TEXAS MORTGAGE PROFESSIONAL MAGAZINE
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NATIONAL MORTGAGE PROFESSIONAL MAGAZINE
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Presidents First is a multi-state, full-service home mortgage Banker dedicated to offering quality mortgage solutions with an unwavering commitment to service. Having years of experience in the mortgage industry, we understand what’s important. Presidents First is dedicated to providing our customers with intelligent, innovative mortgage products at aggressive rates and unparalleled service levels. Utilizing hands-on common sense underwriting, expeditious closing strategies and personalized account servicing, Presidents First is focused on helping our customers to grow their business. Offering affordable lending solutions for borrowers that deserve quality loan programs and stability - it’s clear to see why Presidents First is America’s Leading Wholesale Lender.™
America’s Leading Wholesale Lender ™ Let Us Help Grow Your Business! Conforming Fixed FHA 203B FHA 203k FHA Streamline
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For additional information Please contact us at:
445 Broadhollow Road Melville, NY 11747 www.presidentsfirst.com
Mortgage PROFESSIONAL T E X A S
Your source for the latest on originations, settlement, and servicing
Texas Association of Mortgage Brokers State Office The State Affiliate of the National Association of Mortgage Brokers 14901 Quorum Drive, Suite 435 O Dallas, TX 75254 Phone: (800) 850-8262 O Fax: (530) 484-2906 TAMB Web site: www.tamb.org O E-mail: firstname.lastname@example.org STATE OFFICE Phone #
(281) 440-4660 email@example.com
Immediate Past President
Statewide Legal Counsel
Gail G. Dinham
Plus Postage & Handling
Think Reverse! Table of Contents
LOCAL CHAPTER PRESIDENTS Robert English
Central Texas Chapter
San Antonio Chapter
Greater Houston Chapter
2009 Editorial Calendar Focus
Wholesale & Correspondent Update
Who’s Left in Wholesale?
Compliance Tools Directory
The Future of Mortgage Banking
It’s All About the Marketing!
Lead Provider Roundup
Growth Strategies for 2010
The 40 Under 40: The 40 Most Influential Mortgage Professionals Under 40
*Please note that we also distribute as several other Mortgage Banker and Mortgage Broker events throughout the year
“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
O JUNE 2009
For advertising opportunities in these Focus Issues or Special Features, please call (888) 409-9770 and press "4" for the Advertising Department of e-mail firstname.lastname@example.org.
“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
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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
For more information on editorial contributions, please call (888) 409-9770 and press "6" for the Editorial Department or e-mail email@example.com.
STATEWIDE Sponsorship funds are used to develop new Chapters across the state, monitor legislative and regulatory issues at the state and regulatory issues at the state and national levels, produce quality educational programs, send future association leaders to the National Association of Mortgage Brokers Leadership Conference, and maintain the associationâ€™s headquarters in Austin.
DIAMOND Franklin American Mortgage Company Wells Fargo Home Mortgage
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Silver Hill Financial LLC Texas Capital Bank
Black, Mann & Graham LLP
Amtrust Mortgage Primary Capital Mortgage Solutions Funding For more information on the TAMB Statewide Sponsorship program, call the TAMB office at (800) 850-8262 or visit www.tamb.org.
