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Your source for the latest on originations, settlement, and servicing

Minnesota Mortgage Association State Office 5200 Willson Road, Suite 300 O Edina, MN 55424 Phone: (952) 345-3240 O Fax: (952) 920-1533 MMA Web site: “MMA does not provide legal or accounting advice”

Tim Swierczek Bill Schwietz Clyde Wagner Bob Carter

EXECUTIVE COUNCIL MEMBERS Phone # E-mail President (651) 772-9000 President-Elect (952) 838-8749 Secretary (952) 545-2808 Treasurer (763) 390-7200

Don Kiel Dan Lindgren Bob Carter John Murphy Dan Peinovich Sue Morrisette Clyde Wagner

Council Member Council Member Council Member Council Member Council Member Affiliate Member Affiliate Member

Rita Kennedy Sue Morrisette Clyde Wagner Keenan Raverty Bill Schwietz Roger Kadlec Paul Schuster Paul Schuster Joe Lanser

COMMITTEE CHAIRS Activities Committee Affiliate Committee (952) 929-8422 Affiliate Committee (952) 545-2808 Legislative Committee (651) 209-2650 Membership Committee (952) 838-8749 Membership Committee (763) 494-0614 Nominating Committee Past President’s Committee Technology Committee (952) 224-9362

Pat Martyn Sue Martyn Rebecca Selby Carla Tourin Eldon Spencer Jr.

CONSULTANT STAFF Executive Director (952) 345-3240 Assistant Director (952) 345-3240 Public Relations (952) 345-3240 Outreach (952) 345-3240 Attorney (612) 332-1030

(952) 224-1600 (952) 546-1400 (763) 390-7200 (952) 876-4471 (952) 253-1500 (952) 929-8422 (952) 545-2808

Thursday, June 24, 2010 Friday, June 25, 2010 AAMB welcomes NAMB to beautiful Phoenix! Come see the new NAMB President and the new NAMB Board installation, while participating in some great networking opportunities. State delegates can also participate in the NAMB Delegate Council Meeting.

Phoenix Airport Marriott® 1101 North 44th Street Phoenix, Arizona 85008 USA Rooms are $99 per night, and will be honored at the same rate if you wish to extend your stay.

Hotel Toll-Free: 1-800-228-9290 O

Scenes From the MMA February Breakfast Meeting February 17 at the Sheraton South in Bloomington, Minn.

Fraud was the theme of the MMA February Breakfast Meeting

A packed house listens in on the warning signs of fraud in the mortgage process

for details.




MN 1

A Message From MMA President Tim Swierczek

Advisor Asset Protection Management Bank President

Branch Manager Business Analyst

Business Development Manager Client Relationship Manager Client Relationship Specialist Collateral Asset Manager

Commercial Loan Officer

Corporate Sales Credit Analyst Inside Sales Legal

Loan Originator Mortgage Loan Processor Mortgage Originator National Account

Assistant Licensing Assistant Loan Administration Manager

Manager National Sales Rep PC Support Admin Post Closing QC Expert Processor Regional Vice President REO Closer Retail Branch Manager Retirement Planner Reverse Mortgage Specialist Sales Manager Secondary Marketing Analyst Senior Loan Officer Senior Underwriter

Senior Vice President Software Engineer


Vice President

Wholesale Account Executive




• • • •

MN 2

Job Seekers Post your anonymous resume free Sign-up for free job alerts Free career management tools Geographical and job type searches

Post your resume. Find a job.

O Radically improving our Web site and providing relevant content for the site O Creating our social presence through forms of social media, including Facebook, Twitter, etc. O Organizing or leading roundtable discussions on topics of your choice O Revolutionizing the value proposition that we offer individual members O Organizing the most revolutionary and largest-attended state convention of the year O Creating content aimed at helping our community bank and credit union members If any of this is for you or you are eager to change any thing we do, please call the MMA office today at (952) 345-3240. Sincerely,

Employers • Responses from highly-qualified candidates • Your ad can also be posted on Indeed and SimplyHired as a Featured Job, on Craigslist (most cities), Googlebase, Oodle, Juju, CareerMetaSearch, TopUSAJobs, Jobalot, and more! • Pay-per-use resume bank Use coupon code NMP0551 to take advantage of this special offer!

Dear MMA members: I’d like to begin by welcoming Dylan Niska of Tradition Mortgage, Rob Schneider of Freedom Mortgage and Steve Swisher of Bank of America. These gentlemen have chosen to volunteer with Minnesota Mortgage Association committees. Thank you, and we appreciate your time and energy! The last few years have been challenging for all of us and the association. I’m proud to announce that with all of our budget challenges, we the board, with great help from Martyn Services has stabilized the budget and can now focus on our true mission to be the primary source for information to our members, the government and the consumers of the state of Minnesota. As lofty of a goal as it is, we have achieved this status as we are often our members’ first call for questions and support. In addition, we are actively involved as the primary consultant to the Department of Commerce (DOC) to draft the SAFE Act legislation in Minnesota. Pat Martyn, our executive director, testifies several times per year as an industry expert in front of Senate and House committees regarding lending issues, laws and regulations in the state of Minnesota. For consumers, I have been interviewed as the industry voice by WCCO radio, KARE 11 News, and nearly a dozen times by the Star Tribune and the Pioneer Press. In addition, I have spoken at the Minnesota Foreclosure Prevention Association’s Annual Meeting and will be speaking at the Minnesota Land Title Association convention on April 19 as the voice of our industry. Not withstanding all of the above, I think we all agree that we can do more. The key to our impact is you. We need your help. We are actively seeking people assist in:

Be happy.

40% Discount on Job Postings and Subscriptions for all National Mortgage Professional Magazine Readers

Tim Swierczek, President Minnesota Mortgage Association

Minnesota Mortgage Association

SPONSORS Platinum Sponsor Nations Title Gold Sponsor Freedom Mortgage

This offer expires April 30, 2010.

Silver Sponsors Bell Mortgage Kaplan Professional Schools Marketplace Home Mortgage River City Mortgage Summit Mortgage U.S. Bank Home Mortgage Wells Fargo Home Mortgage


MARCH 2010 MMA March Breakfast Meeting Date to be determined The Sheraton South • Bloomington, Minn. 8:30 a.m. Tuesday, March 2 MMA Affiliates/Level Partners Committee Meeting Nation’s Title • 10:00 a.m. Wednesday, March 3 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m. Thursday, March 4 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 4:00 p.m. APRIL 2010 Thursday, April 1 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 4:00 p.m.

MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 1:00 p.m. MAY 2010 Tuesday, May 4 MMA Affiliates/Level Partners Committee Meeting Nation’s Title 10:00 a.m.

Tuesday, June 1 MMA Affiliates/Level Partners Committee Meeting Nation’s Title • 10:00 a.m. Wednesday, June 2 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m. Thursday, June 3 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 4:00 p.m. Friday, June 25 MMA Executive Council Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 9:00 a.m. JULY 2010 MMA Annual Golf Tournament Date to be determined 18-hole tournament Majestic Oaks Golf Course 701 Bunker Lake Boulevard Ham Lake, Minn. Thursday, July 1 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 4:00 p.m. Tuesday, July 6 MMA Affiliates/Level Partners Committee Meeting Nation’s Title 10:00 a.m.

Thursday, October 7 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 4:00 p.m.

Wednesday, August 4 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m.

NOVEMBER 2010 Tuesday, November 2 MMA Affiliates/Level Partners Committee Meeting Nation’s Title 10:00 a.m.

Thursday, August 5 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 4:00 p.m. Friday, August 6 MMA Executive Council Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 9:00 a.m. SEPTEMBER 2010 MMA 2010 Annual Convention & Trade Show Date to be determined Hyatt Regency Minneapolis 1300 Nicollet Mall Minneapolis Thursday, September 2 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 4:00 p.m.

Wednesday, November 3 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 1:00 p.m. Thursday, November 4 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 4:00 p.m. DECEMBER 2010 Thursday, December 2 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 4:00 p.m.

Tuesday, September 7 MMA Affiliates/Level Partners Committee Meeting Nation’s Title • 10:00 a.m.

Tuesday, December 7 MMA Affiliates/Level Partners Committee Meeting Nation’s Title 10:00 a.m.

Wednesday, September 8 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m.

Wednesday, December 8 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m.

OCTOBER 2010 Tuesday, October 5 MMA Affiliates/Level Partners Committee Meeting Nation’s Title • 10:00 a.m.

For information on all MMA events, call the MMA state office at (952) 345-3240 or visit


newest member Please join the Minnesota Mortgage Association in welcoming its newest member. We look forward to their active participation in the association.

Professional member City of St. Paul Planning & Economic Development


Wednesday, May 5 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 1:00 p.m.

JUNE 2010 MMA Breakfast Meeting & Legislative Update Date to be determined The Sheraton South Bloomington, Minn. 8:30 a.m.

AUGUST 2010 Tuesday, August 3 MMA Affiliates/Level Partners Committee Meeting Nation’s Title • 10:00 a.m.


Wednesday, April 7 MMA Executive Council Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 9:00 a.m.

Friday, May 14 MMA Executive Council Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 9:00 a.m.

Wednesday, October 6 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m. O

Tuesday, April 6 MMA Affiliates/Level Partners Committee Meeting Nation’s Title 10:00 a.m.

Thursday, May 6 MMA Membership Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. 4:00 p.m.

Wednesday, July 7 MMA Activity Committee Meeting MMA Office 5200 Willson Road, Suite 300 Edina, Minn. • 1:00 p.m.

MN 3

The number one reason you should attend this event is the satisfaction of knowing you are doing your part to ensure that mortgage broker issues are heard on Capitol Hill. You are the best spokesperson for our issues. Your participation benefits you, the industry and your clients as a whole, by strengthening the broker’s presence in the halls of Congress. Key Issues in 2010 Include:  Regulatory reform (RESPA, TILA, HVCC and more!)  The National Mortgage Licensing Act (SAFE Act)  The Consumer Financial Protection Agency (CFPA)  And much more!

Sunday-Wednesday, February 21-24, 2010 Hyatt Regency Washington, D.C.




Be prepared to go to the Hill!

MN 4

Includes Advocacy 101 training: General synopsis and "Question & Answer" on the best ways to communicate NAMB's talking points with your congressmen in an effective manner.

It’s all happening now! Visit for details!

Hotel Accommodations Hyatt Regency Washington on Capitol Hill 400 New Jersey Avenue, NW Washington, D.C. 20001 Phone #: (202) 737-1234 Toll Free #: (888) 421-1442 Here are a few reasons you should attend: Lobby Your Representatives on Capitol Hill “There is no better way to build relationships with your senators and representatives than by attending Lobby Day. Getting face-to-face with the decision-makers who create important policy is invaluable during such historic and unprecedented times in our industry.” —Bill Kidwell Don’t Miss Out on What This Conference Has to Offer “If you can only attend one national meeting this year, make it the NAMB 2010 Legislative & Regulatory Conference. It is a great opportunity to meet with fellow NAMB members and work together to formulate NAMB’s policy agenda.” —Don Fader, CRMS

Confirmed Luncheon Keynote Speaker: FHA COMMISSIONER DAVID STEVENS

SAFE Smart … Testing, Education and Licensing: The Test is the Bar By Paul Donohue, CRMS


The Secondary Market Overview: From Bonds to Production … Nowhere to Go But Up By Dave Hershman


FHA Commissioner Stevens Clears the Air By Eric C. Peck


Trend Spotter: Are Interest-Only ARMs Dead? By Gibran Nicholas


Excessive Defaults and the Future of FHA By Jonathan Foxx


Ask Tommy: Your QC Expert By Tommy A. Duncan, CMT


Forward on Reverse: HECM at 20: Leaders and Pioneers in U.S. Reverse Mortgage Series (VI) … The First HECM Loan Officer By Atare E. Agbamu, CRMS


FHA Insider: FHA Responds to Short Payoffs and Delays Appraisal Rules By Jeff Mifsud


Value Nation: Foreclosures as Comps? By Charlie W. Elliott Jr., MAI, SRA

Why Mortgage Modification Isn’t Working By Arkadi Kuhlmann

Branching Offers a Safe Haven






27 28 31 36

Commercial Lending Insight: Or, why we missed the company that almost killed out industry! By Mark Anthony McCray


Commerical Real Estate: A Protracted Recovery By Michael Lagazo



Commerical Real Estate Finance: The Present Day “Gordian Knot” By Louis Mirando



Commercial Loan Modification By Ted Schmidt




By Andrew J. Schell, CPA, CMB, CFF 

By Jonathan Foxx



The NAMB Perspective

Regulatory Compliance Outlook: February 2010—HMDA Data Collection … Four Steps to Reliable Reporting






February 2010 Volume 2 • Number 2



Your source for the latest on originations, settlement, and servicing

1220 Wantagh Avenue • Wantagh, NY 11793-2202 Phone: (516) 409-5555 / (888) 409-9770 Fax: (516) 409-4600 Web site: STAFF Eric C. Peck Editor-in-Chief (516) 409-5555, ext. 312 Andrew T. Berman Executive Vice President (516) 409-5555, ext. 333 Domenica Trafficanda Art Director Karen Krizman Senior National Account Executive (516) 409-5555, ext. 326

SUBSCRIPTIONS To receive subscription information, please call (516) 409-5555, ext. 301; e-mail or visit Any subscription changes may be made to the attention of “Circulation” via fax to (516) 409-4600. Statements of fact and opinion in National Mortgage Professional Magazine are the responsibility of the authors alone and do not imply an opinion on the part of NMP Media Corp. National Mortgage Professional Magazine reserves the right to edit, reject and/or postpone the publication of any articles, information or data. MO





ARTICLE SUBMISSIONS/ PRESS RELEASES To submit any material, including articles and press releases, please contact Editor-in-Chief Eric C. Peck at (516) 409-5555, ext. 312 or e-mail The deadline for submissions is the first of the month prior to the target issue.



ADVERTISING To receive any information regarding advertising rates, deadlines and requirements, please contact Senior National Account Executive Karen Krizman at (516) 4095555, ext. 326 or e-mail



Jennifer Moeller Billing Coordinator (516) 409-5555, ext. 324




National Mortgage Professional Magazine is published monthly by NMP Media Corp. Copyright © 2010 NMP Media Corp.

A Message From NMP Media Corp. Executive Vice President Andrew T. Berman FHA reaches out to us to clear the air Hats off to our Editor-in-Chief, Eric C. Peck, (and I hope he doesn’t cut this) for writing a great piece last month, “A Walking Contradiction? FHA’s Stevens foreshadows RESPA reform confusion for consumers,” that lead to Commissioner of the Federal Housing Administration, David H. Stevens, to directly contact him less than an hour after the article hit our Web site to address the piece. Commissioner Stevens wanted to further clarify some of the contradictions that seemed to have been created since Stevens went from being involved in the housing finance industry to his current role with the FHA. In our 16-plus years involved with publishing mortgage industry trade magazines, this was the first time we were contacted by such a high-ranking official requesting an interview. If you read one article in this issue, make sure it’s our one-on-one interview with FHA Commissioner Stevens.

Troubled water ahead for FHA? Jonathan Foxx’s feature this month, “Excessive Defaults and the Future of FHA” is not for the faint of heart. There is a growing concern about the future of the FHA; however, FHA’s steps to shore up its claims through a solid threshold of compare ratios for lenders to adhere to could help FHA navigate those troubled waters.

Surviving in the commercial marketplace If the residential originators want to feel better about the tighter credit standards and the overall lack of funding options, they just need to take a look and their counterparts in the commercial marketplace. Mark Anthony McCray takes a look back at how one lender made commercial so easy and how much of a commitment it takes today to make these commercial deals happen. Also in the section, is an all-around update and predictions on the future direction of the commercial market as reported by Michael Lagazo. There is a piece on the history of commercial mortgage-backed securities and how it led to the great explosion and implosion in the commercial marketplace by Louis Mirando, and, our February Special Focus wraps with a contribution about commercial loan modifications by Ted Schmidt. I’m hoping that things are improving for you so far on the business front in 2010. The year may be young, but the signs of change in the housing finance industry seem to be pointing to an area of positivity for many of those who have survived. We just need to keep in mind that, even through all the negative press the mainstream media gives our industry on a regular basis, the task at hand remains … we are the ones who literally “open the doors” to the American dream of homeownership. Through our efforts, we provide ideal financing options for the American consumer to create their definition of a “home.” Whether it be an investment opportunity, a place to rest their head at the end of a long day or a place to grow and nurture a family, mortgage professionals hold the keys to opening the doors of the American dream of homeownership firmly in their grasp. The task is yours to make these dreams happen … are you up to the task? Sincerely,

Andrew T. Berman, Executive Vice President NMP Media Corp.

The National Association of Mortgage Brokers

National Association of Professional Mortgage Women

7900 Westpark Drive, Suite T-309  McLean, VA 22102 Phone: (703) 342-5900  Fax: (703) 342-5905 Web site:

P.O. Box 140218  Irving, TX 75014-0218 Phone: (800) 827-3034  Fax: (469) 524-5121 Web site:

NAMB Board of Directors Officers President—Jim Pair, CMC Mortgage Associates Corpus Christi 6262 Weber Road, Suite 208 Corpus Christi, TX 78413 (361) 853-9987 President-Elect—William Howe, CMC, CRMS Howe Mortgage Corporation 9414 E. San Salvador Drive, #236 Scottsdale, AZ 85258 (602) 200-8100 Vice President—Michael D’Alonzo, CMC Creative Mortgage Group 1126 Horsham Road, Suite D Maple Glen, PA 19002 (215) 657-9600 Secretary—Ginny Ferguson, CMC Heritage Valley Mortgage Inc. 5700 Stoneridge Mall Road, Suite 150 Pleasanton, CA 94588 (925) 469-0100

Directors Joe Camarena The Mortgage Source 10120 Southwest Nimbus Avenue, Suite C-7 Portland, OR 97223 (503) 443-1060

Olga Kucerak Crown Lending 8700 Crown Hill Boulevard, Suite 804  San Antonio, TX 78209 (210) 828-3384 Walt Scott Excalibur Financial Inc. 175 Strafford Avenue, Suite 1  Wayne, PA 19087 (215) 669-3273

Senior Vice President Sharon Patrick, MML, CMI (386) 985-1620 Vice President/Northwestern Region Jill M. Kinsman (206) 344-7827 Vice President/Western Region Tim Courtney (760) 792-5620

Vice President/Southeastern Region Jessica Edmonston (919) 414-3028 Secretary Laurie Abisher, GML, CMI (661) 283-1262 Treasurer Kay Talley, MML (919) 846-4294 Parliamentarian Hulene Bridgman-Works (972) 494-2788

Vice President/Central Region Candace Smith, CMI (512) 329-9040

National Credit Reporting Association Inc. 125 East Lake Street, Suite 200  Bloomingdale, IL 60108 Phone #: (630) 539-1525  Fax #: (630) 539-1526 Web site:

2010 Board of Directors Marty Flynn—President (925) 831-3520, ext. 224 Tom Conwell—Vice President (248) 473-7400 Daphne Large—Treasurer (901) 259-5105 William Bower—Director (800) 288-4757

Sanford (Sandy) Lubin—Director (805) 481-3155 Judy Ryan—Director (800) 929-3400, ext. 201 Tom Swider—Director (856) 787-9005, ext. 1201 Donald J. Unger—Director (303) 670-7993, ext. 222

NCRA Staff Mike Brown—Director (800) 285-6691

Terry Clemans—Executive Director (630) 539-1525

Susan Cataldo—Director (404) 303-8656, ext. 204

Jan Gerber—Office Manager/Membership Services (630) 539-1525

Nancy Fedich—Director (908) 813-8555, ext. 3010

James Sutton—NCRA Legal Counsel (972) 680-2665


Don Starks D.C. Starks Mortgage Associates Inc. 141 South Main Street  Bourbonnais, IL 60914 (815) 935-0710

President-Elect Gary Tumbiolo, CMI (919) 452-1529

Vice President/Greater Northeast Region Colleen-Therese McKeever, CMI (646) 584-8332


John Councilman, CMC, CRMS AMC Mortgage Corporation 2613 Fallston Road  Fallston, MD 21047 (410) 557-6400

President Liz Roberts-Fajardo, GML (702) 498-8020 

Treasurer—Don Frommeyer, CRMS Amtrust Mortgage Funding Inc. 200 Medical Drive, Suite D Carmel, IN 46032 (317) 575-4355

National Board of Directors


The Test is the Bar It made no sense to me. When I heard you could take the national test before sitting for the 20 hours of pre-license education (PE), I’m thinking what a regulatory boondoggle. How could they draft up something this illogical? Then I learned it wasn’t a mistake; this disconnect was quite purposeful. Rich Madison, the NMLS Director of Education Programs explained to our education working group that, “it is not pre-testing education, it is pre-licensing education.” He added, “there is no connection between the education requirements of the SAFE Act and the national test.” This seemed curious to me. I knew it needed further exploration. What were they up to?

Education Minimized, the Test Emphasized The twenty hours of required PE is designed to satisfy a bare minimum of MLO competency requirements. The twenty hours only requires 8 hours of core education; the remaining twelve hours is elective. Each state is allowed to use as many of these elective hours for any state education it deems appropriate. It began to dawn on me that education, though important, was not the focus of MLO competency validation. Clearly, the bar of entry is the national test. It supplies the true “capability measurement” for MLO’s. The national test is designed to be both broad and deep. The test covers 146 different areas of study. The test questions are interpretive in nature, requiring a firm conceptual understanding of these subjects in order to score well. The test is the bar and it is set quite high.



Test Break Down


The national test component entails 100 questions that include 10 un-scored questions used for developmental purposes. The questions are all multiple choice and you will have 150 minutes for completion. The test is broken down into the following four categories. O Federal mortgage related laws (35%) O General mortgage knowledge (25%) O Mortgage loan origination activities (25%) O Ethics (15%) My concern for brand new students of the mortgage industry is the MLO activities section, which covers more that 62 separate subjects. A new person with no contextual understanding of the business will naturally struggle in this area. My concern for an experienced mortgage veteran is the federal law and the ethics sections, which explore 14 different federal laws and consumer protections. How long has it been since you studied the HOEPA prohibitions? Do you understand the difference between providing ECOA based adverse action vs. FCRA based adverse action notices?

A “SAFE Smart” Approach Don’t think you are going to waltz into this test and ace it. The questions are filled with double negatives and trip words designed to throw you off. This is first a reading test and second, a knowledge bar. The industry’s new bar of entry is the 100-question national test. My SAFE Smart advice to you is take a test specific 20-hour PE course first, then get a good exam prep tool and buckle down to study. Paul Donohue, CRMS is a 23-year industry professional and founder of Abacus Mortgage Training and Education. Paul served on two NMLS working groups, establishing the new national education protocols. Go to to find out more about your obligations for testing, education and licensure, or call (888) 341-7767.

FHA announces policy changes to address risk and strengthen finances Federal Housing Administration (FHA) Commissioner David H. Stevens has announced a set of policy changes to strengthen the FHA’s capital reserves, while enabling the agency to continue to fulfill its mission to provide access to homeownership for underserved communities. The changes announced today are the latest in a series of changes Stevens has enacted in order to better position the FHA to manage its risk while continuing to support the nation’s housing market recovery. The FHA will propose to take the following steps: Increase the mortgage insurance premium (MIP); update the combination of FICO scores and downpayments for new borrowers; reduce seller concessions to three percent, from six percent; and implement a series of significant measures aimed at increasing lender enforcement. U.S. Housing & Urban Development (HUD) Secretary Shaun Donovan previewed the changes in December of last year, noting that the FHA would announce additional details before the end of January. “Striking the right balance between managing the FHA’s risk, continuing to provide access to underserved communities, and supporting the nation’s economic recovery is critically important,” said FHA Commissioner Stevens. “When combined with the risk management measures announced in September of last year, these changes are among the most significant steps to address risk in the agency’s history. Additionally, by continuing to provide affordable, responsible mortgage products, FHA will support the housing market’s recovery. Importantly, FHA will remain the largest source of home purchase financing for underserved communities. Announced FHA policy changes:  The first step will be to raise the up-front MIP by 50 bps to 2.25 percent and request legislative authority to increase the maximum annual MIP that the FHA can charge. If this authority is granted, then the second step will be to shift some of the premium increase from the up-front MIP to the annual MIP. This shift will allow for the capital reserves to increase with less impact to the consumer, because the annual MIP

is paid over the life of the loan instead of at the time of closing.  New borrowers will now be required to have a minimum FICO score of 580 to qualify for FHA’s 3.5 percent downpayment program. New borrowers with less than a 580 FICO score will be required to put down at least 10 percent. This allows the FHA to better balance its risk and continue to provide access for those borrowers who have historically performed well. This change will be posted in the Federal Register in February and, after a notice and comment period, would go into effect in the early summer.  The current level exposes the FHA to excess risk by creating incentives to inflate appraised value. This change will bring FHA into conformity with industry standards on seller concessions. This change will be posted in the Federal Register in February, and after a notice and comment period, would go into effect in the early summer.  FHA will seek increase enforcement on FHA lenders, as publicly report lender performance rankings will complement the currently available Neighborhood Watch data. This is an operational change to make information more user-friendly and hold lenders more accountable; it does not require new regulatory action as Neighborhood Watch data is currently publicly available. In addition to the changes proposed, the FHA is continuing to review its overall response to housing market conditions, and continuing to evaluate its mortgage insurance underwriting standards and its measures to help distressed and underwater borrowers through FHA/HAMP and other FHA initiatives going forward. For more information, visit

Ohio AG Cordray files suit against HAMP servicer Ohio Attorney General Richard Cordray has announced a lawsuit filed against Barclays Capital Real Estate d/b/a HomEq Servicing, headquartered in New York, for issuing unfair loan modification agreements and providing inadequate, incompetent customer service to Ohioans who were at risk of losing their homes to foreclosure. continued on page 9

Face the Future with Knowledge attend the 27 Annual Regional Conference of Mortgage Bankers Associations March 14 - 19, 2010 th

Trump Taj Mahal Casino Resort, Atlantic City, NJ

Nowhere to Go But Up

Industry Leaders Panels Part I: A Market Perspective from Seasoned Industry Leaders Part II: Recreating the Capital Markets (CMBS & CDO): A New Paradigm 12:15 – 1:45 p.m. Speaker Luncheon 2 – 5:30 p.m. How to Handle a Commercial Loan Portfolio in a Troubled Market 6 – 8 p.m. Networking Cocktail Reception Tuesday 9 – 10:30 a.m. Unlocking Pension Fund Capital 10:45 a.m. – 12 p.m. Lenders Panel 12 – 3 p.m. Commercial Property Exhibit Hall 12 – 2 p.m. Lunch in Exhibit Hall 3 – 5 p.m. How are the banks handling the current market issues? 7 – 9 p.m.

