July 2018 Issue

HOUSINGWIRE MAGAZINE ❱ JULY 2018

RETURN OF SUBPRIME? Non-QM loans provoke fear, but avoid the pitfalls of risk layering.

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DISRUPTION HOUSINGWIRE MAGAZINE ❱ JULY 2018

How appraisers can succeed by making friends with automation.

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INGENUITY BEGINS WITH BRIGHT IDEAS

We’ve created something powerful.

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CMC Funding, Inc: NMLS ID 41998 Specialized Loan Servicing LLC: NMLS ID Main Office 2168 Credit Risk Solutions, formerly known as Altavera Mortgage Services operating as Credit Risk Solutions: NMLS ID 1059945

Technology Powering the American Dream

Homebuyers don’t dream about having a mortgage, they dream about having a home.

Because of that, we’re pioneering a True Digital Mortgage process that helps lenders to originate more loans, lower costs, and reduce time to close.

Learn how you can deliver dreams faster at EllieMae.com/TDM

Jonathan Corr President & CEO Ellie Mae

HOUSINGWIRE JULY 2018 EDITORIAL

CONTENT SOLUTIONS

EDITOR-IN-CHIEF Jacob Gaffney

MANAGING EDITOR Sarah Wheeler

EDITOR Ben Lane

CONTENT WRITER Alyssa Stringer

ONLINE EDITOR Caroline Basile

CREATIVE

REPORTERS Jeremiah Jensen Alcynna Lloyd Kelsey Ramírez

GRAPHIC DESIGN Traci Cortez

CONTRIBUTORS Carol Bouchner, Casey Cunningham, Camillo Melchiorre, Rick Sharga, MJ Watkins and Heidi Wier

SALES

CORPORATE

NATIONAL SALES DIRECTOR Jennifer Watson Laws jlaws@HousingWire.com

PRESIDENT AND CEO Clayton Collins

CALIFORNIA Christi Lingard clingard@HousingWire.com

CENTRAL Mark Adams madams@HousingWire.com

SOUTHEAST Tyson Bennett tbennett@HousingWire.com

MOUNTAIN WEST Bill Brown bbrown@HousingWire.com

DIRECTOR OF MARKETING OPERATIONS AND TECH C. Scott Smith MARKETING MANAGER Caren Karris SALES & MARKETING ASSOCIATE Haley Knighton AD OPERATIONS MANAGER Jessica Fly CONTROLLER Michelle Monroe

GREAT LAKES Lorena Leggett

GETTING IN LINE THE COMPLIANCE ENVIRONMENT can best be described in the mortgage industry as shifting sands; it feels impossible to gain solid footing.

In our cover story, Managing Editor Sarah Wheeler describes recent moves by the CFPB to relax enforcement as something of a smoke screen that could lull lenders into thinking they could get a compliance pass. This isn’t the case.

She writes why we need to stay vigilant: “The New York Department of Financial Services has been a fierce regulator of financial companies since its founding in 2011. Following Mulvaney’s speech in January pledging a ‘kinder and gentler’ CFPB, the NYDFS Superintendent Maria Vullo vowed that her agency was prepared to step in to address the CFPB’s ‘troublesome policy shift away from consumer protection.’”

It’s an important development as the lending market looks to open the credit box and tap some potential homeowner pools in the lower FICO realms. In his feature, Carrington Mortgage Service’s Rick Sharga provides an overview of the subprime crisis, and explains why it is unlikely to repeat itself: “Unsurprisingly, loans issued to unqualified borrowers on overpriced homes failed at spectacular rates, approaching a 16% foreclosure rate at the peak of the crisis – roughly three times the historical foreclosure rate on higher-risk loans.”

“It was the behavior of the subprime lenders during this period – not the loan products themselves – that caused the problem,” he writes.

Those who claim a return to fast-and-loose lending would do well to review these two pieces closely. For one, the burden of compliance is fairly high compared to pre-crisis levels. Second, repeating the lending sins of the past isn’t really a thing looking at the products on offer today.

Additionally, reporter Kelsey Ramirez discusses the growing role of automation in the appraiser landscape. Will robots replace appraisers? “There are many subjective conditions that can’t be accurately assessed with any amount of data or technology. Some of these include whether there are odd smells, different types of damage to the foundation or the sheetrock or other subjective things that could have a wide-ranging effect on a home’s value.”

Finally, in our nascent Multifamily section, our new reporter Jeremiah Jensen gives us a wrap of the market. You may not work in Multifamily, but HousingWire’s mission is to provide illumination into not just the mortgage finance, but also the real estate economy.

Enjoy!

lleggett@HousingWire.com

NORTHEAST Joe Priolo jpriolo@HousingWire.com

Jacob Gaffney Editor-in-Chief @JacobGaffney 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.

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Tweets From The Street Today at Amazon I was in a meeting with a person named Alexa and every time someone addressed her, I felt like they were addressing a physical manifestation of the company.

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by David Chen @davidchen

© 2018 by HW Media, LLC • All rights reserved

HOUSINGWIRE ❱ JULY 2018 5

START YOUR NEXT JOB SEARCH WITH HOUSINGWIRE. Tired of searching through hundreds of random job postings to find your next opportunity?

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JULY 2018 40

States are ramping up their regulations, creating more risk for mortgage companies.

OREGON

RETURN OF SUBPRIME? Are loan products today really just subprime loans in disguise?

By Rick Sharga

NEW YORK

ILLINOIS

MARYLAND

46

CALIFORNIA

VIRGINIA

36

THREAT MULTIPLIER

The Trump administration has only complicated the confusing and expensive process of compliance.

By Sarah Wheeler

APPRAISAL DISRUPTION Here’s why appraisers need to make friends with automation.

By Kelsey Ramirez

52 COMPLIANCE SOLUTIONS HW profiles three companies providing lenders with solutions in this complicated compliance environment.

HOUSINGWIRE ❱ JULY 2018 9

CONTENTS 12 THE LINEUP 12 PEOPLE MOVERS

14 VIEWPOINTS 26 CROA Camillo Melchiorre says there is potential risk in providing credit repair advice under CROA.

28 ENGAGEMENT

26 Tweets From The Street Day 2 of no #NetNeutrality : I have enough food, and supplies to last me the remainder of the month, but after that I will have to make a harrowing trip into town. If there is anyone out there, I can provide shelter. Stay alive.

2

6

13 by Evan @EvansEthos

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Casey Cunningham discusses pratical ways for leaders to increase performance and shift the production curve.

30 FHFA POLICY Carol Bouchner looks ahead at what the FHFA and others are prioritizing.

32 HMDA DATA Heidi Wier explains how performing data integrity reviews can help manage risk.

Hunt Mortgage hires Kevin Chadwick as managing director, multifamily, in the West.

14 EVENT CALENDAR This year’s CMBA conference will be held in San Francisco’s Union Square.

15 ON THE SHELF Joanna Lipman talks about gender equality in the workplace in That’s What She Said.

16 DISPATCH 1 Optimal Blue’s recent product innovations automate the complex secondary market.

18 DISPATCH 2 New American Funding developed a mobile app for LOs, increasing productivity.

20 DISPATCH 3 Auction.com utilizes big data to create a trusted real estate experience.

22 DISPATCH 4 Citadel offers a new one-month bank statement program for income qualification.

34 EDUCATION

24 HOT OR NOT

MJ Watkins discusses the importance of providing information to first-time homebuyers.

Fannie and Freddie start talking gig mortgages while multifamily enters a slow growth phase.

CONTENTS

58 BACK DEPARTMENTS 58 CFPB WATCH Mick Mulvaney disbands three CFPB advisory boards, including the Consumer Advisory Board.

62 INDUSTRY PULSE

62

Industry leaders look for more ways to safely expand homeownership.

66 MULTIFAMILY What are the issues contributing to the undersupply of multifamily housing?

70 KUDOS Over 100 Florida residents receive college scholarships.

72 KNOWLEDGE CENTER Veros explores business trends for mortgage originators and keys to success for lenders.

74 KNOWLEDGE CENTER

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74

Ellie Mae answers the state licensing questions asked by mortgage industry professionals.

76 COMPANIES/ PEOPLE INDEX 77 AD INDEX 78 PARTING SHOT HOUSINGWIRE â?ą JULY 2018 11

Kevin Chadwick Hunt Mortgage

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OBREGON

QUICK DRANGINIS

GORDON HURAND

THE MORTGAGE BA NK ER S ASSOCIATION hired Robert Broeksmit as its next president and CEO, replacing David Stevens. Broeksmit will join the MBA beginning August 20, 2018.

Broeksmit joins the organization from Treliant Risk Advisors, where he served as president and chief operating officer.

He previously served on the MBA board and as chairman of RESBOG. He also served as chairman of the American Bankers Association’s Mortgage Markets Committee.

LRES Corp. hired Frank Obregon as commercial appraisal manager. In his new role, Obregon will be responsible for establishing, staffing and managing LRES’ commercial appraisal department. Obregon has been in the commercial real estate industry for nearly 40 years, and was previously the director of commercial valuation at PCV Murcor and regional manager with Ameriquest Mortgage.

Alliance Residential Company named Bradley Cribbins as its management division’s new president and CEO. Cribbins started with Alliance in 2007 as managing

MURAD

CRIBBINS NICHOLAS

Hunt Mortgage hired Kevin Chadwick as managing director to leads its multifamily financing operations in the Rocky Mountain region.

director of asset management, Broadstone portfolio, most recently holding the position of president and chief operating officer of the management team.

Prior to joining Alliance, Cribbins was the vice president of operations for a regional owner/manager in the Pacific Northwest and held leadership roles in two multifamily tech start-ups.

Plaza Home Mortgage promoted Michael Fontaine to serve as the company’s chief operating officer. Fontaine previously served as Plaza’s chief fi nancial officer and will maintain that role.

Fintech company, and 2018 HW Tech100 winner TMS recently announced the addition of Fred Quick and Al Murad as executive vice presidents as the company continues to expands its retail lending division. Quick and Murad will help direct the retail division at TMS and will report to Pete Sokolovic, who leads TMS' retail division.

Quick previously held executive-level positions at Pacific Union Financial and Freedom Mortgage as well as senior management positions at loanDepot and

Nationstar Mortgage.

Murad previously held senior management positions at Caliber Home Loans and loanDepot.

Carrington Mortgage Holdings, parent company of Carrington Retail Group, announced it expanded its leadership team with two promotions and a new hire.

The company welcomed industry veteran John Nicholas as its new chief technology officer. Prior to joining CRG, he served as the senior vice president of product at Ten-X, and was the founder and CEO of Channel Soft ware, which was acquired

by Auction.com.

Ryan Dranginis and Christopher Gordon accepted promotions within CRG's consumer retail group.

Dranginis has three years of experience with CRG and was formerly vice president of business technology. He will now serve as head of marketing.

Gordon has six years of experience within Carrington Companies and is now head of operations.

Wa l ker & Du n lop added Ma rk Besharaty as senior vice president and chief production officer to lead a new initiative focused on multifamily small loans.

The company also hired Bobby Gatling as senior vice president of its investment sales team. Previously, Gatling worked for CBRE as first vice president.

The acquisition, entitlement and development homebuilding company, Century Communities, appointed Keith Hurand as president of its Atlanta division. He previously served as chief operating officer and president at Newland Real Estate Group, and also held executive roles at WCI Communities and John Wieland Homes & Neighborhood.

OUR AUDIENCE = YOUR AUDIENCE solutions.housingwire.com

EVENT CALENDAR

CMBA WESTERN SECONDARY MARKET CONFERENCE JULY 16-18, 2018 Host: California Mortgage Banker’s Association Location: Westin St. Francis Hotel in San Francisco Cost: $595-$745 On the agenda: This year’s 46th annual Western Secondary Market Conference brings together leading secondary market leaders, decision makers and vendors to drive learning and network opportunities for attendees. The conference includes an economic update from Leonard Kiefer, deputy chief economist at Freddie Mac, along with other influential industry leaders.

SAN FRANCISCO This year’s CMBA conference takes place in the heart of San Francisco, Union Square.

Union Square features a selection of high-end shopping, dining, art galleries, theaters and more. A unique way to experience all the Union has to offer is an edible excursion with a San Francisco Food Tour. Choose from an option of tours, or customize your own, to experience the city bite by bite.

Grab tickets at www.edibleexcursions.net/san-francisco.php 14 HOUSINGWIRE ❱ JULY 2018

ON THE SHELF That’s What She Said JOANNA LIPMAN AND WILLIAM MORROW

Joanna Lipman, one of the nation’s most prominent journalists, a bestselling author and most recently chief content officer of Gannett, talks about the disconnect between men and women in the workplace in her book That’s What She Said: What Men Need to Know (and Women Need to Tell Them) About Working Together.

Lipman discusses gender equality and is quick to remind readers this is not a book about man-shaming.

Lipman uses anecdotes from the Enron scandal, Iceland’s campaign to “feminize” an entire nation and Kotex’s tampon line staffed with an all-male team of executives. Topics such as the respect gap, unconscious bias, interruptions, the pay and promotion gap and more are included in this book.

Filled with data from the most recent studies and stories from Lipman’s own personal journey to the top of a male-dominated industry, That’s What She Said shows readers why empowering women as true equals in the workplace is an essential goal that benefits both men and women.

OPTIMAL BLUE | SPONSORED CONTENT

Optimal Blue automates complex secondary marketing functions with expanded solution New features include margin management, lock management and personalization

T

hese are certainly exciting times in the mortgage industry.

The industry has experienced a massive influx of mortgage technology solutions in the past several years and the pace of innovation has greatly increased. Never before have mortgage lenders been provided with as many digital alternatives to automate their mortgage process.

The fast pace of innovation and technology adoption across the industry coupled with heightened competitive pressure for originations, is driving today’s mortgage lenders to expect more from the providers they choose to partner with. Lenders have quickly ascertained that the next level of value and sustained competitive advantage requires functionally deep solutions that are continually enhanced to address their specific needs and objectives.

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"In today’s landscape, lenders are searching for new ways to stay competitive and do more with less,” explained Brandon White, secondary marketing supervisor at Affiliated Bank. “To accomplish that, innovative lenders are partnering with vendors that offer functional depth and are committed to extensive innovation. Optimal Blue has been the trusted partner we’ve embedded across our business to provide that competitive edge.”

In light of the industry’s new reality, Optimal Blue has invested heavily in the expansion of the features and functionality available through its enterprise secondary marketing solution.

Surrounding core capabilities with a powerful and robust feature set not only differentiates Optimal Blue from other providers, but – more importantly – enables their client base to further enhance

OPTIMAL BLUE | SPONSORED CONTENT

their already sophisticated secondary marketing strategies and sustain their competitive edge.

Additionally, by leveraging ideas and direct feedback drawn from product design client workgroups as well as direct input sessions with many more, Optimal Blue can validate the impact and value of new offerings and enhancements before they are introduced to the marketplace.

“Optimal Blue is fortunate to have productive, long-term partnerships with some of the industry’s most innovative mortgage lenders, firms that are leading the industry with their focus on using workflow automation to drive efficiency,” explained Scott Happ, chief executive officer of Optimal Blue. “Automating complex secondary marketing functions is of particular interest to our clients, and we are thrilled with their reaction to a number of groundbreaking workflow automation features we’ve recently developed.”

Optimal Blue’s recent product innovations exemplify the company’s ongoing commitment to client-focused product development and market-leading functional depth across its platform.

Designed and developed around core themes originating from its clients – Transparency, Granularity, and Personalization – the following are just three of the recent innovations available to Optimal Blue clients at no additional cost.

1. TRANSPARENCY: COMPELLING MARGIN MANAGEMENT AND REVENUE VISUALIZATIONS As the mortgage landscape becomes more competitive, today’s lenders constantly evaluate mark-ups, margins, and overall profitability to improve results. Until recently, lenders have done so by managing just a single data point, their total margin. With this powerful enhancement to Optimal Blue’s business intelligence solution, Enterprise Analytics, lenders can easily assess metrics associated to profitability by understanding the breakdown of margin revenue and how it trends over time.

Through compelling, interactive visualizations, geographical heat maps, and more, lenders can analyze the effectiveness of origination strategies and view margin data at the loan level, or by branch, loan officer, product, business channel and investor.

2. GRANULARITY: CONFIGURABLE AND AUTOMATED LOCK MANAGEMENT POLICIES Optimal Blue clients constantly search for opportunities to finetune the overall efficiency of their operations to reduce costs and improve overall execution. A common high-impact area, one where even the most modest of improvements can produce material results, is the lock management process.

With this enhancement, Optimal Blue greatly extends its lock management automation by enabling clients to achieve significant granularity with the post-lock policies that surround various changes occurring after the initial rate lock. For example, if the borrower profile changes after the initial rate lock and this new

“

In today’s landscape, lenders are searching for new ways to stay competitive and do more with less,...”

- Brandon White, secondary marketing supervisor at Affiliated Bank

scenario requires a change, Optimal Blue now enables lenders to auto-accept unique post-lock changes based on embedded logic.

Furthermore, if a financing scenario change requires a modification to the loan product offer, lenders can configure specific rate lock policies for each type of modification to enforce consistency across their organization. With this enhancement, Optimal Blue clients can easily establish highly sophisticated, granular lock policies and self-administer unique customizations to those policies over time as strategies change.

3. PERSONALIZATION: ADDITIONAL PRODUCT TYPE FILTERS TO EASILY IDENTIFY SPECIALTY PRODUCTS Non-QM or Expanded Guideline products are a popular growth area for many Optimal Blue clients, and a substantial new system enhancement now allows lenders to better support customers with specialized needs. With this enhancement, Optimal Blue users are provided with new, powerful product filters that can be used to display the products and pricing most appropriate for specific borrower scenarios.

Examples include loans designed for borrowers with alternative income, low credit scores, and low debt-to-income ratios. This user personalization not only improves sales efficiency, but it helps Optimal Blue clients close more loans by aligning specific borrower needs with the most appropriate financing alternatives.

