May 2017 Issue by HousingWire

HOUSINGWIRE MAGAZINE ❱ MAY 2017

REVERSE MORTGAGES Seniors are sitting on $6 trillion in home equity, which offers lenders a golden opportunity with HECM loans.

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COMPANY SPOTLIGHT United Wholesale Mortgage unveils latest tech innovation. HOUSINGWIRE MAGAZINE ❱ MAY 2017

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2017 Secondary Market Forecast 2017 PROMISES GROWING RISK AND SPARSE RETURNS

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HOUSINGWIRE MAY 2017 EDITORIAL EDITOR-IN-CHIEF Jacob Gaffney MAGAZINE EDITOR Sarah Wheeler ASSOCIATE EDITOR Caroline Basile SENIOR FINANCIAL REPORTER Ben Lane DIGITAL REPORTER Brena Swanson REPORTER Kelsey Ramirez CONTRIBUTORS Casey Cunningham, Andy Pollock, Christopher Whalen

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 David Wilson dwilson@HousingWire.com Tyson Bennett tbennett@HousingWire.com AD OPERATIONS MANAGER Kristy Figueroa SALES COORDINATOR Lydia Bellows

CORPORATE PRESIDENT AND CEO Clayton Collins CONTROLLER Kimberly Hudson OFFICE ADMINISTRATOR Stephanny Morales

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.

A FAMILIAR FACE KROLL BOND RATING AGENCY announced recently that Christopher Whalen, who served as senior managing director and head of research at the company, is stepping down. Whalen, an investment banker, author, and frequent HousingWire contributor, joined KBRA in 2014. Before then he worked at Carrington. During his three years at KBRA, Whalen was responsible for the ratings of commercial banks and financial institutions. Whalen also frequently published research on the financial services industry. According to the announcement from KBRA, Whalen will be “returning to his past role as an analyst and consultant covering the financial services and mortgage finance sectors” after leaving KBRA. KBRA’s announcement also states that Whalen is launching a subscription newsletter in April that will focus on financials and related technology companies in April. But for HousingWire readers, he is the author of some of these headline gems on our website: The stiff arm of Dodd-Frank Housing’s overhangs and hangovers Wells Fargo doubles down on housing While well loved, his contributions grew few and far between. Indeed, Whalen provided only four articles for HousingWire readers in 2014. And only one in 2015. And then things stopped altogether in 2016. Until today. I’m pleased to announce, that after some five years of absence, Mr. Whalen is again returning to the pages of HousingWire magazine, with exclusive content just for our readers, beginning with this very issue. So, consider this a thank you for remaining our loyal supporters; we are committed to securing only the highest caliber contributors out there. Agree with Whalen or not, we are positive you will enjoy his continued contributions. I know I do.

Jacob Gaffney Editor-in-Chief @jacobgaffney

TWEETS FROM THE STREET It’s a full-time investigative job just trying to figure out where @SecretaryCarson is on any given day. #housing Lorraine Woellert @Woellert

HOUSINGWIRE ❱ MAY 2017 5

CONTENTS

40 FEATURE SILVER BULLET Senior homeowners are sitting on trillions in home equity, but only 6% show interest in utilizing it. Faced with declining purchase mortgages, can lenders turn this into the next lending boom? By Caroline Basile

34 FEATURE

SECONDARY MARKET FORECAST What’s ahead for the secondary market in 2017? In the wake of Donald Trump’s presidential victory, one analyst sees a volatile future. By Christopher Whalen

46 FEATURE COMPANY SPOTLIGHT: UNITED WHOLESALE MORTGAGE UWM reveals its newest innovation, Blink, to help brokers provide an exceptional experience for borrowers. The company’s explosive growth reflects its commitment to providing excellent service. HOUSINGWIRE ❱ MAY 2017 7

MAY 2017

THE LINEUP

12 PEOPLE MOVERS Joe Neuberger is named president of U.S. Bancorp Fund Services after his predecessor, Joe Redwine, announced he will retire in July.

14 EVENT CALENDAR

The MBA Commercial/Multifamily Servicing & Technology Conference kicks off in Phoenix in May, and Washington, D.C. hosts MBA’s National Advocacy Conference in June.

15 ON THE SHELF Our selections this month include “Toxic Inequality” and “Why Wall Street Matters,” ex-investment banker William D. Cohan’s plea to the pessimists of Wall Street.

16 HOT OR NOT See what’s shaking up housing this month, for better or worse. Low down payments are on the list, along with Hispanic homeownership, Wells Fargo’s CRA rating and plywood.

18 DISPATCH 1 As the hottest housing markets hit double digit growth and the number of appraisers drops, AVMs provide alternative tools for lenders and servicers.

30 VIEWPOINTS

20 DISPATCH 2

28 HOW TO LEAD A PRODUCTIVE SALES TEAM Casey Cunningham, CEO of XINNIX, shares how managers can drive employee engagement, leading to better performance and longer retention of loan officers.

Auction.com offers a different perspective on neighborhood stabilization, one that relies on an alternative disposition strategy.

24 LENDING LEADERS 30 REIMAGINING MORTGAGES Andy Pollock, chief revenue officer of Clayton Holdings, discusses how traditional lenders and servicers can benefit from leveraging fintech to improve and update workflow.

32 HERE’S WHAT’S WRONG WITH THE CFPB’S PRACTICE OF REGULATING THROUGH ENFORCEMENT HousingWire Editor Sarah Wheeler discusses how companies who want to do the right thing are caught in the crosshairs of the CFPB’s broad regulations.

Fannie Mae wows with Day 1 Certainty program, making the origination process simpler and easier for consumers and lenders.

26 HOT SEAT David Gansberg, CEO of Arch MI, discusses the advantage of a personalized approach to mortgage insurance in attracting Millennial homebuyers.

TWEETS FROM THE STREET My hot take: Donald Trump is the same man today as he was yesterday. David Frum @davidfrum

HOUSINGWIRE ❱ MAY 2017 9

MAY 2017

48 BACK DEPARTMENTS 48 INSIDE BASEBALL What will a new face at the Department of Justice mean in relation to False Claims Act charges? The Trump Administration continues to shake up the status quo.

52 CFPB WATCH JPMorgan Chase CEO Jamie Dimon predicts $300 billion in additional mortgages will be achieved under regulatory changes, calling out regluations as complex, costly and confusing.

56 KUDOS Tavant Technologies opens its second U.S. development and innovation center and PRMI visits a Costa Rican school to lend a hand.

58 TAKE 5 Selma Hepp, chief economist and vice president of business intelligence at Pacific Union reveals her affection for great Russian literature among other surprises.

60 INDUSTRY PULSE Despite battling Congress and the Trump adminstration for its survival, the CFPB remains focused on enforcing regulations, and HMDA regulations top that list.

64 KNOWLEDGE CENTER Simplifile discusses how to close the post-closing loop while Chronos Solutions outlines asset mangement and REO disposition in two white papers.

68 COMPANIES/PEOPLE INDEX

69 AD INDEX 70 PARTING SHOT

TWEETS FROM THE STREET Big banks & predatory lenders want to kill @CFPB because itâ&#x20AC;&#x2122;s protecting families & servicemembers from financial fraud & abuse. #DefendCFPB Sherrod Brown @SenSherrodBrown

HOUSINGWIRE â?ą MAY 2017 11

Joe Neuberger U.S. Bancorp Fund Services

12 HOUSINGWIRE ❱ MAY 2017

GRAHAM

HARALSON WORK

EMANUEL JAUCHIUS

lliot Salzman joined LoanLogics as chief credit officer from First Guaranty Mortgage Corp., where he was senior director of credit operations. Salzman also served as underwriting standards manager for Fannie Mae, senior vice president, director of consumer policy and underwriting for BBVA Compass Bank, and vice president of correspondent lending for The Bank of Oklahoma. The National Association of Hispanic Real Estate Professionals has installed Leo Pareja as its 2017 national president and Daisy Lopez-Cid as president-elect. Prior to their new leadership roles, Pareja served as 2016 president-elect and LopezCid served on the board for two terms. Denia Graham has been named chief operating officer of National Real Estate Solutions. As COO Graham will take control of operations within NRES and oversee vendor management, recruiting and training, FHA/HUD conveyance and client management. Before joining NRES, Graham was president of Nations Property Solutions. Amar Patel has rejoined nonbank Nationstar as executive vice president and

THORPE

DONNELLY HYATT

Joe Neuberger has been named president of U.S. Bancorp Fund Services. Neuberger replaces current president, Joe Redwine, who will retire at the end of July. Neuberger previously served as the company’s executive vice president and chief operating officer.

chief financial officer, replacing Robert Stiles, who recently left the company. Patel served as Nationstar’s executive vice president of portfolio investments from 2011-2016. Prior to joining Nationstar, Patel held various management positions at Capstead Mortgage Corp., serving as senior vice president asset and liability management before leaving the company in 2006. Matthew Jauchius has been named to the role of executive vice president and chief marketing officer for Fifth Third Bank. Jauchius will oversee marketing and customer experience. Prior to joining the Cincinnati-based bank, Jauchius served as executive vice president and chief marketing officer for Hertz Global Holdings Inc., a position he held since 2015. Before joining Hertz, Jauchius served as chief marketing officer for Nationwide Mutual Insurance Company from 2010 to 2015. Castle & Cooke Mortgage’s president and chief operating officer, Adam Thorpe, has been appointed to Fannie Mae’s SingleFamily Risk Advisory Board, which helps shape the credit policies of Fannie Mae.

Ali Haralson has been named as Auction.com’s new executive vice president of client management and will oversee growing market share for the company. Haralson has more than 20 years of experience in servicing, most recently serving as the chief operations officer and a co-founder of Specialized Loan Servicing. Her prior experience also includes serving as senior vice president of loan administration for Olympus Servicing. Emil Emanuel has been named vice president and national account manager for Essent Guaranty. Emanuel will oversee business development and deliver private mortgage insurance solutions for the national mortgage insurance provider. Emanuel has more than 11 years of mortgage banking experience and previously served as vice president and senior account executive for mortgage banking correspondent lending at Chase. Independent Settlement Services’ Ashley Hyatt and Kayla Work have been promoted to vice president positions at the appraisal and title management services company. Hyatt, who has eight years of appraisal and banking experience, was named vice president of operations and now oversees day-to-day operations. Work was appointed vice president of sales and marketing, overseeing marketing material creation and maintaining the company's website and social media accounts. Michelle Donnelly has been named Movement Mortgage’s first chief commercial officer. Before joining Movement, Donnelly, a Harvard Business School alumna, served in various sales, marketing, strategy and product development roles as a senior executive for a large pharmaceutical and biotech firm.

EVENT CALENDAR

MBA’S COMMERCIAL/MULTIFAMILY SERVICING & TECHNOLOGY CONFERENCE MAY 21-24, 2017 Host: Mortgage Bankers Association Location: Arizona Biltmore, Phoenix, AZ Cost: $450-$1,560 On the agenda: This year’s opening session features Dr. Tracey Wilen, a New York Times best-selling author and researcher on technology’s impact on society, work and careers. Wilen’s presentation, Digital Disruption – The Future of Work, Skills, and Careers in a Digital World, discusses trends that impact jobs, new skills to remain relevant, and gives advice on managing a career and workforce in a tech-driven world. The conference also includes informative sessions covering economic and market drivers and key trends that shape the servicing industry.

PHOENIX Founded in 1929, the Heard Museum is dedicated to the sensitive and accurate portrayal of Native American arts and culture. The museum features 12 exhibition galleries, free guided tours, outdoor sculpture gardens, a contemporary art gallery and more. The museum is open Monday through Saturday, 9:30 a.m. to 5 p.m. and Sunday, 11 a.m. to 5 p.m. Admission for adults is $18 and $13.50 for seniors 65 and older. heard.org/

MBA’S NATIONAL ADVOCACY CONFERENCE 2017 JUNE 20-21, 2017 Host: Mortgage Bankers Association Location: Grand Hyatt Washington, Washington D.C. Cost: $350-$450 On the agenda: The largest mortgage advocacy conference focuses on real estate finance issues and enables industry professionals to show the impact and damage proposed legislation can have on industry businesses, consumers and the economy. Sessions feature guest speakers including politicians and professionals involved in housing policy, in addition to briefing sessions on residential and commercial/multifamily issues to prepare for visits to Capitol Hill on the final day of the conference.

WASHINGTON D.C. Visiting the capital and want to pay the White House a visit? You’re more than welcome, but it’s going to take some prior planning. The tours are self-guided and free, but the limited spaces fill up quickly, so send a request to your member of Congress at least 21 days in advance. The tours are available Tuesday through Thursday, 7:30 a.m. to 11:30 a.m., and between 7:30 a.m. to 1:30 p.m. on Friday and Saturday. whitehouse.gov/participate/tours-and-events 14 HOUSINGWIRE ❱ MAY 2017

ON THE SHELF “Toxic Inequality: How America’s Wealth Gap Destroys Mobility, Deepens the Racial Divide, and Threatens Our Future” THOMAS M. SHAPIRO BASIC BOOKS

Sociologist Thomas Shapiro argues that wealth disparities must be understood in tandem with racial inequities, a hybrid he calls "toxic inequality." Shapiro dissects how the forces of the wealth gap and racial inequalities trap families in place. His research vividly documents the recession’s toll on families, how families manage crises and expand opportunities, and why some families build wealth and prosper while others stay in place and struggle in poverty.

“Why Wall Street Matters” WILLIAM D. COHAN RANDOM HOUSE

Cohan, an exinvestment banker and financial journalist, takes a no-nonsense approach to tackling the pessimist’s view of Wall Street after growing alarmed by the constant vitriol directed at financial institutions and the people working for them. Cohan reminds readers that, no matter where your political or professional affiliations fall, Wall Street is the essential grease that keeps our economic engine running smoothly and without it, we may not like the consequences if its role is diminished.

HOUSINGWIRE ❱ MAY 2017 15

Hot SIZZLE? Not FIZZLE? 1 1 WHY THE

WHY THE

LOW DOWN PAYMENTS



Despite the current lack of inventory in the housing market, homebuyers can still successfully close on a house with a low down payment, according to a survey of more than 800 Redfin real estate agents. The survey found half of agents reported that the typical down payment for successful buyers in their market was less than 20%, even though competition is extremely fierce. Although 20% down still ranks as the typical down payment, 3% to 5% down payments are the second top option for successful buyers.



SPRING HOME BUYING MARKET The spring home buying season seemed to start early this year as 42% of homes sold in February were listed for less than a month, according to the National Association of Realtors. And the rest of the season will follow the same pattern. In fact, CoreLogic’s Home Price Index Forecast predicted this spring home-buying season is shaping up to be the strongest in recent memory despite ever-increasing home prices and dwindling housing inventory.

HISPANIC HOMEOWNERSHIP Hispanic homeownership is the driving force of U.S. homeownership growth, according to a report released at the National Association of Hispanic Real Estate Professionals Policy Conference in the nation’s capital. The Hispanic homeownership rate accounted for 74.9% of the net growth in overall U.S. homeownership in 2016. The Hispanic rate of homeownership increased from 45.6% in 2015 to 46% in 2016. On the other hand, the nation’s overall homeownership rate decreased from 63.7% to 63.4%, a 51-year low.

