaced that Mulvaney reportedly stripped the bureau’s Office of Fair Lending of its enforcement powers. The details of the move come courtesy of The Washington Post, which reported that Mulvaney is bringing the Office of Fair Lending directly under his own supervision.

From The Washington Post report: The Trump administration has stripped enforcement powers from a Consumer Financial Protection Bureau unit responsible for pursuing discrimination cases, part of a broader effort to reshape an agency it criticized as acting too aggressively. The move to sharply restrict the responsibilities of the Office of Fair Lending and Equal Opportunity comes about two months after President Trump installed his budget chief, Mick Mulvaney, at the head of the bureau. The office previously used its powers to force payouts in several prominent cases, including settlements from lenders it alleged had systematically charged minorities higher interest rates than they had for whites. That unit now will move inside the office of the director, where staffers will be focused on “advocacy, coordination and education,” according to an email Mulvaney sent them this week. They will no longer have responsibility for enforcement and day-to-day oversight of companies, he wrote. As the article notes, the Office of Fair Lending was previously responsible for the enforcement of fair lending laws, including pursuing redlining allegations against mortgage lenders. Redlining is a practice of excluding certain areas from services due to the area’s racial composition or economic makeup. In 2015, the CFPB’s Office of Fair Lending worked with the Department of Justice to take action against Hudson City Savings HOUSINGWIRE ❱ MARCH 2018 63

CFPB Watch

Bank for providing unequal access to mortgage credit in black and Hispanic neighborhoods. The bank allegedly located branches and loan officers, selected mortgage brokers and marketed products to avoid and thereby discourage prospective borrowers in predominantly black and Hispanic communities. At the time, the $27 million settlement with Hudson City was the largest redlining settlement in the nation’s history. But now, the way the CFPB enforces fair lending laws will almost certainly change, a move bemoaned by CFPB defenders, including former CFPB Director Richard Cordray. “Very upsetting to see the CFPB squatter leadership now interfering with the Fair 64 HOUSINGWIRE ❱ MARCH 2018

Lending unit’s important work enforcing laws against discrimination in credit markets,” Cordray tweeted in the wake of The Washington Post report. “We took on tough cases about redlining and other violations. Some don’t like it but it is the Law of the Land.” Sen. Elizabeth Warren, D-Mass., considered to be the chief architect of the CFPB, also expressed displeasure with Mulvaney’s move. “Since Mick Mulvaney took over the Consumer Financial Protection Bureau a couple months ago, he’s done nothing but undermine it,” Warren posted on Facebook. Fair housing groups also voiced concern about the changes to the Office of Fair Lending.

“Fair Lending is a fundamentally important part of the work of the Consumer Financial Protection Bureau, and of a financial system that works for families and communities. The Office of Fair Lending and Equal Opportunity needs the authority, the resources, and the connections to key levers of change to do its job,” said Lisa Donner, executive director, Americans for Financial Reform. However, the administration disputes these claims. From The Post again: Mulvaney’s spokesman dismissed the criticism, saying the agency would continue to pursue fair-lending cases. “By elevating the Office of Fair Lending to the Director’s Office, we have enhanced its ability to focus on its other important responsibilities,” spokesman John Czwartacki said

CFPB Watch

in a statement. “By combining these efforts under one roof, we gain efficiency and consistency without sacrificing effectiveness.” And Mulvaney is getting plenty of support from others in the Trump administration. In a statement shortly after the action regarding the Fair Housing Office, Comptroller of the Currency Joseph Otting said that he has been “impressed” with Mulvaney’s leadership and the moves he’s made so far. Otting said that he met with Mulvaney on Feb. 6 to discuss way the two agencies can “work together to ensure the nation’s banking system continues to meet the needs of consumers, businesses, and communities across the country.” Otting also said that the two Trump administration officials discussed how the agencies can coordinate to “to make supervision more efficient and to ensure banks continue to treat customers fairly and comply with laws and regulations.” Otting became Office of the Comptroller of the Currency late last year. He served as the CEO of OneWest Bank from 2010 until 2015, working closely with Steven Mnuchin, the bank’s former chairman, who is now Secretary of the Department of the Treasury. When he took over at the OCC, Otting pledged to reduce the “unnecessary burden” that banks face when trying to operate. And in his statement about his meeting with Mulvaney, Otting again emphasized his desire to reduce the regulatory burden that financial institutions face. “I have been impressed with Mick’s leadership and emphasis on operational efficiency and excellence. I share his willingness to reevaluate practices and programs that result in regulatory overreach and unnecessary burden that adversely affect banks’ ability to serve their customers,” Otting said. “We have a common belief that our financial system functions best when it works for everyone — meeting the financial needs of consumers and businesses, cre-

