NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
O AUGUST 2009
U.S. POSTAGE PAID NMP MEDIA CORP 11431
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE O www.NationalMortgageProfessional.com
The NAMB Perspective
Ask Brian: A Group of Buyers Who Need Your Help … Now!
By Brian Sacks
Regulatory Compliance Outlook: August 2009 By Jonathan
The Most Common Fraud Classifications By Tommy A. Duncan
Forward on Reverse: An Assault on Fairness: Quash Mortgagee Letter 2008-38, Part II By Atare E. Agbamu, CRMS
By Charlie W. Elliott Jr., MAI, SRA
FHA Insider: Getting Borderline FHA Loans Approved: Become an Artist and Learn to Paint the Picture By Jeff Mifsud
NMP Mortgage Professional of the Month: Dave Zitting, President and Chief Executive Officer, Primary Residential Mortgage Inc.
Trend Spotter: The Aroma of Sizzling Financing Incentives By
Charting the Course for the Future of the Broker Industry: Lone Star State native Jim Pair, CMC leads NAMB into a new era By Eric C. Peck
A View From the “C” Suite: Quality Control By David Lykken
Successful Sales is Success Prospecting By Tom Ninness, CML, CMPS
Will Obama’s Proposed New Agency Solve Flaws in the Credit Reporting System? By Terry W. Clemans
Homeownership: More Than Money By Dave Hershman
Service Release Premium Versus Yield Spread Premium: Match or Mismatch? By Jonathan Foxx
Will You be Red Flags Compliant? By Brad Kelso
Lenders Should Require Red Flag Compliance for Their Own Protection By Jim DeGeronimo Sr.
2009 … The Year of the Regulation By Leonard Ryan
Red Flags Everywhere! By Ron Cahalan, CMPS
NMP Market Barometer
Ask Tommy: Your QC Expert By Tommy A. Duncan
RESI DEN TIAL
TECH NOL OGY
COM MER CIAL REVE R MOR SE TGA GES O AUGUST 2009
Credit Repair: Do it yourself or hire a credit restoration company? By Brian C. Aber
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Value Nation: What is a Real Deal in Real Estate?
MAR KE SALE TING/ S SETT LE SERV MENT ICES
ORIG INAT IONS SECO NDA RY SERV ICIN G COM PLIA NCE
August 2009 Volume 1 • Number 4
Mortgage PROFESSIONAL N A T I O N A L
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A message from NMP Media Corp. Executive Vice President Andrew T. Berman Compliance technology This month, we took a deep look into compliance technology and how it affects mortgage professionals. Included in this section is Informative Research’s Brad Kelso’s article “Will You be Red Flags Compliant?” As a side note, I just saw Brad speak at a convention in California where he polled the room on just how many in attendance had their Red Flags compliance manuals in place. Less then 1/6 of the room were ready for Red Flags. Continuing along those same lines, be sure to read Jim DeGeronimo’s opinion on the lender’s responsibility as it relates to Red Flags. And still more Red Flags coverage (as an industry, we need more awareness) from Ron Cahalan in his piece, “Red Flags Everywhere.” Leonard Ryan also covers all major compliance issues in his contribution, “2009 ... The Year of the Regulation.” Closing up this section is the “Compliance Tools Directory,” featuring a number of companies that offer products and services to mortgage companies to help stay compliant. As we went to press, the Federal Trade Commission (FTC) provided the industry with a little more breathing room as the deadline for compliance was moved up once again from Aug. 1, 2009 to Nov. 1, 2009. I urge you all to take advantage, if you have yet to, of this window of opportunity to get in compliance with the Red Flags Rules as fines for non-compliance are steep. Who needs additional expenditures in this market? Besides, it’ll now be the law. This month’s Mortgage Professional of the Month is Dave Zitting, president and CEO of Primary Residential Mortgage Inc. I had the pleasure of meeting Dave Zitting back in 1998 when he started Primary Residential Mortgage Inc. (PRMI) in the last liquidity crisis and have watched him blossom to become one of the largest mortgage companies in the country. In fact, in 2009, PRMI is on track to hit the $5 billion mark in originations. I was re-introduced to Dave via Greg Frost, PRMI’s national training director and one of Dave’s early mentors. Be sure to read about Dave’s lending philosophy, his start in the industry as a loan officer and how PRMI has been ahead of the pack with technology. FHA-related news in this issue This month, Jeff Mifsud shows mortgage originators how to get those “borderline FHA loans approved” in the newest installment of the FHA Insider. Atare E. Agbamu, CRMS continues his shocking revelations on Mortgagee Letter 2008-38 and its impact on heirs in regards to reverse mortgages in this month’s “Forward on Reverse.” Tips on generating more business Gibran Nicholas shares his recipe on how to use the “Aromas of Sizzling Financing Incentives” to get buyers to smell the rewards of homeownership even if they’re not “hungry.” Brian Sacks talks about a group of buyers who need your help (hint: there are 75 million eligible borrowers in this group). Active originator and sales coach, Tom Ninness, opens his methodology for determining your best prospects via three-tier rating system. We also welcome Dave Hershman to the fold this month as he expresses his ideas on how to inspire new homeowners in his article, “Homeownership: More Than Money.” Another way mortgage professionals are generating income these days (and helping to qualify more borrowers is through credit repair. Credit repair master Brian Aber shares some brief thoughts on credit repair and how it relates to mortgage professionals in his feature, “Credit Repair: Do It Yourself or Hire a Credit Restoration Company?” Diligent quality control has never been more crucial David Lykken continues to share his notes in this installment of “A View from the “C” Suite” as he discusses some key quality control (QC) issues an operation must take into consideration on a regular basis. Along the lines of QC, Tommy A. Duncan is back with another great installment of “Ask Tommy: Your QC Expert” where Tommy shows some basic steps to manage QC methods in your office. News from NAMB and NCRA Our own Eric C. Peck sat down with newly-elected president of the National Association of Mortgage Brokers (NAMB), Jim Pair, CMC, to get his view from NAMB during one of the most turbulent storms the housing market has even seen. Be sure too also read about Jim’s comments on the Home Valuation Code of Conduct (HVCC), the SAFE Act, the proposed Consumer Financial Protection Agency (CFPA) and other major issues that are currently impacting the mortgage brokerage profession. Terry W. Clemans, executive director of the National Credit Reporting Association (NCRA), openly talks about the NCRA’s position on President Barack Obama’s proposal to form an industry watchdog agency to protect the consumer in his article, “Will Obama’s Proposed Agency Solve Flaws in the Credit Reporting System?” YSP vs. SRP Jonathan Foxx’s featured contribution this month is “Service Release Premiums Versus Yield Spread Premiums: Match or Mismatch.” As proposed regulations look to change yield spread premiums, many wonder why it shouldn’t also affect service release premiums since both are tied to rates and terms. Jonathan takes deeper look into YSPs and does a comparison to SRPs. Other “don’t miss” articles this month Jonathan Foxx’s Regulatory Outlook column continues to give needed updates on regulations that affect our industry. Tommy A. Duncan exposes the most common fraud classification (61 percent is application fraud ... read Tommy’s article for more interesting stats). And be sure to check out Charlie W. Elliott Jr.’s “Value Nation,” as he shares his insights on determining the REAL value of real estate in his article “What is a Real Deal in Real Estate?” And after you’re done ... The news doesn’t stop with the August 2009 edition of National Mortgage Professional Magazine. I urge you to log on to www.nationalmortgageprofessional.com for the latest headlines and news that is shaping the mortgage industry. Our online presence serves as a one-stop shop for all of your mortgage news needs, from the latest breaking compliance news to ideas on expanding your business, you’ll find it all at www.nationalmortgageprofessional.com. Become involved in our online community by registering with our site and writing a Blog to share your thoughts and ideas on the industry. If a Blog is too much, sound off with your comments on each article and share your valuable opinion with our rapidly-growing online readership. I hope you thoroughly enjoy this latest edition of National Mortgage Professional Magazine as we trudge through the dog days of summer and out of another year towards a new start in 2010. Sincerely,
National Mortgage Professional Magazine is published monthly by NMP Media Corp. Copyright © 2009 NMP Media Corp.
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 O McLean, VA 22102 Phone: (703) 342-5900 O Fax: (703) 342-5905 Web site: www.namb.org
P.O. Box 140218 O Irving, TX 75014-0218 Phone: (800) 827-3034 O Fax: (469) 524-5121 Web site: www.napmw.org
NAMB Board of Directors Officers President—Jim Pair, CMC Mortgage Associates Corpus Christi 6262 Weber Road, Suite 208 O Corpus Christi, TX 78413 (361) 853-9987 O email@example.com President-Elect—William Howe, CMC, CRMS Howe Mortgage Corporation 9414 E. San Salvador Drive, #236 O Scottsdale, AZ 85258 (602) 200-8100 O firstname.lastname@example.org Vice President—Michael D’Alonzo, CMC Creative Mortgage Group 1126 Horsham Road, Suite D O Maple Glen, PA 19002 (215) 657-9600 O email@example.com Secretary—Penny Fagan, CRMS P. Fagan Mortgage Inc. 222 East Moulton Street O Decatur, AL 35601 (256) 355-5505 O firstname.lastname@example.org Treasurer—Don Frommeyer, CRMS Amtrust Mortgage Funding Inc. 200 Medical Drive, Suite D O Carmel, IN 46032 (317) 575-4355 O email@example.com Immediate Past President—Marc S. Savitt, CRMS The Mortgage Center 115 Aikens Center, Suite 20-B O Martinsburg, WV25401 (304) 267-9040 O firstname.lastname@example.org
Donald E. Fader, CRMS SMC Home Finance P.O. Box 1376 O Kinston, NC 28503-1376 (252) 523-5800 O email@example.com
Denise Leonard Massachusetts Mortgage Association 92 High Street, Unit T-41C O Medford, MA 02155 (781) 393-9400 O firstname.lastname@example.org Walt Scott Excalibur Financial Inc. 175 Strafford Avenue, Suite 1 O Wayne, Pa. 19087 (215) 669-3273 O email@example.com
Senior Vice President Sharon Patrick, MML, CMI (386) 985-1620 firstname.lastname@example.org Vice President/Northwestern Region Jill M. Kinsman (206) 344-7827 email@example.com Vice President/Western Region Tim Courtney (760) 792-5620 firstname.lastname@example.org
Vice President/Southeastern Region Jessica Edmonston (919) 414-3028 email@example.com Secretary Laurie Abisher, GML, CMI (661) 283-1262 firstname.lastname@example.org Treasurer Kay Talley, MML (919) 846-4294 email@example.com Parliamentarian Hulene Bridgman-Works (972) 494-2788 firstname.lastname@example.org
Vice President/Central Region Candace Smith, CMI (512) 329-9040 email@example.com
National Credit Reporting Association Inc. 125 East Lake Street, Suite 200 O Bloomingdale, IL 60108 Phone: (630) 539-1525 O Fax: (630) 539-1526 Web site: www.ncrainc.org
Board of Directors President—Judy Ryan (800) 929-3400, ext. 201 firstname.lastname@example.org Vice President—Marty Flynn (925) 831-3520, ext. 224 email@example.com Treasurer—Daphne Large (901) 259-5105 firstname.lastname@example.org Ex-Officio—Nancy Fedich (908) 813-8555, ext. 3010 email@example.com
Director—Dave Miller (317) 573-0667 firstname.lastname@example.org Director—Donald J. Unger (303) 670-7993, ext. 222 email@example.com Director—Tom Swider (856) 787-9005, ext. 1201 firstname.lastname@example.org Director—Donovan Williams (714) 638-2855 donw@Informativeresearch.com
NCRA Staff Director—Thomas Conwell (248) 313-1000 email@example.com
Executive Director—Terry Clemans (630) 539-1525 firstname.lastname@example.org
Director—Don Goldammer (661) 398-4700 email@example.com
Office Manager/Membership Services—Jan Gerber (630) 539-1525 firstname.lastname@example.org
Director—Sanford (Sandy) Lubin (805) 481-3155 email@example.com
Legal Counsel—James Sutton (972) 680-2665 firstname.lastname@example.org
O AUGUST 2009
Don Starks D.C. Starks Mortgage Associates Inc. 141 South Main Street O Bourbonnais, IL 60914 (815) 935-0710 O email@example.com
President-Elect Gary Tumbiolo, CMI (919) 452-1529 firstname.lastname@example.org
Vice President/Greater Northeast Region Colleen-Therese McKeever, CMI (646) 584-8332 email@example.com
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Ginny Ferguson, CMC Heritage Valley Mortgage Inc. 5700 Stoneridge Mall Road, Suite 150 O Pleasanton, CA 94588 (925) 469-0100 O firstname.lastname@example.org
President Liz Roberts-Fajardo, GML (702) 498-8020 email@example.com
Joe Camarena The Mortgage Source 10120 Southwest Nimbus Avenue, Suite C-7 O Portland, OR 97223 (503) 443-1060 O firstname.lastname@example.org
National Board of Directors
For more information on the National Association of Mortgage Brokers, visit www.namb.org.
A Message From NAMB President Jim Pair, CMC
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
The future of our industry may depend on a click of your mouse Over the past years, the Government Affairs Committee of the National Association of Mortgage Brokers (NAMB), NAMB Chief Executive Officer Roy DeLoach and his team at NAMB have worked tirelessly to ensure that our industry is protected from harmful legislation, rules and regulations. NAMB’s reputation in Congress and the various federal agencies has grown to the point that we are asked for advice before legislation or new rules and regulations are proposed. Because of this, many of the things that have been advocated by NAMB for many years are now reality. For example, we have advocated licensing for all loan originators, a national registry for all loan originators and for more education. With the passage law HR 3915, we now have all of this. It would not have happened if not for the work of our team and the support of certain representatives and senators. These elected officials have supported us through thick and thin by sponsoring and co-signing legislation that protects our industry. They have held hearings that allowed us to clarify our position on certain issues and signed on to letters sent to agencies supporting our industry. Now, they need our support in their bids for reelection. We can only ask for their support so many times without us helping them. If we want their support, it is only fair that we support them. Even now, more than ever, this year is especially vital that we help them get re-elected. We will face major legislation that could severely damage our industry if we do not have their support. Our friends in Congress need our Political Action Committee (PAC) money to support their campaigns for re-election. Our PAC funds, however, are at an alltime low. It is imperative that we rebuild these funds to be able to support those who have supported us. I urge each of you to log on to www.namb.org, click on the “Government Affairs” tab and click on the “NAMBPAC” drop down menu. There, you can use your personal credit card to make a contribution for one year. Choose any amount you want to contribute on a monthly basis. This is the most important investment you will make to insure the protection of our chosen profession … I cannot stress this enough. If every NAMB member did this, we would have the means to show our support to those who have supported us. We have the boots on the ground with our Government Affairs Committee and with Roy and his team. Let’s help them and protect ourselves. Make your PAC contribution now, I am! 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 email@example.com.
NAMB’s Membership Corner What Does NAMB Membership Mean to You? By Victoria Johnson
What is at the root of NAMB? You … the member. Without members, there wouldn’t be an association. The professional mortgage advisor is critical now more than ever to both the consumer and the marketplace. I’m fortunate and honored to serve as NAMB Membership Committee Chair for 2009-2010. It will be a challenging and rewarding year. As your volunteer membership chair, I welcome your communication, suggestions, and insight into growing, maintaining and developing NAMB membership.
How is NAMB structured? NAMB began in 1973, over 36 years ago. Just like many professional organizations NAMB has continued to change and evolve with the industry and with the changing times. The NAMB structure is based on an affiliate agreement with each state. The state signs an affiliate agreement with NAMB, and thereby, all members who join in the state must also join NAMB. The state then collects the dues for the national association and forwards them onto NAMB. This structure was put into place Nov. 4, 1990, per Ginny Ferguson, member of the NAMB board of directors. If there is not an affiliate state, then you can join direct with NAMB as a memberat-large. Prior to 1990, an individual could elect to be members of the state, a member of the national association or a member of both. It was not a requirement to belong to both. Over the years, it evolved from the separate structure to the one that is now in place. Recently, Jason Bloom, president of the Washington Association of Mortgage Professionals (WAMP), announced that their state is a long-time supporter of NAMB, and is proud to announce that they are, and will continue to, support this structure. With the constant legislation on both the state and national front, it is now more important than ever that NAMB and the states continue to grow and support each other. NAMB is very well-respected in Washington, D.C. and is constantly testifying on behalf of the mortgage broker industry. The presence of NAMB on Capitol Hill and its national reputation is vital to the industry. Recently, a change occurred in the state of Florida and a new state association was formed. The Florida association is now headed by Jerry Collyer of U.S. Capital Financial Services in Clearwater, Fla. You can reach him by e-mail at firstname.lastname@example.org. In Florida, the official state affiliate is the newly-formed Florida Mortgage Professionals Association (FLMPA). If you are not sure of your membership affiliation, e-mail email@example.com for clarification.
Association involvement Being involved in your state and national association is essential. Congress and regulatory agencies are aggressively proposing new rules, laws and guidelines. The only national organization representing the mortgage professional and broker is NAMB. Day in and day out, NAMB President Jim Pair and Chief Executive Officer Roy DeLoach monitor, testify and represent your interests on a daily basis. In the very near future, NAMB will offer legislative updates as they happen. NAMB is a very respected and honored organization in D.C. Your involvement and membership is vital to the industry, now more than ever. Please take the time to become involved in your local, state or national association. In 2009-2010, you’ll see some major changes developing from NAMB’s Communications Committee, Education Committee and Benefits Committee. The new 2009-2010 Membership Committee is fortunate enough to have involvement from professionals throughout the country. Their many skills and talents will be leading NAMB and it’s members into new areas. A big thank you to everyone who has volunteered their time!
New NAMB membership category NAMB recently approved a new membership category, the NAMB Corporate Membership. The first official Corporate Membership was recruited by Doug Adamczyk, a new member of the Membership Committee. Doug was successful with signing up 400-plus members to NAMB and Virginia for Jacob Dean Mortgage. If your company would like to take advantage of the new Corporate Membership category, e-mail us at firstname.lastname@example.org. We’ll help you and your state association enroll the entire company. There is strength in numbers at both the state and national level.
On the horizon These challenging economic times call for new measures. On the horizon is the NAMB Blog. Mark Madsen from Top of Minds and Mark Green of MyFHABlog were instrumental in the design and development of this Blog site for NAMB. Special thanks to both Mark Madsen and Mark Green for their assistance!
Watch for upcoming monthly Webinars. By working with the Communications Committee, you’ll find NAMB on Twitter, Facebook and many of the social networking sites. Also, the Education Committee will be supporting membership with their great programs. At the core of all of this is membership. Are you sitting on the sidelines? Are you concerned about your future and the future of the industry? Then get involved. With active, professional mortgage advisors, we can make a difference in the industry. Together, we will succeed. The key is communication. Ask yourself: Is your e-mail address up to date? NAMB communicates with states and members using e-mail on a regular basis, and if your e-mail address has changed, you’ll be missing out on many of the member benefits. Send us your new e-mail address when it changes. Are you aware of the many benefits of NAMB and your state association? Here are just a few: O O O O O O O O O O O
The NAMB Lending Integrity Seal of Approval News From NAMB Professional certification Legislative representation Publication with timely articles NYLX … check it out Loan modification program NAMB enterprises E&O insurance Educational and regulatory information from AllRegs NAMB’s Web site: www.namb.org
As your new Membership Committee chair, this will be a very challenging and yet rewarding year. I am personally challenging each and every one of you to become a part of the solution … get involved! Thank you to Jessica Savitz for her excellent staff support. Please share any ideas that you may have on professional growth, development and how to improve NAMB to better serve the mortgage community. E-mail any suggestions or inquiries to email@example.com or pick up the phone and call me directly at (858) 523-9990, ext. 202. We thank each and every person for their membership and continued support. Together, let’s make 20092010 a success. Victoria Johnson of San Diego-based Luxury Loans is Membership Committee chair of the National Association of Mortgage Brokers. She may be reached by phone at (858) 523-9990, ext. 202 or e-mail firstname.lastname@example.org.
Certifications: Why you should!
The Communications Corner A message from Jason Berman You’ve heard the saying, “When times are tough, the tough get going.” Well I say, when times are tough, think outside the box. There are a few secrets some originators aren’t sharing. These secrets, once learned, will allow you to expand your market, build credibility, and win new business. It takes dedication and effort to stay on top of all the various aspects of running a successful origination business. Keeping up with changing guidelines, new lending regulations, and the ebb and flow of wholesale participants are just some of the challenges that today’s originator faces. As a result, areas like marketing and communications are often ignored for months at a time. Many originators feel that to improve on marketing, they must spend more money. However, one way to avoid expense and still expand marketing presence is to start a Blog. A Blog can expand your sphere of influence, help find new prospects and turn past clients into loyal fans. Mortgage blogging is also a great way to communicate expertise and authority by creating and sharing information to customers and prospective customers in real-time. By embracing transparency and openness, and communicating that message through your Blog, you will begin to win more business. So what is a Blog? The word “Blog” is short for Web log. A Blog is nothing more than a Web site. Blogs began as online diaries and journals, and as software has evolved, Blogs have become more professional and have grown to cover a diverse array of purpose. Blogs are easy to set up and are inexpensive to maintain. You can start a free Blog, and begin writing content for it in less than 10 min. A great Web site to begin learning more about blogging is http://wordpress.com. There, you will find everything you need to start blogging. Wordpress will even allow you to purchase or transfer an existing domain name so that you can tap into current brand recognition or utilize a domain reserved long ago. The main thing to understand about blogging is to be consistent and focus on providing good content. Regularly posted content about you, your services, your locality and the mortgage industry in general, will begin establishing expertise to people who visit your site. At a minimum, posting new content once a week will provide you with 52 opportunities a year to express opinions, advice and personality to your customers and potential customers. I speak around the country about blogging and technology in the mortgage and real estate industry. I hear every excuse to avoid starting a mortgage Blog … from I’m too old to I’m a poor writer to I’m too busy. The fact remains that the few originators who are actively working online channels by blogging and participating in social networking are getting new business, converting more leads and reducing the amount of effort needed to communicate their message. Blogging may be outside the box right now, but by the time the ‘herd’ catches up, I believe maintaining a Web log (Blog) will be an essential tool in every successful originator’s toolkit.
O AUGUST 2009
Jason Berman is the owner of The J. Berman Group, a mortgage and technology consultancy. Jason writes and speaks regularly on blogging, technology and social media for real estate professionals. Follow him on twitter @jbinfrisco and @jbermangroup. He may be reached by phone at (970) 455-4131 or e-mail at email@example.com.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Do you remember the business just five years ago? What about 10 or 20 years ago? I can remember back 32 years ago when it was a male-dominated industry and brokers owned real estate or insurance companies. You might be wondering why reminiscing is important. I use it to learn from and plan where I want to go and sometimes need to go. Working hard is second nature to those of us in the industry, especially this year. When I think about how I got started and why … newly married, a new baby, but good flexibility and a great sense of accomplishment helping someone finance their home, it brings a sense of pride. I learned the “ropes” the way most of us did back then, through trial and error and from great teachers where I worked. Their experience and willingness to share gave me the skills that I have today. The sad part was that there was no education or little formal training then. That is the purpose and reason I passionately support certifications and promote obtaining at least one or even all you can. It is also why I share this with you and stay active promoting certifications at NAMB and in my home state of Michigan with the Michigan Mortgage Brokers Association (MMBA). Certifications are very important, especially in light of all the licensing and registration taking place throughout the country. Knowledge is a powerful item to have. Letting your clients, peers and industry partners know that you take this profession seriously and want to be the best you can sets you apart from everyone else. It is one thing to be forced to obtain some knowledge through licensing, and says that you are the same as everyone else who must do it for the sake of just being in the business. It is totally different to step up and show that you are an involved, growing leader in your profession.
Pava J. Leyrer, CMC, CRMS, CMP 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 firstname.lastname@example.org.
A message from NAMB Certifications Committee Chair Pava J. Leyrer, CMC, CRMS, CMP
Studies have shown that even though the general public may not understand all the “initials or letters” behind someone’s name, they respect the fact that they must be more knowledgeable in order to have obtained them. I can speak from personal experience where I have gotten business referrals simply because I had those initials behind my name. I proudly use my certification initials on everything. I gladly take continuing education to further my knowledge and maintain those same certifications. It is a sense of accomplishment and pride to all of us who know that we were not forced to obtain them or keep them. I encourage everyone out there reading this article to research which certification you should start with. Take the next step to a higher level of professionalism and set yourself apart. NAMB has three available and excellent places to start. We have developed the materials and test to assist you in taking your career to new horizons. There are many of us willing to help you become the next professional to proudly declare: “I am certified and chose to set myself apart from the crowd!”
If you have a question you would like Brian to answer in this column, please send an e-mail with “Ask Brian Question” in the subject line to email@example.com. Brian Sacks is CEO of www.loanofficerformula.com. He has been an industry expert for more than 25 years, closing 6,000-plus loans totaling $1 billion. You can read Brian’s 32-page special report entitled
“The Death of Mortgage Origination as We Know It” and “The 10 Things You Must Do Now to Survive and Thrive” at www.loanofficerformula.com/mp. This report sells for $97 and has been downloaded by more than 9,200 originators and company owners, but is free for a limited time for readers of National Mortgage Professional Magazine. He may be reached by e-mail at firstname.lastname@example.org.
A Group of Buyers Who Need Your Help … Now!