New for 2010! Opening Residential Networking Cocktail Reception in the Mark Etess Arena (Commercial Attendees Invited) Wednesday 9 a.m. – 12 p.m. General Session: The Mortgage Summit: Confront the New Decade with Advice from Respected Mortgage Professionals 12 – 5 p.m. Exhibit Hall Open 12 – 2 p.m. Lunch in the Exhibit Hall 1:45 – 3:15 p.m. Legends of Industry 3:15 – 4:30 p.m. Regulators Roundtable 6 – 8 p.m. Networking Cocktail Reception – Security Atlantic Thursday 9 a.m. – 3:15 p.m. Critical Issues Day 1:00 p.m. – 2:30 p.m. Luncheon with Speakers

For Registration and Exhibit Information visit


Dave Hershman is a leading author for the mortgage industry with eight books and several hundred articles to his credit. He is also head of OriginationPro Mortgage School and a top industry speaker. Dave’s Certified Mortgage Advisor Program can be found at If you would like to stay ahead of what is happening in the markets, visit for a free trial or e-mail

Monday 9 a.m. – 12 p.m. General Session


major event happens, all trends go out the window. Therefore, we enter the year 2010 with more potential for rates to rise than fall. Rates do not rise in a straight line, and that is what will contribute to volatility. We will continue to see the markets put pressure on rates when there is positive economic news and the Fed trying to beat rates back down so that the recovery does not end prematurely. How does this affect a person on the street? For one, act with a sense of urgency that you need to convey to your prospects. Anyone who is planning to purchase a home should take note of not only these low rates, but also lower home prices and a tax credit that will not last forever. We cannot tell you whether the tax credit will be extended again, but you should act as if there is no chance. Second, stay on top of the markets. If you blink, you could lose thousands of dollars with regard to your pipeline. We asked our expert analyst, Eric Holloman of RateLink, how their company accomplishes this for their clients. Eric said, “We formed RateLink almost two decades ago because we saw the pain suffered by loan officers and clients when the markets went haywire. With new technologies, keeping up is becoming easier. Now many of our clients have chosen to receive instantaneous text messages of market changes so that they can be completely mobile and still not be surprised. Others try to stay online when they are in their offices.” We had so many challenges in 2009. These include, lenders tightening up, home values falling, a spike in unemployment and more. Dealing with rising rates was not one of the challenges. Now, as we move into 2010, it is likely you will deal with this challenge as well. The question is, are you prepared? 

During the last two weeks of 2009, rates made a pretty significant move upward. We have been warning about potential regarding volatility with regard to the bond market. The past few months before the end of the year were void of this volatility. Despite this, the markets moving significantly should not have caught us by surprise. Many will say that there was very light volume in the markets during these two weeks. Certainly light volume can exacerbate tendencies toward volatility in the short run. However, even if rates move back down, we believe there is a lesson to be learned here. Rates have been at historic lows from late 2008 all through 2009. We know why this phenomenon occurred. The Federal Reserve Board lowered short-term rates and provided massive amounts of liquidity to the system in the face of the credit crisis. However, one should remember that the Fed controls short-term rates. Longterm rates, such as rates on home loans, are subject to the whims of the markets. The Fed even has played a strong hand in the long-end of the market by purchasing massive amounts of mortgagebacked securities (MBS) and Treasuries during 2009. We do know that the Fed cannot keep purchasing our debt forever. Eventually, their influence will wind down in this regard. Indeed it has already been reported that MBS purchases by the Fed have slowed down. When this influence is removed we will again be fully subject to the whims of the markets. So let’s go back to the bond market. As long as the economic news was bad, and it was for most of 2009, the markets stayed in line. But as soon as the news started getting better, there was less of a need for the markets to stay in line in this regard. Basically, when rates are at historic lows, there is nowhere to go but up. We are not saying the move we saw in the past few weeks represented a permanent turn in the market. But eventually that turn will take place. Outside another event that causes a turn for the worse with regard to the credit markets, the economy is on the mend. We always must account for such events—natural disasters, terrorist attacks, a foreign country defaulting on their debt or something else. Any time a

Sunday 7 – 9 p.m. Opening Networking Cocktail Reception


In an exclusive interview, David H. Stevens details the new RESPA rule, the role of the mortgage broker and what HUD and FHA are doing to bring stabilization to the mortgage and housing finance industry By Eric C. Peck



David H. Stevens


National Mortgage Professional Magazine recently had an opportunity to chat with David H. Stevens, Assistant Secretary for Housing at the U.S. Department of Housing & Urban Development (HUD), and 27th Commissioner of the Federal Housing Administration (FHA). Established in 1934, the FHA was designed to promote stability in the housing market by insuring fixed-rate mortgages for qualifying applicants. Commissioner Stevens is responsible for oversight and administration of the $600 billion FHA insurance portfolio. Today, nearly one in four new residential mortgages carries an FHA guarantee. Stevens also has responsibility for other programs within HUD, such as multifamily subsidized housing, healthcare facilities, and manufactured housing. HUD is the agency charged with administering and interpreting the Real Estate Settlement Procedures Act (RESPA). A graduate of the University of Colorado, Boulder, Stevens has a strong background in housing, including experience in finance, construction, sales, mortgage acquisition and investment, and regulatory oversight. He began his journey to HUD at the dining room table, where he listened to stories about the creation of FHA and other efforts to stabilize the housing market from his father, who started as a runner on Wall Street during the depression. The dining room table soon became the board room as Stevens started his professional career with a 16-year tenure at the World Savings Bank. He later held positions as senior vice president of

“Mortgage brokers play a very important role because they will reach into areas and serve communities where large institutions do not have the resources to do so.” single-family business at Freddie Mac, and then executive vice president, national wholesale manager at Wells Fargo. Prior to his nomination and confirmation as FHA Commissioner, Stevens was president and chief operating offi-

cer of Long and Foster Companies, which include Long and Foster Real Estate and its affiliated businesses, including mortgage, title insurance and home service connections. You have requested this interview in response to quotes attributed to you in an article that ran in the January 2010 edition of National Mortgage Professional Magazine on the RESPA rule titled, “A Walking Contradiction.” Before we begin, would you like to comment further on that story? The first committee to address the RESPA rule convened in 2005. From 2005 until the end of 2008 when the final rule was announced, there were multiple hearings, meetings with industry participants, members of Congress, and all stakeholders involved in the process were involved in working to create RESPA reform. There were quite a few comment periods during that time that culminated in that final rule. As part of one of my past roles, I was president of a large real estate firm that was a member of an association called RESPRO, the Real Estate Services Providers Council Inc., and one of the core items in the proposed RESPA rule we were concerned with was related to the required use provision. As a representative of RESPRO, I testified in a committee about the general confusion to the rule, but more specifically, about required use. The required use provision was ultimately struck from the rule, long before I was in discussion for the position of FHA Commissioner. We are at a time where the collective representatives in the mortgage finance sector have a pretty significant credibility issue as a result of the housing correction. The RESPA rule is used by both consumer groups and others concerned about consumer protection as an enhancement to con-

sumer protection, considering the fact that through the housing correction, many consumers claimed they were not knowledgeable of the programs they were getting and the fees they were charged, etc. The outcome is this current rule, which had 14 months notice and multiple years of planning, before it was implemented in the marketplace. My view as FHA Commissioner is that it is somewhat disingenuous of the industry to attack this particular rule after there was so much preparation, particularly after the housing crisis we just went through. Considering the RESPA rule has been in place for only a few weeks, have you seen much reaction to the rule as far as consumer and industry groups are concerned? The reaction has been mixed. This is a huge change for the industry. I’ve spent my entire professional career in the mortgage finance industry, in both the primary and secondary markets. A change like this does not come easy. To put it in perspective, the existing RESPA rule had been in effect for 14 years, and we were getting questions on that old RESPA rule up until the time when this new rule went into effect. The general sense about RESPA is that it is complex, and just like the old rule, I’m guessing there will be questions about what this rule covers and does not cover for years to come. So far, the implementation has gone as expected. We are doing extensive training and follow-ups with the industry, and there is clearly some confusion and implementation challenges, but these are the documents everyone uses to provide disclosure to consumers and manage the settlement process. The first few weeks, we are finding some gaps in the process and are looking at how it should be implemented, and are getting feedback from the larg-

er financial institutions and the settlement service companies.

“Having access to mortgage financing is a critical aspect of homeownership and mortgage brokers have clearly filled that need for decades.” Is there any sense of the timetable on whether changes should be made to either the new RESPA rule or the Good Faith Estimate (GFE)? There is no specific timetable, because we need to gauge how the implementation will go, as this is such a dramatic change to the disclosure process. We are getting a great deal of feedback from around the county, and are following up with members of the industry. In terms of when we would decide, if any, to make policy changes … at this point, we are not planning on making many. We’ll have a better idea after a few months pass, but its clearly still too early. As you know, we issued a statement that we weren’t going to enforce the RESPA rule for the first few months of the year. We want to get people out there using it. There are a lot of issues out there that have blown up. There are those out in the field using worksheets they are creating because they don’t want to get blocked out by the limitations on fee disclosures and fee assessments. We are working on providing guidance on that level. We have cases where loan officers are putting high fees on the GFE, because as per the rule, you could always lower the fee, not increase it. The transitioning to the new Good Faith Estimate (GFE) is well underway. Many originators have spent considerable time and expense ensuring compliance with the new RESPA reform rules. Because the new GFE does not provide certain information, some originators are resorting to “worksheets” to fill the void. For instance: the new GFE does not provide an esti-

There are good brokers and bad brokers. Just like the lenders that I have taken action against since I became FHA Commissioner, you have to eliminate the rogue behavior of an industry or the whole industry’s reputation will suffer from it.”

Concerning the new appraisal rules coming out of HUD, would you consider permitting a “blind ordering” so that any originator, no matter what channel of origination, can order the appraisal in an effort to accommodate the portability of an appraisal from lender to lender and save the consumer additional expenses? I do think the blind ordering of appraisals is the one thing that was the strongest piece of the Home Valuation Code of Conduct (HVCC) that everyone universally understands and agrees with … taking away the influence factor in the appraisal ordering is critical. We also believe that portability is important, so controlling the appraisal channel and having it directed is a concern to me because should that loan be

“There are over 900,000 people currently in trial modifications in the HAMP program … that’s 900,000 people who are not in foreclosure, but would have been otherwise.” Is the book of FHA loans in the past year performing well enough to be supported by the premiums in effect Jan. 1, 2010? FHA is required under the National Housing Act, and this is not an option, to maintain a two percent capital reserve ratio. That ratio has dropped below two percent as of year-end 2009. We don’t have an option and are working aggressively to get that reserve back up. We are obligated by law to get that reserve back up quickly. The purpose of the premium change is to do just that … get the reserves back up. I continue to reflect back when I started in the industry back when rates were in the 20 percent range and we actually filled out loan applications with a pen … I think the FHA premium was 3.8 percent back in the day. The move we made from one-andthree-quarters to two and a quarter, 50 basis points, is extraordinarily marginal in its impact to the consumer because it gets financed in as just a few dollars in the payment. Through our modeling exercises, it has a zero impact on production, in terms of impact to volume expectations. Its specifically in response to our legislative mandate to fund the two percent reserve. We are a not a private, independent bank, depository or supervised financial institution, so the use of the Troubled Asset Relief Program (TARP) and those type of options are not applicable. In terms of the mission that we serve, the thing we focus on with FHA and the changes we made were to make sure we didn’t impact our mission, in particular, core demographics that have depended on FHA for financing. So the changes made take that into context. There is also a focus on sustainability. To put it in perspective, when you get FICO scores below 580, the default rate gets extremely high. If you end continued on page 8


As a manager at World Savings, we rented caravans and loaded them with underwriters and originators, and drove to the properties that had been appraised over the previous month with loan files in hand, to evaluate the quality of loans we were doing. That focus on credit quality that Herb and Marion Sandler instilled in that company over the years is why Golden West was such a darling of Wall Street for decades. What I saw when things started to

Had the program continued without securitization, staying as a portfolio lender with the sizeable downpayments and a hands-on individual evaluation on the borrower or the property, do you feel pick-a-pay and option ARM products could have survived in today’s market? We have learned a lot of lessons from this housing correction. It is a whole new reference point for any analytic model on risk management that will ever be created going forward. Option ARMs will certainly be a part of that reference point, as will sub-prime loans, interest-only ARMs, even 30-year fixedrate mortgages run through Loan Prospector and Desktop Underwriter for the secondary market. I cannot really make a judgment. I know how that particular product behaved up until this correction. I think, going forward, that product, along with everything else introduced in the marketplace, will come with a whole new set of guidelines that will feel much more secure for the consumer.

turned down and the borrower wants to go somewhere else, do they need that appraisal at the next firm or do they need to pay a new appraisal fee? It continues to be an expensive way to complete the transaction. However we get there, I think the idea you presented is the kind of concept that we continue to talk about … how to make the appraisal stay and take away that influence factor, keep it arms-length, but also not make this another setback to the consumer who needs that appraisal and may need an appraisal for a different institution.


Is HUD committed to making the GFE distribution channel neutral so that no matter what channel originates the loan—banker, broker or other originator—that the consumer can compare “apples to apples?” It is. I know there has been cause for discussion, and I want to keep in mind that the rule was established in 2008,

World Savings Bank, a division of Golden West, started pick-a-pay loans shortly before your arrival in 1983. For over 20 years, this product performed well for Golden West. How did this product, one that worked so well for Golden West, become such a problematic issue for the industry? Do you feel that the misuse of the products we now call option ARMs comes from the lenders, loan officers or the borrowers? I worked for Golden West from 1983 until about 1998. It was a very different program back then because when it started, the loan required a substantial downpayment and there was no secondary financing on those loans. The borrower typically came in with a 25 percent downpayment on those loans. You were dealing with a different sort of clientele. At the institution I worked at, Golden West, all the loans were held in portfolio, so the entire credit risk and interest rate spectrum was held on balance sheets. The scrutiny on qualification and scrutiny on property value was infamous at World Savings, where we personally appraised every single property.

change began with the securitization of the program. When the securitization side was created, then you had a flow channel for it and the private label market began finding ways to credit enhance structures, get them rated, and there was a flow of capital toward the option ARM product improved dramatically. That is really what brought it out on Countrywide’s balance sheet, Washington Mutual, etc. and it became a broader vehicle used for mortgage finance. Then, what occurred was this incredible competition of getting lower teaser rates, so the spread between the teaser rate and the fully-indexed rate widened. New indexes were brought in, and they began tying them to LIBOR and Treasury Security indexes which had more volatility … appraisal control went completely by the wayside. I think the failed organizations that were selling the loans had no discipline around credit risk management or how to explain the product, which is very complicated to explain. It all ties into a product that was overly distributed with a lack of controls in place. 

mate for total cash the consumer needs at the actual closing itself. All you have is the total estimate of closing costs. The downpayment, seller or lender-paid closing costs are not accounted for, cannot be accounted for, and no estimate or articulation of options is provided. And the new GFE, though it is now three pages, does not provide sufficient information for a consumer to make an understandable comparison between different loan scenarios based, for the most part, on any other factor than costs. An unintended consequence of the new GFE may be this make-shift response on the part of originators to provide information that they consider necessary for a consumer to make an informed decision. Can you comment on HUD’s position with respect to these “worksheets,” and do you expect further revisions to the GFE to respond to this apparent need? Let’s remember what the purpose of the GFE is. It’s intended to allow consumers to shop for mortgage loans on an “apples-to-apples” basis. It makes it extremely difficult for consumers to do this comparison shopping if you include all of the estimated fees in their loan closing that are not associated with the loan itself. Having said that, there’s nothing to prevent a lender or broker from disclosing these other costs to the borrower. Again, the GFE is a shopping document for loan comparison and was never intended to be the primary document to disclose the required cash to close. We’ve heard a lot about the use of these worksheets and we believe they can, under certain circumstances, be legitimate if lenders and brokers use them when a casual shopper is looking for a simple rate and fee quote. But if originators are using these worksheets to do an end run around the new requirements, then we’ll have a big problem with their use. This shouldn’t be that difficult. The borrower applies for a mortgage and within three days, the originator provides the borrower a GFE. In short, our message to loan originators should be clear … use the new GFE.

before I was sworn in as FHA Commissioner, so the way various individuals in the practice, whether it be mortgage broker, mortgage banker, employee of a bank, loan originator, etc., have to disclose the way the fee structure is broken down does vary in the new forms. What is good about it for comparison shopping is they all total up at the end of the day in one column. Whether one is paid by YSPs or by points, the nice thing is you take the total boxes and add them up. To that extent, I think that is an improvement for the consumer, so they can see what the loan is costing them.


stevens clears the air



up putting out a program where one in four borrowers are modeled to go into default over time, that’s not a very responsible program. We tried to balance the two together. If you put down a big enough downpayment, a low FICO can work. The borrower still needs a 10 percent downpayment, and that is still, without question, very aggressive financing compared to what other capital is available in the market. All of this together, will help make sure the nation remains on track.


The mortgage broker has been portrayed as a major culprit in the mortgage mess by both the media and select legislators. How do you feel about that portrayal and how do you feel about the future role of the mortgage broker in getting our economy out of this mess? I shudder whenever I see someone point the finger of this housing problem at any one particular area of the market. At the end of the day, and I tell this to any audience I speak to, we are all responsible. Anybody in the mortgage and housing finance sector during this boom period and saw the type of financing that was going on, I don’t care whether they are a real estate agent; a mortgage broker or mortgage banker; a loan officer at a bank; people in the ratings industry; economists at virtually all the major banks and the GSEs who said there was no housing bubble; David Bach, who went around on speaking tours and had a number one best-seller with “The Automatic Millionaire,” saying to buy up real estate … everybody is responsible for this issue.

“There are certainly issues in getting the trial mods to permanent mods at the core focus of the Administration right now, and I am confident that we’ll see those numbers pick up significantly.”

At the end of the day, mortgage brokers are not, by any stretch, the culprits of the mortgage industry’s issues. Mortgage brokers play a very important role because they will reach into areas and serve communities where large institutions do not have the resources to do so. Having access to mortgage financing is a critical aspect of homeownership and mortgage brokers have clearly filled that need for decades. The key to all of this is responsibility. There are good brokers and bad brokers. Just like the lenders that I have taken action against since I became FHA Commissioner, you have to elimi-

continued from page 7

nate the rogue behavior of an industry or the whole industry’s reputation will suffer from it. I think that is the objective of the moves we are making. In a recent study conducted by Newsday, it was revealed that of every 10 homes sold on Long Island in the past nine months, eight of those homes started the foreclosure process. Out of those 10 homes, five of them eventually foreclosed. Looking forward, it looks like the housing market is continuing to spiral downward, foreclosures are on the rise and attempts at loan modifications are not working to the degree they were expected. What is HUD’s plan to get something in place and get it to work to stop this cycle? To put it into perspective, the three million goal for the Home Affordable Modification Program (HAMP) was over multiple years, as the program was initially announced. There are over 900,000 people currently in trial modifications in the HAMP program … that’s 900,000 people who are not in foreclosure, but would have been otherwise. That’s almost a million at this point. There are certainly issues in getting the trial mods to permanent mods at the core focus of the Administration right now, and I am confident that we’ll see those numbers pick up significantly. We are still running at about 25,000 homeowners entering trial modifications per week, and again, these are people who would be in foreclosure if that initiative wasn’t happening. This certainly does not cover the broad market, it covers a piece of the market, its part of this balanced recovery program that the Administration has instituted. At the FHA, which is not accounted for in HAMP, we did 460,000 loss mitigation actions last year which prevented foreclosures to a huge population. Buying mortgage-backed securities and having kept rates near five percent has put $10-$12 billion in the hands of consumers over the past year that they wouldn’t of had if the Fed hadn’t been buying mortgage-backed securities out of the marketplace. In my opinion, I don’t think the Administration is getting the credit it deserves for the programs … it is very difficult to create programs like this out of thin air. Quite frankly, the health of the bank stocks has been reflected and the huge mortgage years that these banks had is really as a result of the Administration’s policy helping to stabilize that market. Real foreclosures are still expected to remain relatively high, because we have a backlog. Any eco-

nomic profile will show that after a recession ends, you often have six to eight months of impacts to unemployment and the areas affected by unemployment until those bottom out. It’ll be a bumpy number of months before we are headed out of the woods from a recession standpoint, and the Administration is very focused on looking at new efforts to address some of the other concerns related to foreclosures. On Jan. 12, 2010, you announced an initiative focusing on mortgage companies with significant claim rates against the FHA mortgage insurance program. On Jan. 9, 2009, Phil Murray, HUD’s Deputy Assistant Secretary for Single Family Housing Programs, said to a meeting of the House Committee on Financial Services, that “FHA currently performs a quarterly analysis of the default and claim rate for each lender branch (approximately 25,000 branches), comparing it with average rates for all lenders located in each HUD field office jurisdiction. Those lenders with a relative compare ratio of greater than 200 percent are subject to proposed termination.” The new initiative, according to your recent announcement, is a new type of approach in which the HUD Office of Inspector General is focused on corporate offices rather than individual branch offices. Could you explain why this shift in focus? How long will this review take? The initiative Phil Murray referred to is FHA’s Credit Watch Termination Initiative. It gives FHA the ability to terminate a lender branch for poor performance. Since its inception in 1999, and through fiscal year 2009, FHA has terminated 401 lender branch offices. Every three months, FHA reviews the rate of defaults and claims on all FHAinsured, single-family mortgages. The review analyzes the performance of every participating mortgagee branch in each geographic area served by a HUD field office. This review is limited to endorsed loans, based on date of amortization, within the past two years. HUD’s regulations permit FHA to terminate our agreement with any mortgagee having a default and claim rate for loans endorsed within the preceding 24 months that exceeds 200 percent of the default and claim rate within that geographic area, as well as the national default and claim rate. Mortgagees whose default and claim rates exceed both the national and local rates are at-risk and may have their agreements terminated. The initiative announced recently by HUD’s Inspector General is a separate process to evaluate the compliance with FHA origination and underwriting guidelines by lenders at the institution level. The Inspector General has stated that this review is complimentary to

the process used by FHA’s staff, since the lenders selected for review are those lenders with significant default and claim activity. You would have to ask HUD’s Inspector General how his office selected the 15 lenders identified. Although a compare ratio of greater than 200, which reflects a mortgagee’s default and claims experience, can cause a mortgagee to be subject to termination of FHA approval authority, a significant percentage of FHA mortgagees have compare ratios in excess of 200. The recent probe into excessive defaults experience of 15 mortgagees seems to be just the tip of the iceberg, given the considerable percentage of mortgagees with defaults and claims, as reflected in their high compare ratios. Are there plans being developed to bring all mortgagees into compliance with HUD’s guidelines with respect to high compare ratios? FHA recently announced the expansion of the Credit Watch Termination Initiative to include direct endorsement lenders. Under this expansion of the program, FHA will systematically review the default and claim rates of all direct endorsement lenders and will exercise

“It’ll be a bumpy number of months before we are headed out of the woods from a recession standpoint, and the Administration is very focused on looking at new efforts to address some of the other concerns related to foreclosures.” its authority to terminate their underwriting authority at the institutional level should we discover excessive default and claim activity. Initially, FHA will focus its attention on those mortgagees showing particularly high default and claim rates, greater than 300 percent. But by the end of the year, FHA will exercise its termination option at the 200 percent level. To reduce overall defaults and claims, FHA uses a number of risk management tools to monitor the performance of poorly performing lenders. For example, the Post Endorsement Technical Review Process, Appraiser Watch Initiative, and ongoing Lender Monitoring Reviews all focus on evaluating the compliance of a lender with FHA origination and underwriting guidelines. Lenders are selected based on excessive default and claim rates, and/or program and loan level characteristics that demonstrate a higher risk to the FHA Insurance Fund. Lenders which are substantially out of compliance with FHA requirements face administrative action by HUD’s Mortgagee Review Board. And, as I’ve mentioned, FHA can also use the Credit Watch Termination Initiative to terminate a Direct Endorsement Lender, strictly for poor performance, by analyzing and comparing default and claim rates.

news flash

continued from page 4

The U.S. Department of the Treasury and the Department of Housing & Urban Development

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The Federal Trade Commission (FTC) has announced that it is lowering from $11 to $10.50 the maximum amount that con-

Administration report finds that more than 100,000 loan mods approved to date

continued on page 19

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FTC announces lower price cap for extra credit report copies and continued crackdown on mortgage relief scams

sumer reporting agencies are allowed to charge consumers for an extra copy of their credit report. FTC announced the reduction in the amount from 2009 to 2010 under the Fair Credit Reporting Act (FCRA), which requires the FTC each year to revise the cap originally set by statute based on the change in the Consumer Price Index. The fee is rounded to the nearest 50 cents. During this time of economic distress, the FTC reminds consumers that this charge does not apply to the first free copy of their credit report that consumers are entitled to request from each of the nationwide consumer reporting companies—Equifax, Experian and TransUnion—once every 12 months through For details, see “Your Access to Free Credit Reports” at Consumers are also entitled to a free report when a company takes adverse action against them (such as denying an application for credit, insurance, or employment) within 60 days of receiving notice of the action. In addition, consumers are entitled to one free report a year if they are unemployed and plan to look for a job within 60 days; they are on welfare; or their report is inaccurate because of fraud, including identity theft. The $10.50 charge applies when a consumer who has received a free annual credit report does not otherwise qualify for an additional free report. As part of its crackdown on mortgage scams, the FTC has charged three more defendants with promoting phony mortgage relief services. According to court papers, the three defendants were part of an operation that falsely claimed that, in exchange for upfront fees ranging from $299 to $699, it would get consumers’ mortgages modified, lowering their monthly mortgage payments. The defendants also misrepresented themselves as consumers’ mortgage lenders or servicers or their affiliates, in violation of the FTC Act and the Telemarketing Sales Rule. Even though some consumers did receive offers to modify their loans, the offers were not much more affordable than their original payments, the Commission charged. In fact, some of the modification offers required even higher monthly payments. The FTC added April Botton Krawiecki, her father, Samy Botton, and Attorney Aid, LLC to the list of defendants in one of the operations targeted in the crackdown, known as Operation Stolen Hope. The Commission initially charged Kirkland Young LLC and David Botton (Samy Botton’s son) with deceptively marketing mortgage relief services. A federal court subsequently froze their assets and halted the operation until the case is resolved. For more information, visit

gram—the temporary review period extends until Jan. 31, 2010. “HUD will continue to work with our Administration partners and utilize our broad network of housing counseling agencies to increase the number of borrowers receiving sustainable and affordable modifications under HAMP,” said HUD Senior Advisor for Mortgage Finance William Apgar. HAMP was designed to offer up to three to four million homeowners reduced monthly mortgage payments that are affordable and sustainable over the long-term, over the life of the program. Currently, several million homeowners are estimated to be eligible for the program and more than one million have already received modification offers. At this pace, the program is on track to meet the goals that President Obama laid out in announcing the Homeowner Affordability and Stability Plan. This Plan included several housing initiatives beyond mortgage modifications, including broad support for Fannie Mae and Freddie Mac to keep interest rates low and facilitate mortgage affordability across the market, increased flexibilities for Fannie Mae and Freddie Mac in refinancing mortgages to provide homeowners with lower monthly payments, tax credits to support development of affordable housing, and support to state and local housing finance agencies. In just the first year, the Administration has launched all of these critical initiatives. As part of an ongoing commitment to 

HomEq is a participant in the federal Home Affordable Modification Program (HAMP). According to the lawsuit filed in Montgomery County Common Pleas Court, Ohio homeowners in need of loan modifications through HomEq to save their homes from foreclosure were forced to enter into one-sided agreements. The unfair and deceptive agreements released HomEq of all liabilities and required borrowers to waive their rights to defenses and agree to pay additional fees. Additionally, the lawsuit alleges that HomEq violated Ohio’s Consumer Sales Practices Act (CSPA) through incompetent and inefficient customer service by failing to return consumer calls or respond to repeated inquiries, losing borrowers’ documents and failing to offer timely and affordable loss mitigation options. “There has been ample time for loan servicers to strengthen their efforts and start making a significant difference in preventing home foreclosures,” said AG Cordray. “Unfortunately, many servicers have instead repeatedly chosen to aggravate the crisis through noncompliance and excuses. As I see it, for every excuse, hundreds of families become more vulnerable to losing their homes. In Ohio, we have zero tolerance for any more excuses.” The lawsuit seeks a permanent injunction from the continuation of unfair and deceptive loan modification practices as well as consumer restitution, civil penalties and damages. HomEq services more than 10,000 subprime loans in Ohio and became a HAMP participant in August. According to the December Servicer Performance Report issued by the U.S. Treasury, it is one of the lowest performing servicers in terms of loan modifications initiated. The lawsuit against HomEq marks the third filed by Cordray against a loan servicer operating in Ohio. In July, Cordray became the first state attorney general to file a lawsuit against a servicer for CSPA violations. That lawsuit, filed against Carrington Mortgage Services, is pending in the Franklin County Court of Common Pleas. Carrington recently issued its third, 60-day moratorium on home foreclosures in response to the lawsuit. On Nov. 5, 2009, Cordray filed a lawsuit against American Home Mortgage Servicing Inc. for numerous CSPA violations including issuing unfair or deceptive loan modifications to Ohioans. For more information, visit

(HUD) have released an update on the Administration’s aggressive nationwide campaign to help borrowers in the trial phase of their modified mortgages convert to permanent modifications under the Home Affordable Modification Program (HAMP). The new December data demonstrates that there has been a significant acceleration in the rate at which borrowers are being approved for permanent modifications. As of December, more than 100,000 permanent modifications have been approved, including 66,000 that borrowers have accepted and the remainder awaiting only the borrower’s signature. Under HAMP, more than 850,000 homeowners have had a median payment reduction exceeding $500. “The Treasury is committed to working with servicers and borrowers to sustain this improved pace,” said Chief of the Treasury’s Homeownership Preservation Office (HPO) Phyllis Caldwell. The Administration has taken a number of steps to assist servicers in ramping up to give eligible homeowners the opportunity to participate in HAMP. Administration representatives were recently on-site in servicer offices to ensure that servicers increased efforts to deliver decisions to borrowers in trial modifications who had submitted all of their documents and to obtain any missing documents from borrowers. The Administration also implemented a temporary review period to ensure that all borrowers are being fairly evaluated for the pro-

©2010 Inlanta Mortgage



Are Interest-Only ARMs Dead? I’m sure you’ve heard that incredulous gasp or moment of silence on the other end of the phone when you tell someone that they might benefit by considering an interest-only adjustable-rate mortgage (ARM). It’s as if the very mention of an interest-only ARM places you in a category of being, “One of THOSE”—a big bad mortgage broker who singlehandedly caused the whole housing, financial and economic crisis. So, I have two questions for you: 1. What role, if any, do interest-only ARMs have for today’s borrower? 2. If they do have a role, what is the most effective way to present this option to clients, prospects, and refer-

ral partners without looking and sounding like a lunatic?