FHA Insider By Jeff Mifsud
Trend Spotter By Gibran Nicholas
Mortgage brokers discover six figure incomes in non-mortgage business loan opportunities By Phil Dushey
NMP Mortgage Professional of the Month: Gregory Lutin, Executive Vice President and National Sales Manager of Flagstar Bank
Value Nation: Why appraisal management companies are important By Charlie W. Elliott Jr., MAI, SRA
Forward on Reverse: Jack Kemp: A reverse remembrance
By Atare E. Agbamu, CRMS
A view from the “C” suite By David Lykken
You are doing the right thing and you did not know it By
Tommy A. Duncan
Yield spread premiums: Compensation or kickback? By
The NAMB Perspective
Critical considerations for mortgage modification programs
By Don Iannitti
The cosmology of our current financial and economic crisis
Ask Brian: The five biggest reasons your direct mail doesn’t work By Brian Sacks
Advertising secrets from one of America’s most successful copywriters and direct marketers By Linda Moore MacCoy
A simple formula for direct marketing success By Brian Sacks
Trigger mail lends relevancy to offers by mortgage professionals By Deborah Haskel
Ask Tommy: Your QC Expert By Tommy A. Duncan
Securities-based lending: An alternative source of funding
By Adrian Skiles, GML
Third-party originations: What the future may hold By David
An open letter to U.S. President Barack Obama By Thomas J. Murphy, CMA, CLA, CMPS
COM MER CIAL REVE R MOR SE TGA GES
RESI DEN TIAL
TECH NOL OGY
MAR KE SALE TING/ S SETT LE SERV MENT ICES
O JUNE 2009
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
By Tom LaMalfa
ORIG INAT IONS SECO NDA RY SERV ICIN G COM PLIA NCE
June 2009 Volume 1 • Number 2
Mortgage PROFESSIONAL N A T I O N A L
Your source for the latest on originations, settlement, and servicing
1220 Wantagh Avenue • Wantagh, NY 11793-2202 Phone: (516) 409-5555 / (888) 409-9770 Fax: (516) 409-4600 Web site: www.nationalmortgageprofessional.com STAFF Eric C. Peck Editor-in-Chief (516) 409-5555, ext. 312 firstname.lastname@example.org Andrew T. Berman Executive Vice President (516) 409-5555, ext. 333 email@example.com Domenica Trafficanda Art Director firstname.lastname@example.org Karen Krizman Senior National Account Executive (516) 409-5555, ext. 326 email@example.com Beatrice Marcus Office Manager (516) 409-5555, ext. 301 firstname.lastname@example.org
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SUBSCRIPTIONS To receive subscription information, please contact Office Manager Beatrice Marcus at (516) 409-5555, ext. 301, e-mail email@example.com or visit www.nationalmortgageprofessionalmagazine.com. Any subscription changes may be made to the attention of Beatrice Marcus via fax to (516) 409-4600 or e-mail firstname.lastname@example.org. Statements of fact and opinion in National Mortgage Professional Magazine are the responsibility of the authors alone and do not imply an opinion on the part of NMP Media Corp. National Mortgage Professional Magazine reserves the right to edit, reject and/or postpone the publication of any articles, information or data. MO
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National Mortgage Professional Magazine is published monthly by NMP Media Corp. Copyright © 2009 NMP Media Corp.
A message from NMP Media Corp. Executive Vice President Andrew T. Berman And we’re off ... So, the first issue of National Mortgage Professional Magazine has been met with great praise and positive comments. From both the readers who enjoyed the content and advertisers who loved the exposure, we seem to be providing a contentrich tool that appeals to the entire mortgage industry. In this process, we have gone from concept to convention by creating a mortgage industry medium that addresses all facets of the mortgage industry from the loan officer on the street to the REO portfolio manager.