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Dear Brian: I am struggling right now as I am sure many others are. My business is awful and every day, I consider whether to stay in the business or just get out. Every other originator and title company I speak to feels the same way. My refi business has dried up, and I am really not sure what to do next to bring in new business. My budget is just about zero, and I basically feel defeated. I have been a fan of yours for many years and have always heard you say, “Pick a niche, become the expert and let everyone know about it.” That seems like decent advice, but with all the problems in our industry of wholesalers closing, programs going away (permanently) and a total lack of overall business—is it now impossible to follow your advice? What should I be doing right now that can bring me business? I love this business, but am at the absolute end of my rope. —J. Foster, New York
Dear J.: Wow … I thank you for summing up how we all seem to be feeling these days. Most companies seem more like funeral homes, filled with sadness and depression, than like mortgage companies. Yes, we are experiencing the worst of times in our industry and many people have jumped ship and companies are closing their doors. Vendors are going out of business, and on and on. So, you have a right to be depressed. Before I answer your question, I want you to promise me that you will go out and get a copy of Psycho-Cybernetics by Dr Maxwell Maltz. See, no matter what good advice I give you, it cannot work unless and until your mind is receptive and in the right place. I am, by no means, telling you it’s easy to keep positive right now, but I am telling you that you must try to be! Now … on to your question … You must find a group of people who are now in desperate need of your services, are easily reachable and few are going after. Today, that niche is the Baby Boomers and senior markets. Let’s break it down (please use senior and Baby Boomer interchangeably) … O This is a niche that has 75 million
eligible candidates with 5,000-7,500 new people being added each and every day. O This is the fastest-growing niche to ever hit our industry. O This is a niche that is easily reached. Think senior centers, senior radio and television shows, senior publications, etc. Information contained in the Regulatory Compliance Outlook column is not intended Fewer than one in 100 originators to be and is not a source of legal advice. The offer the program or understand how views expressed are those of the contributto properly originate and market for it. ing author and do not necessarily reflect the You must market differently to this views or policies of National Mortgage group and you must speak to them dif- Professional Magazine (NMP), any governferently if you are going to be success- mental agency, business entity, sponsoring ful. These folks are in a ton of pain. organization or institution. NMP makes no Imagine working hard all of your life representation concerning and does not and being conservative so you can one guarantee the source, originality, accuracy, day retire and enjoy life. Just as you completeness or reliability of any statement, finally achieve that goal, your hard- information, data, finding, interpretation, earned retirement money is cut in advice, opinion or view presented therein. half—or worse! The property that you worked so hard Identity Theft Prevention for has decreased in value, and worst of On Nov. 1, 2009 creditors, including mortall, even though you thought you could gage brokers, must have a program in place work part-time and earn a few bucks, to detect, prevent and mitigate identity you find yourself in the middle of the theft as required by the Fair and Accurate biggest crash since the Great Depression, Credit Transactions Act (FACTA) of 2003. The fueled by businesses closing left and rule requires every mortgage broker who right, and growing unemployment. holds any covered account to develop and How’s that for some bad news? implement an identity theft prevention Talk about a group in severe pain. program. The Federal Trade Commission This spells “opportunity” for you. This is (FTC), which has jurisdiction over non-bank a group of people you can build a financial institutions such as mortgage brocareer from. So, my suggestion right kers and mortgage bankers, requires that now is to become the reverse expert in each institution have in place an Identity your area and then let everyone know Theft Prevention Program (ITPP) that must about it. In fact, I dedicated eight hours include the “Red Flags Rules.” of training on the topic of reverse mortgages in the Loan Officer Formula, The ITPP must contain: along with the marketing materials O Identify Red Flags patterns, practices that have been field tested and are genand activities erating these deals (www.loanofficer- O Detect the Red Flags formula.com/join). O Respond appropriately to any detected Many of these Baby Boomers and Red Flags seniors are starting to fall behind, O Assure the program is updated periwhich again, spells “opportunity” espeodically cially since there is no formal credit report required for these deals. Red Flags are to be categorized, as follows: So, there you have it. A great niche, O Alerts, notifications or warnings and one that is even better in today’s from a consumer reporting agency market. One that has easily reachable O Suspicious documents clients who are in pain and need your O Suspicious personal identification help. Now go after them and you will information quickly start seeing success. When you O Unusual use of, or suspicious activity do, please write back and share your related to, covered accounts experiences with me. O Notice from customers, victims of
identity theft, law enforcement authorities or other people regarding possible identity theft Risk assessments should be undertaken with this criteria: O The types of covered accounts offered or maintained O The methods provided to open covered accounts O The methods provided to access covered accounts O Previous experience with identity theft
Action steps A. Obtain the approval of the initial written ITPP from either the board of directors or an appropriate committee of the board of directors. B. Involve the board of directors, an appropriate committee thereof, or a designated employee at the level of senior management, in the oversight, development, implementation and administration of the ITPP. C. Train staff, as necessary, to effectively implement the ITPP. D. Exercise the appropriate and effective oversight of service provider arrangements.
Submit your questions … 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 email@example.com. Jonathan Foxx, former chief compliance officer for two of the country’s top publicly-traded 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 firstname.lastname@example.org.
The Most Common Mortgage Fraud Classification By Tommy A. Duncan
The most common fraud classification in the first through third quarters of 2008, as reported by the Mortgage Asset Research Institute (MARI) by all states in mortgage originations is application fraud. Application fraud represented 61 percent of all mortgage misrepresentation in originations. Tax return/financial statements followed second at 28 percent, appraisal/valuation at 22 percent, verification of deposit at 21 percent, verification of employment 15 percent, escrow/closing documents at 10 percent, and credit report at four percent. 2008 mortgage fraud types Mortgage origination year (all states) Fraud classification: 2008 Application......................................61% Tax Return/Financial Statements ....28% Appraisal/Valuation ........................22% Verification of Deposit ....................21% Verification of Employment ............15% Escrow/Closing Documents ............10% Credit Report ....................................4% Below is a list of the top three states by each fraud types for 2008: Application Misrepresentation 61% (all states) New York ........................................74% Michigan and Florida......................67% Illinois ............................................66%
Appraisal Valuation 22% (all states) Colorado and Rhode Island ............38% Georgia............................................31% Missouri ..........................................29%
Verification of Employment 15% (all states) Missouri ..........................................25% Florida and New York ....................21% California and Maryland ................14% Escrow/Closing Documents 10% (all states) Michigan ........................................18% Maryland ........................................16% Illinois and New York......................15%
Current appraised valuation: (all appraisals performed by nationally recognized appraisal companies). current $5.9 million (April 2009), $6.3 million (November 2008) $6.1 million Property info: 6400 SQ FT home on 4 1/2 acres in estate back-country area. Separate guest house, small barn, pool, pond. World-class neighborhood. CLTV: as low as 40%. Client Credit score: 800 Borrower has perfect employment, career and un-afﬁliated mortgage history spanning 30+ years. Client has cash reserves of 8-10 months I&P. Client seeks stated loan with veriﬁed assets. Assets veriﬁed through notarized bank veriﬁcation of deposits forms or letters. Client will accept short-term commercial note, private lender note. Title has been held for ten years in a family trust. Client (borrower) will guarantee mortgage, and, in addition, the Trust will guarantee the mortgage. Trust has veriﬁable income (2005, 2006, 2007). Client WILL NOT pay application fees under any circumstances. Appraisals, plot plan, tri-merge credit, 1003, photos available to bona ﬁde lenders.
O The credit report historical mortgage payment only showed one month’s payment and not 12 months where a payment or two was missed. Twelve months of mortgage history is needed.
Home can be used for primary residence, OR, used for rental income (which has been its use in 2005-2008).
Contact Trust representative at: 202-489-9292 (Washington, DC) or by email at email@example.com
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Credit Report: 4% (all states) New York ........................................12% Michigan ..........................................9% Rhode Island ....................................8%
Speciﬁcs: Prefers Private Investor/Hard Money Lender
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Verification of Deposit 21% (all states) California ........................................37% New York ........................................27% Maryland ........................................26%
NEEDED residential reﬁnance for Greenwich, CT. estate property
Tax Return/Financial Statement 28% (all states) Maryland ........................................42% Georgia............................................34% New York ........................................32%
The MARI report collected its data from industry collaborative sources where only federally-insured financial institutions and their affiliates participate. Therefore, the reporting is limited. As far as I know this does not include all lenders with pre-funding quality control (QC) and post-closing QC support. Nor does it include government agencies such as the U.S. Department of Housing & Urban Development (HUD), the Department of Veterans Affairs (VA) and the U.S. Department of Agriculture (USDA), who may be responsible for underwriting or funding loans. Because of the limited reporting base, there may have been different trends due to the change in the market if the Suspicious Activity Report (SAR) had a broader reporting pool. After being involved in a number HUD audits, I see a shift. The loans that for which I am referring to was not privy to SAR during underwriting or after funding. The trends I see appear to be mostly refinances and the bulk of the problems occur in credit underwriting. However, after in-depth investigation the findings go as deep as the lack of proper integration of QC plans and sound underwriting practices. Additional discoveries found management also failing in preparing written responses to QC reports or tracking findings from the QC reporting. There are many lenders performing cash-out refinances as a form of loan modification in order to buy homeowners more time because the homeowners are delinquent in credit payments. When all is said and done, the servicer is stuck with servicing a loan that was used to pay off other delinquent credit. In the grand scheme of things, it appears to give truth to the age-old cliché, “Rob Peter to pay Paul.” Regardless of the fraud type, scheme or fraud category, without a solid QC or quality audit (QA) program, there will continue to be mortgage fraud. A QC/QA program is only as good as the leadership of a mortgage operation. The stronger the leadership, the better the loans and the opposite applies to the weaker leadership and the lack of implementation of a strong QC program resulting in more problematic loans and increased financial risk to the mortgage operation and the economy. Some of the common discoveries in refinances include:
was continuously delinquent in the O The credit history, despite adequate previous 12 months and the payoff income to support obligation, letter showed unpaid late and nonreflected continuous late payments sufficient funds (NSF) charges withand delinquent accounts. out adequate explanations. O The file failed to demonstrate the borrower had established acceptable I could go on and on with examples credit for a considerable time period. of poor underwriting and O The borrower’s collecpre-funding QC. These tion accounts, includloans had well-prepared ing delinquent taxes applications; however, it totaling $63,297, were was the failure to substanpaid at closing. The tiate creditworthiness and letter of explanation history. In the majority of stated that the credit the HUD audits, there was problems were due to no identity theft … Red loss of income; howFlags Rules, no collateral ever, based on the or valuation problems … borrower’s tax return; the Home Valuation Code his annual income of Conduct (HVCC). It was had increased by “Regardless of the poor underwriting and $7,366 for the respecfraud type, scheme or pre-funding QC. I strongly tive tax year. fraud category, withbelieve if the underwriter O The HUD-1 indicated collection accounts totaling out a solid QC or qual- had placed a condition or stipulation on these refiity audit (QA) pro$15,637 were paid at nances, the processor or closing. The credit report gram, there will conloan officer would have indicated the borrower’s tinue to be mortgage mortgage was over 60 fraud. A QC/QA pro- met the request of the days delinquent three gram is only as good as underwriter or the loan would have been denied times in the previous 12 the leadership of a for the lack of creditwormonths of closing withmortgage operation.” thiness. The underwriter out adequate explahas to be the watchdog nations. and is the source of the longevity and O The HUD-1 indicated collection accounts, including delinquent utili- survival of the mortgage company. The next question I must ask myself ty payments totaling $3,320, were paid at closing. The credit report continued on page 10 indicated the borrower’s mortgage
An Assault on Fairness: Quash Mortgagee Letter 2008-38, Part II The views and opinions expressed in the following article do not necessarily reflect the views and opinions of National Mortgage Professional Magazine, the National Association of Mortgage Brokers, the National Association of Professional Mortgage Women and the National Credit Reporting Association Inc.
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Author’s note: In part one of “An Assault on Fairness: Quash Mortgagee Letter 2008-38,” we looked at the assumptions behind ML-08-38 and concluded that they are severely flawed. We also affirmed that ML-08-38 represents a dis-
turbing departure from historical Home Equity Conversion Mortgage (HECM) nonrecourse policy. We now turn to why the arms-length rules in ML-08-38 turn off seniors’ relatives and cost taxpayers money. As I recounted in a recent blog commentary, the unfairness in the armslength rules in ML-08-38 have the potential to arouse anger and alienate seniors’ heirs and relatives, core centers of influence essential to continued HECM and reverse mortgage acceptance by seniors.
Despite consistently high customer satisfaction with HECM and reverse mortgages, the 2007 AARP report revealed a vexing fact: A majority of seniors are still shying away from HECM and reverse mortgages. Why? There are several theories, but they are outside the scope of this article. However, we believe that when fully understood by seniors, their heirs and the public, policies such as ML-08-38 could reinforce this adverse trend. Twenty years after relentless consumer education by the U.S. Department of Housing and Urban Development (HUD), Fannie Mae, AARP, the National Reverse Mortgage Lenders Association (NRMLA) and lenders, HECM and reverse mortgage usage by eligible seniors is still less than one percent of known reverse-capacity. And given vital macroeconomic needs to pay for Baby Boomers entitlements, shrink the national debt, and lower taxes to maintain economic growth, a HUD policy that discourages seniors and their heirs from using HECM and reverse mortgages is unwise and counterproductive for all—seniors, federal Treasury (taxpayers) and industry. Take this incidence. Recently, I was explaining the new arms-length rule and the “clarified” HECM non-recourse policy in Mortgagee Letter 2008-38 to a senior and her daughter when the middle-aged daughter exploded: “Atare!” she snapped. “This policy amounts to elder abuse by our federal
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government! They collect hefty mortgage insurance premiums from seniors. Then, they arbitrarily deny them and their heirs one of the benefits of those expensive premiums? It is an outrage! It stinks!” Although understandable, the vehemence of her reaction stunned me. It is a reminder of the law of unintended consequences. The well-intentioned authors of the policy never imagined that their policy could be taken as elder abuse. Full disclosure requires that HECM loan officers, counselors, and marketers explain the implications of ML-08-38. If my encounter is any guide, ML-08-38 will challenge seniors and their families. It may actually bring HUD and the Federal Housing Administration (FHA) some public scrutiny, multiplying opportunities for additional misinformation and misconceptions.
Taxpayers lose There is a wrong-headed assumption implicit in ML-08-38: It is good for taxpayers because it prevents seniors’ heirs and family members from buying the property at market value, waiting a couple of years, and selling it at a profit. It sounds logical and prudent on the surface. ML-08-38 formulators deserve a “Congressional Medal of Prudence.” Well, let’s look deeper. Granted, at loan termination, a senior’s heirs could refuse to the pay full loan balance demanded by HUD. continued on page 11
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sometimes without inspecting the property or having all of the facts concerning a property. The transaction usually does not permit a buyer to apply for and get a loan approved for the particular property Instead, it requires the buyer to come up with cash for the entire purchase price. Said another way, liquidation value is more of fire sale approach, and it will be less than market value. The average consumer does not always know this and may be deceived by the appraised value. In conclusion, these are just a couple of issues that make the process of buying and selling real estate compli-
cated and sometimes can catch the average person off guard. For those having concerns about these or other confusing issues, I recommend that they solicit the services of a real estate professional, whether it be a broker or an appraiser. A few dollars invested with a true professional can be worth many dollars in savings when compared to that of going it alone. 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, email firstname.lastname@example.org or visit his company’s Web site, www.appraisalsanywhere.com.
By Charlie W. Elliott Jr., MAI, SRA
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What is a Real Deal in Real Estate?
Amongst all of the stressful trials and the appraised value. It would be accutribulations of the economy lately, rate to state that the property is being many are looking for a silver lining in offered at half of what the appraised what has been, for the most part, a very value was two years ago. But that does cloudy set of circumstances. Even not happen, does it? Salespeople tend though it is common knowledge that to overlook facts of this type someinterest rates are at an all-time low and times. that real estate is selling, in some cases, for half what it did only two or three The definition of value years ago, many people Many people are not are reluctant to get into aware that there are the market. There seems many types of value and to be an element of coneach value carries with fusion in the air. it a different dollar I am going to suggest amount. The type value to you that the case for and the definition of real estate investment is this value must be statnot that different from ed in each appraisal in that of stocks. Most peoorder for the appraisal ple do not understand to meet current appraiswhat is actually going al standards. This is the on … who to trust and case, yet when did you who not to trust. We hear someone state the “The value of real hear stories of great type value addressed in estate changes with deals on foreclosures, a given appraisal? time, and lately it yet not everyone is lookWhile there are has been changing a ing to buy foreclosures. many types of values lot. If a property is Sometimes, we hear of addressed within a real being offered at half ridiculously low prices, estate appraisal, market of the appraised and at other times, value is the most comvalue, when was the prices do not seem to be mon. This is when a that different from what property is exposed to appraisal made?” they were in the past. the market through traWe hear statements ditional means, providlike: “The property is being offered ing, among other things, professional for sale for half of the appraised marketing and offering buyers adevalue.” If it literally is being offered quate time to shop and to make comfor half of the appraised value, what petent decisions. is an appraisal worth anyway? Why is Would this be the same value used this, and how might we look at this in connection with the foreclosure of issue of real, real estate values? To a property? The answer is no. If an those with questions regarding this, I appraiser were asked to appraise a offer the following: property pending foreclosure proceedings, would the value be the same as that if it were subjected to Time The value of real estate changes with the market through the Multiple time, and lately it has been changing Listing Service (MLS)? It would not. a lot. If a property is being offered at The appraiser would be seeking a liqhalf of the appraised value, when was uidation value that will almost always the appraisal made? Every appraisal be lower than market value. This is has an effective date. If the effective because the appraiser is to assume date of an appraisal was two years that the property is subject to auction ago, it is misleading to maintain that and that buyers will be required to the property is being offered at half of purchase on the spur of the moment,
mortgage fraud classification is … was the underwriter committing fraud by allowing these loans to be approved with such gaps? Has the mortgage fraud bubble shifted to the underwriter rather than the loan officer? I checked and there was a different loan officer for every loan, and the sampling of audited files had a broad selection of underwriters. Therefore, it is difficult to perform any patterns of link analysis. The systemic problem continues to point to leadership and the strength of the QC program. The future fraud schemes that are on the rise include: O Foreclosure prevention schemes: These generally involve fraudsters posing as professional, knowledgeable foreclosure specialists. Homeowners facing the threat of foreclosure and nearing eviction are contacted by this foreclosure specialist who promises to work out their loan problems. O Elderly and immigrant identity fraud: This occurs when elderly and non-English-speaking consumers are taken advantage of by fraudsters who steal their identities and use them in straw buying or other property transactions. This is currently happening in some reverse mortgage situations. O Builder bailout fraud: This involves the securing of funds for condominium conversion or planned community development properties that, unbeknownst to the investor, will not be completed. With new mortgage fraud schemes, it is important to fully understand the tactics of the fraudster. However, fraudsters can easily be stopped by implementing a strong pre-funding QC with fraud detection tools that the underwriter should employ. I have also compared successful mortgage operations with the prob-
continued from page 7
lematic mortgage operations. The consistent parallels I see with the successful mortgage operations are those who allow the QC departments to establish and implement policy pertaining to production. In other words, the leadership listens to the QC staff, regardless of production numbers. The problematic mortgage operations are very focused on production and the QC plan is often a second thought, leadership is not proactive with the QC arm of the operation and is often ignored. MARI plays an important role in our industry and it helps leaders to evaluate weakness in production so that the industry can adjust its focus in order to keep the industry and economy healthy. Mortgage professionals have a professional obligation to ensure quality loans and that lending practices are upheld. With the loan originator having less control of the loan, it is now up to the underwriter to ensure the proper loan is approved for funding. With the percentages provided by MARI and the fraud types listed, how many of the fraud types can be discovered at underwriting or during the pre-funding QC process? The underwriters and pre-funding QC processes are finding many of the fraud types, but there are still too many getting through. It would be interesting to know what percentages of fraud types are found and stopped compared to those that are discovered after the loan is funded. Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. He may be reached by phone at (615) 591-2528, ext. 124 or e-mail email@example.com. Visit author Tommy A. Duncan’s Quality Mortgage Services LLC Web site at www.qualitymortgageservices.com for more information on quality control programs and compliance solutions.
forward on reverse
continued from page 8
Meanwhile, Mrs. Jones stipulated in her will that Brian, as her executor, must reclaim property in the interest of family and heritage. There can be a great deal of emotional undercurrents around seniors, HECM, home, heritage, heirs and relatives. It is doubtful that HUD or any government entity should be interfering in these intimate family issues through misguided regulations.
The underage spouse dilemma There are scores of outstanding HECM
Under ML-08-38, the underage spouse has two needless regulatory hurdles to scale: The arms-length rules would keep them from buying “their” home back directly; if they are unable to buy it back, the “clarified” nonrecourse hits them unfairly with the full loan balance. If they don’t have the full loan balance, they end up on the streets when their titled spouse dies or moves out permanently. With millions of second, third, even fourth marriages out there in Baby Boomer land, how many potential HECM borrowers or their spouses are going to embrace ML-08-38-HECM reverse mortgages if they are fully informed as they continued on page 13
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They could walk away from the property without recourse. Then, the property becomes a HUD real estate-owned (REO) after a foreclosure process (at the taxpayers’ expense). Mind you, HUD cannot sell property at the loan balance amount. It may sell it at appraised market value if there is an arms-length buyer. As a HUD REO, taxpayers assume all carrying costs, legal costs, auction costs, etc. Absent occupancy, six months after taking over property through the foreclosure process, collateral value can be expected to drop. HUD puts property up for sale through the auction process. At auction, winning bid is 25 percent less than termination market value (TMV). Add carrying costs, foreclosure costs, auction costs and we are looking at close to 40- to 50-percent depreciation from TMV. Conversations with experienced REO market participants and managers suggest that the scenario we have sketched here is plausible. They say there is no way HUD can expect to get loan balance value (LBV) [what the authors of ML-0838 want] or TMV [what heirs/estate want to pay by right] at loan termination. Now, if this is the reality of REO properties (and we assume that the makers of ML-08-38 know this), then it is foolhardy to erect regulatory barriers that prevent heirs from reclaiming family property and heritage by paying TMV. The bottom-line: The foreclosure and carrying costs of such REOs will cause HUD greater losses than if it had allowed the heirs to purchase the property at maturity for the TMV. The federal treasury might actually benefit from allowing heirs/estate to buy the property at TMV. Let’s say the TMV is $100,000, and the LBV is $125,000. The heirs/estate acquires property for $100,000. The $25,000 difference is considered “forgiven debt,” fully taxable under existing Internal Revenue Service (IRS) rules, according to tax experts. If heirs/estate balk at paying LBV and property becomes a HUD REO, HUD would be lucky to get $75,000 or $60,000 at auction before costs. Since HUD cannot expect to get $125,000 at auction, isn’t it prudent for HUD to take TMV of $100,000 (excluding forgiven-debt taxes to federal treasury) instead of $75,000 or $60,000 auction value? Ironically, with ML-08-38, taxpayers lose money while faithful adherence to pre-ML-08-38 HECM nonrecourse rules save taxpayers money. But by far the most disturbing flaw in the arms-length rules in ML-08-38 is its impinging on a core American homeowner’s right: The right to redeem, to reclaim and to take back the family homestead or the family farm from the lender even after foreclosure. For example, Brian Jones shows up to buy the Jones’s family homestead of six generations from HUD. HUD tells Brian to get lost because he is a relation of Judy Jones, Brian’s deceased mother.
loans where one spouse is underage (or under the age of 62). Usually, the underage spouse is a woman. But there may be some men. They have been taken off title to make the HECM loan possible. They were told at application and at closing that they cannot assume the loan when the borrowing spouse dies or leaves the home permanently. Presumably, they understand that they could be on the streets. To ensure that their spouses do not end up on the streets and in the expectation that their full non-recourse benefit would kick in, borrowing spouses may have made provisions in a will for the living or community spouse to reclaim the property upon their death or permanent move from the mortgaged home.
Getting Borderline FHA Loans Approved: Become an Artist and Learn to Paint the Picture
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Federal Housing Administration (FHA) loans are “Story Loans” … and the better you are at painting the picture for the underwriter, the more FHA loans you will close. The FHA was created in 1934, on the heels of the Great Depression, in order to help Americans achieve homeownership. Given the challenges they faced at that time in history, these loans had a lot of stories to tell. Today, we certainly have no lack of such stories in the loans we work on. How many times have you had this experience: You’re speaking to a potential client; everything about the loan sounds great, and you’re already adding up your commission when they pipe up, “Oh! Did I tell you I had a bankruptcy?” or “Oh! Did I tell you that I’m on medical leave?” The fearless and experienced FHA originator, undeterred by these statements, just gets out their FHA Intuition Palette and begins to paint. As a former FHA underwriter, the Letter of Explanation, or LOX or LOE as some call them, is the single most important document in a borderline file. The LOX (what we call them here in the great state of Michigan), is the document underwriters turn to when they are undecided on a loan. And I can tell you that in my nearly 14 years of originating and teaching FHA, sad to say most LOs do not know how to help borrowers construct an effective LOX. I have developed an LOX formula that I have used myself, and taught for many years, and it works! The formula is this: Background, Struggle, Reaction, and Request. The opening of the letter should give the background, the material facts and events that led up to the bankruptcy, such as the judgment, the repossession, etc. Be sure to frame the situation clearly for the underwriter. The body of the letter should convey the client’s struggle and their reaction; that is, what they had to go through in dealing with the chal-
lenge and how they reacted. This section is most critical and should contain what I call the “emotional hook;” that is, the life event that would make any compassionate human being feel sympathetic toward the person for what they experienced. It’s the challenge in your client’s life that makes the underwriter say, “Wow, they went through a lot.” If the letter you construct with your client can evoke this response in the underwriter, you’ve accomplished your goal. The closing should include a request to approve their loan and give them a chance. This is “where it’s at” with borderline FHA deals and is the reason that the FHA was created: To hear people’s struggles, stories and triumphs and to offer them the opportunity of homeownership. Now, your clients won’t always have a compelling reason why they had problems with their credit, and often, the more borderline the deal, the less compelling reason they had for the mishap. Hence, the less likely the loan will be approved. Of course, that works in the other direction as well: The more borderline the deal and the more compelling the circumstances, the more likely the deal will get approved. Now for an example of a well-constructed LOX: Dear underwriter:
(Background) My name is Derrick Johnson, and I wish to explain to you why I had a string of 30day late payments on my mortgage and credit cards nearly two years ago. I was at work and sustained an injury to my arm that put me out of work for nearly six months. It was during this time that I fell behind on my bills, since I was not able to work. Before and after this time, as you can see from my credit report, I have a good history of paying my bills on time.