Ultimately, the future is bright for the mortgage industry.

Opportunities for further automation are everywhere, and compelling change can indeed lead to the next level of value and true competitive differentiation for participants.

However, high-level automation for automation’s sake is not always the answer. Many times, the most impactful successes with automation are found in the details of the workflow and the specifics of a process.

Optimal Blue’s client-focused product development and commitment to functional depth serves as a model for the industry and illustrates the considerable benefits of deeper, continuous automation for lenders.

HOUSINGWIRE ❱ JULY 2018 17

NEW AMERICAN FUNDING | SPONSORED CONTENT

How do LOs succeed in this competitive environment?

New American Funding provides tech tools and marketing solutions

A

t New American Funding, the success of its loan officers is a top priority and the company has developed an entire infrastructure to support them, including technology to make their work easier, co-branded marketing to expand their reach, and a back-office process that provides quick decisions and funding for loans.

The end goal? Giving loan officers a competitive advantage that assures their success in this incredibly tight housing market where supply is limited and every advantage counts.

The support starts as soon as a new originator joins New American Funding, providing the LO with microsites, social outreach, marketing support, and NAF for YOU, a program that lets them build their personal brand.

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NAF for YOU includes: Social for YOU A personalized content library, compliance monitoring, localized content, blogs and training so that LOs can establish and strengthen their social presence.

Tech for YOU A Mobile App Suite, on-demand pipeline access, a personalized CRM dashboard, an automated marketing request portal and user-friendly eConsent.

Digital for YOU A personalized website, branch website, email marketing support, and a custom post-close digital marketing solution.

Video for YOU Video library available to send via email or share on social media, including mortgage education, real estate agent benefits, recruiting, Spanish-language videos and on-demand videos with personal contact information. The videos can automatically be branded or cobranded.

NEW AMERICAN FUNDING | SPONSORED CONTENT

Print for YOU 2,000 easy-to-use marketing collateral pieces for consumers and real estate agents, co-branded marketing materials, business cards, an automated post-close mailer campaign, and automated co-branded closing cards sent to borrower on the LO’s behalf.

Reviews for YOU Automatically solicits reviews from happy customers, manages the reviews through one portal, and integrates reviews across all channels. The technology posts reviews to New American Funding originators’ personal website and Facebook page; it even pulls reviews from Zillow and blasts them on social media, making it easy for customers to find New American Funding originators wherever they are looking. So far this feature has garnered more than 26,000 positive reviews for loan officers.

Coaching for YOU Provides valuable tips direct from top producers from across the nation. Every other week, LOs get insightful videos on a range of applicable topics delivered direct to their mobile device and coaches are ready to give additional feedback.

Premium Content for YOU Top-performing digital content compiled into a single newsletter that LOs are able to share via social media and email, as well as infographics and fresh blogs on a weekly basis.

The impact of providing these tech and marketing assets to LOs is hard to overestimate. Instead of building websites, creating marketing materials from scratch, figuring out a social strategy or trying to generate positive reviews, loan officers can focus on their most important job: originating loans.

For example, New American Funding developed its GoGo LO mobile app so originators can get everyday tasks done anytime, anywhere, with the type of mobility that doesn’t require them to be tethered to a desk. That means when they’re at an open house

“

When you’re working in an industry like mortgage banking, it makes all the difference when you have access to people who can make things happen.”

- Patty Arvielo, President at New American Funding

with their real estate partners, they can still do a soft credit pull and provide prospective borrowers with a pre-qual letter on the spot using GoGo LO. And a recent enhancement on the app allows agents to sign the final 1003 mortgage application with their finger on their mobile device, instead of printing, signing, and scanning the application.

This way, originators can quickly sign it using GoGo LO and the information is instantly transferred to New American Funding’s CRM database, where it automatically moves to the next step of the loan process.

By gaining immediate access to this arsenal of proven, easy-touse tools, loan officers at New American Funding are incredibly productive — allowing the company to fund approximately $900 million in loans every month.

But technology and marketing support are only part of the strategy New American Funding uses to boost LO success. The company has also streamlined its operations so that LOs have a direct line of communication with decision makers to get answers fast.

“When you’re working in an industry like mortgage banking, it makes all the difference when you have access to people who can make things happen,” New American Funding’s President Patty Arvielo said.

“It could mean the difference between getting a same-day loan decision and having your client’s file delayed; or it could mean going through layers of leadership before you get a resolution to an on-the-job challenge.”

New American Funding created the role of Area Production Managers to facilitate this communication. These managers are not only leaders in their market but a liaison between operations and sales.

“Area Production Managers have become one of the most important roles in our company because they keep a pulse on their specific market and they keep a direct line of communication to both the credit policy managers and the executive team,” Arvielo said. “If a loan has to be escalated, they don’t have to wait for a committee to meet; instead they can get same-day decisions to stay on top of pushing your loan through.”

New American Funding also employs production assistants to act as a quality control before the loan file goes into processing.

The production assistants scrub the file to make sure all necessary documents are present and properly organized, so the loan doesn’t get clogged in the pipeline.

Additionally, the area production managers oversee the pipeline for their region.

This help on the back end — along with New American Funding’s fast-moving automated platform — promotes a smooth process, resulting in an average 23-day turn time for loans.

“If you want to elevate your business, work with a lender that lets you take an application and then pass the file off to a team who will push it through on your behalf. You should originate the loan and then close it, while your support team does everything in between,” Arvielo said.

HOUSINGWIRE ❱ JULY 2018 19

AUCTION.COM | SPONSORED CONTENT

How data analytics drives better real estate investing Auction.com plays matchmaker for buyers and sellers

F

or some time, the real estate industry has leveraged the latest technology to drive a more intuitive, streamlined transaction experience and to generate a greater level of trust between buyers and sellers.

For Auction.com, the largest real estate marketplace, innovative technology enables us to provide a superior level of functionality and data analytics on a host of different types of real estate in the 3,000+ counties we serve — helping build stronger relationships with our buyers and sellers, and making us a trusted partner throughout the auction process.

BUYERS AND SELLERS DEMAND GREATER DATA CAPABILITIES In a world increasingly driven by big data, the real estate professionals who effectively utilize robust data analytics to make more informed decisions typically realize greater levels of success. Just as stock market investors conduct due diligence and use varied data sources prior to purchasing a company’s stock, real estate investors should do the same when buying property. Likewise, sellers come to the marketplace with one goal in mind – selling a property at market-price in the least amount of time. Data analyt20 HOUSINGWIRE ❱ JULY 2018

ics serves as a catalyst to ensure that both of these needs are met.

In our experience, we have found that sellers truly value access to data intelligence and insight into buyer trends and interest, paired with a dedicated team of industry professionals to help with the sale of their assets. Conversely, it’s nearly impossible for buyers to successfully comb through every property listed in their desired market, so they come to rely on us for our ability to help them find assets of interest. We do so with our robust marketing engine and by providing access to property information such as title and lien reports, crime information, environmental hazards and more – all through a single, centralized location.

HOW DOES DATA ANALYTICS IMPROVE THE REAL ESTATE EXPERIENCE? Auction.com’s integrated approach of data analytics and human experience is designed to enable sellers to gain an unprecedented degree of real-time data – down to the property level – via a dashboard, which helps them make more informed decisions.

It also allows greater access for sellers to analyze their portfolio performance and pricing.

In doing so, our marketplace has become more attractive to a

AUCTION.COM | SPONSORED CONTENT

wide range of investors, including institutional organizations, smaller real estate companies and even individual investors.

These potential buyers understand the value of greater insights in making their job of rehabbing and renting or selling the property much easier.

When investors can quickly evaluate an asset and minimize any surprises that may come after the purchase, they appreciate working with a marketplace that provides this level of detail. Our buyers continue to return, both because Auction.com hosts more properties than any other marketplace, but also because we have earned their trust through our work to make their experience the best it can be.

We find that the more investors there are bidding on an asset, the better the end result is for both the buyer and the seller. Data analytics drives better execution on every property sold, attracting more qualified buyers – a necessary component to a healthy marketplace. With more data readily available, bidders are more likely to bid in confidence, and more frequently.

Likewise, when more local market data is made available to sellers, they become more confident in their disposition strategies and bring more properties to the marketplace.

At the end of the day, better data encourages better real estate sales. It promotes transparency and builds a foundation of trust, bringing buyers and sellers back to the marketplace. In the end, all of our buyers and sellers want to feel that their deal was made in their best interest. This can only occur when the proper amount

of data is available and used correctly to support the marketplace.

THE END RESULT Too often, data analytics remains an underutilized and undervalued element in today’s real estate market. Effective use of data drives us closer to a frictionless environment where buyers and sellers can almost interact directly, making more informed and confident decisions while mitigating unwelcomed surprises later in the process.

At Auction.com, we not only meet this expectation, but we are continuing our push to enable even greater levels of data intelligence to further improve our marketplace. We remain committed to bridging the gap between buyer and seller, adding layers of transparency unheard of in the traditional process.

In doing so, we have taken our already proven approach and began integrating a suite of new technology products with new data sets to help facilitate direct interaction between buyers and sellers. Our goal is to maximize property sales for sellers and provide a channel of direct communication for both should it be warranted.

We believe that access to high-quality data not only enhances the real estate experience, but is also key to keep our marketplace thriving. Because of this, Auction.com continues to invest heavily into our marketplace and the technology and data that drive it, recognizing its critical nature as we work to push the evolution of the real estate industry.

LOOKING FOR A HE:8>;>8 EGD9J8I DG SERVICE PROVIDER? LOOK NO FURTHER. HOUSINGWIRE’S MORTGAGE SERVICES GUIDE BdgZ i]Vc ) b^aa^dc eZdeaZ l^aa k^h^i =djh^c\L^gZ#Xdb i]^h nZVg! VcY iZch d[ i]djhVcYh l^aa k^h^i i]Z Bdgi\V\Z HZgk^XZh <j^YZ# L^aa ndjg XdbeVcn WZ i]ZgZ4 HOUSINGWIRE.COM/SERVICES-GUIDE Moving Markets Forward

CITADEL | SPONSORED CONTENT

Citadel Servicing Corp. offers multiple options for income qualification One-month bank statement program recognizes self-employed workers

I

n this decidedly tight lending environment, self-employed borrowers represent a significant opportunity for lenders looking to expand homeownership to an underserved market.

The number of self-employed workers in the U.S. continued to rise in 2017, climbing to 40.8 million people, which translates to 31% of the private work force. But while the number of self-employed workers earning $100,000 or more increased almost 5% last year, their ability to get a mortgage loan is often hampered by their nontraditional income status.

Citadel Servicing Corp., which specializes in non-prime loan products, offers these borrowers multiple options for income qualification, including a one-month bank statement program.

“This program was designed for the self-employed borrower with excellent credit who simply doesn’t have the time to gather two years’ worth of business and personal tax returns or 24 months of bank statements,” said Will Fisher, senior vice president, national sales and marketing director at CSC. “They are putting down a substantial down payment or have an exceptional equity position. Our historical data shows that this borrower can assess and manage their responsibilities.”

In 2012, CSC was the first lender to reenter the space once known as subprime. This has given the company a large swath of data from which to learn about its borrowers and perfect its products. Since CSC also services all the loans it funds, it has gained a much deeper understanding of what performs and what doesn’t.

The company’s asset programs, such as the ATR-in-Full, can qualify a borrower using their cash positions in the bank without consideration to their current income or employment. For wage earners, CSC’s Verification of Employment program allows borrower to forgo W2s, tax returns or 4506Ts, simplifying qualification and streamlining the underwriting process.

22 HOUSINGWIRE ❱ JULY 2018

“Our products are some of the most innovative in the space,” Fisher said. “We released bank statement loans in 2013, about two years before our competitors, and we continue to innovate with our ATR-in-Full, one-month bank statement and VOE-only programs.”

The VOE-only program benefits many different types of employees in the service industries, including bartenders and waiters, who have excellent credit profiles with nearly perfect track records.

Borrowers can access up to $3 million through CSC’s non-prime loans and Fisher says the performance of these loans has been as expected — with zero defaults.

“These programs are reserved for borrowers with excellent credit, who’ve been denied receiving credit due to convenience, employment type or their ability to take full advantage of the US tax code,” Fisher said.

“

This program was designed for the self-employed borrower with excellent credit who simply doesn’t have the time to gather two years’ worth of business and personal tax returns or 24 months of bank statements.”

- Will Fisher, SVP of National Sales / Marketing Director at CSC

CSC leverages its experience and skill in underwriting nonprime loans to provide a wide range of products for borrowers with non-traditional sources of income. This flexibility recognizes and supports the growing number of Millennials who would otherwise be shut out of homeownership, stoking the company’s growth among consumers and originators.

“Because we write our own guidelines and are committed to only non-prime and non-QM loans, we’ve been able to gain efficiencies in our underwriting and funding process,” Fisher said. “I believe this gives CSC a clear advantage against our competitors who are mostly pass-through lenders that must follow guidelines pushed down on them from Wall Street or private equity firms.”

23rd Annual

Western States Mortgage Technology & Loan Servicing Conference

August 5-7

Hilton Bayfront San Diego

www.MtgTechServicing.com

Hot SIZZLE? Not FIZZLE? 1 1 WHY THE

2 3

WHY THE

GIG MORTGAGES

MULTIFAMILY GROWTH

Fannie and Freddie are trying to make mortgages accessible for people working in the gig economy, according to the Washington Post. The gig economy refers to income-earning activities that allow workers to function as independent contractors/ freelancers. A survey of 3,000 lending executives by Fannie showed that 95% of execs say it is difficult under current lending guidelines to approve gig workers for home loans. Right now, it looks like the answer is minimizing the role of the employer and playing up the applicant’s ability to earn consistent income.

National average rents grew by 2% year-over-year to $1,381 in May, the slowest start to a year since 2010, and an indicator that though still growing, the multifamily market is slowing. Much of this sector's growth is concentrated in the top 20 cities by number of apartments. Data from RentCafe and Yardi Matrix tell us what researchers have been predicting is coming true: the multifamily market is settling into a slowgrowth phase and most of it is consolidating around high opportunity job nodes, including Orlando, Tampa, Las Vegas, Denver, Phoenix, and Los Angeles.

REGULATION ROLLBACK The House of Representatives passed S. 2155, also known as the Economic Growth, Regulatory Relief and Consumer Protection Act, rolling back reforms from the 2010 Dodd-Frank Act. The bill, which aims to ease regulations on small banks, was sponsored

by Banking Committee Chairman Mike Crapo, R-Idaho, with nearly 20 bipartisan co-sponsors, and was introduced in the Committee on Banking, Housing and Urban Affairs. President Trump said Dodd-Frank made it impossible to open up new businesses. But now, the new law will “liberate small banks.”

MILLENIAL HOUSING Limited housing inventory has raised competition for home buying among Millennials. According to Ellie Mae's latest Millennial Tracker survey, 89% of mortgage loans made to Millennial borrowers during the month were for new home purchases. This is up one percentage point from the month prior, and the highest percentage since May 2017. The survey also said that the average age of Millennial borrowers is 29.9, and males were listed as the primary borrower on 62% of closed loans. The average FICO score for Millennial borrowers is 721, and the Midwest continues to have the most popular markets for Millennials.

24 HOUSINGWIRE ❱ JULY 2018

2 3

HOUSING AFFORDABILITY Newly released data from Black Knight shows that this year’s increases in interest rates and home prices are stretching housing affordability, adding $150 onto the monthly payment for a median-price home nationwide in the last six months. According to the report, the monthly payment on a median-priced home has increased by approximately 14% since the start of the year, due to rising interest rates and increasing home prices. We could be headed for a record low in affordability in just a few years.

DISASTER RECONSTRUCTION The U.S. is still reeling from last year’s hurricanes and yet the season is beginning once again, this time threatening to create even higher reconstruction costs. More than 6.9 million homes along the Atlantic and Gulf Coast are at potential risk of damage from hurricane storm surge in 2018, according to the Storm Surge Report released by CoreLogic. That vulnerability could bring a reconstruction cost value of more than $1.6 trillion. This is up 6.6% from 2017 due to higher regional construction, equipment and labor costs.

WE BELIEVE

â&#x20AC;Śin the power of Unity.

For over 100 years, the Mortgage Bankers Association has brought together the entire real estate finance industry. From single-family to commercial and multifamily; from loan originators to investors, we are the force that ensures a safe and sustainable real estate finance system.

The strength of what we do every day for millions of Americans and our nationâ&#x20AC;&#x2122;s economy lies not with each of us, but with all of us as we unite as a collective group. Together, we are able to amplify our voice and drive change for our industry in Washington and across the nation.

We lead strong as one. United, we create the future of our industry.

TO LEARN MORE, VISIT MBA.ORG/BELIEVE

VIEWPOINTS

By Camillo Melchiorre

Don’t eat CROA Managing the risks of advising borrowers on how to improve credit scores The two specific activities that pose risk are:

The long-standing practice of well-intentioned loan officers and mortgage brokers advising prospective or declined mortgage applicants on specific measures to improve credit scores poses some hidden risks to lenders.

Regulatory compliance in mortgage banking has always been a challenge for lenders and servicers. Yet, today’s volatile environment may prove to be the most demanding in modern times especially when examining activities touching a consumer.

And, like walking a tight rope in a hurricane, how does a company balance prudent and proactive regulatory compliance with the need for creative marketing and consumer outreach in originating residential mortgages?

THE WIDE NET FOR CONSUMER-FACING ACTIVITIES In the recent Consumer Financial Protection Bureau Consent Order concerning Loan Interest Rate Lock Extension Practices (IRLE), the lynchpin was not the extension charge per se, but the fact that the processing delays justifying the extension fees were caused by the lender triggering the fee. Instead of absorbing those fees, the lender passed them on to the consumer. The magnitude of the immediate financial penalty coupled with additional 26 HOUSINGWIRE ❱ JULY 2018

legal and reputational entailments will, undoubtedly, spur compliance executives to dig deep into internal practices that affect consumers.