What nuggets of survival techniques, tactile tips, trends and updates, and business building are waiting in the following pages of National Mortgage Professional Magazine? We already have readers wanting to know who will be featured next in our “Mortgage Professional of the Month” column. This month, we profiled Gregory Lutin, Executive Vice President and National Sales Manager of Flagstar Bank. In the article, Gregory shares his thoughts on the industry, explains his company’s commitment to technology and the advancement of the “paperless” concept, and discusses his dedication to the mortgage broker. This month, our cover story, “Yield spread premiums: Compensation or kickback?,” written by Jonathan Foxx, gives a detailed breakdown of how RESPA defines a kickback, thereby providing a virtually bulletproof-case on how YSPs are not kickbacks. Yet, our industry still faces legislation, such as HR 1728, which may ban the YSP. Along those same lines, “Third-party originations: What the future may hold,” by David Walden gives his perspective as a former co-owner of a wholesaler on how crucial the wholesale marketplace is to the mortgage industry. When talking about wholesale, there is no authority that knows more than Tom LaMalfa (partner of Wholesale Access, a group that provided the most comprehensive studies on the wholesale business) gives a “state of the industry” in his article, “The cosmology of our current financial and economic crisis.” Atare E. Agbamu’s installment of “Forward on Reverse” takes a closer look at the passing of Jack Kemp, a man many have deemed the godfather of the reverse mortgage. David Lykken’s “A view from the ‘C’ suite,” examines what many of you, as business owners and executives, have seen from your perspective as the industry continues its roller-coaster ride. Phil Dushey sheds some light on alternative opportunities outside the mortgage industry to generate significant income through various other channels of finance in his piece, “Mortgage brokers discover six-figure incomes in non-mortgage business loan opportunities.” All this and much more, including Gibran Nicholas taking a look at fielding calls from clients seeking 4.5 percent rate loans, Charlie W. Elliott’s view of the importance of appraisal management companies, Jeff Mifsud’s look at the revitalized FHA SWAT initiative, Tommy A. Duncan’s take on red flags and quality control, and much more. Read on and see for yourself!
A special look at Direct Response Marketing Also inside this issue, we feature and interview conducted by Linda Moore MacCoy with copywriting genius, Joseph Sugarman revealing what it takes to get inside the minds of your clients through effective copywriting. Of course, no issue about direct response marketing is complete without Brian Sacks, as Brian describes finding the ideal marketing program for your target in his article, “A simple formula for direct marketing success.”
Have you logged on to NationalMortgageProfessional.com? Our new Web site has launched, and our staff has been uploading content by the hour, including breaking news, company and product updates, as well as feature articles. There is something new to see every day. On our enhanced site, we have answered call, and visitors to the site can comment on articles, create a blog, participate in forums, and much more. In fact, we just conducted an interview the NAMB President Marc Savitt where Marc discusses the Home Valuation Code of Conduct (HVCC) and the Call to Action campaign that NAMB has asked the industry to participate in. More on this can be found at NMPMag.com/HVCC. Thanks again for the read, and enjoy the issue. Sincerely,
Andrew T. Berman, Executive Vice President NMP Media Corp.
The National Association of Mortgage Brokers
National Association of Professional Mortgage Women
7900 Westpark Drive, Suite T-309 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
National Board of Directors
Officers President—Marc S. Savitt, CRMS The Mortgage Center 115 Aikens Center, Suite 20-B O Martinsburg, WV 25401 (304) 267-9040 O email@example.com President-Elect—Jim Pair, CMC Mortgage Associates Corpus Christi 6262 Weber Road, Suite 208 O Corpus Christi, TX 78413 (361) 853-9987 O firstname.lastname@example.org Vice President—William Howe, CMC, CRMS Howe Mortgage Corporation 9414 East San Salvador Drive, #236 O Scottsdale, AZ 85258 (602) 200-8100 O email@example.com Secretary—Don Frommeyer, CRMS Amtrust Mortgage Funding Inc. 200 Medical Drive, Suite D O Carmel, IN 46032 (317) 575-4355O firstname.lastname@example.org Treasurer—Michael D’Alonzo, CMC Creative Mortgage Group 1126 Horsham Road, Suite D O Maple Glen, PA 19002 (215) 657-9600 O email@example.com Immediate Past President—George Hanzimanolis, CRMS Bankers First Mortgage Inc. Route 611, HC-1 Box 2400 O Tannersville, PA 18372 (570) 620-9561 O firstname.lastname@example.org
Vice President/Greater Northeast Region Colleen-Therese McKeever, CMI (646) 584-8332 email@example.com
President-Elect Gary Tumbiolo, CMI (919) 452-1529 firstname.lastname@example.org
Vice President/Southeastern Region Jessica Edmonston (919) 414-3028 email@example.com
Senior Vice President Sharon Patrick, MML, CMI (386) 985-1620 firstname.lastname@example.org
Secretary Laurie Abisher, GML, CMI (661) 283-1262 email@example.com
Vice President/Northwestern Region Jill M. Kinsman (206) 344-7827 firstname.lastname@example.org Vice President/Western Region Tim Courtney (760) 792-5620 email@example.com
Treasurer Kay Talley, MML (919) 846-4294 firstname.lastname@example.org Parliamentarian Hulene Bridgman-Works (972) 494-2788 email@example.com
Vice President/Central Region Candace Smith, CMI (512) 329-9040 firstname.lastname@example.org
GET YOUR COMPANY NOTICED...