(Struggle) I suffered a lot of pain during this time, and in addition to being out of work, it continued on page 17
forward on reverse
FTC delays Red Flags Rule compliance until Nov. 1st
MBA reports governmentinsured share of applications highest since 1990
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 100 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 firstname.lastname@example.org or email@example.com. Visit author Atare E. Agbamu’s blog at http://thinkreverse.com for his thoughts and insights on the reverse mortgage marketplace.
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O AUGUST 2009
continued on page 16
mental right of American homeowners. It turns off seniors and their relatives from a beneficial program that helps seniors and federal treasury. It uses a sledgehammer on an imaginary fly, smashing the heart of HECM in the process. Above all, it is an arbitrary, a needless assault on old-fashion American fairness and justice. Quash it now and reaffirm full HECM non-recourse.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Based on data from the Mortgage Bankers Association’s (MBA’s) Weekly Mortgage Applications Survey, the government-insured share jumped from 25.7 percent a month earlier and 27.0 percent in June 2008. Since the MBA survey’s inception in January 1990, the lowest recorded share was 5.8 percent in August 2005. The government-insured share of purchase applications in June was 38.6 percent, up from 27.8 percent one year ago. The government-insured share of purchase applications has averaged 36.6 percent to date in 2009, compared to an average of 21.8 percent during the same period in 2008. The low point was in August 2005 when it was 6.8 percent. “A primary reason governmentinsured loans have retained a high share of the purchase market is that these loans typically require lower down payments than conventional loans,” said Orawin Velz, MBA’s associate vice president of economic forecasting. “In addition, lending standards tend to be tighter for conventional loans, especially for loans that require private mortgage insurance.” Velz further stated, “While the government-insured share of purchase applications has remained elevated, the government-insured share of refinance applications has been volatile. The share hit a record high of 38.4 percent in October 2008. As mortgage rates fell sharply between mid-November
must be? How many HECM counselors and originators are going to enjoy sharing the full implications of ML-0838-HECMs with potential customers and their relatives? Now, imagine this: ML-08-38 armslength rules effectively nullify the terms of a solemn private contract between the dead and the living, between one generation and another, between husband and wife, between mother and son, or between father and daughter for that matter. To honor his mother’s will and to be faithful to his contractual obligation as her executor, Brian may be compelled to use dishonest means (such as buying the property through unrelated third-party or parties who may later sell the property to Brian). Why should HUD allow anybody but the senior’s family to buy the property? What public purpose does it serve to erect arms-length walls in HECM situations? Why should federal policy deliberately create ethical dilemmas for families in HECM transactions, especially at a time when families may be grieving? Arms-length rules may have a place in HUD’s regulatory schemes, but we doubt that HECM is an appropriate place for them because it is different. From the foregoing, it is evident that ML-08-38 is a bad public policy: It costs taxpayers money. It violates a funda-
To assist small businesses and other entities, the Federal Trade Commission (FTC) staff will redouble its efforts to educate them about compliance with the Red Flags Rule and ease compliance by providing additional resources and guidance to clarify whether businesses are covered by the Rule and what they must do to comply. To give creditors and financial institutions more time to review this guidance and develop and implement written Identity Theft Prevention Programs, the FTC has further delayed enforcement of the Rule until Sunday, Nov. 1. The three-month extension, coupled with this new guidance, should enable businesses to gain a better understanding of the Rule and any obligations that they may have under it. These steps are consistent with the House Appropriations Committee’s recent request that the Commission defer enforcement in conjunction with additional efforts to minimize the burdens of the Rule on health care providers and small businesses with a low risk of identity theft problems. The announcement that the FTC will delay enforcement of the Rule until Nov. 1, 2009, does not affect other federal agencies’ enforcement of the original Nov. 1, 2008, compliance deadline for institutions subject to their oversight. The Red Flags Rule is an anti-fraud regulation, requiring “creditors” and “financial institutions” with covered accounts to implement programs to identify, detect, and respond to the warning signs, or “red flags,” that could indicate identity theft. The financial regulatory agencies, including the FTC, developed the Rule, which was mandated by the Fair and Accurate Credit Transactions Act of 2003 (FACTA). FACTA’s definition of “creditor” includes any entity that regularly extends or renews credit—or arranges for others to do so—and includes all entities that regularly permit deferred payments for goods or services. Accepting credit cards as a form of payment does not, by itself, make an entity a creditor. “Financial institutions” include entities that offer accounts that enable consumers to write checks or make payments to third parties through other
means, such as other negotiable instruments or telephone transfers. The FTC’s Red Flags Web site, www.ftc.gov/redflagsrule, offers resources to help entities determine if they are covered and, if they are, how to comply with the Rule. It includes an online compliance template that enables companies to design their own Identity Theft Prevention Program through an easy-todo form, as well as articles directed to specific businesses and industries, guidance manuals, and Frequently Asked Questions to help companies navigate the Rule. For more information, visit www.ftc.gov.
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Dave Zitting, President and Chief Executive Officer, Primary Residential Mortgage Inc.
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
you get to touch so many different aspects of business and economics. After processing for a few years, I became a loan officer at the age of 18, and had a great origination career for about a decade.
What are some of the methods you used to generate business in your 10 years as a loan officer? I was basically beating the streets. I remember my very first day as a loan officer, I was making flyers, getting out there and meeting real estate agents. Back in the early 90s when Federal Housing Administration (FHA) loans were gaining popularity for purchase transactions, I invented an FHA cheat sheet for my area that you could put in your day planner where you could take the rate and sales price and quickly find a quick downpayment. That became a great tool for me early on. Early in my career, I also bought sales tapes from Greg Frost and Todd Duncan and followed their rules of engagement. I had a tremendous amount of success with these tools. I made sure that, each day, I had a minimum number of new people I met and shared face time with them. For me, it was a seven-day-a-week job, and I really put the effort and time in, and was able to grab some important accounts in the Salt Lake Valley area. It was a really great time in my career, and I helped thousands of people finance loans in my area. I established great ties with area builders and it was satisfying to drive through a subdivision that, just 18 months prior was just a field, and know that I played a major role in establishing those new properties.
Each month, National Mortgage Professional Magazine will focus on one of the industry’s top players in our “Mortgage Professional of the Month” feature. Our readers are encouraged to contact us by email at firstname.lastname@example.org for consideration in being featured in a future “Mortgage Professional of the Month” column. This month, we had a chance to chat with Dave Zitting, president and chief executive officer of Primary Residential Mortgage Inc. (PRMI). Dave was one of PRMI’s founding partners in 1998, and in his role as company CEO, is responsible for determining and executing PRMI’s strategic direction, and the development of partnerships within the mortgage industry. Often described as optimistic, persuasive and innovative, Dave enjoyed a decadelong career as a loan originator before establishing PRMI. He has used his experience as an originator and his knowledge of the market to help PRMI become one of the most respected institutions in the country. Dave currently resides in Salt Lake City, Would you say that today’s mortgage Utah with his wife and two children. professional is facing a completely How did you get started in the mort- different marketplace than in the past or are there similarities to what gage business? I started in 1988 as a loan processor. It you were doing back then? was an after school job for about six I find it extremely interesting that now, months, and I really began to enjoy it. in this new era of mortgage banking, I liked the office environment, and was originators are facing almost identical learning a great deal about finance challenges that I was facing back then. and business. The wonderful thing There are a lot of originators who got in about the mortgage industry is that the business during the time I got out of
the origination side and started PRMI. Loan originators who entered the industry after 1998 and focused on slim doc and no-doc loan products are finding that additional training and a new discipline are required to successfully compete in the new revisited “full doc” environment that we are now experiencing. The bottom line is that it takes considerably more work to identify pertinent credit information and gather support documentation to satisfy an investor community that is smarting from losses attributable to the “easy qualifier” mentality of the last decade. Is there anything that you base your work ethic and business philosophy on? In building PRMI, I went straight out of the origination field to building a mortgage bank. I always had the “Four C’s of Finance” in my head: Credit, Collateral, Capacity and Character.
“A lot of loan officers are surprised at this new era in the industry. They are surprised that they ‘really have to work so hard’ for business.” I often compare the loan process to an airplane. Before a plane can fly, it needs all its parts: An engine, a fuselage, a propeller, etc. If one of those elements were missing, it wouldn’t fly. I think the industry grew away from that idea, and was “defying gravity” in order to make these loans fly. The industry must come to the realization that, before you can make that loan fly, it needs all its parts. You can have a transaction that can have one stronger “C” than another. You could have bigger wings and a small motor and it will still fly, but you need some sort of balance. Balance is something that PRMI always subscribed to. We made sure that the transactions always made sense. For many years, we were very stringent in our loan reviews, and that reputation, a reputation that was viewed as a negative thing just a few years ago, now has turned into an
extremely positive thing. Now we hear people say that PRMI has a good structure that has insured our success going forward. We didn’t have a crystal ball that saw into the future … we had the fundamental ideal that each transaction carried risk and we wanted to do everything possible to mitigate that risk. We had to provide proper underwriting to the best of our ability using the Four C’s of Finance and proper quality control. We applied those techniques when a lot of people weren’t. We didn’t grow as fast and could have been 10 times the size we are now, and those restrictions capped our growth to a degree, but we were comfortable. We knew PRMI’s growth was organic and true. You opened the doors of PRMI during a liquidity crisis in 1998, operating out of 2,500-sq. ft. of office space and still managed to close 321 loans in your first year of business. Do you think the lessons learned that first year set the tone for PRMI’s future growth? Yes, I think that’s right on the money. Back in 1998, like now, there was major interest rate volatility. I was training for my Direct Endorsement Underwriting and coming out of an origination career focused primarily on A-paper and government loans. Coming out of that A-paperrich environment—having to closely dot the I’s and cross the T’s over the years— gave us a clear direction and focus on where we wanted to go. There was a thought that we dove right in, stuck with it and it turned out to be very good for us. If rates stay in this range and even bump up slightly, we are projecting $4.7 to $5 billion in originations in 2009. If we see a tick down in rates, which is a possibility, we could more than double this year. Why do you think that 60 percent of PRMI’s branch sales are purchase loans and nearly 40 percent of the sales are refis? Why should a broker do business with PRMI? One of the biggest reasons is the type of mortgage professional we attract at PRMI. They are professionals who are
market. When these strong originators are out there asking and talking about what company to be with, our name pops up in a positive manner from all over the industry. We’ve worked very hard for that reputation. We have the physical space to grow; we have the financial strength to grow; and we have the relationships with the banks and the secondary markets to grow. I think that our reputation, as people are looking to go to quality, makes us a very good choice.
achieve as an originator was so serendipitous for us when our industry rapidly went back into what mortgage banking always has been, and frankly should be, to take those tools and be able to provide one of my mentors a home and to have Greg become our vice president of sales training. To have Greg Frost among our ranks proves that strength in this market by being our number one shop in 14 months, I tell you that is a pretty nice notch on my CEO belt. That was a great decision to bring Greg aboard. I am very fortunate to be such a good friend with Greg Frost and am very happy that he joined our organization.
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Any closing comments on PRMI and the future of the company? I think PRMI is a unique mousetrap. It was built by a mortgage producer for mortgage producers with a heavy understanding and appreciation for the financial approach to the business that is going to be critical to maintaining the bank relationships that we’ll need as loans grow. Brokers will want a strong financial company that can implement strategy and systems to ensure the viability of the mortgage product. They did business with a lot of people who had poor practices in place, and when it came time to stand up and be counted, they couldn’t write the check. They are being cautious going forward. Net worth is critical. Companies with strong net worth will get you in the door and seated at the table to talk, but the investors today, the ones making the decision to buy loans from companies, are going to be coming in a looking at your quality control plan, your systems, your past performance history, loan performance and what happens if a loan stops performing. The quality of production is critical. The banks have a concern, once they open the door, about your net worth. Once you are in, they are more concerned about practices and procedures. They have a very low risk appetite, they are looking for companies that they feel comfortable with and have very best business practices, longevity, performance and the capability to actually originate a lot of quality business. The guys with the gold want to give the resources and capabilities to those who control more market share, the right way and with less risk. Those will be the winners going forward. These big banks are non-regulated bankers, you have to trust their best practices, you have to know that when they are originating a loan, it becomes a collateralworthy transaction that will perform exactly like everyone thinks it will perform. They are looking for companies that will provide them that product. There is a riskreward balance for them. The reward is stronger if you control more market share as a non-regulated bank. Controlling more market share and being able to funnel that into more conduits in the secondary market … that is the reward. If there is lower risk and higher reward, that is the recipe for who gets to win in the future.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
do is basically weed out for a period of time, certain competitive forces. I think that companies need to stay sharp and be in strong financial positions and have the capability to grow. Companies that don’t have a strong growth plan over the course of the next two to three years are going to have challenges. I think its going to come in the form of liquidity, warehousing and secondary market offerings, whereas the industry overall will have an expectation of more business funneling in from less channels. Being one of those channels Explain PRMI’s warehouse capacity is the goal and if you are one of the and is there anything specific about companies that is still drawing and your company’s capacity that differ- have the capability of being a channel, entiates it from the competition? then the opportunities will be made I can tell you that my board of directors available to those companies in pricing will not think I have done my job if I am structure, adoption of products, not at a $1 billion per month by this time although it’ll be a while until we see next year … and that, by no means, is anything out side of vanilla products. the cap. We are funding $375 to $420 The broker community has some real million per month. We have the ability challenges ahead as early as 2010 and financially, with our banks, to more than 2011. Some of the new requirements in double our current production without disclosures, yield spread premiums, ever having to go to the table again. consolidation issues and wholesale concerns will continue to plague the broWhat are PRMI’s goals for a paperless kerage community. I think you’ll see a environment? great number of We were one of the brokers who first companies that “I often compare the loan process migrate and conadopted a paperless to an airplane. Before a plane can nect and consolifly, it needs all its parts: An environment very date into larger early on, and over the engine, a fuselage, a propeller, etc. organizations that last five years, have will help them If one of those elements were thoroughly explored compete in all of missing, it wouldn’t fly.” this environment. To those areas. date, we have fully I think that there paperless capabilities. We conduct business, is going to be loan officers over the course from the point of underwriting all the way of the next two to four years who are through the secondary market, in a fully going to have a couple of different busipaperless manner and are able to empow- ness cards with different logos on them. er any of our retail locations, branches or Because of this consolidation, there are divisions with paperless capabilities. We are going to be fewer choices as to where a very glad we adopted a paperless environ- professional originator sits down at the ment long ago, as it is a big part of our pro- desk. Undoubtedly, all of these things are ductivity and it keeps cost structures in line. arguably going to make it more difficult There are challenges with it, as the rest of for the consumer. With less competition, the industry has been slow to adopt the the consumer ultimately pays the price. paperless philosophy across the board. That’s a systemic issue. We, as a nation, Beyond just paperless mortgage bank- may be overshooting a bit in some areas, ing, there is also electronic connectivity but that’s been a norm for this county that we were very early adopters of, with and various industries and I think that to FHA, warehouse banks and different try to survive in the future, it’s a matter of ancillary resources. PRMI has always having the right connections and been an early adopter of technology and resources, and companies that are well being able to consolidate workloads to capitalized with amazing quality control. either automated systems, predictable You need to be one of those companies systems or paperless systems, we see an chosen to be a part of the future. increase in efficiency, productivity and accuracy in the mortgage process. Over a year ago, you partnered with When you walk into our Salt Lake City Greg Frost. Can you detail some headquarters, you won’t see any paper aspects of this partnership with a longfiles lying around the building. Everyone time top producer like Greg Frost? has two or three computer screens on The facts speak for themselves … what their desk and that’s how we do business. Greg Frost does works and is working for PRMI … not only because of the posiDo you see any major shifts in the tive feedback I’ve received from our mortgage market or is there anything managers and partners from his sales on the horizon that mortgage profes- calls and office visits for seminars, but I sionals need to be aware of? just look at his numbers. He has been I see massive consolidation in the with us for just 14 months, and he is our industry. There is still a lot of small number one shop in the country. We’ve mortgage companies that think we may been around for 11-years-plus, and Greg have seen the worst of the consolida- comes in and becomes our number one tion. I think that there is more forced shop. To do that is no small task. consolidation ahead and what that will The success that Greg has helped me
seasoned and have a good, steady book of business over a long period of time … not just during refi windows. We look to professionals who specialize in their market area. When you find a mortgage professional who specializes in their zone, their market only affords so many overall transactions and they will not survive in their market area purely on refis. These people work diligently to not only take care of refis in their own book of business and handle new business coming in, but they are always hitting the street, servicing the real estate agent, builder, certified public accountant (CPA) and their own sphere of influence. The type of mortgage originator we attract at PRMI is one of a specific personality, mindset and business plan. I think that, in this major industry disruption that we’ve seen, PRMI has had an opportunity over the past year to find more of those folks than we’ve ever had in the past. We have been a very good choice for mortgage professionals who depend on transparency and a system that allows them to have control over their service levels. We can go out and find very professional originators who demand the tools they need to compete and own their market and the Metropolitan Statistical Area (MSA) that they’re in. If we can provide these tools to them to own that MSA, the byproduct is a very healthy percentage of purchase activity. I think we are also seeing a flight to quality in the retail mortgage banking marketplace. Sharp mortgage professionals realize the game is changing and their “cheese” is being moved. They are looking for a solid performer in the industry with whom to associate with. We are seeing the number of people inquiring about our business model ratcheting up exponentially. The pendulum is swinging and the smart people out there who are top producers realize they must associate themselves with a well-capitalized company that can fund on time. So many out there are spending more time on underwriting and getting the loan to the closing table, than they did acquiring the loan, taking the application and getting it to the stage of it being reviewed by an underwriter. PRMI’s business model is unique as it answers all of these issues out there. It answers the throughput issue, as well as the financial stability issue. The table is set with PRMI and the word getting out is that people are understanding and interested in us. Pricing is now the third thing I am asked about when people are inquiring on whether to do business with us. The first question I am asked is usually about our quality: “How deep is your bench and how financially stable are you?” The second question is usually a service-related inquiry involving underwriting, and the third question I am asked often involves pricing. At PRMI, we’ve kept a great reputation in the industry, not only to retail mortgage companies, but also as an enterprise in the mortgage banking arena. We’ve been solid over the years and that strong reputation bleeds all the way around the industry, not only to the origination community, but the ancillary community and the secondary
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through early May, refinance activity surged for conventional loans. This surge in conventional refinance applications dominated the market, causing the share of FHA refinance applications to fall below 20 percent for most of this year. Recent increases in mortgage rates have caused conventional refinance activity to drop much more sharply than government-insured refinance activity due to a combination of credit and LTV requirements. As a result, the government-insured share of refinance applications climbed to 33.6 percent in June.” For more information, visit www.mortgagebankers.org.
NAMB applauds introduction of HVCC legislation
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United Wholesale Mortgage
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
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Reps. Travis Childers (D-MS) and George Miller (R-CA) have introduced HR 3044, legislation requesting an 18-month moratorium on the Home Valuation Code of Conduct (HVCC). The National Association of Mortgage Brokers (NAMB) is publically supporting the introduction of HR 3044, and has thanked Reps. Childers and Miller for their continued efforts and leadership on this issue. “The introduction of this legislation is a victory for consumers and members of the industry alike,” said NAMB Immediate Past President Marc Savitt, CRMS. “We thank Congress for recognizing the need to address the issue of appraiser coercion without causing undue harm to borrowers or diminishing competition in the marketplace.” NAMB has taken an active stance against the HVCC since its introduction in March of 2008. “We urge Congress to pass HR 3044 as soon as possible to ensure that more borrowers will not be negatively impacted by this de facto rule,” said Savitt. “In the period of time since its implementation, the HVCC has increased costs to consumers and decreased the quality of appraisals and has provided a level of uncertainty in an ailing housing market. Tens of thousands of consumers have already been robbed of their opportunity to enjoy historically low rates by Attorney General Andrew Cuomo’s rule.” For more information, visit www.namb.org.
Appraisal Institute calls on HUD to rescind mortgage regulation
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The Appraisal Institute has led a coalition of four organizations and 35,000 members calling on the U.S. Department of Housing and Urban Development (HUD) to rescind regulations regarding appraisal management companies (AMCs). The coalition also sought new rules on AMCs. A letter addressed to HUD Secretary Shaun Donovan and co-signed by the Appraisal Institute, the American Society of Appraisers, the American Society of Farm Managers and Rural Appraisers, and the
National Association of Independent Fee Appraisers asked HUD to rescind Mortgagee Letter 97-46 immediately and to correct a reporting discrepancy related to management company fees. Mortgagee Letter 97-46 details HUD’s policy governing appraisal fees and the use of third-party entities providing appraisal and management services. According to the groups, the policy has the unintended result of allowing homebuyers to be misinformed as to the costs of appraisal services in a mortgage transaction. “More residential mortgage lenders are relying on AMCs to provide appraisal services, and with the restrictions HUD has placed on appraisal and management fees, the home buying consumer ends up paying more in fees and getting less in service,” said Jim Amorin, president of the Appraisal Institute. Unfortunately for the unsuspecting consumer, the restriction on total management fees to “no more than” the customary fee for an appraisal has driven many competent and experienced appraisers away from the Federal Housing Administration (FHA) and other mortgage programs, according to the groups. The loss of these seasoned professionals is adding “unnecessary and substantial risk” to the FHA program, the groups said. The appraisal coalition’s letter added, “In many instances, management companies are being forced to use appraisers from distant locations with less experience and training, or more pointedly: those who will work for less. Using less experienced and less qualified appraisers to perform FHA assignments is not a good business practice and is not good public policy.” The coalition’s letter also called on HUD to crack down on objectionable business practices by some AMCs: “We request that the Department follow through on a commitment to propose rules for public comment relating to AMCs that would ban inappropriate practices, such as hiring an appraiser primarily on price or turnaround time, without consideration of competency or qualifications. The positive impact of such rules on the lending community, consumers, and the appraisal community would be profound.” For more information, visit www.appraisalinstitute.org.
Rep. Frank introduces plan to increase consumer protection House Financial Services Committee Chairman Barney Frank (D-MA) has introduced HR 3126, President Barack Obama’s plan to strengthen consumer protections as a part of a broader financial regulatory restructuring. HR 3126 would establish continued on page 18
If you cannot make this connection, then provide a resume. continued from page 12
was physically difficult to do the most basic things for myself. It took me nearly 30 min. to get dressed, and just feeding myself became a great task. Adding to the pain I was already experiencing were all the rude representatives from my creditors, who didn’t really care about the struggles I was going through. The pain of not being able to pay my bills only made my physical pain worse. Honestly, it was one of the most difficult times in my life.
(Reaction) Though many people in this situation might just ignore their creditors, I didn’t. Even though they didn’t seem particularly concerned with me or my situation, I made a point of keeping in touch with them throughout my time off, and gave them updates on my progress. I wanted them to know that I was creditworthy and that I wasn’t just ignoring them.
(Request) Although my credit still isn’t perfect, I take paying my bills seriously and have done the best I can. I am trying to buy a better home for my family, in a safer neighborhood with a better school system. Please know that it would make a huge difference in our lives if you would approve our loan. I sincerely request that you see the merit in my circumstance and give us a chance and getting our kids into a better environment and to achieve our dream. I thank you for your consideration. Sincerely,
to be treated fairly as anyone else applying for a loan. Here’s the approach I would take: 1. Compose a good letter of explanation for the time he was off work. It should be clearly conveyed how remorseful he is and what a lesson he learned (if indeed he feels this way), but don’t take more than a paragraph on this.
3. Regarding the fact he has a fiancée; this will help the file tremendously and will likely be the thing that gets him approved in my opinion. It sounds like he’s got his act together and wants to lead a productive life. Taking on marital obligations is a plus and adds stability to the file. So at the end of the LOX, conclude with a paragraph about how much they want to get approved for this loan in order for them to begin building a family together.
Remember, on a borderline file, the 2. Connect his prior work experience to underwriter goes straight to the LOX hopthe current job and include letters from ing to find a good explanation for the past employers for the VOEs if possible. derogatory information on their credit
report. Now that you have the LOX formula, you can give the underwriter what they seek and you hopefully will be able to close more borderline FHA loans. 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 LoanToolbox.com and is a former FHA underwriter. Jeff may be reached at (877) 342-9100 or e-mail email@example.com. Visit author Jeff Mifsud’s Web site at http://mseminars.com for tips and information on FHA loans and details from some of the nation’s top FHA specialists.
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An underwriter’s concern here would not be whether he did jail time, but rather the length of time back on the job and whether it is considered stable income. FHA guidelines do not bar FHA financing to people who have been in jail unless it was for fraud-related to a housing or finance issue like giving or receiving kickbacks. Outside of housing fraud, once a person has served their sentence they are
SRA designated principle (25 years experience). www.NationalMortgageProfessional.com O
This letter has every element of a good LOX. Without it, this type of loan can easily get denied. I cannot tell you how many loan officers (LOs) either make up LOXs because they know they need them for the file, or don’t take them seriously. These LOs are making a big mistake, and will never become FHA experts. If need be, provide supporting documentation to back up what was stated in the LOX. By doing this, an underwriter feels more confident in approving a borderline loan. The members of my FHA Success Desk online training resource have the benefit of asking us directly how to package their tough files before they submit them to underwriting. Recently, a member from California submitted a question about how to submit a file for a borrower who did jail time. Here’s the response I gave our member:
news flash NMLS
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the Consumer Financial Protection Agency (CFPA), an independent agency with a range of rule-making, information-gathering, supervisory and enforcement tools to better protect consumers who purchase financial products from banks and non-bank financial institutions. “I am pleased to introduce this bill which addresses an issue at the heart of the financial crisis,” said Rep. Frank. “Recent reports about the lack of mortgage modifications and increases in various fees only reinforce the need for this bill, which is already very clear. I intend to mark this up by the end of July, and we have already begun to hold hearings on this subject and have had a great deal of consultation among members. I am confident that we will produce a bill that will provide greater consumer protections while in no way burdening the legitimate activities of responsible banking.” HR 3126 introduces the Obama Administration’s proposal to create the CFPA with certain limited exceptions. Unlike the Administration’s draft, the bill preserves the current federal banking regulators’ role to enforce the Community Reinvestment Act (CRA). In addition, the Administration’s proposal presupposes the creation of the National Bank Supervisory (NBS), a new prudential regulator that would merge the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). While this is consistent with the Administration’s goals for regulatory restructuring, these considerations will be done at later date. Accordingly, the introduced bill makes references to the OCC and OTS, instead of the NBS. For more information, visit www.house.gov.