A lesson from this travesty is that merely satisfying regulatory requirements is only the price of admission. Compliance leaders must develop improved proactive techniques in examining any activities where employees, agents and third-party vendors interact with potential customers.

With the tight origination market, competition for borrowers is at an all-time high, causing originators to ramp up borrower outreach and taking extraordinary measures to retain and attract customers.

One such area is the practice of loan officers attempting to assist applicants who were declined for a mortgage or in the pre-qualification stage by giving them specific advice on how to improve their credit scores.

This well-intentioned exercise may pose unnecessary regulatory, reputational and legal risk if not carefully considered, reviewed and audited.

ONE : Retail loan officers and mortgage brokers advising applicants on what specific corrective actions to take to improve their credit score in order to qualify for a loan and; TWO : Retail loan officers and mortgage brokers referring declined or prospective applicants to unvetted credit repair companies who charge fees for the service.

A potential risk exists for lenders and loan officers for providing credit repair advice under the federal Credit Reporting Organizations Act (CROA). The essential purpose of the legislation is to protect consumers against misleading representations and unfair practices from “credit repair companies” that were taking advantage of consumers locked out of the credit market because of credit deficiencies.

When reviewing the various states’ laws in comparison to the federal CROA, there are inconsistencies between how the states define a credit repair organization and how CROA defines it.

The federal statute exempts nonprofits/ section 501(c)(3) organizations; creditors; and depository institutions and credit unions from the definition of credit repair organization. Many of the state credit repair laws provide an exemption for “any person authorized to make loans or extensions of credit under the laws of this state or the U.S. who is actively engaged in the business of making loans or other extensions of credit to residents of this State.”

(Maryland Code Title 14-1901).

However, CROA makes no mention of these exemptions and one may safely assume the federal law will preempt state laws. In fact, most of the state provisions became law prior to CROA’s enactment in 1996. Furthermore, as already noted in the LIRLE case mentioned above, the CFPB will not hesitate to leverage UDAAP if the credit advice harms the consumer.

Camillo Melchiorre is president and director of regulatory compliance at IndiSoft, a Columbia, Md.-based global technology development firm.

REVIEW COMPANY AND THIRD-PARTY PRACTICES Lenders should be careful that loan officers’ practices do not rise to becoming de facto credit repair actions, potentially placing lenders directly under CROA‘s purview. This potential of being deemed a credit repair organization for purposes of CROA will also extend to third-party service providers like mortgage brokers over whom there is much less operational control.

Recently, a case in Pennsylvania exposed the potential legal liability for unintentional missteps.

In that case, an in-house lender for a builder advised a mortgage applicant, whose credit score was too low, to just pay off $25,000 in credit cards and his scores would improve enough meet underwriting guidelines.

Despite this advice and after paying down the credit obligations and putting down $40K earnest-money deposit, his scores did not improve as promised.

He successfully sued the builder and mortgage company.

Charlie Scanlon, president and CEO of Phoenix Credit Consultants, who has written about these practices in the past, highlighted a particular egregious practice for which lenders’ compliance policy and internal audit procedures should account.

“The acceptance of referral fees paid to some loan officers by some of the ’shadier’ credit repair outfits could also create potential liability for lenders.”

This is especially so in instances where these fees are not disclosed to the borrower by either the lender or the credit restoration organization.

A referral fee payment could also be a CROA issue if the loan officer who received the referral fee later undertakes to assist in the credit restoration process. The referral fee could be looked at as “payment in advance” of performing those credit repair tasks, which is clearly prohibited under both state and federal law.

THE RIGHT WAY Despite these risks, potential liabilities and negative effects on consumers, assisting consumers to overcome eligibility barriers to homeownership is a legitimate and responsible pursuit that the mortgage banking industry should embrace.

First, the fundamental question for every lender to ask is whether loan officers should spend any time at all providing this advice notwithstanding the risk component.

Once that decision is made, it is critical to build a rational model that incorporates the proper mix of risk management, policy, operational procedures, metrics, reporting, compliance, and audit. A thoughtful, comprehensive approach will demonstrate prudent governance and care for the consumers who need help to become homeowners.

Compliance departments should perform an initial operational review to identify the extent to which these credit restoration practices are occurring, and then write policy and implementing procedures that manage risk and impose annual audits. The audit scope should not only address the CROA and UDAAP risks but also the CFPB third-party oversight guidelines.

Mark Cole, president and CEO of Hope LoanPort considers his company’s efforts to work with lenders, the GSEs, state housing finance agencies and consumers a mission that educates, and curates applicants seeking homeownership.

Through HLP’s cloud-based technology platform, HLP Guru, consumers can self-engage to improve creditworthiness while simultaneously getting on-demand assistance via chat and telephone counseling from HUD Certified non-profit housing counselors.

“One of the primary reasons we built HLP Guru was to offer lenders and their mortgage applicants a turnkey mortgage readiness option that is a 501 (c) (3) which is specifically exempted from CROA and state laws,” Cole said.

Brian Offner, president of Credit Mindset, works directly with many lenders to help consumers become credit worthy and to facilitate lenders’ compliance in what he characterized as the “wild, wild, west” when it comes to loan officers, brokers and even Realtors trying to give credit restoration advice independently or in conjunction with questionable credit repair companies.

“Credit education is key to behavior change,” Offner said. “We do not want companies out there inflating credit scores to help borrowers artificially qualify for a mortgage who do not have basic budgeting/money management skills.”

Here are some guidelines for lenders who support the practice of providing credit restoration services to mortgage applicants and those declined for a mortgage:

3 Require the borrower to sign a hold-harmless agreement.

3 If the lender is outsourcing to a vetted, qualified credit restoration company, have loan officers obtain the consumer’s authorization to share his credit report with the company.

3 Make no promise to the consumer that completing the remediation will “guarantee” loan approval. In fact, the inverse should be disclosed.

3 Implement formal, documented training for loan officers with annual updates.

3 Establish annual audits to ensure compliance with applicable state and federal regulations and company policy.

Assisting mortgage applicants to become homeowners is an honorable and socially-responsible mission for the mortgage banking industry. It is no less true in the context of assisting consumers to improve creditworthiness to reach sustainable homeownership status. But as with any other consumer-facing initiatives, understanding the risk is as important as fulfilling the mission.

HOUSINGWIRE ❱ JULY 2018 27

VIEWPOINTS

By Casey Cunningham

The 8 levers of employee engagement How leaders can help motivate their teams to make significant impact

Leaders, are you looking to increase the performance of your salesforce and shift the production curve in your organization? If you’re a leader in the mortgage industry, I can answer that question for you — of course you are!

A study from the Corporate Leadership Council, a leading provider of insight and research that helps companies around the world lead their teams toward success, shows that an employee’s performance is directly correlated to how engaged they are with their company.

The CLC also found that in the traditional workforce, 76% of employees are hanging in the balance between engaged and unengaged. These are the associates who, if motivated to reach their full potential, can have an enormous impact on your business in a short period of time.

The determining factor between their success or failure within your organization will come down to how well you as a leader implement the eight levers of 28 HOUSINGWIRE ❱ JULY 2018

engagement.

1 SENIOR LEADERSHIP These eight levers are what the Corporate Leadership Council identifies as the most important areas for increasing an employee’s engagement with the company.

The first is Senior Leadership. How executives communicate, what they communicate, and the frequency in which they communicate make an enormous

difference in impacting the engagement for the rest of their company.

Senior leaders need to state and restate the mission and vision of the organization and give them real tangible examples of how the vision is being played out on a regular basis, making sure there is plenty of recognition for individual associates. People that are in the day-today trenches of the business need to be rewarded, inspired, and recognized.

Casey Cunningham is the CEO and founder of XINNIX. Based in Alpharetta, Georgia, XINNIX provides nationally recognized sales and leadership performance programs.

When people feel supported by their leaders, they are empowered to improve their performance. While workplace culture is lived by every associate, it is shaped from the top.

2 DIRECT MANAGER When someone decides to leave their job, they are most likely leaving a manager, not a company. The direct manager has a vital influence on the day-to-day experience of the employee. They have the power to build, enhance, and preserve the culture of the organization.

With this responsibility in mind, managers will want to have a tactical plan for engaging with their employees on a regular basis. At my company, XINNIX, each associate meets with their manager once a week for a Power Meeting, a time when they can discuss priorities, share status reports, and receive feedback.

This weekly process is one of the key factors in defining our culture and driving our overall vision of transforming the mortgage industry. When you invest in your employees, you are setting the stage for engagement and growth.

3 COMPENSATION According to the Corporate Leadership Council, compensat ion is t he single-most influential factor in both hiring and retaining employees. In fact, a study from the CLC shows that an associate’s satisfaction with their overall compensation package increases their likelihood to stay with an organization by 21.1%.

Good leaders know they need to offer fair and competitive compensation in order to fully engage their associates.

While many companies have strong compensation packages for experienced employees, they often overlook the importance of competitive pay for rookies.

However, leaders who want their new loan officers to be successful quickly offer better packages out of the gate as an incentive for performance.

When a rookie knows they have a greater earning potential from the start of their career, they are more likely to increase their efforts to grow business.

4 BENEFITS In a difficult market, leaders could be tempted to choose a benefits package solely based on cost instead of quality.

However, the benefits associates receive clearly communicate their leader’s level of care. This will be reciprocated in the effort employees put toward their performance. Greater care equals greater production!

5 ONBOARDING In most companies, onboarding consists of a new employee arriving on day one and receiving brief training on their job functions, company policies, benefits, compliance, and product training.

However, true onboarding is a much bigger event than a tour of the office and introduction to the manager. It should be treated as an event with a mission to solidify a new employee’s decision to join the organization.

Most organizations do not onboard with the intent to “wow” an associate.

For leaders, this is a chance to let a new hire know the company values them and is dedicated to their success.

If a new employee is having any second thoughts about accepting their position, the enthusiasm and care surrounding the onboarding process can serve as the remedy to assure them they made the right decision.

Effective onboarding is really the first step toward long-term retention.

6 DAY-TO-DAY WORK The best leaders ensure their employees know what is expected of them every single day.

Most loan officers do not have a standard set of operating principles that guide their daily activities. These op-

erating principles are the minimum expectations associates should be meeting each day.

By having these in place, mortgage professionals see a clearly defined path they can follow in order to achieve success.

Helping a team establish a daily process and empowering them to fulfill it will lead to greater job satisfaction and overall engagement with the organization.

7 LEARNING AND DEVELOPMENT We place a huge focus on the education of our children. We want them to go to the best schools with the best teachers so they can learn the things necessary to succeed.

However, why does this stop after high school or college? Learning and development are never done. For mortgage professionals, education is vital if they are to keep with a changing market and continue to grow their business.

The more a leader invests in their people through training and professional development, the more engaged their people will be with the organization.

When leaders put in the time and effort to develop an associate, they are sending a message that they care about that their employee’s long-term success with the company.

8 CULTURE Culture is one of the single most important drivers of employee engagement.

Really, ever other lever of engagement plays a role in the formation of a culture of excellence.

Each one is necessary to create a workplace environment where employees feel valued, energized, and challenged to reach their full potential.

Leaders, if you truly want to engage your teams, set an expectation of excellence and empower your associates to meet it.

HOUSINGWIRE ❱ JULY 2018 29

VIEWPOINTS

By Carol Bouchner

Housing financeâ&#x20AC;&#x2122;s evolving policy landscape A look ahead at what FHFA and others are prioritizing

Ten years after the housing market meltdown, the legislative and regulatory landscape for housing finance continues to evolve. Fannie Mae and Freddie Mac remain in conservatorship, the term of FHFA director Mel Watt expires in January 2019, and S.2155, the Economic Growth, Regulatory Relief and Consumer Protection Act has been signed into law. Regulators are considering changes to Community Reinvestment Act requirements, the Consumer Financial Protection Bureau is poised to revisit the Qualified Mortgage rule, FHFA has directed the GSEs to consider use of new credit scores, and the scope of HMDA data collection is again being debated.

30 HOUSINGWIRE â?ą JULY 2018

Carol Bouchner is vice president for legislative and regulatory policy for Genworth’s U.S. mortgage insurance business.

WHAT DOES ALL THIS MEAN FOR THE RESIDENTIAL HOUSING MARKET? Let’s start with the GSEs. It has been almost 10 years since FHFA put Fannie Mae and Freddie Mac into conservatorship with a goal of preserving their assets and properties, and restoring them to a safe and solvent condition. FHFA acts as the GSEs’ regulator and conservator. Over time, FHFA’s objectives as conservator have evolved into three fundamental principles: 1 Maintain credit availability to foster a “liquid, efficient, competitive and resilient” housing finance market; 2 Reduce taxpayer risk by increasing the role of private capital in the mortgage market; and 3 Build a new single family securitization infrastructure.

Given the GSEs’ central role in the housing finance market, we can measure the impact of the GSEs by examining the state of today’s housing finance markets. While as an industry more can be done to improve access to credit for borrowers from underserved communities, access to credit has expanded considerably since the early days of GSE conservatorship.

Both Fannie Mae and Freddie Mac now offer mortgages with loan-to-value ratios up to 97%, average FICO scores for GSE borrowers have dropped modestly, and both Fannie Mae and Freddie Mac are devoting resources to fulfill their “duty to serve” mission.

Because the housing market has shown improvement, and appears to be stable and functioning, reaching a legislative resolution to the status of the GSEs has been de-prioritized.

While both the House and Senate have considered legislative reform, there is no expectation that Congress will pass housing reform this year.

Recently, housing policy leaders have begun a conversation about possible “administrative reform” for the GSEs. But this is a concept that is still being refined.

Some consider it to mean putting the GSEs into receivership with a view of reconstituting the GSEs and returning them to the market in their pre-conservatorship form, while others use the term to mean a set of modest reforms overseen by FHFA as conservator.

With FHFA director Mel Watt’s term due to expire in January 2019, the question of whether to move ahead on some version of administrative reform may rest with his successor. In the meantime, policy makers would be well-served to work together to come to some agreement on options for administrative reform.

At a minimum, agreeing on a common definition would be a good first step. This is especially important because, unless

and until Congress takes up legislative reform for the GSEs, the primary and secondary markets will continue to be defined by an evolving set of principles rather than targeted legislation.

FHFA and the GSEs will be central players in this evolving framework.

Separately, Congress has managed to undertake significant regulatory reform via S.2155. Most notable for mortgage markets is the modest provision that extends QM status to loans held in portfolio by banks with less than $10B in assets.

The principles underlying this change are: (1) the recognition that community-based lenders can assess a borrower’s ability to repay their mortgage without relying on hard-coded underwriting criteria, and (2) holding a loan in portfolio is “skin in the game” that will incent prudent underwriting.

Policymakers’ reactions to this change are mixed. Many consumer advocates worry that the bill undermines the spirit of the QM rule to protect borrowers from unscrupulous products and practices, while other policy makers applaud the easing of regulation that will expand access to credit.

With midterm Congressional elections pending and regulators continuing to work their way through an ever-growing to-do list that includes CRA lending, credit scoring and HMDA, the bottom line is that housing policy is likely to continue to be made only in increments, without clear guidance from Congress or the administration.

For those on the front lines of housing finance, this means ongoing challenges helping borrowers — especially first-time homebuyers and moderate-income borrowers — identify the mortgage that is best suited to their needs and resources.

Now more than ever, it is important to make sure that borrowers know that buying a home does not mean waiting years to amass a 20% down payment.

Fannie Mae and Freddie Mac have programs that are designed to help make sustainable homeownership a reality for all home-ready borrowers.

Private MIs play a central role in making sustainable homeownership attainable. Because MIs have their own independent credit guidelines, they also ensure that borrowers can become — and remain —homeowners.

More can be done to help affordability — especially coordination among Congress, the administration, bank regulators, FHFA and HUD/FHA to ensure that there is an overall policy framework to promote a sound and stable mortgage market.

In the meantime, responsibility for helping borrowers find and finance the right home rests with the housing finance industry. Products that are time-tested, and fairly and transparently underwritten and priced, are the key to filling the policy void.

HOUSINGWIRE ❱ JULY 2018 31

VIEWPOINTS

By Heidi Wier

Leveraging technology to improve the accuracy of HMDA data Systematic data integrity reviews can help manage risk

Ensuring the accuracy of Home Mortgage Disclosure Act data has always been a challenge. Even with the changes from the recently enacted Economic Growth, Regulatory Relief, and Consumer Protection Act that exempts small volume depository institutions and credit unions from certain reporting requirements, the challenges for 2018 will be even greater.

Leveraging technology to perform data integrity reviews can increase data accuracy and reduce the chances of having to do costly manual file reviews and resubmissions.

Regulators expect HMDA data to be accurate and they expect mortgage lenders to implement a system of policies, procedures, training, and ongoing monitoring to confirm its accuracy. Assuring HMDA data integrity, whether manually or through systemic data integrity testing should be an integral part of the ongoing monitoring process.

32 HOUSINGWIRE ❱ JULY 2018

Beginning with the 2018 HMDA data, regulator y agencies, including the Consumer Financial Protection Bureau and prudential regulators will begin using new HMDA testing procedures and resubmission thresholds when examining the accuracy of HMDA data. According to the FFIEC HMDA Examiner Transaction Testing Guidelines issued in August 2017, an institution with a Loan Application Register (“LAR”) with at least 501 and up to 100,000 loan applications can expect examiners to select and test up to 79 loans for accuracy during a HMDA exam.

If four or more errors are found in any one data field, the institution will be directed to correct that field, and resubmit its LAR. That represents only a 5.1% resubmission threshold. The resubmission threshold for smaller institutions is triggered at only three errors and ranges from 5.1% to 6.4% for LARs between 101 and 500 items. That does not leave much room for error. While the traditional method of manually comparing system and loan file information to the LAR data can be effective, it becomes less practical and costlier for lenders with larger HMDA LARs. Systemic data integrity reviews can analyze the entire LAR without looking at a loan file. The process includes obtaining LAR data and data from the company’s loan origination system and comparing the data sets to validate fields reported and identify potential errors. These potential errors can then be further reviewed and resolved, allowing for a more effective use of resources, and resulting in better data integrity.