ADVERTISE ON THE WEB... MLSLI.COM ADVERTISE HERE
Penny Fagan, CRMS P. Fagan Mortgage Inc. 222 East Moulton Street O Decatur, AL 35601 (256) 355-5505 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 Don Starks D.C. Starks Mortgage Associates Inc. 141 South Main Street O Bourbonnais, IL 60914 (815) 935-0710 O email@example.com
Advertise your business on MLSLI.com for only $275 per month and get your company noticed by thousands of buyers and sellers that visit the site everyday. Contact Marketing ContactWeb Donna Lee at 631-661-4800 ext. at 631-661-4800 ext.11. 348.
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Joe Camarena The Mortgage Source 10120 Southwest Nimbus Avenue, Suite C-7 O Portland, OR 97223 (503) 443-1060 O firstname.lastname@example.org
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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 email@example.com
Donald E. Fader, CRMS SMC Home Finance P.O. Box 1376 O Kinston, NC 28503-1376 (252) 523-5800 O firstname.lastname@example.org
President Liz Roberts-Fajardo, GML (702) 498-8020 email@example.com
YOUR CUSTOMERS EXPECT YOU TO BE ONLINE!
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Center for Public Integrity Investigation identifies top the 25 sub-prime lenders and their Wall Street backers
The top sub-prime lenders whose loans are blamed by the media for triggering the global economic meltdown were owned or backed by banks now collecting bailout money, according to “Who’s Behind the Financial Meltdown?,” a new investigation by the Center for Public Integrity. “The mega-banks that funded the sub-prime industry were not victims of an unforeseen financial collapse, as they have sometimes portrayed themselves,” said Center for Public Integrity Executive Director Bill Buzenberg. “These banks were deliberate enablers that bankrolled the type of lending that’s now threatening the financial system.” These are among the findings that emerged from the Center’s computer analysis of government data on nearly 7.2 million “high-interest” or sub-prime loans made from 2005 through 2007, a period that marks the peak and collapse of the sub-prime boom. The analysis also revealed “The Sub-Prime 25,” the top 25 originators of the highinterest loans, accounting for nearly $1 trillion and about 72 percent of industry—who reported sub-prime loans during that period. The Center found that U.S. and European banks poured huge sums into the sub-prime lending market due to unceasing demand for high-yield, highrisk bonds backed by home mortgages. According to the analysis: At least 21 of the top 25 sub-prime lenders were financed by banks that received bailout money—through direct ownership, credit agreements or purchases of loans for securitization; nine of the top 10 lenders were based in California, including all of the top five—Countrywide Financial Corporation, Ameriquest Mortgage, New Century Financial Corporation, First Franklin Corporation and Long Beach Mortgage Company; 20 of the top 25 subprime lenders have closed, stopped lending or been sold to avoid bankruptcy (most were non-bank lenders); and 11 of the lenders on the list, including four
recipients of bank bailout funds, have made payments to settle claims of widespread lending abuses. A second story in the package, “Predatory Lending: A Decade of Warnings,” details the history of congressional oversight involving abusive lending practices. The story traces how laws passed by Congress in the 1980s paved the way for the creation of the sub-prime lending industry, and documents how lawmakers essentially ignored repeated warnings that highcost loans represented a systemic risk to the American economy. For more information, visit www.publicintegrity.org.