HUD expands eligibility for Making Home Affordable refinancing U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan has announced an expansion of the Obama Administration’s Home Affordable Refinance Program to include participation by borrowers who are current but up to 125 percent underwater on their mortgage. Under authorization provided by the Federal Housing Finance Agency (FHFA), borrowers whose mortgages are currently owned or guaranteed by Fannie Mae and Freddie Mac will now be allowed to refinance those loans according to the terms of the Home Affordable Refinance program established earlier this year. Secretary Donovan made the announcement while touring a neighborhood in Las Vegas with Senate Majority Leader Sen. Harry Reid (D-NV) and Rep. Dina Titus. Las Vegas currently leads the nation in foreclosures and approximately 67 percent of the current mortgage holders have mortgages that are higher than the worth of their homes.
“I am here in Las Vegas because it is ground zero of the foreclosure crisis,” Secretary Donovan said. “I am pleased to join Senator Reid and Congresswoman Titus to make this announcement, which I believe will make a critical difference in our ability to help many more Americans, particularly those here in Nevada, to stay in their homes. The president’s Making Home Affordable plan is already helping far more families than any previous foreclosure initiative and with today’s announcement we will extend its reach still further.” Currently, only those borrowers whose first mortgage does not exceed 105 percent of the current market value of the property are eligible for the Obama Administration’s Home Affordable Refinance Program. For example if the property is worth $200,000, the borrower must owe $210,000 or less. HUD’s announcement will allow more homeowners to become eligible for the program, by increasing the eligibility to 125 percent. Donovan also announced his plans to deploy HUD Foreclosure Rapid Response Teams to assess the areas hardest hit by foreclosure, starting in Las Vegas. The Las Vegas team will consist of two senior-level HUD field staff with experience in single family housing and in community outreach. Their task will be to determine the needs in Nevada and in surrounding areas based on delinquency rate data at the zip code level, as well as listening sessions with local stakeholders such as housing counseling agencies, lenders, and members of the public. Based on the Foreclosure Rapid Response Team’s assessment, HUD will commit two fulltime employees to implement their recommendations. Additionally, HUD plans to deploy two fair housing equal opportunity specialists to the Las Vegas HUD office, which will provide the opportunity to conduct outreach and education locally, receive discrimination complaints and more readily conduct full investigations. For more information, visit www.hud.gov.
MBA lowers its originations forecast The Mortgage Bankers Association (MBA) has lowered its forecast of mortgage originations in 2009 to $2.03 trillion, a drop of more than $700 billion from its March forecast. Approximately $84 billion of the drop is due to lower purchase originations and the rest is due to lower rate/term refinancings and low volumes in the Fannie Mae and Freddie Mac Home Affordable Refinance Program (HARP). MBA is now forecasting $737 billion in purchase originations and $1,297 billion in refinance originations. continued on page 21
BY GIBRAN NICHOLAS
The Aroma of Sizzling Financing Incentives Okay, so there you are … going about your day minding your own business. You’re really not that hungry. You are quite comfortable, actually. Then, all of a sudden, out of nowhere, that tempting aroma of your favorite food sizzling on the grill reaches out and beckons you. It entices you. It awakens you out of your state of contentment. It demonstrates to you as plain as day how painfully hungry you really are. Finally, it arouses you to action; and before you know it you’ve taken your first bite! Yep. You’ve been there, done that. What if we could figure out a similar way to entice qualified homebuyers and motivate them to go ahead and “take a bite” even when they are “not hungry” and the food available to them (in the form of available housing inventory) is so plentiful? What is it going to take in order to attract these buyers and arouse them to action? After all, if we can figure that out, we can almost guarantee an endless stream of referrals from real estate agents itching to get their hands on our secret recipe.
The problem: I’m not hungry … it’s a buyer’s market!
The solution: Put those financing incentives on the grill baby! Consider this example illustrating how financing incentives would sizzle on a home that is competing with distressed property listings in the market: Your client’s listing $310,000 $295,000 20% $59,000 80% $236,000 5% $11,800 4.25% $1,161 $111 $3,000 $3,000 $59,000 Now!
Interest paid over 10 years Savings over 10 years
Interest paid over 30 years Savings over 30 years
Your business could literally skyrocket if you commit yourself to helping real estate agents and home sellers structure financing incentives like the ones illustrated above. Referral partners will be clamoring to get in on your secret recipe, and otherwise “not hungry” homebuyers will be awakened with a ravenous appetite to “take a bite” out of your offerings. Competitors will be sneaking over your shoulders, scratching their heads, and asking you: “Hey good lookin’! Watcha got cookin’?!” continued on page 28
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Interest paid over five years Savings over five years
The result: The sizzling aroma spices up your business!
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Short sale listing List price $310,000 Buyer’s desired purchase price $280,000 Downpayment percentage 20% Downpayment funds $56,000 Mortgage LTV 80% Mortgage balance $224,000 Points paid by the seller percentage — Points paid by the seller funds — Mortgage interest rate 5.50% Mortgage payment $1,272 Monthly payment savings — Closing costs $3,000 Closing costs paid by seller — Buyer’s downpayment & costs $59,000 Time to close 3-6 months … maybe…
It is estimated that over half of all homes being sold in many markets are distressed sales involving some form of foreclosure or pre-foreclosure sale. It is further estimated that approximately 40 percent of all homes being sold are purchased by first-time homebuyers. Most of these first-time homebuyers and other buyers are getting their information from the Benevolent Society of Media (BS Media), the Internet Truth Factory (ITF), and relatives that all have Ph.D.’s in the housing and mortgage markets. These 24/7 noise machines have all conspired together and are successfully indoctrinating homebuyers into believing that they are not hungry after all. Didn’t you hear? IT’S A BUYER’S MARKET! This presents two dilemmas for real estate agents, home sellers and the mortgage originators that work with them. First, how can you attract and motivate qualified buyers who are looking for the greatest deal of the century? Second, how can you help real estate agents and home sellers differentiate their listings and compete with all of the distressed properties on the market?
In this example, the buyer is looking for a 10 percent discount off the list price. With the short sale listing, the buyer is getting their discount by trying to reduce the purchase price. With your client’s listing, the buyer is getting their discount through seller concessions. As you can see, the seller in column number two is paying five points and the buyer’s closing costs. The bottom line here is that although it looks like the buyer is paying more for the house in column number two, they are actually paying much less. In fact, the buyer saves $111 in cash flow every single month for the next 30 years—that’s a whopping $39,960 in monthly pay“What if we could figment savings over the life of the mortgage. Even ure out a similar way though the mortgage balance is higher in column to entice qualified number two, the buyer saves $11,458 in interest costs over five years, $22,711 over 10 years, and homebuyers and motivate them to go ahead $51,913 over the 30-year life of the mortgage. To further add some spice and sizzle to this sce- and “take a bite” even nario, remember that points are tax deductible to when they are “not the buyer even if they are paid by the seller. In hungry” and the food other words, the buyer in this example (column available to them (in number two) would be able to take an additional the form of available $11,800 deduction on their tax returns in the year housing inventory) is of the home purchase without spending a dime so plentiful?” out of their own pocket! A buyer in a 25 percent income tax bracket would experience $2,950 in actual cash savings when they file their tax returns. Who said first-time homebuyers making less than $75,000 per year are the only ones eligible for tax savings when they buy property? Furthermore, points are also deductible to the seller by way of reducing their capital gain on the sale of the property (if they have a capital gain). Although the scenario illustrated above involves a 20 percent down payment, this strategy can also be implemented in cases involving a 10 percent or even a 3.5 percent downpayment (Fannie Mae allows six percent seller concessions on loan-to-values [LTVs] up to 90 percent and the Federal Housing Administration [FHA] also allows six percent on LTVs up to 96.5 percent). As you can start to see here, properly structured financing incentives could be that missing ingredient that sellers and their real estate agents could utilize to attract buyers and make their listings stand out from the glut of inventory in today’s market. Sellers could sell their homes much quicker and end up with the same bottom line sales proceeds if you successfully teach them and their real estate agents how to wrap their arms around this strategy. As a true mortgage professional, you need to be the one pointing this out to clients and referrals partners. You could help real estate agents and home sellers design marketing around these strategies and illustrate how their buyers could “save more than $50,000” on the purchase of their home versus comparable listings in the market.
Credit Repair Do it yourself or hire a credit restoration company? By Brian C. Aber
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When looking to challenge derogatory items with requirements outlined in the Fair Credit Reporting Act (FCRA), a consumer typically has two options:
clear and legible proof of address and social with your disputes. Please make note that loan originators should still be careful with what advice they hand out and its level of O Do it themselves; or accuracy. While you may not be a credO Hire a professional credit repair it repair company, you can still be held agency. liable under the Credit Repair Organizations Act if you are financially Which is better? It depends on the tied to your client. situation. There are many factors that If you consider utilizing the servicone has to take into consideration es of a professional credit restoration when planning the credit repair company, then you still have your process. It’s bad enough with the level homework to do … just not as much. of criteria involved within the FCRA to The number one qualification you handle a proper dispute without hav- want to use when researching credit ing to deal with the mistruths and repair companies is results. They can anti-credit repair propaganda pro- have all the bells and whistles, duced by the credit bureaus and their preach about how many attorneys affiliates. they have working for you or that The credit bureaus will they have “Attorney promote the online disFacilitated” services, or putes system as a repeven be a little less utable way to clean up expensive than the next your credit report; howguy, but none of this ever, what they fail to matters unless they are mention is by using this producing effective results method, they are not and attaining deletions of required to comply with all your unverifiable and specific areas of the law inaccurate negative items. that protect consumers, You might have seen like forwarding your dissome agencies claim they pute to the creditor or have removed 11,237 “With entities that supply you with the late payments. That make more money process of verification. sounds impressive until These methods typically when consumers have you find out they’ve only cause “soft deletes” and derogatory items and serviced 12,000 clients. A the item reappears after a more important statistic good credit data couple of months. This is is the agency’s fix/delebeing considered typical of their defense tion ratio, which is the ‘unsellable,’ how can strategy of “Attrition and total number of deleted you assure you are Delay.” With entities that items divided by the being dealt a fair make more money when total number of derogahand?” consumers have derogatory accounts. Also, find tory items and good credout what that fix/deleit data being considered “unsellable,” tion ratio is for the first round of corhow can you assure you are being dealt respondence. a fair hand? Take the statement “you can do it Is the agency posting recent results yourself” and apply it to businesses that on their Web site or do they just haparen’t involved in credit repair. How pen to be a couple examples of their many other valuable services can be above average clients from years done by the client themselves? While past? one can do their own taxes, they can Providing results from each month they mow their own lawn or represent them- are in service shows that they continuselves in court, but we hire professional ally have the ability to achieve the accountants, landscapers and attorneys results they set out to attain. for matter of lack of expertise and convenience. Does the company charge per deleted Consumers can do it themselves or item? you can try to help your clients your- This can get very expensive for conself. If you are prepared and commit- sumers of agencies that are very sucted to the entire process, then it is cessful at what they do. recommended to visit www.brokencredit.com, research the FCRA and the Does the company charge their fees other laws designed to protest con- upfront? sumer rights and stick to a game plan. Charging upfront for credit repair is illeMake sure correspondence to the bureaus are effective and provide a continued on page 23
continued from page 18
“In March we boosted our forecast of mortgage originations by over $800 billion following the drop in interest rates associated with the Federal Reserve’s announcement on the Treasury bond and mortgage-backed securities (MBS) purchases programs as well as the implementation of HARP,” said MBA Chief Economist Jay Brinkmann. “We warned at the time that with the billions in Treasury securities that would be issued to finance record budget deficits and with the Fed expected to purchase only a portion of those Treasury securities, how long rates stayed low would depend on whether other investors stayed in the market. If other investors shied away from Treasuries due to expectations of future inflation and the declining value of the dollar, the effect on rates would be more short-lived and our mortgage originations forecast would prove too optimistic. That has proven to be the case.” Brinkmann added, “MBA now projects that total existing home sales for 2009 will be 4.8 million units, a drop of 1.2 percent from 2008. MBA projects new home sales will be 352,000 units, a decline of about 27 percent from 2008. Median home prices for new and existing homes will likely continue to fall, dropping by about 10 percent from 2008 levels, but leveling off in 2010 as the economy improves.” For more information, visit www.mortgagebankers.org.
Metrics report concludes delinquencies, foreclosures and loan mods increase
Data also showed a continuing emphasis on preventing avoidable foreclosures to keep families in homes and mitigate losses, as servicers continued to implement more home retention actions (loan modifications and payment plans) than home forfeiture actions (foreclosures, short sales, and deed-in-lieu-of-foreclosure actions). Prime borrowers received about twice as many home retention actions as home forfeiture actions, while subprime borrowers received more than seven times as many. “While I’m very concerned about the rise in delinquent mortgages and foreclosure actions, the shift in continued on page 24
WELLS FARGO WHOLESALE LENDING
Shared Vision, Shared Success.SM Make Your Way With A Lender Committed To Leading Responsible Change Wells Fargo Wholesale Lending is dedicated to working with mortgage brokers who are committed to five key principles for long-term industry success: Responsibility: Ensure fair and responsible lending and borrower education are top priorities. Quality: Produce high quality loans. Controls: Better manage our collective risk and eliminate fraud. Excellence: Create, promote and adhere to industry-leading standards of excellence. Efficiency: Develop capabilities that drive greater efficiency and ease of use between our companies. Together, we will lead the way, helping to establish a foundation for a stronger, healthier and more responsible industry.
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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. #64153 4/09
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Share in this vision. For more information, tools, ideas and market insights visit our Shared Vision, Shared Success.SM web site located on www.brokersfirst.com.
Delinquencies and foreclosures on first-lien mortgages continued to increase during the first quarter of this year, but loan modifications also increased and the trend continued toward more sustainable modifications with lower monthly payments, according to a report issued by the Office of the Comptroller of the Currency (OCC) and the Office of Thrift Supervision (OTS). The report is based on data from loan servicing companies that manage 64 percent of all first-lien U.S. mortgages. The report found that the number of loan modifications significantly increased, and during the quarter, servicers implemented 185,156 new loan modifications, up 55 percent from the previous quarter and 172 percent from the first quarter of 2008. More than half of the modifications in the first quarter of 2009 resulted in lower monthly principal and interest payments, as servicers focused on achieving more sustainable mortgage payments. Modifications that reduced monthly payments by 20 percent or more jumped 19 percent from the previous quarter, to 29 percent of all modifications. By contrast, actions that resulted in increased payments constituted only 19 percent of
modifications, a drop of 25 percent from the previous quarter. Although delinquencies on modified loans increased each month following modification, delinquency rates were considerably lower for mortgages in which monthly payments were reduced. Six months after modification, only 24 percent of the mortgages that had monthly payments reduced by 20 percent or more were 60 or more days past due, compared with 54 percent of mortgages with monthly payments left unchanged, and 50 percent with higher monthly payments.
Seriously delinquent mortgages (60 or more days past due or involving delinquent bankrupt borrowers) increased as economic pressures continued to weigh on homeowners. Prime mortgages, which represented two-thirds of all mortgages in the portfolio, had the highest percentage increase in serious delinquencies, climbing by more than 20 percent from the prior quarter to 2.9 percent of all prime mortgages. Foreclosures in process also increased during the quarter to 844,389, or about 2.5 percent of all serviced loans, as moratoriums on foreclosures expired during the first quarter. This increase represented a 22 percent jump from the previous quarter and a 73 percent rise from the first quarter of 2008.
Lone Star State native Jim Pair, CMC leads NAMB into a new era
Lately, with each subsequent passing of the gavel of National Association of Mortgage Brokers (NAMB) leadership, it could be equated to a grown up’s version of the game Hot Potato. Legislation, proposed regulations, a downsizing and consolidating industry, attacks from the media, public scrutiny … the list of cons related to the broker industry seems to outweigh the list of pros for each successive NAMB president of late. As Marc Savitt inherited before him, Texan Jim Pair, CMC has been handed the golden key of the NAMB presidency at a time of great wonder about the role of the broker in the current state of Jim Pair, CMC the U.S. housing finance market. Despite all the negative vibes, Jim is confident that the future of the truly professional mortgage broker remains positive.
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A wealth of industry experience
Pair got started in the mortgage banking industry in 1961 as a loan originator after a stint in the U.S. military. He served as a senior officer of a mortgage banker, and five years as the president of two savings and loan associations in Texas in the late 1970s/early 1980s. In 1992, Jim founded Mortgage Associates Corpus Christi (MACC), serving as president. MAAC focuses primarily on the origination of conventional single-family loans. “I’ve seen a lot of different things happen in this industry over the years, but nothing quite as severe as what has been going on the past few years,” said Pair. In 1994, MAAC was approved to originate Veterans Affairs (VA) loans, and in 2001, was approved to originate Federal Housing Administration (FHA) loans. MAAC continues to be a top mortgage shop in the Corpus Christi area, having been honored four times with the “Best of the Best Award for Mortgage Lending in Corpus Christi,” as bestowed by the readers of the Corpus Christi Caller Times.
Giving back to the profession Jim became involved with industry trade associations in 1992 when he first founded his company. Taking the advice from friends in Houston who were members of the Texas Association of Mortgage Brokers (TAMB), now the Texas Association NAMB Immediate Past President Marc Savitt welcomes of Mortgage Professionals 2009-2010 President Jim Pair to the office of NAMB pres(TAMP), he approached idency during the Mid-Year Meeting the Texas affiliate of NAMB about forming a chapter in Corpus Christi. They agreed and Jim spearheaded the launch of TAMP’s Corpus Christi Chapter, serving as the
chapter’s first-ever president and as a member of the TAMP statewide board of directors. As he became more active on the state level with TAMP, Jim became involved with the legislative affairs of the association and became a mainstay at the Capitol in Austin, educating state senators and representatives on the role of the mortgage broker in the housing finance industry. His statewide involvement with TAMP “I firmly believe the HVCC has eventually led to Jim taking the reins of taken away consumer choice.” association leadership as a statewide president in 2000-2001. He became involved nationally with NAMB, serving as chair of both the Membership Committee and the Education Committee. He eventually found himself on the NAMB board of directors which led to his recent election as president of NAMB. “Nothing was done by design,” said Pair. “I always felt that the industry had been good to me, and I wanted to give something back to show my appreciation. I had no thoughts of ever becoming NAMB president, but I’m sure glad that I now am.”
Solidifying the foundation Two of Jim’s primary goals over the next year as NAMB president are to increase revenue and bolster the ranks of membership. One of NAMB’s financial lifelines for so many years was its strong ties to its Industry Partner Program. With the downsizing of so many wholesalers, one of NAMB’s primary lifelines has been tightly constricted, thus greatly impacting the financials of the association. “In the past, we relied heavily on our Industry Partners to fund our operations and we realize that stream is drying up, so we need to look for more sources of revenue elsewhere,” said Pair. “We are actively pursuing new sources so that we can fund what we want and need to do.” According to Jim, a number of factors will play into the opportunity to build membership over the next year. Regulatory concerns, along with licensing and education requirements mandated by the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act) are strong considerations to align one’s business with NAMB according to Pair. In addition, the Obama Administration’s proposed Consumer Financial Protection Agency Act of 2009 (CFPA) will yield even more authority over the broker community. The CFPA calls for the formation of an agency with the authority to prescribe rules regarding disclosures, sales practices, minimum operational standards and requirements to offer standard products and services. This agency would be authorized to prohibit pre-dispute arbitration, propose model mortgage loan disclosure language, and require disclosure allowing consumers to compare financial products or services. Provisions of the SAFE Act require that all loan originators be subject to a national registry. “With the SAFE Act and proposed legislation, the interests of the small mortgage banker and mortgage broker will be more common than ever,” said Pair. “Through the relationship NAMB has with AllRegs, we will be able to offer education to those originators to get them licensed and also have the opportunity to recruit them as members of NAMB.” NAMB recently rolled out a new membership category, the Corporate
Membership. The new category will enhance NAMB’s membership numbers as it will allow small mortgage bankers and their originators to join the association at a lower rate than if the company had joined individually. “Building membership and finding other sources of revenue go hand in hand, and we look to continue to grow in both of those areas,” said Pair. “I think we can really accomplish those goals this year and be successful.”
Wading through the waters of legislation In the eyes of many, the onset of the Home Valuation Code of Conduct (HVCC) has caused more harm than help since its inception. Increased consumer costs and delays in appraisal time are just two of the issues that have plagued the HVCC as issued by New York State Attorney General Andrew Cuomo, Fannie Mae and Freddie Mac. Since the Jim Pair addresses attendees HVCC’s May 1 enforcement, NAMB has been on the at the 2008 Annual frontlines of defending the stance of its memberConvention in Indianapolis ship, through an industry-wide Call to Action to let the offices of Attorney General Cuomo, Fannie Mae and Freddie Mac know, by phone and e-mail campaigns, the harmful repercussions of the HVCC. “I firmly believe the HVCC has taken away consumer choice,” said Pair. “Not being able to be in the process, the consumer does not know who is going to make the appraisal and just how qualified that appraiser is. The process does not move in a smooth fashion, and has, in some cases, cost the consumer $150 to $200 more out-of-pocket for an appraisal. With this time delay, rate locks expire and need to be extended, resulting in yet another deep cost to the pocket of the consumer.” In late June, Reps. Travis Childers (D-MS) and George Miller (D-CA) introduced HR 3044, a piece of legislation that is seeking an 18-month moratorium on the HVCC. NAMB issued a mid-July Call to Action to their membership urging them to contact their elected officials in Washington, D.C., discuss with them, their concerns about the HVCC and become a co-sponsor of HR 3044. “What we need is better enforcement of the laws already on the books,” said Pair. “Our states are not well-enough-funded to regulate the laws they already have on the books. The same is true with the U.S. Department of Housing & Urban Development and the rest of the agencies. If the laws on the books had been appropriately enforced, we certainly would not be in as severe a situation as we are in now.”
“There will always be a role for the mortgage broker,” said Pair. “When the market returns to normalcy, I don’t think the retail banks will be able to handle the amount of volume, and the broker will play a large role in getting products to the consumer. Brokers are patient and are willing to make the investment in great personal customer service and get that referral.” As the year advances toward the next, “Building membership and the seat currently held by Jim Pair will finding other sources of revenue evolve as well. Jim will lead an industry go hand in hand, and we look to in a state of flux, in a time of a great ecocontinue to grow in both of nomic shift. The housing market will those areas.” help shape that great shift and an NAMB mortgage broker will have a lead role on the stage of economic change. “I want everyone to know that they cannot do it individually,” said Pair. “We have to do it collectively as a group and everyone has to be involved in the fight. To remain brokers today, we have to be true and dedicated professionals to survive what we’ve already experienced as we move onward into the future.”
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gal, unless they are exempt from the Credit Repair Organizations Act. Don’t let the membership fee fool you. It’s still an upfront charge no matter what way you look at it. While I will only vouch for the company I work for, there are plenty of ethical and experienced companies out there. For example, members of the National Association of Credit Services Organizations (NACSO), www.nacso.org, go through a very strict and rigorous application process. Ethical and experienced companies have been here to
help your clients and will continue to be here for many years to come. Brian C. Aber is a senior account executive with HTDI Financial and sits on the Board of Advisors for the National Association of Credit Services Organizations (NACSO). He can be reached by phone at (877) 8774834, ext. 704 or e-mail firstname.lastname@example.org. Visit author Brian C. Aber on the Web at www.increaseyourloans.com.
Getting the word out
“Innovative Rural Financing since 1993” Lending in TX, NM, and OK
O AUGUST 2009
As the role of the mortgage broker continues to evolve and the industry continues its metamorphosis, the need for the mortgage broker will not diminish. Consumers still require the expertise that only a mortgage broker can bring to the table when making what is often the single largest investment in one’s life.
1. Go to www.ruralhomeloan.com 2. Pick a low ﬁxed rate for your borrower 3. Set closing date then schedule dinner and drinks!
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
The road ahead
Another of Jim’s aims this year is to amp up the communications efforts of NAMB. Marc Savitt made countless television, print and Web media appearances over the past year during his term as NAMB president, and Jim looks to carry on that campaign of painting the picture of the importance of the broker Jim Pair chats with NAMB Chief Executive Officer Roy to the American economy DeLoach during NAMB/WEST in Las Vegas and its consumers. “I don’t think that consumers have been swayed that much by the bad publicity of the mortgage broker profession,” said Pair. “One big reason we are losing more brokers is more of a reaction to what has happened in the marketplace, coupled with a tightening of credit and decrease in home values. There is an overall lack of consumer confidence in the economy as the deciding factor whether or not they should purchase a home right now.” Relaying the benefits of using a NAMB mortgage broker to the general public is the obvious goal of NAMB, but Jim stresses that communication of the benefits of NAMB membership to non-members is another key goal that will enhance membership numbers. “We need to build up a sense of urgency among our members and non-members to become part of something that is working really hard to protect our industry and our way of business,” said Pair. “As we communicate more as to what is happening, more people are going to be a part of NAMB.”
continued from page 21
emphasis by servicers to more sustainable, payment-reducing modifications is a positive step that should show significant benefits in the coming months,” said Comptroller of the Currency John C. Dugan. “In addition, as the Administration’s Making Home Affordable program gains traction and helps offset the impact of this very difficult economic cycle, we should continue to see progress in future reports.” For more information, visit www.occ.gov or www.ots.treas.gov.