A MULTI-STEP APPROACH An effective systemic data integrity process is performed using a multi-step approach and includes both omissions testing and conflict/error testing.

Omissions testing: Omissions testing is a reconciliation of the transactions reported on the HMDA LAR to transactions entered into the company’s loan origination system. Omitting reportable applications from the HMDA LAR is a common issue among HMDA filers, and a regulatory hot button. The 2017 FFIEC Examiner Transaction Testing Guidelines specifically indicate a lender may be directed to resubmit its HMDA LAR to include reportable applications or loans if it is determined that reportable applications or

loans were omitted in error.

Traditional manual file review methodologies may fall short of identifying applications and loans that were omitted from the LAR because they do not use a comprehensive source for comparison.

Instead, institutions rely on piecemeal sources such as credit bureau vendor activity, CALL Report information, or collateral code reports.

By comparing the application numbers on the LAR data to application records on the company’s loan origination system, applications that were received, but not reported on the LAR, can be identified.

Once identified, these records can be further reviewed to determine if the applications were incorrectly omitted from the LAR and need to be added. This testing will also identify any applications incorrectly reported on the LAR. This usually occurs if an application is included on the LAR for the wrong reporting year, or perhaps an inquiry or prequalification request was incorrectly reported.

Conflict/error testing: Systemic data integrity testing includes validity and quality edits similar to the validity and quality edits performed by regulatory software upon submission of the LAR. These tests will identify technical compliance exceptions and logic exceptions within the HMDA data. For example, a validity error would occur if the action taken date reported on the LAR occurs before the application date reported.

Systemic data integrity methods are designed to use data available within the loan origination system that can be used to cross-validate the accuracy of HMDA reportable data to identify conflicts or errors. This is performed through both a field-to-field validation process and a logic validation process.

• The field-to-field validation process includes matching LAR fields to various system fields that descriptively contain the same information. The system fields used for comparison need to be clearly defined based on the way the lender uses the field in its system. For example, the application date on the LAR would be compared to the “appli-

Heidi Wier is a managing director at CrossCheck Compliance LLC, a nationwide consulting firm providing regulatory compliance, internal audit, fair lending, loan review and litigation support services.

“

Leveraging technology to perform data integrity reviews can increase data accuracy and reduce the chances of having to do costly manual file reviews and resubmissions. ”

cation date” and “disclosure application date” fields on the loan origination system to identify potential errors as long as the system field contained the defined data.

• Logic validation includes matching LAR fields to loan origination system data using logic validation comparisons. For example, the application date reported on the LAR would be compared to system data fields such as “loan created date,” “date file started,” “intent to proceed date,” etc. Another example would be comparing loans reported on the LAR as a refinance to system data fields indicating “first time home buyer.” Potential conflicts are identified for further review and correction.

Rate spreads and geocoding information: Systemic data integrity methods can also be used to validate rate spreads and geocoding information, which are derived from other loan data such as APR and property address. These derived fields can be independently calculated using third party software, and compared to the information reported on the LAR. However, be sure that the third-party software is also periodically tested for accuracy by comparing its output to the FFIEC HMDA rate spread calculator and geocoding system. Any differences identified can be further researched and resolved.

PROS AND CONS OF SYSTEMIC REVIEWS One of the major benefits of a systemic data integrity review process is that it can assess 100% of the items included on the LAR in an efficient manner. Once a validation program is built and customized for the company, the process can be done

regularly throughout the year for ongoing monitoring and avoiding last minute reviews prior to submission.

It also allows for better trending analysis, which in turn facilitates better root cause analysis, corrective action, and accurate performance analysis throughout the year.

The process is not infallible as some reporting errors cannot be identified with system data, but instead can only be identified by manually reviewing the loan file information. The adage, garbage in, garbage out, applies here.

For example, some errors may be identified from inconsistencies in underwriter notes or originator comments. While system data and LAR data may indicate that a loan application was withdrawn, loan originator comments may provide insights indicating that denial reasons were communicated to the applicant prior to him or her withdrawing the application.

Therefore, it is imperative that reporting procedures are clear and effective training is in place.

It may still be beneficial to perform targeted testing of a small number of files to address the potential for contradictory information in the loan file.

The accuracy and completeness of HMDA data is critical to understanding where and to whom loans are being made to manage fair lending risk and to ensure compliance with HMDA. Regulators continue to scrutinize lenders, and inaccurate data can lead to costly file reviews, resubmissions, fines, and civil money penalties.

Leveraging technology to perform ongoing periodic reviews of HMDA data can help manage that risk and help ensure the accuracy of your HMDA data.

HOUSINGWIRE ❱ JULY 2018 33

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By MJ Watkins

Providing education for first-time homebuyers is essential Mortgage insurance can help with cost concerns

First-time homebuyers are a significant segment of the real estate market, making up 34% of all homebuyers last year. As the market heats up and eyes turn to homeownership, lenders and agents have an opportunity to position themselves as trusted advisors for this segment. Helping to make the dream of homeownership a reality for first-time homebuyers (FTHB) requires understanding of what motivates them, what unique challenges they face, and the resources available to ease the process.

34 HOUSINGWIRE ❱ JULY 2018

While the benefits of homeownership are well understood – a predictable monthly payment with a fixed mortgage, potential tax benefits, wealth and equity accumulation and security, to name a few – often the main reason that firsttime homebuyers give for pursuing this major purchase is simply the desire to own a home of their own.

For most FTHB, buying a home is the most expensive purchase of their lives and they rely on family and friends, and the experts they meet, to coach them through the process.

MJ Watkins is a director of strategic markets at Radian Guaranty with a focus on working with external industry partners. She has 14 years in the industry and has achieved the Accredited Mortgage Professional designation from the MBA.

So, what are some of the challenges facing FTHB? According to the National Association of Realtors (NAR), 41% of FTHB carry student debt with a typical balance of $29,000. For many people who are considering homeownership, this debt drags them down both financially and emotionally, and prevents them from saving for a substantial downpayment.

This leads to the other major concern – having enough money for a downpayment. Saving for a downpayment can be one of the most difficult steps in the home-buying process. FTHB have to balance maintaining their current debt while also setting aside the proper funds. However, saving may be easier than they realize. There is still the myth that a 20% downpayment is required to buy a home.

In fact, there are many sustainable options that require significantly less money upfront. One such option is mortgage insurance (MI), which is a tool that creates a path to homeownership by allowing buyers to purchase sooner with less money down. With private mortgage insurance an eligible buyer can secure a conventional mortgage with as little as a 3% down.

Even when a FTHB has heard of MI, the second misconception is that it is expensive and lasts the life of the loan. In reality, once

the borrower has built up at least 20% equity in the home, MI payments may be eliminated. The ability to drop the MI payment is not available with FHA loans, which require mortgage insurance payments for the life of the loan. Ultimately, an FHA loan may cost the borrower significantly more money over time.

The third misconception is that many borrowers think that you need a perfect credit score to be approved for a home loan. The truth is that the minimum FICO credit score required for a conventional loan is 620. However, a higher credit score can help borrowers qualify with a better price.

Finally, many FTHB are so focused on saving for a downpayment that they forget about the closing costs, which can range anywhere from 1%-6% of the purchase price of a home. Most FTHB know that they can shop around for different mortgage rates, but don’t realize they can shop for their title company, mortgage insurance company and some other services. Comparing options for these services can help the FTHB save money and make homeownership less of a financial challenge.

Knowing and understanding a buyer’s concerns and positioning yourself as a resource with information, is an excellent way to build trust and future referrals with a FTHB.

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HousingWire.com Moving Markets Forward

By Sarah Wheeler

36 HOUSINGWIRE ❱ JULY 2018

SPEAKING OF

In the days following the 2016 election,

business leaders across many industries were hopeful that the new president would make good on his promise of widespread deregulation. Banks and other financial institutions, weighed down by the myriad federal regulations spawned by Dodd-Frank, were especially optimistic. Here at last was the relief they had been looking for.

OR NOT. In fact, the Trump administration’s efforts to hack off significant parts of the federal regulatory monster has rallied state attorneys general to the cause of consumer protection, complicating the already expensive and confusing process of compliance.

Although the Trump administration has achieved some loosening of federal regulations, it has done so haphazardly, creating uncertainty at every turn. Direction from the White House often changes on the fly, surprising even Republican leaders and the very loyalists charged with carrying out the president’s agenda.

And for all the promises to repeal Dodd-Frank, the bill that was passed by a Republican-controlled Congress and signed into law by the president in May falls far short of any actual rollback. While providing important changes for smaller financial institutions, it contained none of the other key provisions of the CHOICE Act. “I think at a federal level what we’re seeing is no new regulations rather than material cutbacks of existing regulation,” said Larry Platt, partner at Mayer Brown.

“The enforcement of those regulations is lessened, but we do not expect enforcement to go away for clear violations of existing consumer credit laws and regulations.”

Meanwhile, all the big talk of repealing federal consumer protection laws has juiced state regulators to ramp up their own enforcement, multiplying the compliance risk for companies in the mortgage industry.

THE HYDRA OF STATE REGULATIONS States have several avenues at their disposal to regulate state-chartered financial institutions: individual state banking commissioners who perform individual examinations of lenders, state banking commissioners acting in concert through multistate examinations, individual state attorneys general, and state AGs who collaborate in multistate actions.

Since the individual state banking commissioners are more focused on loan-level issues, the larger risk for lenders lies in the multistate exams.

“Those are on the upswing, and those can be problematic because the threat is that collectively they can revoke state licenses if companies don’t comply with demands,” Platt said. “There are not a lot of guardrails around multistate exams and there is a lot of concern in the industry with state regulators rounding up a posse and going after lenders where it’s hard to defend themselves.”

STATE REGULATIONS… Where is your company on compliance with 23 NYCRR 500? Under the new law, covered financial institutions and the vendors they work with have to:

1.

Create a written cybersecurity policy

2.

Appoint a chief information security officer (CISO) and other cybersecurity professionals

3.

Implement encryption

4.

Create an incident response plan to quickly respond to a cybersecurity event

5.

Create a set of procedures to notify NYDFS of any cybersecurity events within 72 hours

After industry pressure, the NYDFS set up an implementation timeline to give companies a more measured pace for compliance, but each deadline requires significant action. To meet the objectives for the March 1, 2018 deadline, for example, companies had to conduct a comprehensive risk assessment and vulnerability assessments, implement multifactor authentication and conduct cybersecurity awareness training for all employees.

No one knows how many companies actually met those requirements by that date, but a Ponemon Institute survey done in December 2017 revealed many companies had a long way to go in a few short months.

HOUSINGWIRE ❱ JULY2018 37

STATES TO KEEP AN EYE ON

CONNECTICUT

HAWAII

IOWA

MAINE

State AGs represent a similar danger. Individual states like California, Illinois, Massachusetts and New York have historically been the most aggressive regulators, but during the run-up to the financial crisis, something even more hazardous emerged.

“During the subprime years before the crisis hit, of all the four various types of state actions, it was the multistate AG actions that were the most intense,” Platt said. “What I’m seeing now is there will be — and have been — m o r e s t ate multistate AG actions.”

W h e n Tr u mp w a s elected after campaigning on regulatory reform, alarm bells started r ing ing in state houses across the country, galvanizing state AGs to shore up the protection of consumers.

And when the acting director of the Consumer Financial Protection Bureau, Richard Cordray, was replaced (in a still-disputed decision) by Interim Director Mick Mulvaney, that regulatory zeal went into overdrive.

In December, after Mulvaney was named to his role, 16 Democratic AGs wrote a letter to President Trump that made their position clear.

“As you know, state attorneys general have express statutory authority to enforce federal consumer protection laws, as well as the consumer protection laws of our respective states. We will continue to enforce these laws vigorously regardless of changes to CFPB’s leadership or agenda.

“As you know, state attorneys general have express statutory authority to enforce federal consumer protection laws, as well as the consumer protection laws of our respective states. We will continue to enforce these laws vigorously regardless of changes to CFPB’s leadership or agenda.”

38 HOUSINGWIRE ❱ JULY 2018

MASSACHUSETTS

MINNESOTA

NEW MEXICO

“As attorneys general, we retain the broad authority to investigate and prosecute those individuals or companies that deceive, scam, or otherwise harm consumers. If incoming CFPB leadership prevents the agency’s professional staff from aggressively pursuing consumer abuse and financial misconduct, we will redouble our effort as the state level to root out such misconduct and hold those responsible to account.”

That was a clear shot across the bow of the CFPB by some of the largest states, including California, New York, Illinois and Virginia, and they were careful to point out their ability to enforce not only state laws, but federal ones.

In April, after the CFPB issued a Request for Information on Bureau Civil Investigative Demands and Associated Processes, those same AGs doubled down, sending a letter to Mulvaney outlining their strong support for the bureau’s “historical and continued use” of civil investigative demands. From the letter: “We strongly oppose any curtailment of the Bureau’s investigative authority, as it would significantly hinder the Bureau’s ability to fulfill its mandate of promoting fairness, transparency, and competitiveness in the markets for financial products and services…Nor do civil investigative demands exist only in the federal system.

“In California, for example, the Government Code empowers the head of each department in the state, including the Attorney General as the head of the Department of Justice, to issue subpoenas and to use other tools to investigate ‘all matters relating to the business activities and subjects under the jurisdiction of the department.’

“This grant of civil investigative authority has been crucial to the California Attorney General’s mission of protecting consumers and honest competitors and, when appropriate, prosecuting violations of state law.”

NORTH CAROLINA

VERMONT

WASHINGTON

Interestingly, Mulvaney himself has acknowledged the important role state AGs play in regulation. Barbara Mishkin, writing for Ballard Spahr’s Consumer Finance Monitor, reported that at the winter meeting of the National Association of Attorneys General in February, “Mulvaney indicated that the CFPB will be looking to state attorneys general for ‘much more collaboration and much more leadership’ when deciding which enforcement cases to bring.”

But AGs aren’t the only ones carrying a big stick.

The New York Department of Financial Services has been a fierce regulator of financial companies since its founding in 2011. Following Mulvaney’s speech in January pledging a “kinder and gentler” CFPB, the NYDFS Superintendent Maria Vullo vowed that her agency was prepared to step in to address the CFPB’s “troublesome policy shift away from consumer protection.”

“I am disappointed by the new administration’s sudden policy shift, which is clearly intended to undermine necessary national financial services regulation and enforcement,” Vullo said in her statement.

“DFS remains committed to its mission to safeguard the financial services industry and protect New York consumers, and will continue to lead and take action to fill the increasing number of regulatory voids created by the federal government.”

Anybody familiar with the NYDFS’ history knows that Vullo’s statement is not an idle threat. In 2018 alone, the regulator fined Western Union $60 million, Goldman Sachs $54.75 million and Nationstar Mortgage $5 million. Even before the 2016 election, NYDFS was taking the lead in developing a robust cybersecurity law that was widely seen as the forerunner of a national standard (see sidebar on page 37). Where New York goes, other states soon follow.

President Trump was set to announce a new head of the CFPB at press time, but it’s unlikely that new

leadership is going to change the equation very much.

For the mortgage industry, compliance with all of these regulations comes at a cost. Independent mortgage banks and mortgage subsidiaries of chartered banks reported a net loss of $118 per loan originated in the first quarter of 2018, according to the MBA’s Quarterly Mortgage Bankers Performance report.

This is down from a gain of $237 per loan in the fourth quarter of 2017. That’s one reason some of the large banks have pulled back from the mortgage business.

“Regulators have a fundamental purpose to protect consumers. But in the residential mortgage market, nobody is making money, and many are losing money,” Platt said. “In part, that’s because of the cost of regulation and cutthroat competition. There’s no real private securitization market — everybody has to go through Fannie or Freddie or Ginnie — so margins are really, really low.

“It’s great that consumers are protected, but nobody is protecting the industry itself. How does it survive in an environment where it’s really hard to make money and the cost of compliance is not a variable expense?” Platt asked. “The question is whether the expenses imposed by federal and state compliance requirements are overkill for the benefits consumers receive.”

Unfortunately, growing regulation could have unintended consequences for the very consumers it seeks to protect: they may be completely safe from ever owning their own home.

HOUSINGWIRE ❱ JULY2018 39

Are we se

Return of S

A new crop of non-prime loan horrors of risk layering see

40 HOUSINGWIRE â?ą JULY 2018

By Rick Sharga

eeing the

Subprime?

ns worry some, but avoid the en in the foreclosure crisis

HOUSINGWIRE â?ą JULY 2018 41

Hollywood loves sequels, and for good reason.

Once a studio has established that audiences love a character, a story, or a franchise, it’s a fairly safe bet they’ll come back to the theaters again and again (and again).

The numbers bear this out. None of the eight Harry Potter movies grossed less than $320 million. The two movie sequels to Marvel’s first Captain America outearned the original, which grossed $192.5 million, compared to the sequels, which took in $269.8 and $404.4 million, respectively.

Some sequels are box office disasters and often deservedly so. Who can forget Jaws 4,The Revenge? Or “classics” like Cannonball Run 2, Caddyshack II, or the Saturday Night Fever follow-up, Staying Alive?

Even Hollywood knows better than to produce a sequel when the original movie is truly, horrifically bad. That’s why, thankfully, we haven’t seen sequels to such all-time cinematic disasters as Howard the Duck, Gigli, The Last Airbender, Jack and Jill, Glitter, or Battlefield Earth. Which brings us, in an admittedly roundabout way, to the question of whether we’re about to see a sequel of sorts in the mortgage industry: The Return of the Subprime Loan.

I’m sure you remember the original in this series: The Great Recession. It was covered by news organizations everywhere. Lots of drama.