The case of the missing $100,000 Consider a situation where a client has a 4.5 percent, $200,000, 15-year mortgage on a home that would be worth $500,000 under normal market conditions. The client wants to buy a new home immediately. They want to take advantage of the $6,500 long-time resident tax credit; they want to participate in the Fed’s $1.25 trillion mortgage rate subsidy; they want to get a fantastic deal on the purchase of a new home given the low housing values and buyer’s market.

However, due to the foreclosures and distressed sales in their neighborhood, they could only get $400,000 if they sold their current home today. If they wait a few years, the neighborhood values should recover to the point where they could get $500,000 for the house and pocket an extra $100,000. However, they don’t want to wait a few years to buy a new place. What, if anything can be done for these people?? Assume they could qualify for two mortgages, the one on the old home, while they keep it and wait for home values to recover, and a new mortgage on the new home that they purchase. Here’s a strategy that could make a lot of sense: 




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In spite of the brilliance of this strategy, you may be wondering, “How in the world do you get a client with a 720 credit score, who has never paid points in their life, to pay four points plus closing costs?” In this example, the four points plus about $2,500 in closing costs would total $13,700. This is a large sum of money to ask a borrower to pay— especially if they are used to getting “no cost loans” and/or not paying points. The best way to illustrate this for clients is to frame it in the context of an investment:

“Mister or Missus Client, this strategy involves your making an upfront investment of $13,700. You are not making this investment out of pocket; it is “It’s as if the very being taken out of the loan Keep the old home mention of an interamount. In other words, and turn it into a est-only ARM places it’s like a no-money-down rental, charging just you in a category of investment—it’s all being enough rent to cover being, ‘One of financed for you. So, the expenses. THOSE’—a big bad main question we need to Refinance the $200,000, 15-year mortgage on mortgage broker who answer here is: ‘What is the singlehandedly rate of return on this the old home into a 70 caused the whole investment?’ If the rate of LTV non-owner-occureturn is attractive to you, pied $280,000, sevenhousing, financial this investment opportuniyear interest-only mort- and economic crisis.” ty would be very worthgage. The borrower while and we should would need to pay move forward. If the rate about four points plus closing costs to get a 4.5 percent inter- of return is unattractive, pass on this est rate. They would walk away with opportunity and find another use for about $66,000 in net cash-out pro- your $13,700. Now, assume that this ceeds that would be used as a down- strategy allows you to sell the home in five years for $500,000 instead of sellpayment on the new home. The monthly payment on the $280,000, ing the home today for $400,000. This seven-year, interest-only mortgage means that we are paying $13,700 would be $1,050, compared the client’s today, in order to end up with an extra current $1,530 monthly payment with $100,000 in five years. The rate of their 15-year mortgage. The client saves return on your investment in that sce$480/month in cash flow—which nario would be 48.81 percent annually. means they can charge below market In other words, Mister or Missus Client, rent on that property and still break if you are happy earning 48.81 percent even. This will result in finding a tenant per year on a $13,700 investment, it more quickly, and avoiding the nega- would make perfect sense for you to tive cash flow associated with having implement the strategy that I have outlined here.” the property stay vacant. The client can sell the old home at Wow!! any time within the next seven years Can you imagine the impact you once market values recover. At that time, they will pocket the $100,000 would have if you were able to have they would have lost had they sold this type of a conversation with a the home today instead of refinanc- client? I’ve got to tell you, this is much ing into the interest only mortgage strategy outlined above. continued on page 13

We are the lender, and final decision maker, not a broker. WE ARE NOT CREDIT SCORE DRIVEN, We look for loans that improve a clients situation, in fact we recently increased our funding capacity. No Credit Score Minimum -- NO DOC and STATED Welcome In Certain Situations! Residential & Commercial Loan Amounts $100,000 to $2,000,000 Debt Consolidation, Foreclosure and Bankruptcy Buy-Out First and Second Trust Mortgages

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1.Loan must show tangible net benefit to borrower 2.Borrower must demonstrate some capacity to repay 3.Is the appraisal accurate? We are going to verify, not low ball your appraisal. 

• • • • •


For more information on the National Association of Mortgage Brokers, visit

The Importance of Participation: NAMB Seeks Strength in Numbers in D.C.



A Message From NAMB President Jim Pair, CMC


If you have not yet registered for the 2010 National Association of Mortgage Brokers Legislative & Regulatory Conference, it is not too late to do so. The conference is scheduled for Saturday-Wednesday, Feb. 21-24 in Washington, D.C., and is set to be one of the most vital conferences of the decade. There are many issues currently in the legislative and regulatory arena that have a direct impact on the mortgage broker profession. Congress and the regulators are still debating financial reform, the Federal Reserve proposed rule, the ongoing debate over the new Good Faith Estimate (GFE) and proposed changes by the Federal Housing Administration (FHA). It is important that we all be in Washington, D.C. this year to inform our legislators and regulators on the important role the mortgage broker plays in providing the best and most competitive channel of origination for the consumer. You, as a mortgage broker, provide a valuable service to the consumer that the retail channel cannot touch. This will be the most important conference for you to attend in 2010. It will be the very best investment you will make as you develop your business plan for 2010. The conference will be packed with speakers who influence the decisions made in our industry, and you will be updated on the current status of the major issues our industry faces. We must all come together to ensure our industry will survive the assaults that are being made on our industry. If you have not registered, go to and click on the “NAMB 2010 Legislative & Regulatory Conference” link. There is one more step you can take to support our industry. I am sure you know a mortgage broker in your community that is not a member of your state or national association. Pick up the phone now and call that person and make an appointment to discuss the benefits and the importance of being a member and the necessity of banding together to protect the industry that means so much to all of us and the consumer. The most effective way to recruit someone is not by a phone call or e-mail, but a personal visit and a personal invitation to join. The upcoming Legislative & Regulatory Conference gives you an important message to share and the opportunity to explain the importance of everyone participating and working together to protect our industry. I challenge each one of you to go out and sign up one

Don’t Miss Out on What This Conference Has to Offer “If you can only attend one national meeting this year, make it the NAMB 2010 Legislative & Regulatory Conference. It is a greatopportunity to meet with fellow NAMB members and work together to formulate NAMB’s policy agenda.” —Don Fader, CRMS

Be prepared to go to the Hill! Includes Advocacy 101 training: General synopsis and "Question & Answer" on the best ways to communicate NAMB's talking points with your congressmen in an effective manner.

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Confirmed Luncheon Keynote Speaker: FHA COMMISSIONER DAVID STEVENS

new person to become a member and attend the conference. If we all did this, just think of the impact we would make as we meet in D.C. I look forward to seeing you in Washington in February. Jim Pair, CMC is with Mortgage Associates Corpus Christi and is president of the National Association of Mortgage Brokers. He may be reached by e-mail at

Certification? Certainly! Trust and Integrity

A Message From NAMB Certifications Committee Chair Pava J. Leyrer, CMC, CRMS Mention the word “mortgage broker,” “bank” or “lender” and many people today cringe. Most are not even sure why because what they hear has not really been their experience with a home loan. How did an industry that dominated the finance arena become such huge targets for every housing issue in the past few years? I believe it has to do with two simple words that pack a tremendous amount of value and definition in them: “Trust” and “Integrity.” I have always taken pride in those phrases and have even put them above financial gain and prestige as many of you have done as well. Unfortunately, when money can be made, people of lesser values make things difficult both in life and in business. Proving your integrity is not a written document, it is the action behind your words. It is taking the extra step in your professional career, going the “extra mile” for a customer, or assisting a business partner when you do not have to. The National Association of Mortgage Brokers has always been a leader in this area by creating a true certification program which requires knowledge, experience and professionalism before any formal, national licensing. NAMB listened and has created the Lending Integrity Seal of Approval for the benefit of its members to set NAMB mortgage professionals apart from the crowd. The collective actions of a profession can reflect upon you, and how you respond personally can determine how you succeed in your business. It isn’t easy for consumers to see and find integrity today, but you can reflect the difference with actions and knowledge by remaining an NAMB member and renewing or obtaining a certification today. The accomplishment will always be yours and the recognition is easily shared with all. Pava J. Leyrer, CMC, CRMS, is president and owner of Heritage National Mortgage Corporation in Grandville, Mich., and Certifications Committee chair for the National Association of Mortgage Brokers. She may be reached by phone at (616) 534-4993 or e-mail

How to Compete With Google for the New GFE Rate Shoppers A message from NAMB Communications Committee Co-Chair Mark Madsen According to their company overview, Google’s mission is “To organize the world’s information and make it universally accessible and useful.” With a commitment to provide its users with the most relevant search results in the shortest amount of time, Google’s new Mortgage Rate Quote

Comparison Ad Campaign appears to be well-positioned (pun intended) in light of the new Good Faith Estimate (GFE), encouraging borrowers to shop interest rates. Since Google has the proven ability to simplify complex concepts, mortgage originators will have to get serious about education and communication in order to compete with the commoditization of mortgage rates. There are several online mortgage video communities and mortgage blog networks that have risen to the challenge of helping loan originators provide valuable consumer-focused educational information so that their clients can see the bigger picture of what’s really involved in a successful mortgage transaction. While mortgage brokers adjust to new legislation, certification requirements and underwriting procedures, it is important to remember to view the home loan process from our clients’ perspective. A borrower’s need to feel like they’re getting the best deal on a loan program is simple human nature, and something that mortgage professionals should empathize with as we accommodate multiple requests for closing cost scenarios. Instead of worrying what Google says about rates at any particular moment, take this new GFE as an opportunity to regularly inform your clients about the economic and political factors that impact markets. If you’re concerned about what your potential clients might find online, try contributing a series of articles to your agents’ Web sites or blogs that their viewers can read while they’re still looking for properties. By building trust and authority with people ahead of time, it will be easier to get their full attention and respect when the rate debate topic comes up. Loan officers know that rates change several times throughout the day, but we forget that the typical homebuyer doesn’t live and breathe mortgage-backed securities (MBS) charts on a regular basis. An educated borrower is better for our agents, underwriters and the overall stability of our communities. To get started, search for “GFE Webinars” online for a list of resources and videos that can help you get a better grasp of how to explain these new changes to your clients and referral partners. Mark Madsen is the communications manager for Raintree Mortgage, a Las Vegasbased mortgage brokerage and serves as co-chair of the NAMB Communications Committee. He can may be reached by e-mail at


continued from page 10

focused on helping you make 2010 your best year ever, using killer strategies and scripts like the ones outlined above—not only with interest-only ARMs, but also with “plain vanilla” fixed-rate loans and other strategies. For more info, call the CMPS Institute at (888) 608-9800.


Visit author Gibran Nicholas’s blog at where he shares his insights on economics, real estate and financial issues, including the current mortgage and credit crises.


Gibran Nicholas is the founder and chairman of the CMPS Institute, which administers the Certified Mortgage Planning Specialist (CMPS) designation. The CMPS Institute has enrolled more than 5,500 members since its founding in 2005. Gibran is also the chairman of Published Daily, a customizable online magazine, newsletter and marketing service that helps professionals transform their clients and prospects into a referral-generating sales force. He may be reached at (888) 608-9800, ext. 101 or e-mail 

more invigorating than haggling with people over 1/8th of a point in interest rate or a $100 difference in appraisal fee versus the mortgage company next door. What makes you different than the competition is that you focus on the overall mortgage and housing strategy and what the strategy can do for the client’s life. In this case, the strategy involves a seven-year, interest-only ARM with a whopping $13,700 in fees. The result is an extra $100,000 in your client’s pocket over a five-year timeframe. What can they do with an extra $100,000? Anything! They could use the $100,000 to send their kids to a better college without getting too far into debt; they could use the funds to help care for elderly parents, retire earlier, buy a boat or a car, or make some home improvements … the list is endless. The bottom line here is that yes, interest-only ARMs do play a role for today’s borrower; and yes, you can effectively present this option to clients, prospects and referral partners without looking and sounding like a lunatic. In fact, Certified Mortgage Planning Specialist (CMPS) certification is


By Jonathan Foxx



There’s a new sheriff in town


There’s a new sheriff in town. It’s about time and none too soon! These folks mean business! The U.S. Department of Housing & Urban Development (HUD) is determined to move forward with strong actions to reduce defaults and claims that are dragging down the Federal Housing Administration (FHA) mortgage insurance program. Guided by the firm resolve of its new HUD Secretary, Shaun Donovan, and FHA Commissioner, David H. Stevens, new ways and means are being implemented to put FHA’s future on a much stronger foundation. The FHA capital reserve ratio, which measures reserves held in excess of those needed to cover projected losses over the next 30 years, has fallen below the congressionally-mandated two percent threshold to 0.53 percent.1 To give some sense of the steepness of this decline, at the end of 2007, the ratio was at 6.4 percent and at the end of 2008, it was at three percent and, at that time, forecasted to fluctuate through 2015 between 2.8 and 2.9 percent—with only a worst case scenario leading to a ratio below two percent.2 Obviously, the worst case scenario has arrived! FHA currently has $31 billion in total reserves, triple in size from last year, due to taking on more risk as private industry sources for financing has dissipated. This amounts to 4.5 percent of total insurance-in-force. But with mortgage defaults at an all-time high, and other dispositive factors, FHA’s capital reserve ratio is now at 0.53 percent3—the lowest in history. Clearly, the day of reckoning is here.4 HUD’s Secretary Shaun Donovan and FHA Commissioner David H. Stevens have said there will be no request for congressional action to subsidize the rapidly depleting fund, even though under normal economic scenarios the ratio might rise to only 1.1 percent in fiscal 2010, but could dip to -1.03 percent if there is a significant drop in mortgage rates that cuts into premium revenue. 5 But, let us be clear: If FHA’s cash reserves are exhausted, the federal government would immediately use taxpayer money to cover the losses, which would be the first time ever of a “bailout” for the FHA insurance program. FHA moved forward in the last quarter of 2009 with plans to limit risk by bringing on its first chief risk officer, Robert Ryan, and sought to implement certain risk management methodologies, including revisions to seller-

financed downpayment assistance, through Mortgagee Letters and the Rule Making Process, such as:6 Enacted via Mortgagee Letter, effective Jan. 1, 2010:  Require submission of audited financial statements by supervised mortgagees  Modify procedures for streamline refinance transactions  Require appraiser independence in loan origination  Modify appraisal validity period  Enable appraisal portability Pursued by rule-making process:  Modify mortgagee approval and participation in FHA loan origination  Increase net worth requirements for mortgagees It should be mentioned, importantly, that without the seller-financed downpayment assistance loans—which began in 1999 and had grown to over 35 percent of all FHA-insured home purchase loans by FY 20077—the capital reserve ratio for 2009 would have been two percent8—right at the threshold. The FHA has pointed out that the actuarial review also showed that it has $31 billion in total reserves and, given the increased growth in 2009, that amount represents a 4.5 percent total reserve ratio on its total insurance-in-force, as indicated above. Under FHA’s “Base Case” scenario,9 the FHA maintains that it can cover projected claims on outstanding loans, with a $3.6 billion cushion. Nevertheless, the capital reserve ratio, which is the measure of excess reserves beyond the forecasted net claim costs on outstanding loans, is 0.53 percent. Further impact on the capital reserves caused by other scenarios—such as a “Deeper Recession” than expected, “Up Rate Shock,” “Down Rate Shock,” “Higher Loss Severity,” “Second Severe Recession” and “Depression”—would obviously lead to further depletion of capital reserves.10

Risks and reforms I have mentioned, in part, some actions that the FHA has been taking to manage its risk in order to rebalance its insurance program and gradually bring it back to, and perhaps exceed the mandatory two percent threshold. The significant increase in its portfolio virtually demands an immediate and forceful response. Let’s take a brief look at other remedies and reforms. In response to the portfolio’s growth, FHA is focusing on risk management throughout the agency, not only hiring Robert Ryan, as indicated above, but also by increasing staffing and technical capacity, and implementing new technology systems.11 To handle the threat of sub-prime lenders to using FHA as its “fallout” loan type, FHA has steeply increased enforcement, such as its suspension of Taylor,

Bean & Whitaker Mortgage Corporation, the recent actions against Lend America, the increased funding for fraud tools, and promulgating policy changes affecting counterparty risk and credit risk management.12 FHA will institute measures to mitigate economic decline beyond the aforementioned “Base Case” scenario, by continuously monitoring of delinquency, default and economic conditions with improved data mining, tightening rules for appraisals, streamlining refinances and lender approvals, reducing cash take-out allowances on reverse mortgages, and adding FHA-HAMP to the loss mitigation program to prevent foreclosure.13 Finally, FHA will respond to borrower payment and default patterns that are significantly different in the current environment from their historic patterns, by monitoring changes in default patterns and net claim costs closely, and being prepared to respond quickly to any significant deviations from forecasts.14 But will all these remedies be enough to forestall a continuing decline of the capital reserves?

The perfect storm








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The single most important metric to identify poor performance with respect to defaults and claims is the statistic called the “compare ratio.” Derived from the vast data in HUD’s Neighborhood Watch—an “Early Warning System” that is part of HUD’s “Credit Watch/Termination” initiative—this ratio provides a lender’s percentage of originations which are currently in default or were “claim terminated” divided by the percent of originations which are currently in default or were claim terminated for the selected geographic area.24 The compare ratio is the value that reveals the largest discrepancies between the lender’s default and claim percentage and the default and claim percentage to which it is being compared.25 The period bracketed to produce the ratio is the first two years after settlement. A higher ratio is indicative of an area (or lender) that has an unusually high default percentage in comparison with that region or lender’s surrounding area. For example, if a lender has an eight percent default rate in California and four percent of all California loans defaulted, then the lender’s compare ratio equals 200 percent.26 The comparative metric uses performance data of various geographic



Going after excessive default lenders

continued on page 17 

FHA insures 30 percent of all home purchase loans today and nearly half of those for first-time homebuyers;15 however, there is a rising tide of loans that are in default. About 9.1 percent of FHA borrowers are in default, having missed at least three payments as of December 2009, a statistic that has gone up from 6.5 percent a year ago—which is a 40 percent increase in this statistic in one year.16 Although the FHA expects the tidal wave of defaults to gradually abate over time, assuming perhaps an “Earlier Recovery” scenario,17 there are signs that the reduction in real estate values may also be contributing to the growing defaults and claims debacle. New research shows that a borrower starts to consider walking away from the mortgage when the home value falls below 75 percent of the amount owed on the mortgage.18 And, it should be noted, an estimated 4.5 million homeowners had reached this “tipping point” by the third quarter of 200919—with projections of 5.1 million homeowners at this 75 percent exiting point by June 2010, equaling approximately 10 percent of all residential mortgages.20 FHA lenders who originated FHA loans in 2007 and 2008 believe that, although they abided by HUD’s own product and underwriting guidelines at the time, those very same loans have become slow-paying technical defaults,21 and eventually, are leading to claims against the insurance fund. Generally, it takes a two- to threeyear timeframe after settlement for loans to begin to fail, so the existing onslaught of such loans is obviously being exacerbated by the current financial crisis. It should come as no surprise, then, that HUD is finding high default rates on lenders that simply originated FHA loans in accordance with HUD’s own guidelines. HUD’s stated policy is to terminate a mortgagee’s FHA approval if a lender has excessive defaults and claims, and is seeking legislative authority to increase enforcement to withdraw both originating and underwriting approval from an FHA lender nationwide on the basis of the performance of its regional branches.22 Indeed, HUD will now “systematically review all Direct Endorsement (DE) underwriting mortgagees’ defaults (loans 90 or more days’ delinquent) and claim rates on loans during the initial 24 months from the date of the commencement of the amortization.” And, at its option, HUD will “exercise its authority to terminate the underwriting authority of DE mortgagees with excessive default and claim rates.”23 How long HUD lets a lender with high defaults go on underwriting loans, without taking such actions, is HUD’s determination to make. There are unintended consequences caused by these measures taken against a lender with high defaults, because its investors also ascertain the high default rates associated with a specific lender, and, even if HUD has not yet terminated its relationship with the lender, or terminated the lender’s underwriting authority, the investors often preemptively react by withdrawing their funding, which thereby imperils the lender’s ability to originate new loans. The overall effects are to chill the market, reduce competitive pricing, leave otherwise competent and capable lenders with no financing outlets, and ultimately, deprive the consumer of the kind of local, responsible lender that may know them best. Sometimes, in going after the worst practitioners, some of the best ones may be caught in a regulator’s net. Given the financial crisis and its effect on consumer and lender alike, HUD’s daunting task is to be sure that it acts with fairness, resolve, and foresight.

areas, thereby comparing the performance of a particular lender to loan originations by nationwide, Home Ownership Centers (HOC), states, HUD’s Field Offices, Metropolitan Statistical Area (MSA), counties, cities, and zip codes. A higher ratio indicates an area (or lender) that has an unusually high default percentage in comparison with that region or lender’s surrounding area.27 For quite some time, the originating branch offices of a lender within a HUD office’s jurisdiction with a compare ratio exceeding 200 percent have been at risk of receiving a proposed termination letter from HUD.28 (To date, the special HOPE for Homeowners Program has not been included in HUD’s performance analysis of a lender’s compare ratio with respect to the CreditWatch/Termination initiative.)29 HUD has continued to make strenuous efforts to address deficiencies in the mortgagee’s performance.30 On Jan. 9, 2009, Phillip Murray, HUD’s Deputy Assistant Secretary for Single Family Housing Programs, said to a meeting of the House Committee on Financial Services, that “FHA currently performs a quarterly analysis of the default and claim rate for each lender branch (approximately 25,000 branches), comparing it with average rates for all lenders located in each HUD field office jurisdiction. Those lenders with a relative compare ratio of greater than 200 percent are subject to proposed termination.”31 According to FHA Commissioner Stevens’ recent announcement, on Jan. 20, 2010, FHA now seeks “maximum flexibility” to establish separate “areas” for purposes of review and termination under the Credit Watch initiative.32 The expanded authority permits FHA to withdraw originating and underwriting approval for a lender, nationwide, on the basis of the performance of its regional branches. On Jan. 21, 2010 FHA implemented this policy in a Mortgagee Letter, effective on that date. Previously, HUD exercised its authority to terminate only the loan origination approval authority of a mortgagee. Now, HUD will “systematically review all Direct Endorsement (DE) underwriting mortgagees’ defaults (loans 90 or more days’ delinquent) and claim rates on loans during the initial 24 months from the date of the commencement of the amortization. HUD, “at its option, will exercise its authority to terminate the underwriting authority (Authority) of DE mortgagees with excessive default and claim rates.”33 The compare ratio is one of HUD’s most powerful tools to identify the lenders with excessive defaults and claim rates. Every three months, HUD now plans to review the compare ratio of an FHA lender within the geographic area of the lender’s field office and, allowing for mitigating factors,34 will determine if the


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the future of fha

continued from page 15

lender’s underwriting approval will be terminated on the basis of particularly high rates of defaults and claims. The following table outlines the timeframe and termination thresholds:35

24-Month Period Ending Date

Termination Threshold

December 31, 2009


June 30, 2010


December 31, 2010


By Tommy A. Duncan, CMT

Underwriting termination may occur if a lender’s compare ratio exceeds both the national rate and 300 percent of the Field Office rate, as of Dec. 31, 2009. Using the same comparative statistics, underwriting termination may occur if a lender’s compare ratio is 250 percent through June 30, 2010, and 200 percent through Dec. 31, 2010. After Dec. 31, 2010, the compare ratio will remain constant at 200 percent of the field office default and claim rate. Using 2009 year-end data, approximately 10 percent of the mortgagees listed in Neighborhood Watch have compare ratios of 200 percent or more.36 These lenders will be compared to their field office default and claim rate as well, with lenders that exceed the compare ratio threshold now subject to underwriting termination.37

Get down on it! Reducing excessive defaults and claims … So, what actions can a lender take to bring down the compare ratio, the specific adverse performance experience statistic, before HUD takes administrative action against it? Or, at least, what can be offered to endeavor to dissuade HUD from terminating a lender’s underwriting approval if the compare ratio is too high?38 In response to this crisis of excessive defaults and claims, my firm, Lenders Compliance Group, developed a methodology to reduce the compare ratio gradually over time. We organized our Compare Ratio Task Force (CRTF) and staffed it in order to work closely with high compare ratio lenders, not only to bring down their defaults and claims rates but also to guide them in implementing ways and means to avoid this problem in the future. The CRTF is a process that stays involved with a lender’s on-going compare ratio performance every single month. I will provide an overview of the Compare Ratio Task Force, in order to demonstrate one viable approach to reducing excessive defaults and claims. We have found that this methodology is effective and it has been designed to comply with the requirements of federal and state banking laws.