NAHB report: Appraisal mishaps harming housing and the economy Twenty-six percent of builders are seeing signed sales contracts fall through the cracks because appraisals on their homes are coming in below the contract sales price, according to a nationwide survey conducted by the National Association of Home Builders (NAHB). “Home builders are increasingly concerned that inappropriate appraisal
practices are needlessly driving down home values,” said NAHB Chairman Joe Robson, a home builder from Tulsa, Okla. “This, in turn, is slowing new home sales, causing more workers to lose their jobs and putting a drag on the economic recovery.” The survey showed that nearly 60 percent of the builders are reporting that inadequate appraisals are causing serious problems in the market, with the biggest problem being comparables of new single-family homes that are too often based on foreclosures and distressed sales. “Lost home sales are killing jobs, deepening the housing slump and hurting local economic activity,” said Robson, adding that construction of 100 single-family homes adds 324 local
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!
You don’t need to be a credit expert to they couldn’t close before due to bad credit! It means more loans and more revenue for my loan start your own Credit Repair business Fortunately, with HTDI Financial’s Credit Services Organization (CSO) program, you will be able to handle ALL aspects of your business except having to do the actual repairs; we do that for you! We will train you on how to handle these customers and you will have the support you need every step of the way. We will make you look like a Fortune 500 company even if you work from home! YOU control how much money you make. In fact, through our CRM, we give you the tools and resources to harvest leads, manage prospects and monitor their progress.
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
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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There is only one step you need to take; visit www.startacreditrepaircompany.com or call us at 877-877-4834 option 5.
jobs, $21.1 million in local income and $2.2 million in taxes and other revenue for local governments with the first year. Of those who are reporting appraisal problems, 54 percent said that the appraisal amount was actually less than the cost of building the home. Robson said that foreclosure and distressed sales should not be used without appropriate adjustments to reflect the expenditure that would be required to bring them up to the condition and quality that represents a reasonable alternative for the homebuyer. In what Robson called a step in the right direction, Freddie Mac issued a Guide Bulletin publicly stating that it does not require appraisers to use real estate-owned, foreclosures or short sales in selecting comparable sales to provide an accurate opinion on home values based on market data. Freddie further stipulated that appraisers must “certify that comparable sales chosen are those most similar to the subject property.” While the appraisal practices currently in use are taking a heavy toll on the housing market, they are also further exacerbating economic distress by affecting the availability of acquisition, development and construction (AD&C) credit. Falling appraised values for land and subdivisions under development have led some financial institutions to stop lending to developers and builders, to demand additional equity and even to call performing loans, Robson said. For more information, visit www.nahb.org.
Survey reveals long-term implications of mortgage meltdown The National Foundation for Credit Counseling (NFCC) has released the results of a recent housing survey which revealed that almost half of all American adults, more than 100 million people, no longer believe that homeownership is a realistic way to build wealth. This is counter to the long-held belief that buying a home and building equity should be a major component of a person’s financial strategy. Other findings from the survey were equally reflective of this new attitude toward homeownership: Almost onethird of those surveyed, or roughly 72 million people, do not think they will ever be able to afford to buy a home; 42 percent of those who once purchased a home, but no longer own it, do not thing they’ll ever be able to afford to buy another one; of those who still own a home, 31 percent do not think they’ll ever be able to buy another home (upgrade existing home, buy a vacation home, etc.); and 74 percent of those who have never purchased a home felt that they could benefit from first-time homebuyer education from a professional. “The lack of confidence in consumers’ ability to buy a home, improve their current housing situation, or trust homeownership to provide a significant porcontinued on page 27
Preliminary schedule of events Saturday, December 5..............................................................................NAMB/WEST Opening Reception Sunday, December 6 ..........................................................Speakers, Education and Committee Meetings Monday, December 7................................................Speakers in the Morning/Exhibit Hall in the Afternoon Tuesday, December 8 ......NAMB Board Meeting in the Morning/Delegate Council Meeting in the Afternoon
For more information, contact Aubrey Eyer of NAMB at email@example.com or visit www.namb.org for exhibitor details.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE O AUGUST 2009
BY DAVID LYKKEN
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Quality control: Often overlooked and undervalued, but an essential navigational tool for the “C” Suite executive desiring to be compliant and manage his or her company responsibly and effectively.
Ever since I was a kid, I have been a student of aviation. Some of my earliest memories were of my father and I building model airplanes. I would hang then from my bedroom ceiling and lie there imagining what it would be like to fly them. As I grew up, my dad became a pilot and owned his own plane. I have such great memories of him taking me up and letting me fly the plane. I could care less about all the gauges on the dashboard. I was too busy being a “pilot,” flying the plane and enjoying the scenery out the window. There was nothing like being up in the air flying around on a clear day with great visibility and no turbulence. But when the weather changed from sunny to cloudy and turbulence set in, I was very grateful to have my dad along who was a very well-trained and experienced pilot with thousands of hours of flying time under his belt. Aviation has many parallels to business. The principles involved with successful flights are very similar to the principles of running a successful business. Being a pilot and being a business owner have similar challenges. In good conditions, you can see everything clearly and it isn’t too difficult to fly a plane. The same goes for running a company. When business conditions are calm and stable, running a business isn’t too difficult. Just like the pilot, you can “fly” your business by the “seat of your pants.” But when weather conditions deteriorate for a pilot or if business conditions become turbulent and confusing for a business owner, things become much more difficult to manage. If you don’t know what you are doing, you can “crash and burn.” Pilots can have many different “ratings,” but for the purposes of this month’s article, I want to focus on the following two ratings: VFR and IFR. VFR stands for “Visual Flight Rules” and IFR stands for “Instrument Flight Rules.” In good weather, known as VFR conditions, both VFR- and IFR-rated pilots can fly. But when weather conditions deteriorate and visibility is compromised (commonly known as IFR conditions), only those pilots who are IFRrated are allowed to fly. The primary difference between a VFR-rated pilot
and an IFR-rated pilot is the amount of beasts? Mountains of new regulations training they have received flying the are appearing before our eyes. If you are plane using only the instruments on the not careful, you may fly right into a dashboard. IFR training can be intense mountain of regulation and crash and and nerve-racking for any pilot, but burn. Consider what is going on at FHA. especially for the VFR-rated pilots who have many hours of flying only under Severe weather alert: VFR conditions. They have been accus- FHA is cracking down tomed to relying on visual references As any Federal Housing Administration outside the window to help them navi- (FHA)-approved lender knows, it was, and gate the plane. So when an experienced still is, required to submit a written qualVFR-rated pilot goes for an IFR rating, ity control plan to FHA in order to obtain they can have a more difficult time approval. The problem is that many lenders put the plan in a relying only on the drawer once approved instruments because they and never actually execute are used to relying on the plan. That’s no differoutside references. ent than the pilot that is Many business owners flying along fine and have been successfully ignores important “gauges “flying by the seat of their and warning lights” on the pants” under what we can dashboard. call “VFR conditions.” But In May of this year, the we all know that the Mortgagee Review Board weather conditions have, announced actions taken and continue to, deterioagainst 120 lenders for viorate for our industry. In “It doesn’t take a lations of FHA requireorder to operate (fly) their weatherman to tell ments. The Board can issue businesses, “C” Level execus that the ‘weather letters of reprimand, probautives are going to have to conditions’ for our tion, suspension or withstart paying attention to industry have detedrawal of FHA approval, the instruments on their riorated. Reference civil monetary penalties dashboard. and loan indemnifications. points we have used The most ignored After this last business cycle in the past to “naviinstrument on the dashwhere huge losses were board of most mortgage gate” our businesses dumped at the feet of the executives has been qualihave changed.” taxpayers, we can only anticty control reports, assuming they are even being done. The entire ipate that the action for failure to “fly by the quality control process was designed to rules” will be more on the severe side of the give executives “piloting” their business spectrum. We have already seen a fair numone of the most valuable gauges on ber of companies “crash and burn” as the where they are at. Many have said, “Our result of failing to implement proper quality company is ‘flying’ along just fine,” but control policies and procedures and followweather conditions are seriously chang- ing them. Quality control should be much ing. It doesn’t take a weatherman to tell more than just being about being “in us that the “weather conditions” for our compliance” … it can be (should be) industry have deteriorated. Reference one of the most powerful feedback points we have used in the past to navi- “instrument’s” on a “C” Level execugate our businesses have changed. tive’s control panel to manage/navigate Fannie and Freddie are no longer gov- their businesses month-to-month. ernment-sponsored enterprises (GSEs). They are now owned and controlled by Quick review of FHA the federal government. We used to nav- requirements igate our business around the tall struc- It is important that point our that in the tures of Wall Street. Today, they have dis- course of writing this article, I collaboratappeared into the clouds. Many of the ed with someone that I have come to behemoth wholesalers have gone the know and respect in the world of quality way of the woolly mammoth. The bones control, Jan Wetzel, president of Wetzel of these large extinct wholesalers are Trott Inc. Jan confirmed the following: being examined by regulators like a paleontologist examines a woolly mam- FHA requires quality control reviews on moth. Both the regulator and the pale- 10 percent of each lender’s production. ontologist are trying to answer the same This applies to direct endorsed (DE) question: What happened to these lenders as well as correspondents. If a
lender is originating 15 or more FHA loans per month, the reviews need to occur monthly, but if they are originating less than 15 per month, then the reviews can occur quarterly and need to be completed within 90 days of the month of closing. These reviews need to be completed by personnel that are independent of the origination functions and can be done by internal staff or by a capable quality control firm. The files need to be reunderwritten to insure compliance with FHA’s guidelines, closing documents need to be reviewed for accuracy and completeness and a compliance review needs to occur to be certain that regulatory disclosures were provided in a timely and accurate manner. In addition, re-verifications of income and asset information need to occur and three file merge credit reports need to be pulled (if the file did not go through Total Scorecard) and the results need to be compared to the original credit report to determine if there are any discrepancies. Also, on 10 percent of the selected files, a field appraisal review needs to be ordered from an independent appraiser. Any and all discrepancies need to be reported to senior management who is responsible for obtaining responses from appropriate personnel on the findings and institute any corrective action that needs to be taken as a result of the findings. In the event that a finding affects the investment quality or eligibility of a mortgage insured by FHA, the lender must report the issue to the Quality Assurance Division of the HUD Homeownership center having jurisdiction over the lender. This includes violations of law or regulation, false statements, patterns of non-compliance, suspected fraud or program abuse. In addition to the regular ongoing reviews, the lender also needs to review 10 percent of their declined loans to be certain that the reasons for rejection were valid, the requirements that ECOA (Equal Credit Reporting Act) were met and that no civil rights violations were committed. Also, any early payment default (within the first six months that are 60 days past due) needs to be reviewed to be certain that the reason for default was not evident in the original assessment of the loan and to be certain there wasn’t fraud or misrepresentation involved in the loan. continued on page 28
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tion of their wealth sends a strong message about the impact of the housing crisis,” said Gail Cunningham, spokesperson for the NFCC. “It appears that whether a person was directly affected or not, Americans’ attitudes toward homeownership have shifted. The good news from the survey is that people now seem to grasp that buying a home is a complicated process and admit that they would benefit from education in advance of signing on the dotted line.” For more information, visit www.nfcc.org.
TAVMA lashes back at NAMB on HVCC
NMP News Flash column Phone #: (516) 409-5555 E-mail: firstname.lastname@example.org Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.
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O AUGUST 2009
PMI Mortgage Insurance Company has released its Second Quarter 2009 Economic and Real Estate Trends Report,
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:
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
PMI index shows brunt of recession on housing
What a True Full Service Lender is all about!
The Title/Appraisal Vendor Management Association (TAVMA) has sent a threepage letter to the National Association of Mortgage Brokers (NAMB) to protest that organization’s “inaccuracies and mischaracterizations of appraisal management companies (AMCs)” in what TAVMA calls an effort to undermine the Home Valuation Code of Conduct (HVCC). This action comes in response to an NAMB Call to Action seeking a moratorium on the HVCC. “Everyone in the industry knows there were serious problems with the collateral valuation part of the business,” said Jeff Schurman, TAVMA executive director. “Maintaining an arms-length relationship between the loan originator and appraiser is the centerpiece of the HVCC. To characterize AMCs as the centerpiece of the Code is simply false.” While Schurman admits that the HVCC is not perfect in that it upends long-standing appraiser/client relationships, he said that attacks levied against AMCs are baseless. “AMCs are not the problem and there is no tangible data to suggest that they are,” Schurman wrote in the letter. “The New York Attorney General, Fannie Mae and Freddie Mac determined that loan originators, including mortgage brokers, whose compensation depends upon the loan closing, were exerting improper influence on appraisers’ work. Moreover, appraisers themselves vehemently accused loan originators and mortgage brokers of exerting improper influence.” In its letter, TAVMA calls the NAMB’s efforts a “smear campaign” and asked NAMB to take its grievances with the Code to its authors, the governmentsponsored enterprises and the Attorney General of New York. A number of politicians were copied on the letter, including Reps. Barney Frank and Paul Kanjorski, Sen. Christopher Dodd, and New York Attorney General Andrew Cuomo. For more information, visit www.tavma.org.
and its U.S. Market Risk Index, projecting the likelihood that the nation’s housing prices will be lower in two years. As many as 324—approximately 85 percent—of the nation’s 381 MSAs (Metropolitan Statistical Areas) are now facing increased risk of lower home prices in 2011. Florida, California, Nevada and Arizona continue to have the highest risk scores— 36 of the most risky MSAs are located in these four states—but an increased risk of lower future prices is now spreading across all regions of the nation, due to the significant increases in unemployment and foreclosure rates. Among the nation’s 50 most populous MSAs, 28 of the top 50 are now in the highest risk category, signifying the greatest probability of lower house prices by the first quarter of 2011, relative to the first quarter of 2009. Although the Risk Index does not measure the magnitude of declines, the forecast remains consistent with the outlook for moderating price declines in some of the largest MSAs for the remainder of 2009 and into 2010. “Rapidly rising foreclosure and unemployment rates, continuing declines in house prices and weakening consumer demand all worked to increase risk in the general economy, and the housing market specifically,” said David Berson, PMI’s chief economist and strategist. “As a result of the continued weakness in prices, and the relatively low level of interest rates, improvements in affordability across the nation’s MSAs will continue to incentivize repeat and first-time homebuyers back into the market.” For all 381 MSAs, the average Affordability Index reading was 133.3 in the first quarter of 2009, compared with a reading of 120.6 for the fourth quarter of 2008. Across the nation, approximately 98 percent of the 381 MSAs showed higher affordability. PMI’s proprietary Affordability Index measures today’s housing affordability in a given MSA relative to a 1995 baseline. An Affordability Index score exceeding 100 indicates that homes have become more affordable; a score below 100 means they are relatively less affordable. For more information, visit www.pmi-us.com.
a view from the “c” suite Performing quality control reviews not only keeps a lender in compliance with FHA, but also provides management with a valuable tool to effectively manage the quality of the loans produced and to be certain that procedures are followed.
How to approach QC: In-house or outsourcing?
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
We have just witnessed an unprecedented “meltdown” of our industry, where many “systems” broke down that were designed to keep companies and our industry healthy. One of those systems that broke down was the quality control system in many mortgage companies. Predictably, the greatest area of loss is when there are/were no quality control systems in place. But what was not anticipated are the reports that are emerging that there were higher incidents of loss with those companies that had in-house quality control departments. The least number of losses came from those companies that had outsourced their QC function to companies like Wetzel Trott Inc. While we cannot be certain, it is logical to deduct that an independent organization doing the quality control, especially a well established QC firm working the hundreds of companies, will produce a more objective analysis. While there are many strong in-house quality control departments, you can see how more subjectivity can be involved. As a result, regulators will no doubt be giving the “in-house vs. outsourcing” discussion more consideration and something every “C” Level executive should be giving consideration.
Using “carbon-based” systems vs. “silicon-based” systems In recent years, we have seen an explosion of automation with in our industry. However, those with a strong technology background outside our industry have the opinion that we have only begun to emerge from the Stone Age.
continued from page 26
The reality is that we have deployed a fair amount of automation, but maybe not necessarily in the right areas. I would suggest that we, as an industry, became way too reliant and trusting in “silicon-based systems,” such as automated underwriting/decisioning systems (AUS) wrongly replacing those ‘old’ dependable highly-experienced “carbon-based systems,” also known as the “human underwriter!” As a pilot, I want to use the latest and greatest in technology I can afford for my airplane. And I understand that some of the systems inside of a commercial airliner are so sophisticated, that technology is “capable” of taking an airliner off flying to a destination somewhere far away and even land the plane unassisted by human pilots. All that being true, pilots are still on every flight and totally and completely in control of the plane. The commercial airline pilots use sophisticated technology all the time, every day, but the pilots are still in overall control of the aircraft. What we saw happen in this last business cycle was a trend to rely too much on “siliconbased systems” (technology) and not enough on “carbons-based systems” (experienced underwriters). I would caution every “C” Level executive to not make the same mistake in QC. Again, I am all for using all the technology we can to support our QC function, so long as we do not think for a minute that we can replace the human element. David Lykken is president, mortgage strategies and managing partner with Mortgage Banking Solutions. David has more than 34 years of industry experience and has garnered a national reputation. David has become a frequent guest on FOX Business News with Neil Cavuto, Stuart Varney, Liz Claman and Dave Asman with additional guest appearances on the CBS Evening News, Bloomberg TV and radio. He may be reached by phone at (512) 977-9900, ext. 101 or e-mail firstname.lastname@example.org.
continued from page 19
Oh, and by the way, CMPS Institute is the name of the culinary school where you can acquire these and many more sumptuous recipes and skills that will make your business sizzle! 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 email@example.com. Visit author Gibran Nicholas’s blog at http://gibrannicholas.com where he shares his insights on economics, real estate and financial issues, including the current mortgage and credit crises.
Successful Sales is Success Prospecting By Tom Ninness, CML, CMPS
Successful sales is successful prospecting. Lack of prospecting is the number one reason why people do not achieve success in sales. It could be from past experience, improper training, lack of confidence or any number of things that the salesperson uses as excuses. Prospect your sphere. Share your information. Create a network that encourages referrals from your past clients, professional referral sources and direct spheres of influence. For any sales professionals there are two categories of prospects: The client who will be committing to do business with you and the professional referral sources who will bring you the clients and expect you to do the same for them. In each case, there are three levels of attention. For each case, divide the prospects into A, B and C clients.
create loyal clients, it is necessary to be creative, especially in today’s market. Ensure that they will have a great experience. Offer cards of congratulations when their sale is approved. Cultivate a series of creative touches that keeps your name and company in front of both the potential client and the existing client.
Invest in yourself Critical to building your business into a top producer requires investing 10 percent to 20 percent of your income back into your business. Use the money to continually improve your knowledge, as well as the efficiency of your business. Imagination, information and knowledge will improve success percentages.
Making the most of your time
Systems that reduce interruptions are significant for success. Arriving at the office an hour or so before “A” clients are your best everyone else allows you customers. They are buyto accomplish a tremeners, looking to purchase dous amount of miscellawithin the next 30 days neous work before anyone and are actively working shows up. By 8:30 a.m., to buy what you offer. when the office starts to Your attention should be fill up, you are free to be focused on this group. out the door prospecting. They require frequent Look for ways to reduce phone calls, e-mails, and interruptions. Check your face-to-face contact and e-mail twice a day follow up in order to stay instead of being reactive visible. Keep everything “Lack of prospecting every time the e-mail on the level, with honesty is the number one bell goes off. Schedule and integrity. This means that you don’t undercut reason why people do specific times to return the competition to get not achieve success in your phone calls. Use your voicemail to update the business. Your goal is sales. It could be to make money, not give from past experience, callers when they can expect return calls and a it away. Your dedication improper training, brief outline of your to true customer service lack of confidence or schedule. Note in your earns the business withany number of things voicemail if there is out gimmicks. that the salesperson someone else who will uses as excuses.” be able to help them “B” clients immediately. “B” clients are still in the looking stage and probably will not buy for another two to three months. They Terminate unprofitable will require the phone calls, e-mails relationships and personal contact, but less often. Get rid of the “time robbers” as wasted When these clients are ready to buy time equals lost revenue. Are the relathey will already know and trust you tionships, activities and time investand are willing to do business with you. ments giving you the rate of return that you desire? If not, consider eliminating them. React to all situations in a “C” clients “C” clients are more like suspects than responsible, positive and consistent prospects. They are sitting on the fence, manner. Face problems head on and haven’t made a commitment of any keep customer service as a priority. sort and may or may not ever really buy. They deserve your attention, but Prioritizing not a time commitment. Offer them Business is important but so are the information, phone calls and e-mail “life priorities.” Carefully plan your updates, but on a quarterly basis. As time around your faith, family, physical soon as they indicate they are serious, and financial needs. These are more important than a commission. Envision move them into the “B” category. The A, B and C process creates a net continued on page 32 over your prospects. To close that net and
Chase approves 138,000 trial modifications in the last three months Chase has announced that it has approved 138,000 trial mortgage modifications for struggling homeowners since April 6, when it began processing trial modifications through President Barack Obama’s Making Home Affordable program. Since 2007, Chase has continued to expand its comprehensive plan to keep families in their homes, helping prevent 565,000 foreclosures—including the 138,000 trial modifications—for Chase, WaMu and EMC customers. Another 155,000 applications are in the review process. “We have made terrific progress since April 6 in helping families with trial modifications by ramping up our capacity through hiring people, adding office space and investing in technology,” said
Charlie Scharf, head of retail financial services at JPMorgan Chase & Company “We also clearly understand that many more families are anxious about their homes and need to hear from us as quickly as possible. We are committed to do whatever is necessary to help homeowners who qualify for these programs.” Chase generally stops foreclosure while reviewing a mortgage for modification. If a loan does not qualify for a Making Home Affordable or a Chase modification, it is referred to the loss mitigation department, which will consider more traditional plans, as well as short sales and deeds in lieu of foreclosure. Chase started taking steps to implement the Making Home Affordable Program before initial details were announced in early March and began processing trial loan modifications on April 6 even as the government contin-
ued to make additional key decisions about the program and communicate them to mortgage servicers. “It has taken some time to put the resources in place to handle the extraordinary customer demand during this crisis, to incorporate each update to the Making Home Affordable Program, and then to properly evaluate each borrower’s situation,” Scharf said. “Over the last three months, we have made great improvements and we expect the numbers of approved modifications to continue to grow for some time.” For more information, visit www.chase.com.
ment with dependable technology and user-friendly processes is key for success of financial institutions,” said Dana Giesler, vice president of sales for CCMC. “We have always offered our clients a robust, seamless transfer of data from system to system, enabling consolidation of efforts and reduction of errors naturally caused by re-keying data. The end result is a more efficient workflow that improves the bottom line. Together with Byte Software, we are offering a solution that will immediately benefit the clients.” For more information, visit www.bytesoftware.com or www.ccmcinc.com.
Byte and CCMC form strategic partnership
LPS announces the formation of Real Estate Group
Byte Software has announced that they have selected CCMC to deliver time-saving and errorreducing interface solutions to Byte Software clients. Through an interface to CCMC’s BridgeWare technology, Byte Software can now offer direct interfaces to all the leading core processing systems used by banks and credit unions. “By partnering with CCMC, a middleware expert with deep knowledge of core processing systems, we can offer robust and seamless interfaces without taking our focus off of creating leading edge loan origination software,” said Joe Herb, general manager of Byte Software. “CCMC’s solutions have a reputation for eliminating manual data entry, which greatly increases efficiency and reduces errors.” “Improving end-to-end loan manage-
Lender Processing Services Inc. (LPS), a provider of integrated technology and services to the mortgage and real estate industries, has announced the formation of the LPS Real Estate Group. The new division was created as a result of the acquisition and rebranding of the businesses comprising FNRES Holdings Inc., which includes two primary businesses: FNRES MLS and Cyberhomes LLC. The LPS Real Estate Group will include the LPS businesses that support the real estate market, including services and solutions for Multiple Listing Services (MLS) and associations, franchisors, brokers, settlement services providers, agents, lenders and media technology companies. The cur-
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*Subject to state specific laws, regulations and Emigrant’s Geographic Restrictions. **Applicant(s) must have a FICO of 651 or greater for transactions with loan amounts above $3 Million. Copyright © 2009 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, PA and RI.
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Will Obama’s Proposed New Agency Solve Flaws in the Credit Reporting System?
aries and investors.” Not to mention the problem of “rising asset prices, particularly in housing, to hide weak underwriting standards and masked the growing leverage throughout the system.” The mortgage industry was a financial version of the Hollywood hit “The Perfect Storm” and now we are all paying the price. We truly hope that the proposed new CFPA, which would consolidate most of the FCRA regulatory authority and that of many other consumer protection laws into a single agency, will correct these problems. Congress and the Obama Administration will determine the ultimate route this reform will take
in the coming months. Since the credit report is a key element in the identification of risk in the mortgage industry, and if not properly addresses, the new foundation for financial soundness is headed for more problems. Terry W. Clemans is the executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail firstname.lastname@example.org. Visit the National Credit Reporting Association Inc. (NCRA) on the Web at www.ncrainc.org.