Equifax investigation halted Just a few days after Mulvaney brought the Office of Fair Lending under his direct supervision, Reuters reported that the CFPB is pulling back from its investigation into the data breach at Equifax, which exposed the personal information of 145.5 million U.S. consumers to hackers. After Equifax revealed the data breach, the CFPB said that it would begin looking into the breach, but Reuters reported on Feb. 5 that the CFPB was not taking its previously traditional actions when pursuing a case of this magnitude. From Reuters: Equifax said in September that hackers stole personal data it had collected on some 143 million Americans. Richard Cordray, then the CFPB director, authorized an investigation that month, said former officials familiar with the probe. But Cordray resigned in November and was replaced by Mulvaney, President Donald Trump’s budget chief. The CFPB effort against Equifax has sputtered since then, said several government and industry sources, raising questions about how Mulvaney will police a data-warehousing industry that has enormous sway over how much consumers pay to borrow money. Three sources say, though, Mulvaney, the new CFPB chief, has not ordered subpoenas against Equifax or sought sworn testimony from executives, routine steps when launching a full-scale probe. Meanwhile the CFPB has shelved plans for on-the-ground tests of how Equifax protects data, an idea backed by Cordray. According to the article, the CFPB also reportedly “rebuffed” offers to help conduct exams of the credit reporting agencies from the Federal Reserve, the Federal Deposit Insurance Corp., and the Office of the Comptroller of the Currency. The CFPB is hardly the only regulator looking into Equifax’s failure to protect the sensitive personal information of 145.5 million people. In the wake of the breach, the Federal Trade Commission, the House Financial Services Committee, the Senate Finance Committee, the New York Department of Financial Services, and all 50 state attorneys general launched inquiries into the breach.

ating jobs, and fueling economic growth,” Otting continued. “Our jobs as regulators is to help our system fulfill its important role in society by ensuring it operates in a safe and sound manner and treats customers fairly,” he added. “But, unnecessary regulatory burden is a waste that places a drag on our entire economy without making the system safer or fairer.”

Otting also called out specific actions Mulvaney has taken as ones he supports, including delaying the HMDA reporting changes and reconsidering the payday rule. “I also applaud him for realigning his agency’s mission to the current needs of the nation, making its processes more transparent and fair,” Otting said, adding that he looks forward to continuing to work with Mulvaney in the future. HOUSINGWIRE ❱ MARCH 2018 65

Law and Order

66 HOUSINGWIRE ❱ MARCH 2018

Law and Order

Court rules on PHH case CFPB IS CONSTITUTIONAL, BUT PHH’S FINE REMAINS VACATED BY BEN LANE IN A STUNNING REVERSAL of its previous decision, the full Court of Appeals for the District of Columbia Circuit ruled in January that the Consumer Financial Protection Bureau is constitutionally structured. But the CFPB didn’t escape unscathed. The challenge to the bureau’s constitutionality stemmed from a lawsuit from PHH Corp., which challenged former CFPB Director Richard Cordray’s $103 million increase to a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks. PHH later challenged Cordray’s authority to levy the additional fine and the constitutionality of the CFPB. In October 2016, the Court of Appeals declared the CFPB’s leadership structure unconstitutional and vacated PHH’s $103 million fine. When the Court of Appeals decided to rehear the case en banc, meaning the entire court would hear the case, it tossed out its previous decision, thereby reinstating the fine for the time being. But, the full Court of Appeals elected to only decide on the constitutionality of the CFPB, upholding the court’s earlier decision that Cordray far exceeded his authority as director when he handed down the seven-figure fine against PHH. And in doing so, the court vacated the $100+ million fine against PHH. The fine centered around Cordray saying that PHH violated the Real Estate Settlement Procedures Act every time it accepted a kickback payment on or before July 21, 2008, going beyond the original penalty, which limited PHH’s violations to kickbacks that