Step 1: Borrower eligibility review Conduct a comprehensive review of existing defaults and claims for loss mitigation and loan modification eligibility. The lender gives us the list of all loans causing the high compare ratio and we administer a review, using documentation or LOS information. We utilize specially designed checklists and an automated application that looks at a wide variety of data fields, to determine the borrower’s eligibility for loss mitigation or a particular loan modification program.

Step 3: Notify borrower of possible eligibility Lenders may choose two options at this point: (1) They may send a letter to the borrowers, notifying them about their loss mitigation eligibility, or (2) Call the borrower directly to discuss loss mitigation. Some lenders, in fact, prefer to send out to the borrowers a rather generic letter about possible loss mitigation eligibility in an effort to get them to call. Those borrowers who call back the lender, then, go through our Step 1 screening procedures.

continued on page 18

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Step 4: Refer eligible borrower to counsel As a risk management firm, we have access to and use preferred legal counsel to assure nationwide coverage and representation for our clients. But not just any attorney can properly handle loan modification work. Many attorneys have jumped into the loan modification practice in the last two years, but only a few really know what they’re doing. Extensive expertise is needed to achieve an opportunity for a positive outcome. Consequently, we review and approve all outside legal counsel and our own firm’s lawyers determine the selected attorney’s competency to handle loss mitigation and loan modification strategies.

Tommy A. Duncan, CMT is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 591-2528 or e-mail You may also visit Quality Mortgage Services LLC on the Web at


Step 2: Notify lender of borrower eligibility We notify the lender of a borrower’s eligibility for one or more loss mitigation resolutions. Of course, we also indicate which loans are unlikely to be eligible for loss mitigation. 

Compare Ratio Task Force (CRTF): Seven step process to reduce high compare ratios

The State of the Union Address is complete, and the President of the United States (POTUS) has given his marching orders. The government is now moving forward with the POTUS’s marching orders. The Federal Housing Administration (FHA) has announced a nine percent increase in default loans and a number of respectable lenders are being identified with high number of default loans. The U.S. Department of Housing & Urban Development (HUD) is applying pressure on these lenders for possible repurchase or indemnifications of the defaulted loans. It is difficult to say if some of these loans have questionable underwriting decisions or errors without having a look at them, but I suspect the high volume in default loans is a direct result of job loss and the declining economy. The FHA recently announced an increase in mortgage insurance and predicts that FHA volumes will decrease in 2010 and 2011. It appears to me an FHA loan product would be the product of choice during these difficult economic times. What is interesting, FHA is experiencing higher volumes of default loans and having to deal with the responsibility of loans gone bad. Will FHA change its underwriting requirements to a standard that the government-sponsored enterprises (GSEs) have in order to survive the storm? Can FHA or GSEs begin an insurability risk analysis of careers or jobs that have a higher probability of risk that will affect lending decisions? Banks do it all the time. Ask someone who has been denied a loan to help start a business. It is very clear that HUD and FHA are taking measures to survive the future. I agree that there will be an increase in default loans, both governmental and non-governmental, because of the economy. What correspondents and mortgagees need to do is to have a plan to reduce risk by increasing quality control policies and procedures, use more solid underwriting judgment when approving funding of loans, put thorough pre-funding fraud detection tools in place and have a solid quality control staff that can handle repurchase claims or indemnification letters. Don’t be naive and think that default claims will not happen to you. It is happening already and it is taking loan operations by surprise. FHA is preparing for the worst-case scenarios with the economy. Correspondents and mortgagees need to do the same. Quality Mortgage Services (QMS) is equipped with staff to handle default audits. QMS is also equipped with the Mortgage Analysis Review Software (MARS) available for lease or purchase for those in-house QC operations. My recommendation is to plan and prepare for the default claim letters and to have an outside QC company that is skilled in auditing files that can defend your loan.


the future of fha

continued from page 17

Step 5: Monitoring the process The length of time to effectuate a loan modification pursuant to various loss mitigation guidelines can take three to six months. It is critical that the process be monitored objectively to ensure that the legal work is getting done and the application process is reaching timely completion. Step 6: Contact with servicer Substantive, time-sensitive reporting requirements are associated with reducing high compare ratios. For example, the servicer reporting when a trial modification has commenced, reporting payments during the trial period, and reporting when the permanent modification has occurred. This data must be entered in a timely manner into HUD’s database in order for the compare ratio statistic to be credible and current. Unless the permanent modification is reported, the compare ratio is not appropriately adjusted in HUD’s Neighborhood Watch. Step 7: On-going review As old defaults are reduced and the compare ratio gradually declines, new defaults and claims may be added. The two year timeframe continually moves forward, each month, and the compare ratio is recalculated for all defaults and claims that are added or remain. The best time to begin work on a default is as soon as a lender discovers it in Neighborhood Watch. Consequently, the sooner we get involved in implementing the Compare Ratio Task Force program, the more opportunity there is to make sure the compare ratio is not adversely affected.



“There is an immeasurable distance between late and too late”—Og Mandino


HUD will permit loans that closed or were approved before termination to be submitted for insurance endorsement, but cases at earlier stages of processing cannot be submitted for insurance by the terminated mortgagee (though they can be transferred to an approved mortgagee). Loan correspondents with a terminated mortgagee will have only 30 days to establish a new relationship with an approved sponsor and, failing that, will find their own FHA approval terminated. A terminated mortgagee may request to have its authority reinstated no earlier than six months after the effective date of the termination and only after HUD’s Secretary determines that the underlying causes for the termination have been remedied.39 The termination of the authority to underwrite FHA-insured single family loans can devastate a lender. Waiting too long to resolve high compare ratios will surely lead to drastic consequences. If a lender has a high compare ratio and takes no action whatsoever to reduce its defaults and claims rate, it has passively placed itself in a position to be terminated. With affirmative and deliberate action, even though the process to reduce the high compare ratio takes place over several months, at least the lender can demonstrate to HUD its commitment to bring down its defaults and claims. Notwithstanding a lender’s high compare ratio, it is at HUD’s option to decide if a lender will be terminated. If a lender does nothing at all to reduce the rate of its defaults and claims, it may leave HUD no option but to terminate it. Jonathan Foxx, former chief compliance officer for two of the country’s top publiclytraded residential mortgage loan originators, is the president and managing director of Lenders Compliance Group, a mortgage risk management firm devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or by e-mail at For more information on author Jonathan Foxx, visit Lenders Compliance Group on the Web at

Footnotes 1—Prepared Remarks by David H. Stevens, Assistant Secretary for Housing and FHA Commissioner at the Exchequer Club, Washington, D.C., Wednesday, Jan. 20, 2010. 2—“FHA Insurance Fund Has Fallen 39 Percent,” Washington Post, By Dina ElBoghdady, Dec. 3, 2008, sourcing an audit by Integrated Financial Engineering of Rockville, Md.; “FHA Reserve Ratio Falls to 0.53 Percent, Lowest in History,” Bloomberg News, By Dawn Kopecki, Nov. 12, 2009. 3—Based on amortized loan balances, as of Sept. 30, 2009, see FHA Annual Management Report, Fiscal Year 2009, inter alia, p. 96, U.S. Department of Housing & Urban Development. Available in the Reports section of our Web site’s Library ( 4—The findings come as part of FHA’s annual independent actuarial study and reflect FHA’s status at the end of its fiscal year 2009, which concluded in September 2009. Pursuant to the Cranston-Gonzales National Affordable Housing Act of 1990, FHA’s Mutual Mortgage Insurance Fund must maintain sufficient capital to sustain a moderate recession, pegged at two percent. The Housing and Economic Recovery Act of 2008 (HERA) mandated the Secretary to submit an annual independent actuarial study to calculate this ratio.

5—Op. cit., 2, Bloomberg News. 6—“HUD Secretary, FHA Commissioner, Report on FHA’s Finances,” HUD No. 09214, Nov. 12, 2009. 7—FHA Fiscal Year 2009 Actuarial Review Briefing, Nov. 12, 2009, p. 112. U.S. Department of Housing and Urban Development. Available in the Reports section of our Web site’s Library ( 8—Op. cit., 7, p. 24. 9—Op. cit., 7, p. 8, “Peak-to-trough house price decline of 14 percent in the Federal Housing Finance Agency index. Includes an 8.6 percent decline from mid2009 to mid-2010.” 10—Op. cit., 7, p. 8, p10: “Deeper Recession” is total peak-to-trough decline equivalent to a 27 percent decline in the Case-Shiller. 11—Op. cit., 7, p. 28. 12—Op. cit., 7, p. 29. 13—Op. cit., 7, p. 31. 14—Op. cit., 7, p. 32. 15—FY 2011Budget, p. 4, Feb. 1, 2010, U.S. Department of Housing & Urban Development. 16—“Rising FHA default rate foreshadows a crush of foreclosures,” Washington Post, By Dina ElBoghdady and Dan Keating, Feb. 2, 2010. 17—Op. cit., 7, p. 8: “Earlier Recovery” presumes that the national housing market is now finding its trough, and that there will be no further home price declines in 2010. 18—“No Help in Sight, More Homeowners Walk Away,” by David Streitfeld, New York Times, Feb. 2, 2010. 19—Ibid. 20—Statistics on this trend can be found in The Negative Equity Report, Nov. 24, 2009, First American CoreLogic. 21—HUD defines a defaulted loan as one which evidences the inability to make timely monthly mortgage payments or otherwise comply with mortgage terms. A loan is considered in default when payment has not been paid after 60 to 90 days. The period used is the first 24 months after endorsement. 22—“FHA Announces Policy Changes to Address Risk and Strengthen Finances,” HUD No. 10-016, Jan. 20, 2010. 23—“Mortgagee Approval for Single Family Programs: Extended Procedures for Terminating Underwriting Authority,” Mortgagee Letter 2010-03, Jan. 21, 2010. 24—Data can be analyzed by three general categories: lender, location, and product type. The public can access the compare ratio and other data by visiting HUD’s Neighborhood Watch at 25—Neighborhood Watch/Early Warning System—Definitions and Explanations. 26—Ibid., FAQs. 27—“Neighborhood Watch provides loan performance data via the FHA Connection HUD,” Mortgagee Letter 00-20, June 2, 2000, FAQs, p. 2. 28—“Mortgagee Approval for Single Family Programs: Elimination of Placement on Credit Watch Status—Superseding the references to Credit Watch in Mortgagee Letter 99-15,” Mortgagee Letter 99-15, Oct. 12, 2001. 29—“HOPE for Homeowners Program: Comprehensive Guidance,” Mortgagee Letter 09-23, Oct. 20, 2009. 30—For example, as provided in the HUD mortgagee approval regulations at 24 CFR 202.3. And, proposed rule revisions on April 1, 2003, at 68 CFR 15906, published as an interim rule on Dec. 17, 2004, effective Jan. 18, 2005; and the final rule that took effect on March 1, 2006. 31—“FHA Oversight of Loan Originators,” Prepared Statement of Phillip Murray, Deputy Assistant Secretary for Single Family Housing Programs, U.S. Department of Housing & Urban Development, Meeting of the Committee on Financial Services United States House of Representatives, Jan. 9, 2009, p. 4. 32—Op. cit., 22. 33—“Mortgagee Approval for Single Family Programs: Extended Procedures for Terminating Underwriting Authority,” Mortgagee Letter 10-03, Jan. 21, 2010. 34—Such as analyses of loans in terms of underserved versus served census tracts, compared to the performance in the Field Office average for similar loans. 35—Op. cit., 33, p. 2. 36—As of Dec. 31, 2009, there were approximate 3000 FHA mortgagees listed and given compare ratios in Neighborhood Watch, of which approximately 308 have compare ratios of 200 percent or more on a nationwide basis. 37—The recent probe into the excessive claims rates of 15 mortgagees seems to be just the tip of the iceberg, given the considerable percentage of mortgagees with defaults and claims, as reflected in their high compare ratios. See: “HUD Inspector General Probes Mortgage Companies with Significant Claim Rates,” HUD. No. 10-005, Jan. 12, 2010. 38—There is an Appeal Process, which permits a mortgagee to request an informal conference within 30 calendar days of the date of receipt of the proposed termination notice. 39—Op. cit., 33, pp 3-4. To remedy, the lender must obtain an independent review, conducted by a CPA, of the terminated areas operation—identifying the underlying cause for the mortgagee’s high default and claim rate. The mortgagee must also submit a written corrective action plan to address each of the issues identified in the CPA’s report, along with evidence that the plan has been implemented. HUD may also impose additional requirements for reinstatement.

news flash

continued from page 9

continuously provide greater transparency in all of the Administration’s financial stability efforts, the December report includes several new measurements including a breakdown of permanent modification characteristics. These characteristics include predominant hardship reasons and monthly payment savings. For more information, visit www.

MBA study shows narrowing in profit margins for independent mortgage bankers and subsidiaries

1. Go to 2. Pick a low fixed rate for your borrower 3. Enjoy an easy closing, and then relax!

HUD probes companies with significant claim rates

continued on page 20

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U.S. Department of Housing & Urban Development (HUD) Inspector General Kenneth M. Donohue and Federal Housing Administration


 82 percent of the firms in the study posted pre-tax net financial profits in the third quarter 2009. In the second quarter 2009, 96 percent of the companies posted profits.  The average production volume for each firm was $189.6 million in the third quarter 2009, compared to $280.9 million in the second quarter 2009.  The share of refinancings to total originations for this sample dropped to 44 percent in the third quarter 2009, from 62 percent in the second quarter 2009. This share was still higher than the 32 percent for the third quarter 2008.  Average pull-through (the number of closings divided by the number of loan applications) was relatively constant at 72 percent in the third quarter 2009 from 73 percent in the second quarter 2009.  Mortgage banking production profits were 50.03 basis points, or $902 per loan. These profits declined over the previous quarter when profits averaged 71.29 basis points, or $1,358 per loan.

MBA’s Quarterly Mortgage Bankers Performance Report replaces the former MBA Cost Study series. The report offers a variety of performance measures on the mortgage banking industry and is intended as a financial and operational benchmark for independent mortgage companies, bank subsidiaries and other non-depository institutions. Seventy-three percent of the 306 companies that reported production data for this report were independent mortgage banking companies. The underlying company data are derived from the quarterly Mortgage Bankers Financial Reporting “WebMB” Form. Through a joint agreement with the Mortgage Bankers Association, Fannie Mae, Freddie Mac and Ginnie Mae, the form and the definitions were recently revised. The revised form was used starting in the third quarter of 2008. For more information, visit www. 

Independent mortgage bankers and subsidiaries made an average profit of $902 on each loan they originated in the third quarter of 2009, according to the Mortgage Bankers Association (MBA). This profit marks a decrease from the second quarter of 2009 when profits averaged $1,358 per loan, according to the MBA’s most recent Quarterly Mortgage Bankers Performance Report. This report measures the performance of independent mortgage bankers and subsidiaries of banks, thrifts and hedge funds. “Production profits were still healthy in the third quarter of 2009, although not at the same level that we saw in the second quarter,” said Marina Walsh, MBA’s associate vice president of industry analysis. “For lenders in our study, average production volume dropped 33 percent in the third quarter 2009, along with a drop in the refinancing share of total originations. The overall decline in production volume combined with a heavier purchase share resulted in higher perloan production expenses, which pulled down production profits.” Among the principal findings of the MBA report are:

 The “net cost to originate” rose to $1,950 per loan in the third quarter 2009, from $1,295 per loan in the second quarter 2009. The “net cost to originate” includes all production operating expenses and commissions minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums and warehouse interest spread.  Production operating expenses—commissions, compensation, occupancy and equipment, and other production expenses and corporate allocations— rose to $4,376 per loan in the third quarter 2009 compared to $3,581 per loan in the second quarter 2009.  For firms specifically in the retail channel, closings per sales employee per month averaged 6.7 closings in the third quarter, from 11.0 closings in the second quarter. Net production income dropped to 54 basis points in the third quarter from 73 basis points in the second quarter.  Net warehousing income, which represents the net interest spread between the mortgage rate on a loan and the interest paid on a warehouse line of credit, rose slightly to 6.67 basis points in the third quarter 2009, compared to 5.19 basis points in the second quarter of 2009.  Net servicing income of these independent mortgage companies and subsidiaries was unchanged at $41 per loan serviced in the third quarter 2009.


news flash

continued from page 19

(FHA) Commissioner David H. Stevens have announced an initiative focusing on mortgage companies with significant claim rates against the Federal Housing Administration mortgage insurance program. HUD Office of Inspector General (OIG) subpoenas were served to the corporate offices of 15 mortgage companies across the country demanding documents and data related to failed loans which resulted in claims paid out by the FHA mortgage insurance fund.

“The goal of this initiative is to determine why there is such a high rate of defaults and claims with these companies and whether there is wrongdoing involved,” said Inspector General Donohue. “We aren’t making any accusations at this time, we have no evidence of wrongdoing, but we will aggressively pursue indicators of fraud. We are members of the President’s Financial Fraud Enforcement Task Force and today’s activities reflect our commitment to seeking information on red flags that may arise from data analysis.:

This initiative was prompted, in part, by FHA Commissioner David Stevens who was alarmed by the incidence of claims against the FHA insurance fund by a number of poor performing companies and reached out to the HUD OIG for assistance. “We are taking risk management extremely seriously,” said FHA Commissioner David Stevens. “In addition to the policy changes we are implementing and additional changes we plan to announce later this month, we need to hold FHA lenders accountable for the high rates of defaults and claims against FHA. The Inspector General’s initiative will help us determine whether there is fraud and better manage risk in the long run.”

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Contact us today to learn more. 1. Borrowers must be at least 62 years or older. Prior Wells Fargo Home Mortgage review and broker approval are required to originate FHA loans. Additional approval requirements apply to originate reverse mortgages. Please contact Wells Fargo Wholesale Lending for details. This information is for use by mortgage professionals only and should not be distributed to or used by consumers or other third parties. Information is accurate as of date of printing and is subject to change without notice. Wells Fargo Home Mortgage is a division of Wells Fargo Bank, N.A. © 2009 Wells Fargo Bank, N.A. All rights reserved. #68212 12/09-3/10

The HUD OIG identified these direct endorsement companies from an analysis of loan data focusing on companies with a significant number of claims, a certain loan underwriting volume, a high ratio of defaults and claims compared to the national average, and claims that occurred earlier in the life of the mortgage. These are key indicators of problems at the origination or underwriting stages. The HUD OIG wants to see why these loans failed. Some actions available to the HUD OIG are audits, investigations, and inspections and evaluations. In addition, we rely on the support of the Department of Justice (DOJ), and of State and local law enforcement. The DOJ is available to pursue both civil and criminal legal actions against wrongdoers. HUD is available to proceed with administrative sanctions such as suspensions, limited denial of participation, debarment, and civil monetary penalties. The probe will be conducted by the HUD OIG’s Audit and Investigation staff jointly. They will assess why these companies have high default rates, especially at this unprecedented time when the FHA mortgage insurance program represents such a significant percentage of mortgages currently in force in our country. This probe is a new type of approach in which HUD OIG is focused on corporate offices rather than individual branch offices. This is a starting point for more detailed reviews if abuses are uncovered, and the HUD OIG anticipates that more probes may follow. “The FHA market share has skyrocketed,” said Inspector General Donohue. “Our job is oversight. We work for the American taxpayer. Each loan on this list will be thoroughly examined and we will track down the reasons why it failed. Once we determine the causes, we will look to see whether there is a need for further review or remedial action. We want to send a message to the industry that as the mortgage landscape has shifted we are watching very carefully and that we are poised to take action against bad performers.” The following companies were served OIG subpoenas: 1st Advantage Mortgage of Lombard, Ill.; Alacrity Financial Services LLC of Southlake, Texas; Alethes LLC of Lakeway, Texas; American Sterling Bank of Independence, Mo.; Americare Investment Group Inc. of Arlington, Texas; Assurity Financial Services LLC of Englewood, Colo.; Birmingham Bancorp Mortgage Corporation of West Bloomfield, Mich.; D & R Mortgage Corporation of Farmington, Mich.; Dell Franklin Financial LLC of Columbia, Md.; First Tennessee Bank N.A. of Memphis, Tenn.; Mac-Clair Mortgage Corporation of Flint, Mich.; Pine State Mortgage Corporation of Atlanta; Security Atlantic Mortgage Company of Edison, N.J.; Sterling National Mortgage Company Inc. of Great Neck, N.Y.; and Webster Bank of Cheshire, Conn. For more information, visit

RealtyTrac report shows record 2.8 million U.S. properties with foreclosure filings in 2009

continued on page 26

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The Federal Financial Institutions Examination Council (FFIEC), on behalf of its members, has released proposed guidance on reverse mortgage products. The guidance is designed to help financial institutions ensure that their risk management and consumer protection practices adequately address the compliance and reputation risks raised by reverse mortgage lending. The proposed guidance addresses the general features of reverse mortgage products, relevant legal requirements and consumer protection concerns raised by reverse mortgages. The proposed guidance focuses on the

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RealtyTrac, an online marketplace for foreclosure properties, has released its Year-End 2009 Foreclosure Market Report, which shows a total of 3,957,643 foreclosure filings—default notices, scheduled foreclosure auctions and bank repossessions—were reported on 2,824,674 U.S. properties in 2009, a 21 percent increase in total properties from 2008 and a 120 percent increase in total properties from 2007. The report also shows that 2.21 percent of all U.S. housing units (one in 45) received at least one foreclosure filing during the year, up from 1.84 percent in 2008, 1.03 percent in 2007 and 0.58 percent in 2006. Foreclosure filings were reported on 349,519 U.S. properties in December, a 14 percent jump from the previous month and a 15 percent increase from December 2008—when a similar monthly jump in foreclosure activity occurred. Despite the increase in December, foreclosure activity in the fourth quarter decreased 7 percent from the third quarter, although it was still up 18 percent from the fourth quarter of 2008. “As bad as the 2009 numbers are, they probably would have been worse if not for legislative and industry-related delays in processing delinquent loans,” said James J. Saccacio, chief executive officer of RealtyTrac. “After peaking in July with over 361,000 homes receiving a foreclosure notice, we saw four straight monthly decreases driven primarily by short-term factors: trial loan modifications, state legislation extending the foreclosure process and an overwhelming volume of inventory clogging the foreclosure pipeline. Despite all the delays, foreclosure activity still hit a record high for our report in 2009, capped off by a substantial increase in December. In the long term a massive supply of delinquent loans continues to loom over the housing market, and many of those delinquencies will end up in the foreclosure process in 2010 and beyond as lenders gradually work their way through the backlog.” More than 10 percent of Nevada housing units received at least one foreclosure filing in 2009, giving it the nation’s highest state foreclosure rate for the third consecutive year. Nevada foreclosure activity in December increased 27 percent from the previous month but was still down 22 percent from December 2008. Fourth quarter foreclosure activity in Nevada was down 37 percent from the previous quarter thanks to substantial decreases in October and November. Arizona registered the nation’s second highest state foreclosure rate in 2009, with more than 6 percent of its housing units receiving at least one foreclosure filing during the year, and Florida registered the nation’s third

highest foreclosure rate, with 5.93 percent of its housing units receiving at least one foreclosure filing during the year. Other states with 2009 foreclosure rates ranking among the nation’s 10 highest were California (4.75 percent), Utah (2.93 percent), Idaho (2.72 percent), Georgia (2.68 percent), Michigan (2.61 percent), Illinois (2.50 percent), and Colorado (2.37 percent). Four states accounted for more than 50 percent of the nation’s 2009 total, with more than 1.4 million properties receiving a foreclosure filing in California, Florida, Arizona and Illinois combined. A total of 632,573 California properties received a foreclosure filing in 2009, the nation’s largest state foreclosure activity total and an increase of nearly 21 percent from 2008. After four straight month-over-month declines, California foreclosure activity in December increased nearly nine percent from the previous month, but the state’s fourth quarter foreclosure activity was still down 17 percent from the previous quarter. Florida posted the nation’s second largest total, with 516,711 properties receiving a foreclosure filing in 2009—a 34 percent increase from 2008. The state’s fourth quarter foreclosure activity was down nearly nine percent from the previous quarter despite a four percent monthly increase in foreclosure activity in December. Arizona foreclosure activity in December spiked 40 percent from the previous month, helping the state post the third largest foreclosure activity total for the year. A total of 163,210 Arizona properties received a foreclosure filing in 2009, a nearly 40 percent increase from 2008. A total of 131,132 Illinois properties received a foreclosure filing in 2009, the nation’s fourth largest total and an increase of nearly 32 percent 2008. The state’s fourth quarter foreclosure activity increased nearly 29 percent from the previous quarter, and the state’s December foreclosure activity was up nearly nine percent from the previous month. For more information, visit


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Be prepared to go to the Hill! Includes Advocacy 101 training: General synopsis and "Question & Answer" on the best ways to communicate NAMB's talking points with your congressmen in an effective manner.

It’s all happening now! Visit for details! Confirmed Luncheon Keynote Speaker: FHA COMMISSIONER DAVID STEVENS

The First HECM Loan Officer Robert W. Evans Jr. also serves as a First is whoever closes and funds first, and Robert W. Evans Jr. got there first. The director on the board of the U.S. State more than half a million Home Equity Department International Visitors Conversion Mortgages (HECMs) that have Council of Kansas City, and he is the been closed and funded since 1989 United States Honorary Consul of the began with the one he wrote for then 79- Republic of Chile. Below is the reflecyear-old Marjorie Mason of Fairway, Kan. tion of the first HECM loan officer in Evans remembers Mason as a very American mortgage history. sharp and sensible woman You have the distinction and widow who fully of being the first loan understood the cost-beneofficer to originate an fit of reverse mortgages HECM loan in U.S. reverse and the “architecture of the mortgage history. How HECM program” before she was the experience for sat down with him to take your customer, Ms. the HECM application that Mason, and for you? would become the first At the time Ms. Mason closed and funded HECM applied for her reverse mortloan in American mortgage gage, she did not know her history on Oct. 19, 1989. adjustable-rate loan closing Mason died a few years “In 1989, Ms. Mason would become an industry ago and the well-kept home that supported the sought out information first, not only for HUD and Fannie Mae, but for me as loan has since been sold, about how reverse well. She viewed her reverse but he remembers that mortgages would mortgage loan application first HECM customer very impact her home as the answer to her specific fondly, the way some finances. Her major need for additional income would remember their concern was how she to maintain her financial first date: “She liked the would meet growing independence in her own non-monthly payment homeowner costs and home. In 1989, Ms. Mason feature, understood comother expenses on her sought out information pound interest, and realized that if she goes into a limited fixed-income.” about how reverse mortnursing home, the gov- —Robert W. Evans Jr., gages would impact her home finances. Her major ernment will put a lien on Managing Director, concern was how she would her home. And she wantReverse Ultra, meet growing homeowner ed to travel and to meet Kansas City, Mo. costs and other expenses on other living expenses.” her limited fixed-income. By the time he wrote She was a single woman, living alone in the Mason HECM loan, Robert W. Evans, managing director of Reverse Ultra a well-kept home. She had always main(Kansas City, Mo.), a national reverse tained her property in good condition. Her mortgage banking firm, had been in concern was to keep ahead of the maintecommunity mortgage lending for a few nance curve and to keep from going into years. In more than 24 years in commu- debt. Ms. Mason was used to being in connity lending, he has held various posi- trol of her finances and found that the tions, including RTC underwriter, com- HUD reverse mortgage was a viable option pliance agent for state-sponsored first- for her. It did not matter to her that she was time homebuyer programs, and a U.S. one of the first applicants for the HECM, Department of Housing & Urban rather, she was grateful for the program Development (HUD) Direct Endorsement continued on page 25 Underwriter.