16 HOUSINGWIRE ❱ MAY 2017

PLYWOOD



Fannie Mae announced it's moving away from plywood entirely. In a bulletin to servicers, Fannie said it “no longer accepts plywood boards as an acceptable boarding solution on windows of its properties." Servicers are now required to replace plywood boarded windows on homes in pre-foreclosure with clear boarding or a replacement window. The new rule doesn’t apply to homes in REO status, but for pre-foreclosures, plywood is allowed only in specific circumstances: if the home is “severely fire damaged” or in pre-demolition.



REFINANCES The share of mortgage applications for refinances has dropped to a level not seen since October 2008, data from the Mortgage Bankers Association shows. And, after a final surge of homeowners who waited until the last minute, refinances have been falling consistently since mortgage rates began their upward climb. Now, as the Federal Reserve begins making good on their plan for at least three rate hikes in 2017, refinances will continue to fall throughout the year.

WELLS FARGO’S FAIR LENDING According to a new Community Reinvestment Act review from the Office of the Comptroller of the Currency, Wells Fargo's overall CRA rating is being dropped two notches, from Outstanding to Needs to Improve. In its review, the OCC said the downgrade is due, in part, to “the extent and egregious nature of the evidence of discriminatory and illegal credit practices.” It also said Wells Fargo demonstrated an “extensive and pervasive pattern and practice of violations across multiple lines of business within the bank,” resulting in “significant harm to large numbers of consumers.”

Automated valuation models provide answer to appraiser shortage The critical role of data in determining true value

ome of the nation's hottest housing markets hit double digit growth last year while at the same time fees and delays related to the appraiser shortage continue to rise, throwing a wrench into an otherwise smoothly running mortgage machine. How will this impact 2017 as new loan programs look to expand the credit box? According to Appraisal Institute data from June 2016, the number of appraisers has dropped 22% since 2007, and the average age of appraisers is now 53, with few younger workers entering the field. The decline is partly due to a mismatch of

18 HOUSINGWIRE â?ą MAY 2017

regulations and licensing requirements, which demand 2,500 hours of appraisal experience on one hand, but bar apprentices from performing full appraisals on the other. Without a change in those regulations, appraisers have no incentive to bring on apprentices, and, with no clear path to employment, the number of appraisers will continue to dwindle. The Appraisal Institute predicts that the number could drop as much as 30% in the next 10 years. Collateral valuations are a critical part of any loan, so the shortage of qualified appraisers puts up a serious roadblock in

the mortgage process, especially for lenders who rely fully on appraisals for all transactions. Lenders in a 2016 Stratmor survey reported that appraisal turn times had increased 70% for purchase loans and 81% for refinance loans. In hot markets, the appraiser shortage is especially disruptive. According to The Seattle Times, about three-fourths of the homes listed in that city spark bidding wars, resulting in multiple inspections and appraisals on the same property. CNBC reported in September that it was taking up to seven weeks to get a traditional appraisal in some areas.

VEROS | SPONSORED CONTENT

For lenders, waiting for these types of durations on an appraisal puts the entire loan process in jeopardy as rate locks expire and borrowers are unable to afford higher payments. Now that the market is in a new, higher rate environment, closing delays can ruin a homeowner’s chances to get their preferred home and negatively affect the lender’s bottom line. The Denver Post reported that closing times had climbed to 43 days in September, versus 39 days a year earlier. The chairman of the Denver Metro Association of Realtors said the closing delays were a direct result of an appraiser shortage. Quality could also suffer in the midst of this shortage. Appraisers called in from outside a community — sometimes as far away as another state — may not be qualified to accurately assess a property’s true value. And under an increased workload, appraisers may have less time for due diligence. In the Denver area, buyers are paying surcharges to move up the waiting list, pressuring appraisers to perform more appraisals per day than in the past. With no end in sight to this shortage, when is it time to bring appraisal alternatives to the forefront? While full appraisals are mandated for purchase mortgages, other situations don’t require a traditional appraisal, including pre-qualification at loan origination, prefunding, post-closing quality control, real estate owned (REO) management and portfolio retention. For these situations, lenders and servicers can leverage alternatives to determine a property’s value, including: • Automated Valuation Models (AVM) • Property Condition Reports (PCR) • Broker Price Opinions (BPO) • Home Price Indices (HPI) • Residential Evaluations • Small Balance Commercial Evaluations • Desktop Appraisals • Desktop Appraisal Reviews While no one tool is best for all valuation needs, appraisal alternatives are designed to give lenders and others a variety of tools to value property, augmenting the traditional appraisal with options that fit

individual situations. These tools harness the vast amount of data flowing through the marketplace to provide accurate, timely valuations without having to rely on appraisers. Alternatives to full appraisals have gained increasing attention and support in the last several years. In November 2016, the House Financial Services Subcommittee on Housing and Insurance held a hearing on modernizing appraisals to “examine the appraisal industry since the creation of the Appraisal Subcommittee in 1989, review the DoddFrank Act's impact on appraisers, consumers and stakeholders, and explore the future of appraisals, including alternative home valuation methods.” Improving appraisal accuracy has been a high priority of both Fannie Mae and Freddie Mac since the financial crisis, and both employ AVMs as a crucial part of their appraisal risk management systems. In November, Fannie Mae expanded its AVM use, waiving the need for an appraisal on certain refinance loans. Fannie Mae had previously given Property Inspection Waivers on about 3% of its loans and said its new approach could boost that to 10%. AVMs address two areas of specific concern since the foreclosure crisis: valuation quality and neutrality, while relieving the pressure on appraisers. AVMs report a factbased representation of a property’s value and they are transparent, so companies can apply internal and third-party testing and the industry can measure and benchmark AVM results. Following the lead of the GSEs, lenders, servicers and investors have welcomed the opportunity to minimize their risk and get a transparent view of property valuation by using appraisal alternatives alongside traditional appraisals.

DEEP DATA The success of any AVM solution relies on the quality and depth of the data that it uses. Financial institutions already rely on high-integrity data sources to do everything from verify a borrower’s income to evaluate their credit worthiness.

Leveraging the same kind of automated model for property valuation is a viable alternative to full appraisals that gives lenders both accuracy and efficiency. Additionally, the breadth of AVM testing across the entire AVM market has unequivocally demonstrated that improvements in data quality and quantity, combined with more sophisticated modeling, have brought AVMs up to a point at which there is wide agreement on their reliability and effectiveness. A panel at the MBA’s Risk Management, QA and Fraud Prevention Forum in 2016 found that AVM performance had increased significantly over the past seven years, and that the combination of AVMs and AVM technology with other valuation products provides a strong risk-management solution. Presented by Darius Bozorgi, president and CEO of Veros Real Estate Solutions, the panel reported that on a national level, AVM hit rates were more than 90%, and more than 85% of valuations were found to be accurate to the P10 standard (percentage within 10%). AVMs achieved even better performance at the state and metro-level, with AVMs returning hit rates of more than 95% in Los Angeles, California, Maricopa County, Arizona, Cook County, Illinois, and Queens County, New York. These stats demonstrate that across the commercially viable AVM providers, the ability to return an AVM is exceedingly high and amazingly accurate. AVMs are highly adaptable for use in a variety of scenarios, whether utilized on an individual report basis with supporting sales data, sourced from highly comprehensive databases; or in bulk across large portfolios. Portfolios also allow users to combine useful data points including market forecast data, first-mortgage data or market risk data. Given the objectivity, cost-efficiency, and quick return time (within seconds) of AVMs, now is the time for lenders to seriously consider these tools to lessen the burden on appraisers and allow them to focus on the transactions that need their expertise most. HOUSINGWIRE ❱ MAY 2017 19

An alternative perspective on neighborhood stabilization Go beyond traditional retail disposition

hen the U.S. real estate market collapsed in 2007, it not only triggered a recession and stock market crash, but it also sent nearly 9.3 million American homeowners into foreclosure. A decade later, while the number of foreclosed properties has steadily declined, it remains elevated in some areas of the nation, especially in the Midwest and a handful of judicial foreclosure states like New York, New Jersey and Illinois, according to ATTOM Data Solutions. While in many respects the worst is now behind us, the reality is that the problem persists, with more than 930,000 properties currently in foreclosure or REO nationwide. Distressed homes actively in foreclosure, or under management as REO, create significant pressure on local neighborhoods. The blight that arises from neglect is considerably better today than in the past, but blight associated with bankowned, distressed homes persists, nevertheless. According to Aaron Klein, former treasury deputy assistant secretary for economic policy, vacant properties reduce the property value of surrounding homes, increase crime and reduce the tax base for local government. “Under a conservative set of assumptions, a vacant property causes losses of approximately $150,000 in the first year: $133,000 from reduced property value for its neighbors, $14,000 in increased crime and $1,500 in increased costs for police and fire departments,” wrote Klein in a recent report, Understanding the True Costs of Abandoned Properties. The negative, neighborhood-level im20 HOUSINGWIRE ❱ MAY 2017

pact of distressed homes runs directly counter to the central mission of many of the industry’s dynamic companies and talented individuals who believe and support the fact that homeownership is integral to the American dream. These businesses are literally built on the creation and preservation of homeownership opportunities. They work hard to lessen the impact of distressed homes within a community – traditionally by investing significant amounts of both time and money toward repairing these homes and focusing on preservation and property management – with the intent of converting (or “flipping”) distressed homes into homeownership opportunities for owner occupants or first-time homebuyers. However, this traditional industry approach often prolongs the time that assets stay distressed and/or vacant, which re-

sults in increased risk for neighborhood destabilization, crime or blight. Jason Allnutt, general manager for Auction.com, believes that the partnership that exists between Auction.com and many leading REO departments provides a better approach. Rather than rely on a traditional retail strategy, REO departments can effectively avoid the negative impact and blight by aggressively marketing those properties through an alternative disposition strategy that leverages the power of an online auction.

A PROVEN STRATEGY WITH MULTIPLE BENEFITS Banks, lending institutions, and government agencies are focused on supporting homeownership, but in many ways, the traditional system currently in place is not aligned with that mission. In fact, as it

AUCTION.COM | SPONSORED CONTENT

exists today, it often exposes these parties to significant risks that the Auction.com marketplace has been designed to address. Every time a distressed home is ‘acquired’ by an institution through foreclosure, it takes on financial risk through the loss associated with a home value that is below the loan amount, along with selling costs and holding costs like eviction, maintenance, repairs, taxes, insurance, etc. Allnutt explained how Auction.com addresses financial risk, “rather than establishing a list price, our clients establish a net reserve. That reserve reflects their estimated net proceeds from a traditional REO outcome (expected gross sales price minus expected holding and selling expenses). If a reserve is correctly calculated, 80% of the time we can find a buyer at the foreclosure sale, or in an online auction the day

after the foreclosure sale. On average we will sell homes for 10% greater than that traditional REO net outcome.” Allnutt continued, “All of this happens in significantly less time than it takes a traditional retail REO process, and that reduced timeline correlates directly to a massive reduction in neighborhood blight. This is the very definition of community stabilization as those communities most impacted experience lower levels of distressed inventory and the associated negative impacts are mitigated as well.” Additionally, there is a corresponding reduction in operational and regulatory risks for institutions when they are not holding large inventories of homes. This allows the institutions to instead focus their energy on the core business initiatives of lending and allows them to move away from the management of large REO inventories. Perhaps most importantly, by matching occupied properties to buyers who will often pay a premium for occupied properties, the bank avoids the human impact and reputational risk associated with evictions. Allnutt added, “We have several clients who have adopted a zero eviction goal, to sell 100% of their occupied homes to investor owners.” In many cases, Auction.com sees the new buyers immediately rent the home back to the former borrower or current occupant, so it often protects the families that are already living in home. Jeff Bell, head of strategic planning for Auction.com, indicated that “nearly 40% of our homes sold occupied resulted in the buyer leasing the home to the current occupant.”

INNOVATION THAT DRIVES RESULTS A common perception is that properties become discounted in value through the auction process, but in every case, allowing the open market to compete for distressed properties and convert those assets back into stabilized homes produces a greater net return for financial institutions. Much of this success is attributable to the scale

and reach of the Internet as a proven communications and business channel. “The broad reach of our digital marketing creates a more competitive environment, attracting 4.5 million global buyers with billions of dollars in liquidity to our marketplace,” according to Colleen Lambros, chief marketing officer at Auction.com. "Our extensive marketing strategies shorten the time it takes to sell properties and creates a ‘win-win’ situation for our buyers and sellers. We leverage the Internet, mobile technology and data science to maximize the reach and exposure of the assets on our platform and match them with the most qualified buyers.” In many ways, the company’s auction marketplace represents a new paradigm in how technology is impacting the REO industry. “Last year, 60% of Auction. com’s homes were sold to buyers via the company’s mobile applications, underscoring an industry shift toward more cutting-edge alternatives to traditional sales methods,” Lambros explained. “As a Google Capital company, Auction.com's culture of innovation in this area is one of the reasons why we are – and continue to be – the market leader.” Allnutt continued, "It is good for buyers and sellers but – just as important – it's good for American neighborhoods.” Looking ahead, Auction.com continues to innovate in order to help servicers better optimize their sales process, mitigate risk, reduce costs and stabilize neighborhoods. “Over the past decade, Auction.com has revolutionized the real estate industry with our online marketplace that has helped sell residential properties nationwide worth a cumulative $29 billion,” said Allnutt. “Our online platform has transformed real estate sales, empowering consumers to safely and easily view and buy residential properties. I believe that we have created a positive effect on countless neighborhoods across the country. We look forward to continuing this progress by developing groundbreaking new products and services that help sellers, consumers and communities continue to thrive.” HOUSINGWIRE ❱ MAY 2017 21

 THE 

A-LIST TOP 10 AREAS WITH HIGHEST SFR RETURNS

RentRange, a provider of market data and analytics for the housing industry, released its latest ranking of the 25 U.S. MSAs by highest average gross yield for single-family homes during the fourth quarter of 2016. Here's a look at the top 10 markets. “Looking at average gross yield rates, Cleveland,

Detroit and Dayton top our list of markets with the highest returns for single-family homes,” said Dennis Cisterna, chief revenue officer with RentRange Data Services. “These three markets fall within the Rust Belt region, which was once dominated by an industrial-powered economy and is now experiencing population loss and economic decline.”