were connected with loans that closed on or after July 21, 2008. But the court stipulated in January that Cordray’s interpretation of the RESPA rules was incorrect. From the court ruling: The panel was unanimous, however, in overturning the Director’s interpretation of RESPA. It held that Section 8 permits captive reinsurance arrangements so long as mortgage insurers pay no more than reasonable market value for reinsurance. And, even if the Director’s contrary interpretation (that RESPA prohibits tying arrangements) were permissible, the panel held, it was an unlawfully retroactive reversal of the federal government’s prior position. Finally, according to the panel, a three-year statute of limitations applies to both administrative proceedings and civil actions enforcing RESPA. The panel opinion, insofar as it related to the interpretation of RESPA and its application to PHH and Atrium in this case, is accordingly reinstated as the decision of the three-judge panel on those questions. Unsurprisingly, PHH was pleased with the court’s ruling on the RESPA challenge. “The decision by the full D.C. Circuit Court of Appeals to uphold the panel’s ruling to overturn former Director Cordray’s decision under RESPA with respect to our former mortgage reinsurance activities, which includes vacating the $109 million penalty, is an important and gratifying outcome for PHH and the industry,” PHH said in a statement. HOUSINGWIRE ❱ MARCH 2018 67

Law and Order

“We continue to believe that we complied with RESPA and other laws applicable to our former mortgage reinsurance activities in all respects,” PHH added. “Regarding the remand, we will continue to present, if necessary, the facts and evidence to support our position that mortgage insurers did not pay more than reasonable market value to PHH affiliated reinsurers.” Interestingly, PHH’s statement makes no mention of pursuing the CFPB constitutionality challenge to the Supreme Court. However, the court firmly sided with the CFPB when it came to the bureau’s constitutionality. “None of the theories advanced by PHH supports its claim that the CFPB is different in kind from the other independent agencies and, in particular, traditional independent financial regulators,” the court’s ruling states. “The CFPB’s authority is not of such character that removal protection of its Director necessarily interferes with the President’s Article II duty or prerogative,” the ruling continued. “The CFPB is neither distinctive nor novel in any respect that calls its constitutionality into question. Because none of PHH’s challenges is grounded in constitutional precedent or principle, 68 HOUSINGWIRE ❱ MARCH 2018

we uphold the agency’s structure.” The court also ruled that PHH’s challenge, if successful, would have changed the face of government as we know it. From the court’s ruling: Wide margins separate the validity of an independent CFPB from any unconstitutional effort to attenuate presidential control over core executive functions. The threat PHH’s challenge poses to the established validity of other independent agencies, meanwhile, is very real. PHH seeks no mere course correction; its theory, uncabined by any principled distinction between this case and Supreme Court precedent sustaining independent agencies, leads much further afield. Ultimately, PHH makes no secret of its wholesale attack on independent agencies—whether collectively or individually led—that, if accepted, would broadly transform modern government. Because we see no constitutional defect in Congress’s choice to bestow on the CFPB Director protection against removal except for “inefficiency, neglect of duty, or malfeasance in office,” we sustain it. The court’s earlier decision declared the leadership structure of the CFPB to be unconstitutional, ruling that CFPB’s current

Law and Order

structure allows the director to wield far too much power, more than any other agency in the government. “Because the Director alone heads the agency without Presidential supervision, and in light of the CFPB’s broad authority over the U.S. economy, the Director enjoys significantly more unilateral power than any single member of any other independent agency,” the court wrote in its October 2016 decision. The case began with former CFPB Director Richard Cordray adding a $103 million increase onto a $6 million fine initially levied against PHH for allegedly illegally referring consumers to mortgage insurers in exchange for kickbacks. PHH fought the fine, arguing that Cordray did not have the authority to increase the fine. The case eventually made its way to the Court of Appeals, which ruled in 2016 that the CFPB’s leadership structure was unconstitutional and vacated the additional $103 million fine. The CFPB fought the ruling, asking the court to rehear the case en banc, which the court agreed to do back in February 2017. The court’s previous ruling in the CFPB-PHH case also made the director of the agency removable at will. Under the CFPB’s current structure, the director serves a five-year term and may