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
By Terry W. Clemans
On June 16, President Barack Obama tion in this area; however, none of the released a plan to overhaul the govern- agencies had the ability or desire to ment financial regulatory system in the address these issues. 88-paged plan titled, “Financial Primary oversight of the Fair Credit Regulatory Reform, A New Foundation: Reporting Act (FCRA) is covered by the Rebuilding Financial Supervision and Federal Trade Commission (FTC) for the Regulation.” While the document’s credit reporting agencies and the mortintroduction explains the obvious, that gage brokers and others, not under the both the safety net of government over- Federal Reserve as they have oversight on sight and industry standards failed, federally-chartered banks. For credit moving us toward the precipice of a reporting practices at the governmentdepression; the introduction also sig- sponsored enterprises (GSEs), it gets more nals hope showing that the new admin- fractured as either the U.S. Department of istration truly underHousing and Urban stands the problems. Development (HUD) or its The plan features the agency the former Office of formation of a new agency, Federal Housing Enterprise the Consumer Financial Oversight (OFHEO)—now Protection Agency (CFPA), known as the Federal whose mission will be to Housing Finance Agency provide added government (FHFA)—would have dealt reform in a single entity with issues pertaining to and to close the gaps of the Fannie Mae or Freddie Mac. current system so we can Within some of these “restore confidence and agencies there are also integrity of our financial problems of “limited system.” The proposed tools and resources” “The introduction of plan blames these gaps in adding to the gaps in federal agency jurisdiction the automated underjurisdiction. Consider writing systems at and government oversight some of the companies Fannie Mae and for allowing the crisis to that blur lines through Freddie Mac drastioccur. state charters; is it clear The gap is clearly visi- cally eroded the qualwho is in control yet? ble in credit reporting While there is always the ity of the mortgage and the relaxed stanfederal court system if credit report and the dards in that industry. someone believes those requirements of The credit report is one agencies are not stepping underwriting of the single most imporup as needed (which hapstandards in the tant documents in the pened in an FCRA case mortgage industry.” mortgage file, as it is the Donald Weidman vs. primary factor in decidFreddie Mac); however, ing to lend or not, and if to lend at that road is almost always the least what terms. It is currently governed by desired path for anyone to travel. a fractured group of federal agencies Since no single agency had and this proposed plan would provide authority, the ability for them to a remedy. claim FCRA’s issues on complicated The introduction of the automated matters that often crossed jurisdicunderwriting systems at Fannie Mae tional lines was greatly diminished. and Freddie Mac drastically eroded the This lack of oversight allowed the quality of the mortgage credit report slippery slope of poor lending pracand the requirements of underwriting tices to pick up speed. The proposal standards in the mortgage industry. claims: “No regulator saw its job as Members of the credit reporting indus- protecting the economy and finantry spoke to a variety of federal agen- cial system as a whole.” Add to that cies about potential problems these scenario “years without a serious changes would create and found a frac- economic recession bred complatured group of agencies with jurisdic- cency among financial intermedi-
heard on the street
continued from page 29
rent executive management team for FNRES Holdings will continue to lead the LPS Real Estate Group division. “The proliferation of the Internet, the advent of new technologies and challenging market conditions have created a new age in the real estate market,” said LPS Real Estate Group President Jay Gaskill. “We are excited that this new LPS division will provide capabilities to anticipate the evolving needs of our customers and to deliver exciting new solution sets for their immediate and long-term benefit.” The LPS Real Estate Group has relationships with more than 300 MLS organizations and many of the nation’s largest brokers and settlement services companies, and the division’s businesses provide technology applications and data to more than 350,000 real estate professionals. For more information, visit www.lpsreg.com.
Loan-Score completes integration with FHA Total Scorecard Loan-Score Decisioning Systems has announced that it has completed the necessary integration for lenders to connect to the Federal Housing Administration’s (FHA’s) Total Scorecard platform directly from its automated underwriting system (AUS). “The demand for FHA products has increased rapidly and our integration with Total Scorecard allows clients to more efficiently manage the FHA lending process and provide better service to borrowers,” said David P. Colwell, executive vice president at Loan-Score. “In order to attain results from Total Scorecard, lenders must use an AUS to connect to the system. Because LoanScore is now an FHA-integrated AUS, our clients’ end users are able to seamlessly hit Total Scorecard for instant, accurate decisioning. Loan-Score’s centralized automated underwriting platform also accompanies our product eligibility and pricing engine [PPE] to deliver a comprehensive, integrated decisioning solution for both the point-of-sale and back-office. This establishes a significant competitive
advantage over vendors who only offer a PPE system.” For more information, visit www.loanscore.com.
Wolters Kluwer launches Loss Mitigation Resource Center Wolters Kluwer Financial Services has launched the company’s Loss Mitigation Resource Center, a comprehensive online portal that serves as a gateway for investors, lenders and servicers to access detailed information that can help them build and strengthen their loss mitigation programs. By visiting Wolters Kluwer Financial Services’ Loss Mitigation Resource Center at www.wolterskluwerfs.com/lossmit, lenders and servicers can gain an indepth understanding of the government’s foreclosure relief plans and learn how to create loan modification programs specific to the needs of borrowers. The online portal’s content includes free access to numerous articles, videos and Web links that lead to additional sources of information on government and regulator Web sites. Wolters Kluwer Financial Services has also made its suite of loss mitigation solutions available separately through the Resource Center. These can help lenders and servicers begin modifying loans quickly. The suite includes settlement services, a complete library of compliance documents, disclosures, and consumer education materials, as well as an automated document preparation and secure electronic delivery solution and outsourced business processing services. “Aggregating and deciphering the complex and changing requirements behind the government’s foreclosure relief programs typically calls for more resources than the majority of lenders and servicers have available,” said Jason Marx, vice president and general managcontinued on page 32
Homeownership: More Than Money By Dave Hershman
has become crucial to borrowers and mortgage professional's proﬁt streams in today's marketplace 1. Lack of mortgage programs: Using the Money Merge Account© program, you get help your borrowers get "mortgage-ready" by paying off consumer debt using an interest-cancellation strategy similar to that used to pay off a mortgage. This can help turn your "denials" into "commitments." 2. Mortgage Planning 2009: Thousands of successful Mortgage Professionals around the country are enrolling their borrowers into the Money Merge Account© program to help reduce debt, build equity faster, and allow borrowers to have more money to invest in additional properties or simply retirement. 3. Income Stream: The Money Merge Account© provides mortgage brokers with an additional income stream, sometimes equal to, or greater than, mortgage commissions, all while increasing client satisfaction and referrals.
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
During the past few years, the price of middle school, is a wonderful blessing … homes has been declining in most parts there comes with owning, a sense of of the country. This trend has represented pride that caught me off guard. I have a major financial setback for many who given more attention to the aesthetics considered their home their best invest- both inside and outside the home since I ment and an integral part of their retire- have become a homeowner … ment. Of course, with the stock market Stability. Pride. Control. Permanence. moving down even more precipitously, consumer investment losses have not These are all words that homeowners been limited to homes during this finan- would use in describing their experience. cial crisis. Our focus for this article will not With so many foreclosures taking place be the investment aspects of real estate. across the country, people again are This is not to say that we think that being forced to move. There are many homes have ceased to be a solid invest- stories about the financial loss of banks ment. One must remember that even and individuals, but what about the psywith the drop in prices during the past chological damage of forced moves? two years, homes have more than tripled What about the damage of not knowing in value since 1980. In addition to the if you will own again in the near future? There is no doubt that those of us who appreciation of real estate, one can add the tax benefits of owning a home, as are homeowners understand these feelwell as the fact that home mortgage pay- ings. It is one of the reasons that many ments do not increase as quickly as rent immigrants want to come to our country. It which makes the home a hedge against is not only because the country is wealthier and perhaps may have inflation. Therefore, in the more political and personal long-run, real estate will freedom. An important facstill be an important part tor is the fact that, in many of any financial plan. countries, homeownership Today, we focus not on is not possible. these economic advanSometimes Americans tages, but on the psychotake the right and ability to logical aspects of homeown a home for granted. ownership. Some time ago, Not so with immigrants. mortgage giant Fannie Mae This financial crisis is an conducted a national suropportune time for all of vey regarding homeownerus to take a second look at ship. Among other findings, “Stability. Pride. these benefits. As a matter they found that Americans would choose to work an Control. Permanence. of fact, as many have fallThese are all words en behind with regard to additional decade in order their financial goals, being to become a homeowner. that homeowners able to save their home is Our interpretation of this would use in describanswer really helps us see ing their experience.” of primary importance from a psychological perthat there is more to homespective. It is one thing to ownership than money. Recently, an article appeared on the postpone retirement. It is quite another Internet that should remind everyone to change status from homeowner to that the dream of homeownership renter at the same time, losing control of extends far beyond dollars and cents. many other aspects of one’s life. We also understand that the governThe article was written by a single mother who worked for a non-profit in ment must take action to shore up the a high cost of living area, Montpelier, financial systems of this country to help Vt. The Montpelier Pride’s editor noted: us out of this crisis and prevent future Single mother Dorl Oatley writes about calamity as well. Yet, as they change the the thrill, pride and satisfaction of own- rules, we hope that facilitation of the ing her own home. Here are some American Dream of Homeownership is still a major goal of our government. We quotes from the story: cannot afford to put too many barriers in Homeownership is a wonderful experi- place in the name of financial protecence. The stability that owning a home tions. The freedom and means to own a offers a family is invaluable. To realize home is ingrained in our systems of that in a year, you will be here … that democracy and capitalism. With the this first Christmas or this first birthday world in crisis, once again, we must show celebrated here will be the beginning of the world the importance of our values. many provides a feeling of consistency and a sense of home that is hard to Dave Hershman is an author for the describe. As a renter, between rising costs mortgage industry with eight books and or a landlord’s decision to remodel or several hundred articles to his credit. He sell, I had moved a lot and never knew is also head of OriginationPro Mortgage whether I would be celebrating the next School and a top industry speaker. He year’s milestone in the same home … may be reached by phone at (800) 581The opportunity to start a stable home 5678 or e-mail success@hershmanfor my daughter who is now thriving in group.com.
3 Big Reasons Why the Money Merge Account©
continued from page 28
your business plan (do you have a business plan or do you fly by the seat of your pants?) three, five and 10 years out and how it will affect your family. Use that business plan to create a plan designed for success by including IT systems, marketing plans, budgets, prospecting and database management. Understand that prospecting, sales and marketing are keys to bringing in business and utilizing a system of responding to customer service as well.
Enriching your leads Growing your prospect list also means developing a perpetual stream of leads. Create a list of 250 possible “suspects.” Anyone who has planned a wedding knows how easily the guest list grows. How many of these people could be possible referral sources? Not only think of people who may need your services, but consider professional referral sources such as certified public accountants, attorneys, human resources professionals, financial planners and architects. Any of these professionals could become invaluable resources for leads. Reciprocation is important, so they should be professionals you would be willing to give referrals to as well.
The keys to following up
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Creating that net requires continuous follow-up. The best laid business plans and
heard on the street
continued from page 30
sales techniques will fall awry without a consistent and continual follow-up. Create an exit review with your clients, about five days after the closing the sale, to ensure everything went well, their expectations were met and give the client the opportunity to offer you suggestions for creating a better experience. At this time, you have the privilege of asking for future business, referrals from their family and friends, and insight into their sphere of influence.
er, mortgage, Wolters Kluwer Financial Services. “Our Loss Mitigation Resource Center provides them with the information and solutions they need to quickly analyze and develop a compliant loss mitigation strategy and efficiently manage rising loan modification volumes.” For more information, visit www.wolterskluwerfs.com/lossmit.
There is no quick fix to successful sales. Every action and reaction must be carefully considered, time must be planned and prospecting must be cultivated. Family is as important as business relationships. In essence, sales are hard work. Be conscious of the underachievers and look to the top producers. You will see great results by thinking your way to the top and putting those thoughts into action.
CWCapital, a full-service national lender to the multifamily and healthcare real estate industries, has announced it is expanding its national multifamily lending platform via the acquisition of the origination and servicing assets of Sierra Capital Partners. The move will add an established lending platform based in Irvine, Calif. and 12 employees, including two senior executives with industry experience and regional market expertise, to CWCapital’s growing multifamily programs and services. Sierra Capital Partners was founded in 2003 by Trent Brooks and Bryan Frazier. Over the past 15 years, Brooks and Frazier have been directly involved in providing more than $12 billion in multifamily financing, with a focus on conventional and tax-exempt debt financing, throughout California and the West Coast region. Michael Berman, president and CEO of CWCapital, indicated that both CW and Sierra have a strong commitment to client services and integritybased business practices, making the decision to align platforms a natural one. “We considered many alternatives as to how to expand our platform on the West Coast. When we met with Bryan and Trent we knew their business philosophy and deep client relationships were a solid fit, making the decision to join our platforms an obvious one. Trent, Bryan and Sierra are well-known and well-respected by borrowers, the agencies and competitors. They and many members of their staff have extensive tenure in this industry—much like our CW staff— and we feel very confident that their relationships and reputation will be a tremendous asset as we further develop a leading full-service West Coast lending platform.” For more information, visit www.cwcapital.com.
Tom Ninness, CML, CMPS is vice president/regional production manager for Cherry Creek Mortgage in Denver. He is also president of Summit Champions Inc. and creator of the “The 90-Day Journey to Your Sales Success,” a 90-day action plan for the sales professional. He may be reached by phone at (720) 221-4396, e-mail email@example.com or visit www.summitchampions.com.
Full Service QC/QA
Loan Imaging Storage
IRS & SSA Reports
O The Appraisal Institute has hired former White House aide Ken Chitester as director of communications.
Sierra Capital Partners acquired by CWCapital
Mortgage Professionals to Watch O Mercedes Marquez has been confirmed as assistant secretary at the U.S. Department of Housing and Urban Development. O Paul Grabstanowicz has been hired by Integra Mortgage Corporation to handle the company’s quality control and training.
O Elliott & Company Appraisers has announced the appointment of Kevin Walker as director of business development.
O radius financial group inc. has announced the hiring of Donna DiBella and Carol Ann Green as loan officers, and Norma Talbot as an underwriter. O The Federal Deposit Insurance Corporation (FDIC) has appointed Ellen Lazar as senior advisor to the chairman of consumer policy. O Greystar has announced the hiring of Christina Bolter as managing director of the company’s DC-metro office. O USA Funding Corporation has announced several new additions to the company’s Brookfield, Wis. office: Lindsay Gasper as compliance assistant, Lorie Lindner as trusted mortgage advisor, Ania Padyasek as senior underwriter and Donna Pollack as legal administrator.
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: firstname.lastname@example.org Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.
Credit Plus introduces ID Plus Credit Plus, Inc. has announced the introduction of ID Plus, a tool that checks critical mortgage application information and alerts a lender if something appears to be inaccurate. ID Plus reports include a summary of: Fraud and active duty alerts, a determination of whether a credit freeze has been placed on an account and verification of the Social Security Number and address. The report also includes if there are other alerts noted on a file. “Our commitment to detect identity fraud remains a focus at Credit Plus,” said Steve Grant, president of Credit Plus. “Mortgage professionals will easily be able to determine if there is any suspected suspicious activity on an account through our easy to read ID Plus reports.” The Red Flag requirements instituted by
the Fair and Accurate Credit Transactions Act of 2003 (FACTA), sections 114 and 315, regarding identity theft, went into effect on Nov. 1, 2008 and will begin being enforced on Nov. 1, 2009. As of Nov. 1, mortgage lenders must detect, prevent and mitigate instances of customer identity theft. They must be aware of: Alerts, notifications or warnings from a consumer reporting agency; suspicious documents or personally identifying information; unusual or suspicious activity on an account; and notices from customers, victims of identity theft or law enforcement authorities. For more information, visit www.creditplus.com.
CampusMBA announces new Executive CMB program CampusMBA, the award-winning education division of the Mortgage Bankers
Association (MBA), has announced the launch of its new Executive Certified Mortgage Banker (CMB) program, a streamlined track for obtaining one of the highest professional designations in the real estate finance industry. Designed for busy professionals, this program allows candidates to substitute their real-world knowledge and experience for many of the educational requirements of the CMB program. The launch of the Executive CMB follows a successful pilot program in which CampusMBA selected a group of highly qualified professionals to complete a six-week online course, complete the same rigorous CMB exams and provide MBA with extensive feedback based on their experience. “CampusMBA developed this new approach for obtaining the CMB designation to incorporate the knowledge and skills these executives have already mastered through years of experience, while recognizing the demanding environment in which they are working,” said Paul Green, senior vice president of corporate relations, education and business development. “After receiving overwhelmingly positive feedback from the pilot group, we look forward to offering this opportunity to the broader industry.” Every candidate for an Executive CMB is required to have a minimum of 13 years of experience in real estate finance and hold a senior management position at an MBA member company. Following acceptance into the pro-
gram, candidates complete a comprehensive six-week online prep course guided by existing CMBs. The course covers industry issues, marketing and investor relations, loan administration, real estate law and regulation, financial management and strategy and residential originations and underwriting. Following completion of the course, candidates must pass a comprehensive written and oral exam. For more information, visit www.campusmba.org.
Radian implements program to assist homeowners with refis Radian Guaranty Inc., the mortgage insurance subsidiary of Radian Group Inc., has announced the launch of a program which helps qualify borrowers for traditional refinances on loans not currently serviced by their present lender. The program is aligned with the Homeowner Affordability and Stability Plan (HASP), launched earlier this year by the government to support mortgage holders who have consistently made their payments on time, but have been unable to refinance at lower mortgage rates due to falling home prices. “Radian is committed to promoting and preserving the dream of homeownership for borrowers,” said Teresa Bryce, president of Radian Guaranty continued on page 42
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE O AUGUST 2009
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
What’s in a name?
Juliet says, in Shakespeare’s “Romeo and Juliet:” “What’s in a name? That which we call a rose By any other name would smell as sweet.”1 Is a name just a contrived and meaningless convention? Is the undisclosed income paid to a bank when it sells an above par residential mortgage loan into the secondary market elementally distinguishable from the disclosed income paid to a mortgage broker when it sells an above par loan to a bank? The former, known as the service release premium (SRP), and the latter, known as the yield spread premium (YSP), seem to share similar functionality, but may soon have quite different fates. The YSP will virtually cease to exist if the Mortgage Reform and Anti-Predatory Lending Act, passed by the House of Representatives on May 7, 2009, and sent to the Senate, is eventually signed by President Barack Obama into law.2 But the SRP will live on and on, with no regulatory change affecting its use. Call each one what you will “by any other name,” though characteristically the same, the destinies of the SRP and the YSP diverge right at the point where an entire class of loan originators, the mortgage brokers, will be effectively trounced by another class of loan originators, the banks! Rarely has the power of the banking lobby been more apparent in its quest to eliminate competition. Match or mismatch?
OR). Each of these two new Senate bills, if made into law, would adversely affect the mortgage brokerage community. The first is slyly called the Promoting Mortgage Responsibility Act,4 which prohibits pre-payment penalties,5 and the second is ironically called Transparency for Homeowners Act of 2009,6 which specifically prohibits YSPs, but does not prohibit or give transparency whatsoever to the SRP. The word “transparency” has been bandied about quite a bit recently by certain politicians, but Sen. Merkley’s understanding of transparency clearly does not extend to requiring the disclosure of the SRP.7 As Alice cried, this is becoming “Curiouser and curiouser!”8 The YSP has been villanized and compared to a “kick back.” As recently as April of this year, a New York Times editorial ominously declared that the “first step must be to outlaw the kick backs” and “the most clearly unethical form of payment is the so-called YSP.”9 The SRP was not mentioned even once in this editorial. The typical opinion of the political and media castes is that the YSP is anathema. In previous articles, we argued that the YSP is not a kick back under existing law10 and can be saved so that it will continue to provide important benefits to the consumer.11 Why destroy the YSP and keep the SRP, when there is not a single factor representative of YSP abuse that cannot also be rep“The borrower is resentative of SRP abuse? Let’s look just a bit closer at these parallels. ultimately paying
both the YSP and the SRP, so why not disclose each of them and let the consumer determine how they are to be used?”
In addition to the House’s foray into attacking YSPs, while still surely preserving the SRP, there is yet another shark in these controversial waters! Seemingly not to be outdone by the machinations of Rep. Barney Frank’s (DMA) House Financial Services Committee, which was the architect of the aforementioned legislation,3 two new Senate bills were introduced by Sen. Jeff Merkley (D-
“You say either and I say eyether, You say neither and I say nyther; Either, eyether, neether, nyther, Let’s call the whole thing off!”12
“Either, eyether, neether, nyther,” however the mortgage brokers and banks may choose to agree or disagree about the roles played by two succinctly similar premiums, it is readily apparent that one of them is surely not accessible to the consumer’s purview. Maybe it’s time to consider making both the YSP and the SRP available to the public, create full transparency, and give control to the borrower with respect to their application. The YSP has been criticized because it can lead to price discrimination, thus not
necessarily offering the borrower a savings and, therefore, can be used to increase the cost. Certainly, it has been statistically demonstrated that total loan costs are elevated in loans containing YSPs, discount points and seller contributions to closing costs.13 The United States Department of Housing and Urban Development (HUD) has given extensive guidance in determining the proper application of the YSP.14 Furthermore, those who want the YSP permanently eliminated from residential mortgage loan originations argue that the YSP: 1. Can be used to charge borrowers more; 2. Does not always provide a dollar for dollar financing offset; and 3. May represent compensation in excess of goods and services. But each one of the above-mentioned abuses can certainly occur in using the SRP. One exception does pertain to the YSP: The borrower is given information about the YSP on the Good Faith Estimate (GFE) and the HUD-1 Settlement Statement,15 but otherwise denied any and all information about the SRP on any loan application document or disclosure!16 Note, however, that charging a higher YSP without providing a financing offset is prima facie violative of the Real Estate Settlement Procedures Act (RESPA);17 and, in any event, not providing a dollar for dollar financing offset18 and excessively charging for goods and services are violations of HUD’s long-standing policies as well as its well-known “Two-Part Test.”19 Although HUD has given clear guidance on the proper application of the YSP, it has provided virtually no similar guidance to banks regarding the SRP. There’s a reason for this: RESPA does not actually govern a bank’s use of the SRP. To be sure, being exempt from RESPA, this is not a statute that a bank must comply with; though, of course, every mortgage broker must adhere to RESPA’s requirements. HUD, therefore, even in its administrative oversight of RESPA, takes no position on the SRP’s use by banks! So, let’s compare the fully disclosed YSP with the fully undisclosed SRP.
Comparative analysis Potential for abuse Price discrimination Excessive charges No dollar-for-dollar financing Overpaying for goods, services & facilities
Measurable Measurable Measurable Measurable
Not measureable Not measureable Not measureable Not measureable
“If you don’t know where you are going, you will wind up somewhere else.”—Yogi Berra
For more information on author Jonathan Foxx, visit Lenders Compliance Group on the Web at www.lenderscompliancegroup.com.
O AUGUST 2009
1—Romeo and Juliet (II, ii, 1-2), William Shakespeare. 2—HR 1728: “ Mortgage Reform and Anti-Predatory Lending Act.” 3—There’s probably no connection between Rep. Frank’s position on this legislation and the fact that one of the largest sectors donating to his campaign committee is the banking industry. See: OpenSecrets.org’s composite, compiled from the 20092010 election cycle and based on Federal Election Commission data available electronically on July 3, 2009. 4—Senate 911, April 28, 2009, 111th Congress. 5—Very few residential loan products these days contain prepayment penalties, having almost entirely ceased to exist due to their abuse in sub-prime loan originations. Legislating to abolish a practice that is already abandoned seems somewhat frivolous and unavailing. 6—Senate 912, April 28, 2009, 111th Congress. 7—There’s probably no connection between Sen. Merkley’s legislation and the fact that the largest sectors donating to his campaign PAC have been finance, insurance and real estate. See: OpenSecrets.org’s composite, based on Federal Election Commission data available electronically on Monday, June 29, 2009. 8—Carroll, Lewis. Alice’s Adventures in Wonderland and Through the Looking-Glass, Chapter 2, Grosset & Dunlap, 1946. 9—Editorial opinion, The New York Times, April 10, 2009, p. A22, New York Edition. 10—“Yield Spread Premiums: Compensation or Kickback?,” Jonathan Foxx, National Mortgage Professional Magazine, June 2009, Volume 1, Issue 2, pp 18-20. 11—“Saving the Yield Spread Premium,” Jonathan Foxx, National Mortgage Professional Magazine, July 2009, Volume 1, Issue 3. 12—From “Let’s Call the Whole Thing Off,” 1937, a song by George and Ira Gershwin, written for the film “Shall We Dance.” 13—Research Works, Volume 5, Number 8, September 2008, p. 1. 14—See 24 CFR Part 3500 (RESPA): Statement of Policy 1999-1, U.S. Department of HUD, Feb. 22, 1999, and Statement of Policy 2001- 1, U.S. Department of HUD, Oct. 18, 2001. 15—Indeed, the new GFE and HUD-1Settlement Statement, required to be implemented beginning Jan. 1, 2010, contain no information about the SRP. 16—The new GFE contains the following statement on the bottom of page 3: “Some lenders may sell your loans after settlement. Any fees lenders receive in the future cannot change the loan you receive or the charges you paid at settlement.” The Mortgage Bankers Association has asserted that this may be a “rationale” for not disclosing the SRP. See: Preliminary Information on HUD’s Forthcoming RESPA Rule, Nov. 12, 2008, “Good Faith Estimate.” 17—24 CFR 3500, Real Estate Settlement Procedures Act. 18—“Yield spread premiums permit homebuyers to pay some or all of the upfront settlement costs over the life of the mortgage through a higher interest rate. Because the mortgage carries a higher interest rate, the lender is able to sell it to an investor at a higher price. In turn, the lender pays the broker an amount reflective of this price difference. The payment allows the broker to recoup the up front costs incurred on the borrower’s behalf in originating the loan. Payments from lenders to brokers based on the rates of borrowers’ loans are characterized as “indirect” fees and are referred to as yield spread premiums.” See: 24 CFR Part 3500 (RESPA), Statement of Policy 2001-1, Part A, U.S. Department of HUD, Oct. 18, 2001. 19—HUD offered a “Two-Part Test,” in its Statement of Policy 1999-1, to determine if a loan origination is RESPA compliant: (1) whether services were actually furnished and actually performed for the compensation paid, and (2) whether the compensation payments are reasonably related to the value of the services actually furnished and performed. See: 24 CFR Part 3500 (RESPA), Statement of Policy 1999-1, U.S. Department of HUD, Feb. 22, 1999. 20—Foxx, op.cit., Note 11. 21—In fact, all fees and payments received by a mortgage broker from a lender and a borrower, including YSPs and even SRPs, must be recorded on the GFE and listed in the 800 series on the HUD-1 Settlement Statement. See: 24 CFR Part 3500 (RESPA), Appendix B to Part 3500 (13) Commentary. Mortgage bankers are not required to disclose the SRP. 22—24 CFR Part 3500 (RESPA) Statement of Policy 2001-1, Section I.A.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
The borrower is ultimately paying both the YSP and the SRP, so why not disclose each of them and let the consumer determine how they are to be used? Without properly regulating the SRP, a bank can use it to increase its profit, though providing no incremental benefit to the borrower. The above-mentioned House legislation and the two new Senate bills are clearly based on the premise that the YSP disadvantages borrowers, whereas the SRP does not. Or, at least, that is the most generous conclusion to be reached. Given the strength of the banking lobby, other conclusions can be easily conceived. Doing away with the fully disclosed YSP, but keeping intact the undisclosed SRP obviously gives an advantage to banks and, presuming the passage of the aforesaid legislation, the continuation of the SRP as a de facto mark-up tool further emboldens and strengthens banks—but certainly weakens mortgage brokers. And such an outcome will also weaken the public’s ability to use the benefits which the YSP offers, such as providing a dollar for dollar financing offset by legitimately reducing the upfront cash requirements to borrowers.22 The borrower has heretofore benefited from the YSP, when properly applied. Eliminating it, but retaining the SRP, does not end the potential for abuse, but actually magnifies it by exposing consumers to potentially adverse effects, due to the SRP being undisclosed. It is generally axiomatic that lack of disclosure often leads to abusive practices. By fully disclosing both the YSP and the SRP to borrowers, greater control over pricing and services will be vetted by market forces and create a truly competitive environment. Borrowers should receive a credit for each premium and allo-
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 email@example.com.