Easy-to-hate bad guys. International intrigue with established corporations disappearing virtually overnight, and governments scrambling to prevent financial ruin. It had a complicated plot that took more than a decade to figure out, with an ending that no one wants to see again – more than 5 million homes lost to foreclosure.

All of this was precipitated by reckless lending practices generally ascribed to subprime loans:

loans considered so toxic that the government responded with the Dodd-Frank Act — a 2,300-page monstrosity with more than 400 new rules and mandates and the creation of a new uber-regulator, the Consumer Financial Protection Bureau, to ensure the behavior that led to the crisis would never be repeated.

And yet, 10 years after Lehman Brothers’ failure signaled the beginning of the mortgage market meltdown, lenders are beginning to market loan products called non-prime, near-prime, non-QM and non-agency.

Many of these loan products seem eerily familiar, and beg the question: Are they really just subprime loans in disguise?

WHAT IS A SUBPRIME LOAN? Before delving too deeply into whether or not today’s loan products are actually just subprime loans with a fresh coat of paint, it might be helpful to define what exactly a subprime loan is.

The website Investopedia offers a good definition of the term subprime: “Subprime is a classification of borrowers with a tarnished or limited credit history. Lenders will use a credit scoring system to determine which loans a borrower may

The loans in this classification are called stated income and stated asset loans.”

Although this definition helps explain the general concept, it’s a bit light on details. While subprime loans are generally acknowledged as being inherently riskier than conventional loans, there are no hard and fast rules about how to separate one from the other.

However, there are a number of criteria that have historically resulted in a loan being classified as subprime: low FICO scores; high loan-to-value ratios; high debt-toincome ratios; insufficient cash reserves; and incomplete or non-traditional documentation.

There have been general industry guidelines over the years – recently codified by the CFPB’s Qualified Mortgage and Ability-to-Repay rules – helping underwriters determine what type of loan a borrower might qualify for. For instance, a FICO score of 720 or above would be likely to qualify a borrower for a conventional loan, while FICO scores below that would almost certainly be considered subprime.

A borrower applying for a conventional loan was encouraged to have an LTV no higher than 80% and a back-end DTI in the mid-30% range, along with threeto-six months of cash reserves, and at least three years

While subprime loans are generally acknowledged as being inherently riskier than conventional loans, there are no hard and fast rules about how to separate one from the other.

qualify for. Subprime loans carry more credit risk, and as such, will carry higher interest rates as well. The term subprime gets its name from the prime rate, which is the rate at which people and businesses with excellent credit history are allowed to borrow money.

“Occasionally some borrowers might be classified as subprime despite having a good credit history. The reason for this is because the borrowers have elected to not provide verification of income or assets in the loan application process.

of income tax returns and bank statements to provide proof of financial capability. And, of course, to be a conventional loan, the amount of money being financed had to fall within the loan limits established by Fannie Mae and Freddie Mac. Any loan that fell outside those guidelines was likely to be classified as a subprime loan. And the degree to which an individual loan deviated from the guidelines affected how risky it was considered to be. For example, a borrower with a 600 FICO score would be considered

HOUSINGWIRE ❱ JULY 2018 43

An LTV of 90% was deemed riskier than a ratio of 85% a higher risk than a borrower with a 680 FICO. An LTV of 90% was deemed riskier than a ratio of 85%. The degree of risk involved determined the likelihood of a loan application being approved, and the cost of the loan to the consumer, both in terms of points paid and the interest rate charged.

For many years, these loans performed very well, much like their government-insured FHA counterparts.

Gradually – and then not so gradually – subprime loans crowded the more-expensive – and harder-to-qualify-for – FHA loans out of the market as the decade of the 2000s began. And the horror movie that led to the mortgage market meltdown began.

PRODUCING A DISASTER MOVIE Much has been written about everything that went wrong during what we’ll call “the subprime era,” but in order to compare those loans to the loans being produced today it’s important to provide at least a brief recap.

Fundamentally, one of the biggest problems was what has been referred to as “risk layering.” Simply speaking, subprime lenders ignored decades of proven underwriting fundamentals to issue as many loans as possible.

A borrower with a FICO score of 550 isn’t necessarily a bad credit risk. That same borrower with a DTI ratio of 50% becomes more of a credit risk. If that borrower also has no money in the bank, the risk increases even more. And offering this borrower a loan with a 100% LTV dramatically increases the risk.

Add “stated income” rather than proper documentation, and a home that was grossly overvalued in the first place, and you’ve created a loan with virtually no chance of performing. But just to make sure, why not qualify the borrower with a ridiculously low “teaser” rate that will reset in a year or two, and result in the monthly loan payment doubling?

These loans – cleverly dubbed “NINJA loans,” because the borrower had “no income, no job, and no assets,” were the sort of toxic products that became emblematic of the subprime era. Unsurprisingly, loans issued to unqualified borrowers on overpriced homes failed at spectacular rates, approaching a 16% foreclosure rate at the peak of the crisis – roughly three times the historical foreclosure rate on higher-risk loans.

A report from the Urban Institute concludes that some 6.3 million borrowers who would normally have qualified for a loan were unable to get one due to the risk-averse lending environment between 2009-2016.

44 HOUSINGWIRE ❱ JULY 2018

It was the behavior of the subprime lenders during this period – not the loan products themselves – that caused the problem. (Borrowers and Wall Street investors also had a role in this disaster flick, but that’s a story for another day.)

SEQUEL, OR AN ENTIRELY DIFFERENT MOVIE? The phrase “subprime loan” still strikes fear into the hearts of consumers, regulators, politicians, the media, and even many lenders.

This is unfortunate, because for many years an overwhelming majority of subprime borrowers were able to achieve sustainable homeownership or tap into their home’s equity to better their financial circumstances.

But it’s also completely understandable, considering the carnage that the bad loans of the early 2000s precipitated.

Unfortunately, the mortgage industry, in an effort to remove as much risk as possible from lending, probably overcorrected.

A report from the Urban Institute concludes that some 6.3 million borrowers who would normally have qualified for a loan were unable to get one due to the risk-averse lending environment between 2009-2016.

Most of the larger banks stopped issuing loans that didn’t fit precisely within the QM and ATR guidelines put in

Some fundamental – and important – differences between today’s loans and yesterday’s subprime loans: place by the CFPB (with the notable exception of jumbo loans written for high net worth individuals that the banks kept in their portfolios).

But finally, in 2018, a number of nonbank lenders (including my employer, Carrington), began to offer loan products to borrowers with less-than-perfect credit profiles.

A low FICO score no longer meant an automatic disqualification and neither did a relatively high DTI ratio.

Critics were quick to make claims that these new nonprime, non-QM or near-prime loans were merely the toxic subprime loans of years past with a dab of lipstick or a fresh coat of paint.

But they’re not.

Could there be a return to the recklessness that characterized the subprime era? It’s possible – there are already lenders offering non-prime loans to borrowers with one month’s bank statements.

But the combination of more regulatory oversight, less interest among investors to purchase low quality loans, less consumer interest in entering into a high-risk financial engagement and fresh memories of the absolute nightmare caused by all the bad practices that led to the mortgage market meltdown seem to make Great Recession 2 – Nightmare on Main Street a movie very unlikely to ever be produced.

Rick Sharga is exec ut ive vice president at Carrington Mortgage Holdings.

Underwriting standards have improved — Risk layering has been replaced by offsetting risk; no one is issuing NINJA loans anymore. If a borrower has a low FICO score, he or she can expect to make a larger down payment, have more in cash reserves, or have another way to offset the risk that the low credit score represents.

This goes back to basic, common sense underwriting: if there’s a red flag in one part of the application, risk needs to be mitigated elsewhere. So a high DTI may be offset by a low LTV. Or a low down payment may be offset by an 820 FICO. But the old days of layering risk upon risk upon risk are long gone. Lenders are being much more stringent about adhering to underwriting standards and the way they go about underwriting.

Today’s lending environment has more guardrails — The CFPB’s ability-to-repay rules apply even to non-QM loans. That means that lenders need to be able to prove that they’ve done their due diligence to ensure the borrower has the financial wherewithal to pay back the loan. “No doc,” and “low doc” loans aren’t being offered to the average consumer.

Even small business owners, who were typically the type of borrower who used what was called an “Alt-A” loan, find they need to provide quite a bit of documentation these days. And borrowers may no longer be approved for an adjustable rate mortgage (ARM) loan based on an introductory teaser rate.

Servicers now know how to work with less-than-perfect borrowers — Big box loan servicing operations are set up to handle an incredibly high volume of on-time payments with extraordinary efficiency. But as we learned during the foreclosure crisis, those systems were ill-suited to address the needs of clients who missed payments.

Nonbank servicers, especially those with years of experience working with FHA borrowers and/or helping borrowers with non-performing loans get back on track, have “high touch” servicing operations that understand how to manage the periodic late payment and help borrowers through occasional periods of financial difficulty. Most of the nonbank lenders offering non-prime loans are servicing their own loans to make sure borrowers get the attention they need.

Borrower education is improving — One of the frequently voiced complaints from subprime borrowers was that they didn’t really understand the loans they’d taken, or what they’d signed up for. Many felt blindsided when their monthly payments went up – or by how much they went up when their ARMs adjusted. And others didn’t understand the consequences of what would happen if they were unable to make their mortgage payments.

Federal, state, and even local government agencies, as well as the lenders themselves, are providing more detailed information to borrowers today before they apply for a loan and throughout the loan approval process.

The market for bad loans has dried up, but the market for good loans is emerging — Back in the subprime era there was an almost insatiable appetite among institutional investors for subprime mortgages and mortgage-backed securities. There is simply no market for those kinds of products today.

There is a growing interest among investors for non-prime loans and there have been several successful securitizations brought to market, but investors are being more careful to examine the loans, the underwriting and the value of the underlying collateral.

The bad actors are no longer in business — Not often mentioned in any of the commentary about today’s loans is the fact that none of the lenders responsible for the irresponsible sub-prime loans of days past is still in business.

They’re all gone, and the lenders offering non-prime loans today have no desire to follow in their footsteps.

HOUSINGWIRE ❱ JULY 2018 45

46 HOUSINGWIRE ❱ JULY 2018

Making friends with automation

By Kelsey Ramirez

HOUSINGWIRE â?ą JULY 2018 47

Do you want to do something that will make you question your career and every life choice you have ever made?

Look up how likely you are to be replaced at your job by artificial intelligence.

48 HOUSINGWIRE â?ą JULY 2018

In a 2013 report by Carl Benedikt Frey and Michael Osborne titled The Future of Employment: How susceptible are jobs to computerization? appraisers rank in the “doomed” category, with a 90% chance that their jobs will be taken over by machines.

Appraisers rank in the “doomed” category, with a 90% chance that their jobs will be taken over by machines.

But then again, the report’s estimates, which implement the Gaussian process classifier, show that about 47% of total U.S. employment is at risk, so appraisers are not alone. And some occupations in the mortgage finance industry have an even worse forecast. Real estate agents, for example, have an 85% chance of being replaced and loan officers have a 98% chance.

A website that compiles the data used in the study, willrobotstakemyjob.com, used data from the U.S. Bureau of Labor Statistics to determine that as of 2016, about 60,770 people were employed in the appraisal industry and that number is expected to grow by 8% by 2024.

The good news is that appraisers might still have a long lead time – the report does not give any kind of time frame on when it predicts we will all be taken over by machines.

Of course, this is just a fun study, but the truth is, like it or not, the valuations industry is being disrupted.

In the midst of changing technology and the rise of the digital mortgage, valuation tools have become a key topic as lenders and buyers push for a faster home-buying process.

Some appraisers, however, are struggling with where they fit. When navigating this

new landscape, appraisers and valuation technology providers have to keep in mind the evolving needs of consumers balanced against the safety of the housing finance market.

Several experts in the valuations field shared their insights on the evolution of this technology over the past several years with HousingWire. While the valuations industry is certainly facing several hurdles, these companies are confident that there are ways to overcome them, and are working to create a better service for borrowers.

About 17 years ago, Clear Capital began as a technology company, however, back in 2001 and 2002, it struggled to sell valuation technology, which was seen as unnecessary in the mortgage market.

“Since we couldn’t sell the technology, we decided to become a valuation company, and we used that technology to fuel the interfaces for our staff, our vendors, our supply chain, our Realtors and appraisers and our clients,” Clear Capital President Kevin Marshall said.

“We’ve had this very tech-oriented approach to valuations since day one.”

Marshall explained that with Clear Capital’s experience in the tech space, it recognized the value of big data early on, and the changes it would bring to the workflow process.

And Clear Capital isn’t the only company bringing changes to the valuation market.

Assurant Mortgage Solutions is also making changes, and is using IBM Watson, a supercomputer which combines artificial intelligence and sophisticated analytical software, to transform the valuations industry.

Appraiser stats, as of Dec. 31, 2017: Number of active real estate appraisers

Appraisers with a bachelor’s degree or higher

Appraisers in the business for 20 years or more

Appraisers making more than $100,000 annual income

Appraisers older than 51 Source: Appraisal Institute

HOUSINGWIRE ❱ JULY 2018 49

“Appraisers have a lot of risk in that if they mess up on something by trusting somebody’s tool, that’s their license. They lose their license, they lose their livelihood, so we recognize that the slow pace of adoption that can sometimes be frustrating, it’s not just a hesitancy with technology, it’s a protection of someone’s livelihood and their ability to feed their family and we take that really seriously.”

Kevin Raney, managing director of valuations at Assurant, explained that once Clear Capital’s valuations team began to implement Watson technology, they were able to transform the appraisal process and provide much-needed tools.

As part of providing appraisers with added technology and tools, Assurant offers packages where appraisers can utilize as much or as little data in their process as they choose.

Raney said part of the success Assurant has seen with the implementation of its tools can be attributed to letting appraisers keep the valuation process in their control.

While the machines do much of the data work for them, it is still within appraisers’ power to accept or reject the final results.

— Kevin Marshall, president, Clear Capital

A LOT IS AT RISK Many appraisers are hesitant to accept new technology based on their past experience.

“Appraisers have a lot of risk in that if they mess up on something by trusting somebody’s tool, that’s their license,” Marshall said. “They lose their license, they lose their livelihood, so we recognize that the slow pace of adoption that can sometimes be frustrating, it’s not just a hesitancy with technology, it’s a protection of someone’s livelihood and their ability to feed their family and we take that really seriously.”

Marshall said the best way to change the industry and bring technology to appraisers is to create a product that works, and let appraisers hear about it through a wordof-mouth process where they learn from other appraisers that the tool works. He said Clear Capital is able to utilize this process effectively because it tests its products in its internal operations before releasing them onto the market.

But there is one more important factor to remember when trying to innovate the valuations market – time.

Bringing technology to the appraisal industry isn’t something that will happen overnight. As appraisers work with third-party technology providers to bring about change, it will come slowly as they approach each new tool with caution.

“We do respect the slow process, and when you meet someone with that level of mission and we’re able to iterate and learn alongside our staff and our peers, we have a higher chance of people adopting that technology that can have a positive impact on lenders and their borrowers,” Marshall said.

But the amount of control appraisers have over the product or even fear over losing their license by trying a product that hasn’t been tested aren’t the only factors keeping appraisers from adopting new technology. All the talk about whether or not technology will eventu-

50 HOUSINGWIRE ❱ JULY 2018

ally replace appraisers hits close to home for many in the appraisal industry. Fannie Mae and Freddie Mac have introduced appraisal-free mortgages to their list of offerings and within some mortgage products lenders are beginning to utilize big data to complete their valuations, rather than hire an appraiser.

Raney insisted that while some valuation tools function by going around the appraiser, that is not what Assurant strives for, and not what he sees as the future of the valuation field.

He explained that valuation technology will serve to make appraisers faster and better at what they already do.

Marshall said that whenever someone talks about replacing appraisers, it’s important to define the time frame. While Marshall doesn’t see technology replacing appraisers at any point in the near-term, in 100 years that could all change.

“There’s obviously a lot of movement and a lot of talk and a lot of pilot programs trying to figure out how to make appraisers more efficient and some of those are actually reducing the number of appraisals needed,” Marshall said.

“But my opinion is that no, I don’t think technology in the near term is going to replace appraisers because our understanding of collateral and some of the more subjective aspects of collateral are just really hard to estimate given the available data that we have out there.”

There are many subjective conditions that can’t be accurately assessed with any amount of data or technology. Some of these include whether there are odd smells, different types of damage to the foundation or the sheetrock or other subjective things that could have a wide ranging effect on a home’s value.

While Clear Capital estimates that someday technology and data could become advanced enough to overcome these challenges, for the next 100 years or so, appraisers are probably safe.

“I don’t think there’s going to be in the next couple years a wholesale replacement of appraisers,” Marshall said. “The technology is just not there, and there’s a deep-seated respect for the appraiser in the industry.”

THE CHOICE The bottom line, according to Clear Capital, is that the clear path forward for the valuations field is through new technology. Appraisers who want to remain relevant in the field must decide to be part of the solution and become part of the development of new but safe valuation tools.

“As you start to look at the outside perceptions of the appraiser industry, it’s really important for lenders that are involved in the valuation process, appraisal firms, AMCs and appraisers to all recognize that if we don’t fix ourselves, someone else is going to fix our industry for us, and that a really scary thing,” Marshall said. “It’s always better to define the future for yourself than to allow a third party outside to do that.”

He said it’s important for the appraisal industry to understand what’s causing people to push for change in the valua-

tions space. He said the industry should ask questions such as, “Is it too slow? Is it not accurate enough? Is it too expensive?” and find a way to fix the problem.

“Either we can dig our heels in and stay the same, and try to defend how historically things have worked, or we can say no, I want to be part of the future solution,” he said. “I want to be part of making the appraisal industry vibrant and strong going forward.”

Raney agreed that appraisers have to be on board with technological solutions in order to successfully bring about change, but he emphasized that it’s important for appraisers to be given the right kind of tools that will help them instead of doing their job for them.

Technology isn’t the only thing that needs to change in the appraisal industry, however. Marshall pointed out that despite inflation, rising costs of living and even increasing wages, appraisers are not being paid higher fees for their services.