only be terminated by the president for “inefficiency, neglect of duty, or malfeasance in office.” Last year, the government began to indicate that it might be switching sides in the battle between the CFPB and PHH, signaling that the Trump administration would not be as supportive of the CFPB as the Obama administration had been. And indeed that’s what happened, as the Department of Justice filed an amicus brief in March 2017, asking the court to rule the CFPB’s leadership structure unconstitutional and grant President Donald Trump the authority to fire the CFPB director at will. But the full Court of Appeals ruled that the CFPB is constitutionally structured and that the director is removable only for cause. From the ruling: We find no reason in constitutional precedent, history, or principle to invalidate the CFPB’s independence. The Supreme Court has sustained for-cause protection for the heads of certain administrative agencies—even if they perform a mix of regulatory, investigative, prosecutorial, and adjudicatory functions—as compatible with the President’s essential duty to assure faithful execution of the law. The CFPB led by a single Director is as consistent with the President’s constitutional authority as it would be if it were led by a group. Like other independent federal financial regulators designed to protect the public interest in the integrity and stability of markets from short-term political or special interests, the CFPB is without constitutional defect. Congress’s decision to provide the CFPB Director a degree of insulation reflects its permissible judgment that civil regulation of consumer financial protection should be kept one step removed from political winds and presidential will. We have no warrant here to invalidate such a time-tested course. No relevant consideration gives us reason to doubt the constitutionality of the independent CFPB’s single-member structure. Congress made constitutionally permissible institutional design choices for the CFPB with which courts should hesitate to interfere. But the court’s decision was not unanimous. Several judges, including Judge Brett Kavanaugh, who authored the court’s original opinion, dissented in this ruling. In his dissenting opinion, Kavanaugh argues that the CFPB should be led by a committee, rather than a single director. “The CFPB violates Article II of the Constitution because the CFPB is an independent agency that exercises substantial executive power and is headed by a single Director,” Kavanaugh writes in his dissention. “We should invalidate and sever the for-cause removal provision and hold that the Director of the CFPB may be supervised, directed, and removed at will by the President.” HOUSINGWIRE ❱ MARCH 2018 69

INDEX COMPANIES A Accurate Group...............................................................................56 ACT Appraisal..........................................................................47-48 Agents National Title Insurance Company ��54, 57 Airbnb..................................................................................................24 American Advisors Group.........................................................53 Americans for Financial Reform.......................................... 64 American Student Assistance...............................................42 Angel Oak...........................................................................................21 Auction.com.......................................................................22-23, 75

B BambooHR.......................................................................................29 Bank of America.............................................................................55 Bank of the West............................................................................16 Better Mortgage............................................................................24 Blackstone..........................................................................37, 54, 57 Bloomberg........................................................................................54 Boston National.............................................................................54

C C1 Bank................................................................................................ 57 Central Intelligence Agency.....................................................16 Chase.....................................................................................16, 56, 59 Churchill Mortgage.......................................................................56 Citi...........................................................................................................14 Citibank................................................................................................14 Citizens Bank....................................................................................24 Citizens Financial Group.............................................................16 City College...................................................................................... 44 Clayton......................................................................................7, 14, 27 Clayton Holdings........................................................................... 27 Clear Capital......................................................................36, 47, 49 cloudvirga..........................................................................................54 ComplianceEase............................................................................56 Consumer Bankers Association.............................................16 Consumer Financial Protection Bureau.44, 59, 63-64, 67 CoreLogic Valuation Solutions..............................................38

D DataQuick.............................................................................................7 Department of Housing and Urban Development 24, 73 Desert Community Bank.......................................................... 57 D+H.........................................................................................................14 DIMONT................................................................................................14 DocMagic........................................................................................... 57 Docutech.............................................................................................14

E Eagle Home Mortgage.............................................................. 44 East West Bank.............................................................................. 57 Economic Policy Institute........................................................ 44 Ellie Mae..........................................................................16, 42, 71, 73 Equifax................................................................................................65