HUD intends on moving forward with RESPA reform U.S. Housing and Urban Development (HUD) Secretary Shaun Donovan has announced his intention to implement the mortgage reforms under the Real Estate Settlement Procedures Act (RESPA) that are scheduled to take full effect on Jan. 1, 2010. For the first time in more than 30 years, HUD is updating mortgage rules to help consumers shop for the lowest cost mortgage and save an average of $700. Meanwhile, HUD is withdrawing and announcing its intent to propose revised language relating to a narrow provision of the final RESPA rule that redefines a prohibited practice called “required use” where consumers are steered toward higher cost mortgage services provided by affiliated businesses. “This Administration is committed to providing consumers with clear and transparent information when they make the biggest purchase of their lives,” said Donovan. “We will implement the new RESPA rules as part of broader reforms to the mortgage process. And after further consultation with the public, stakeholders and Congress, we will propose a clearer and more effective ‘required use’ definition that truly protects borrowers from those who force them to use affiliated businesses. Needed consumer protections are too important to allow confusion over one specific provision to hold up needed RESPA reforms.” continued on page 7
FHA SWAT Teams: Don’t be in the line of fire! On April 2, 2009, the Federal Housing Administration (FHA) issued Mortgagee Letter 09-12, which deals with the importance of lenders and brokers having good credit policies and quality control plans in place. This letter didn’t get much press, so I’m bringing it to light to encourage companies to be proactive and have systems in place in the event you are ever audited. As a broker or lender, you want to make sure your office policies are such that the FHA doesn’t show up at your door (and if they do, that your doors are still open when they leave!). If you are a direct endorsement lender (DE lender) and are educated and well-versed in FHA, you know what a wonderful product it is, and you know the autonomy you have in closing these loans. You also know the benefit to both the loan officer and the consumer, so you want to be sure the SWAT Team doesn’t have any reason to be looking for you! It seems that with every financial crisis, once the dust begins to settle and the most pressing issues are dealt with, what follows is a period of implementing new systems and/or enforcing systems already in place. These are designed to prevent the crisis from repeating itself. Unfortunately, however, it would seem that Bertrand Russell was most likely right on when he observed: “The one thing men learn from history is that men do not learn from history.” So, now we find ourselves in yet another cycle of financial crisis. We are at the point in the cycle when the officers of FHA have raised their heads to hopefully prevent FHA from going the fate of the big banks. To better understand what caused the mortgage collapse, and in order to present a more educated understanding to your clients, I suggest listening to Barry Habib at www.mortgagesuccesssource.com/go/ markmarket. Listen and learn as Barry explains the accounting procedure called “Mark to Market,” which was probably the primary contributing factor responsible for the most recent mortgage collapse. FHA states in Mortgagee Letter 09-12 that “We must make every effort to
eliminate improperly originated loans, underwritten and/or serviced loans, or related fraudulent activities.” The letter continues on to say that “HUD must hold mortgagees accountable for their lending practices in order to protect the public trust and the FHA Insurance Fund.” And then comes the topic of this article: “ … recently, FHA reactivated its SWAT Team to conduct single-focus onsite reviews of lenders whose originations are exhibiting signs of distress.” That’s right, folks, FHA has resurrected their SWAT division. I have been involved with the FHA for about 14 years, and I’ll admit I was never aware of this division (as you can see, apparently it was in ‘hibernation mode!’). When I read the above quote, my first thought was visions of Officer T.J. McCabe (the sniper from the old 1970s TV series, S.W.A.T.) scoping the offices with high FHA default rates, ready to take out the loan officers whose names appear on the 1003s of defaulted FHA loans as they blithely leave their offices for lunch. It became clear that’s not what SWAT refers to in this context. In fact, the FHA SWAT stands for Special Work Assessment Teams. Instead of carrying rifles and grappling hooks, they now carry briefcases and notebooks. The role of this division of FHA is to “single out” those lenders who have high FHA default rates and uncover abuses of the FHA program. Before I continue, I’ll share a brief story with you—and keep in mind, this happened before the FHA SWAT Team was resurrected! A few years ago, I worked hard to get into a real estate office as their “go to” FHA lender. FHA was the only loan for the clients they would refer, so it was a perfect office for me. They allowed me the opportunity to do an FHA presentation for them, showing them that I had a thorough understanding of FHA. They tested me out with a few tough deals which I was able to get through. Having proved myself, I essentially had an office in theirs, and thereby, developed good rapport with all of the agents. After about a year, along came another lender to compete with me.