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Flagstar announces capital infusion of $300 million and two new corporate additions


Flagstar Bancorp Inc., the holding company of Flagstar Bank, has announced that the company has raised $300 million of capital through a previously announced rights offering, which closes on Feb. 8, 2010. In addition, Flagstar has announced that Todd McGowan has joined as chief risk officer and that James A. Ovenden has been elected to the board of directors and appointed to its audit committee. The company also announced that it has entered into agreements with the Office of Thrift Supervision (OTS) to address certain banking issues identified by the OTS. MP Thrift Investments LP, Flagstar’s controlling stockholder, has purchased 422,535,212 shares of the company’s common stock for approximately $300 million through the exercise of rights it received under the rights offering. MP Thrift still holds additional rights to purchase approximately 140,827,288 shares of the common stock. This investment was made under the Company’s previously announced rights offering of up to 704,234,180 shares of its common stock. Pursuant to the rights offering, each shareholder of record as of Dec. 24, 2009 received, at no charge, 1.5023 non transferable subscription rights for each share of common stock owned on the record date. Each right entitles the holder to purchase one share of common stock at the subscription price of $0.71 per whole share. “We believe this investment by MP Thrift reflects continuing confidence in the Bank franchise as well as in our executive management team,” said Joseph P. Campanelli, chairman and chief executive officer of Flagstar Bank. “With a solid capital position, we will be better able to execute on our business plan.” Todd McGowan joins the company as its chief risk officer after 22 years at Deloitte Touche, where he last served as its regional quality risk management partner and advised companies in areas including enterprise risk management, business process controls, and Sarbanes-Oxley compliance. James Ovenden has over 25 years of financial management and business

advisory experience and is currently chief financial officer of AstenJohnson Holdings Ltd., a manufacturer of paper machine clothing, specialty fabrics, filaments and drainage equipment. ”We are pleased to welcome Todd McGowan and Jim Ovenden to Flagstar. Jim brings a wealth of experience and a fresh perspective to our board’s already broad base of talent,” said Campanelli. “The addition of Todd is another in a line of seasoned executive leaders that we have been able to recruit or retain. Collectively, the management team brings together many years of banking experience in operational efficiencies and business turnarounds and is wellpositioned to execute on our overall strategy.” The company and the bank said they have also each entered into a Supervisory Agreement with the OTS. Copies of the agreements and brief descriptions of each are contained in a Form 8-K being filed by the company with the Securities and Exchange Commission (SEC). “We have developed a sound business plan that should not only stabilize Flagstar, but maximize the value of its franchise and position the Bank for growth,” said Campanelli. “The board has approved the business plan, which allows us to diversify our revenue streams, grow our market share and create long-term stakeholder value. We have reviewed the business plan with our regulators and we do not believe that the Supervisory Agreements will materially constrain our ability to execute. With the management team in place, we believe we are poised to move forward with the additional capital in an environment in which capital is king.” For more information, visit

Total Mortgage Services receives Full-Eagle approval for FHA mortgages

Total Mortgage Services LLC has announced that it has received approval from the U.S Department of Housing & Urban Development (HUD) continued on page 29

FHA Responds to Short Payoffs and Delays Appraisal Rules On Dec. 16, 2009, the Federal Housing Administration (FHA) published Mortgagee Letter 09-52, which issued guides for mortgage originators in circumstances where borrowers receive a short payoff from their current lender on either a sale or a refinance. Here is a summary of the five things you need to know about these changes: 1. Changes are effective as of Dec. 16, 2009. 2. Borrowers are not eligible for new FHA financing if they pursued a short sale only in order to take advantage of the declining market and acquire a similar or superior property within reasonable commuting distance. 3. Borrowers whose mortgage was in preforeclosure status at the time of the short sale are not eligible for FHA financing for three years, unless they qualify for an exception (see 4155.1, 4.C.2.1). 4. Borrowers are eligible for new FHA financing if they had 0x30 on the mortgage in the last 12 months, and the proceeds from the short sale serve as payment in full. 5. On an FHA refinance, borrowers are eligible if the current lender chooses to write down the mortgage due to declining values or reduction in income. As of the writing of this article, there is a lack of clarity on how to underwrite according to these guides. By the time it goes to print, FHA may have already published a clarification. If you read these guides carefully, it opens up a lot of questions. Now, bear in mind that sometimes FHA purposely writes their policy in a vague manner in order to give latitude to Direct Endorsement (DE) Underwriters to make a decision on the loan. And sometimes … well, frankly … they confuse everyone, even people at the U.S. Department of Housing & Urban Development (HUD). In item two above, it states that “Borrowers are not eligible for new FHA financing if they pursued a short sale only in order to take advantage of the declining market and acquire a similar or superior property within reasonable commuting distance.” How exactly will an underwriter prove that

a borrower “took advantage?” I can see it now: A new loan application form titled the “Take Advantage of the Declining Market to Get a Similar or Superior Home with a Lower Payment Affidavit.” And, in a case where the borrower has a perfect credit history and they buy a home within “reasonable commuting distance,” are they eligible or not? Given the FHA’s policy until now, it would seem that they would be eligible if it is the lender’s decision to write down the mortgage and offer a short payoff. And what about a case where a family was growing, really needed a bigger home, liked the neighborhood and the schools, and sold their home qualified for a short sale? Their initial intention is clearly not to “Take Advantage” of the market, but to buy a home that meets their family’s needs. And what about a person who had perfect credit, sold with a short sale, rented an apartment for six months, and then wanted to buy a buy home with FHA financing? Would they also be denied? When someone has good credit, how much time will need to pass after a short sale before they can get FHA financing? I contacted HUD on this issue and their response was this: “The criteria that must be met is separate in terms of eligibility for being current versus the reason(s) for pursuing a short sale.” I clarified this with them and their statement means that if a person receives a short payoff on a sale (lenders’ decision remember) they cannot purchase a house in the same neighborhood or within reasonable commuting distance. Only if they maintained their credit and are buying outside the commuting area would they be eligible for FHA financing. I encourage you to call HUD yourself and see what answer you get at (800) CALL-FHA. FHA’s underwriting criteria has always been focused on the borrower’s “ability and willingness” to pay back debt, and in my opinion, a borrower should not be barred from FHA financing because a lender makes a financial decision to accept less than they are owed on a loan. If FHA will allow a short refinance for certain reasons, then they should give eligicontinued on page 28

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offering and felt confident about her application knowing that HUD and Fannie Mae supported the product. I believe that the mortgage loan application and closing process was a good experience for her. It just made sense to her. My experience as loan officer in the nation’s first FHA reverse mortgage was very positive. Before reverse mortgages, I worked with various “community-specific” mortgage loan products. As compliance agent for our community’s first-time homebuyer program, I worked closely and continuously with state housing organizations and bond issuers. From this background, I realized the importance of partnerships with local, state, and federal housing organizations for the overall success of this product. And I believe each community has a stake in the financial health of their senior homeowners, and they benefit from every closed reverse mortgage.

does. Here are some lessons I have learned about the market, seniors, and the business:  No borrower should execute a reverse mortgage without careful consideration and counseling as to their own need and how the reverse mortgage would satisfy that need over time. The process of counseling and need assessment may be one of the last few opportunities a borrower and their family and advisors have to bring these very important issues to the table.

 The senior homeowner has an expressed financial need and is faced with multiple economic, family and other social concerns, some occurring the same time. When a borrower first learns of the benefits of the product offering, he may not be at a point of executing an application. Some event on a future timeline may occur, triggering the need to apply. The experienced loan counselor understands this and recognizes the importance of the borrower’s timeline.  A reverse mortgage is designed to meet the borrower’s financial needs on an immediate, short-term, and intermediate situation, as well as on a long-term basis. Even though the reverse mortgage can be used for

short-term borrowing, its benefits are usually best leveraged when considered for long-term borrowing needs. What are the prospects and the challenges you see in the industry and why? One of the biggest challenges facing today’s reverse mortgage retail market is property valuation. The reverse mortgage market is not immune to the nationwide decline in the housing prices and is deeply affected by declining markets resulting in lower than expected appraised values. To what extent property valuations will be influenced by the rise in both foreclosure and unemployment is yet to be determined. But it is clear that both challenge the continued on page 28

How did you find Ms. Mason or how did she find you? Ms. Mason was referred to me by the local Area Agency on Aging.

positioned to continue its prominence in the industry. Since we are a leading FHA endorsed direct leader, we offer in-house underwriting as well as the option to broker. This allows for faster approvals, common-sense underwriting and timely closings. We are actively seeking relationships with productive mortgage teams and entrepreneurial mortgage professionals.


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What are some lessons you have learned about seniors, the market, and the business? Reverse mortgages are unique in their design and purpose. No other loan product or financial tool provides for and addresses a borrower’s expressed financial needs like a reverse mortgage

Guaranteed, an established and well-funded Mortgage Banker since 1992, is


How were HECMs underwritten? Close attention was given to the HUD manual in underwriting and closing early HECM loans, as well as file submission to HUD for endorsement and delivery to Fannie Mae. My colleagues in our closing and shipping departments and I were not strangers to new community-based loan programs. We worked together and learned collectively over time to create a “best practices” procedure. Underwriting the early HECM files involved both the creation of an orderly package of all the file documents, but equally important was the execution of “getting it right” for the borrower in terms of calculating the net principal limit and the matching of benefits to the individual borrower’s needs. For me, this became the most important aspect of underwriting.

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How was the HECM origination process in 1989? What were the required disclosures back then? For the first applications, I did not have use of an origination software. I made use of the HUD application and secured required disclosures from the HUD manual. Since the basic borrower qualifications are still in place today as they were in 1989, the application package included: Age verification of all borrowers, evidence of property ownership. Evidence of property insurance and a credit report was made part of the origination package. As to the required disclosures, I do not have access to the file.


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need for banks, thrifts and credit unions to provide clear and balanced information to consumers about the risks and benefits of these products. Such information should be provided while consumers are making decisions about these products and should address the specific matters listed in the guidance, including informing consumers of available alternatives to reverse mortgages. The proposed guidance also states that institutions should require that consumers receive qualified independent counseling and take steps to avoid any

appearance of a conflict of interest. The proposed guidance addresses related policies, procedures, internal controls, and third-party risk management. For more information, visit

Obama Administration implements campaign to support state and local housing finance agencies The U.S. Department of the Treasury, together with the U.S. Department of Housing & Urban

Development (HUD), and the Federal Housing Finance Agency (FHFA) have announced the completion of all transactions under the recently-introduced state and local Housing Finance Agency (HFA) Initiative, a key element of the Obama Administration’s Homeowner Affordability and Stability Plan. With these transactions, the Obama Administration helps support low mortgage rates and expands resources for low and middle income borrowers to purchase or rent homes that are affordable over the long term. Government Sponsored Enterprises Fannie Mae and Freddie Mac played a central role in both Initiative design and transaction execution. The HFA Initiative is expected to come at no cost to taxpayers.

Why some Mortgage Professionals fail in Credit Repair while others Make Serious Money Mortgage Professionals make money in credit repair while getting borrowers Mortgage Ready!

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You don’t have to spend tens of thousands of dollars for start-up costs for your own Credit Repair Company


Once you are set up in our system, you will get access to software and tools that HTDI has spent over $1 million on research and development. You don’t need to spend an arm and a leg to start building your own credit repair business. Here is a quote from a mortgage company located in upstate New York who spent months of research before choosing HTDI:

“Until last year, I owned a large mortgage company in upstate NY with over 125 employees. We got hit hard during the mortgage industry crash and had to close our doors. I was stuck in a position with thousands of leads and customers that couldn’t get qualified for anything. I decided to start looking for a way to capitalize on my left over resources and help people in the process. I called many other credit repair companies and was very unimpressed. One west coast based company was charging $15,000 and had nothing but negatives written about them on the Internet. Then I found HTDI. They helped me to get started at the beginning of this year and it has been great. I have not only made great money helping people to repair their credit, but I have refinanced 8 of them and helped 6 buy houses that would have never qualified with the new guidelines. The software is very user friendly and all of my clients, affiliates and Brokers have increased business because of it.”

Get those impossible to close deals CLOSED! As the number of loan programs are shrinking, the bar on credit scores keep rising. This program will allow your borrowers to become “Mortgage Ready” as soon as 45 days. As one of our CSO stated:

“I have many loan officers that are now able to send their clients through the credit repair, raise their scores, and then close the client’s loan that

officers. Even better than that, it is very rewarding to be able to help a client regain their credit and be able to get the loan they need.”

Industry Leading Results 46.95%

Get started in a business that is booming and shows no signs of slowing The credit industry, as a whole, is one of the most powerful and profitable industries in existence. With loans, insurance and even employment taken into consideration individuals’ credit picture, the credit industry is getting bigger every day. Inside the credit industry, Credit Services is helping by assisting consumers with getting back on track by removing unverifiable and inaccurate negative items from their credit reports. As a CSO, you can benefit in being in a profitable industry and helping clients with their futures.

“I’ve been in the mortgage business over 22 years. A year ago, as the mortgage crisis worsened, I began trying to find a way to help clients who needed a better credit profile in order to get a mortgage. Fortunately for both me and my clients, I stumbled on HTDI. After a year of experience, I can honestly say the success rate is 100% and client satisfaction is through the roof. All of my clients have seen significant improvements, and some have experienced breathtaking jumps in their credit scores, even on the first round! From Day One you can be sure your “back office” (HTDI) has you covered. They will execute their part of the job seamlessly, with precision, on time, and with total consistency. All you have to do is SELL the service! Just sign people up, collect the money, and send HTDI the paperwork they need to get started. If you simply focus on selling the service, you will make lots of money, the work will get done, and you will never have to worry about unhappy customers. Although I got into it as a part timer, I now realize this is an excellent full time business opportunity. (Frankly, these days it’s probably a better business than the mortgage business!) You could easily make six figures in the first year with a minimal investment of money. How many opportunities like this exist these days? What you must invest is your time – SELL, SELL, SELL & SELL some more! Ultimately, what you are selling is the professionalism of HTDI, which is why this really rocks as a business opportunity.”

20.44% 17.32% 14.21%

Round 1 Round 2 Round 3 Round 4 We average one of the highest fix/deletion rates in the industry for the first 45 days of service. Shown below, in real-time, is the average percentage of fix/deletes per round.

If you are going to get involved in Credit Repair, be VERY CAREFUL First you have “Fair Credit Reporting Act” (FCRA). The FCRA holds credit bureaus and creditors to their reporting methods and has guidelines they must comply with. There are numerous techniques that are used along with similar laws to maximize results for each client. You must know these laws inside out. You can’t forget “Credit Repair Organizations Act.” (CROA). Just like the FCRA, the CROA hold credit repair companies to specific guidelines as well. If you choose HTDI Financial for your backend processing, we will ensure you maintain compliance. Lastly, you have applicable State Laws. Depending on the state you wish to conduct business in, you may have a state Credit Services Organizations act to comply with. As an active member in good standing of the National Association of Credit Services Organizations, you can be sure that we take our job very seriously, making sure you stay compliant and your clients.

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Through more than 90 participating HFAs, the HFA Initiative will make affordable financing available to hundreds of thousands of new homebuyers and existing homeowners, as well as support the development and rehabilitation of multifamily rental properties. Mortgages can be used to purchase or rehabilitate homes, as well as refinance existing mortgages at more affordable rates. Participating HFAs are also expected to provide affordable multifamily loans that will help keep rents affordable for tens of thousands of renters. Participating state and local agencies have already begun providing affordable mortgages financed through the HFA Initiative. “Supporting the work of state and local HFAs is critical to the Administration’s broader initiative to stabilize the housing market, which is helping to keep mortgage rates low and mortgage finance flowing for American households across the country,” said Treasury Secretary Tim Geithner. On Oct. 19, the U.S. Treasury announced a new initiative for state and local HFAs to help support low mortgage rates and expand resources for low and middle income borrowers to purchase or rent homes that are affordable over the long term. Following up on the intent to support HFAs first outlined in February under the Homeowner Affordability and Stability Plan, the Administration’s Initiative has two parts: a New Issue Bond Program (NIBP) to support new lending by HFAs and a Temporary Credit and Liquidity Program (TCLP) to improve the access of HFAs to liquidity for outstanding HFA bonds. “The assistance provided under the HFA Initiative will help maintain the viability of state and local HFAs which play key roles in HUD’s efforts to promote expanded access to affordable rental housing and serve as important players in making homeownership possible for hardworking Americans who otherwise would not be able to purchase or remain in their homes,” said HUD Secretary Shaun Donovan. For more information, visit

Your turn National Mortgage Professional Magazine invites you to submit any information on regulatory changes, legislative updates, human interest stories or any other newsworthy items pertaining to the mortgage industry to the attention of:

NMP News Flash column Phone #: (516) 409-5555 E-mail: Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.

submission. In any event, data subject to self-monitoring must be checked periodically to assure the efficacy of HMDA data collection procedures.

Report HMDA data (Step 3) 1) Preparation of the HMDA-LAR should commence in early January. This will ensure sufficient time to correct any noted errors before submitting the data on March 1 to the FRB.

HMDA Data Collection—Four Steps to Reliable Reporting The deadline for covered institutions to submit their 2009 Home Mortgage Disclosure Act (HMDA) data is March 1, 2010. There are four steps that can be taken to assure accuracy and timely submission of HMDA data.

Control data quality (Step 1) 1) Periodically evaluate HMDA data to ensure that all relevant product lines are included and that the data include all loan applications that are originated, denied or withdrawn. 2) Identify data that have been subject to a quality control or self-monitoring effort. Loan products that have not been subject to self-monitoring should receive enhanced scrutiny during the data review.

Improve accuracy (Step 2)

Jonathan Foxx, former chief compliance officer for two of the country’s top publiclytraded residential mortgage loan originators, is the president and managing director of Lenders Compliance Group, a mortgage risk management firm devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or by e-mail at

On-going training (Step 4) 1) Training should be based on familiarizing affected staff with the relevant HMDA data collection policies and procedures. 2) A “gap analysis” approach offers an opportunity to explore and suggest corrective actions. For instance, if geocoding or reasons for declination pose data quality problems, training should focus on these problem areas. 3) Periodically provide advice and training in any regulatory changes related to the filing of HMDA data, such as the recent Regulation C amendment to the definition of a rate-spread loan. Employees with input access to the HMDA-LAR, and/or employees involved in self-monitoring, require the most training.

Conclusion Following the steps outlined in this arti-

Footnotes 1—The new definition of a reportable rate-spread loan appears in 12 C.F.R. §203.4(a)(12)(i), which also defines “average prime offer rate.” The new definition is based on the definition of a higher-priced mortgage loan under §226.35(a) of Regulation Z. 2—The Federal Financial Institutions Examination Council (FFIEC) maintains rate-spread calculators on its Web site to help institutions determine if a loan qualifies as a rate-spread loan under the new HMDA definition of a rate-spread loan that became effective on Oct. 1, 2009: The FFIEC Web site also lists current prime offer rates and is updated weekly. FFIEC offers both a single-loan and a batch-loan calculator on its Web site to determine if a single loan or a batch of them qualifies as rate-spread loans.

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Copyright © 2010 Emigrant Mortgage Company, Incorporated (Emigrant). All rights reserved. Emigrant is a subsidiary of Emigrant Bank, Member FDIC and is an Equal Opportunity Lender. All product names, company names and logotypes are servicemarks or trademarks of Emigrant in the United States and other countries. The information, products and services contained in this advertisement are believed to be correct but may include inaccuracies, typographical errors and/or omissions. Emigrant does not guarantee the accuracy of the data contained herein. This information is intended for mortgage and/or real estate professional use only and should not be distributed or presented to consumers or any other third parties. This is not an offer or guarantee to extend consumer credit. Program guidelines, terms and/or conditions are subject to change by Emigrant without notice. All loans are subject to submission of a complete application, underwriting review and credit and property approval by Emigrant. Not all products and/or programs are available in all states and/or localities and/or for all loan amounts. Certain products / program are offered through third parties. Other restrictions and limitations may apply. New York Licensed Residential Mortgage Lender: Exempt. Emigrant is registered or licensed with the Banking Departments or Divisions in CT, DE, FL, MA, NH, NJ, NY and PA.


1) Scan for common errors in the following data fields: (a) Borrower’s income; (b) Rate spread; (c) Loan purpose; (d) Property location; and (e) Loan amount.

When You THINK Of...

Do you have a regulatory compliance issue that you’d like to see addressed in the Regulatory Compliance Outlook Column? If so, e-mail your issue or concern to Jonathan Foxx at


4) Conduct a pre-Oct. 1, 2009 test to loans for which applications were taken before Oct. 1, 2009 and that were consummated in 2009. For those loans, HMDA reporters are required to identify first- and second-mortgage liens that exceeded the yield on comparable Treasury securities by three percent for first-lien loans and five percent for second lien loans, respectively.

2) Implement policies and procedures for identifying and correcting errors in HMDA data. The scope depends on the mortgagee’s risk profile and institutional complexity. Small institutions may be comfortable with their data collecting and reporting methods and may not require additional review, but large institutions—especially where there is a history of submission errors in their Loan Application Register (HMDA-LAR)—should ensure that data not subject to self-monitoring are comprehensively reviewed prior to the annual March

Submit your questions … 

3) Conduct a rate-spread reporting test to loans for which applications are taken on or after Oct. 1, 2009 and for all loans consummated on or after Jan. 1, 2010 (regardless of their application dates).1 Note: Effective Oct. 1, 2009, the Federal Reserve Board (FRB) amended Regulation C, the implementing regulation for HMDA, to define a rate-spread loan as a HMDA loan subject to Regulation Z whose annual percentage rate exceeds the average prime offer rate for comparable transactions by 1.5 percent for first-lien loans or 3.5 percent for second-lien loans.2

Note: Borrower’s Income … for the Borrower’s Income Field, §203.4(a)(10) of Regulation C requires that the borrower’s gross income relied on in making the credit decision be reported. Some institutions frequently report the borrower’s net income in this field. Note: Rate-Spread … some institutions fail to report data because they do not have a good understanding of the definition of a rate-spread loan. Institutions must be careful to use the new definition of a ratespread loan, where applicable.

2) After the LAR is submitted, FRB’s HMDA Reporter Panel will review the data in late March through early April and identify possible reporting errors. The FRB will contact those institutions that fail the quality edit tests and will expect a prompt response to correct the errors. Note: This aspect of the process provides an opportunity to identify the business units and product lines from which the submission errors originated, because these data correction requirements directly affect the policies and procedures developed regarding the risk analysis, training and self-monitoring for these respective areas.

cle will help to enhance HMDA reporting protocol and assure reliable procedures to meet HMDA’s regulatory requirements. Issues and questions should be discussed with the compliance department, third-party HMDA data collection vendors, and risk management firms that have expertise in implementing Regulation C.


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growth in the single-family housing market, be it of new construction, sales of existing homes or cash-out refinancing. One prospect for a bright FHA reverse mortgage market is that, as the market moves forward and property values stabilize, it stands to reason that the FHA reverse mortgages secured by today’s property values will yield a more secure and insured mortgage product.

By Charlie W. Elliott Jr., MAI, SRA



Foreclosures as Comps?


We have all heard complaints concerning the foreclosed property can be the eleappraised values being lower than selling phant in the living room. prices in today’s recessionary environConsider the following hypothetical ment. The buyer wants to buy a property example. Properties comparable to and the lender wants to make a loan, but the subject in the same subdivision the appraisal stands in the way. There are sold before the recession for around a lot of possible reasons for this, and not $400,000. Since the economy tanked, all situations are the same. one quarter of the neighboring propMy experience has taught me that, in erties are for sale and none are movmany such situations, the sales contract ing. The least expensive of those for is higher than the value of the property; sale is listed for $300,000, and it is however, this is not always the case. The getting only a few lookers. There have appraiser can be wrong been only two sales withand, in this challenging in the past year, and they market, it is not always were both foreclosures an easy task to separate that sold at the courtout the meaningful data house steps … one for from the not so meaning$200,000 and the other ful. This is especially true for $250,000. Finally, a for the appraiser who is buyer takes the bold step relatively new to the busiof moving back into the ness and does not yet conventional market by have a recession under signing a purchase conhis or her belt. It is furtract for a home at a ther complicated by the price of $300,000. The fact that some appraisers appraiser appraises the “When considering have become more cau- foreclosures as compa- home for $225,000, tious, given the many arguing that the market rables within a market, criticisms they, as a only supports this value. the appraiser must group, have faced as a Is it appropriate to use consider how the result of the many bank only the foreclosed propproperties were sold.” erties as the basis for the failures, due in part to underwater loans. evaluation? In considering the legitimate chalIf this example sounds farfetched; it lenges of appraising property in the is not. There are many communities in current market, there are a number of the United States currently experiencing issues that should be addressed and similar circumstances. Sellers, buyers, understood by the appraiser, as well as brokers, lenders and appraisers are all the lender and the property owner. challenged by this difficult and complex First, we have markets with little or market. Of all those with an involveno sales. Does this mean that properties ment in this transaction, the appraiser do not have value? Does it mean that is likely the most challenged. He or she values are simply less? If so, how much is confronted with the responsibility of less? What data can, and should, be rendering a fair and unbiased opinion used, and how should it be used to of value, and there is very little relevant determine value under these circum- data from which to base a professional stances? It is hardly a project that should opinion. be undertaken at home by armchair critFor those who say that foreclosures ics and property owners. Under the best should not be considered, this is simply of circumstances, the appraiser will find not true. This data is oftentimes among themselves making value judgments the only indicators available to the with far less than perfect data. Of the appraiser. many variables complicating the landcontinued on page 31 scape and muddying the waters, that of

What is your favorite reverse mortgage story? As I said before, no other product on the market today fits a senior homeowner borrower’s needs like the reverse mortgage. I recall one borrower’s concern was the payment of his wife’s ongoing medications, as well as making the needed updates and repairs to his house. Deep down, he knew his wife’s medical condition was not improving and he had to figure out a way to continue paying for her meds. In-home healthcare was routine, but it did not cover her expenses entirely, not to mention his occasional copays. He took great pride in his home and wanted to make some updates to his wife’s bedroom and modify her bath area. The proceeds from the reverse mortgage loan did not cover all of the items on his list, but it did provide for a steady stream of income covering monthly med-

fha insider

ications and paid for the modifications to her bath area. The last thing he wanted was for his wife to suffer a move from their home of 35 years for financial reasons or to accept willing financial assistance from his children. Without the reverse mortgage, my borrower would not have been able to provide for his wife’s needs and maintain their lifestyle in their own home. Author and columnist, Atare E. Agbamu, CRMS is director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC. A member of the BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse! and more than 130 articles on reverse mortgages. Through his advisory firm, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, the AARP cited Agbamu’s work. He can be reached by phone at (612) 436-3711 or (612) 2039434, and e-mail at or Visit author Atare E. Agbamu’s blog at for his thoughts and insights on the reverse mortgage marketplace.