F Facebook..............................................................................21, 35, 64 Fannie Mae.................... 24, 31, 35, 38, 44-45, 49, 51, 55, 60 Federal Deposit Insurance Corp............................................65 Federal Housing Administration..........................................59 Federal Reserve...............................................................14, 24, 65 Federal Reserve Bank of New York ��14 Federal Trade Commission......................................................65 Finastra................................................................................................14 First American...................................................36-38, 47, 50, 55 First American Financial Corp................................................55 First American Mortgage Solutions............. 37, 47, 50, 55 First California Mortgage Company ��14 First Rate Field Services..............................................................14 Fiserv.............................................................................................24, 53 Fiserv Lending Solutions...........................................................53 Flagstar Bank.................................................................................. 57

G Garden State Home Loans......................................................20 Genesis Pure......................................................................................14 Ginnie Mae..................................................................................59-61

76 HOUSINGWIRE ❱ MARCH 2018

VALUATIONS

What’s next for appraisers? p34

Guaranteed Rate............................................................................14 Guild Mortgage...............................................................................56

SoFi........................................................................................44, 54-55 SunTrust...............................................................................................16

Hilton Bonnet Creek Resort......................................................16 Home Point Financial..................................................................14 Hudson City Savings Bank.......................................................63

the Appraisal Institute................................................30, 35-36 The Brookings Institution.........................................................42 The Chertoff Group........................................................................16 The Mortgage Collaborative..................................................56 The Wall Street Journal..................................................7, 37, 54 The Wynn Resort...........................................................................16 Twitter......................................................................................... 39, 55

I IBM Watson Financial Services..............................................16 iEmergent..........................................................................................56 Incenter........................................................................................54, 57 Incenter Securities Group..........................................................54 Informative Research..................................................................14 Invitation Homes....................................................................37-38 iServe Residential Lending......................................................59

United Wholesale Mortgage.............................................18, 21 Universal Studios...........................................................................16 U.S. Department of Education..............................................42

JPMorgan Chase....................................................................56, 59

Veros........................................................................................35, 47, 51

Land Home Financial Services...............................................14 LBA Ware........................................................................................... 57 Lenda................................................................................................... 57 LendingTree......................................................................................56 LERETA...................................................................................................7 Lima One Capital............................................................................14 LoanBeam..........................................................................................14 loanDepot.........................................................................................56 LoanLogics.........................................................................................14

Warburg Pincus..............................................................................53 Waterstone Mortgage Corp.....................................................14 Wells Fargo...................................................................14, 16, 24, 61 WFG National Title Insurance Co......................................... 57 Work Institute..................................................................................29 WPS Advisors...................................................................................14

M MB Financial......................................................................................21 McKinsey & Company..................................................................14 Miller Samuel...................................................................................36 Monitise..............................................................................................53 Mortgage Bankers Association.............................................24 Mortgage Quality Management and Research 14 Mountain West Financial...........................................................31

N NAMB...................................................................................................20 NAR............................................................................................... 24, 42 National Association of Realtors.........................................42 National Center for Education Statistics ��42 National Center for Public Policy and Higher Education.........................................................................................................42 National Institute of Standards and Technology 71 National Security Agency..........................................................16 Nations Direct Mortgage............................................................21 Neptune Flood................................................................................ 57 Network Funding........................................................................... 57 New York Department of Financial Services 65

O Office of the Comptroller of the Currency ��57, 65 OneWest Bank................................................................................65 Orion Mortgage...............................................................................21

X XDOC.................................................................................................... 73 XINNIX..........................................................................................28-29

PEOPLE A Ahlgren, Randy................................................................................61 Albert, Jim.......................................................................................... 57

Kavanaugh, Brett......................................................................... 69 Keratsis, John...................................................................................54 Kingsley, Jay......................................................................................38

L Leech, Bret........................................................................................53 Lohokare, Anish...............................................................................61 Lombardi, Craig...............................................................................14 Lopez, Jennifer.................................................................................16

M Marshall, Kevin................................................................................36 Martin, Ricky......................................................................................16 Mateti, Devi.......................................................................................38 McChrystal, Stan............................................................................16 McKone, Joe.......................................................................................14 Miller, Jonathan..............................................................................36 Mnuchin, Steven............................................................................65 Mulvaney, Mick........................................................................63-64

N Neary, Jim...........................................................................................53 Neville, Bill..........................................................................................14 Noble, Lori..........................................................................................39 Noto, Anthony.................................................................................55 Nyitray, Brent............................................................................59, 61

