nmp news flash Planting Our Flag
Direct approval status guarantees a market for brokers By Al Crisanty
AUGUST 2012
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
28
Like many of you, I recently watched the opening ceremonies for the Olympic Games being held in London. I was particularly struck by the parade of athletes from 200-plus nations, 81 of which had never won an Olympic medal. In their sometimes attractive, sometimes gaudy, outfits they marched into the stadium led by a flag bearer who proudly waved their nation’s symbol for the world to see before planting it in the ground beside the flags of other nations. This symbolic planting of the flag made a powerful statement: “We are here … We are dedicated to our sport and loyal to our country … We will bring home the gold!” As the mortgage industry has faced relentless challenges over the past five years, the wholesale channel has been repeatedly written-off. Yet proud participants in this competition have repeatedly planted their flag, claimed the right to compete and vowed to meet any obstacle put in their path. In an expanded piece elsewhere in this edition of National Mortgage Professional Magazine, Mark Greco, president of mid-level wholesale mortgage banker 360 Mortgage Group, discusses the rationality of the wholesale mortgage market and how all of the participants have made decisions based on their individual best interests. For remaining lenders, serving this channel after the departure of the major banks, one decision has been crucial in signaling a strong commitment to the wholesale channel and fortifying broker relationships. That decision—this planting of the flag, if you will—was to obtain agency direct status with either Fannie Mae or Freddie Mac and with Ginnie Mae as well. Direct Agency Approval status is held by only a few of the mid-level mortgage banks. It is essential today for a mortgage bank to possess this status if they expect to survive. Increased net worth requirements and the lengthy and complex agency approval process, means that those mortgage bankers yet to proceed down this path have a difficult road ahead of them. What is Agency Direct Approval status and why is it so important to mortgage brokers? Agency Direct Approval status enables a wholesale mortgage banker to underwrite loan files in accordance with the standards of the government-sponsored enterprises (GSEs) that currently comprise the vast majority of the secondary market for residential loans. When a Direct Approval mortgage bank follows these guidelines in approving loans they are guaranteed that the agencies will purchase the loans. Simply put, unless a mortgage banker has Agency Direct Approval, that mortgage banker cannot guarantee a market for a loan originated by a broker. Without big banks and their Agency Direct Approval, brokers must have relationships with firms who are guaranteed market-makers for their loan files. Wholesale mortgage lending, through experienced, high integrity brokers will produce the highest quality loans in the market. Together we can march into the market place, proudly plant our flag and declare: “We are here to stay … We are committed to supporting our industry and our customers … We will succeed!” Al Crisanty is vice president of national wholesale production for 360 Mortgage Group and is responsible for overseeing regional sales managers as the company seeks to expand operations to all 50 states. Formerly the national wholesale director for Caliber Funding, Al was responsible for the development and expansion of Caliber’s wholesale production channel. Additionally, Al served as executive vice president of national production for American Home Mortgage, successfully transitioning the 500-member production team from Capital Commerce Mortgage Company. Al may be reached by phone at (916) 761-1624 or email acrisanty@360mtg.com. SPONSORED EDITORIAL
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modify the loan terms while still making a return on the initial investment. If no viable alternatives exist, the purchaser may be able to help the borrower sell the property through a short sale and avoid the costs of foreclosure. FHA began selling distressed single family loans through what is now the Distressed Asset Stabilization Program in 2010 and has successfully sold more than 2,100 single family loans to date. An FHAapproved mortgagee can file a claim for FHA insurance benefits and assign the loan to FHA if the borrower is at least six months delinquent on their mortgage; the servicer has exhausted all steps in the FHA loss mitigation process; the servicer has initiated foreclosure proceedings; and the borrower is not in bankruptcy. These assigned loans are then pooled by FHA for resale through the Distressed Asset Stabilization Program. In addition to the standard note sales, the enhanced program features new neighborhood stabilization requirements to encourage investment in communities hit hardest by the foreclosure crisis. Approximately 40 percent of the 9,000 loans in the sale scheduled for September 2012 will be located in Chicago, Ill.; Newark, N.J.; Phoenix, Ariz.; and Tampa, Fla.—four metropolitan areas where high numbers of seriously delinquent loans could expand an already large inventory of real estate-owned (REO) properties over the coming months. Designed to help stem the flow of distressed properties hitting these markets, these neighborhood stabilization requirements provide that no more than 50 percent of the loans within a purchased neighborhood stabilization pool may be sold as REO properties. All parties seeking to bid on the sale pools must first be qualified by the U.S. Department of Housing & Urban Development (HUD). Parties seeking to bid in the neighborhood stabilization pools are required to meet several additional criteria to ensure they will comply with the program’s goal that fewer homes end up as vacant REO properties in metro areas already struggling with high numbers of foreclosures. Eligible investors must have experience in asset management and property management, as well as a proven track record in helping borrowers seriously delinquent on their loans to re-perform or to achieve an affordable alternative to foreclosure. An emphasis will be placed on experience within the metro area in which the bidder is interested.
DOJ Reaches $125 Million Settlement With Wells Fargo on Lending Discrimination Charges The U.S. Department of Justice (DOJ) has filed the second largest fair lending settlement in the Department’s history to resolve allegations that Wells Fargo Bank engaged in a pattern or practice of dis-
crimination against qualified AfricanAmerican and Hispanic borrowers in its mortgage lending from 2004 through 2009. The settlement provides $125 million in compensation for wholesale borrowers who were steered into sub-prime mortgages or who paid higher fees and rates than White borrowers due to their race or national origin. Wells Fargo will also provide $50 million in direct downpayment assistance to borrowers in communities around the country where the Department identified large numbers of discrimination victims and which were hard hit by the housing crisis. “Wells Fargo is settling this matter solely for the purpose of avoiding contested litigation with the DOJ, and to instead devote its resources to continuing to provide fair credit services and choices to eligible consumers, and important and meaningful assistance to borrowers in distressed U.S. real estate markets,” said an official statement from Wells Fargo. Additionally, Wells Fargo has agreed to conduct an internal review of its retail mortgage lending and will compensate African-American and Hispanic retail borrowers who were placed into sub-prime loans when similarly qualified White retail borrowers received prime loans. Compensation paid to any retail borrowers identified in the review process will be in addition to the $125 million to compensate wholesale borrowers who were victims of discrimination. The settlement, which is subject to court approval, was filed July 12 in the U.S. District Court for the District of Columbia in conjunction with the Department’s complaint, which alleges that between 20042008, Wells Fargo discriminated by steering approximately 4,000 African-American and Hispanic wholesale borrowers, as well as additional retail borrowers, into subprime mortgages when non-Hispanic White borrowers with similar credit profiles received prime loans. All the borrowers who were allegedly discriminated against were qualified for Wells Fargo mortgage loans according to Well Fargo’s own underwriting criteria. The U.S. also alleges that, between 2004-2009, Wells Fargo discriminated by charging approximately 30,000 AfricanAmerican and Hispanic wholesale borrowers higher fees and rates than nonHispanic white borrowers because of their race or national origin rather than the borrowers’ credit worthiness or other objective criteria related to borrower risk. “Wells Fargo is settling this matter because we believe it is in the best interest of our team members, customers, communities and investors to avoid a long and costly legal fight, and to instead devote our resources to continuing to contribute to the country’s housing recovery,” said Mike Heid, president of Wells Fargo Home Mortgage. “Wells Fargo takes pride in serving the home ownership needs of all of our customers, and we are fully committed to fair and responsible lending.”