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bility to people with short sales in certain scenarios that “make sense.” If the bank is going to write down the loan anyway, what difference does it make if it’s a refinance or a purchase? Meaning, if the borrowers don’t sell it short, then they’ll refinance it short. And in both cases, you are left with an occupied home and not another boarded up house. On Dec. 22, 2009, the FHA, rather than issuing a Mortgagee Letter, deployed an email which announced the delay of the new appraisal rules set forth in ML 09-28 and ML 09-51. To refresh your memories, here is a brief summary of these changes:  ML 09-28 prohibits mortgage brokers and commission-based lender staff from involvement in the appraisal process.  ML 09-51 adopts the use of the Appraisal Update and/or Completion Form. This Form is used when appraisers are updating existing appraisals and/or certifying the completion of repairs on existing and new construction dwellings. Although FHA was holding out to see how the whole Home Valuation Code of Conduct (HVCC) story would unfold, it was only a matter of time before they would have to conform to satisfy the lending community and its investors. As I listen to the problems created by the HVCC and how customers are losing out, all I can say is that as an industry, we brought this upon

ourselves. It’s my perspective that for now this is what has to happen in order for us to heal and to strengthen the secondary market … without which we would be out of business. Speak with any appraiser who has been in business for the last 10 years and ask them if pressure from brokers has influenced the values they bring in. Most (if not all) will answer with a very resounding, “YES!” We just need to own the fact that AMCs are here, focus on sales and marketing, and on getting so much volume that the few we loans may lose to bad AMC appraisals won’t matter. Although FHA is delaying these changes, Lenders may still require them prior to Feb. 15, 2010. So be sure to double check with your DE Underwriter, or refer to your Lenders Guideline Requirements. Wishing you success in 2010! Go FHA! Jeff Mifsud founded Southfield, Mich.based Mortgage Seminars LLC in 2004, has been an FHA originator for 12 years, is a contributor to and is a former FHA underwriter. Jeff may be reached at (877) 342-9100 or e-mail Visit author Jeff Mifsud’s Web site at for tips and information on FHA loans and details from some of the nation’s top FHA specialists.

heard on the street

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Titan Lenders named a preferred provider for Flagstar’s broker-tobanker initiatives

Titan Lenders Corporation has been named a preferred provider by Flagstar Bank for its wholesale lending business’s broker-to-banker initiatives. Flagstar Wholesale Lending offers those correspondent lenders who meet spe-

grams attract high quality, prolific mortgage businesses that want to serve borrowers as correspondent mortgage bankers, with the many advantages that entails,” said Greg Lutin, executive vice president, national sales manager for Flagstar Bank. “Selecting Titan as a mortgage fulfillment services provider for these programs will help ensure the consistent delivery of quality closed electronic loan files by Flagstar’s new correspondent lenders.” “Titan Lenders Corp. is honored to provide its services and expertise for Flagstar’s progressive broker-to banker initiatives,” said Titan Lenders Founder and Chief Executive Mary Kladde. continued on page 30

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to convert to a Full-Eagle, or non-supervised lender. The company may now originate, fund, hold, purchase and sell Federal Housing Authority (FHA)backed mortgage loans. “This Full-Eagle approval is another proof point of Total Mortgage Services’ operational integrity and financial strength,” said John Walsh, president of Total Mortgage Services. “Being a nonsupervised lender will help further streamline our process for FHA loans, which will allow us to pass the cost and time savings on to high-quality borrowers in the form of lower FHA mortgage rates and better service.” Total Mortgage Services was founded in May of 1997 with a customer centric focus and a mission of responsible lending. The company offers a range of mortgage solutions to high-quality borrowers, from FHA mortgages to jumbo loans, with some of the lowest current mortgage rates in the industry. Through a centralized business model, Total Mortgage is able to create significant efficiencies in both its origination and operational infrastructure, and pass the cost and time savings on to borrowers working with Total Mortgage in the form of lower mortgage interest rates and better service. “Our Full-Eagle designation will also help us significantly increase our FHA mortgage volume, which was only five percent of our total production in 2009, to 20-25 percent of production in 2010,” said Walsh. “In addition, when we combine this approval with the upcoming launch of our new wholesale division, TMS Funding, which will also provide very attractive mortgage rates to our broker base, we are even better positioned to continue to grow our origination volume in 2010 to over $1 billion, despite a U.S. mortgage market that is expected to decline year-over-year.” The company’s production is driven by a centralized retail lending platform, which has more than 25 very experienced and advice driven loan officers. Total Mortgage will be launching TMS Funding, its wholesale lending platform in January 2010, to offer mortgage brokers and borrowers better service, choice, knowledge and efficiency in the mortgage lending process. The wholesale platform will also operate through a centralized model in order to improve the consistency and quality of the broker experience and reduce the wholesale platform’s risk profile. Currently licensed in 19 states, Total Mortgage currently has an application pending with the Commonwealth of Pennsylvania and intends to be licensed in five to 10 additional states in 2010. The company is projecting 2010 closed loan production to increase to $1 billion. For more information, visit

cific underwriting criteria a warehouse facility, and purchasing facility to support their adoption of electronic closings and notes. Titan Lenders is a U.S.-based domestic mortgage fulfillment outsource operation that offers a “parallel and variable cost alternative solution” to lenders’ maintaining back office and warehouse line management operations. Titan provides flexible hours of operation to support its clients coast-to-coast. Titan allows lenders to reduce risks and errors by utilizing its file flow management tools and electronic compliance safety checks through Cerberyx, its proprietary process software system. “Flagstar’s broker-to-banker pro-


heard on the street Thursday, June 24, 2010 Friday, June 25, 2010 AAMB welcomes NAMB to beautiful Phoenix! Come see the new NAMB President and the new NAMB Board installation, while participating in some great networking opportunities. State delegates can also participate in the NAMB Delegate Council Meeting.

Phoenix Airport Marriott® Rooms are $99 per night, and will be honored at the same rate if you wish to extend your stay.

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United Northern is Seeking Highly Qualified, Experienced Mortgage Professionals To Grow as We Grow • Operations Manager • Production Manager • Senior Underwriter • Virtual Mortgage Loan Officers (VMLOs) • In-House Mortgage Loan Officers (MLOs) • Team Leaders/Sales Managers

Visit UnitedNorthern.Jobs, email info@UnitedNorthern.Jobs or call (888) 600-8808 ext 1. United Northern Mortgage Bankers, Ltd. Corporate NMLS ID# 7230 New York State Banking Dept. - Licensed Mortgage Banker – License #100724 New Jersey Dept. of Banking and Insurance – Mortgage Lender – License #L0046623 Pennsylvania Dept. of Banking – Mortgage Lender – License #20887 Connecticut Dept. of Banking - Mortgage Lender - License #20372 Massachusetts Div. of Banks and Loan Agencies - Mortgage Lender & Mortgage Broker – License #MC5070 North Carolina Commissioner of Banks – Mortgage Lender – License #L140365 South Carolina State Board of Financial Institutions – Supervised Lender – License #S7,461 Florida Dept. of Financial Institutions - Mortgage Lender - License #ML0700679 Senior Security Home Advantage is a lending area of United Northern Mortgage Bankers, Ltd. Direct FHA Endorsed Lender

continued from page 29

“Flagstar continues to demonstrate industry leadership by offering quality brokers the opportunity to become correspondent lenders with the benefit of a warehouse line facility and a professional mortgage fulfillment operation that is familiar with the electronic closings and notes for quick turn time on the lines.” According to Kladde, Flagstar’s commitment to transitioning its correspondent lenders to electronic notes is facilitated by the Titan back office operations platform all of which serves to reduce standard warehouse line turn times by more than half of what is being typically seen in the market today. Titan Lenders’ intelligent processes are driven by its proprietary technology, Cerberyx, co-developed with eSys Technologies, Rochester, N.Y. Cerberyx is the evolution of a software technology application developed to replace manual processes required to manage lenders’ participation in closing and post-closing functions. As a business solution, the software was developed in the practical laboratory of a closing and post-closing division servicing multiple lenders, investors, and lending business channels. It addresses the needs of all users in the transaction— accountability, visibility, efficiency and ease of use—ultimately focused on loan salability. For more information, visit or

ABA to offer reverse mortgage program through MetLife Home Loans The American Bankers Association (ABA) will offer its member banks a reverse mortgage program through MetLife Home Loans, a division of MetLife Bank NA. Under the program, MetLife Home Loans will provide ABA member banks a streamlined broker/correspondent approval and on-boarding process, access to proprietary MetLife research and educational materials about and for the mature market, complete product education, and dedicated account management. After a thorough review process, MetLife was selected to be the exclusive provider of reverse mortgage programs by ABA Total Business Solutions, a subsidiary of the American Bankers Association. “We are excited to be working with the ABA and their member banks,” said Michael Mooney, wholesale and correspondent sales director for MetLife Home Loans. “We are confident that this relationship will help to provide even more senior Americans with knowledge about, and access to, an important product that many of their peers have found so helpful in funding a secure retirement.” Deborah Whiteside, senior vice pres-

ident of mortgage for ABA Total Business Solutions, said, “We’re pleased to add MetLife Home Loans as a business partner. MetLife Home Loans will provide our member banks with both strong products and dedicated support in the reverse mortgage arena.” For more information, visit or

REDC to purchase title insurance platform from Pulte Homes Real Estate Disposition LLC (REDC) has signed a definitive agreement with Pulte Homes Inc. to acquire the Commerce Title retail title insurance agency platform. The Commerce Title brand, retail branch network and certain additional support assets are included in the sale. Subject to regulatory and licensing approvals, the sale is expected to close in the first quarter of 2010. “REDC is excited about its entry into the title insurance agency segment,” said Jeffrey Frieden, chief executive officer of REDC. “The Commerce Title retail platform, with its seasoned and successful team, is a great launching pad for our expansion into this market and will complement our other businesses nicely. We’re very excited about the opportunities ahead.” Approximately 130 Commerce Title retail employees will transition with the sale. Headquarters for the Commerce Title retail operation acquired by REDC will be located in Dallas, Texas. Pulte will retain that portion of the Commerce Title operations that support its new home sales, and the headquarters for those operations will also remain in Dallas. Commerce Title was formerly a subsidiary of Centex Corporation, which merged with Pulte in August of 2009. “This is a good transaction for both companies as it allows Pulte to focus on its builder title operations while providing new growth opportunities for the Commerce Title retail team,” said Debra W. Still, who oversees Pulte’s financial services operations. For more information, visit

DocuTech and Wipro Gallagher Solutions bring compliant docs online DocuTech, a provider of mortgage compliance services and documentation technology, has partnered with Wipro Gallagher Solutions (WGS), a provider of loan origination software and origination services, to provide complete mortgage document complicontinued on page 32

Why Mortgage Modification Isn’t Working The loan adjustment success rate is just one percent By Arkadi Kuhlmann

This article appears printed with permission ING Direct and originally appeared in the Opinion column of the Jan. 20, 2010 edition of The Wall Street Journal.

For those who take the position that foreclosures are always comps with equal weight as sales, occurring within the conventional market, they are wrong, too. In this case, the appraisers only data lies within the old comparables at $400,000, current listings as low as $300,000, a sales contract of $300,000 and two foreclosures averaging $225,000. The answer lies somewhere in between the $225,000 and the $400,000, and it is up to the appraiser to determine where the value lies within this range of central tendency. Just how accurate are foreclosure comparables, and how much weight must they carry? While we will not attempt to resolve the dilemma of placing a value on the hypothetical property, we will attempt to lay to rest the part a foreclosure should play in a value decision by an appraiser. First, foreclosure properties are often very comparable to many subject properties being sold and requiring appraisals. The appraiser not only is able to use them in determining a value if they are comparables which have sold within a market, he or she has a responsibility to report them and to consider their effect on value. Second, many foreclosed properties simply do not provide unadjusted value indications that are consistent with the relevant market for subject properties. They are not consistent with market values, and while the appraiser is bound by Uniform Standards of Professional Appraisal Practice (USPAP) to report and consider them, they must be adjusted appropriately, if, and when, used as comparable sales. When considering foreclosures as comparables within a market, the appraiser must consider how the properties were sold. Were they sold at auction at the courthouse steps, as in the example? Was the buyer able to gain access to the property in an effort to perform a physical inspection? Were they sold by a realtor, representing a bank, after the properties have already

passed through to the bank through the auction process? If sold by a realtor for a bank, was adequate time given for normal marketing or did the bank want to sell the properties quick to get them off its books? Also, what was the physical condition of the comparable foreclosures? Were they damaged; had they been repaired; had they been remodeled? Did the buyer have adequate time to obtain financing to support the purchase? Finally, foreclosure properties are very similar to any other property considered as a comparable. If there were circumstances, such as poor physical condition, lack of inspection access, inadequate loan application time or a compulsion to sell quickly, allowances must be made for these differences. In some cases, the differences may be so significant that the comparable is rendered useless or of little value. In such cases, the sale should be reported, but not included or given weight as a comparable sale. In other cases, only slight adjustments or no adjustments may be required. Whatever the case, the appraiser is required to consider all comparable sales, occurring around the time the property is sold. Whether the comparable is a foreclosure or a more traditional sale, the appraiser is required to give consideration to the data it provides and use the information appropriately. If the appraiser uses a foreclosure as a comparable sale, this does not mean that he or she is wrong. It may mean that he or she is just doing his or her job. It may have qualified as a comparable, and may have been the only relevant data from which to render an objective opinion of value. Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, e-mail or visit his company’s Web site,

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continued on page 34

continued from page 28 

Last year, more than two million Americans lost their homes to foreclosure. This year, that number is expected to be even higher. Foreclosure takes a huge toll on homeowners and their families, and sends shockwaves throughout the economy. Yet since the start of the recession in 2007, more than five million homes have been taken back by lenders. The Center for Responsible Lending (CRL) estimates that as many as 13 million more homes could fall into foreclosure over the next five years. To combat the foreclosure epidemic, the Obama Administration created the Home Affordable Modification Program (HAMP) last February. As part of this program, the Treasury Department plans to spend up to $75 billion in financing mortgage “modifications” for struggling homeowners. The modification process changes the terms of the mortgage with the aim of making it more affordable, typically by reducing a borrower’s “… up to 99 percent interest rate, lowering his monthly payment, or of eligible homewaiving or reducing past charges. Unfortunately, owners struggling HAMP has had less than stellar results. with their mortgage Since the program began, more than three payments have been million homeowners have become eligible for assistance. In turn, mortgage servicers have unable thus far to reached out to these borrowers, initiating the modify their loans.” modification process. Roughly 760,000 homeowners have received loan modifications on a trial basis. But just 31,000 modifications have been made permanent. That’s a success rate of just one percent. This means that up to 99 percent of eligible homeowners struggling with their mortgage payments have been unable thus far to modify their loans. A big reason for HAMP’s limited success is that the government is suffocating banks with counterproductive accounting rules. Under current law, if a bank modifies a mortgage, it must record the write-down as an expense on its books. For example, if a homeowner’s monthly mortgage payment is reduced by $400 per month for 24 months, the bank has to report that it “lost” $9,600 ($400 times 24 months). The bank, though, didn’t lose any money—it’s still scheduled to receive the totality of the loan principal, just less interest. This rule, for obvious reasons, makes banks reluctant to modify. They don’t want to take the “loss,” which can get very big for larger mortgages with long modified periods. So there’s a huge financial disincentive to offer modification. The incentives are misaligned elsewhere, as well. Mortgages are often sold by the original lender to a third-party investor. Problem is it’s often not in the interest of that outside firm to modify the original loan. In fact, mortgage servicers get additional fees if a home forecloses. Similarly, if a mortgage has been folded in with other loans as part of a larger financial device, such as a mortgage-backed security, modification could reduce the monthly cash stream that device generates. Another obstacle comes from auditors and regulators, who are imposing an ever-increasing load of paperwork on customers and banks looking to modify. In many cases, there are more forms needed to modify a loan than to get a mortgage in the first place. Finally, regulators haven’t done enough to protect banks from “strategic defaulters”—that is, homeowners who aren’t facing financial difficulty, but purposely underpay (or stop paying) their mortgages in the hopes of getting a

value nation




heard on the street


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ance services in WGS’s suite of loan origination systems (LOS), including NetOxygen Cirrus. The integration enables lenders to easily generate compliant documents and disclosures from any Web connection. NetOxygen Cirrus is a Web-based LOS that enables lenders to take advantage of a streamlined service to enter, monitor and maintain loans through a scalable platform hosted by WGS. The integration with DocuTech’s ConformX allows for the streamlined deployment of an end-to end, enterprise wide LOS at a reduced cost to a traditional implementation. This integration also provides users with internal compliance and document services, including support for disclosures, enabling lenders to confidently navigate the large number of regulatory and compliance issues. DocuTech’s compliance staff backs ConformX by monitoring and updating the program to ensure all closing document and disclosure packages are accurate and compliant. “With new regulations from national and state legislatures hitting the streets each month, it is crucial that our lenders have immediate access to accurate documents,” said Sriram Srinivasan, global head, banking practice, Wipro Technologies. “The partnership with DocuTech provides that accuracy and guaranteed compliance while helping us deploy the updates quickly through online updates.” NetOxygen Cirrus contains robust functionality for lead management, integrated vendor services and workflow management, all of which contribute to automating and managing the mortgage process. The NetOxygen Cirrus workflow management feature employs predefined business rules to handle even the most complex lending scenarios by anticipating each step of the lending process to take the guesswork out of processing loans. “Mid-sized lenders are seeing the advantages that hosted software provides—faster speed, more security and lower cost,” said Ty Jenkins, chief executive officer for DocuTech. “ConformX makes any computer or laptop a closing table by delivering compliant disclosures and documents through a secure Web connection.” For more information, visit or

ICBA and Wolters Kluwer expand program to offer compliance toolkits The Independent Community Bankers of America (ICBA) has expanded its Preferred Service Provider program with Wolters Kluwer Financial Services to include the company’s Real Estate Settlement Procedures Act (RESPA) and Regulation GG Tool Kits, as well as the company’s suite of Regulation CC prod-

ucts. Wolters Kluwer Financial Services introduced all three solutions to financial institutions in 2009 to help them address regulatory changes. “Over the past year, our nation’s community banks have withstood an onslaught of new regulatory requirements even though they are commonsense lenders who have always worked in the best interest of their customers,” said Dan Clancy, senior vice president of services at ICBA. “Wolters Kluwer Financial Services has helped community banks respond rapidly to these changes so they are not overburdened and can continue to serve their customers. ICBA is confident that Wolters Kluwer Financial Services will help its community bank members do the same with RESPA and Regulations CC and GG.” Under the terms of the expanded ICBA Preferred Service Provider relationship, Wolters Kluwer Financial Services will provide ICBA community bank members with access to: the RESPA Tool Kit offering institutions streamlined RESPA policy development through the company’s PRINGLE Policies & Audit Procedures software, employee training videos, and an implementation and documentation guide; Regulation CC solutions including training Webinars, standard and up-to-date initial funds availability disclosures, change notices, updated funds availability lobby posters, PRINGLE software, and revisions to Wolters Kluwer Financial Services deposit software solutions; and the Regulation GG Tool Kit that includes a sample Regulation GG policy, an implementation guide and audit procedure checklist, staff training materials, an Unlawful Internet Gambling Notice for use with customers, and PRINGLE software. “Each solution adds to Wolters Kluwer Financial Services alreadystrong reputation for helping financial institutions comply with regulatory changes as quickly and painlessly as possible,” said Lisa Fraga, vice president and general manager of banking content for Wolters Kluwer Financial Services. “Institutions can rest assured that we’ll continue to develop solutions to help them rapidly respond to every new compliance obligation that comes their way.” Wolters Kluwer Financial Services also offers ICBA members access to a broad array of the company’s other solutions. These include the ComplianceOne riskmanagement platform and the company’s other lending and deposit software solutions and printed documents. In addition, the ICBA Preferred Service Provider Relationship also includes the company’s PCi compliance analytics solutions, which help banks address fair and anti-predatory lending requirements, comply with the Bank Secrecy Act continued on page 34

Applied Business Software supports RESPA compliance

Quick Qualifier Software adds the HUD GFE for 2010

Responding to the need for more substantial and robust verification tools to thwart identity theft, Informative Research has introduced ID Verify Plus, a comprehensive report combining data verification from three sources. The report checks Social Security numbers directly against the Social Security Administration’s database (requiring consent from the applicant), the Office of Foreign Asset Control’s database, and credit repository databases to verify and track the usage and issuance of the SSN. As the definitive source for verifying social security numbers, the SSA provides the most reliable data available. Informative Research’s experience allows it the blend the data from these three sources into one easy-to-read identity verification report. ID Verify Plus is an excellent match for use in fraud detection, prevention or mitigation efforts to meet the Fair and Accurate Credit Transaction Act (FACTA) Red Flags compliance requirements. “With application fraud accounting for 61 percent of mortgage fraud incidents in 2008, the focus on verified data is increasing,” said Brad Kelso, vice president of marketing for Informative Research. “We have redoubled our efforts to verify as much of the application data as possible, and that includes Social Security Numbers. And, we can turn around the verification within a few hours.” For more information, visit Inc. has announced the availability of a technical integration

Bank of America Home Loans has begun providing its exclusive Clarity Commitment to customers entering permanent mortgage modifications under the government’s Home Affordable continued on page 35

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 FEBRUARY 2010 integrates with Leads360 and releases compliance matrix tool

Bank of America releases Clarity Commitment providing loan mod summary


Quick Qualifier, the prequal and marketing software for loan officers, has added the new U.S. Department of Housing & Urban Development (HUD) Good Faith Estimate (GFE) for 2010. With Quick Qualifier, users have the option of printing the Quick Qualifier closing cost sheet or the official HUD Form. Because most of the information needed to complete the HUD Form is already in Quick Qualifier, it is fast and easy for the loan officer to generate the completed form. The new module also has a database that tracks when and how the GFE was delivered to the borrower. The embedded PDF converter also gives the user single-click e-mail ability. “The timing of this new regulation is perfect for our newest version,” said Thor Skonnord, author of the software. “We try to give our customers something new and useful every year. While we spent most of the year making our

Informative Research releases identity theft tool

Valuation Code of Conduct (HVCC), and the Mortgage Disclosure Information Act (MDIA). For each of the 20 items, readers will find specific regulations, a clear description of the related issue, lender requirements, and how helps loan origination software customers remain compliant. According to management, the objective of creating the matrix is to provide a holistic view on compliance so lenders can ensure nothing slips by the operations team. Small violations that are systemic can add up to big penalties in a hurry. “Lenders can stay well-informed on the day-to-day developments of specific compliance issues through a variety of different media,” said Lionel Urban, president and co-founder of, “but there is still a real need to see it all covered in one place. Our Compliance Matrix provides an exhaustive summary of current compliance requirements, along with practical solutions for each.” Among the other compliance issues on the checklist are the Equal Credit Opportunity Act (ECOA), the Fair Credit Reporting Act (FCRA), the Fair and Accurate Credit Transactions Act (FACTA), Homeownership and Equal Protections Act (HOEPA), and various new state laws holding lenders responsible for the valid licenses of originators and third-party brokers. In each case, the regulation is either entirely new, changed in some way that requires adjustment on behalf of lenders, or being monitored and enforced with more thorough methods. For more information, visit or 

Applied Business Software (ABS), developers of The Mortgage Office origination and servicing software, has announced a software update that will aid loan originators with Real Estate Settlement Procedures Act (RESPA) regulations. The Mortgage Office software update now calculates and prints federally compliant documents. With loan originators now required to generate several new forms, including a revised Good Faith Estimate (GFE), Disclosure of Key Loan Terms, Closing Costs and Yield Spread Premiums, as well as a revised HUD-1 Settlement Statement, ABS fully interfaces with the Microsoft Office suite of products and is designed to make loan servicing and the process of loan servicing more profitable, efficient and accurate. “This update took nine months of research and development, including communications with industry organizations,” said Jerry Delgado, president of ABS. For more information, visit

software compatible with Vista and Windows 7, adding the GFE option is an ideal addition to help lenders deal with the changes. Not only does it create the form, but it fills in the blanks according to the new guidelines.” For more information, visit

with Leads360, a provider of sales lead management software, resulting in an interface that eliminates redundant data entry and accelerates the sales cycle. According to Leads360 management, the best lead generation technology focuses on efficiency at all phases of the loan process. “We believe that the integration that has achieved with Leads360 is the best loan origination integration available today not only for our clients but for any lender using lead management software,” said Dan Morefield, president and chief executive officer of Leads360. “The bottom line is that we are dedicated to ensuring that our clients contact leads more quickly and close loans more efficiently than any competing bank or broker can. The robustness of our integration aligns perfectly with that objective and we are very pleased to hear the positive reactions from our client base.” With the new integration, lenders that use Leads360 to manage leads and’s loan origination system, InHouse Mortgage, can import lead data from Leads360 into InHouse Mortgage with one click. Phone-based salespeople that, in the past, had to key data into InHouse Mortgage while speaking to prospects are now able to focus their full attention on the sales call. “If lenders hope to compete in today’s market, they can no longer ignore the significant advantages that emerging technologies such as ours provide,” said Sean Dugan, senior vice president of sales and marketing for has also announced the availability of its Compliance Requirements Summary Matrix to assist the lending community with a comprehensive plan for managing current and future regulatory changes with confidence. The free document is available for download at p, and includes details on 20 compliance issues that have emerged as business fundamentals in the tumultuous past 18 months, including the new Good Faith Estimate (GFE), the Home


heard on the street

continued from page 32

and anti-money laundering regulations, and combat fraud and financial crimes. For more information, visit or 

Impac announces NYSE Amex listing and acquisition of title and escrow company

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Thursday, June 24, 2010 Friday, June 25, 2010 AAMB welcomes NAMB to beautiful Phoenix! Come see the new NAMB President and the new NAMB Board installation, while participating in some great networking opportunities. State delegates can also participate in the NAMB Delegate Council Meeting.