of each loan over time, allowing you to financially compare in detail up to four loan programs. The RVO analyzer allows you show the cost savings and tax advantages of owning rather than renting. Since we are in a buyers’ market and FHA is often the only choice of loans, I find the RVO presentation to be outstanding for new buyers who are, without question, getting the deals of the decade. How you present information to your prospective clients is crucial to developing a long-term relationship with that customer. The tools mentioned above are two impressive ways to help you present and articulate important information in a clear and lucid manner. Providing important
and accurate information at application is critical because: 1. It keeps you educated on how the mortgage impacts your clients’ wealth; and 2. It removes ambiguity, setting up clear expectations for the transactions. If the borrower knows what to expect, then there is a greater chance for success with that mortgage. Tragically, one significant reason many borrowers got into sub-prime adjustable-rate mortgages (which are actually doing well right now: The six-month London Interbank Offered Rate (LIBOR) was at about 1.58 at the writing of this article) is because they didn’t understand the loan. The sad fact is,
“As a broker or lender, you want to make sure your office policies are such that FHA doesn’t show up at your door (and if they do, that your doors are still open when they leave!).” many loan officers didn’t understand them either and that’s just not responsible business practice. Being well-educated in your field, and having accurate and effective communication with you clients so that they know what’s going on and what to expect is of critical importance. continued on page 8
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The difference is, I was doing loans that were in compliance with FHA guidelines, and my competition worked for an unscrupulous lender that shelved their own paper and would do loans that bordered on fraud. I couldn’t (nor would I want to) compete with that, and would not compromise my integrity to do these loans, and lost that relationship. Much as it hurt me financially at the time, at least I could look at myself in the mirror and I didn’t need to keep looking over my shoulder, because eventually, unscrupulous business practices have a way of catching up with you (witness the past year plus). Sure enough, it took about two years and they were gone—shut down by the clandestine FHA SWAT Team. Once the loans started to default, the FHA started to take a closer look by way of an audit and the rest is history. I mention this because many originators view FHA as the new sub-prime and, in order to close shaky deals, take advantage of the fact that FHA has no hand in the loan process. If you take this path, and I would certainly hope that no loan officer would, know that it will eventually catch up with you. I have seen many companies fail in my hometown marketplace of the metro Detroit area due to the origination of bad FHA loans that don’t meet FHA guides. As originators struggle to remain in business, there is much temptation to close the loan just because you can. If you cannot handle the stress and still maintain your integrity that of our already weakened industry, it may be time to find another profession. In a previous article, I discussed the importance of setting clients up for “success in their home” by offering good financing. My motto for years has been: “Good People. Good Homes. Good Loans.” A good transaction starts with honest and ethical parties to the transaction, and what results is people buying good homes (after proper disclosure and having been properly inspected), and with good loans (with proper disclosure and education from the lender). Proper disclosure and accepting true documentation is the first step to preventing the FHA SWAT Team from taking you out! Since we’re talking about proper disclosure, I’d like to mention some amazing loan presentation tools for loan originations available online at www.MortgageCoach.com. These tools allow you to not only to accurately disclose the type of financing you’re offering your clients, but it does so in a very appealing way. It takes your service as a loan officer to a whole new level, which can only serve to build trust between you and your client, while at the same time, distinguishing you from the competition. Two of these “tools of separation” (TOS) are: The Total Cost Analysis (TCA) and the Rent vs. Own (RVO) analyzer. The TCA details the net cost
BY GIBRAN NICHOLAS
Hello … I’m calling about those 4.5 percent mortgage rates … “Hello, I’m calling about those 4.5 percent mortgage rates I keep hearing about. Wait a minute … are you serious? You want me to pay points?”