“Over the past few years we have all asked appraisers to do more, more data, more analysis, we really haven’t given them the tools, and to be fair to appraisers, we really haven’t paid them more,” he said. “The industry hasn’t paid them more or given them a raise for the number of hours worked for a report in a number of years.”

But increasing technology could help take some of the burden off appraisers, allowing them to do more appraisals in less time, with less effort.

“On the AI side, the machine learning, the artificial intelligence side, the access to data, whether its property data, market trend data, geographic data, point of interest data, all these things affect property values, real estate market conditions or buyer preferences,” Marshall said.

“There’s more and more of that data available, and now with all the data, whether it’s good or bad, that smartphones are gathering, social media is gathering, there is a lot more opportunity for us to analyze that data to help make appraisers more efficient and help provide more context on the markets they’re appraising in.”

Overall, it’s important that every member of the industry – lenders, real estate agents, appraisers and everyone else involved in the home-buying process – remember who it is that they’re trying to serve.

“As soon as we lift our minds off of the ultimate customer, that’s when dysfunction can creep in, so we’ve been very purposeful about always remembering when we’re tackling hard problems that we’re all here serving the homebuyer, the borrower, and we’re eager to partner with GSEs lenders, appraisers and our competitors to help solve problems because when the borrower is better served, we have a healthy industry,” Marshall said.

But before any other changes can take place, there is a crucial first step. “The first step is highly admissional,” Marshall said. “People have to want to be a part of rethinking how the world works.”

HOUSINGWIRE ❱ JULY 2018 51

52 HOUSINGWIRE ❱ JULY 2018

The compliance challenges for mortgage lenders continue to mount. States are ramping up their compliance efforts even as federal regulators remain vigilant in their enforcement. Combined with the competitive nature of this purchase market, compliance costs are substantially impacting the profit margins of many lenders.

Fortunately, there is help. The companies profiled in our Compliance Solutions section are leveraging their expertise to provide exactly what lenders need to manage compliance in a safe yet efficient way. Read on to discover how these solutions can help your business.

HOUSINGWIRE â?ą JULY 2018 53

SPONSORED CONTENT

COMPLIANCE SOLUTIONS | DOCMAGIC | Leveraging Expertise DocMagic delivers an automated compliance solution for the long term

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Maintaining an effective Compliance Management System (CMS) entails each lender’s structured plan for meeting regulatory compliance. Developing training manuals and documents — the people, training, procedures — is just part of implementing a working CMS. It’s critical for lenders to implement automated technology solutions to ensure standardization, consistency and verifiable compliance across their entire operation.

Electronic document generation coupled with automated compliance is key to delivering a verifiable service protecting all parties in the mortgage process. Providing a scalable and adaptable set of tools, DocMagic’s automated compliance solution allows lenders to respond quickly and easily to shifting regulatory requirements.

WHAT SETS DOCMAGIC APART DocMagic’s automated compliance solution provides data validation checks and audits throughout the entire mortgage process. Maintaining an unbroken chain of electronic evidence is critical for mitigating risk and to deliver proof of compliance to auditors.

With automated compliance integrated within a suite of digital mortgage technology, everything can be offered in one streamlined system. “Compliance automation technology supplied by a single vendor means flexibility, scalability and real efficiency of due diligence efforts,” said Dominic Iannitti, president and CEO of DocMagic.

HOW IT WORKS DocMagic’s automated compliance solution consists of in-house compliance, seamless XML document preparation, the Automated Audit Engine, Loan Detail Report, an extensive library of electronic SMARTDocs, eSign, eDelivery, and eClosing technology along with integrated eNotary, eVault and SmartREGISTRY technology.

Utilizing embedded signatures and notary tags from the start, data is audited at the loan level; including data validation, compliance review, TRID tolerance, QM/ATR, predatory lending, RESPA, GSE salability analysis and more.

Every process, audit and data transaction is electronically tracked, logged and recorded.

The eVault houses the entire audit trail, accessible at any time to support a lender’s CMS requirements. “Our certified eVault preserves the authoritative digital ownership of electronic records. This is crucial for clients looking to the future as the loan market continues to transition to a paperless process,” Iannitti said. “We tell lenders not to settle for short-term fixes but to focus on the long term. DocMagic’s automated compliance supports your CMS now, and readies you for digital adoption,” Iannitti said.

WHAT CUSTOMERS SAY: Customers know that at any given time, a complete audit trail can be provided to show proof of compliance.

Our compliant process ensures authentication of original documents passing between owners, regardless of how many duplicate electronic files there may

54 HOUSINGWIRE ❱ JULY 2018

be of the same record. DocMagic’s eVault has been thoroughly vetted by Fannie Mae, Freddie Mac, and MERS to compliantly support eVaulting services. And to back it up, DocMagic offers lenders an extensive set of reps and warrants backed by an insurance guarantee.

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COMPLIANCE SOLUTIONS | ELLIE MAE | Leveraging Expertise Ellie Mae’s Policy and Education Manager ensures seamless compliance Keeping up with federal and state compliance guidelines is a vital but challenging task for lenders. Ellie Mae’s Policy and Education Manager enables lenders to develop an automated, seamless process to educate employees and track their progress.

“The one thing that’s constant is change,” said Terri Davis, vice president and general manager of AllRegs. “In the mortgage industry, change comes in many forms and affects teams and processes in a number of ways. Policy and Education Manager helps lenders by providing a central location for education and information with tools to ensure everyone who needs to know something, does.”

The Policy and Education Manager contains two options for total compliance. The essentials package provides education and verification for mortgage-related federal consumer financial laws and regulations outlined in the CFPB Examination Guide. The premium package provides all the comprehensive mortgage-related learning and validation included with the essentials package, plus increased flexibility and customization capabilities.

Both packages include a learning portal management tool, a comprehensive reporting tool, user job aids, administrator training and technical support and an Ellie Mae learning consultant.

Ellie Mae recently upgraded the Policy and Education Manager with a new modern interface and administrative functionality. The Manager provides lenders a customizable dashboard that allows businesses to create and manage user accounts, design specific learning paths based on employees, and develop assessments to track comprehension and course completions.

Ellie Mae’s solution also includes a unique integration with AllRegs Online publishing that links policies to education courses and assessments to ensure understanding of the material.

AllRegs Online product offerings include education and training, loan product and guideline data and analytics, and the AllRegs online reference library that includes federal and state statutes regulations.

“Automated course assignments and reminders, combined with reporting aspects, make this a great solution. And when you consider the courses and policies that are included, it can really up-level the learning and compliance programs for a mortgage lender.”

Ellie Mae’s Policy and Education Manager’s goal is to ensure financial institutions are not only compliant but completely educated, allowing the entire company to enforce policies and track/resolve customer complaints.

Policy and Education Manager 3 Ensures compliance on

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WHAT CUSTOMERS SAY: The automation makes is easy to keep learners on track (and compliant) and the reporting options bring peace of mind, knowing reports are quick and easy to pull should an auditor have questions. The fact that policies and procedures are included, with the ability to quiz employees, gives us confidence that everyone knows what they’re supposed to do.”

HOUSINGWIRE ❱ JULY 2018 55

SPONSORED CONTENT

COMPLIANCE SOLUTIONS | VENDORLY | Leveraging Expertise Vendorly platform reduces third-party vendor risk

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Despite the passage of Regulatory Relief S. 2155 bill, the Dodd-Frank Act — along with various other state and federal regulatory bodies — continues to impose significant risk management regulations on financial institutions. But the compliance risk reaches far beyond companies that deal directly with consumers. The third-party vendors that financial institutions rely on are also subject to these regulations. The problem? Banks and nonbanks use hundreds of vendors, all of which must meet dynamic oversight rules.

Financial institutions need a comprehensive solution to help manage and maintain vendor compliance. Altisource’s external-facing, SaaS-based oversight platform, Vendorly, is specifically designed so financial institutions can easily and efficiently manage even a large number of third-party companies.

“The Vendorly platform can help to streamline vendor due diligence, document maintenance, monitoring and audits,” said Jim Vaca, senior vice president of Vendorly. “For less mature programs, Vendorly can provide a complete out-of-the-box solution to jump-start a program of any size or complexity. For mature programs, Vendorly brings an extra layer of efficiency and control.”

Over the past year, Vendorly has expanded its platform with four third-party oversight integrations. These integrations enable customers to enhance their compliance management framework and help maintain the high oversight standards required in today’s marketplace.

These integrations were chosen to address key elements in vendor due diligence. These are gaps often found in third-party risk management and its manual procedure, which relies on additional logins and users’ accounts. By leveraging the ability to integrate with the technology service providers, the Vendorly solution reduces the clicks and manual processes for a seamless user experience bringing vendor oversight into a single record for centralized record keeping.

Vendorly’s solution is used by more than 90 financial institutions and a network of more than 25,000 vendors. The company has designed 221 customizable certification packages and nearly 422 certification artifacts.

Vendorly’s platform means clients can comply with ever-changing due diligence requirements and directly share documentation. “We have over 1,000 vendors and our management with them was a good try but it was not efficient,” said one Vendorly customer. “It was a year-long process. Vendorly has taken that off our plate.”

“It’s great to have the kind of confidence that the group that’s vetting out your vendors has done their due diligence and they’re really there to protect you,” said another customer.

Vendorly’s innovative oversight platform simplifies third-party risk management processes so financial institutions can focus on their core business while maintaining the high oversight standard required in today’s marketplace.

WHAT CUSTOMERS SAY: It’s great to have the kind of confidence that the group that’s vetting out your vendors has done their due diligence and they’re really there to protect you.”

56 HOUSINGWIRE ❱ JULY 2018

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CFPB Watch

58 HOUSINGWIRE ❱ JULY 2018

CFPB Watch

More turmoil at the CFPB WILL NEW DIRECTOR MAKE IT BETTER OR WORSE?

BY JEREMIAH JENSEN, KELSEY RAMIREZ AND SARAH WHEELER The CFPB has undergone a pretty significant transformation in the last 18 months, and the disruption shows no sign of slowing down. At press time, President Trump was poised to appoint a new director, with the direction of the CFPB hanging in the balance. Below are some of the changes Mick Mulvaney made before leaving.

ACTING DIRECTOR of the Consumer Financial Protection Bureau Mick Mulvaney gutted three CFPB Advisory Boards on June 6. The Consumer Advisory Board, Community Bank Advisory Council, and the Credit Union Advisory Council were all disbanded.

“Today, in a move that signals the continuing attempts by acting director Mulvaney to destroy the Consumer Financial Protection Bureau from within, leadership at the Bureau informed me, along with other Consumer Advisory Board members and members of two other CFPB Advisory Boards, that we were fired,” California Reinvestment Coalition Executive Director Paulina Gonzalez said in a statement regarding the firings.

“The actions by Mulvaney today speak to the direction of the Bureau, which under his leadership have been entirely focused on industry interests, such as dismantling consumer protections, weakening fair lending enforcement, dismantling auto discriminatory lending guidance, and not implementing hardwon payday lending rules.

“By firing the CAB, Mulvaney is taking away an important voice of working-class Californians who have never fully recovered from the Wall Street financial crisis, and who are still struggling to stay in their homes and access safe, affordable credit and financial products,” Gonzalez said.

The Consumer Advisory Board is an entity the CFPB was required to meet with twice per year by law. According, to an article from CNBC, Mulvaney has been repeatedly cancelling these meetings, causing rumors to swirl that the CAB was indeed on its way to the chopping block.

“While deeply disappointed by this move, the Californian Reinvestment Coalition and our members will continue to work to ensure that Wall Street, big banks, and the regulatory agencies that oversee them, are operating in the best interest of all Californians. We will not falter in our work to hold Wall Street accountable, nor will stop working to protect the true mission of the CFPB, which now seems to be working for the big banks instead of American families,” Gonzalez said.

This is just the latest in a series of changes Mulvaney has made since joining the bureau. Recently, he reiterated his mission to rescind regulation by enforcement and restructure the CFPB. He also recently announced in an email to staff that he plans to dramatically reorganize the bureau’s operational structure.

Other changes include considering ending public access to bank complaints, changing its fair lending enforcement and even changing the bureau’s name.

HOUSINGWIRE ❱ JULY 2018 59

CFPB Watch CFPB RESUMES COLLECTION OF PRIVATE CONSUMER DATA

At the time, CFPB spokesman Sam Gilford said to HousingWire, “Data is essential for effective financial regulation. It allows The CFPB announced at the end of May that it will once again regulators to see how markets are functioning and monitor begin collecting private consumer data after completing a re- the impact of rules. As GAO stated in its report, ‘[p]rior to and view of its cybersecurity defenses. during the 2007-2009 financial crisis, [GAO] and others noted In a memo to the agency’s staff reviewed by HousingWire, that the lack of data on consumer financial products and serMulvaney announced that the data collection will continue. vices hindered federal oversight in areas such as mortgages and “When I first arrived at the Bureau, I was concerned that the fair lending.’” information the Bureau collects about consumers could fall Now, after completing its own study using outside experts, prey to hackers or other actors,” Mulvaney said in the memo. the CFPB concluded that externally facing bureau systems “So, out of an abundance appear to be well-seof caution and a desire to cured. Mulvaney also protect Americans’ privaannounced he will take cy, I placed a hold on the action on the recommenLike Director Mulvaney, I take ‘data collection of personally dations of the third-party security very, very seriously’ and identifiable information review. and other sensitive data.”

“For instance, during share his conviction that institutions But he announced in the white-hat exercise, — whether government agencies the memo that after an some p e ople op ene d exhaustive review by outemails which, had they or private companies — must be side experts, including a been sent by someone comprehensive “whiteother than the outside responsible stewards of the sensitive hat hacking” effort, the experts, could have conconsumer data they hold.” bureau can now lift that tained a virus or served hold. to help capture sensi- Senator Elizabeth Warren, D-Mass.

B ack i n D e cemb er, tive data,” he said in the Mulvaney drew fire from memo. “Therefore, we Democrats when he anwill step up our employee nounced his decision to freeze the collection of consumer data. and contractor training on how to detect and deal with suspiSen. Elizabeth Warren, D-Mass., was highly critical of the de- cious emails.” cision, and sent the acting director a letter saying his response Mulvaney said those involved in data collection will hear from went too far and is impacting the bureau’s ability to regulate the the division office leadership soon with guidance on how to recompanies it oversees. sume collecting information, and what to tell outside financial “Like Director Mulvaney, I take ‘data security very, very se- institutions about the decision. riously’ and share his conviction that institutions — whether “This process has been an important exercise in holding ourgovernment agencies or private companies — must be responsi- selves to the same high standards to which we hold the entities ble stewards of the sensitive consumer data they hold,” Warren we oversee,” Mulvaney said. “I appreciate your patience and all writes in the letter. “However, after reviewing the reports, their of the hard work involved in making sure we are good stewards recommendations, and CFPB’s response, I believe Director of such sensitive information.”

Mulvaney’s actions are unjustified and that he inappropriately The CFPB’s collection of consumer data is vast even compared used the reports as a pretext to halt and weaken critical agency to other government agencies. According to the GAO report, the functions.”

CFPB collects arbitration case records, vehicle transaction-level The fight over data collection at the bureau is not a new issue. data from departments of motor vehicles, credit scores, inforBack in 2014, the Government Accountability Office released mation on deposit advance products, data on overdraft fees and a study saying the CFPB was collecting financial data on up to more.

600 million consumer credit card accounts without sufficient Under the Dodd-Frank Act, the bureau is allowed to collect security and privacy protections to ensure there was no risk of data, but with several important caveats. One of those is to improper collection, use, or release of consumer financial data. remove any personally identifiable information, something It listed 11 points of failure for keeping that information safe. that Republican lawmakers warned about when the CFPB was

“

60 HOUSINGWIRE ❱ JULY 2018

CFPB Watch

headed by Richard Cordray. Under Mulvaney’s tenure, it’s the Democrats who tend to complain about how the CFPB is being run, led by Sen. Warren.

Republican or Democrat, the issue of whether the CFPB’s database is safe is relevant to everyone, as a data breach of their information could be catastrophic.

While the results of the new report ordered by Mulvaney would seem encouraging, the report hasn’t been formally released, meaning that its conclusions can’t be studied independently.

In Mulvaney’s memo about the new report he addresses the concerns raised by the GAO but doesn’t mention the conclusions of a study done by the Federal Reserve’s Office of the Inspector General in September 2017, which specifically called out deficiencies in the bureau’s alerting capabilities and continuous monitoring processes.

FROM THE OIG RERT: “The CFPB has taken several steps to develop and implement an information security continuous monitoring program that is

generally consistent with federal requirements…

“CFPB management continues to face challenges, however, associated with maturing its information security continuous monitoring program across the agency; such challenges include establishing alerting capabilities and continuous monitoring metrics and further automating tools for several of its manual information security continuous monitoring processes…

“To monitor and protect against the unauthorized transfer of data and other threats, the CFPB’s internal cyber operations team coordinates with its network provider, which assists with monitoring and detecting exfiltration and other threats to the agency’s external network perimeter.

“However, the CFPB has not fully implemented processes, such as data loss prevention technologies, within its internal network that would enable the agency to detect and better protect against unauthorized access to and disclosure of its sensitive information. Likewise, the CFPB is in the process of implementing multifactor authentication for its internal system users.”

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Industry

Pulse

62 HOUSINGWIRE ❱ JULY 2018

Industry Pulse

Solutions for expanding homeownership WHAT INDUSTRY LEADERS ARE DOING TO FIX THE INDUSTRYâ&#x20AC;&#x2122;S BIGGEST PROBLEM

BY KELSEY RAMIREZ AND SARAH WHEELER

THE MORTGAGE INDUSTRY is facing many headwinds, including rising interest rates and sky-high building costs that are contributing to a serious housing inventory shortage. As mortgage volume continues to fall, industry leaders in both the public and private sector have the same goal: safely expand homeownership.