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Impac Mortgage Holdings Inc. has announced that its common stock has been approved for listing and has begun trading on the NYSE Amex under the ticker symbol IMPM. Impac has also announced that the California Department of Insurance approved the company’s acquisition of a title insurance agency and escrow operations. Upon the approval, the company acquired the operations and its offices, effective Dec. 31, 2009. The title insurance company services California and selected national markets and is integrated into the company’s services platform providing more solutions to the mortgage and real estate markets. “The company is excited to once again be a part of the New York Stock Exchange family,” said Joseph R. Tomkinson, chairman and chief executive officer of Impac Mortgage Holdings. “We believe that being listed on the exchange will provide our shareholders more liquidity in trading our stock as well as increased visibility for the company. This accomplishment combined with the completion of the acquisition of the title insurance company is yet another milestone for the company.” For more information, visit

Mortgage Professionals to Watch  Southwest Securities FSB, the com-

mortgage modification modification. Strategic defaulters suck away bank resources and attention, making it that much harder to service people facing true hardship. At ING Direct, we have over 2,500 modified mortgages on our books. And our re-default rate for loans that were modified six months ago or more is eight percent—substantially lower than the average for government-guaranteed loans of 44 percent to 53 percent and the overall industry average of 25 percent. We, like other banks, are doing our best to keep people in their homes. But the government has to help—not by passing out more dollars, but by bringing some common sense to the rules of the game. The Treasury Department is aiming for three million to four million permanent mortgage modifications by 2012. To get


mercial banking subsidiary of SWS Group Inc., has named V. William Dolan Jr. as president of Southwest’s banking center in Albuquerque, N.M. John Levonick has joined the compliance team of Mortgage Cadence Inc. as chief legal and compliance officer. Michael J. Dirrane has been named executive vice president of sales for PHH Mortgage. Dave Parker has been named vice president of business development for Dorado Corporation. RedVision, a provider of real property research solutions, has announced the hiring of Steve McDonald as director of government partner programs. Wallick & Volk have announced the addition of the following new loan officers to the company’s offices throughout the state of California: Mark Moskowitz, Gloria Stern, Michael Stern, Jose Fuchen, Max Leimgruber and Mercedes Devoe.

Your turn National Mortgage Professional Magazine invites its readers to submit any information, events, passages, promotions, personal or professional occurrences that seem appropriate and/or other pertinent data to the attention of:

Heard on the Street/Mortgage Professionals to Watch column Phone #: (516) 409-5555 E-mail: Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.

continued from page 31

anywhere close to that number—and to prevent this country from sliding even deeper into a recession—regulators need to modify the modification process. Arkadi Kuhlmann is chairman and president of ING Direct USA. Prior to ING, Arkadi’s experience includes both highlevel corporate and academic positions. He served as president of North American Trust and chief executive officer of Deak International Inc. and held various executive positions at the Royal Bank of Canada. His academic experience includes teaching at the American Graduate School of International Management (Thunderbird) in Phoenix, Ariz., where he was a professor of international finance and investment banking. For more information, visit

new to market

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LPS’ SoftPro Division launches closing, title and escrow services software

RealtyTrac embraces social media with launch of foreclosure forum

National Mortgage Professional Magazine invites you to submit any information promoting new “niche” loan programs, new products or any other announcement related to the introduction of a new program, to the attention of:

New to Market column Phone #: (516) 409-5555 E-mail:

Appraisal Institute’s updates dictionary and includes new online version The specialized language of real estate valuation is the focus of a newly published

Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.

• Daily updated mortgage industry news • Industry blogs • Write your own blog

• Find loan programs • Discover local and national events • Get access to video

• We make FHA and HVCC compliance easy with our tools built around your business • We work with YOUR appraisers • Online automated appraisal ordering Here’s what our customers are saying: “PCS appraisal management services allowed me to create a virtual firewall between the loan officers and the appraisers, yet still maintain a high level of quality, fast, and accurate appraisals”

Learn more about our services by calling, Lorenzo Pugliano, President and CEO at 631-299-2084.


RealtyTrac, an online marketplace for foreclosure properties, has announced the launch of the RealtyTrac Community, a social media platform that allows RealtyTrac’s visitors to pose questions and exchange answers about real estate online in an open and transparent environment free for users. “With over 80 percent of homebuyers and sellers turning to the Internet to help them buy and sell real estate, creating an open online community where our cus-

Your turn


Lender Processing Services Inc. (LPS), a provider of integrated technology and services to the mortgage and real estate industries, has announced that its SoftPro division has introduced SoftPro 360, a Web-based service portal that streamlines the ordering of closing, title and escrow services for a faster, easier and more affordable process than traditional ordering. SoftPro 360 connects customers with a wide range of title and closing vendors to generate and transmit orders for whatever services are needed. SoftPro 360 transfers the appropriate information digitally from the customer’s file to the vendor selected, returns the order online for customer review after the vendor’s work is completed, and then places the approved order back into the customer’s file. “SoftPro 360 eliminates the need for paper order forms, dual entry, faxes, emails and phone calls, and significantly reduces the potential for errors associated with manual ordering of products and services,” said Joyce Weiland, SoftPro’s chief operating officer. With a customer base of more than 50,000 users, SoftPro can often leverage preferred pricing to help many customers reduce costs for many closing and title products and services. “In addition to bringing greater efficiency to the closing and title process, we are also able to facilitate lower costs for our SoftPro customers at no additional charge,” said Weiland explained. “Participating vendors not only see the opportunity to expand their customer base, but also to reduce the cost of doing business with those customers.” SoftPro has more than 13,000 customer sites and more than 50,000 users nationwide in all 50 states, and offers a full suite of cutting-edge solutions that streamline the closing process. For more information, visit or

book by the Appraisal Institute, featuring more than 5,000 definitions and terms, in addition to seven specialized glossaries. A state-of-the-art reference work, The Dictionary of Real Estate Appraisal, Fifth Edition, includes an online version for the first time, providing users with electronic access to all the book’s terms and definitions in a convenient, userfriendly format. Using the online version, readers can search all the sections of the dictionary for a specific term, browse the list of terms alphabetically, browse individual sections of the dictionary addenda and copy a definition from the online dictionary and paste it directly into one’s own document. Over the course of a year-long development process, dozens of dedicated real estate professionals debated and discussed the language of real estate to create a new dictionary with 21st Century terms and definitions and a new focus on the future of the profession. For more information, visit 

Modification Program (HAMP). The Clarity Commitment is an easy-tounderstand, one-page summary of key loan terms that will also be offered with loan modifications made under any non-government program. Responding to consumers seeking simplified explanations of credit products, Bank of America introduced the Clarity Commitment for customers taking out new first mortgages in April 2009, leading the industry in providing clarity, simplicity and transparency to customers. The bank later extended the concept to home equity loans and reverse mortgages, and recently launched a Clarity Commitment for credit card customers. “Our Clarity Commitment for new mortgages has been very well received as a demonstration of our dedication to responsible lending and the creation of successful homeowners,” said Rebecca Mairone, national servicing executive for Bank of America Home Loans. “Modified mortgages may have considerably different terms than the original contract. As our customers transition to their new affordable payment, it is important that they have this simple and concise explanation of the key terms of their modified loan.” The Clarity Commitment for loan modifications summarizes: The new principal balance and all charges included in it; the new interest rate; the total monthly payment at the outset of the loan and, if applicable, at each point that the rate and payment will adjust through the life of the loan; the initial amount of any escrow payment included for such things as taxes and insurance, with an explanation that these charges may change during the life of the loan; and on eligible HAMP modifications, the incentive payments homeowners may earn toward reducing their principal balance if they make timely payments over the first five years. Homeowners participating in HAMP will receive a Clarity Commitment statement with their modification documents. Their modification package is sent after they successfully complete a trial payment period. Those who are being offered assistance under other programs will receive the Clarity Commitment with the documents to be signed for their modification. Since January 2008, the bank’s commitment to keeping customers in their homes has led to nearly 615,000 mortgage modifications, including more than 160,000 trial modifications through HAMP and more than 450,000 completed modifications through nongovernment programs and individualized solutions. For more information, visit

tomers can get advice and share information is an important part of the RealtyTrac experience,” said James J. Saccacio, chief executive officer of RealtyTrac. “Social networking is something that appeals to a growing number of real estate consumers, and as market conditions continue to change, we will continue to offer our customers new and exciting products and features to help them prosper.” With the RealtyTrac Community, homebuyers, investors, sellers and real estate professionals can instantly pose questions, offer answers, start discussions and connect with other users in an easy-to-use, real-time social community. Anyone can view discussion threads in the forum. A free registration is required to participate with questions or replies to current threads. Visitors can seek out local real estate experts and ask specific questions about neighborhoods, schools, market conditions, financing and foreclosure activity or locate local services by tapping into the knowledge and insights from RealtyTrac’s three million unique monthly visitors, including buyers, agents and experts from across the country. Organized around six categories— buying foreclosures, investing, foreclosure trends, selling foreclosures, home values, foreclosure training and mortgages—users of RealtyTrac Community can set up robust profiles and receive email alerts to be notified when locations and issues they care about are discussed. For more information, visit


By Andrew J. Schell, CPA, CMB, CFF



Branching Offers a Safe Haven


Given the unprecedented changes in Federal Housing Administration (FHA) mortgage lending, it’s reasonable, pru- must be conducted by an employee of a dent and essential for all mortgage company holding a HUD approval. Brokers who decide to go the lenders to examine their business plans; joining a branching mortgage branching route typically choose a branching company that operates as a bank warrants consideration. For some brokers, the goal could be mortgage bank. There are branching to just focus on sales and hope that the companies that themselves are brokers world we’ve all known will continue. acting as wholesale aggregators. In This would be to not worry about the both cases, brokers can benefit from changes in U.S. Department of Housing the power of the unified volume when negotiating favorable & Urban Development pricing and terms with (HUD) net worth requireinvestors. The banking ments, HUD’s potential structure likely provides elimination of the loan protection from regulatocorrespondent category, ry assault on the YSP. or the potential regulatoTypically, the home ry issues facing the disclooffice of the partner branch sure and limitation on manages payroll, payables, yield spread premiums human resources compli(YSP). It sounds preposterance, state licensing and all ous to comment about regulatory compliance this strategy like this, but issues. In this structure, the the reality is, we see peobranch manager gets the ple do it. This is also “Independent bronet earning from the known as the Ostrich kers should avoiding branch‘s activity after payEffect: To avoid apparentchurning customers ly risky financial situaor locking loans with ing a cost-per-file for delivery support, as needed. tions by pretending they more than one Thus, the term “net branch” do not exist. wholesale investor. relates to the compensation For most, the goal Pushing the limits structure for the branch could be to adjust their with investors isn’t manager. They could be businesses strategy to called “profit participation cope with the regulatory a good plan in branches” rather than “net issues landing on wholetoday’s market.” branches.” sale originators. In a broker aggregator wholesale In evaluating their futures, some brokers might decide to keep their branching company, brokers send businesses essentially unchanged, processed files directly to the investor. while others might choose to become When the loans close, the investor sends independent mortgage bankers, or a the YSP to the home office, where the paythird option is to align with a branching ment is processed and operational deductions are made before the net funds are organization. deposited into the branch account. When the branching company is a Join as a branch In the past, there were many variations mortgage bank, the broker sends the file on the branch concept, some of which to the home office for underwriting, closdidn’t follow HUD requirements. This ing and post-closing. Typically, the led to a negative connotation to the branch will receive a portion of the loan term “net branch.” Many firms now use gain on sale after the loan is sold with the the terms “partner branch” or “affiliate proceeds deposited into the branch cash branch” instead. Whatever you call it, account for payment via the next payroll. In both cases, all branch employees the net branch structure can be implemented in a format that meets regulato- are W-2 employees of the home office and are subject to the home office’s ry requirements. As per HUD, all branch employees policies. HUD also requires that the must be classified as W-2 employees of branch lease be in the name of the the main office. In the past, many compa- home office with a comparable lease nies have disregarded this rule, but the liability. The lease/sublet issue gets requirement is clear. All uniform residen- complicated and should be addressed tial loan applications to be insured by the by an attorney.

Under any branch structure, it is important for branch managers to consider the deep operational ties they will have with the home office and to evaluate the steps necessary to separate from the company, if needed. The decision to move from operating as an independent broker to joining a branch organization requires a complete assessment of business objectives. It’s wise to consider the following:  Philosophical alignment: If the group doesn’t share the same business philosophy as the mortgage broker, a long-term alignment isn’t probable.  Product suite and pricing standards: Brokers should study each of these for several weeks before making a decision. Compare possible future branching companies to assess potential profitability.  Financial condition: Is the company stable? A third-party or certified public accountant (CPA) can help determine this.  Operational support services: Brokers should understand all the offered services and their fees.  Cash commitment: The company should hold several months of operating cash in an account for each branch. New branches will be expected to fund and maintain a minimum balance in this account.  Protocol for relationship termination: It’s best to plan a well-designed exit before the relationship begins. The process of separation should be described in a termination or revision agreement. It can be a simple or complex process, depending on the affiliation structure. Before diving in to a branch arrangement, it’s also imperative for brokers to consider other available paths.

Remain an independent broker Independent brokers must focus on capital preservation, operational efficiency, monthly profitability, and rapid adoption of regulatory modifications, including new YSP disclosure requirements. It’s also important to have continuing relationships with several warehouse investors by delivering quality files and preserving a strong capital base. Independent brokers

should avoiding churning customers or locking loans with more than one wholesale investor. Pushing the limits with investors isn’t a good plan in today’s market.

Become a mortgage bank Becoming a mortgage bank begins the path to true independence. As a banker, you can control the timing of closing. As a banker, you can hedge to improve pricing. And only as a banker can you sell loans to Ginnie Mae, Fannie Mae or Freddie Mac (actually, the loans are securitized with the servicing separated and the newly formed security delivered into a TBA security). Despite the formality of the process, getting on the path to mortgage banking leads to this new level of freedom. The key to this path of mortgage banking is capital and the new levels of capital begin at $1 million and rise to $2.5 million. How can a small lender even think of reaching this level? The first path already discussed is to join a branching company that has already achieved these levels. The other two choices are to raise capital or to pool capital.

Raising capital Raising capital sounds complicated and it is complicated, but there are billions of dollars looking for good returns and most well run mortgage banks generate return-on-investments (ROI) north of 20 percent. This is a strong return in any market. The key is putting together a professional presentation with an accurate financial forecast. Don’t short change getting this information prepared correctly. We are helping companies across the country implement capital formation strategies.

Merger partners The other choice is to merge companies with one or even several other companies. If a company with $250,000 in capital joins with three like companies and another company with $1.5MM, the new whole company has capital of $2.5MM and is ready for the future. Merging together is more complicated than simply joining as a branch. This is a viable solution, but a difficult transition. Get help from a firm that specializes in mortgage bank mergers and acquisitions activity. Before making any transition, it’s essential for brokers to have a clear vision and a plan for implementation. Whatever you decide, you must make money to remain successful. Having a

solid business plan can help as noted below. Most important, brokers should remain aware of industry changes and always be on the lookout for new opportunities.

2008 resulted from mortgage banks engaging in high risk behavior that often included suspension of risk management practices. The key risk management areas include:

Mortgage banking basics

 Operational risk (disaster recovery plan);  Compliance risk (disclosures and fraud prevention);  Counterparty risk (assessment of business partners);  Reputation risk (what others think of the company); and  Financial risk (did the company make money).

Before joining a branching company or before converting to a mortgage bank, it is important to understand a few basics. The key issues to all mortgage banks are pricing, warehouse funding, risk management, strong accounting and good financial management. Pricing is a function of investor delivery options and hedging strategies. The secondary marketing department manages pricing and lock registration. The companies with the best prices are typically mortgage banks that have a hedging strategy, provided it is managed well. A mortgage bank that is hedging, but has an inefficient operation, could have less favorable pricing than a best efforts company. Either way, look at their pricing for an extended period of time to see how they compare to the market. A warehouse line is the funding source to close loans. Obviously, having several stable warehouse lines is essential for a mortgage bank. Find out how the branching company gets the money to fund a loan. Risk management sometimes refers to secondary marketing. In this case, I am referring to operation risk management deep within a mortgage bank. Many of the failures that occurred during 2007 and

Make sure a company has the tools to address these risks. A good accounting system, along with loan level accounting procedures, is essential for accurate financial reports. Otherwise, the branch profits could be distorted. Many mortgage banks do not record loan level activity. Make sure you check. The federal agency that helps small business says that 95 percent of all new businesses fail in the first three to five years due to poor planning and poor financial management. This is not just new business but also business that grow quickly like a branching company. Out of 1,000 people who started a new business, people who took all of their savings to start the business, people who were all 100 percent confident in their future success, 950 out of 1,000 of them have failed and lost everything. They lost everything because

they didn’t have proper financial planning with proper controls over money. So, why didn’t they have a good system to control financial results? Maybe they didn’t know how to build one. Maybe they didn’t have access to a mortgage certified public accountant (CPA). The unfortunate reality is that almost all of them didn’t know what they needed to know. Make sure any branching company has a strong accounting system with a good chief financial officer (CFO) who is also a CPA.

Business plan basics Mortgage brokers can help keep their businesses get on track by following these planning tips published by the U.S. Small Business Administration (SBA). A key element of success is a business plan that addresses strengths, weaknesses, opportunities and threats. This plan should answer several important questions, including:  What is the business’s financial forecast?  Which funding sources are in place or anticipated?  How will you incentivize your sales team?  What technology platforms will you use?  How will you measure success? To learn more about running a successful business, visit the SBA’s planning page at

Do not wait to find success Everyone wants to be successful, but

the desire to be successful is not enough. It takes discipline, planning and a combination of skills to achieve financial success. Mortgage products today are relatively simple, but the complexity of achieving success is more challenging than ever. Do not underestimate the challenges of 2010. A Chinese proverb states, “He who asks a question is a fool for five minutes; he who does not ask a question remains a fool forever.” It is better to ask a question and get help finding your way, than to not ask for help and fail. Andrew J. Schell, CPA, CMB, CFF is managing partner for Mortgage Banking Solutions and president of CFO2Go, as well as the MBS outsourced bookkeeping service. Mortgage Banking Solutions is a national advisory firm based in Austin, Texas with offices from coast to coast. Schell’s experience over the past 30 years with both small and large organizations, including Bank of America in San Francisco, has distinguished him as a results oriented leader who quickly implements creative solutions to enhance profitability. He is both a CPA (Certified Public Accountant), a CMB (Certified Mortgage Banker) and a CFF (Certified in Financial Forensics), who is often published in national circulations discussing risk management, accounting, and secondary marketing issues. He may be reached by phone at (512) 9779900, ext. 102 or e-mail

Providing our Clients with PlatinumLevel World-Class Service is our priority.


Learn more about our services by calling, Lorenzo Pugliano, President and CEO at 631-299-2084.

At PCS you will receive, knowledgeable, courteous service from our staff of skilled credit professionals. Our combined management experience is greater than 30 years of expertise in the mortgage servicing industry. In addition, PCS offers competitive pricing and believes in providing the client personal attention, in all aspects of service.


Platinum Credit Services, Inc. (PCS) is more than just credit, with a full scope of services for mortgage lenders. At PCS, we pride ourselves on providing the highest level of respect and deserving gratitude to our clients. 

Our goal is to help Mortgage Professionals close more loans with our Credit Reporting Services, Mortgage Processing Services, and Appraisal Management Services.


Commercial Lending Insight Or, why we miss the company that almost killed our industry! By Mark Anthony McCray



“Friends, Americans, mortgage professionals, lend me your ears … I come to bury InterBay, not to praise them. The evil that men do lives after them. The good is oft interred with their bones, so let it be with InterBay … we have been told that InterBay was ambitious: If it were so, it was a grievous fault …”


Commercial real estate finance is the process of arranging money to purchase, refinance or develop real property through the issuance and sale of debt and/or equity or managing commercial real estate assets. It normally does not involve properties used for permanent single-family housing. Basically, any real estate that is purchased or developed solely for profit is a commercial real estate deal. There are a number of ways in which commercial real estate finance differs from residential lending practices:

Please forgive my mangling of Mark Antony’s great speech commemorating the burial of Julius Caesar, and the coincidence in the name, but it seemed appropriate to consider the demise of a group of companies that  Acceptable loan-tosimultaneously helped so value (LTV) ratios are many of us prosper, while generally much lower also contributing to the than one would expect death of the American “You want to get to a with residential loans. economy.  Loan underwriting is point at which you It’s no secret that makstill done on a case-byhave “too many” ing a living in the mortcase basis with less prospects. It’s at that gage business is tougher emphasis on credit point at which you than ever. I’ve written scoring and debt ratios, can select the best about it before. While and more emphasis on and most profitable some of the competition present and/or future has gone away, it’s been cash flows. scenarios on which replaced by borrower dis Appraisals and other to work.” trust and disarray in the third-party reports, such lender market. I would as environmental assessargue that becoming proficient in closments, surveys, feasibility reports, ing commercial loans is a key to staying inspections, etc. will cost more and in the game as the residential market take longer to complete. continues to settle down and begins to  The time frame required to analyze, recover. But, many of the lenders that package, place, underwrite and close we called for help don’t even have Web the loan is usually much longer. sites or contact numbers anymore!  Closing costs are higher for the borTherefore, I believe that there is one rower. good thing that companies like  There is a broader array of lending InterBay did for all of us: They gave us alternatives and financing structures much needed guidance through the available to the borrower. commercial lending maze by showing us how to prospect, package and place Because of all these distinctions, loans for many types of properties. many real estate professionals choose Commercial loan brokering has not to work on commercial mortgages always been intimidating to some of us. because: However, let’s take a brief look at what is it and isn’t and discuss how we can all  They believe that the work is too profit from closing commercial loans. complex for them.

 They believe it takes too much time to understand and close the loan.  They believe they will spend too much time working without getting paid.  They feel like they don’t know the money sources.  They are intimidated, afraid and uncertain. There are countless other reasons. Many are legitimate and some may not carry as much weight. Still, without the proper guidance, a lot of money-making opportunities can be squandered. Yet, the bottom line for you and for me is that, as a result of the rigid underwriting guidelines of most traditional banks—even more so following the debilitating credit crunch of the last couple of years, there is a sizeable pool of unserved and undeserved commercial property buyers. Most small commercial property owners and buyers don’t know where to go for a commercial loan outside of a bank. The small commercial property segment is being underserved or ignored by lenders with only the best of the best being able to obtain even a positive review from a bank’s loan committee. The opportunity is here now. So, where does an honest, hardworking mortgage professional turn to for help these days? As someone who has been brokering commercial loans since I entered the business, I have some advice to share with you as you consider doing more commercial deals.

Learn the terminology One of the reasons that entering any new field is intimidating is that the people in it tend to use a lot of jargon and unfamiliar terms. Commercial lenders, borrowers and brokers don’t speak that same language as their residential counterparts. Take the time to study trade publications. Make time to read The Wall Street Journal. Read up on commercial mortgage newsrelated Web sites. When you’re talking to people and a concept goes over your head, ask your partner to explain it to you. They’ll feel smarter, you’ll be smarter and you’ll be able to serve your customer more effectively. As you gain a better handle on the language, your confidence will soar and your clients will notice.

Meet with lenders I believe this is the habit that separates those who will last in this business from

those who won’t, and divides those who close loans from those who don’t. Since commercial lending is still more of a faceto-face, relationship-oriented business than residential lending, you’ll need to get in your car, get on a plane and wait in front of some receptionists to get a leg up on the competition. Resist the temptation to substitute e-mails and phone calls for this part of your process. Ask people about their lending preferences and pick up tips on how to get loans through their processes. The lenders have capital and want to lend it. This practice will dramatically increase your close ratios. It’ is no longer about having lots of lenders in your database. The lenders need to know you, too.

Begin where you are Once you’ve decided to add commercial brokering to your toolkit, you will want to develop the habit of telling at least 20 people per day. It can be as easy as sending out an e-mail, sending a fax to some of your old customers, handing out your business card or talking to a few people at the local coffee shop when you stop in for a latte. Make sure you’re always telling people which loans are being done (and now that you have met with some money sources, this should be easy and convincing). You will attract a lot of business if you let your contacts know, “Here’s who I am, and here’s what I’m doing.” Never, ever stop. Even when you feel like you’re getting too many leads and too much business, don’t stop telling people about your services. You want to get to a point at which you have “too many” prospects. It’s at that point at which you can select the best and most profitable scenarios on which to work.

Manufacture momentum Momentum is one of the most precious elements that your business can have and once it’s lost, it is incredibly difficult to recapture. You can’t allow yourself to lose momentum in filling your pipeline ever. It’s like a flywheel. Once you let it slow down or stop, it takes a lot more energy to get it going up to speed again that it would have to keep it going in the first place. It’s better to act radically whenever you might feel like it is slipping away. In my experience, the easiest and most financially productive way to jumpstart one’s momentum is to get very aggressive with your advertising. Reach out to touch new markets and meet new people. Their energy will add to what you’re doing

whenever you’re feeling a personal slump or your business needs a jump start.

Shift your mindset Now that you have chosen to become a commercial lending professional, you each have to realize and respect a couple of things about yourself. Your knowledge and what you are able to do are not common. You might feel common, but I hasten to point out that you’re already specially positioned and a member of a very small group of professionals. As you’ve endeavored to make important connections and develop your expertise, you’re already a cut above the average loan officer in your knowledge. Celebrate that! Appreciate it and others will, too.

Commit to personal and professional development Real estate lending will continue to morph over the next few years and months as the market at-large matures, regulations increase and lenders continue to consolidate. Globalization is having an impact as well. Be sure to invest in yourself by attending conferences, joining professional trade organizations, reading the local newspaper, enrolling in continuing education and more. In any field, the leaders are the learners.