TULSA, OKLAHOMA

11.7%

CANTONINDIANAPOLIS-CARMEL, INDIANA 11.7% MASSILLON, OHIO MILWAUKEE-WAUKESHA-WEST ALLIS, BIRMINGHAM-

11.7% TOLEDO, OHIO

12.5%

WISCONSIN

12.5% MEMPHIS, TENNESSEE-MISSISSIPPI-ARKANSAS

12.8%

13.7%

CLEVELAND-ELYRIA-MENTOR, OHIO 22 HOUSINGWIRE ❱ MAY 2017

HOOVER, ALABAMA

12.1% DAYTON, OHIO

13.1% DETROITWARRENLIVONIA,

MICHIGAN

13.5%

FANNIE MAE | SPONSORED CONTENT

THE COMPANY is making the loan origination process simpler and more efficient for lenders and consumers through its Day 1 Certainty initiative, which automates manual processes to reduce risk and complexity. “The great thing about Day 1 Certainty is that it mitigates some longtime lender pain points,” said Andrew Bon Salle, executive vice president of single-family business at Fannie Mae. “We’re enabling a more accurate, simpler digital process. Lenders and borrowers benefit by moving away from the manual processes prevalent in the industry today.” Day 1 Certainty starts with validating borrower income, assets and employment through the Desktop Underwriter (DU) validation service. Lenders choose third-party data vendors to validate the borrower information and Fannie Mae accepts the vendor data and DU calculations as acceptable documentation, giving the lender certainty right away. Lenders who were early adopters of the DU validation service found that it had multiple benefits, including shortening loan origination timelines by four to seven days, on average. One large nationwide lender recently reported significant efficiency gains: The average number of days from loan application to close was reduced by 50%. “Day 1 Certainty gives our lenders 3900 Wisconsin Ave, NW freedom from representations and warWashington, DC 20016 ranties on key aspects of the mortgage 1-800-2FANNIE origination process,” Bon Salle said. (1-800-232-6643) “And Day 1 Certainty reduces the burfanniemae.com/singlefamily den of documents — paystubs, W-2s, or bank statements — that can be a headache for loan applicants and lenders alike.” Day 1 Certainty also provides appraisal-related benefits powered by Collateral Underwriter (CU) – the industry’s leading appraisal risk assessment tool. First, lenders get freedom from reps and warrants on property value with a CU risk score of 2.5 or lower on the appraisal – which Fannie Mae is seeing on more than 60% of appraisals submitted to them. In addition, about FANNIE MAE

FANNIE MAE

24 HOUSINGWIRE ❱ MAY 2017

20% of limited cash-out refinance loans underwritten through DU get an offer to waive the appraisal thanks to CU’s analysis. “The mortgage loan business is long overdue for technology to help drive efficiency. We at Fannie Mae have been working hard to achieve that vision, but we have not done it alone. We give credit to the entire housing finance industry for implementing data standardization that laid the foundation for technology innovation,” Bon Salle said. “As industry participants continue to work together toward that goal, we remain committed to simplicity, innovation, and providing great customer service and certainty of sale. This is driving our work. And for all participants, it is reshaping the housing finance industry we know today.”

THE EXECUTIVES  Henry Cason, SVP and Head of Digital Products Henry Cason oversees the design, development and launch of a digital suite of products and services across the single-family residential mortgage loan life cycle. He is responsible for fostering integration of Fannie Mae’s technology and business infrastructure with that of its customers – to help customers grow and create value in the market place. Cason integrates technology product development across single-family business in mortgage origination and underwriting, loan acquisitions, conduit and capital markets business, and servicing and asset management portfolios. He aligns IT and business priorities, and leads digital transformation of Fannie Mae’s offerings in the market place.  Andrew Bon Salle, EVP Single-Family Business Andrew Bon Salle is responsible for all aspects of Fannie Mae’s single-family business, including engagement with customers, managing the performance of the credit portfolio, and overseeing all capital markets activities. Bon Salle also leads the company’s efforts to integrate with the common securitization platform. Most recently, Bon Salle served as Fannie Mae's senior vice president and head of underwriting and pricing and capital markets, overseeing the company’s credit risk management and pricing strategies to maximize the profitability of the single-family credit book throughout different economic cycles.

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David Gansberg CEO

Arch MI

n the midst of rising interest rates and higher home prices, HousingWire sat down with David Gansberg, CEO of Arch MI, to find out what his company is doing to help lenders expand opportunities for homeownership. HOUSINGWIRE: Arch Capital Group acquired United Guaranty from AIG at the end of last year. What does that acquisition mean for Arch MI? DAVID GANSBERG: The acquisition of United Guaranty expands the scale of Arch’s existing mortgage insurance businesses by combining United Guaranty’s position as the market leader in the U.S. private mortgage insurance industry with Arch’s financial strength and history of innovation — further diversifying our business profile and customer base. This expansion of our mortgage insurance business complements our strengths in the specialty insurance and reinsurance businesses, which continue to be central to our global operations. Diversity across segments and product lines remains fundamental to our corporate strategy and allows us to deploy our capital to those areas offering the best opportunities at any given time. Teams at both companies worked together to make this integration seamless, and we now have an impressive fusion of talented professionals from both companies, applying their expertise in operations and risk management to provide our clients with the best products and services in the industry.

Q&A

HW: How does Arch MI’s RateStar product help lenders attract Millennials and other homebuyers? DG: The expectations of Millennials differ in some fundamental ways from other generations. Because they have been conditioned by technology since childhood, they are focused on speed, convenience and service that recognizes their individuality. Arch MI can help lenders to meet these expectations and address Millennials’ price-sensitivity with solutions that give them a crucial competitive edge. We’ve built a more sophisticated and efficient way to 26 HOUSINGWIRE ❱ MAY 2017

price mortgage insurance, which is especially important as lenders look to help Millennials afford mortgages. RateStar leverages the most current developments in automation and personalization to offer a dynamic pricing solution for lenders. It goes beyond conventional rate sheets to address a broader range of risk factors. With interest rates rising, being able to price MI more precisely gives lenders a significant competitive edge in the this market. For eligible borrowers, RateStar can mean more affordable mortgages with lower monthly payments overall. Millennials will also appreciate how this technology facilitates a personalized evaluation of the risk represented by their individual loan scenarios. Lenders can enter specified loan characteristics and obtain a premium rate quote instantly. Provided that the loan and borrower information submitted doesn’t change, Arch MI guarantees the RateStar final quote for 90 days, except where prevented by law, which helps to protect the lender’s pipeline. HW: You mention rising interest rates. How can Arch MI help lenders reach their origination goals in this environment? DG: Lenders are under increasing pressure this year, because housing inventory continues to be limited, rates are going up and the credit box is still pretty tight. Arch MI understands the environment lenders are operating in, which is why we’ve developed a number of ways to help. We’ve talked about RateStar, which goes beyond the traditional mortgage insurance characteristics, taking into account other risk factors to match the loan to Arch MI’s most competitive rates, so originators may compete more effectively, qualify more borrowers and close more loans. In addition, in 2015 we launched Arch Mortgage Guaranty Company (AMGC) specifically for mortgage loans that originators intend to retain in their portfolios or include in private securitizations. AMGC is a separately capitalized entity and not subject to GSE requirements, and it is uniquely positioned to insure various types of prime, standard and non-standard mortgages.. Arch MI has a commitment to real innovation, and we will continue to leverage our solutions to transform and expand lending horizons for our customers.

VIEWPOINTS

Casey Cunningham

How to lead a productive sales team Employee engagement leads to performance

The opportunity to lead others toward success is one of the greatest privileges any career can offer. For mortgage managers, the importance of this responsibility cannot be overstated. The key to growing production is to drive the performance and retention of loan officers. So whatâ&#x20AC;&#x2122;s the secret? How do managers empower their teams to reach their full potential? The answer lies in employee engagement. The Corporate Leadership Council recently conducted a study on the effectiveness of employee engagement in American business, surveying over 50 industries and 50,000 employees. The results prove what great managers already know: there is an incredibly strong correlation between em28 HOUSINGWIRE â?ą MAY 2017

ployee engagement and performance. This study breaks a work force into five tiers: unengaged and non-committed, unengaged but leaning toward engagement, neither engaged nor unengaged, engaged and looking to grow, and fully engaged and committed. If we take out the fully committed and

fully uncommitted employees, we are left with the team members who are looking to be impacted. How leaders choose to handle this 76% of their workforce will greatly impact the success of their organization. Without proper motivation, direction and guidance, these employees will either

Casey Cunningham is the founder and CEO of Xinnix, the No. 1 mortgage academy in the nation.

stagnate or regress. Contrarily, by putting some vital practices into play, leaders can elevate their sales teams into a higher bracket of commitment and performance. At XINNIX, we’ve seen incredible results for managers when they become intentional about employee engagement. Leaders have experienced a lift of 2-4 units per month, a 100-300% increase in production, a 108% increase in applications, a 274% increase in weekly prospecting, a 20% higher retention rate, and hired 17 recruits within 90 days that accounted for over half a billion dollars in production. How did these managers achieve this phenomenal success? They implemented the following best practices into their everyday business. PLANNING Highly effective leaders are exceptional planners. They create the map that leads their teams to reach their production goals. They do more than plan for themselves as they also recognize the importance of developing a sales team of planners as well. Executives need to ensure that each of their branch managers have a business plan, and managers need to ensure the same for each of their loan officers. Every member of a sales force should understand the overall goal of their team, and they should determine what their role is in making that goal attainable. Leaders then need to work with each team member so they are taking the proper steps for fulfilling that role and, in turn, helping their entire team hit their greater target of production. This all starts with the business plan. Whenever leaders have their teams create business plans, they need to look for key information. First, what is an employee’s business vision? This involves where they would like to see themselves in the future, approximately three to five years down the road. Next, learn their business goals for the upcoming year. Loan officers should specify their desired income, their desired production, the number of units they want to sell, and their anticipated mix of purchase and refinance business.

Most importantly, employees need to create a strategy for how they will achieve these goals. They should specify what sources they will use and how many units they plan to get from each source. Lastly, the business plan needs to include the tactics for achieving each strategy, broken down into daily, weekly and monthly activities. By helping employees break down overall production goals into smaller, more manageable steps, leaders are setting their loan officers up for success. MEASURING If leaders are measuring production only, they’re missing the mark. Instead, they want to focus on the predictable steps that lead to production. By monitoring how well their loan officers are meeting the daily, weekly, and monthly activities and goals designated in their business plan, managers can identify the strengths and weaknesses of each individual member of their team and what they can do to improve performance. Loan officers should track the specific referral partners they are contacting. How many are Key Targets, partners that have the long-term potential to get them the most business? Additionally, how is a loan officer’s prospecting activity contributing to their production? Are they making the right number of calls and face-to-face meetings? By paying attention to these incremental objectives along the way instead of solely looking at final production numbers, leaders can do much more to diagnose problems and empower their sales force to reach their goals. COACHING In athletic coaching, a coach focuses on behaviors that reflect poor execution. In business, we should consider employing the opposite approach. Professional coaches will focus on what their employees are doing right. By highlighting the strengths of a team member, managers can give them the confidence they need to move forward. In turn, the employee is

open for more feedback on how to grow. After all, an effective leader is the one who has high expectations and motivates their employees to reach these goals. One important way to achieve this result is through scheduled one-on-one coaching sessions. By holding scheduled accountability meetings with individual loan officers, managers have the chance to show their loan officers they are valued, address issues and concerns, and inspire improved performance. Start by opening with something positive. Praising the successful elements of a loan officer’s performance lets them know the manager is on their side and wants them to succeed. Secondly, ask them powerful questions. A powerful question is one that causes an employee to pause and think. Being an effective leader doesn’t mean telling others what to do. Instead, leaders should focus on getting others to tell themselves what they must do. Powerful questions include, “How have you grown over the past year? What have you learned from this situation that will make you better? What will it take for you to reach that goal?” Lastly, managers should close every coaching meeting with accountability. This is a chance for them to reinforce a loan officer’s goals and motivate them to meet those goals. Leaders should get specifics on the what, when, and how: “What are going to do? When will you do it? How will I know it’s done?” This will remind team members of their main objectives and the timeframe in which they need to complete them. Effective leaders are both transactional and transformational. They are involved in details, but they are also focused on leading people. By developing a clear plan for employees to follow and serving as a role model, a manager can have a massive impact on reaching the 76% of employees waiting to be fully engaged. Their responsibility to lead will affect much more than production. When leaders really believe their entire sales force is capable of greatness, they will follow. How do you lead a productive sales team? Engage them. Be intentional. HOUSINGWIRE ❱ MAY 2017 29

VIEWPOINTS

Andy Pollock

Reimagining mortgages Workflows need a makeover in the midst of fintech “disruption”

As an industry consultant and a long-time resident of Silicon Valley, I spend a lot of time working with, observing and, at times, socializing with fintech companies and their founders. (Full disclosure: I have a lot of clients and friends in the traditional mortgage space as well.) Recently, I attended the LendIt conference in NYC where the focus was on new customer acquisition technologies and reimagining the consumer experience from 30 HOUSINGWIRE ❱ MAY 2017

the home search and the pre-application process to online conditional approval and virtual closing. The new solutions were, for lack of a better word, “slick,” focused on

obvious customer pain points, and were heralded as “disruptive.” Flying back to California from the conference, however, I began to wonder if this is really all that is next for the mortgage industry. Certainly, the ongoing transformation of customer acquisition, the consumer experience and user interfaces will be a big part of what’s next. This is the area where fintech firms are literally giving the front end of the mortgage process a much needed

Andy Pollock is chief revenue officer for Clayton Holdings, a wholly owned subsidiary of Radian Group Inc.