O Opelka, George................................................................................37 Otting, Joseph.................................................................................65 Owen, Dustin.....................................................................................14

R Ramsay, Gordon..............................................................................16 Raykov, Dimitar................................................................................37 Remy, Ralph.....................................................................................29 Richie, Lionel.....................................................................................16 Rudegeair, Peter..............................................................................37 Rumfola, Charles............................................................................51

Quicken Loans...........................................................................14, 24

Fiore, Paul..........................................................................................54 Franks, Bryan.................................................................................. 48

Safeguard Properties..................................................................56

Cagney, Mike.....................................................................................55 Carlon, Jonathan........................................................................... 57 Casa, Anthony.................................................................................20 Charles, Brandon...........................................................................55 Chen, Kenon.....................................................................................49 Corder, Darren...................................................................................61 Cordray, Richard......................................................63-65, 67, 69 Cox, Tim...............................................................................................14 Czwartacki, John........................................................................... 64

Jahangiri, Reza................................................................................54 Jain, Vipul............................................................................................61

Radian Group.............................................................................14, 27 Raglan Road Irish Pub.................................................................16 Red Bell Real Estate.................................................................... 27 Redfin...................................................................................................56 Reuters................................................................................................65 Roostify...............................................................................................56

Purdy, Amy.........................................................................................16 Purushothaman, Lakshmi.......................................................78

Parkside Lending............................................................................21 PCLender............................................................................................53 Pew Research Center..........................................................42, 44 PHH Corp......................................................................................14, 67 Plaza Home Mortgage................................................................21

Ibanez, Loretta...............................................................................78 Iqbal, Mubashar..............................................................................37

Bozorgi, Darius...........................................................................35, 51 Brandt, Amy......................................................................................14 Bright, Michael...............................................................................60 Burgess, Trevor................................................................................ 57

Dahlgren, Sarah..............................................................................14 Dezember, Ryan..............................................................................37 Dimon, Jamie...................................................................................56 Dombrowski, Joe...........................................................................24 Donner, Lisa..................................................................................... 64 Dudley, George................................................................................29 Duke, Annie.........................................................................................17 Duncan, James.................................................................................61

G Goodson, Shannon......................................................................29

H Han, Joel.............................................................................................24 Harbour, Collin..................................................................................14 Hayden, Michael..............................................................................16 Holbrook, David...............................................................................14 Hummel, Alan..........................................................................37, 50

S Selleck, Tom.....................................................................................54 Sheckler, Erin.................................................................................... 57 Shuler, Bill...........................................................................................14 Smalley, Michael.............................................................................14 Stephen, Scott.................................................................................14 Sullivan, Marianne........................................................................35

T Tennyson, Jeff...................................................................................14 Townsend, David...........................................................................54

V Vaynerchuk, Gary............................................................................17

W Wadsworth, Gordon....................................................................42 Walker, Robert.................................................................................51 Wall, Kevin......................................................................... 36, 38, 55 Walsh, John.........................................................................................7 Warren, Elizabeth..................................................................59, 64 Warren, John.....................................................................................14 Wayman, Stacy..............................................................................29

Y Yabuki, Jeffery.................................................................................53 Yun, Lawrence.................................................................................24

AD INDEX A

Arch MI ......................................................................................... 3 B

Black Knight Financial Services ........................................ 2 D

Docutech ...................................................................................15 E

Ellie Mae ................................................................................ 4, 5 F

Freddie Mac ...............................................................................8 G

Global DMS ................................................................................6 M

Metro-West Appraisal Co. ................................................. 10 N

New American Funding ....................................................80 T

TMS .............................................................................................79 U

United Wholesale Mortgage .....................................32,33 USRES .........................................................................................12 HOUSINGWIRE â?ą MARCH 2018 77

PARTING SHOT

Freddie Mac executives Loretta Ibanez, left, and Lakshmi Purushothaman, center, discuss big data with Sarah Wheeler, managing editor of HW Content Solutions, at the NEXT Mortgage Tech Conference for Women in Dallas inJanuary.

78 HOUSINGWIRE ❱ MARCH 2018

Photo by Beau Brand

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