From "the streets" not the "Street"

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.