“makeover.” They have creatively focused on choke points, like consumer-dependent information (bank statements, tax returns, etc.) that are nuisances for consumers, slow down the application and underwriting processes, and make it harder to leverage consumer-facing technology. Another benefit that our industry will realize over time is that receiving data — not forms, not faxes — directly from institutions not only makes it easier to integrate

this data into the origination process, but will also reduce the potential for fraud. However, there is more to the origination experience than just completing the prequal and application components. Don’t get me wrong: this is a good start and long overdue, but it is not the end-to-end solution that is needed. The time has come for internal workflows to be reimagined or all we’ll end up with is a shiny new chassis with a tradi-

tional, manual, cobbled-together process under the hood. I’m talking about the elements that make or break a mortgage transaction, such as valuations, investor requirements and reviews, compliance, surprises at the closing table, paper-based payment systems, onboarding, and the list goes on and on. We are beginning to see traditional lenders and servicers acknowledge that workflows can and, in fact, must receive the same kind of makeover. Automating the back-end starts with a commitment by originators and servicers to create trusted vendor relationships to help them bring expertise and technology to bear on all of the components that go into originating, acquiring, and servicing a mortgage today. The payoff is pretty evident — cost and error reduction, solving compliance with less human interaction, standardizing workflows, and shortening cycle times. In taking time and cost out of the process, we need to look at other elements that can slow the ultimate decision. For example, appraisals. In some hot markets, the turn time for appraisals is stretching to months not weeks, and many observers expect this to get worse as more and more appraisers age out of the business. Clayton, and our parent Radian, have invested in best-of-breed component companies, like ValuAmerica and Red Bell, to begin to address these issues. But the solutions will require new thinking about recruiting and training appraisers, and leveraging sophisticated valuation models to address capacity issues. Applying technology to non-customer facing aspects of the origination process, such as loan purchases, QC, and compliance reviews, will also impact the cost of lending and lender profitability. It will also provide a more streamlined integration with fintech lenders who usually need an investor takeout. Technology and digitalization will certainly drive change and potentially be disruptive to the industry, but there is still hard work to be done on critical issues and unexciting functions before true transformation can occur. HOUSINGWIRE ❱ MAY 2017 31

VIEWPOINTS

Sarah Wheeler

Here’s what’s wrong with the CFPB’s practice of regulating through enforcement Companies are punished just to teach the rest of the industry a lesson

The Consumer Financial Protection Bureau’s approach to regulation has always been distinct from other regulatory bodies. Rather than issuing clear-cut statutes that lay out a lot of specifics, the CFPB favors enforcement actions that financial institutions have to weigh against their own practices and then somehow implement. CFPB Director Richard Cordray explained the bureau’s methods in a speech he gave last year to the Consumer Bankers Association: “Likewise, our public enforcement actions have been marked by orders, whether entered by our agency or by a court, which specify the facts and the resulting legal conclusions. These orders provide detailed guidance for compliance officers across the marketplace about how they should regard similar practices at their own institutions. “If the same problems exist in their dayto-day operations, they should look closely at their processes and clean up whatever is 32 HOUSINGWIRE ❱ MAY 2017

not being handled appropriately. Indeed, it would be ‘compliance malpractice’ for executives not to take careful bearings from the contents of these orders about how to comply with the law and treat consumers fairly.” The first problem here involves the word “same.” There are so many variables in any given situation, how does a company know if those “same” practices exist in their dayto-day operations? It is very likely that some parts of a situation are similar, while others are not. At what point is the “same” threshold reached? Another red flag is the use of “compliance malpractice” when talking about

such broad categories of conduct. It would be malpractice “not to take careful bearings.” How is the CFPB going to judge whether a company has taken “careful bearings”? What does that even mean? And the term “treat consumers fairly” is impossibly broad. The CFPB is the one who should be defining, through specific regulations, what treating consumers fairly means to them. No doubt there are companies in the mortgage space, as in any industry, that intend to harm consumers, and the term “compliance malpractice” would describe them correctly. But there are also large numbers of individuals and companies in mortgage finance who want to do the right thing and would be able to do that if it were articulated clearly. It reminds me of the scene in Back to School when Rodney Dangerfield says, “Good teacher...he really seems to care. About what I have no idea.” Cordray addresses this very criticism

Sarah Wheeler is editor of HousingWire magazine.

in the next part of his speech to the bankers: “Some have criticized this approach as regulation by enforcement, but I think that criticism is badly misplaced. Certainly any responsible official or agency charged with enforcing the law is bound to recognize that they should develop a thoughtful strategy for how to deploy their limited resources most efficiently to protect the public. “That means working toward a pattern of actions that conveys an intelligible direction to the marketplace, so as to create deterrence that can be readily understood and implemented. “The alternative is just a random series of actions that take a few wild swipes at the bad actors without systematically cleaning up the practices that harm consumers across the marketplace.” Yes, indeed, the alternative is just a random series of actions that don’t benefit consumers. If the explicit language of laws are hard to interpret — and they are; hence lawyers — and individual enforcement actions are several steps more difficult still, how in the world are individual companies supposed to correctly interpret, much less implement, “a pattern of actions” of enforcement? But that’s exactly what the CFPB expects, and incidentally, makes no apologies for. In the same speech, Cordray said: “Others have framed this criticism as a suggestion that law enforcement officials should think through and explicitly articulate rules for every eventuality before taking any enforcement actions at all. But that aspiration would lead to paralysis because it simply sets the bar too high. “Particularly in an area like consumer financial protection, the vast majority of our enforcement actions involve some sort of deception or fraud. And courts have long noted that trying to craft specific rules to root out fraud or untruth is a hopeless endeavor, as they would likely fail to cabin ‘the ingenuity of the dishonest schemer.’ “For these reasons, we strive to present specific enforcement orders that meticulously catalogue the facts we have found

in our very thorough investigations and set out the legal conclusions that follow from those facts. These specific orders are also intended as guides to all participants in the marketplace to avoid similar violations and make an immediate effort to correct any such improper practices.” I’m pretty sure no one expects a regulatory agency to “explicitly articulate rules for every eventuality before taking any enforcement actions at all.” That straw man argument has never been what the mortgage industry has asked for — companies just want to know what the rules are before they set up policies, procedures and operations, not after. As for Cordray’s assertion that the exercise of writing more specific rules on the part of the CFPB would “set the bar too high” and lead to paralysis, it seems laughable on its face. Regulatory and law enforcement agencies manage to do this in every other area of our civic lives, so why the reluctance on the part of the CFPB? Cordray asserts that protecting consumers in financial matters involves too many bad actors trying to do too many bad things to be accounted for in actual laws. This is ludicrous. Why then have specific laws protecting health care consumers? Are there not some really bad people peddling harmful drugs, treatments, equipment or surgeries? In the entire health care industry, are there not just as many schemes to defraud consumers as in the financial industry? Common sense, and the dozens of commercials for medical lawsuits on late-night TV, suggest otherwise. The issue of regulation by enforcement came up again when several CFPB regulators sat for a panel discussion at the Practising Law Institute’s 22nd Annual Consumer Financial Services Institute in New York City. And this is where regulation by enforcement gets even worse. Ballard Spahr provides a very informative summary, which details “particularly noteworthy comments.” Among those, referencing comments by CFPB attorneys Anthony Alexis, assis-

tant director for enforcement, and Peggy Twohig, assistant director for supervision policy, there’s this: “Mr. Alexis and Ms. Twohig discussed the CFPB’s process for deciding whether the CFPB will use a supervisory or an enforcement action to address violations found in an examination. “Ms. Twohig indicated that the decision whether to refer a matter to enforcement is made by an Action Review Committee (ARC), which considers various factors such as the severity of the violation, the entity’s cooperation with the CFPB, and policy factors that include the need for the CFPB to send a public message of deterrence.” Wait, what? So, all other things being equal, it sounds like the CFPB might decide to take enforcement action against one particular company if they need to “send a public message of deterrence” to the whole industry. Your company might just be the unlucky tipping point for the agency. Maybe they’ve seen five other companies doing the same thing. Instead of thinking to themselves, “Wow, we certainly failed in clearly articulating this regulation,” they think, “Wow, this seems like a great time to let people know this is against the regulation, and this company would make a great example.” If laws are indecipherable, how can companies be held accountable for breaking them? A public message of deterrence would be unnecessary if the CFPB wrote more specific rules. And a public message of deterrence will be completely ineffectual anyway if particular companies can’t see how it relates to their particular behavior. And most importantly, a public message of deterrence should not be a reason for taking enforcement action against a particular company. Clear rules, clearly violated, deserve swift action. Violating broad rules and enforcement actions that require a decoder ring to interpret do not deserve the same level of punishment. Talk about malpractice. HOUSINGWIRE ❱ MAY 2017 33

2017 Secondary Market Forecast 2017 PROMISES GROWING RISK AND SPARSE RETURNS

By Christopher Whalen

34 HOUSINGWIRE ❱ MAY 2017

ABOUT A WEEK BEFORE THE NOVEMBER 2016 ELECTION, the U.S. Treasury market started to move lower. The cause of this increase in yield on the benchmark 10-year bond was not fear of an interest rate hike by the Federal Open Market Committee or the specter of higher inflation. No, the outlier event that shook the financial world out of years of torpor was a commercial real estate developer named Donald John Trump.

HOUSINGWIRE â?ą MAY 2017 35

he move in the 10-year Treasury had a chilling effect on the mortgage business, which up through October had been having a very good year. Momentum and fat pipelines carried the industry through the rest of 2016 in good fashion, leaving the year up from 2015 at about $2 trillion in new mortgage originations. For the first time in several years, the body of mortgage debt and thus servicing assets actually grew after years of watching the proverbial ice cube melt. But as 2017 began, the impact of higher interest rates on loan production and secondary market pricing was clearly negative. Back in February 2017, the Mortgage Bankers Association projected a double-digit drop in mortgage originations, primarily based upon a sharper fall-off in mortgage refinancing transactions, despite a 10% uptick in purchase mortgages. Needless to say, with numbers like this in the industry’s collective face, widening the credit box has become topic A for loan originators and aggregators alike. That said, the MBA numbers suggest a dramatic slowdown in loan prepayments with total mortgage debt climbing from 2016 through 2019 despite the slowdown in new production. The volatile interest rate environment starting in Q4 2016 has impacted both lenders and issuers of MBS. The good news was that mortgage servicing rights (MSRs), those troublesome intangible assets that represent the right to collect a fee for servicing loans for others, rose in value at the

end of 2016. The bad news is that many mortgage banks, including industry leader Wells Fargo, took a hit on their interest rate hedge in Q4. The strong rebound in pricing for MSRs seen in Q4 2016 may not endure in 2017. A big factor in that analysis is the direction of the 10-year Treasury, which in turn governs mortgage originations. With the uptick in the 10-year bond yield after last October, estimates for mortgage refinancing volumes plummeted and guesstimates regarding loan prepayments likewise fell, thus increasing the net present value of the estimated cash flows from the MSR. But if, as many investors expect, the 10year bond rallies as 2017 unfolds, look for mortgage refinancing volumes to rebound and MSR pricing to fall as prepayment assumptions start to rise again. This is the roller coaster that the election of Donald Trump has delivered to the residential mortgage market. In addition, given that the Federal Open Market Committee has apparently decided to raise short-term interest rates several times this year, the industry could be facing the delightful prospect of a flat yield curve by the end of 2017 (see chart on next page). The Fed currently owns about $1.7 trillion in MBS and another $2 trillion in U.S. Treasury debt, a huge chunk of duration that has been removed from the financial markets and acts as a cap on long-term interest rates. The chart shows the spread relationship between the 10-year T-bond and

“UNDERWRITING STANDARDS are pretty tight and if they tighten again, with home affordability nearing the lowest level in seven years, it would be bad news for the housing market.”

— Lee Smith, Flagstar chief operating officer

36 HOUSINGWIRE ❱ MAY 2017

10-YEAR TREASURY CONSTANT MATURITY 2-YEAR TREASURY CONSTANT MATURITY

2.8 2.6 2.4

Percent

2.2 2.0 1.8 1.6 1.4 1.2 1.0 0.8 0.6

2012-07-01

2013-01-01

2013-07-01

2014-01-01

2014-07-01

2015-01-01

2016-07-01

2017-01-01 myf.red/g/dcGg

Source: Federal Reserve Bank of St. Louis fred.stlouisfed.org

the 2-year T-note, which is now tightening as long-term rates fall. Note the upward gap in the 10-2 spread around the time of the November election. The combination of volatile interest rates and increased competition for loans has caused secondary market execution for many lenders and aggregators to deteriorate as 2016 came to a close. Top-10 aggregator Flagstar Bank, for example, managed to increase loan sales volumes, but saw its gain-on-sale margin fall to just 0.94% from 1.09% in 2015. The bank said in its 2016 10-K that “the increase was partially offset by lower loan sale margins driven by pricing competition.” Flagstar’s chief operating officer, Lee Smith, said at the IMN Mortgage Servicing Rights Forum in March that the biggest issue for him with respect to the secondary market is what happens to the GSEs and Ginnie Mae: “I think the No. 1 issue is how the agencies will evolve. What will they evolve into? And what happens after January 10,

2016-01-01

2021, when the temporary rule allowing agency approved loans to remain as qualified mortgages (QM) despite debt-to-income ratios higher than 43%? “Do these become non-QM and subject to the ability to repay (ATR) rule? This is probably a bigger deal for the government than conventional markets. Underwriting standards are pretty tight and if they tighten again, with home affordability nearing the lowest level in seven years, it would be bad news for the housing market.” While there continues to be a lot of talk about reforming the GSEs or at least getting them out of government conservatorship, there is little appetite in Washington to disturb the status quo. Indeed, a bipartisan group of senators recently told Federal Housing Finance Administration head Mel Watt that he shouldn’t allow the companies to recapitalize without congressional approval. The Treasury is currently “sweeping” all of the profits of the GSEs to compensate taxpayers for the $187 billion in preferred capital injected by the govern-

ment after the 2008 financial crisis. The difficulty with the GSEs, however, is that the manic swings in the bond markets, a secular decline in lending volumes and the competitive advantage of Ginnie Mae could see one or both agencies forced to seek additional funding from Treasury. In that event, the Republican-controlled Congress might indeed opt to push Fannie Mae and Freddie Mac into receivership, which would have the advantage of zeroing out the private shareholders once and for all. Congress could then fashion reform legislation to find a new configuration for the GSEs. Mark Freeman, treasurer of Ocwen, has a different set of issues when it comes to the secondary market, like many of his peers wondering when and how the common securitization platform for the GSEs will come to fruition. He also notes that in terms of lending, the GSEs seem to be ever-researching and tweaking expanded credit criteria, yet the originators (e.g. large banks) continue to be skeptical and HOUSINGWIRE ❱ MAY 2017 37

their credit overlays “essentially wipe a lot of those products out.” He added that the FHA is “a continuing saga of originators not wanting to participate because of the buybacks and lawsuits.” Perhaps the most troubling issue facing the secondary market in 2017 is the fragile condition of the nonbank sector, particularly the seller/servicers that operate in the government-guaranteed market. Moody’s recently put out a report predicting that financial pressures would drive consolidation in the nonbank sector, something that has been discussed for years. The fact that commercial banks have been retreating from the residential market and especially the Ginnie Mae marketplace is not news, but the stresses now visible on many nonbanks are becoming acute. Stan Middleman, founder and CEO of Freedom Mortgage, told the IMN conference that nonbanks have had a relatively easy environment over the past few years because of rising home prices, but in a falling home price environment default servicing becomes “very expensive.” He also noted that when prepayment speeds fall, the float available to nonbank lenders declines, creating challenges for those who have not lived through a rising rate environment. Rising rates and falling home prices are yet another downside risk for the mortgage industry in 2017. When it comes to liquidity, the issue fac38 HOUSINGWIRE ❱ MAY 2017

“I AM NERVOUS as a long tail cat in a room full of grandmothers and rocking chairs.”

