news flash
JULY 2011
KENTUCKY MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
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in Morris Plains, N.J., agreed to remit a $3 million penalty. “The effectiveness of the multi-state effort as a platform to regulate large companies across the country, while enhancing consumer protection, is a testament to the states’ ability to modify the regulatory approach to better assess for compliance with applicable state and federal law,” said John Ducrest, Louisiana Commissioner of Financial Institutions and Chairman of the Conference of State Bank Supervisors (CSBS). The consent order between state mortgage regulators and MAC was executed following an examination conducted under the protocols of the Multi-State Mortgage Committee (MMC). The examination found numerous compliance and internal control deficiencies, including the origination or completion of mortgage loan applications by loan originators (LOs) that were not licensed in the appropriate jurisdictions. The multi-state examination revealed that MAC failed to institute the proper oversight and controls to ensure compliance with applicable licensing and regulations in the various states it operates within. MAC permitted individuals unlicensed in particular states to participate in various aspects of the mortgage loan originator process, in violation of the states’ mortgage originator licensing requirements. The major terms of the consent order require Mortgage Access Corporation d/b/a Weichert Financial Services to: Reassess their internal routines regarding the oversight of LO activity and to implement appropriate technology that will prevent an application from being processed by an unlicensed individual. Implement a system that will allow for the full investigation of complaints submitted by consumers, state or federal agencies, or other individuals alleging that MAC has employees acting in the capacity of an unlicensed LO. Identify an independent auditing firm to, at MAC’s expense, conduct a review of all mortgage loan applications taken from Sept. 1, 2010-March 31, 2011 for compliance with state mortgage licensing laws. Refund certain fees to borrowers in the state of New York. The foregoing must be memorialized in an Internal Control Plan that must be approved by the regulators, and MAC must remit a penalty of $3 million to the 10 states that are party to the order. “The multi-state mortgage examination program was initiated to enhance consumer protection, foster a culture of compliance within the industry, and hold individuals and entities accountable for actions which are not in compliance with applicable rules and regulations,” said Darin Domingue, Deputy Chief Examiner of the Louisiana Office
of Financial Institutions and president of AARMR. “The licensing laws enacted by states, including testing and educational requirements, have been put into place to help ensure that the largest financial transaction most consumers will make is facilitated through qualified and licensed individuals.” The 10 state agencies included in the multi-state action are the Connecticut Department of Banking; the Kentucky Department of Financial Institutions; the Louisiana Office of Financial Institutions; the Massachusetts Division of Banks; the New Jersey Department of Banking and Insurance; the New York State Banking Department; the North Carolina Office of the Commissioner of Banks; the Pennsylvania Department of Banking; the Vermont Department of Banking, Insurance, Securities and Health Care Administration; and the Virginia Bureau of Financial Institutions.
Studies Find Housing Counseling as an Effective Tool in Foreclosure Prevention
The Homeownership Preservation Foundation (HPF), an independent national non-profit dedicated to helping distressed homeowners navigate financial challenges and avoid mortgage foreclosure since 2004, has reported that independent data presented at a recent regulatory briefing verified the effectiveness of mortgage counseling for financially challenged homeowners who receive it. The four research studies separately conducted by the Joint Center for Housing Studies of Harvard University, The Urban Institute, Federal Reserve Board (FRB), and the National Council on Aging (NCOA) were presented at a briefing session held June 21 by the Coalition of HUD Housing Counseling Intermediaries. Colleen Hernandez, president and chief executive officer of The Homeownership Preservation Foundation, which offers mortgage counseling via the Homeowner’s HOPE Hotline at 888-995-HOPE, moderated the panel during which the four organizations reported their findings. Among the data presented that makes a compelling case for continued support of mortgage counseling opportunities: Housing counseling consistently increases the likelihood that the homeowner will be granted a loan modification (200 percent higher probability). Counseled borrowers received more favorable terms on their loan modifications compared to uncounseled borrowers (on average, $110 lower monthly payment and five basis points lower interest rate).