There is a potential for either the YSP or the SRP to be applied in an abusive manner. I have suggested elsewhere that the abuse of the YSP can be largely curtailed by crediting it to the borrower, thereby permitting the borrower to choose how it is to be used in accordance with the borrower’s own interests.20 Once borrowers agree to how the YSP will be used and on what terms, market forces will take over. But, the borrower has no idea what the value of the SRP is, because it is an entirely undisclosed premium and, therefore, a consumer cannot hope to control how or if it is to be applied. Indeed, a bank provides no information for the consumer to determine whether the SRP complies with fair lending laws, avoids excessive charges, offers dollar-for-dollar financing opportunities, or avoids overpayment for goods, services and facilities. Those important aspects of consumer protection are relegated to the transparent domain of the YSP.21 The SRP’s lack of transparency masks from public scrutiny each one of these criteria.
cate it according to their own interests. This will bring about a reliable standard and eliminate unfair competition between banks and mortgage brokers. The public would benefit with full disclosure of both the YSP and the SRP, and the mortgage industry’s regulators, in their role as consumer advocates, will be better able to adopt and enforce new means to effectuate appropriate oversight.
Will You be Red Flags Compliant?
When Nov. 1, 2009 comes and goes … will you still be around? By Brad Kelso
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
The Federal Trade Commission (FTC) deadline for Red Flags Rules compliance has been extended once again until Sunday, Nov. 1. While you are probably aware that you have responsibilities under this legislation, chances are and especially if you’re reading this, you don’t know exactly what your responsibilities are, and/or you have not yet done anything about them. At the same time, you may be asking yourself, “Do I really need to?” The short answer is yes, you need to do something, and the reasons are:
1. Because the FTC “said so” as they are serious about compliance and enforcement; and 2. Because the risk of non-compliance is a business killer and not one you want to take (up to $3,200 per incidence of non-compliance). What are the rules and what do you have to do? The Red Flags Rules require each financial institution or creditor to develop and implement a written Identity Theft Prevention Program to detect, prevent and mitigate identity theft in connection with the opening of certain accounts or certain existing accounts. The FTC determined that mortgage brokers are included under the Red Flags Rule, and they won’t be able to “fake it”—they will actually have to read, assess, understand, document, use new tools, create an audit trail, gain consensus, train and get board approval and here’s a shocker … prevent identity theft! Isn’t there a “turnkey” solution? The simple answer, “Nope.” For months now, starved compliance consultants, vendors, associations, and data/credit companies—ethical and unscrupulous alike—have trumpeted “turnkey” solutions to the Fair and Accurate Credit Transactions Act (FACTA) Red Flags requirements to brokers with
That tidbit number one just saved you about four to six hours of needless reading and assessment because you are not a bank or lender. Second, all but five of the remaining 14 guidelines are alerts potentially detected by existing fraud alerts available through your credit reports or by fraudulent proof of identity—this makes it inexpensive to detect and with thoughtful advice, fairly straightforward to then mitigate. Tidbit number two saves you money and hassle—add at least two sets of frauds alerts to your credit reports and train your loan officers (LOs) to react to the high-risk ones that might appear on a credit report (see how easy this is?)
a fierce vengeance. These so-called “Instant Red Flags Solutions” for brokers have run the gamut of $1.50 for credit report add-ons, to consulting packages upwards into the $4,995 range. Unfortunately, no such ready-made, quick fix exists, though brokers would dearly wish otherwise. Red Flags compliance requires a fairly holistic and custom response at the entity level, no matter how many officers a broker may have. In complete disclosure, my own Third, fortunately, the firm, Informative brokers still left standing Research, a mortgage in the industry either credit reseller, counts have been doing this a itself among the more while (strong experience) altruistic in the group, or are among those in the and offers a credit report latest wave of professionaddendum solution as als (the qualified crazy) well as a sample “Policies who may be exceedingly and Procedures” tem“The FTC detercompetent regarding risk. plate. The two together mined that mortgage Tidbit number three: get you 90 percent there, brokers are included Anyone left standing but do not meet all the under the Red Flags from 2008 (ROCKS!) gets customization elements Rule, and they won’t risk. of the compliance be able to ‘fake it’ …” requirements. Fourth, access to verify But there is good news. A 180-min. investment of your a person’s identity definitively through own focused time can quickly bring you the Social Security Administration is a viable escalation for any broker as an to compliance. In fairness and since you’re late at end point to their efforts (Form SSA 89, this point (and “at risk”), you are still Consent Based Social Verification). Tidbit number four is the “… if all likely able to ‘retro’ your plan if you act quickly; the “do nothing strategy” is the else fails” card. Know it, use it, rely on it (Consent-Based Social Verifications). one to avoid. A broker’s best approach: Three hours of focused efforts, documenting policy and procedures that detect, prevent and mitigate identity theft There are five helpful facts to leverage that effort going forward: First, most brokers will only need to address 54 percent of the scope of the FACTA regulations; by our read that means only 14 of the 26 Red Flags-suggested guidelines apply to a broker’s business, since very few brokers service loans.
Fifth, armed with those facts—limited scope, the experience to respond, and an “end point“ product to validate identity—any broker who focuses their time can document the policies and procedures required to meet Red Flags. Tidbit number five: You can do this and you have to, and you’ll be thankful you did. Without excessive (further) counseling and assuming you can lock yourself away, our recommended three-hour
“hurry up“ answer process goes something like this: 1. Read “most all” of the regulation until you understand what applies to brokers and what doesn’t (20 min.). 2. Read it again—for real—because you’ll need specific understanding to write cogent policies and procedures (20 min.). 3. Focus on understanding the obvious suggested 14 guidelines (of the 26 possible) in Appendix J of the Regulation that directly pertains to a broker’s work (30 min.). 4. Start documenting (writing) a policy that says essentially which of these 14 you will address and why or why not. For nine of the 14, the answer will come from ordering, and then responding to, the fraud alerts that are available on credit reports. The other “two” are related to blatant identification forgery (40 min. using a template). 5. Document (write again) simple procedures (one-pager) for what a loan officer should do if a really nasty alert appears on the credit report or the ID given is clearly a forgery or fictional. Use SSA’s Consent-Based Social Verification (use SSA Form 89 just as you would a 4506-T income validation) as the escalation product (30 min.). 6. With the remaining 40 min., plan and document the remaining compliance steps: Getting sign-off at the highest level, how you do training and annual updating, etc. 7. Share (publish) the final result with all in the shop and follow-up. Following these steps you can minimally stop 75 percent of identity theft and also meet the Red Flags regulation. Brad Kelso is the vice president, director of marketing and product development at Informative Research, with a cumulative 22 years in financial services. Prior to joining Informative Research, Brad led Countrywide’s credit fraud initiatives and system development efforts with credits as a national expert and speaker on “Authorized User Score Fraud.” He is the primary architect of two products related to identity fraud for the mortgage industry. Brad can be reached by phone at (800) 473-4633, ext. 150 or e-mail firstname.lastname@example.org.
Lenders Should Require Red Flag Compliance for Their Own Protection
tion. Compliance aside, protecting our customer’s personal information should automatically be a part of every one’s “best business practices.” This needs to be done not because it’s required, but because it’s the right thing to do. Jim DeGeronimo Sr. is with Concord, Ohio-based Majestic Security LLC, a National Association of Mortgage Brokers preferred provider of Red Flag solutions. He may be reached by phone at (888) 3312332 or e-mail email@example.com. Visit author Jim De Geronimo Sr.’s Web site www.majesticsecurityidsafe.com, to learn more about the Fair Accurate Credit Transaction Act from Majestic Security LLC, an NAMB preferred provider of Red Flags solutions.
2009 … The Year of the Regulation A little education and a little automation can take the confusion out of this year’s overwhelming compliance changes By Leonard Ryan
to simplify the process of monitoring loans, compiling pertinent information and reporting results to regulatory agencies.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE O AUGUST 2009
The year 2009 may be remembered as the year of the regulation. Between the collapse of the mortgage market, the Full disclosure: increase in foreclosures and the overall Understanding RESPA malaise in the economy, Lenders are most conmortgage originators and cerned about the changes bankers face more regulato RESPA, because for the tory changes this year than first time in 30 years, the any in recent memory. regulation is requiring Not surprisingly, these regnew procedures for disulations are causing lenders closing the fees associated no small amount of stress. In with closing a mortgage. a survey conducted by comThe regulation not only pliance provider QuestSoft, changes which fees must 74 percent of the lenders surbe disclosed, but it spells veyed reported that upcomout very specific time ing changes to the Real Estate frames in which disclo“While the regulations Settlement Procedures Act sures must be delivered. (RESPA) posed a high concern. will only become more Beginning in January, More than half of the lenders complex in the coming the U.S. Department of also cited upcoming changes Housing & Urban months, lenders can to the Home Mortgage Development (HUD) will ease the burden of Disclosure Act (HMDA), fraud require lenders and origiproving compliance laws and Red Flag Rules as a with a little education nators to provide borrowhigh concern. ers with a standard Good and taking advantage Much of the concern Faith Estimate (GFE) that of automated tools to stems from the complexity of will clearly spell out the simplify the process of the changes, conflicting terms of loan, including monitoring loans …” information from different interest rate details, posagencies and rapid changes sible penalties and total to the laws. While the regulations will only closing costs. These disclosures must be become more complex in the coming provided three days after the application months, lenders can ease the burden of is submitted. proving compliance with a little education continued on page 38 and taking advantage of automated tools
crimes. Fortunately for the lenders, thanks to the federal government, In the latest twist in the ever-growing there is now a way lenders can help problem of identity theft, homeowners slow this crime down. are finding out that thieves not only Seven agencies of the federal governhave stolen their personal information, ment, including the Federal Trade but have also used it to take out loans Commission (FTC), the Federal Deposit against their homes. Identity thieves, no Insurance Corporation (FDIC), the Federal longer satisfied with the small amounts Reserve, the Office of Thrift Supervision of money gained from stealing some- (OTS) and the Department of the one’s identity to open credit card Treasury (DOT), recently enacted the Red accounts, now have their eyes on a Flag Identity Theft Rule as part of the Fair much larger source of cash … a person’s Accurate Credit Transaction Act (FACTA). home. Senior FBI officials recently told Unfortunately, many in the broker comCongress that identity munity are either still theft in mortgage fraud unaware of the complicases is becoming increasance requirements this ingly common. rule imposes or are simply Mortgage fraud through ignoring it. identity theft occurs in a The rule requires mortnumber of ways. A thief gage brokers/bankers to will apply for a home equiformulate a written inforty loan using the homemation security policy. owners’ personal and finanAdditionally, they must cial information. The loan is integrate that policy into most often on the house their daily operations by that they are residing in. initiating a system to help When a thief has the knowl- “Identity thieves, no identify Red Flags, which edge of an individual’s longer satisfied with may indicate identity theft Social Security Number, the small amounts of or mortgage fraud when date of birth, as well as the broker is creating a money gained from their address, it makes it new customer file. The stealing someone’s easy for the hapless homerule also states that any identity to open owner to become a victim. third-party you share senMortgage fraud may credit card accounts, sitive customer informanow have their eyes also occur through a fake tion with, where there is a on a much larger sale of a home. One thief reasonable chance that the will assume an individual information can be lost or source of cash … a homeowners’ identity and stolen, must also be in person’s home.” sell the property to anothcompliance with the rule. er thief. With mortgage In just the last few years, loan money in hand, both thieves get there have been numerous incidents of away and no real sale ever occurs. large amounts of sensitive customer However, there have been many information being stolen from major instances where the homeowner’s iden- lenders. In a recent incident, one very tity was stolen and the home was sold to large lender discovered that they might a legitimate buyer. The thief gets away have lost as many as two million cuswith the money, the buyers have no tomer records. new home and the original homeowner Under the Red Flag Rule, the broker is left with the very tricky mess of re- can be considered a vendor of the establishing their identity. Many hours lender since they share sensitive cusand quite a bit of money may be tomer information back and forth. This required to fix the credit problems that is the perfect opportunity for lenders to result. This is particularly true when the require their brokers to be compliant to theft results in large amounts of money the rule and require them to include a being stolen. “Red Flag Checklist” with each submisFortunately for the homeowner, sion, indicating they have verified the because the money is actually stolen borrower’s identity. Some lenders have from the lender, identity theft victims already informed their brokers that are not generally liable to repay the lost compliance to the rule will be a prereqfunds. In most cases, it’s the lender who uisite to continue doing business with is most damaged by these types of them. By Jim DeGeronimo Sr.
If that trend continues and lenders decide to withhold funding unless this critical step has been taken, the mortgage community will have no choice but to take this responsibility seriously. Since the mortgage professional has direct contact with the potential borrower, they will always remain the first line of defense for the lender. Instituting these procedures will, at the very least, help cut down the number of fraudulent loans caused by identity thefts. There is a much more compelling reason why lenders, as well as brokers, should take to the forefront on the issue of identity theft. The Red Flag Rule indicates a larger trend that we are seeing in both legislation and in court decisions. Businesses are being held to higher standards. They are entrusted with safeguarding a customer’s sensitive informa-
RESPA also requires a new closing document that must make clear how the final closing costs correspond to the GFE, which will display the total estimated closing costs on the first page so the consumer can easily compare loan offers. HUD will also outline which closing costs can and cannot change prior to closing. Even though these regulations will go into effect in January, lenders are preparing now to revamp their disclosure and closing procedures to comply with the rules. However, confusing the matter is the passage in the House of Representatives of HR 1728, the Mortgage Reform and Anti-Predatory Lending Act. HR 1728, if passed by the Senate, would force HUD to cancel the upcoming changes to RESPA until a combined, single GFE that matches the Federal Reserve Board’s Truth-inLending Act can be secured.
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
HMDA seeks to discourage higher cost loans
On Oct. 20, 2008, the Federal Reserve Board published final rules to amend HMDA’s reporting rules to include information on higher-priced loans. The HMDA rules will now conform to the definition of ‘’higher-priced mortgage loans’’ adopted by the Board under Regulation Z (Truth-in-Lending) in July of 2008. The final rule is effective Oct. 1, 2009, and lenders must ensure compliance on all loan applications taken after that date or any loans closing after Jan. 1, 2010. Under the final rule, a lender will have to report rate spreads on any loan with a difference equal to or greater than 1.5 percentage points for a first-lien loan (or 3.5 percentage points for a subordinate-lien loan) from a survey-based estimate of annual percentage rates (APRs) currently offered on prime mortgage loans of a comparable type. One of the most prominent concerns with this change is that the 2009 HMDA data submission will contain loan data that spans two standards. Lenders will need a system in place that can document application dates and closing dates to ensure that all loans are properly reported. The agencies have made it very clear that lenders that have higher percentages of these loans are going to be under greater fair lending scrutiny.
The rules are designed to protect consumers’ sensitive personal data, such as Social Security Numbers or financial account numbers, and financial institutions are required to implement a program to detect and prevent identity theft by processes that verify identity and flag suspicious behavior. These rules apply to any “creditor,” which the regulation defines as any person or company that regularly extends, renews or continues credit. It explicitly lists mortgage brokers as being subject to this law. Beginning Nov. 1, lenders and brokers must develop a written plan that ensures that they are confirming an applicant’s identity. In addition, they will be required to report suspicious activity, such as unusual account activity, fraud alerts on a consumer report, or attempted use of suspicious account application documents. The good news is that most lenders already verify this information on every loan, and compliance can be as easy as documenting the process.
would have authority over consumer- by HMDA and RESPA, can be automated oriented financial products, including by software that is integrated into loan mortgages. origination systems (LOS). These appliThe new agency would have the cations contain features that flag power to write rules and levy fines incomplete applications and keep loans based on a wide range of existing state from closing if all the steps have not and federal statutes. It would also be been followed. tasked with educating consumers about For regulations with more subjective financial rights and responsibilities. requirements, lenders must combine One of the most debated aspects of their best good faith efforts with docuthe proposed agency is giving it the mentation and reports from their authority to define standards for simple automation tools. Lenders who use “plain vanilla” products, such as mort- available software to analyze loan gages, which would have to be offered applications and document how and “prominently” by companies. why decisions are made will be in a In late July, the House Financial stronger position to defend their offerServices Committee delayed considera- ings on the market. tion of the new agency until September. As regulations become more complex While it remains to be seen whether this and require lenders to provide more anaagency will actually be created given lytical support to loans prior to underother legislative priorities such as writing, software has been developed healthcare reform, or if the proposed that assists lenders in making accurate responsibilities will fall to existing agen- decisions. Lenders can use pre-funding cies, lenders can expect the federal gov- compliance automation to review the ernment to remain very involved in the underwriting process and ensure the lending process for a long time. quality of a loan prior to funding. The good news is that no matter Lenders have the responsibility of what rules or regulations are passed, ensuring that all loans that are compliMaking appraisals there are steps lenders and brokers can ant. It is much easier to discover probnon-biased with HVCC take to make compliance easier and less lems before closing, so use automated The Home Value Code of Conduct (HVCC) time-consuming. reports and flags to discover and correct is a controversial regulation lenders are compliance issues prior to the closing dealing with now. Implemented in May, Automation table. An ounce of prevention now can HVCC outlines new processes that How can lenders comply with these save your company a pound of fines or lenders and appraisers must comply myriad of regulations, both federal and refused loan purchases later. with to order appraisals for loans being state, without losing their minds? A purchased by Fannie Mae and Freddie combination of automation and good Leonard Ryan is president of Laguna Mac. faith efforts provides the easiest path to Hills, Calif.-based QuestSoft, a provider In short, anyone originating a mort- staying compliant and reducing the risk of automated compliance solutions gage may not choose the appraiser to of fines or buyback requests from and geocoding services to the mortgage be used for loans they originate. Even investors. industry. He can be reached at (800) more limiting, the originator may not Hard data, such as preliminary dis- 575-4632, ext. 211 or e-mail engage in any communication with closures and fee calculations required firstname.lastname@example.org. appraisers. Choosing appraisers and all communication with appraisers is delegated to lenders, which will typically partner with an appraisal management company (AMC) to handle the logistics In a survey of 355 lenders, the level of concern cited for compliance of the appraisal orders. issues in 2009. The regulation has received criticism from many corners of the indusHigh Medium Low try that it is raising costs for borrowers Compliance issue concern concern concern and unnecessarily delaying closings RESPA changes (New rules on fee accuracy) 74% 18% 4% due to the enforced lack of communication between the appraiser and the HMDA changes 54% 32% 12% originator. Legislation is pending, howRed Flags compliance 49% 35% 12% ever, that would suspend the regulation for 18 months to enable regulators Fed, state & local consumer laws 45% 38% 13% to rework the details to better fit the Fraud (Borrower identity) 39% 37% 18% original intention of reducing appraisHigh and higher cost loan thresholds 29% 39% 25% al fraud. Fraud (4506-T verifications) 29% 37% 27%
Compliance concerns for the mortgage industry
Preventing identity theft with Red Flags Rules
New agency on the horizon?
Another new regulation lenders and originators must account for this year are the Red Flags rules, which were established by the Federal Trade Commission (FTC) to fight identity theft.
In June, President Barack Obama unveiled a blueprint for financial regulatory reform that included a proposed Consumer Financial Protection Agency (CFPA). This new agency, if created,
Fraud (Loan flipping, collateral)
Pending FEMA flood map changes
Red Flags Everywhere! The Red Flags Rule through the eyes of a lender By Ron Cahalan, CMPS
Potential Red Flag: Borrower’s application and supporting documentation being transported between offices and the client’s place of meeting. Solution: All loan officers must have the ability to lock and secure borrower’s information upon receipt and until delivery to the loan processing center. All borrower information must be delivered to processing centers within 48 hours of receipt.
“Until the release of the Fair and Accurate Credit Transactions Act (FACTA) Red Flag Identity Theft Rules by several agencies of the federal government, it could be said that few lenders believed identity theft was a serious issue behind the closed doors of our offices.”
Potential Red Flag: Open desks with borrower’s personal information in clear vision of others. Solution: All borrower files and personal information is to remain in the lockable file cabinet until such time that file is being worked on. If the employee leaves their desk for more than 30 min., all files must be locked in said file cabi-
Potential Red Flag: Thirdparty-originated loan application files where the lender had little or no control over the borrower’s personal information prior to submission to said lender for loan approval underwriting. Solution: Require all approved brokers to submit all files with Red Flag Checklist stating that the broker took the necessary steps to protect the borrower information and that they determined that the borrower’s information was accurate and identity verified.
and completed by each employee along the process, but reviewed by final QC to better monitor possible infractions or missed red flags. These were just a few of the areas that were made obvious when we applied the Red Flag assessment to our operations. Becoming Red Flag compliant was more than simply meeting the requirements of the federal government. As a lender, we did not want the legal exposure should it ever be determined that we did not properly protect a borrower’s information. We have gone so far as to provide each customer we do business with, a one-year policy of identity theft protection at our cost. If our goal is to create long-term relationships with our borrower clients, then it is our duty to protect them in every way possible. As a result of becoming and remaining Red Flag compliant, those relationships and our business will flourish.
Ron Cahalan, CMPS is sales manager of Scottsdale, Ariz.-based The Lending Company. He is also a published author of three books, Confessions of a Mortgage Banker, Lenders Are Liars, and co-author of the national best-seller, WakeUp Live. He may be reached by Potential Red Flag: phone at (480) 621-4256 or e-mail rcaHaving so many different email@example.com. employees involved in the loan process and Visit Author Ron Cahalan’s missing the Red Flags. blog at www.mortgageSolution: At final quality control (QC), manifestoblog.com for his having the Red Flag Checklist in the file latest take on the industry.
Get income or identity veriﬁed - deﬁnitively
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O AUGUST 2009
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At informative Research, you get the IRS or the SSA right at your door step.
Over the past few months, we, as a lender (The Lending Company in Scottsdale, Ariz.), have embarked on what became a tedious journey through the rules of being Red Flag compliant. Little did we know just what all was involved. In the process of negotiating the maze of rules and regulations, we found that nearly every area of our operations could be challenged to improve. Mortgage fraud detection is a priority of the quality control management with every responsible lender. Until the release of the Fair and Accurate Credit Transactions Act (FACTA) Red Flag Identity Theft Rules by several agencies of the federal government, it could be said that few lenders believed identity theft was a serious issue behind the closed doors of our offices. Most believed this was more the problem of Internet security and the common neighborhood thief. That was until today. Upon learning of the new regulations and the deadlines set for becoming compliant, we investigated industry-recommended vendors and tools to assist us in meeting the requirements. Being both a retail correspondent consumer-direct lender and wholesale lender selling programs to mortgage brokers, we had to determine what was needed on either front. What were our responsibilities? Where might we be vulnerable? Was simply being compliant enough? The most obvious was in reading credit reports. What we didn’t realize were that discrepancies in a credit file had just as much to do with possible identity theft as it did with the potential mortgage fraud we as lenders are accustomed to underwriting. Looking through the glasses of identity theft causes us to dig deeper into any possible inconsistencies. But it didn’t stop with reading credit reports. Where else were we leaving our clients and borrowers open to the possibilities of becoming victims of identity theft? We began looking at every area where a borrower’s information flows through our offices and the loan process itself. It was startling to discover all the different points where that information was exposed and as a lender, didn’t even
realize what was at stake. Just to name a few:
net. No files are allowed to be left on any employee desk overnight or during lunch breaks, unless private office can be securely locked. If private offices are accessible by cleaning and maintenance crews during or after regular business hours, then files must be locked in file cabinets until employee returns. This also required that we rekey all file cabinets to insure the above could be executed.
