The mortgage business and the finance industry in general are
still under attack. Because we didn’t self-police or use a moral compass (or
even past historical performance) when considering the extension of credit and
the creation of certain subprime and Alt “A” products years ago, we are paying
the price as an industry today with over regulation and knee jerk proposals
under the auspices of helping consumers who are ending up paying for it all,
again.
This is no news flash. But many outside of the lending industry
just don’t realize how much our government continues to try and over-correct
the problems that created the crisis. These knee jerk decisions may in fact, further
delay our economic recovery by further impairing the access to credit. Are we
really to think the new GFE did anything to improve the consumer experience or
help clarify terms? The lending climate is so frightening, that many believe
it’s the reason why private equity hasn’t entered the RMBS arena in any large
way since the collapse. These investors just don’t know where we are headed with
government intervention and frankly yields are higher and the risks lower in other
non-mortgage investments.
The changes being proposed by the CFPB do not serve to
protect consumers or clarify terms and conditions of mortgage. In fact, I would
argue many of the CFPB proposals will in fact, increase costs and fees, further
confuse both consumers and the lending industry, and force further consolidation
in a business and employment pool that has already been decimated. Just look at
turn times. And do I really need to comment on the Appraisal AMC’s and
appraisal costs doubling? We can’t even keep up at most lenders. It’s a fact
that mortgages and costs associated with mortgages are already an all-time low
– wasn’t that the goal?
Business owners and those tasked with managing a mortgage company’s
compliance and policies and procedures don’t like the government changing the
rules in the industry without a really good reason and certainly not without reasonable
forethought and planning.
Such is the case in mortgage lending. In just a few years,
we’ve created a brand new government agency, the CFPB, to protect the consumer.
While I applaud and support any efforts that REALLY help consumers, forming an
agency with NO ONE from the industries they regulate on their staff seems utterly
ridiculous. Just a couple of “mortgage” people could have squashed the whole
flat fee proposal quickly, and avoided further stressing an already “scared to
death” lending industry and environment. I know that having an agency stacked
with all finance people would be counter-productive. But, it’s akin to a “mortgage” person, telling
the nuclear industry how to dispose of nuclear waste and spent fuel rods.
Most should agree that consumers need to be protected. But some
of the ideas the CFPB are offering appear to be totally irrational and not
thought through nearly enough prior to announcement. Let just talk about two
issues—1) Loan Originator compensation/requirement to offer no points and no
fee mortgages, and 2) the SAFE Act and Loan Originator licensing.
So let’s talk about LO comp. Just this week the proposal of
flat-fee compensation was dropped. Here
is a fine example of a government body presenting an idea that doesn’t even
sound good in theory. Immediately
everyone in our business realized this would do nothing but further raise
prices or downright eliminate the access of credit to the most underserved part
of our population-- the low income homeowner/homebuyer with small loan amounts
and/or sales prices. This proposal created months of debate and responses to
the CFPB which undoubtedly were probably something like, “Are you guy’s nuts!” The lowly LO already gets paid on basis points
based on loan amounts, which is basically flat. Did they really think a
borrower with $50,000 balance would be treated or serviced like a borrower with
a $500,000 balance? If anything, we need variable comp to support those
borrowers.
Most of us on the “street” already offer no points and no
fees structures regularly. There is no advantage for me to offer a loan with discount
points or without, or for offering a FHA loan versus Conventional. Yes, I know
some pay varying comp on those products still. And I assume they will correct
that once their company’s CFPB audit is complete. When I quote from our rates
sheets, I am quoting with loan officer compensation already built in. And what about payday loans…You mean to tell
me my 3.25% fixed rate APR is a serious problem, and a 199.99% APR from a
payday lender is fine?
We are already offering loans with APRs the same as the
start rate. When I examine no points and no fees, the only purpose is to
analyze the financial benefit and recoup period compared to the buyer/borrowers
goals with the subject property-both short and long term, not because I make
more on the loan. So why regulate and create new policy for something that is
already in place?
Now let’s talk about the SAFE ACT and the creation of the
NMLS? Yes, I know the CFPB did not
create the SAFE ACT or the NMLS, but they are certainly involved in the
administration and oversight as the be-all-end-all financial oversight agency.
I think we must have 5 regulatory agencies involved to some degree now…But I’ve
lost count.
Prior to Dodd Frank and the SAFE ACT, we already had state
licensing agencies, educational requirements, testing, finger printing,
background checks etc. So let’s go ahead and add another federal layer to the
mix. I agree that bank LO’s should be licensed the same as non- depository
lenders, that hasn’t even happened yet. I’ve been fingerprinted over 20 times
in the last several years – does that seem reasonable or provide any kind of
protection for consumers?
How about a state agency like the CA Department of
Corporations that needs to approve the “transfer of existing active approved licenses
from one approved NMLS company to another NMLS approved company”?
During a change in my employment recently, I needed to wait
over two weeks to receive approval from the CA DOC that already knew I was
approved, active, and working. The DOC prevented me from originating new mortgages
in my name, which is required to be paid for originating a mortgage. According
to the NMLS, “the state CAN approve the transfer the same day”? I suppose that
is possible, but states are broke and most state agencies have seen massive cut
backs and furlough days. So a same day approval may turn out to be longer than
many hope for. Either way, I as the dastardly LO, have to pay the price and
cannot earn a living until my license receives the “rubber stamp” blessing. Many
companies have resorted to boarding loans in other licensed originators names
and then either transferring or paying those LO’s once the loan is funded. And
from everything I’ve read, you can’t do that either.
Finally, I am not saying the government shouldn’t try to protect
us. I don’t think banks should charge $5 a month for an ATM card, or charge $3
when I need a $100 from my checking account when there isn’t a branch of my
bank nearby, or charge $35 late fee on a credit card with a $100 balance. But then again, I don’t run their businesses
which were formed to make a profit. And I guess that is my real point, free
trade makes markets, not government agencies. If I don’t like those fees, I can take my
business elsewhere.
I will leave the CFPB
with a few easy fixes that would actually help consumers.
1.
If a
borrower pays for an appraisal, it should be transferrable--no questions
asked. We have “awesome” AMC’s, who now charge a premium above appraisal costs,
and since there is no longer collusion between LO’s and Appraisers, that would
actually provide the opportunity for consumers to take their business and paid
for appraisals elsewhere if needed. I just had an appraisal for a $150,000
investment property cost $625.00 - utterly ridiculous.
2.
Put a
signature line on the GFE. The amount of incorrect GFE’s out there is
probably pretty frightening – and I hope wholesalers out there take note from
this Stearns audit.
3.
Use the
APR as it is intended. The APR is a mandated disclosure under Truth in
Lending. Mortgage shoppers confront it as soon as they search for interest rate
quotes, because the law requires that any rate quote must also show the APR.
With further consumer education on the APR, consumers should be able to easily
shop for the best mortgage offer.