- Bill Dallas, Skyline Home Loans

ing nonbanks is not simply with respect to funding new loans, but also in supporting loss mitigation and financing MSRs. A perusal of the delinquency data from Ginnie Mae for the top 50 seller/servicers in that market illustrates the potential problem that awaits the industry in the event that residential loan default rates start to rise significantly. The basic conflict that Ginnie Mae faces is to ensure that the seller/servicers make timely bond payments, but turning a blind eye to accumulating defaults. For nonbanks, coming up with the cash to

aggressively resolve delinquencies can mean making a choice between funding loss mitigation and new loan originations. And ultimately the FHA and the taxpayer pick up the tab. As Matt Maurer of MountainView Capital noted on the same MSR panel with Middleman, Ginnie Mae assets really should be held by commercial banks due to the cash flow requirements. Yet the trend in the Ginnie Mae space is just the opposite, with nonbanks now the largest group in that market and growing. Bill Dallas of Skyline Home Loans tells

HW that Ginnie Mae cash flows are currently negative and getting worse because of how the financing of the servicing asset is used to compensate for the high cost of originations. “I am nervous as a long tail cat in a room full of grandmothers and rocking chairs,” notes Dallas, who is one of the most experienced operators in the business. The nonbank mortgage sector got some very good news when Ocwen Financial finally settled its dispute with New York, including agreeing on a process to end the onerous monitoring of that firm’s servicing

operations. Down the road, Ocwen may actually be able to resume purchases of MSRs and other assets. Following a series of large MSR purchases by Nationstar earlier this year, it goes without saying that the industry badly needs additional dry powder in terms of servicing capacity in the event of a large nonbank failure. Many other nonbank servicers are exiting the market because of a chronic lack of liquidity and basic profitability, especially those operating in the Ginnie Mae market. Few of the nonbanks operating in the residential mortgage market actually generate enough profit to cover their cost of capital, notes Moody’s, one reason that the likes of PHH, Prospect and other smaller players have closed their doors. As Ben Lane wrote for HW regarding PHH, “in just the last year, the company has seen seismic shifts in its mortgage business, with partners like Bank of America and HSBC pulling massive mortgage servicing rights portfolios away from the company.” One large servicer, Walter Investment Management Corp., has been rumored to be facing bankruptcy after several setbacks. In March, S&P downgraded Walter’s long-term issuer credit rating to “CCC” from “B” with a negative outlook. S&P’s outlook reflects Walter’s “ongoing financial weakness and recently announced deficiencies in internal controls.” Walter has sold MSRs to raise cash and has tried to transition to a sub-servicer model, but it is questionable whether these changes have actually enhanced profitability on an ongoing basis. At least one Sell Side analyst has predicted that the company will be restructured. As this writer noted in a working paper on MSRs, “Assessing Involuntary Termination Risk on Residential Mortgage Servicing Rights,” the changes made by Ginnie Mae to their acknowledgement agreement were intended to alleviate some of the liquidity issues facing nonbank servicers.

In the first quarter of 2017, asset-backed securities transactions using Ginnie Mae MSRs as collateral have been completed by PennyMac Mortgage Investment Trust and Freedom Mortgage. These ground-breaking transactions hold enormous promise by diversifying the sources of funding for nonbanks and also increasing the effective advance rate on Ginnie Mae MSRs and loans. That said, however, the fact remains that nonbanks have limited balance sheet resources and few real capital assets other than the MSR, one reason why federal bank regulators in the U.S. have imposed a limit of 10% of tangible capital on bank MSR holdings, after which the bank must raise additional capital to offset the asset. This policy stems from the fact that Countrywide Financial had an MSR which at the time had a book value of $18 billion on a balance sheet of $200 billion in assets, meaning that virtually the bank’s entire capital position was essentially represented by the mortgage servicing asset. Today, a growing proportion of MSRs are supported by nonbanks and smaller, specialized depositories that have great difficulty financing these assets. Many of the more sophisticated players have opted to sell the MSR and become a sub-servicer, preferring to earn the 8-10bp of servicing income without needing to finance the excess servicing. As the interest rate environment changes, notes Freedom’s Middleman, “a lot of people who have been aggregators will be challenged.” Agreeing with Moody’s prediction about industry consolidation, Middleman predicts that there will be a lot of M&A activity in the mortgage space for the duration of 2017 and beyond. But more importantly, he warns that in a falling home price market, managing counterparty risk will become paramount. “Whole loan sales carry risks,” he noted. “but co-issuance business will be stressed in a declining home market.” HOUSINGWIRE ❱ MAY 2017 39

Silver bullet

Reverse mortgages offer golden opportunity for profitable loan growth By Caroline Basile

40 HOUSINGWIRE â?ą MAY 2017

If the first thing you think of when you hear “reverse mortgage” is an Alex Trebek infomercial on late-night TV, you haven’t even scratched the surface of the reverse mortgage market and its potential to bring in booming profits for the lending industry. Older homeowners are sitting on trillions of dollars in home equity that represent a real opportunity in the face of declining purchase mortgages.

HOUSINGWIRE ❱ MAY 2017 41

Home equity conversion mortgages, more commonly known as reverse mortgages, have been insured by the Federal Housing Authority since February 1988, when President Ronald Reagan signed it into law as part of the Housing and Community Development Act of 1987. The first FHAbacked HECM loan originated in 1989 from James B. Nutter & Company. Since then, the share of reverse mortgages in the overall industry has seen its ups and downs, but in the current environment the industry is growing, and growing fast.

The National Reverse Mortgage Lenders Association’s Q4 2016 report on senior home equity, published in March 2017, reported a $170.7 billion gain in home equity, bringing the total value to $6.2 trillion. These gains saw the NR MLA and

owners and that now is the time to start looking at it as a viable and strategic option for seniors. “The strong RMMI in the fourth quarter of last year shows that home equity continues to be a valuable asset for homeowners 62 and older,” Bell said. “It’s time for consumers to study what it means to have home equity and to learn about its strategic uses, including how it can be used to support retirement goals.” Bell further explained that the numbers are also encouraging for future retirees who might be facing a less than pleasant retirement. “The positive trend is also reassuring for homeowners nearing retirement age who are less likely than their predecessors to leave the workplace with a defined benefit plan and also more likely to have long-term debt,” he said. Additionally, the Department of Housing and Urban Development’s 2015 American Housing Survey reported that 76% of the 11.9 million households led by people age 75 or older own their homes, while the remaining 24% are renters. HUD also reported that for this demographic, the median home purchase price was $53,000, but the median value of this group’s homes was $150,000. This equity position is much higher than for homeowners overall, where the median purchase price was $127,000 and the median home value was $180,000. HUD’s 2015 report also shows that 78% of older homeowners owned their

equity as a possible source of retirement income. The paper’s data is backed by Fannie Mae’s National Housing Survey, which found that 37% of senior homeowners felt concern for their finances during retirement

and only 6% of seniors are interested in utilizing home equity as a financial solution. With all of this equity available to capitalize on and use to bolster retirement income, why aren’t more senior homeowners taking advantage of products like reverse mortgages? According to the Urban Institute report, authored by Laurie Goodman, co-director of the Housing Finance Policy Center, and research associate Karan Kaul, these reservations reflect a misunderstanding of

37% of senior homeowners felt concern for their finances during retirement and only 6% are interested in utilizing home equity as a financial solution. —Fannie Mae’s National Housing Survey RiskSpan Reverse Mortgage Market Index (RMMI) reach an all-time high of 221.75, the highest the index has reached in its 17-year history. In a press release, the CEO and president of the NRMLA, Peter Bell, explained that this increase exhibits how equity can be beneficial for retired home42 HOUSINGWIRE ❱ MAY 2017

homes outright. In February, the Urban Institute released a report, Seniors’ Access to Home Equity: Identifying Existing Mechanisms and Impediments to Broader Adoption, which detailed the reasons older homeowners have reservations when considering home

how reverse mortgages, home equity lines of credit and other similar financial tools work, and a fear of leaving debt to family members after death. Many people, including seniors, have a preconceived notion about home equity and how it works. Among many factors outlined, the most

REVERSE MORTGAGE BASICS HUD outlines the fundamentals of the HECM program on its website.

Borrower Requirements

Property Requirements

You must:.

The following eligible property types must meet all FHA property standards and flood requirements:

• Be 62 years of age or older • Own the property outright or paid-down a considerable amount

• Single-family home or 2-4 unit home with one unit occupied by the borrower

• Occupy the property as your principal residence

• HUD-approved condominium project • Manufactured home that meets FHA requirements

• Not be delinquent on any federal debt • Have financial resources to continue to make timely payments of ongoing property charges such as property taxes, insurance and Homeowner Association fees, etc. • Participate in a consumer information session given by a HUD-approved HECM counselor

important was that there is very limited appetite for tapping into equity, which may be attributed to two things: first, seniors want to avoid going into further debt and risk losing their home; and second, continued advancements in health and medicine allows seniors the ability to work until later in life, deferring the need to tap into home equity. But some factors for the low participation rate go beyond behavior patterns and medical advancements. In a blog post featured on Fannie Mae’s website, the authors explained that there are gaps in information and education that contribute to the low rates of equity extraction. “Beyond these behavioral factors, structural impediments to equity extraction are also at play, including poor financial literacy, the complexity and high costs of some mortgage products, and fear of misinformation and fraud, particularly with respect to reverse mortgages,” the blog post read. “Post-crisis credit tightening has also

Financial Requirements • Income, assets, monthly living expenses,

and credit history will be verified. • Timely payment of real estate taxes, hazard and flood insurance premiums will be verified

affected home equity lending. As varied as these impediments to equity extraction are, they all ultimately lead to one outcome: enormous untapped housing wealth that represents both a potential solution to the financial strains facing some elderly homeowners and a significant untapped market for the housing finance industry.”

WHAT’S IN THE FINE PRINT? The decision to tap into home equity requires serious consideration, said Lori Trawinski, a director with the AARP Public Policy Institute. “It means that you’re borrowing money and you really need to think about the implications for that,” she said. “While you’re getting a reverse mortgage, you don’t have to make payments on the loan itself but you’re set to pay all the other fees.” Many potential borrowers aren’t aware of the additional fees or requirements when signing up for a reverse mortgage. These other fees include the homeowners’ insurance for the property, property

taxes, and the cost of any maintenance required on the home during the time of the mortgage. Potential reverse mortgage borrowers are required to complete a counseling session with a HUD-certified counselor. Trawinski explained that in these sessions the counselor covers other options to consider before completing a reverse mortgage. “People might want to consider moving,” she explained. “They may find themselves in a home with too many stairs, or need other modifications. Sometimes people consider downsizing or moving to more appropriately sized homes with fewer stairs and better facilities for them and sometimes proximity to relatives is an issue for people and it might be a better option for them to live closer to family members.” “If it’s a matter of renovating, a reverse mortgage may meet those needs,” she said. “It depends on what the personal financial situation is, and whether they have other resources or not.” HOUSINGWIRE ❱ MAY 2017 43

“The more people can read ahead and sketch out their questions, the more prepared they will be for the counseling sessions.” — Lori Trawinski, director at the AARP Public Policy IMPROVING LITERACY The Urban Institute study also posited that improving reverse mortgage financial literacy by introducing the product to homeowners at a younger age may help increase the likelihood that they will apply for one once they are eligible. The study’s authors explained that this could be achieved by bringing housing wealth and reverse mortgages into retirement planning. “Reverse mortgage literacy might also be improved through enhancements to the Federal Housing Administration’s Home Equity Conversion Mortgage (HECM) counseling efforts, via customizing counseling based on the potential borrower’s characteristics and financial needs and by initiating counseling earlier in the borrowing

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process,” the authors wrote in the blog. Trawinski said the counseling sessions are only an hour long and that those interested in reverse mortgages should do their research and get familiar with reverse mortgages before the session. “It’s a lot to take in,” she said. “The more people can read ahead and sketch out their questions, the more prepared they will be for the counseling sessions.” Trawinski said the AARP Public Policy Institute suggests people seek out sources of unbiased information when getting these loans, from someone such as an elder law attorney or a trusted adviser. “We also encourage including family members to take part,” she added. “It’s a serious decision when you take out a loan and the most important thing is to be fully

educated as to what you’re about to do and to what the terms of the loan are.” Bringing up reverse mortgages earlier in retirement planning may be beneficial, but lenders need to make sure their communications with consumers — including marketing materials — are scrupulously straightforward. In December 2016, HousingWire’s Brena Swanson reported that the Consumer Financial Protection Bureau handed down civil penalties to three reverse mortgage lenders for deceptive advertising practices. The CFPB said the companies violated both the Mortgage Acts and Practices Advertising Rule, which prohibits misleading claims in mortgage advertising, and the Dodd-Frank Act, which prohibits institutions from engaging in deceptive acts or practices, including in advertising. The three companies, American Advisors Group, Reverse Mortgage Solutions and Aegean Financial, which also operates as Jubilados Financial and Reverse Mortgage Professionals, signed consent orders acknowledging the actions and penalties and agreed to change loan disclosures, even though none of the companies admitted to committing any wrongdoing. The bureau ordered the three reverse mortgage lenders to pay a collective civil

penalty of $790,000. The bureau’s orders to each business stated that “the company must make clear and prominent disclosures in its reverse mortgage advertisements and implement a system to ensure it is following all laws.” “These companies tricked consumers into believing they could not lose their homes with a reverse mortgage,” said CFPB Director Richard Cordray in a statement. “All mortgage brokers and lenders need to abide by federal advertising disclosure requirements in promoting their products.” One of these three companies, American Advisors Group, was hit with the largest penalty – owing $400,000 for its deceptive ads and information kits that assured potential customers that they would have no monthly payments and that with a reverse mortgage they would be able to pay off all debts. In reality, borrowers are still required to comply with all loan terms and could face default and foreclosure if they fail to do so. One takeaway for lenders is to be especially careful in talking about monthly payments. While it’s true that reverse mortgage borrowers don’t have a month-

LOOKING AHEAD How does the lending industry capitalize on an untapped multitrillion-dollar market when older homeowners aren’t interested in drawing from equity? Goodman and Kaul’s paper offers several possible solutions, but a recent study by the National Council on Aging, an advocacy organization, suggests that calling it something other than “reverse mortgage” may be the best solution of all.

In the study, which was funded by Reverse Mortgage Funding, the NCOA asked focus groups to compare both home equity conversion mortgages and home equity lines of credit, but did not name either of them. The focus group participants were

“Continuing to drive education about home equity release products is critical to helping ensure this growing demographic segment is able to retire comfortably and confidently.” — Craig Corn, CEO of Reverse Mortgage Funding ly mortgage payment, they still have to pay homeowners insurance and property taxes on a regular basis. Any advertising that isn’t clear on this point is likely to land lenders in hot water with regulators.

asked which option best fit their retirement planning needs and 58% of consumers and 43% of financial planners selected a HECM line of credit as the more enticing option.