There is a gap in the market today left by the sudden explosion and then implosion of the commercial segment of the market. The newspapers tell of the need for commercial loans to be restructured and for properties to be refinanced. On the other side of the ledger, most non-bank lenders have more capital to lend than they have had in quite some time. Companies like InterBay made commercial lending accessible to us all. We thank them for that. Now there is a gap and in that gulf lies an opportunity for you and me! To your success! Mark Anthony McCray is chief executive officer of Houston, Texas-based First Capital Commercial Finance and an associate with Managed Mortgage Investment Fund (MMIF). First Capital is a commercial mortgage banking firm that helps clients leverage millions of dollars in financing for their real estate acquisitions, developments and investments. MMIF is a direct lender specializing in short-term private mortgage financing and equity investments. He may be reached by phone at (832) 5662001, e-mail, follow Mark on Twitter @markmccray or visit

By Michael Lagazo

 After 13 consecutive months of declining property values, the Moody’s/REAL Commercial Property Price Index (CPPI) measured a one percent increase in prices in November. Prices began falling over two years ago and significant declines were seen throughout 2009, with several months experiencing five percent-plus value drops. The one percent growth in prices seen in November is a small bright spot for the commercial real estate sector, which has seen values fall in excess of 43 percent from the peak.  Transaction volume fell in November. Overall, 362 total sales were recorded, with an aggregate value of $4.1 billion.  We expect commercial real estate prices to decline further in the months ahead. Prices for properties with short-term lease structures, such as multi-family, could show signs of a sustainable recovery later this year, while other property types will likely need longer to turn the corner.

continued on page 40


“We are beginning to see some early, yet encouraging, recovery signals, as the manufacturing sector is improving,” said Craig Meyer, managing director and head of Jones Lang LaSalle’s North American Industrial Services team. National Real Estate Investor reports that rental rate appreciation is not expected to begin until consumer spending and production activity trends reverse. “There will be giant opportunities that


Rising vacancies and falling rents are Stuart Bern, note that U.S. commercial real impacting all sectors of commercial real estate prices have fallen more than 40 estate. Landlords are focuspercent from their peak ing on tenant retention and in October 2007, while negotiating lease extensions the default rate on comat low rents with favorable mercial mortgages more allowances to sustain revthan doubled in the third enues. The Beige Book Jan. quarter of 2009 to 3.4 13, 2010 Summary indicatpercent from the previous ed that while economic year, according to data activity remains at a low compiled by Moody’s level, conditions have Investors Service and improved modestly further, Real Estate Econometrics and those improvements ( are broader geographically Grubb & Ellis indicates than in the last report. that in 2010, commercial “… despite property Commercial real estate marreal estate fundamentals prices bottoming, a kets deteriorated in most will decline more slowly districts based on informa- large number of com- than in 2009, with most mercial assets tion collected on or before property types reaching remain underwater, Jan. 5, 2009. Commercial bottom near the end of with loans worth real estate transactions and 2010 and beginning a slow leasing activity are minimal recovery starting in 2011. more than the propwith isolated minor increasRobert Bach, senior vice erty’s value.” es in sales. Commercial conpresident, chief economist struction activity is reported at Grubb & Ellis, reports in to be shrinking rapidly ( the Jan. 19, 2010 Weekly Market Insight Bloomberg reporters, Beth Williams and that vacancy rates in Q4 2009 increased by

Real Estate that loan demand continues to decline or remain weak and credit quality continues to deteriorate. Amassing capital in a credit-restricted market tops real estate priorities. Stuart recommends pursuing non-traditional capital-raising options. For instance, Simon recently sold $500 million of fiveyear unsecured bonds priced to yield 5.46 percent, bringing the total capital Simon has raised in bond and equity offerings since March 2009 to $3.4 billion. Its cash available for strategic acquisitions, including capacity on its revolving line of credit, is now in excess of $6 billion ( Moody’s Investors Service said that commercial property prices rose one percent in November, after 13 consecutive months of declines, according to their latest Moody’s/REAL Commercial Property Price Index (CPPI) ( l/rca.html). Here are some excerpts from the Moody’s/REAL report: 

Commercial Real Estate: A Protracted Recovery

30 basis points for office and 20 basis points for industrial compared with third quarter gains of 50 and 30 basis points, respectively. This raises the possibility that the office and industrial leasing markets may bottom out as early as mid-year with modest, positive absorption possible in the second half of 2010. As featured in the Jan. 19, 2010 National Real Estate Investor podcast titled, “Commercial Real Estate: Hey, Save a Piece of Stimulus Pie for Me!” (, John B. Levy, founder of John B. Levy and Company, the real estate investment banking firm, does not anticipate resurgence in commercial real estate values until 2011. Levy offers a clearly improved outlook for 2010 compared to last year, anticipating a protracted recovery of values and pricing with gradual increases depending on how the economy grows as well as the rebirth of commercial mortgage-backed securities (CMBS). According to Levy, the first and second quarters of 2010 will be slow improving in the second half of the year, but favorable overall compared to 2009’s totals. In a Jan. 13, 2010 Bloomberg interview, Kenneth Laub, a broker for five decades, and consultant and founder of Kenneth Laub & Company, is said to have handled more than $40 billion of real estate transactions since its inception in 1969, says, “It’s not a supply/demand thing; it’s an overleveraged condition” ( Unlike previous cycles driven by supply and demand where inventories have been overbuilt making it a landlords’ market or diminished rents make it a tenants’ markets, the current market is driven by a need to deleverage. Ultimately, Laub said that a coming recovery will extend beyond typical periods of two to three years. “It won’t be a typical part of a cycle where we’re down for two or three years and things recover. It will be longer than we’ve gone through before.” Wall Street Journal Real Estate Reporter Christina S.N. Lewis explains that, despite property prices bottoming, a large number of commercial assets remain underwater, with loans worth more than the property’s value. That distressed debt totals hundreds of billions of dollars on bank balance sheets and in commercial-mortgage-backed securities held by institutional investors. Any stabilization applies to only the top quartile of properties—fully leased buildings with steady rental income located in established markets. “[In general] I wouldn’t say there’s been any improvement in pricing for a property that isn’t top-tier,” said Robert M. White Jr., president and founder of Real Capital ( Michael Stuart elaborates in the January issue of Commercial Investment




come out of this,” said Laub. Opportunity lies in overleveraged and underfinanced distressed assets. Record-level inventory is available in all sectors. Bargain hunting hedge funds, foreign investors and solvent real estate companies will acquire properties with diminished values. In a Jan. 19, 2010 Bloomberg interview, Laub said that prices and values will begin to stabilize once unemployment stabilizes. At approximately 200-square feet per unemployed worker, demand for space will increase once companies begin hiring ( New services are emerging as property owners seek to restructure their finances, acquire tenants or liquidate assets. In a Jan. 15, 2010 squarefeetblog post, Stan Mullin, the former head of SIOR, wrote a detailed article covering receiverships that explains how commercial agents will benefit from working with court-approved receivers to preserve the value of an asset after a default. There is a major upsurge in receiverships as a result of the crisis, and most of the major commercial real estate (CRE) firms have either revived or setup service lines to service the loan industry ( “We’re going to have a lot of new services that are going to evolve, things we haven’t seen or done before,” Laub said. Deleveraging is just getting underway. Deleveraging takes two to three years at which time gross domestic prod-


uct (GDP) growth is suppressed. The market is only at the beginning stage or renegotiating between mortgage holders and developers. “The rebirth of the CMBS market is absolutely going to happen this year,” said Levy. “Last year, we had three CMBS deals, and that was three more than anyone predicted. The CMBS market in 2010 won’t resemble the one we knew and loved in 2007, but we will see a rebirth with reasonable and rational underwriting. I even think we’ll see the first multi-borrower CMBS deal this year.” Michael Lagazo has more than six years of commercial real estate experience. Lagazo specializes in retail real estate and oversaw operations, leasing and marketing as a center manager and general manager for leading global REITs and real estate firms. Lagazo has most recently served as a general manager for Aviara, one of Southern California’s premier real estate developments covering a two millionsquare foot master-planned community with 1,384 executive homes, as well as a Four Seasons Resort and golf course. Lagazo has served as a center manager for Forest City Enterprises at award-winning super regional center, Victoria Gardens in Rancho Cucamonga, Calif., at Madison Marquette and at Westfield Group. He may be reached by phone at (619) 2009790 or e-mail

Commercial Real Estate Finance: The Present Day “Gordian Knot” Who will be the next Alexander the Great? … CMBS By Louis Mirando

I left the commercial mortgage-backed securities (CMBS) origination industry four years ago when some concluded that that any income-producing property with a just a mere rumor of cash flow could qualify as a candidate for a loan securitization. Do not misread the motive for my departure … I am not that altruistic. I assumed it would be better to be a borrower than a lender in that scenario. Truth be told, the vast majority of professionals in the conduits were highly disciplined and their detractors have always exaggerated the alleged abuses. In fact, a new and improved form of securitization program is still is our best hope out the mess we now find ourselves in.

The early CMBS pioneers got it right; its role can best be described as the prime force that rescued the industry shortly after the last commercial real estate depression of the late 1980s. The early vintage securitizations were primarily comprised of smaller- to mid-sized 10year fixed-rate mortgages. Because most mortgages were originated at the bottom of the trough, they have performed well. Had we remained more focused in perfecting the conduits, much of the existing commercial finance crisis today could have been minimized. Of course, the industry would still be coping with a natural down cycle. In fact, back in 1998 shortly after the Russian default crisis, the

CMBS business snapped back much faster than predicted. Ironically, during this temporary lull, would have been the ideal the time to perfect and nurture the traditional conduit business. For example, in 1998, my company, Transatlantic Mortgage (aka, Deutschebanc Mortgage), was the first loan origination conduit to purchase a significant interest in the “B Piece” off the securitization in which it contributed loans to. The theory was to align the profit incentive of the loan originator with the performance of the bond issue. Unfortunately, it was a practice not picked up on a then recovering industry. As many of the CMBS platforms recovered and became highly profitable, there were probably more than 30 of them by 2005, we turned over greater control and authority of the balance sheet to these operations. As global investment demand pressed further for products, the internal pressure built for expanding the scope of investment beyond the traditional fixedrate loans. The goose that was laying the golden eggs, namely the conduits, were neglected. A once good thing that only needed timely oversight and incremental innovation became vilified as to be slow and marginally profitable. At best, it was a feeding gateway for larger exposures in the form of bigger and more complex transactions. As an industry, we unwittingly entered into practices we were ill advised to be in, such as bridge financing, construction lending and condominium developments, to name just a few. The need for investment distribution called for the invention of complex structures, such as collateralized debt obligations (CDOs), special investment vehicles (SIVs), highly structured syndicated participations in B notes and bifurcated mezzanines and preferred equity. Unlike the traditional fixed-rate conduits whose third-party industry organically grew to support the practice, these new investment endeavors far surpassed the industry’s capacity to support them. Unintended consequences resulted in a downturn of the market, thus dragging everything with it. The traditional fixedrate CMBS business became a “baby drowning in the bath water.” The new battle cry … create volume, sell volume and it unfortunately resulted in structures that no one can understand how to unwind in the current meltdown. This carnage, which now seems irreparable and dire, may be the number one obstacle to the recovery of the commercial real estate market. A true Gordian Knot has resulted. The industry seems paralyzed and is left with a confluence of dysfunction: A special servicing industry in near collapse, a myriad of lender liability lawsuits, minimal liquidity, a demonization of developers and owners (who are probably one of our best hopes out of the mess), deteriorating assets, a ticking

time bomb of losses that is only growing, a collapse of ancillary industries that have supported commercial real estate for the last 100 years. Namely, real estate attorneys, mortgage and real estate brokers, title examiners, appraisers, engineering firms, construction personnel, accountants and diligence firms continue to wilt and are the real human tragedy. Perhaps the most egregious result is an unwillingness to recognize that a continued status quo policy of putting off losses may cause a 21st Century Great Depression. The solution is clear, albeit a painful one. The Gordian Knot cannot be methodically untied or legislated away. A bold swoop of the sword is necessary. The way out: Quickly rebuild a new and better CMBS industry with emphasis on aligning interest and performance. There is no debate that CMBS was an effective weapon in ending the Resolution Trust Corporation (RTC) mess of the 1980s and 1990s. Embrace the entrepreneurial forces of profit. First, there must be an industry consensus that bold action is called for; those clinging the status quo should be at least, at a minimum, prevented from being obstacles to the new incarnation of CMBS. The federal government must stop propping up institutions, get out of the way and let them fail, thus resulting in the emergence of better capital stewards. Allow orderly liquidation of underwater loan assets, including special servicers stepping up their foreclosures and also allowing discounted payoffs from existing borrowers, as this will all lead to a flourishing transactional business again, creating tens of thousands new jobs through a multiplying effect. Early CMBS was the embodiment of “The Mother of Invention,” as in competent hands, it can become the sword we need. Its role in creating liquidity in the days of the RTC cannot be denied. The sooner this happens, the sooner things will recover. I still hold these truths to be self evident: Value equals income divided by cap rate. A safe loan can be underwritten at a 1.25 times debt service on actual income. A well-underwritten commercial mortgage is still a good asset and plays an important part in a capitalist society. This doesn’t require bond math. There are thousands of fine and competent professionals ready in the industry who can swiftly design the sword necessary to cut the Gordian Knot. Let’s get on it while there is still time. Louis Mirando is co-founder of TransAtlantic Capital Advisors LLC based in New York, N.Y. Louis has more than 25 years of commercial real estate finance, acquisition, disposition, brokerage and development experience in $10 billion-plus worth of real estate transactions nationwide. He may be reached by phone at (212) 889-0300, ext. 201 or email

Commercial Loan Modification By Ted Schmidt

 Permanent modification: Often, a complex transaction that the bank is reluctant to do as it often reduces the value of the asset on the banks books.

 New equity partner: The bank is more likely to work with a borrower that is willing to release equity in

In evaluating the best possible and most likely course to take the consultant would produce property valuations based on the liquidation “fire sale” value, and a “go-forward” value based on the owner remaining in control. Fee for service and contingency fee agreements include some of the business models that have emerged by consultants in this niche industry. Some firms are organized like law firms and charge their clients on an hourly basis drawn from a retainer. These firms only guarantee to perform the work they are contracted for and don’t offer the client a guarantee of a modification to their loan. Other firms charge a set upfront fee with a guarantee of performance. This guarantee is fictitious since only the bank can agree to a modification. A third party cannot compel them to act. Presumably, the property owner pays several thousand dollars upfront with the promise that if his loan doesn’t get modified, that the money will be returned. Yet other firms charge no upfront fee and the property owner signs a promise to pay once the loan has been modified. This type of agreement would have a contingency fee for a principal reduction and could be in the several hundred thousand dollars for the typical $5 million loan. Many people coming out of the mortgage industry and other fields are looking at the commercial modification as a new business. Leveraging their existing relationships, commercial mortgage brokers, attorneys, commercial real estate agents and residential loan modification consultants are adding commercial modifications to their menu of services they can offer their clientele. Several national companies have emerged that are offering affiliate programs. These programs typically pay out 10 to 20 percent of their fees to referrers and offer marketing and sales support. Anyone interested in referring business to a national commercial modification company ought to exercise prudent due diligence and look into the background and experience of those offering these types of programs and services. Ted Schmidt is president of Leadsnet Inc. and marketing director with He may be reached by phone at (530) 387-3631, email or visit


 Principal reduction: These are usually only done in relation to a short sale or short refinance where the bank accepts less than the full value to settle the debt. The bank won’t reduce the principal so the property owner can make a profit.

 Bankruptcy: Unlike residential property, when an individual is in bankruptcy, the judge can “cram down” or reduce the principal or otherwise modify the terms of the mortgage.


 Term extension: This is when the bank agrees to extend the maturity on a loan that cannot be refinanced because of high loan-to-value (LTV), but has cash flow sufficient to service the debt. This type of modification can often be done with a phone call to the bank and rarely requires assistance from a consultant.

the property to a new investor that comes in with cash. 

The commercial real estate market had short maturities of three to five years. been described by many as a “tsunami” The assumption was that property valand “the next shoe to drop.” The ocean ues would keep rising and refinancing has receded and curious onlookers are would be automatic. gathering at the shore, observing peoWith the two primary markets for comple collecting fish on the dry ocean mercial real estate finance effectively in floor, along some of the most highly “lock-down” mode, property owners and leveraged condo projects and luxury lenders are in a precarious position. With hotel suites in the country. Multibillion the stimulus package passed last year, dollar deals that were made in an envi- Congress changed accounting rules which ronment of optimism allowed banks to keep loans and increasing rents as on their books at full value, far as the eye could see rather than using “mark-tohave come undone and market” which forces crashed ashore amidst lenders to show the true the carnage of investor market value of an asset on losses. What is happening their books rather than the now was inevitable and inflated book value. Lenders years in the making. cannot take the losses on When the tech bubble their book because they are burst at the beginning of already undercapitalized the millennium, we were and risk being shut down by faced with the possibility regulators. “With the two priof a mild recession. After Borrowers cannot servmary markets for Sept. 11, the Federal ice the debt, refinance or Reserve enacted a policy of commercial real estate sell. There is a reality gap finance effectively in very low interest rates to between borrowers and ‘lock-down’ mode, spur economic growth. lenders, buyers and sellers. property owners and These rates were brought The only buyers out there lenders are in a predown to a one percent fedare “vulture” investors who carious position.” eral funds rate and persistare picking up properties at ed for several years. This steep discounts and cap fed the fuel of demand for higher yielding rates not heard of since the 1980s. investments and spurred a boom in comThese circumstances have paved the mercial mortgage-backed securities way for a new industry—commercial (CMBS). CMBS are bonds that are sold on modification consulting. This new Wall Street to investors all around the industry faces as many challenges as world. The bonds are used to fund invest- those they serve. With the proliferation, ments on portfolios of commercial loans. social backlash and regulation of forThe income stream from the property is profit residential modification compapassed from the property owner to the nies, commercial modification compabond holders. nies have additional credibility obstaUnderwriting standards became cles to overcome by association to the relaxed as intense lending competition residential modification business. vied for a diminishing population of qualThere are many misconceptions about ified borrowers. Ratings agencies gave the commercial mortgage modification CMBS bonds AAA ratings. Subsequent loss- business especially in how it relates, in es in the CMBS market led to the seizure of scope, to the residential business. Let’s the CMBS market at the end of 2007. That have a look at the numbers. There are market has started to recover somewhat, about 125 million single family homes in with the issue of new CMBS partially fund- the United States. The commercial propered by the Federal Reserve’s Term Asset ty marketplace is much smaller in terms of Lending Facility (TALF) program. The TALF the number of property owners. There are allows banks to leverage their existing about five million commercial properties CMBS portfolios for new loans from the in the U.S. With the default rate on comFed at extraordinarily low rates. mercial loans running just around three Portfolio lenders, which are made percent, this represents approximately up of regional banks, insurance compa- 150,000 properties in which the owner is nies, pension funds and others that in need of modification consulting. There lend money directly to commercial are more potential clients that are not in property owners, have pulled out of the default, but this number represents a market and are actively trying to nominal market place population of fewer reduce their exposure to commercial than 50,000 individuals since many comreal estate. Most of the loans made in mercial property owners have more than the bubble years of 2004-2006 had one property.

With the passage of SB 94 in California last year, thousands of entrepreneurs and their employees lost their jobs. Many are exploring commercial modification as a new line of work. The misconceptions about the commercial modification business start with the numbers and continues with the scope of work required to complete a successful modification. In residential modifications, 70 percent of the deals were cookie-cutter deals that fit nicely within the Obama Administration’s modifications plans like the Home Affordable Modification Program (HAMP), Making Home Affordable and other programs put forth by the Federal deposit Insurance Corporation (FDIC) and Federal Reserve. There are rarely any negotiations. The loan mod company simply submits a package that has been underwritten according to the guidelines published by the Federal Housing Administration (FHA), Fannie Mae and Freddie Mac, and approved by the loan mod company before being sent to the loan servicer. This is why many companies claimed a 90 percent or more rate of success. They were easy to do, if you knew how to get it done. The commercial modification business involves real negotiations, in-depth market research, financial analysis and hours of tedious data collection, discovery, verification and reporting. Most of this is foreign to the residential mortgage brokerturned loan modification consultant. The services offered by a commercial modification consultant would include a go-forward plan to salvage the owners’ investment in the property. Every case is different, and the services offered would depend on the needs of the client. Possible outcomes of a commercial modification include:



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“When I first began reviewing the contents of this book, I became quite jealous ... Atare Agbamu has set down an impressive amount of information ... And he delivers it in an easy-to-read, simpleto-understand style that will make this book essential reading for all reverse mortgage professionals.” —from the Foreword by Jim Mahoney, Co-Founder and Former Chairman, Financial Freedom Senior Funding Corporation, and former four-term Co-Chair of NRMLA’s Board of Directors

“The stories [Chapter 15: Profiles in Satisfaction] are the best vehicle to increase understanding and acceptance of reverse mortgages among us laypeople. They are very compelling ...” —Therese Cain, Executive Director, Minneapolis/St. Paul Chapter of Little Brothers—Friends of the Elderly

“This book should be required reading for all new loan consultants originating reverse mortgages and is recommended for experienced ones as well. This book provides excellent insight and information on preparing ahead to provide the service our seniors deserve, to ensure a smooth loan process and shorten the time to closing. Most of the problems caused in the processing and closing of reverse mortgages come from inadequate preparation.” —Deanne Opstad, AVP, Senior Underwriter, Generation Mortgage Company


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“Atare Agbamu is one of only a handful of people in the reverse mortgage arena who possesses a commanding understanding of the reverse mortgage industry. As an originator, he has hands-on experience educating seniors and their advisors. As author of the “Forward on Reverse” column in The Mortgage Press since 2002, Atare Agbamu communicates nationally with the housing finance community, bringing the unique insights and experience of an ardent reverse mortgage expert into a wider business context. “This book combines Atare’s keen insights and know-how with extensive research to create a first of its kind resource for the reverse mortgage industry. It offers a comprehensive overview of the industry plus detailed information on marketing and originating reverse mortgages. “Present and future reverse mortgage professionals and senior advisors will profit from decades of experience skillfully woven into this book. If you plan to succeed in this industry, this book is the place to start.”



To submit your entry for inclusion in the National Mortgage Professional Calendar of Events, please e-mail the details of your event, along with contact information, to FEBRUARY 2010 Sunday-Wednesday, February 21-24 National Association of Mortgage Brokers 2010 Legislative & Regulatory Conference Hyatt Regency Washington on Capitol Hill 400 New Jersey Avenue NW Washington, D.C. For more information, call (703) 3425900 or visit

Tuesday-Friday, February 23-26 Mortgage Bankers Association National Mortgage Servicing Conference & Expo Manchester Grand Hyatt 1 Market Place San Diego For more information, call (800) 793-6222 or visit

MARCH 2010 Tuesday, March 9 Illinois Association of Mortgage Professionals 2010 Mortgage Madness Mini-Marketplace “Spring Into Action” The Carlisle • 435 East Butterfield Road Lombard, Ill. For more information, call (630) 9167720 or visit

Sunday-Wednesday, May 23-26 Mortgage Bankers Association Commercial/Multifamily Servicing and Technology Conference 2010 Sheraton New York Hotel & Towers 811 7th Avenue New York, N.Y. For more information, call (202) 557-2790 or visit

Thursday-Friday, March 11-12 Idaho Association of Mortgage Brokers 2010 Conference “Charting the Course for Success” The Red Lion Hotel 1800 West Fairview Avenue • Boise, Idaho For more information, call (208) 321-9309 or visit

Sunday-Wednesday, May 23-26 Mortgage Bankers Association National Secondary Market Conference & Expo 2010 Hilton New York 1335 Avenue of the Americas New York, N.Y. For more information, call (202) 557-2790 or visit

Sunday-Wednesday, March 14-17 27th Annual Regional Conference of Mortgage Bankers Associations Trump Taj Mahal Casino Resort 1000 Boardwalk at Virginia Avenue Atlantic City, N.J. For more information, call (973) 3797447 or visit Thursday-Friday, March 18-19 2010 Pacific Northwest Housing Summit The Seattle Center 305 Harrison Street • Seattle, Wash. For more information, visit




Abacus Mortgage Training and Education .......... ......................................4 & 21 ACC Mortgage .................................................. ....................................11

APRIL 2010 Wednesday-Thursday, April 7-8 Maryland Association of Mortgage Brokers 2010 Conference & Exposition “MAMP: A New Game” Baltimore Convention Center 1 West Pratt Street • Baltimore For more information, call (410) 7526262 or visit

AUGUST 2010 Wednesday-Friday, August 18-20 California Association of Mortgage Brokers 2010 Annual Convention & Grand Exposition Hyatt Regency Long Beach 200 South Pine Avenue Long Beach Convention Center 300 East Ocean Boulevard Long Beach, Calif. For more information, call (916) 4488236 or visit SEPTEMBER 2010 Thursday, September 16 Iowa Association of Mortgage Brokers 2010 Annual Convention White Oak Vineyards 15065 Northeast White Oak Drive Cambridge, Iowa For more information, call (515) 210-4675 or visit

Entitle Direct Group.......................................... ..................Inside Front Cover .................................... ..............................MN2 First Source Capital Mortgage, Inc. .................... ..........................................19 Flagstar Bank .................................................. ......................Back Cover Franklin First Financial .................................... ............................34 Frost Mortgage Banking Group ......................................................................................................23 Guaranteed Home Mortgage.............................. ....................................................25 HTDI Financial ................................................ ........................................26 Inlanta Mortgage.............................................. ..................................................9 MBA-NJ/NJAMB ................................................ ....................................................5 Mortgage Concepts .......................................... ........................15 Mortgage Dashboard, LLC.................................. ..............................31 Mortgage Now, Inc. .......................................... ........................................16 ..................................43 NAMB.............................................................. ........MN4, 12, 22, & 42 NAMB.............................................................. ....................................MN1, 30 & 34 NAPMW .......................................................... ..................................................32 Platinum Credit Services, Inc............................. ........31, 33, 35 & 37 Presidents First Mortgage Bankers .................... ......................................29 Quality Mortgage Services ................................ ............................10, 17 & 42 Titan Lists ....................................................................................................................................13 United Northern Mortgage Bankers Ltd. ............ ...... 30 & Inside Back Cover Wall Street List ................................................ ........................................42 Wells Fargo Home Mortgage.............................. ............................................20

MAY 2010 Monday-Thursday, May 3-6 Tennessee Association of Mortgage Professionals 2010 Convention & Trade Show, “Tried, Tested & True” The Hotel Preston 733 Briley Parkway • Nashville For more information, call (615) 302-0001 or visit Thursday-Sunday, May 13-16 National Association of Professional Mortgage Women’s 46th National Education Conference & Annual Meeting Marriott South Austin 4415 South IH-35 Austin, Texas For more information, call (800) 827-3034 or visit

OCTOBER 2010 Tuesday-Wednesday, October 19-20 Utah Association of Mortgage Brokers 2010 Annual Expo Location to be determined For more information, call (801) 787-6611 or visit Sunday-Wednesday, October 24-27 Mortgage Bankers Association 97th Annual Convention & Expo Atlanta Georgia Congress Center 285 Andrew Young International Boulevard NW Atlanta For more information, call (800) 793-6222 or visit





Emigrant Mortgage Company ............................ ................................27

Sunday-Wednesday, April 25-28 Mortgage Bankers Association National Technology in Mortgage Banking Conference & Expo Hyatt Regency Chicago 151 East Wackler Drive • Chicago For more information, call (800) 793-6222 or visit



Elliott and Company Appraisers, Inc................... ..............................................30



Calyx Software ................................................ ........................................19




At United Northern, we give you the freedom to originate and succeed with our winning team. About working with United Northern Mortgage Bankers • Ongoing training and consultation with top industry executives • An in-house team to monitor SAFE Act compliance • Access to in-house marketing services

• In-house underwriting

• Pricing support desk to ensure maximum profitability on each • Most loans underwritten in 24 to 48 hours loan, while maintaining a competitive advantage over the street • Multiple valuation tools to research value • Proven leading-edge technology (built on Encompass 360 • In-house valuation desk to help ensure accurate technology) values and responsive turnaround time • Virtual office support • Multiple established warehouse lines • Licensing and regulatory compliance services

Limited room available for established Team Leaders and Licensed Mortgage Originators. Become part of an established 30-year Mortgage Banker with a proven track record and success.

Learn about the great opportunities available by making an appointment with United Northern Mortgage Bankers Executive Vice President Julio de Cardenas by calling 888-600-8808, ext. 1 or by e-mailing

United Northern Mortgage Bankers, Ltd. Corporate NMLS ID# 7230 New York State Banking Dept. - Licensed Mortgage Banker – License #100724 New Jersey Dept. of Banking and Insurance – Mortgage Lender – License #L0046623 Pennsylvania Dept. of Banking – Mortgage Lender – License #20887 Connecticut Dept. of Banking - Mortgage Lender - License #20372 Massachusetts Div. of Banks and Loan Agencies - Mortgage Lender & Mortgage Broker – License #MC5070 North Carolina Commissioner of Banks – Mortgage Lender – License #L140365 South Carolina State Board of Financial Institutions – Supervised Lender – License #S7,461 Florida Dept. of Financial Institutions - Mortgage Lender - License #ML0700679 Senior Security Home Advantage is a lending area of United Northern Mortgage Bankers, Ltd. Direct FHA Endorsed Lender

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