At the MBA Secondary Marketing Conference in New York City in May, speakers from every part of the mortgage industry outlined the factors suppressing homeownership, as well as some of the solutions. The biggest takeaway is that it will take a combined innovative approach to solve the complex problems plaguing the industry.

FIRST-TIME HOMEBUYERS KEY TO OPENING ACCESS TO CREDIT Panelists at the Access to Credit session explained that the key to expanding access to credit is focusing on first-time homebuyers.

Currently, the homeownership rate among younger families is not only below 2007 levels but also below the 2001 to 2006 levels as well, according to Tian Liu, Genworth Mortgage Insurance chief

economist.

The Urban Institute Director Laurie Goodman said there are several things that can be done to expand access to credit, including making due diligence timelines more flexible, using alternative credit, implementing less rigid rules for measuring income and allowing for more borrowers with a less-stable job history such as those who work in the gig economy.

Goodman also agreed more focus should be placed on first-time homebuyers, saying many times they have a spotless record when it comes to paying their cell phones and rent, but they do not yet have a credit score.

Many lenders have seen growth in low-down payment programs including Home Possible and Home Ready from Fannie Mae and Freddie Mac, which allow borrowers to place just 3% down. Lenders can expand on these programs by utilizing down payment assistance programs and giving grants to supplement 97% loan-to-value ratio loans, said Deborah Jones, Citizens Bank senior vice president of capital markets. She added that homebuyer counseling is a good way to offset loss mitigation costs.

HOUSINGWIRE â?ą JULY 2018 63

Industry

Pulse Compared to historic averages, Liu said today’s market is missing about 3 million first-time homebuyers each year. This is despite the high demand, which is likely to remain strong over the next several years.

But even as demand increases, available housing supply continues to cause constraints. New home construction may be ... despite these challenges, we want to expand providing supply, but it is becoming less mortgage credit.” affordable.

Over the past several years, construction - Tian Liu, Genworth Mortgage Insurance on new homes in the $400,000 to $500,000 range increased by 500%, while construction for new homes priced under $250,000 has remained relatively the same.

Overall, the market is currently producing about 400,000 fewer homes per year than household formaAlthough there are risks to expanding access to credit, the curtions, Goodman said, saying supply issues are harder to solve rent credit box is closed tight enough that lenders still have room since they are so deeply rooted in zoning laws. to work with.

One possible solution to the supply crisis is manufactured “When you loosen credit standards there’s the likelihood that homes. Before the housing crisis, dating back to 1977, the you not only increase product risk but also borrower risk,” Liu U.S. produced about 240,000 manufactured homes per year, said. “But despite these challenges, we want to expand mortgage Goodman said. Now, however, that number has dropped to just credit.” about 93,000 per year.

Mortgage performance is significantly better than what the THE INDUSTRY’S APPETITE FOR NON-QM IS GROWING market has experienced historically, meaning lenders have sig- One thing that stood out at the MBA Secondary Marketing confernificant space to expand their credit box. ence this year was the growing appetite for non-QM loans. It’s a So what homeownership percentage do the experts say would tough market, and the easy loans where borrowers neatly line up be a good goal? As it turns out, there is no goal, and according to with qualified mortgage standards are harder and harder to find. the panelists, there shouldn’t be.

What’s left is a huge swath of would-be borrowers who are likely “I don’t think there’s any necessary homeownership rate,” the future of the mortgage industry — atypical in some credit Goodman said. “I don’t think we should be aiming for anything.” areas, but safe with the right loan product. That’s one reason the She said that lenders should try to help as many people as they non-QM market is predicted to grow by 400% over the next year. can own a home, as long as homeownership makes sense for them.

In the session on whole loan trading, panelists listed a num“There are so many factors at work, there shouldn’t be a goal be- ber of non-conforming loan types beyond jumbo, including bank hind it,” she said. statement loans, ITIN loans and condo loans. But several on the And David Dworkin, National Housing Conference President and panel warned against equating non-QM with subprime. (See more CEO, agreed, saying the 70% homeownership rate hit in 2007 on the non-prime market in the feature story on page 40). wasn’t the problem, it was how the market got to that rate.

“Non-QM is not what we saw leading up to the crisis,” said Michael “There is no limit, the limit is really around what the market Brenning, chief production officer at Deep Haven Mortgage. is,” Dworkin said. “If we can get there responsibly, we can get “These are clean, super-prime borrowers with one little thing to that place.” about their profile. You will find the weighted average FICO is Goodman suggested there is a better question lenders should be more than 700, all ATR compliant. asking: what is the probability of default the mortgage industry “Last year at this conference, where the market was, the securishould be willing to accept on a mortgage? tized volume was $2 billion. Today it’s $5.3 billion. That still pales “We have credit that’s a little too tight right now, but as a society in comparison [to the overall market], but its two and a half or we should be able to accept a little bit higher probability of default three times the growth for the fourth year in a row,” Brenning said. and a little higher default rates,” Goodman said.

Gary Watkins, whole loan acquisition vice president at First Currently, the probability of default sits at about 6%, about half National Bank of America, addressed the No. 1 factor holding of the 2000 level of 12%. back more non-QM lending. “When you’re originating in conven-

“

64 HOUSINGWIRE ❱ JULY 2018

Industry Pulse

tional markets, you might have another investor. The fear in the non-QM world is that there won’t be someone to take it.” But he noted that there are now multiple points of liquidity and that fear is starting to recede.

The frustration with the qualified mortgage, implemented in 2014, is that it leaves out too many worthy borrowers, especially within the growing minority population.

In the session on housing finance solutions for the future, Gary Acosta, co-founder and CEO of the National Association of Hispanic Real Estate Professionals, pointed out that “approximately 78% of new households being formed nationwide are from diverse communities. They tend to have slightly different experiences and behavioral habits when it comes to managing finances.

“They may have thinner credit files, need low down payments, pool resources among families and multi-generations to make that first home accessible,” Acosta said.

Several panelists noted the challenges of underwriting non-QM loans, which typically require a more manual process, and there was speculation on whether the Trump administration might be able to ease the standards somewhat. Jaret Seiberg, managing director of financial services and housing policy at Cowen Washington Research Group, said the Trump administration might make simplifying the QM rules a priority, but cautioned too much optimism.

“The biggest lesson we can take away is that things always take much, much longer than we all hope they would,” he said.

CAN FANNIE AND FREDDIE HELP FIX THE HOUSING SHORTAGE? Leaders from Fannie Mae and Freddie Mac made several appearances at the conference, assuring attendees that the GSEs were ready to partner with them to meet the industry’s challenges.

Desmond Smith, senior vice president and head of customer delivery at Fannie Mae, and Kevin Palmer, senior vice president of single-family credit risk transfer at Freddie Mac, outlined their agencies’ efforts to make the entire mortgage process simpler and easier.

And that’s a good thing since the agencies facilitate the lion’s share — maybe even the elephant’s share — of the secondary mortgage market.

Fannie Mae’s Day 1 Certainty program, which gives rep and warrant relief to lenders who follow specific guidelines, continues to grow. Smith said that $300 billion of the deliveries the agency receives now contain at least one component of Day 1 Certainty.

More than 70 vendors and sellers have partnered with Fannie on the program, which allows it to offer lenders a wide choice of services.

Likewise, Freddie Mac is looking to offer maximum flexibility to lenders. “We have been hearing customers talk around the

broader theme of how can we make it faster, easier and more cost efficient to originate that loan? Making it cost efficient is more important today than ever before,” Palmer said.

As far as the housing shortage, Smith said that half of the people employed in construction work left the industry after the housing crisis and up to 4 million homes have been diverted into rentals.

In addition, the U.S. is contending with an aging housing stock that will need renovation investment.

Fannie Mae has responded by making some major changes to its HomeStyle renovation product, making it easier to for lenders to sell those loans to Fannie Mae. It is also exploring how it can increase sales of manufactured homes and even modular homes.

“At Fannie Mae, we’re going to take a leadership position to help solve [the housing shortage]. We want to get to the root cause and solutions,” Smith said.

Fannie Mae’s biggest contribution could be the way it is trying to simplify its construction-to-perm program, which has been a complicated process that sees lenders holding onto the loan for six to nine months or longer.

“If we can buy that product at the time of closing, I think a whole lot of builders could come into market,” Smith said.

At the same time, Freddie Mac is addressing what it sees as one of the biggest challenges the market is facing: the lack of affordability, combined with a change in demographics that demands a different underwriting structure. Freddie Mac continues to update its Home Possible program, revising income limit requirements to focus on serving low to moderate-income borrowers.

Freddie Mac also recently rolled out its Home One program, which lets first-time homebuyers pay as little as 3% down. “Right now the number of first-time homebuyers is at a 10-year high,” Palmer said. “Our Home One program is just one way we’re expanding credit responsibly in this area.”

Freddie Mac is under the same Duty to Serve requirement as Fannie Mae, and Palmer said his agency is looking at a singleclose process for manufactured homes that could be a gamechanger for that segment of the market.

“Right now there are over 40 million households struggling with the high demand and low supply of affordable single-family homes,” Palmer said. “Under these changing demographics, we are studying how Freddie Mac can help.”

Those changing demographics also include a whole new type of borrower who works in the gig economy and often has multiple jobs. Fannie Mae is conducting a pilot to figure out how to enable loans that leverage income from Airbnb rentals.

Palmer noted that the challenge with Airbnb income is not simply to figure out the origination, but also what happens in a foreclosure scenario or with servicing. Both GSE leaders also expressed a desire to rethink the entire condo financing process to make it less burdensome.

HOUSINGWIRE ❱ JULY 2018 65

Multifamily Bulletin

66 HOUSINGWIRE â?ą JULY 2018

Multifamily Bulletin

Lack of rent concessions reveals undersupply of multifamily housing AND CONSTRUCTION COSTS MAKE AFFORDABLE HOUSING AN EVEN HARDER SELL FOR BUILDERS

BY JEREMIAH JENSEN

THERE IS a serious dearth of affordable housing across the U.S. one-month free rent. right now. Everyone is talking about the problem, but no easy “If we’re at less than 1%, I do like to make the joke, ‘there’s about solution for it has emerged. The demand is undeniably there, 10 minutes of free rent out there,’” she quipped. freezing under a thick ice sheet of Class-A product.

What this means is that there is a massive undersupply of mulAside from razor-thin vacancy rates and sky-high rents, there tifamily housing in general, and it is most definitely contributing is a metric that Fannie Mae Director of Economics and Market to the overall lack of affordable housing.

Research Kim Betancourt says is even more telling: rent concesCombine that with the fact that investors are buying up every sions. According to her, the multifamily market is so tight that Class-B value-add property in sight, that over the last 10 to 15 concessions are practically non-existent at the national level, years Class-A has been about the only thing built, and add in outwhich is not normal for a balanced market. of-control construction costs and macroeconomic factors like the “Depending on where you are there might be more concessions two largest population cohorts – Baby Boomers and Millennials than elsewhere, but at the national level, it’s actually quite low. – opting to rent in droves and what you’re left with is a massive It’s below 1%...I think when we looked at the first quarter it was at pool of unmet demand and empty wallets.

0.6%. That’s very, very low,” Betancourt told HousingWire. “In a It’s a pickle. A real big pickle because developers and investors normalized market, it should be more like 2% to 3%,” she added. can’t in their right minds willingly stomach losses by building According to her, a concession rate of 8% is roughly equal to Class-B housing projects that won’t pencil, and the government HOUSINGWIRE ❱ JULY 2018 67

Multifamily Bulletin can’t or won’t be able to fill in all the gaps.

According to Stephen Norman, executive director of King County Housing Authority, what this leads to is lopsided economic growth. Eventually, it becomes untenable for working class individuals to travel en masse from one municipality to another every single day.

Norman said taxpayers are paying more for King County to add lanes coming into Bellevue for all the working class wage earners to travel back and forth everyday than they would if they just paid to put affordable housing within Bellevue city limits.

Tim Walter, KCHA senior director of development and asset management summed it up this way:

“You need equitable housing to support long-term economic growth.”

So, what is the holdup?

According to industry professionals, the chief issue holding back affordability is the cost of construction. It makes the pentup demand for affordable housing functionally untouchable.

That’s not very helpful, and it’s an uncomfortable reality. It’s something developers and housing professionals have little-tono-control over, and it looks like the prices are not going to fall anytime soon.

More than just a tough situation for would-be renters, it’s also a missed opportunity for developers and investors. If someone could come up with a silver bullet product or construction method that made building affordable housing possible, that someone would be able to access a massive, underserved demand pool.

So far, it does not appear that there are any silver bullets out there, or at the very least, if they do exist, they are not yet scalable according to David Leopold, Freddie Mac’s vice president, targeted affordable sales and investments.

Currently, most of the solutions are public-private partnerships (which are under duress) and/or tactical financial solutions.

“

Entities like Freddie Mac and Fannie Mae are trying to stop the bleeding by a) showing preference for affordable housing mortgages, and b) offering financial products that make filling a capital stack a little more attainable for affordable housing projects.

Some of these include Freddie’s Flexible Tax-Exempt Loans, Fannie’s Moderate Rehabilitation Supplemental Mortgage Loan for Affordable Properties, and obviously the Low-Income Housing Tax Credits. These are helping, but they are sailing against the wind as construction costs make anything less than something that turns out Class-A rents difficult to build.

Leopold says the way to win this uphill battle is to keep making tactical improvements and strategic moves to reduce the cost of building affordable housing. Things like financial products are tactical improvements, things that apply toward the larger strategic goal promoting affordable housing.

“Those things are important,” Leopold said of financial products that make affordable housing cheaper. “We’re wringing out costs…one of the strategic solutions needs to be to reduce the cost of building new affordable housing while preserving existing affordable housing…the strategy to reduce costs, financial products is one way to do that. Another is looking at the construction side.

The bulk of the costs are not financing costs…the cost to construct is much greater. [Reducing] that needs to be part of the solution.”

FIRST-RING SUBURBS OFFER OPPORTUNITY IN SELLER’S MARKET The multifamily market is on hold as far as new starts go, with the exception of an odd permitting blip registered over the course of March, in which permit numbers spiked by 19%. That aside, researchers are predicting a slowdown in new construction starts as the market is full-up on Class-A product, and construction costs don’t allow for developers to build Class-B product.

Hamilton Zanze Real Estate Investments Chief Operating Officer and Founder Tony Zanze told HousingWire that the multifamily market has been a sellers’ market for about a year and a half now, and it doesn’t look like it will change anytime soon as the econo-

We’re wringing out costs…one of the strategic solutions needs to be to reduce the cost of building new affordable housing while preserving existing affordable housing…the strategy to reduce costs, financial products is one way to do that.

Another is looking at the construction side. The bulk of the costs are not financing costs…the cost to construct is much greater. [Reducing] that needs to be part of the solution.”

68 HOUSINGWIRE ❱ JULY 2018

Multifamily Bulletin

Cities where renters became majority population between 2006-2016 - TOLEDO, OH The number of renters increased 31.3%, climbing to 50.3%. This is the largest change in status.

- MEMPHIS, TN The number of renters increased 27% and now account for 56.6% of the city’s population.

- TAMPA, FL Climbing 26.8% since 2006, 50.3% of Tampa residents are renters.

- HIALEAH, FL Renters in this city increased by 26.5%, now sitting at 54.7% of city residents.

- STOCKTON, CA This city has seen a 26.2% rise in the number of renters, which now account for 53.6% of the population.

- HONOLULU, HI This garden spot now has 56.1% of its population renting, a 25.7% increase from 2006.

- ANAHEIM, CA

- BATON ROUGE, LA

- SANTA ANA, CA A full 56.6% of this city is renting, accounting for a 17.5% increase.

- COLUMBUS, OH This city also saw a 17.5% increase, which pushes the total percentage of renters to 55.1%.

This city has the greatest share of renters in the country, with 57.9% of the population in rentals, a 25.1% increase.

This city saw a 22.4% rise in the number of renters, now reaching 52% of the population.

Source: RentCafe, January 2018

my settles into slow growth and supply tapers off.

For Hamilton Zanze, the strategy is similar. Zanze said his LEM Capital Co-founder and Partner Jay Eisner agrees. company has been purchasing vintage, suburban 1990s to “Right now, we’re in a slow growth economy. Nothing’s crazy, 2000s properties at around a 5.5 cap, putting them through a but we’re still getting growth,” Eisner told HousingWire in an value-add program and holding them for seven to 10 years before interview. refinancing.

“It’s not a straight line up, there will be periods where rents Though it will end at some point as all good things must, Eisner drop off a bit, [vacancy] picks up a little bit, but over the long-term said these fat years still have legs and that it will take a macwe’re going to continue to see increasing rents and good, strong ro-event similar to the Great Recession to halt the steady growth occupancy,” Eisner added. the multifamily market is experiencing.

So, how does one navigate today’s sellers’ market? Eisner said Millennials and Baby Boomers, the two largest population that LEM Capital is putting its chips into product with subpar groups in the nation, are both showing a strong preference for management and underutilized space in first-ring suburbs, the multifamily living, $1.5 trillion in student debt is keeping young areas just outside of main urban areas. people out of the single-family market and a growing minority “We tend to focus on first-ring suburbs as opposed to the newer population are all contributing to strong demand for the multidowntowns because of most of the new supply is in those urban family product. According to Eisner, this will keep the multifamily areas…we try to invest in locations where it’s difficult to build,” train rolling for a long time.

Eisner said.

“There isn’t one thing [the market is depending on]. Say the “It’s very, very difficult in these suburban locations to get a government came along and said, ‘OK, no more student debt. It’s permit to build new multifamily in these first-ring suburban all wiped out,’ you still have four or five other major factors, and locations because their roads are jam-packed with traffic, their there are others I’m not thinking of right now, that will continue schools are full, all of their municipal services are kind of at max to drive demand,” he said. capacity, and the last thing that they want is 300 units and 300 The only real question left is how the market is going to handle new families on a relatively small plot of land,” he added. the unmet demand in the Class-B realm and affordable housing This is the main thrust behind the investor preference for realm. According to Eisner, these market conditions will create suburban product that has been showing up in research lately. pent-up demand for housing.