Once study participants were aware that the unnamed product they liked was a reverse mortgage line of credit, a majority of participants still preferred it over the other and acknowledged a lack of education and understanding about it. To fill this information gap, participants said they were open to advice from a trusted source on using home equity to help fund retirement. Reverse Mortgage Funding CEO Craig Corn said in a statement that the study shows a demonstrated need for greater education on the topic of home equity solutions. “Continuing to drive education about home equity release products is critical to helping ensure this growing demographic segment is able to retire comfortably and confidently,” he said. Fortunately, financial advisors are warming up to reverse mortgages as a way to help clients retain and grow investments, a recent CNBC article explained. Financial advisors are recognizing the benefits of taking a HECM line of credit, which is more flexible than a HELOC, and allows seniors to “age in place.” The CNBC article quoted John Salter, associate professor financial planning at Texas Tech University and a principal of the wealth management firm Evensky & Katz. “Salter, along with co-authors Shaun Pfeiffer and Harold Evensky, proposed in the Journal of Financial Planning that a line of credit could be used to protect against portfolio declines. If a nest egg suffers deep losses, as many did in 2008 and 2009, retirees can tap their line of credit for living expenses,” the article stated. For many seniors looking for a comfortable retirement, a reverse mortgage may make the most sense as the best option to boost financial security, especially when the equity pool is so large. Although lenders need to tread lightly when approaching this silver tsunami, the potential upside is huge, paving the way for the next big lending boom. HOUSINGWIRE ❱ MAY 2017 45

C O M PA N Y S P O T L I G H T: U N I T E D W H O L E S A L E M O R T G AG E | S P ON S OR E D C ON T E N T

Company Spotlight: United Wholesale Mortgage

ndependent mor tgage brokers operate in a challenging environment that requires continuous innovation to compete and succeed. United Wholesale Mortgage (UWM) recognizes what brokers need and provides the technology and expertise to support their continued success. Squeezed between rising interest rates and heightened borrower expectations, brokers need efficient, cost-effective solutions that make the application process easier for consumers. UWM offers a variety of game-changing innovations to its broker network, including a new borrower link, Blink, that lets independent brokers compete against some of the biggest retail lenders in the market. The new all-digital loan portal modernizes the way mortgage brokers work with consumers, enabling borrowers to combine the simplicity and flexibility of mobile technology with applying for a home loan. “Technology and consumer-driven tools are building momentum within the mortgage industry,” said Mat Ishbia, president and CEO of UWM. “With Blink, new homebuyers or existing homeowners will be able to initiate the loan process from any mobile device, in the comfort of their home, on their own time. We’re proud to make this great tool available to brokers throughout America, as we believe that brokers are the best place for all borrowers to get a loan. It is a focus of ours to give brokers access to the best technology tools to compete with the mega retail lenders.” Blink is a multi-functional portal that allows consumers and brokers to take an application no matter where they are. Borrowers are given the capability to start the loan application process, pull their credit, e-sign documents, verify assets, and track the status of their loans – from anywhere. And Blink is free, easy to set up, and can be fully branded to individual brokers.

46 HOUSINGWIRE ❱ MAY 2017

Blink combines two things that borrowers, especially Millennial borrowers prize: digital capability with a human touch. The Accenture North American Consumer Retail Banking Survey in 2016 found that a seamless omni-channel experience is a top concern for borrowers. “Customers demand a digital experience while expecting an option for human interaction during complex transactions, like a mortgage,” the study concludes. With Blink, borrowers can complete the mortgage process entirely on their own if they choose, or seek assistance from their mortgage broker at any time. Blink allows brokers to co-browse screens with their clients in real-time to guide them through the process. Additionally, if a borrower wants to meet their broker in person, they can do that and still complete the application online together. “UWM made it very easy for me to realize the value this tool can bring to my business,” said Jason Davis of Oceans Mortgage. “Offering a smart mortgage application shows UWM’s dedication to advancing technology within the mortgage industry.” Blink also offers these benefits: • Brokers can automatically pull borrowers’ credit • Borrowers can order assets and upload supporting documents • Brokers can use for 100% of their loans, even the ones that aren’t with UWM • Borrowers can upload applications 24 hours a day • Brokers can utilize a customizable ad kit to introduce Blink to customers

INNOVATIVE PRODUCTS AND SERVICES Blink is just the latest in a long line of innovative products and services that UWM has developed to support its brokers, which is one of the reasons the company is the No. 1 wholesale lender in the country.

UWM, which has a network of over 7,000 participating brokerage firms nationwide, offers a full range of loan products, including conventional, FHA, USDA, VA, jumbo and non-agency loans, in all 50 states. With home prices increasing in almost every market, UWM has taken a proactive approach to making sure brokers have a variety of products to offer borrowers who have good credit and income, but might not be able to afford a large down payment. In 2016 the company began participating in Fannie Mae’s HomeReady program and Freddie Mac’s Home Possible program, which allow borrowers to obtain a mortgage with as little as 3% down. Then UWM became one of the first wholesale lenders in the country to offer a 1% down payment option in the form of a conventional loan, as opposed to a government-backed mortgage. UWM rolled out its 1% program in July 2016 to provide eligible homebuyers with a 2% lender-paid down payment that gives consumers a 3% equity at closing. The 1% down program is available to homebuyers in all 50 states with a minimum FICO score of 700 and a maximum debt-to-income ratio of 43%. Operationally, the company has streamlined the mortgage process for brokers so that they can deliver a great experience for borrowers. From UWM’s Loan Origination System, EASE, to its e-sign technology and systems to automatically verify income, assets and tax returns, the whole goal is to make the mortgage process as fast and easy as possible. Beyond offering products that streamline brokers’ efforts, UWM has introduced innovative and proven client retention tools aimed at creating more of a true partnership with brokers to grow their business. UClose puts brokers in complete control of the closing process, taking a loan from

S P ON S OR E D C ON T E N T | C O M PA N Y S P O T L I G H T: U N I T E D W H O L E S A L E M O R T G AG E

clear-to-close to closing in just minutes and putting money on the table in less than an hour. Brokers can create the closing documents and schedule the closing UConnect keeps brokers connected to their past clients for potential future business opportunities. After a borrower closes a loan through UWM, the lender monitors their future mortgage credit pulls. If they are in the market for a purchase or refinance, UWM provides the lead to connect the broker back to their borrower. UTrack gives brokers the ability to allow borrowers and real estate agents to check their loan status at any time, similar to tracking a package being delivered through the mail. The open communication this tool encourages repeat business by positioning brokers as the loan expert and trusted partner. Unite keeps brokers’ clients informed with quarterly custom home mortgage value statements. The email is loaded with valuable information, unique to each borrower, about their home, their loan and market trends. These emails are branded with the broker’s photo and contact information, allowing the broker to regularly stay in touch with clients and increasing the potential for repeat and referral business. UWM offers: • A completely doc-less loan process • Same-day registration and setup

• Instant mortgage insurance approval • Direct communication with underwriters and closers • Online CD Tracker that automatically sends CD to borrower In addition, brokers can access an entire library of customizable marketing materials and valuable services to connect with borrowers through UWM’s Marketing Toolbox. Brokers can utilize customizable flyers, social posts and emails, even generating complete ad kits. The Marketing Toolbox is just another way that UWM supports its brokers and their success, providing the expertise to compete with megabanks and retail lenders.

A TEAM APPROACH Supporting brokers starts with UWM’s approach to hiring and training its team members, which emphasizes the importance of championing clients. The positive atmosphere starts at the top with President and CEO Mat Ishbia, who learned the importance of teamwork as a member and then coach of the Michigan State basketball team under legendary coach Tom Izzo. In an interview with HousingWire in 2015, Ishbia explained how the mentality of a winning basketball teams still influences his life. “One of the things he [Izzo] talked about was don’t break your arm patting yourself

on the back. As soon as you take a deep breath and think that you’re someone, someone else that has that hunger you used to have is going to run right by you,” Ishbia said. “One of the sayings we had when we won the national championship was ‘never relax’. “That’s how I live my life today. We’re bigger than we’ve even been. We’re stronger than we’ve ever been, but we’re never relaxing. We have to take it to the next level.” Since that interview, the company has grown loan volume by 77%, becoming the No. 1 wholesale lender in the country in origination volume for two years in a row. Ishbia learned the mortgage business from the ground up, starting as an account executive, and he still regularly spends time coaching team members on the floor. The company puts a premium on learning, and new account executives at UWM go through 200 hours of training prior to working with clients. Ishbia’s hands-on leadership style translates to a lively atmosphere where people are motivated to deliver outstanding service. UWM’s strategy yields an incredible place to work, a trusted partner for clients, and ultimately, more homeowners. “Our mission is to champion our brokers’ success and bring them the tools, knowledge and service necessary for them to compete in today’s market,” Ishbia said. HOUSINGWIRE ❱ MAY 2017 47

CFPB Watch

52 HOUSINGWIRE ❱ MAY 2017

CFPB Watch

REGULATORY REFORM? DIMON PREDICTS $300B IN ADDITIONAL MORTGAGES WITH RULES CHANGES BY BEN LANE

REGULATIONS OF ALL STRIPES HAVE BEEN UNDER THE MICROSCOPE since President Donald Trump was installed in the White House, but his wrath against the Dodd-Frank Act knows no limits. However, the Trump administration has so far been foiled in its attempts to overhaul the law or oust its director, Richard Cordray. On April 4, Trump announced during a gathering of some of the CEOs of the country’s largest companies that his administration is working hard to “destroy” many of the regulations holding back the private sector. “We are absolutely destroying these horrible regulations that have been placed over your heads, not over the last eight years, over the last 20 and 25 years,” Trump told the crowd of approximately 50 CEOS, which included the CEOS of Citigroup, Blackstone, HSBC Bank, the New York Stock Exchange, BNY Mellon, Vornado Realty Trust, and others. Trump specifically referenced the Dodd-Frank Wall Street Reform Act as a target of this regulatory reform, saying that his administration sees Dodd-Frank as an impediment to the banking business and how he plans to do something about it. “You have regulations that are horrendous. Dodd-Frank is an example of what we’re working on and we’re working on it right now,” Trump said. “We’re going to be coming out with some very strong…not…far beyond recommendations. We’re going to be doing things that are going to be very good for the banking industry so the banks can lend money to people that need it.” Trump then laid out his view of the regulatory environment, stating that it’s not the CEOs or the “man that’s making a lot of money” that is actually running the nation’s banks. Rather, Trump said, it’s the regulators that are really in charge. And that is something Trump is working to change. “You look at the folks from government that running all over the

banks. They’re running the banks,” Trump continued. “Really, the head people, they’re petrified of the regulators. They’re petrified. They can’t move. The regulators are running the banks.” Then Trump stated that the administration won’t be pushing for a complete repeal of Dodd-Frank. Instead, Trump said the plans are to cut some of Dodd-Frank and create smarter regulation. “So we’re going to do a very major haircut on Dodd-Frank,” Trump said. “We want strong restrictions. We want strong regulation, but not regulation that makes it impossible for banks to lend to people that are going to create jobs.” Those reforms have hit a wall in Congress, though, as it deals with an unexpectedly lengthy fight on repealing the Affordable Care Act. Still, the industry sees huge potential in the possible rollbacks. JPMorgan Chase CEO Jamie Dimon talked extensively about the prospects of regulatory reform in his annual letter to shareholders, noting enormous benefits if the rules were altered. Dimon’s vision is more moderate than Trump’s, since he doesn’t foresee getting rid of Dodd-Frank (or the CFPB) altogether. In the 2017 letter, Dimon writes that he recognizes that regulations needed to be added in the wake of the financial crisis, but adds that some of the rules went too far, are ill-conceived, or both. “We had a severe financial crisis followed by needed reform, and our financial system is now stronger and more resilient as a result,” Dimon writes. “During and since the crisis, we’ve always supported thoughtful, effectiveregulation,notsimply more or less,” Dimon continues. “But it is an understatement to say improvements could be made. The regulatory environment is unnecessarily complex, costly and sometimes confusing.” In Dimon’s words, “no rational person could think that everything HOUSINGWIRE ❱ MAY 2017 53

CFPB Watch

“

New mortgage rules and regulations total more than 14,000 pages and stand about six feet tall.” — Jamie Dimon

that was done was good, fair, sensible and effective, or coherent and consistent in creating a safer and stronger system. Dimon states that “poorly conceived and uncoordinated regulations” damaged the country’s economy and prevented growth, which has hurt the “average American.” Dimon writes the bank is not arguing that the Dodd-Frank Wall Street Reform Act needs to be repealed. Rather, Dimon states that changes can be made to the regulatory system to unlock hidden opportunities for the country, the financial system, and for consumers. “We are not looking to throw out the entirety of Dodd-Frank or other rules (many of which were not specifically prescribed in Dodd-Frank). It is, however, appropriate to open up the rulebook in the light of day and rework the rules and regulations that don’t work well or are unnecessary,” Dimon writes. “We believe changes can and should be made that preserve the safety and soundness of the financial system and lead to a more healthy and vibrant economy for the benefit of all.” In the letter, Dimon lays out a series of changes to the mortgage rules that could boost mortgage lending substantially. In Dimon’s view, the regulatory pendulum swung too far after the crisis and regulations are now inhibiting banks’ ability to lend. “Seven major federal regulators and a long list of state and local regulators have overlapping jurisdiction on mortgage laws and wrote a plethora of new rules and regulations appropriately focused on educating and protecting customers,” Dimon writes. “While some of the rules are beneficial, many were hastily developed and layered upon existing rules without coordination or calibration as to the potential effects.” The result of the rules, Dimon writes, is a “complex, highly risky and unpredictable operating environment” that puts lenders and servicers at higher risk of litigation and operational risk. And those issues, in turn, affect consumers, as mortgages now cost more, mortgage credit is tighter, and private capital is limited, compared to before the crisis, Dimon writes. “There are significant opportunities to make simple changes that can have a dramatic impact on improving the current state of the home lending industry – this will make access to good and affordable mortgages much more achievable for far more Americans,” Dimon writes. 54 HOUSINGWIRE ❱ MAY 2017

“And it’s noteworthy that those who lost access to mortgage credit are the very ones who so many people profess to want to help – e.g., lower income buyers, first-time homebuyers, the self-employed and individuals with prior defaults who deserve another chance,” he continues. One significant area where rules can be changed is with the Federal Housing Administration, and specifically, the government’s use of the False Claims Act to extricate settlements from lenders for supposedly misrepresenting the quality of FHA loans. In last year’s letter, Dimon said that the bank drastically cut its FHA lending in 2015 due, in part, to the risk of a False Claims Act charge from the government. And as Dimon writes in this year’s letter, Chase isn’t the only large lender backing away from the FHA. Citing data from Ginnie Mae, Dimon writes that nonbanks have gone from 20% of the FHA 30-year mortgage originations in 2011 to 80% in 2016. “The FHA plays a significant role in providing credit for firsttime, low- to moderate-income and minority homebuyers,” Dimon writes. “However, aggressive use of the False Claims Act (a Civil War act passed to protect the government from intentional fraud) and overly complex regulations have made FHA lending risky and cost prohibitive for many banks.” Dimon writes that False Claims Act settlements “wiped out a decade of FHA profitability,” adding that FHA lending is too expensive for lenders, even without the threat of a False Claims Act settlement. “This has led us to scale back our participation in the FHA lending program in favor of less burdensome lending programs that serve the same consumer base – and we are not alone,” Dimon writes. If the government ceased its use of the False Claims Act as a weapon, lenders would be more incentivized to increase FHA lending. Dimon also calls on the FHA to: • Improve and fully implement the Department of Housing and Urban Development’s proposed defect taxonomy, clarifying liability for fraudulent activity • Revise certification requirements to make them more commercially reasonable • Simplify loss mitigation by allowing streamlined programs and aligning with industry standards • Eliminate costly, unnecessary and outdated requirements that make the cost of servicing an FHA loan significantly more expensive than a conventional loan Dimon also calls for changes to mortgage servicing rules, which could help to cut costs for servicers and borrowers alike. “New mortgage rules and regulations total more than 14,000 pages and stand about six feet tall,” Dimon writes. “In servicing alone, there are thousands of pages of federal and state servicing rules now – clearly driving up complexity and cost.”