Counseling raises the probability of a homeowner receiving a loan modification that “cures” (restores the loan to good standing) a serious delinquency or foreclosure (over a 12 month period, 55 percent of loans cured among people who received counseling versus 38 percent of loans cured among those who did not receive counseling). Homeowners who received counseling prior to being granted a loan modification curing a serious delinquency or foreclosure were more likely to remain current on their loan after the modification compared to those who did not receive counseling (64 percent versus 51 percent of loans were still current eight months post-modification for counseled and uncounseled homeowners, respectively). Increasing affordability problems suggest greater need for counseling as the number of renters and current homeowners paying more than 50 percent of their income on housing continues to grow. “As nearly three-quarters of those who call our national Homeowner’s HOPE Hotline and receive foreclosure prevention assistance from our counselors report back that they are still in their homes a year later, the findings presented by these four wellrespected organizations corroborate what everyone at HPF knows firsthand that mortgage counseling works,” said Hernandez.
NFCC Poll Finds 20 Percent Downpayment Still Unattainable for Many The National Foundation for Credit Counseling (NFCC) has released results of an online poll that has concluded that close to half of the respondents would never be able to save enough money for a downpayment on a home despite the low state of the current U.S. housing market. On the other end of the spectrum and identical to 2010, the 2011 category with the lowest response rate, 12 percent, represented those who indicated they would have no trouble coming up with a 20 percent downpayment. “The 2011 results could be even worse than they appear at first glance,” said Gail Cunningham, spokesperson for the NFCC. “Since prices for homes are at historic lows, the necessary downpayment represents a lower dollar amount than would typically be necessary. Nonetheless, consumers still do not feel capable of meeting the requirements.” The numbers suggest that consumers are reconciled to satisfying their housing needs through renting, even though in some markets it can be more affordable to buy a home than rent. While demand for rentals increased, so did the cost of renting. Although renting has many advantages, it may not stimulate the economy as much as an uptick in the housing market world, as renters do not typically spend as much on home improvements, lawn equipment, appliances, or other areas which would lead to job growth.
Consumers’ inability to buy a home exacerbates the already distressed housing market and slows recovery. Neighborhoods with multiple homes for sale or in foreclosure create blight on the entire area, resulting in a decreased tax base for the community, and further distress experienced by the displaced families that have been forced to abandon their dream. The longer the neighborhoods go unoccupied, the more prone to crime and vandalism they become, diminishing the property values even further. “Now is the time for consumers to examine their long-term goals as they relate to housing, and take the steps necessary to meet them,” said Cunningham. “Renting may be the right answer for some people, but just because homeownership isn’t on the horizon at the moment doesn’t mean it never can be.”
TransUnion Study Finds Opportunity in MortgageOnly Default Market A study conducted by credit analyst TransUnion has shown that consumers who only defaulted on their mortgage during the economic recession were far better risks than those consumers who went delinquent on multiple credit accounts, such as credit cards and auto loans. This was evident across all credit scoring ranges. The results showed that consumers with mortgage-only defaults performed better on new loans than those with multiple delinquencies. The study did not find any strong evidence supporting the widely accepted “excess liquidity theory,” which suggests consumers who stopped paying their mortgage loans during the recent recession had an increased cash flow in the short-term, and therefore could repay other debts. In fact, consumers in the foreclosure process performed similarly, if not better, on certain accounts when they opened them further in the foreclosure process. “There appears to be a pocket of opportunity among mortgage-only defaulters that is not the result of excess liquidity, but rather the unique circumstances of the recent recession,” said Steve Chaouki, group vice president in the financial services business unit for TransUnion. “This new market segment that the recession created is an important one for lenders to understand. They have the potential, today, to be stronger and more reliable customers.” Additional evidence suggesting the “excess liquidity theory” was not in effect during the recession was witnessed when comparing consumers who were 120 days past due on their mortgages, but opened new auto loans at various times after their delinquency. The percentage of consumers delinquent on those auto loans decreased as more time passed. “This recession was unique in that certain consumers who defaulted on mortgages would otherwise be good credit risks. It appears their actions were driven more by difficult economic circumstances than by any inherent inability to manage debt,” said Ezra Becker, vice president of research and