Compliance Tools Directory Company/Web Site/Phone
Areas of Compliance
About the Company
Red Flag, Fraud Prevention, Authenticating apps, FACTA, HVCC
Authentication Report provides "red flags" to be reviewed; 4506 reports; comprehensive fraud prevention reports.
Since 1948 CBCInnovis / CBC Companies has been helping credit grantors of all sizes to make better business decisions.
TILA, RESPA, HOEPA, State high-cost & prohibited fees, HMDA/CRA.
Automatic Compliance Systems & Professional Services including QC, due diligence, forensic audit, training & consulting.
A leading provider with over 350 clients including 4 of top 5 lenders, regulators, lawyers & other service providers.
HCA (Fed/State/Local), FNMA 5%, State Prohibited & Usury Fees
Initial Disclosures, Closing Documents, High Cost Analysis and Flood Determinations for lenders throughout the nation.
Since 1992, Document Express, has been bringing you the industryâ€™s most complete array of document preparation solutions.
Document Management HOEPA/MDIA
DocVelocity is a complete paperless solution created to simplify the loan origination process--online, start to finish.
DocVelocity answers critical compliance questions while serving as an efficient driver and market differentiator.
Title and Settlement/Escrow Services. Guaranteed Quotes.
Save up to 35% or more on Title Insurance in 32 states. Policies accepted by major lenders, Fannie, Freddie & the FHA
Over 30 years in the title business. Rated A Prime (Unsurpassed) by Demotech (www.demotech.com). ALTA & CLTA member.
Federal and state regulatory compliance; backed by Compliance Warranty
Mortgage Solutions, Lending Solutions, Risk Management, Electronic Banking, Core Systems, Education and Training, and many more.
Harland Financial Solutions delivers industry-leading software solutions to thousands of financial institutions of all sizes.
FACTA Red Flags Rules, FACTA Borrower Disclosures
Complimentary Red Flags Compliance Took Kit; Red Flags Risk Report; Credit Reports & Fraud Alerts
Informative Research has 60+ years of experience in credit/settlement solutions, serving Mortgage Lenders and Brokers
TILA, HOEPA, State Anti-Predatory Lending, Prohibited Fees, Prepays, Usury
Easy-to-use compliance reviews seamlessly integrated into your LOS. HOEPA, state laws, APR, finance charge, prohibited fees and more.
Interthinx, Inc., an ISO business, is a leading national provider of proven risk mitigation and regulatory compliance tools for the financial services industry.
F.A.C.T.A. Red Flag Compliance Solutions
Written Red Flag policy includes: Vendor compliance, Required employee education, Incident response plan and Personal ID theft protection
We are a NAMB Preferred Provider for a comprehensive Red Flag Compliance solution. We are well versed in all areas of information security.
Integrated functionality reduces the burden of compliance management.
End to end loan origination system. Pre-qual through closing includes embedded closing docs and paperless functionality.
Serving Mortgage Bankers,Community Banks and Credit Unions for over 11 years. SaaS, ASP and Purchase delivery options.
FHA Quality Control; Licensing and Audit; RESPA 2010, MDIA, HVCC
Providing Compliance Policies and Procedures, Internal Training Programs, Audit Services see www.mortgagemanuals.com
Quality Control and Mortgage Compliance Management since 1992. Over 3000 industry Clients. www.mortgagemanuals.com
ComplianceEaseÂŽ www.ComplianceEase.com 1.866.212.EASE
Document Express, Inc. www.documentexpressinc.com 800-476-3627
DocVelocity (from Paperless Solutions Inc.,) a wholly-owned subsidiary of Flagstar Bancorp www.docvelocity.com (877) 362-8356
Entitle Direct www.EntitleDirect.com 877-936-8485
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Harland Financial Solutions
Informative Research www.informativeresearch.com 800.473.4633
Interthinx www.Interthinx.com 800 333-4510
Majestic Security LLC majesticsecurityidsafe.com 888-331-2332
Mortgage Builder Software www.mortgagebuilder.com 800-460-5040
MortgageManuals.com www.mortgagemanuals.com 877-918-2746 (877-91 TRAIN)
Areas of Compliance
About the Company
FHA Lending, Red Flag Reporting, and Government Regulations
FHA SafeGuard, Business Intelligence, Business Rules, Imaging, Workflow, Relationship Management, Optimization Solutions
Movation is a Business Management Platform that optimizes executive insight and control over your entire organization.
CROA, FCRA, FACTA Material Review Service, Membership
CROA Certification - NACSO Certification covers several levels of compliance within the Credit Repair Organizations Act.
NACSO members go through a very strict and rigorous application and enrollment process to aid in the prevention of fraudulent activity throughout the credit services industry.
HVCC compliant,New York State certified HUD approved, SRA, 203K specialists, MAI on Staff
NYAMS is an appraisal Management Company that specializes in residential/commercial appraisals covering ALL of New York State
When it comes to being an appraisal management Company…there is no comparable
Red Flags Rules, HVCC, FCRA
PRECISE ID to detect fraud and validation of consumer information. APPRAISAL FIREWALL to stay in compliance with HVCC. Credit reports and credit related services.
PCS offers lender & screening services with a suite of products & services to help our clients close more loans and succeed in the mortgage industry.
HUD/FHA Audited Financial Statement Preparation Full/Mini Eagle
Financial Statement Preparation and more! FREE QUOTES AVAILABLE! Visit us: www.richandbander.com or www.cpafha.com
Rich and Bander, LLP is a full service CPA firm committed to servicing real estate brokers and lenders.
movationnow.com/ fhasafeguard.com 800.411.5541
National Association of Credit Services Organizations www.nacso.org 866-97-NACSO (2276)
New York Appraisal Management Services, Inc. www.nyams.com 516-241-1838
Platinum Credit Services www.platinumcreditservices.com 631-299-2084
Rich and Bander, LLP - CPAs www.cpafha.com 646-843-9913
Provided exclusively to National Mortgage Professional Magazine by David Beadle, president of BestInfo Inc., the BestRates cell, pager and e mail rate alert service for mortgage industry subscribers. Send your inquiry to firstname.lastname@example.org for full details on a free two-week trial subscription. RTGAGE PRO
Weekly Jobless Claims Rate Impact
August 21 July Existing Home Sales Rate Impact
August 31 August Chicago PMI Rate Impact
The government’s seasonal adjustment factors have made such a mess of this data series that it has lost a huge amount of credibility with Wall Street traders. Last month, the statisticians were continuing to apply outdated seasonal information which expected motor vehicle plants to have shut down in July for a two-week vacation break. Hello. News flash for the bureaucrats … the old General Motors and the old Chrysler filed for Chapter 11 bankruptcy before summer commenced. They idled their plants while they went through the bankruptcy process, starting in May. The plants generally remained shuttered in June. So, utilizing a seasonal factor for July is more than a day late and a dollar short. But perhaps the part of the government that arranged the bankruptcies didn’t tell the other part of the government which calculates the weekly jobless figures. The GIs in World War II had a name for this disconnect. They called it a “snafu.” Nothing has changed.
There was a surge of excitement in the real estate sector in late July when it was reported that June existing home sales rose 3.6 percent from May to an annualized rate of 4.84 million transactions. Better yet, the inventory of unsold homes fell to a 9.4 month supply, well below the 10.1 month figure from April. The year-over-year drop in prices was 15.4 percent, which brought some buyers into real estate offices across the country. But here’s the question: Is the worst behind us? The answer is murky because some media reports indicate a significant number of banks have been holding back foreclosure inventory in order to benefit from possible future price increases down the road. There is also conjecture that home owners who want to sell have been waiting for a flattening of prices before listing their homes. This is called “shadow” inventory because it is present but not yet visible. Therefore, if sales start to accelerate because buyers decide prices have bottomed, there could be an unexpected onslaught of new listings which could reverse prices back to the downside. This story may have more twists and turns. July new home sales data will be released on Wednesday, Aug. 26. The Chicago purchasing managers will release their report on August manufacturing activity in the Upper Midwest on the last day of August, and it may make for some interesting reading. In July, the index rose back to 43.4 from June’s 39.9 and May’s 34.9 after a low of 31.4 in March. There’s a chance it may have sustained the improvement in August if vehicle manufacturers were forced to ramp up production following the avalanche of interest in the government’s Cash for Clunkers program in late July. It turns out that so many people showed up at dealer showrooms to take advantage of rebates of as much as $4,500 for their current clunkers that some outlets ran out of new car inventory. This is known as “pulling sales forward,” which means people who were going to have to buy a new car anyway did it earlier because of the spectacular savings opportunities at the expense of other taxpayers who were footing the bill. Therefore, it is possible that a number of vehicle manufacturers with depleted stocks may have found it necessary to build more new cars in August. And that could lead to a temporary bubble in motor vehicle manufacturing, to be reflected in the purchasing managers data.
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
A reading of “1” has the lowest impact on rates, while “10” has the highest. Although carefully verified, data are not guaranteed as to accuracy or completeness. BestInfo Inc. cannot be held responsible for any direct or incidental loss or liability incurred by applying any of the information or opinions in this feature.
July Producer Prices Rate Impact
The Federal Reserve continues to repeat the mantra that inflation is not a problem, as if saying the same thing over and over again will cause rising prices to vanish. But the fact is that core personal consumption expenditure prices (excluding volatile food and energy) rose two percent in the second quarter of this year, which was almost exactly double the level of the first quarter, when they rose 1.1 percent. And this figure is precisely the one which the Fed says it has been watching as the most reliable gauge ever since the previous Fed chairman dismissed the consumer price index as being out of touch with the true price-pressure picture. Today, we will see if inflation at the earlier stages of production is under control. In the June results, the overall PPI accelerated by a whopping 1.8 percent from May. The core rate was up a larger-than-expected 0.5 percent when it had been tracking close to zero since March. If the Fed does not wish to take inflation seriously, watch what the bond market vigilantes do in the months ahead. It may not be pretty.
new to market
Plus Postage & Handling
Think Reverse! Table of Contents
AUGUST 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Part I: The new pillar of retirement security Part II: Marketing reverse mortgages: It’s all about education Part III: Originating reverse mortgages Part IV: Enhancing freedom: The essence of reverse mortgages Part V: A new frontier in mortgage lending
“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.” —Sarah F. Hulbert, President, Senior Financial Corporation and former four-term Co-Chair of NRMLA’s Board of Directors “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, simple-to-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
continued from page 33
Inc. “We fully support industry and government efforts to help troubled homeowners restructure or refinance their mortgages to avoid foreclosure. In turn, we are introducing this new policy to assist servicers in taking advantage of our related programs for existing Radian insured loans.” The new program enables Radian to transfer a homeowner’s existing mortgage insurance policy to any new loan that meets the policy’s more flexible eligibility criteria, making it easier for homeowners to refinance their existing mortgage into a more predictable loan type and/or take advantage of today’s lower interest rates to lower their monthly payment. This, in turn, helps more borrowers avoid default and/or foreclosure, remain in their homes and continue to build the type of financial equity needed to provide some stability in today’s challenging economic climate. For more information, visit www.radian.biz.
MRG offers HAMP-compliant documentation MRG Document Technologies, a provider of mortgage technologies to banks, credit unions and other lenders, announced that it now offers mortgage servicers loan modification document packages that are compliant with the Home Affordable Modification Program (HAMP). The program was created on March 4 as part of the Homeowner Affordability and Stability Plan (HASP) to help millions of distressed U.S. homeowners modify or refinance their mortgages to avoid foreclosure. HAMP, effective March 4, 2009-Dec. 31, 2012, for mortgages originated on or before Jan. 1, 2009, creates a modification process for loans through which borrowers who are in default, at risk of default or in foreclosure can have their loans modified to a more affordable monthly payment that is between 31 and 38 percent of their gross monthly income. “As expected, the HAMP modification agreements are lengthy and require much more documentation than traditional modifications,” said Laura LaRaia, an attorney and director of customer service at MRG. “It has been our experience that the program has evolved over the last few months, and lenders need to continuously update their documents to maintain compliance. MRG’s staff of attorneys not only monitor the various regulatory and investor Web sites and update packages as needed, they also interpret how additional regulations affect the modification process now and going forward for our lending and servicing clients.” MRG offers a browser-based system for the preparation and delivery of compliant document packages, electronic disclosures, loan modifications
and other services for mortgage lenders, banks and credit unions nationwide. MRG guarantees that its products are in compliance with the most recent legislative and regulatory changes. For more information, visit www.mrgdocs.com.
LPS launches new Home Price Index Lender Processing Services Inc. (LPS), a provider of integrated technology and services to the mortgage industry, has announced the launch of its proprietary Home Price Index (HPI). The HPI, developed by LPS Applied Analytics, measures changes in property values of residential real estate at various geographic levels, including state, metropolitan area, county and zip code; property types; loan types and transaction types. The LPS Applied Analytics HPI is unique in that it provides the option to include or exclude real estate-owned (REO) sales. “The LPS Applied Analytics HPI offers an inexpensive, quick and accurate method for marking-to-market property values,” said Nima Nattagh, Ph.D., senior vice president, LPS Applied Analytics. “Our new HPI complements LPS Applied Analytics’ powerful suite of automated, desktop and field valuation products to create the ideal valuation and risk management solutions for originators, capital markets professionals and servicers.” In March, LPS announced the findings from a study of changes in regional home prices between 2007 and 2008 in the nation’s top housing markets. This study showed that the gap between REO sales prices and the rest of the market was very slim prior to 2007, but is growing at an accelerating pace. For more information, visit www.lpsvcs.com.
Fiserv announces Making Home Affordable Loan Modification-compliant servicing platform Fiserv Inc. has announced the launch of its Loan Servicing Platform. With extensive loan modification and loss mitigation features, the new platform is fully compatible with new guidelines from the U.S. Treasury Department on home loan modifications. The Loan Servicing Platform allows servicers to track and study the loans being modified. With this knowledge, servicers can formulate bestoption workout scenarios based on operational business rules while meeting HAMP guidelines. “Fiserv has been fully engaged with the Treasury and [government-sponsored enterprises] GSEs in order to provide all the functionality to meet the program’s specific requirements,” said Greg Fontenot, assistant vice president,
Loan Servicing Solutions, Fiserv. “Our continual investment enabled our Loan Servicing Platform to deliver the flexibility and capability required to meet the HAMP guideline as soon as it was announced in March.” Over the past 24 months, Fiserv has focused on enhancing the loan modification and loss mitigation features of the Loan Servicing Platform. The platform has support built into the core system that helps servicers determine if the borrower is eligible for an HAMP modification, and was positioned to support HAMP guidelines from the start. Platform capabilities include built-in loss mitigation workflow tools to streamline operations and increase efficiency, GSE investor reporting, secure electronic delivery of documents and full escrow analysis processing, among others. In addition, several enhancements are underway, including addi-
tional deferred principal functionality, enhanced ability to gather personal financial information, and an HMPspecific screen to present a full picture of the modified loan. For more information, visit www.fiserv.com.
Your turn 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: email@example.com Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.
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After brokers become a Non-Supervised Loan Correspondent with the Federal Housing Administration, new responsibilities occur. First, follow your QC plan that was prepared for the FHA approval. The QC plan, at a minimum, should cover the sampling process such as 10 percent of post-closing reviews, 10 percent of the denied or withdrawn loans, and how you address loans that register in the Neighborhood Watch and defaulted loans. If you follow these basics, you will meet the minimum QC standards with FHA. In the last six months, I have received several phone calls from loan correspondents who got caught or were about to get caught for not following these steps. They come to me needing help in order to deflect the wrath of FHA. Fortunately for the loan correspondent, FHA provided a written notice of what they were going to be looking for before they arrived. I will have to give it up to FHA … that is very courteous and considerate of them to notify the loan correspondent announcing their arrival weeks and months before they arrive. FHA will always look at your QC plan. Make sure you follow it and keep it up to date. If FHA finds something wrong, they will look back to the QC plan and point out to you that you are not following your published QC plan. Not following the QC plan may lead to a fine. FHA will ask for your QC reports and QC management responses. If FHA finds that QC reviews were missed, they will go back three years. If QC reviews were not performed within 36 months, they may require you to have all the months missed quality controlled and provide the reports to show the reviews were performed. You don’t want this to happen because you will get hit with an expensive QC bill all at one time. Keep your QC reviews consistent each month or quarterly, so they are budgeted in with other expenses. Do not forget to have your denied and withdrawn FHA files reviewed. This is a requirement in HUD Handbook 4060.1. Many loan correspondents fail to do this because they forget or honestly do not know that FHA requires a 10 percent sampling of denied or withdrawn loans. Make sure the QC plan addresses denied or withdrawn reviews, because the FHA loves to catch correspondents not doing this review. If you are not doing so already, keep monitoring Neighborhood Watch. Regardless of how well your operation is, odds are, you may eventually have a default loan. The QC plan should address what to do with loans that default. The general rule is if a loan is late 60 days within the first six months of closing, you need to review the loan. That is all loans or 100 percent that meet this criterion. Many loan correspondents audit 100 percent outside these standards because they want to protect themselves from the liability of an indemnification or repurchase. Quality Mortgage Services LLC works as the loan correspondent’s advocate when auditing default loans. However, there have been times in the past where we recommended to the loan correspondent to indemnify the loan because of the misrepresentation of a loan officer. However, many of our audits show the information in the loan was correct at the time of origination and the government needs to take responsibility of the loan since it was insured. Now that you have a good FHA production going, keep it going by following your QC plan. Tommy A. Duncan is executive vice president of Quality Mortgage Services LLC. For answers to your QC and FHA questions, please contact Tommy at (615) 5912528, ext. 124 or e-mail firstname.lastname@example.org. You may also visit Quality Mortgage Services LLC on the Web at www.qualitymortgageservices.com.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE O AUGUST 2009
ACC Mortgage .................................................... weapproveloans.com ..........................................8 All Real Estate Solutions LLC ................................ allREsolutions.com ............................................13 Elliott and Company Appraisers Inc. .................... www.appraisalsanywhere.com ............................32 Emigrant Mortgage Company .............................. www.emigrantmortgage.com ..............................29 Entitle Direct Group ............................................ www.emigrantmortgage.com ......Inside Front Cover First Source Capital Mortgage Inc. ........................ www.ruralhomeloan.com ..................................23 Flagstar Bank .................................................... www.wholesale.flagstar.com ..................Back Cover Franklin First Financial........................................ www.franklinfirstfinancial.com ............................31 Frost Mortgage Banking Group ..............................................................................Inside Back Cover Guaranteed Home Mortgage ................................ www.joinguaranteed.com ..................................12 HTDI Financial.................................................... www.startacreditrepaircompany.com ....................24 Hudson Valley Processing .................................... www.hudsonvalleyprocessing.com ......................33 Informative Research .......................................... www.informativeresearch.com ............................39 Mortgage Now Inc............................................... www.mtgnow.com ..............................................9 NAMB/West ........................................................ www.namb.org ................................................25 NAPMW.............................................................. www.napmw.org ..............................................18 New York Appraisal Management Services Inc. ...... www.nyams.com ..............................................17 Platinum Credit Services Inc. .............................. www.platinumcreditservices.com ........................20 Presidents First Mortgage Bankers........................ www.presidentsfirst.com ....................................11 Quality Mortgage Services.................................... www.qcmortgage.com ................................32 & 43 Think Reverse .................................................... www.mortgageproshop.com ................................42 TruClose Financial Services LLC ............................ www.besstitle.com ....................................34 & 36 United First Financial .......................................... www.teamsue.com ............................................31 United Mortgage Corp. ........................................ www.unitedmortgage.com ..................................27 United Wholesale Mortgage ................................ www.uwmco.com ..............................................16 University Mortgage ......................................................................................................................7 Wells Fargo Home Mortgage ................................ www.brokersfirst.com ........................................21
Tommy, what do I need to do to manage the quality control (QC) in my shop?
By Tommy A. Duncan
SEPTEMBER 2009 Wednesday-Friday, September 9-11 Mortgage Bankers Association of Pennsylvania Annual Conference The Eisenhower Hotel & Conference Center 2634 Emmitsburg Road Gettysburg, Pa. For more information, call (888) 7399991 or visit www.mba-pa.org. Wednesday-Friday, September 9-11 Mortgage Bankers Association Reverse Mortgage Lending Conference The Westin GasLamp Quarter San Diego 910 Broadway Circle • San Diego For more information, call (800) 7936222 or visit www.mortgagebankers.org.
AUGUST 2009 O
Thursday-Friday, September 10-11 2009 Nebraska Association of Mortgage Brokers/Nebraska Mortgage Association Fall Conference “Where Champions Reign” Embassy Suites Omaha-La Vista Hotel & Conference Center 12520 Westport Parkway • La Vista, Neb. For more information, call (402) 5057180 or visit www.nebraskamortgagebrokers.org. Monday-Wednesday, September 14-16 Mortgage Bankers Association Regulatory Compliance Conference The JW Marriott Hotel 1331 Pennsylvania Avenue Washington, D.C. For more information, call (800) 7936222 or visit www.mortgagebankers.org.
Monday-Tuesday, September 21-22 20th Annual Illinois Association of Mortgage Professionals Fall Conference The Sheraton Hotel 3400 Euclid Avenue Arlington Heights, Ill. For more information, call (630) 9167720 or visit www.iamp.biz. Tuesday, September 22 New York Association of Mortgage Brokers 21st Annual Convention “It’s Not Just Business as Usual!” Melville Marriott 1350 Old Walt Whitman Road Melville, N.Y. For more information, call (914) 3326233 or visit www.nyamb.org. Wednesday-Friday, Sept. 30-Oct. 2 22nd Annual New England Mortgage Banking Conference Rhode Island Convention Center 1 Sabin Street Providence, R.I. For more information, call (617) 5709114 or visit www.massmba.com. OCTOBER 2009 Friday-Saturday, October 2-3 Kentucky Association of Mortgage Professionals 2009 Annual Convention Belterra Casino & Golf Resort 777 Belterra Drive Belterra, Ind. For more information, call (270) 9292836 or visit www.kyamp.net.
DECEMBER 2009 Sunday-Tuesday, December 6-8 NAMB/WEST MGM Grand Hotel & Casino 3799 Las Vegas Boulevard South Las Vegas For more information, call (703) 3425900 or visit www.namb.org.
Thursday, October 15 Florida Association of Mortgage Brokers Jacksonville Chapter 2009 Annual Trade Show Hyatt Regency Riverfront 225 Coastline Drive Jacksonville, Fla. For more information, call (800) 2899983 or visit www.famb.org. Tuesday-Wednesday, October 20-21 Arizona Association of Mortgage Brokers 2010 Outlook & Expo “Expand Your Mind & Expand Your Business” 100 North Third Avenue Phoenix, Ariz. For more information, call (480) 4237334 or visit www.mortgagemarketplacehome.com. Wednesday-Thursday, October 21-22 Indiana Association of Mortgage Brokers 2009 Expo Sheraton Indianapolis Hotel & Suites 8787 Keystone Crossing Indianapolis For more information, call (317) 9641225 or visit www.inamb.com. Wednesday-Friday, October 21-23 Pennsylvania Association of Mortgage Brokers and New Jersey Association of Mortgage Brokers Regional Conference Trump Taj Mahal Casino Resort 1000 Boardwalk at Virginia Avenue Atlantic City For more information, call (973) 3797447 or visit www.njamb.org. Friday, October 30 Oregon Association of Mortgage Professionals 2009 Annual Convention “The Best of the Best” Location to be determined For more information, call (503) 6708586 or visit www.oamponline.com. NOVEMBER 2009 Monday-Thursday, November 2-5 Virginia Association of Mortgage Brokers 21st Annual Convention Williamsburg Lodge 310 South England Street Colonial Williamsburg, Va. For more information, call (804) 2857557 or visit www.vamb.org.
FEBRUARY 2010 Monday-Thursday, February 1-4 Mortgage Bankers Association CREF/Multifamily Housing Convention & Expo Mandalay Bay Resort & Casino 3950 Las Vegas Boulevard South Las Vegas For more information, call (800) 793-6222 or visit www.mortgagebankers.org. 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 www.mortgagebankers.org. APRIL 2010 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 www.mortgagebankers.org. 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) 448-8236 or visit www.cambweb.org.
RTGAGE PRO O M
Thursday-Saturday, September 10-12 Texas Association of Mortgage Professionals 2009 Annual Convention & Marketplace “All Road Lead to Texas!” Hilton Austin Hotel 500 East 4th Street • Austin, Texas For more information, call the (800) 850-8262 or visit www.ttamp.org.
Thursday-Friday, September 17-18 Mortgage Bankers Association Human Capital Management Symposium MBA Headquarters 1331 L Street NW Washington, D.C. For more information, call (800) 7936222 or visit www.mortgagebankers.org.
Sunday-Wednesday, October 11-14 Mortgage Bankers Association 96th Annual Convention & Expo San Diego Convention Center 111 West Harbor Drive San Diego For more information, call (800) 793-6222 or visit www.mortgagebankers.org.
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
Thursday, September 10 Minnesota Mortgage Association 2009 Convention & Exhibitor Showcase “Front Row Seats for Change” The Hyatt Regency Minneapolis 1300 Nicollet Mall • Minneapolis For more information, call (952) 3453240 or visit www.themma.org.
Tuesday, September 15 2009 Kansas Association of Mortgage Professionals Trade Show Harrah’s North Kansas City Hotel & Casino 1 Riverboat Drive North Kansas City, Mo. For more information, call (913) 7645600 or visit www.ksamp.org.
Tuesday, November 17 2009 Missouri Association of Mortgage Brokers Trade Show & Convention St. Charles Convention Center and Embassy Suites Hotel 2 Convention Center Plaza St. Charles, Mo. For more information, call (314) 9099747 or visit www.mamb.net.
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 email@example.com.
Monday-Tuesday, October 5-6 Washington Association of Mortgage Professionals 2009 Real Estate Lenders Conference Meydenbauer Center 11100 NE 6th Street Bellevue, Wash. For more information, call (866) 4257250 or visit www.wamb.org.
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