CFPB Watch

Dimon writes that the cost of servicing a mortgage in default has increased so much in recent years that lenders now shy away from borrowers that would have been underwritten in the past. Dimon calls on the Department of the Treasury to install uniform, national mortgage servicing rules. “The most promising opportunity in mortgage servicing is to adopt uniform national servicing standards across guarantors, federal and state regulators, and investors. Importantly, there is no need for legislation to implement the necessary coordination to get this done,” Dimon writes. “In particular, the U.S. Treasury is well-positioned to lead key players in the mortgage industry.. to establish national service standards that would simplify mortgage origination and servicing,” Dimon continues. If those rule changes are put in place, Dimon writes, the mortgage market could see an increase of more than $300 billion in purchase mortgage originations on a yearly basis, thanks to lower costs and an increased number of eligible borrowers. “If we take the actions mentioned above, we believe that the cost to a customer would be 20 basis points lower and that mort-

gage underwriters would be willing to take more – but appropriate – risk on loans (again, this would be for first-time, young and lower income buyers, those with prior delinquencies but who are now in good financial standing and those who are self-employed),” Dimon writes. “Taken in total, we believe the issues identified above have reduced mortgage lending by more than $300 billion purchased mortgages annually (our analysis deliberately excludes underwriting the subprime and Alt-A mortgages that caused so many problems in the Great Recession),” Dimon continues. “Had we been able to fix these issues five years ago (i.e., three years after the crisis), our analysis shows that, conservatively, more than $1 trillion in mortgage loans might have been made.” Of course, it remains to be seen whether Republicans in Congress, after trying to repeal and replace the Affordable Care Act, among other thorny initiatives, will be able to muster the will or posess the stamina to reform financial regulation. But looking at Dimon’s projections, even small changes to financial rules could have huge consequences for the industry, and the country.

Kudos

SIGNINGS

GIVING BACK

• Maryland-based DIRECT MORTGAGE LOANS has implemented BESTBORN’S LOAN VISION accounting software for mortgage banks. Direct Mortgage Loans offers a wide range of products, including Armed Forces loans, loans designed for first-time homebuyers and conventional 95 mortgages.

• Top producers with PRIMARY RESIDENTIAL MORTGAGE were invited to a Costa Rican elementary school during its 12th annual top producers event. Thirty-five team members participated in a day of giving back at MERCEDES ELEMENTARY SCHOOL in Ortega, Costa Rica. Teachers and students at the school received essential items needed for its daily activities and classrooms, such as electric fans, new computer desks, tables, chairs and a large amount of everyday school supplies. The exterior of the school received a facelift from volunteers and they also repaired a roof that

MILESTONES • TAVANT TECHNOLOGIES announced it has opened its second U.S. development and innovation center in Dallas, Texas and plans to add 300 new employees across the United States this year. Tavant has been growing rapidly and has doubled its revenue in the last two years. “Our commitment to customer success and developing innovative products and solutions has enabled our rapid growth,” said Sarvesh Mahesh, Tavant’s founder and CEO. “It is exciting to achieve growth across all our businesses with high customer satisfaction.”

had been previously damaged. “We are committed to helping children around the world. We believe that every child deserves

a chance to learn and a chance at a better future,” said David Zitting, PRMI’s CEO.

has been named as a 2017 ELLIE MAE HALL OF FAME winner. The lender received the award for Exceptional Achievement in Loan Quality. This is Waterstone Mortgage’s third time to be recognized as an Ellie Mae Hall of Fame

winner, previously earning awards in 2015 and 2016. Alan Hummel, FIRST AMERICAN MORTGAGE SOLUTIONS’ chief appraiser and vice president of valuation was honored

with the Collateral Risk Network’s annual Valuation Visionary Award at Valuation Expo in Orlando. The award recognizes a standout collateral valuation professional who has demonstrated outstanding leadership, innovation and professionalism.

ATTOM DATA SOLUTIONS launched a two-for-one lead product proven to identify properties with a high likelihood of selling within 30 days of an indicated settlement date — providing both pre-mover leads and new homeowner leads. Rob Barber, CEO at ATTOM, said that during three years of research the company found that purchase leads are highly indicative,

with more than 60% of the purchase leads matching to a closed sale within just 30 days of the identified settlement date provided in the lead, and 76% of the purchase leads matching to a closed sale within 90 days of the identified settlement date. CORCORAN CONSULTING & COACHING launched a new training program for single real estate agents who want to build

a team. The STEPS (SOLOPRENEUR TO ENTREPRENEUR PERFORMANCE SYSTEMS) COACHING PROGRAM utilizes two training phases. Phase I provides one-on-one coaching for agents interested in building a team and Phase II introduces additional members to the team and works with the agent to enhance all systems and to accommodate the growing team.

AWARDS • WATERSTONE MORTGAGE

LAUNCHES • MOUNTAINVIEW CAPITAL HOLDINGS has rebranded and changed its name to MOUNTAINVIEW FINANCIAL SOLUTIONS to better reflect the company’s diverse offerings of professional services, including valuation and pricing services, credit and interest rate risk solutions, model risk management and transaction advisory services. 56 HOUSINGWIRE ❱ MAY 2017

Take 5

Industry leaders answer five revealing questions.

SIGNATURE PHRASE:

“But how could you live and have no story to tell?” — Fyodor Dostoyevsky, White Nights

I WOULD TELL MY YOUNGER SELF...

MY BIGGEST LEARNING OPPORTUNITY WAS…

SELMA HEPP Chief Economist & Vice President Business Intelligence

Selma Hepp joined Pacific Union in early 2016 as vice president of business intelligence. Prior to joining Pacific Union, Hepp was chief economist at Trulia. Her career also includes positions as senior economist for the California Association of Realtors and economist and manager of public policy and homeownership at the National Association of Realtors.

MY LAST VACATION WAS… 58 HOUSINGWIRE ❱ MAY 2017

Coming to the U.S. from Croatia THE FUTURE IS…

UNEXPECTED

CUBA

Industry

Pulse

60 HOUSINGWIRE ❱ MAY 2017

Industry Pulse

Is the industry ready for HMDA? NEW ENFORCEMENT ACTIONS UNDERLINE THE IMPORTANCE OF COMPLIANCE

BY BEN LANE AND SARAH WHEELER

THE CONSUMER FINANCIAL PROTECTION BUREAU is battling Congress and the Trump administration for its very survival, but that hasn’t distracted the bureau from its mission of enforcing Dodd-Frank regulations. The latest regulatory hurdle for lenders is complying with the new rules under the Home Mortgage Disclosure Act, which goes into effect in January 2018. However, even complying with the current HMDA rule can be difficult. In a very clear message to the industry about how seriously it takes HMDA compliance, the CFPB in March levied the largest HMDA civil penalty it has ever imposed, fining Nationstar $1.75 million. According to the CFPB, the fine is based on Nationstar “consistently failing to report accurate data” about mortgage

transactions from 2012 through 2014, and the size of the penalty is based on “Nationstar’s market size, the substantial magnitude of its errors, and its history of previous violations.” In a statement to HousingWire, Nationstar expressed “regret” for the mistakes that led to the reporting errors. The CFPB noted that Nationstar was already “on notice” on HMDA violations stretching back to 2011. The Home Mortgage Disclosure Act, referred to as HMDA, was originally enacted in 1975 and requires many financial institutions to collect data about each company’s housing-related lending activity. As part of HMDA, companies are required to disclose information regarding home purchase loans, home improvement loans and refinance loans that they origi-

nate or purchase, or for which they receive applications. HMDA also requires financial institutions to report to the appropriate federal agencies and make the data available to the public, which regulators can use for various oversight reasons. HMDA information is often used to determine whether a lender is in compliance with other mortgage-related laws such as the Equal Credit Opportunity Act, the Fair Housing Act and the Community Reinvestment Act. And according to the CFPB, Nationstar did not fulfill its HMDA reporting obligations. “Financial institutions that violate the law repeatedly and substantially are not making serious enough efforts to report accurate information,” said CFPB Director HOUSINGWIRE ❱ MAY 2017 61

Industry

Pulse

“

I’m amazed that we can’t do HMDA right — it’s been around since the 70s. If you can’t get HMDA right now when there are only, for example, three possible demographic answers, God help you next year when there are over 20.” - Jack Konyk, executive director of government affairs for Weiner, Brodsky, Kider

Richard Cordray. “Today we are sending a strong reminder that HMDA serves important purposes for many stakeholders in the mortgage market, and those required to report this information must make more careful efforts to follow the law.” In a statement, Nationstar noted that the issues identified by the CFPB related only to “technical data issues” that the company has “worked tirelessly to resolve through significant investments,” rather than “any wrongdoing impacting customers or fair lending.” According to the CFPB, in the course of its supervision process of Nationstar’s compliance with HMDA, the bureau found that Nationstar’s HMDA compliance systems were “flawed, and generated mortgage lending data with significant, preventable errors.” The CFPB also noted that Nationstar “failed to maintain detailed HMDA data collection and validation procedures, and failed to implement adequate compliance procedures.” The company also “produced discrepancies by failing to consistently define data among its various lines of business,” the CFPB said. The CFPB notes that Nationstar “has a history of HMDA non-compliance,” including a 2011 settlement with the Commonwealth of Massachusetts Division of Banks over HMDA compliance deficiencies. 62 HOUSINGWIRE ❱ MAY 2017

According to the CFPB, the samples it reviewed showed “substantial error rates” in three consecutive reporting years, even after the Massachusetts settlement. The CFPB said that it found error rates of 13% in 2012, 33% in 2013, and 21% in 2014 in the loans it reviewed from Nationstar. In addition to paying the $1.75 million fine, Nationstar is also required to develop and implement an “effective compliance management system.” Nationstar is also required to “assess and undertake any necessary improvements to its HMDA compliance management system to prevent future violations.” Nationstar is also required to fix its HMDA reporting issues. “Nationstar must review, correct, and make available its corrected HMDA data from 2012-14,” the CFPB said. The CFPB notes that since its examination, Nationstar “has been taking further steps to improve its HMDA compliance management system and increase the accuracy of its HMDA reporting,” a sentiment shared by Nationstar. “Nationstar understands how accurate HMDA data is critical to fair lending, and we regret the mistakes that led to the reporting errors. These data issues are not reflective of our customer and compliancedriven business practices, and we remain committed to treating every applicant

fairly and responsibly,” Nationstar said in a statement. “Over the past two years, Nationstar has proactively made substantial investments in new staff, training and technology to enhance all of our HMDA-related processes and controls,” the company continued. “As Nationstar made these sizable investments in enhancing our HMDA processes, we provided the CFPB with frequent updates to reinforce that our leadership takes regulatory compliance seriously,” the company added. “Moving forward, Nationstar will continue to foster a culture of compliance, ethics and innovation,” the company concluded. “As we continue on our journey to reinvent the mortgage experience and keep the dream of homeownership alive, nothing is more important than maintaining our customers’ confidence and trust.”

NEW RULES The challenges for lender to comply with HMDA will only increase as the newest HMDA requirements are implemented in 2018. At the Ellie Mae Experience 2017 conference in March, lenders turned out in droves to the panels addressing HMDA compliance, and it was a frequent topic of conversation outside the sessions. In the conference’s compliance town hall session, it became clear that there was some confusion around when and how to collect and report the new demographic data. One notable exchange ended with a self-described rant by Jack Konyk, executive director of government affairs for Weiner, Brodsky, Kider, after a question about gathering Home Mortgage Disclosure Act demographic data. “I’m amazed that we can’t do HMDA right — it’s been around since the 70s,” Konyk said. “If you can’t get HMDA right now when there are only, for example, three possible demographic answers, God help you next year when there are over 20.” Konyk reminded conference-goers that any descriptions reported by borrowers on

Industry Pulse

The new HMDA requirements Ballard Spahr detailed the new data points that covered institutions will have to collect, record and report after Jan. 1, 2018 to comply with HMDA regulations: • Information about applicants and borrowers, including age, credit score, and debt-to-income and combined debtto-income ratios. • Information about the loan process, including whether the application was submitted directly to the institution, whether the loan was, or would have been, initially payable to the institution, and the name of, and results from, the automated underwriting system that was used. • Information about the property securing the loan, including value and type (e.g., manufactured homes). • Information about the features of the loan, such as total loan costs or total points and fees, origination charges, discount points, lender credits, interest rate, prepayment penalty term, loan term, introductory rate period, and nonamortizing features. • Certain unique identifiers, such as property address, legal entity identifier for financial institutions, and mortgage originator NMLSR identifier. In an effort to align reporting requirements with wellestablished data standards and thereby lessen the reporting burden on lenders, the HMDA rule modifies certain

their ethnicity, race and sex should not be challenged by lenders, even if those characteristics don’t seem accurate. “It doesn’t matter what you think — report what they say about themselves. Don’t take it upon yourself to change what they said.” On the new HMDA form, lenders will be able to check a box clarifying that they filled out information about the ethnicity, race and sex of the borrower from visual observation and surname. The current form lets lenders indicate that borrowers declined to answer, but doesn’t have a space to confirm visual inspection. Konyk also warned lenders on the serious consequences of sloppy HMDA reporting. “A regulator will not just see it as data in-

data points, including legal entity identifier, universal loan identifier, loan purpose, preapproval, construction method, occupancy type, loan amount, ethnicity, race, sex, type of purchaser, rate spread, lien status, and reason for denial. Currently under Regulation C, the reporting of the reasons for denial is optional, although some institutions are required to report the reasons under separate requirements. For data collected in or after 2018, the final rule will require a Covered Institution to report whether it collected information about the applicant’s or borrower’s ethnicity, race, and sex based on visual observation or surname. In addition, Covered Institutions must allow applicants to self-identify their own ethnicity and race using disaggregated ethnic and racial subcategories, which will be reported accordingly. For data collected on or after January 1, 2017, and reported in or after 2018, Covered Institutions need no longer directly provide a disclosure statement or a modified loan application register (LAR) to the public upon request. Providing a notice that its disclosure statement and modified LAR are available on the CFPB’s website will be sufficient. In the future, the CFPB will ask the public to provide feedback regarding a balancing test that it will use to determine whether and how HMDA data should be modified prior to its disclosure in order to protect applicant and borrower privacy.

accuracy — they will see it as incompetent management and inadequate control. That is how they will see you and your company, and if they come in and find bad data, they can and have issued an order to do a three-year scrub and refile on all your HMDA data, to go back and get it right,” Konyk said. One source of confusion for lenders has been the HMDA reporting timelines, since there are different effective dates. A Law360 article in 2016 outlined what lenders need to be careful to navigate: “As a result, institutions must be prepared to distinguish between loans for which the institution must comply with the 2017 requirements of HMDA as compared to the loans that must comply with

the 2018 version of HMDA,” the article stated. “This is especially important for the requirements that apply effective Jan. 1, 2018. Lenders are required to begin collecting, recording and reporting the new and modified data points for applications on which final action is taken on or after this implementation date. “Therefore, an application for a home purchase in late November 2017 could close in December 2017 or January 2018. For such loans, lenders will need to be ready to collect the new data (with some exception as discussed above) and track the application to determine how it should report the information based on whether final action was taken in 2017 or 2018.” HOUSINGWIRE ❱ MAY 2017 63

Knowledge

Center

64 HOUSINGWIRE ❱ MAY 2017

W H I T E PA PE R: Si m plifile | SP ONSOR E D CON T E N T

Knowledge Center

Closing the post-closing loop SUMMARY: Post-closing errors related to trailing or missing documents are an expensive thorn in our industry’s side. Follow-up is a manual and time-consuming process that may take days or weeks. In addition, lenders may incur substantial indirect costs ranging from regulatory penalties to investor “holdbacks” if final recording fees differ from the disclosed amount or if the recorded security instrument and title policy are not received. In an attempt to address these issues, many lenders simply assign more personnel to the problem or outsource post-closing activities to third-party providers. However, technology is now available to automate and simplify post-closing processes without the need to outsource or hire additional resources. A collaboration portal designed to ease the burden of the TILARESPA Integrated Disclosure rule (TRID) and enhanced with post-closing and e-recording services allows lenders, title insurance underwriters, and title and settlement agents to view the status of post-closing deliverables in real time. Recorded security instruments are immediately delivered to all parties, and any change in recording fees is automatically updated on the closing disclosure. Because a post-closing collaboration service eliminates the need for personnel, internal or outsourced, to manually track down trailing documents, the return on investment is almost immediate. Moreover, recent signals from the GSEs indicate that forthcoming guideline revisions will only further pave the way for efficient, paper-free post-closing collaboration by reducing the requirement for a copy of the ink-signed security instrument in the servicing file. Now is the time for lenders to invest in their best defense against the regulatory repercussions of improperly perfected loans.