Sweetening the deal a bit more, Eisner predicts that rent growth Vacancy in Class-B product is about as low as it can go, acin the Class-B value-add product is actually going to grow faster cording to a February affordability report from Fannie Mae’s than most people expect. multifamily research division. This can be taken as evidence of “We believe that the demand is actually higher than what is sustained demand for more Class-B product. Eisner said there is being projected by the various services and that in the right loca- about a 500,000-unit shortage in all housing, and that the market tions with the right business plan, that rent growth is going to be appears to be on its way to creating a larger shortage. However, higher than the average that is being projected,” Eisner said. “I until rents go up enough to sustain the cost of construction, no think we’ll consistently see 3% to 5% rent growth in our portfolio.” one will build.

HOUSINGWIRE ❱ JULY 2018 69

Kudos GIVING BACK ! The FLORIDA REALTORS EDUCATION FOUNDATION’s Board of Directors awarded $198,400 in college scholarships to help pay for higher education expenses for 132 young people living in Florida communities in the 2018-2019 school year.

The Florida Realtors Education Foundation Inc. is a not-for-profit corporation established by the state Realtor association and provides real estate-related educational scholarships.

All recipients will be attending community colleges, four-year universities, graduate programs or law schools both in state and out of state.

Successful applicants were considered for academic achievements, financial need, relationship to the Realtor family and contributions to family, school and the local community.

LAUNCHES

! OPENDOOR, an online marketplace that buys homes directly from homeowners, announced it has expanded its Homebuilder Program beyond its pilot and is now available to all homebuilders.

Opendoor explained that 70 HOUSINGWIRE ❱ JULY 2018

the program, which initially launched with mega homebuilder LENNAR, frees buyers who need to sell their home before purchasing a new one to do so without having to sell their old home.

TRELIX, a provider of real

estate, mortgage and technology services, announced the launch of a closing services solution that aims to help mortgage lenders settle their loans. It will also provide a full suite of endto-end fulfillment services for customers.

With the addition of closing services, The Trelix Platform will help clients streamline the startto-finish closing experience from disclosure and document preparation to compliance review and closing coordination, the company said.

It also aims at eliminating timing uncertainties by communicating regularly between originators, borrowers and Realtors, the company said in a press release.

ELLIE MAE has added applications to its Encompass NG Lending platform, and lenders are already harnessing its powers, according to the company.

The Encompass NG Lending Platform looks to deliver innovative capabilities to help lend-

ers and partners accelerate time to market, improve efficiency, loan quality and compliance, the company said.

Ellie Mae’s new suite of applications are now available to all lenders leveraging the platform.

The applications, Encompass Data Connect and Encompass Investor Connect, follow four suite applications the company launched in 2017.

The applications created an ecosystem of collaboration for lenders, partners and thirdparty providers.

The company hopes the new additions will offer the same experience.

Kudos

M&A

!FIFTH THIRD BANCORP and MB FINANCIAL announced they have entered into a definitive merger agreement. Fifth Third is shelling out $4.7 billion in stocks and cash to buy out MB Financial’s shareholders and complete the merger.

Based on Fifth Third’s stock price as of May 18, MB Financial’s shareholders will receive $54.20 of total consideration for each of their shares in the company. This will consist of 1.45 shares of Fifth Third common stock, and $5.54 in cash per share. This represents a roughly 24% premium on Fifth Third’s stock price as of May 18.

IN-HOUSE REALTY, a subsidiary of Rock Holdings, announced that it purchased FORSALEBYOWNER.COM, a real estate site where homeowners can market their homes, from TRONC, the publishing giant that owns the CHICAGO TRIBUNE, the LOS ANGELES TIMES, the NEW YORK DAILY NEWS, THE BALTIMORE SUN, the ORLANDO SENTINEL and more.

In-House Realty is a digital platform for matching consumers with real estate agents, and the move to acquire FORSALEBYOWNER. COM appears to be part of a larger move to develop a one-stop shop for homebuyers and sellers. This latest purchase is part of Rock Holdings’ fintech acquisition tear. According to details provided by the company, this acquisition marks the fourth fintech acquisition for a Rock Holdings’ subsidiary in under 18 months.

INTERIOR LOGIC GROUP and INTERIOR SPECIALISTS tied the knot on June 1, as they completed the merger they announced at the beginning of May. The new company will operate coast-to-coast under the name Interior Logic Group. Interior Logic Group services the interior design needs of multifamily owners, homebuilders and big box retailers.

With the merger, the company now employs 4,300 people in 225 locations around the nation and is now worth $1.5 billion.

HOMESERVICES OF AMERICA, an affiliate of BERKSHIRE HATHAWAY, purchased EBBY HALLIDAY COMPANIES, the largest private residential real estate company in Texas by sales volume, for an undisclosed amount.

Ebby Halliday has a number of real estate brands under its umbrella transferring to HomeServices with the transaction: EBBY HALLIDAY, REALTORS, DAVE PERRY-MILLER REAL ESTATE and WILLIAMS TREW REAL ESTATE along with all its affiliated mortgage and title companies.

Ebby Halliday is headquartered in Dallas and did $8 billion in sales in 2017. The company has been in operation since 1945 when Ebby Halliday started the firm as a one-woman, one-office venture.

President and CEO of Ebby Halliday, Mary Frances Burleson and CFO Ron Burgert will continue on with the firm under its new owners.

TAYLOR MORRISON announced that it is acquiring fellow homebuilder AV HOMES in a deal valued at nearly $1 billion. In a release, Taylor Morrison said that it views AV Homes’ portfolio as complementary to its own. AV Homes has homebuilding operations in Florida, the Carolinas, Arizona and Texas.

Under the terms of the deal, Taylor Morrison will acquire all of AV Homes’ outstanding shares for $21.50 per share in a cash and stock transaction valued at approximately $963 million, which includes AV Homes’ outstanding debt. The boards of both companies have unanimously approved the deal, which will now go to AV Homes’ stockholders for their approval.

CELEBRITY FINANCIAL, a financial-services holding company, purchased MIDWEST EQUITY MORTGAGE, an independent mortgage lender, in the first of several acquisitions Celebrity said it is preparing for in the near future. The sale is pending regulatory approval but expected to close in Q3.

HOUSINGWIRE ❱ JULY 208 71

Knowledge

Center

72 HOUSINGWIRE ❱ JULY 2018

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

Knowlegde Center

Efficient collateral valuation key to success in 2018 MORTGAGE ORIGINATION TRENDS AND EFFICIENCIES LENDERS SHOULD INTEGRATE INTO THEIR PROCESS

FINANCIAL INSTITUTIONS are experiencing stress in the face of diminishing mortgage loan origination levels and increasing competition. The Mortgage Bankers Association, among others, predicted this drop in business last fall. It appears that they were correct.

The results we’re seeing in the market now indicate that many smaller institutions are finding it more difficult to generate revenue through their mortgage lending operations. This is negatively impacting industry profits.

According to the MBA’s Annual Mortgage Bankers Performance Report, independent mortgage banks and mortgage subsidiaries of chartered banks saw their profit per loan cut nearly in half in 2017, earning only $711 on each loan they originated last year, down from $1,346 per loan in 2016. While 2018 will be a tougher year for lenders, it will still be possible for originators to generate solid revenue and profit for their institutions with effective marketing and loan fulfillment programs.

Better than that, by focusing their efforts on the right products, they will also have the opportunity to build stronger relationships with existing bank customers and credit union members, positioning themselves well for securing additional purchase money business when volume levels increase in the future.

The keys to success this year will be the same as they always

are in this business: (1) excellent customer service, (2) good marketing to uncover the loan products in demand in the bank or credit union’s service area and (3) efficient operations to ensure a good customer experience and to reduce costs and increase profitability.

In this white paper, we’ll explore the trends that will tell us where the new business currently is for mortgage originators and then explore the efficiencies lenders must build into their processes in order to capitalize on them.

A MORE COMPETITIVE LANDSCAPE This March, MBA estimated that the industry would write $1.6 trillion in 1- to 4-family mortgage loan originations in 2018, down from $1.7 trillion last year, or a 6 % decrease from 2017’s volume.

Meanwhile, the trade organization said that refinance originations would decrease by 28.3 % from 2017, to approximately $430 billion. The picture would brighten somewhat by 2019, MBA said last fall, forecasting total originations to rebound to $1.64 trillion, with purchase originations of $1.24 trillion

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com.

HOUSINGWIRE ❱ JULY 2018 73

Knowledge

Center

74 HOUSINGWIRE ❱ JULY 2018

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

Knowledge Center

Ask a Regulator STATE LICENSING QUESTIONS ANSWERED THE VALUE of having access to the individuals behind state licensing requirements is immeasurable. Every year state and federal regulators and financial services licensees of all types gather at the National Mortgage Licensing System (NMLS) Annual Conference to discuss our industry and answer questions related to issues that affect their organizations.

We asked you, the mortgage industry professionals, to send us your questions regarding state licensing requirements. You never disappoint and provided us with a record number of relevant and thought-provoking state-specific licensing questions. We headed to the NMLS conference to get those answers for you.

We provided your questions to the appropriate state regulators prior to the conference. We discussed your questions with the regulators during the conference and we additionally followed up with individual regulators again for any questions not addressed prior or if we felt additional clarification was necessary.

The following are the relevant questions you submitted and the responses provided by the state regulator.

ALABAMA Q: Where and when is training available in my area, Mobile, AL? A: The state of Alabama suggested you search the state’s Mortgage Bankers Association (http://www.mbaal. org/) for approved NMLS training.

Q: Is the 20-hour training for first-time loan officers required for state of Alabama Credit Union employees?

A: The state of Alabama provided the following response at the conference: This requirement does not apply on the licensing side.

It is suggested to check any credit union licensing provisions with the Alabama Credit Union (https://www.alabamacu.com/) or phone number 888-817-2002.

ARKANSAS Q: When a loan officer quits, can you still close the loan with their license number or do you need to switch it to another loan officer?

A: The state of Arkansas provided the following response: Arkansas has historically taken the position that a mortgage loan may close in a loan officer’s name and license/NMLS number after the loan officer is terminated. The loan officer is not allowed to perform any further loan officer activity on the mortgage loan after termination.

ARIZONA Q: We are in the process of obtaining our mortgage license in Arizona and since we do not have an actual location, we are required to have a Responsible Individual. We are intending to open an office within the next few months and I was told that we are required to retain the Responsible Individual. Is this correct?

A: The state of Arizona provided the following response at the conference: In addition to a physical location, a responsible individual must be maintained at all times.

To read the entire white paper, visit the Knowledge Center at knowledge.housingwire.com.

HOUSINGWIRE ❱ JULY 2018 75

INDEX COMPANIES

F

M

V

A

Fannie Mae30-31, 43, 51, 54, 63, 65, 67-69, 76

Marvel ........................................................... 42

Vendorly.......................................................56

FHFA..................................................30-31, 76

Mayer Brown ..............................................37

Veros ...............................................................73

FICO ............... 5, 24, 31, 35, 43-45, 64, 76

MBA .....................12, 35, 39, 63-64, 73, 77

Fifth Third Bancorp ......................... 71, 76

MB Financial ................................................71

First National Bank of America64, 76

Mortgage Bankers Association12, 73, 75

Affiliated Bank .............................. 16-17, 76 Alliance Residential Company .. 12, 76 Appraisal Institute...........................49, 76 Assurant Mortgage Solutions ..49, 76

ForSaleByOwner.com .................... 71, 76

AV Homes ............................................. 71, 76

Ballard Spahr .....................................39, 76

G

Berkshire Hathaway........................ 71, 76 Black Knight................................. 24, 76-77

C

National Association of Realtors ....35

Nationstar Mortgage......................12, 39

Genworth Mortgage Insurance63-64, 76

New American Funding...........18-19, 77

Goldman Sachs ................................39, 76

Newland Real Estate Group ...............12

Government Accountability Office60, 76

New York Daily News ..............................71

H

Carrington Mortgage Holdings12, 45, 76

Hamilton Zanze Real Estate Investments 68,

Carrington Retail Group ................ 12, 76 Century Communities .................... 12, 76 Channel Software ............................ 12, 76 Chicago Tribune ................................. 71, 76

O Opendoor .................................................... 70

Homeservices of America............ 71, 76

Optimal Blue ........................................ 16-17

Hope LoanPort ..................................27, 76

Orlando Sentinel.......................................71

Hunt Mortgage .................................. 12, 76

Citizens Bank ......................................63, 76 Clear Capital ................................49-51, 76

I

Consumer Advisory Board ..........59, 76 26,

In-House Realty.........................................71

CoreLogic..............................................24, 76

Interior Logic Group .................................71

Corporate Leadership Council28-29, 76

Investopedia.............................................. 43

Cowen Washington Research Group65, 76

E

Y Yardi Matrix ................................................ 24

Z

PEOPLE P

A

Pacific Union Financial...........................12

Acosta, Gary...............................................65

Phoenix Credit Consultants ...............27

Arvielo, Patty.............................................. 19

R

B

Radian Guaranty ......................................35

Benedikt, Carl............................................49

RentCafe...................................................... 24

Betancourt, Kim .......................................67

K

Brenning, Michael ..................................64

T

King County Housing Authority ......68

DocMagic.......................................54, 76-77

XINNIX ...........................................................29

IndiSoft..........................................................27

30, 32, 38, 43, 59, 76

Deep Haven Mortgage................. 64, 76

X

Zillow .............................................................. 19

76

HUD ....................................................27, 31, 76

Citadel....................................................22, 76

Dave Perry-Miller Real Estate .... 71, 76

Williams Trew Real Estate...................71

NYDFS................................................5, 37, 39

California Reinvestment Coalition59, 76

D

Western Union .........................................39

National Housing Conference..........64

Gannet ...........................................................76

Caliber Home Loans........................ 12, 76

CrossCheck Compliance............... 33, 76

National Association of Hispanic Real Estate

WCI Communities.....................................12

Professionals.............................................65

B

Credit Mindset ....................................27, 76

N

Freddie Mac14, 30-31, 43, 51, 54, 63, 65, 68, 76 Freedom Mortgage ......................... 12, 76

Consumer Financial Protection Bureau

Washington Post .................................... 24

Florida Realtors Education Foundation70, 76

Auction.com .......................... 12, 20-21, 76

W

Kotex................................................................15

Taylor Morrison ..........................................71

Broeksmit, Robert ....................................12 Burgert, Ron.................................................71

Ten-X ...............................................................12

L

The Baltimore Sun ...................................71

C

TMS ..................................................................12

Chadwick, Kevin ........................................12

Lehman Brothers.................................... 43

Trelix............................................................... 70

Cole, Mark.....................................................27

LEM Capital ................................................69

Tronc ................................................................71

Cordray, Richard.................................38, 61

Lennar ........................................................... 70 loanDepot.....................................................12

Ebby Halliday Companies ............ 71, 76

Los Angeles Times ...................................71

Ellie Mae.......................... 24, 55, 70, 76-77

LRES Corp .....................................................12

Crapo, Mike ................................................. 24

U Urban Institute .................................44, 63 U.S. Bureau of Labor Statistics........49

Cribbins, Bradley........................................12

AD INDEX

THREAT MULTIPLIER

State regulations increase pg 36

B D Davis, Terri................................................... 55 Dranginis, Ryan ..........................................12

Mishkin, Barbara......................................39 Mulvaney, Mick ...................................38, 61 Murad, Al........................................................12

BAI ............................................................................................................................................ 61

Dworkin, David .........................................64

N E

Nicholas, John.............................................12

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

Eisner, Jay ....................................................69

O F Fisher, Will ................................................... 22 Fontaine, Michael .....................................12

C

Obregon, Frank ..........................................12 Offner, Brian ................................................27 Osborne, Michael ....................................49

CMBA...................................................................................................................................... 23

Frances Burleson, Mary .........................71

P G Gatling, Bobby ............................................12

Palmer, Kevin ............................................65

Computershare Loan Services..........................................................................................3

Platt, Larry...................................................37

Gilford, Sam ...............................................60 Gonzalez, Paulina ...................................59

Q

Goodman, Laurie ....................................63

Quick, Fred ....................................................12

Gordon, Christoper ...................................12

D

DocMagic .............................................................................................................................6, 7 R

H

Raney, Kevin ..............................................50

Halliday, Ebby ..................................... 71, 76 Happ, Scott ..................................................17 Hurand, Keith ..............................................12

S Scanlon, Charlie........................................27

I

E

Ellie Mae...................................................................................................................................4

Seiberg, Jaret.............................................65 Smith, Desmond .....................................65

Iannitti, Dominic ......................................54

Stevens, David ............................................12

J

V

Jones, Deborah ........................................63

Vaca, Jim ......................................................56

M

MBA ........................................................................................................................................ 25

Vullo, Maria............................................ 5, 39

K Kiefer, Leonard .......................................... 14

W

N

Walter, Tim .................................................68

L Leopold, David .........................................68 Lipman, Joanna .........................................15 Liu, Tian ................................................63-64

M Marshall, Kevin .................................49-50

Warren, Elizabeth ...................................60 Watkins, Gary............................................64

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

Watt, Mel ...............................................30-31 White, Brandon................................... 16-17

T

Z Zanze, Tony ................................................68

The Mortgage Collaborative ........................................................................................... 15

HOUSINGWIRE â?ą JUNE 2018 77

PARTING SHOT

❱ 3D-PRINTED HOUSING According to a report from World Resources Institute Ross Center for Sustainable Cities, 1.2 billion people worldwide do not have access to affordable housing. Austin-based startup, ICON, has created America’s first permitted, 3D-printed home using a printer they named Vulcan, and plans to bring home costs down to $4,000 per house. Vulcan prints a single-story 650-square-foot house out of cement, in only 12 to 24 hours.

78 HOUSINGWIRE ❱ JUNE 2018