TRAILING DOCS: AN EXPENSIVE THORN IN OUR INDUSTRY’S SIDE Today’s strict regulatory environment places tremendous pressure on mortgage lenders to ensure loan files are complete, accurate, and compliant. Historically, lenders have viewed the closing as the finish line of accountability. However, regulations have extended the lender’s responsibility beyond the closing table. Post-closing errors, especially ones related to trailing documents,

are common, and the lender is just as responsible for these errors as ones that occur earlier in the process. Just how many loans require follow-up action related to trailing documents and other post-closing issues? An August 2016 report by Aces Risk Management (ARMCO) found that missing documents are responsible for more than one in four critical loan defects. In our experience, it’s not uncommon for large lenders to have thousands or tens of thousands of documents outstanding. In some cases, more outstanding documents are searched for in a given month than loans actually closed. The cost of not getting post-closing right the first time is high, because follow-up is a manual, and time-consuming process. For example, consider the all-too-common scenario in which post-closing review reveals the loan file is missing the recorded security instrument and title policy. To remedy this problem, a lender typically begins by sending the settlement agent a “demand letter” requesting the missing documentation. If the request goes unanswered, the lender will next reach out to the title insurance underwriter, who will query the settlement agent again. If the settlement agent can’t readily provide the missing documents, they will likely have to coordinate with the county recorder to obtain proof that the security instrument was recorded. Once the recorded document is secured, title policy issuance is yet another workflow that eats into limited post-closing time and resources. Even when the settlement agent sends both security instrument and title policy to the lender, the documents can easily get misplaced in the mountain of paperwork the lender receives. In short, there are many steps and parties involved in tracking down missing documents, each of which may take days or weeks. To further complicate the process, tracking and collection methods must also be documented — something many lenders do manually, via spreadsheet. Any midstream personnel changes mean new sta must be trained and brought up to speed on the status of the loan review at additional time and cost.

To read the entire white paper, visit the Knowledge Center on HousingWire.com at knowledge.housingwire.com. HOUSINGWIRE ❱ MAY 2017 65

Knowledge

Center

66 HOUSINGWIRE ❱ MAY 2017

W H I T E PA PE R: Chronos Solu tions | SP ONSOR E D CON T E N T

Knowledge Center

Asset management and REO disposition A GLOSSARY OF VENDOR QUALIFICATIONS INTRODUCTION

that REO remains unsold costs these firms money. Choosing the wrong asset management and REO disposition partner can quickly erase the profitability in these portfolios. Bank and capital markets executives understand the challenges inherent in properly managing this process, which led to a standing room only crowd for the REO Lab at this fall’s Five Star Conference and Expo. Speakers from all over the industry offered their best advice for dealing with what will likely be an increasing load of REO inventory in the short term. “I think that people are realizing the market may shift again, and if you’re ahead of your game and paying attention now, if it shifts, and your knowledge is there, you’ll be able to handle that industry, I think REOs will come back—not the way they were when the market shifted in 2008, 2009, and 2010,” said Joyce Essex-Harvey, an agent with Coldwell Banker Residential Brokerage and one of the speakers in the lab.4

As the foreclosure crisis continues to shrink in the rearview mirror, many in the mortgage industry are starting to breathe easier. Default rates have been dropping steadily and most forecasters expect that trend to continue. By all accounts, our industry is moving well into the recovery. For some players, including the nation’s banks and capital markets investors who have invested heavily in distressed loan portfolios, this is misleading. While it is true that zombie foreclosures, which have posed such serious problems in some jurisdictions that state legislatures have been moved to pass new laws, are on the decrease, recent reports in the trade media put the number of zombie foreclosures down 9% from the third quarter of 2015. At 18,304 properties, these homes now account for only 4.7% of all REO inventory.1 Unfortunately, this drop in vacant properties that have yet to be foreclosed is balanced by a rise in bank-owned real estate. RealtyTrac’s parent company Attom Data Solutions reported in THE KEYS TO SUCCESS FOR OUTSOURCED REO September that the percentage of vacant bank-owned properties DISPOSITION is larger now versus a year ago as banks are completing more The days of financial services companies believing they are large foreclosures. To some degree this is an “out of the frying pan enough to handle every function on their own are long past. and into the fire” sort of situation.2 Today’s most successful companies find partners they can trust According to a HousingWire story, Attom found 7% more va- to outsource those functions that are not core to their business. cant bank-owned at the end of the third quarter. That’s up 67% As you would expect, that means that both banks and capital from 2015. Without residents living in the bank-owned homes, markets firms are seeking out third party experts to handle their these properties pose much more serious risks to the bank be- asset management and REO disposition functions. We’ve already witnessed an uptick in our business in this area and we expect it cause property preservation is more difficult and costly. While REO sales have been decreasing since the crash, to continue through 2017. Failure to choose the right third-party business partners is risky. Servicing Management reports that at 7% of all distressed sale activity, it’s still double the pre-crisis amount of 3%. This is still Even if the CFPB wasn’t holding the company accountable for every action taken by the third party (which it is), the risk that inexpea big problem for servicers.3 Capital markets players that invested heavily in distressed rience could lead a partner to make a costly mistake is very real. pools have also been working through their portfolios, which has increased the REO inventory they’re holding. These investments are made in the knowledge that many of these assets To read the entire white paper, will be returned to the market, hopefully at a profit. Every day visit the Knowledge Center on HousingWire.com at knowledge.housingwire.com. HOUSINGWIRE ❱ MAY 2017 67

INDEX

SECONDARY MARKET FORECAST

Stormy skies p34

COMPANIES

Hertz Global Holdings Inc.......................................................... 12

AARP Public Policy Institute...........................................43-44

Housing Finance Policy Center..............................................42

Aces Risk Management.............................................................65

HSBC............................................................................................. 39, 53

Skyline Home Loans....................................................................38

Hispanic Real Estate Professionals...............................12, 16

Aegean Financial.......................................................................... 44 American Advisors Group.................................................44-45

Appraisal Institute.........................................................................18

IMN..................................................................................................37-38

Arch MI.................................................................................................26

Independent Settlement Services �� 12

Arizona Biltmore.............................................................................14 ATTOM Data Solutions...............................................20, 56, 67 Auction.com........................................................................12, 20-21

B Ballard Spahr............................................................................33, 63 Bank of America.............................................................................39 BBVA Compass Bank................................................................... 12 Bestborn.............................................................................................56

C Capstead Mortgage Corp.......................................................... 12 Carrington.............................................................................................5 Chase......................................................................................12, 53-54 Chronos Solutions.........................................................................67 Clayton Holdings............................................................................31 CNBC..............................................................................................18, 45 Consumer Bankers Association............................................32 Consumer Financial Protection Bureau.. 32, 44, 50, 55, 61 Corcoran Consulting & Coaching..........................................56 CoreLogic............................................................................................16 Countrywide Financial...............................................................39

D 42, 54 Department of Justice.........................................................49-51 Detroit News.............................................................................50-51 Direct Mortgage Loans..............................................................56

E Ellie Mae......................................................................................56, 62 Essent Guaranty............................................................................. 12 Evensky & Katz...............................................................................45

F Fannie Mae.......................................12, 16, 19, 24, 37, 42-43, 55 Federal Housing Authority.......................................................42 Federal Housing Finance Administration ��37 Federal Open Market Committee................................ 35-36 Federal Reserve..............................................................................16 Fifth Third Bank.............................................................................. 12 First American Mortgage Solutions ��56 First Guaranty Mortgage Corp................................................ 12 First Horizon National.................................................................49 First Tennessee...............................................................................49 Flagstar Bank...................................................................................37

T Tavant Technologies...................................................................56 Texas Tech University.................................................................45 The Bank of Oklahoma............................................................... 12 The Corporate Leadership Council......................................28 the Denver Metro Association of Realtors ��19 The Denver Post.............................................................................19 the Heard Museum........................................................................14

G Gansberg, David.............................................................................26 Goldsmith, Mark A........................................................................50 Goodman, Laurie...........................................................................42 Graham, Denia................................................................................. 12

H Haralson, Ali...................................................................................... 12 Hepp, Selma.....................................................................................58 Hummel, Alan.................................................................................56

The Seattle Times.........................................................................18

Hyatt, Ashley.................................................................................... 12

Journal of Financial Planning.................................................45

Jubilados Financial...................................................................... 44

Urban Institute........................................................................42, 44

Jauchius, Matthew......................................................................... 12

U.S. Bancorp Fund Services...................................................... 12

Kroll Bond Rating Agency...........................................................5

ValuAmerica......................................................................................31

Kaul, Karan........................................................................................42

Veros Real Estate Solutions.....................................................19

Klein, Aaron.......................................................................................20

James B. Nutter & Company...................................................42

Law360...............................................................................................63 Lipton, Rosen & Katz...................................................................49

LoanLogics......................................................................................... 12

Walter Investment Management Corp. ��39

Karen, Ari............................................................................................50

Konyk, Jack........................................................................................62

Waterstone Mortgage................................................................56

Lambros, Colleen...........................................................................21

Weiner, Brodsky, Kider................................................................62

Lopez-Cid, Daisy............................................................................. 12

Wells Fargo................................................................... 5, 16, 36, 49

Lynyak, Joseph................................................................................50

MountainView Financial Solutions ��56

Movement Mortgage................................................................... 12

Xinnix....................................................................................................29

Mahesh, Sarvesh...........................................................................56

M Mortgage Bankers Association................................14, 16, 36 MountainView Capital........................................................38, 56

Maurer, Matt.....................................................................................38

N National Association of Realtors..........................................16 National Council on Aging........................................................45 National Real Estate Solutions.............................................. 12

Department of Housing and Urban Development

S&P........................................................................................................39

National Reverse Mortgage Lenders Association

PEOPLE A Allnutt, Jason...................................................................................20

Ann, Mary............................................................................................51

Nations Property Solutions...................................................... 12

Atlexis, Anthony.............................................................................33

Nationstar....................................................................12, 39, 61-62 Nationwide Mutual Insurance Company �� 12

B Bell, Jeff................................................................................................21 Bell, Peter...........................................................................................42

Ocwen Financial............................................................................39

Bon Salle, Andrew........................................................................24

Office of the Comptroller of the Currency ��16

Bozorgi, Darius.................................................................................19

Offit Kurman....................................................................................50

Middleman, Stan...........................................................................38 Mizer, Benjamin..............................................................................49

N Neuberger, Joe................................................................................. 12

P Pareja, Leo.......................................................................................... 12 Patel, Amar........................................................................................ 12 Pfeiffer, Shaun.................................................................................45

R Reagan, Ronald..............................................................................42

Redwine, Joe..................................................................................... 12

Cason, Henry....................................................................................24

PennyMac Mortgage Investment Trust ��39

Cisterna, Dennis..............................................................................22

PHH...............................................................................................39, 50

Cohan, William D............................................................................15

Primary Residential Mortgage..............................................56

Conway, George.............................................................................49

Conway, Kellyanne.......................................................................49

Quicken Loans..........................................................................49-51

Corn, Craig..........................................................................................45

Radian Group Inc............................................................................31

Dallas, Bill..........................................................................................38

Red Bell................................................................................................31

Dangerfield, Rodney....................................................................32

Trump, Donald................................................... 9, 36, 49-50, 53

Redfin....................................................................................................16

Donnelly, Michelle.......................................................................... 12

Twohig, Peggy.................................................................................33

Olympus Servicing......................................................................... 12

Chambers, Jennifer......................................................................50

Cordray, Richard.............................................. 32, 45, 50, 53, 62

Salter, John........................................................................................45 Sessions, Jeff....................................................................................50 Shapiro, Thomas............................................................................15 Smith, Lee...................................................................................36-37

T Thorpe, Adam.................................................................................. 12 Trawinski, Lori..........................................................................43-44 Trebek, Alex.......................................................................................41

Franklin American.........................................................................49

Regions Bank...................................................................................49

Freddie Mac.........................................................................19, 37, 55

RentRange Data Services.........................................................22

Freedom Mortgage......................................................38-39, 49

Reverse Mortgage Professionals........................................ 44

Emanuel, Emil.................................................................................. 12

Watt, Mel.............................................................................................37

Reverse Mortgage Solutions................................................. 44

Evensky, Harold..............................................................................45

Work, Kayla........................................................................................ 12

Simplifile.............................................................................................65

Freeman, Mark.................................................................................37

Zitting, David....................................................................................56

Ginnie Mae...................................................................37-39, 54-55 Guild Mortgage........................................................................ 49, 51

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AD INDEX B Black Knight Financial Services.............................................................................2 C Chronos.........................................................................................................................25 Clayton.............................................................................................................................4 ComplianceEase........................................................................................................57 E Ellie Mae..........................................................................................................................3 F Fannie Mae....................................................................................................................71 FICS.................................................................................................................................55 Finance of America Commercial.........................................................................17 Freddie Mac..................................................................................................................27 L Loan Logics...................................................................................................................10 M M&M Mortgage Services.......................................................................................... 8 Mortgage Bankers Association........................................................................... 23 N National MI...................................................................................................................72 O Old Republic Title.....................................................................................................59 OS National.................................................................................................................. 13 R Radian............................................................................................................................. 6 HOUSINGWIRE â?ą MAY 2017 69

PARTING SHOT

â?ą THE COOL FACTOR Amherst InsightLabs hosted a series of panels on mortgage finance at SXSW. Featuring industry leaders like Julian Castro and luminary Danny Hillis, the panels drew a lively and engaged audience, especially during the Q&A sessions, as seen here. The company finished out the day with a concert by three up and coming artists. Photo by Rob Santos

70 HOUSINGWIRE â?ą MAY 2017