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Yep … you’ve probably heard that gasp on the other end of the phone at least one too many times! One of the biggest frustrations in today’s market is unrealistic borrower expectations when it comes to mortgage interest rates. After all, we’ve been living with loan level price adjustments and diminishing premium pricing for a while now. However, our borrowers still expect to get that ever-elusive 4.5 percent mortgage. They don’t realize that although those rates do exist, they need to pay points in order to get them—especially if their FICO score is below (gasp) 740! This begs the question, how does a mortgage professional handle unrealistic borrower expectations? Here’s an idea for you. Try to reframe the “points” discussion with unique market knowledge and insight. This example is taken from a conference call I recently conducted for CMPS (Certified Mortgage Planning Specialist)-certified mortgage professionals:
You: Mr. or Mrs. client, this is not a typical shopping for a mortgage experience. The industry has changed … it’s kind of like a giant hurricane swept over the housing, mortgage and financial markets. There’s all this carnage and damage lying all around. My role is to help you navigate this financial and housing crisis, explain the choices available to you and your family, and help you evaluate and manage the risks involved in this dangerous environment … kind of like your own personal risk manager. Client: No kidding, this market is … did you say dangerous? Tell me about it … I just lost half my retirement savings in this market and all I want to do right now is take advantage of the low mortgage rates I keep hearing about. What kinds of risks can there possibly exist with refinancing? I’m just trying to save some money here, not exactly rocket science … You: Well, take for instance this issue of points. Points are kind of like making an investment. In the past, the rate of return on this investment hasn’t really
been all that attractive. In fact, I’ve traditionally advised my clients not to pay points. However, with the way the market conditions are today, the rate of return on paying points has become much more attractive. Not only that, but the risks are slanted in such way that paying points could really make a lot of sense in your situation. Client: What exactly do you mean? You: Well, there are three questions I think you should consider as you evaluate whether or not to pay points: Question #1: What is the return on my investment? [This is where you illustrate cost versus savings using a spreadsheet program.]
are constantly bragging about the great success of their interventions! In fact, in nearly every speech made by Fed Chairman Ben Bernanke and the other Fed governors (as well other government officials), they claim that their interventions in the mortgage markets are successful due to mortgage rates being a full percentage point lower today than they were before the interventions. Why would they continue to throw money at a problem that doesn’t exist? In other words, government intervention in lowering conforming and Federal Housing Administration (FHA) mortgage rates have been successful enough; so now the government is refocusing their interventions on other areas of the economy that still need a lot of attention (such as commercial mortgages). With this in mind, mortgage rates on conforming and FHA loans are probably as low as they are going to get.
Question #2: What is the risk associated with this investment? Risk #1: Interest rates rise. If this happens, you win because you’ve locked in Risk #3: Interest rates the low interest rates at stay the same. In the near “One of the biggest what turned out to be the term, I think this is very frustrations in bottom of the market! likely to happen because today’s market is What is the likelihood of the Fed still has some this happening? Near unrealistic borrower ammunition left to buy term, rates are unlikely to expectations when it mortgage bonds and they comes to mortgage rise much from current are likely to continue interest rates.” levels due to the Fed’s doing so whenever rates continued intervention in start to rise again over the markets to keep rates low. However, the next few months. Therefore, rates it is probably very likely that rates will are likely to remain about where they rise in the long term due to potential are now (at least in the short term) inflation and the Fed’s reversing of their because the government is likely to decisions. In other words, the Fed will keep rates at this level until the market begin selling mortgage bonds instead of stabilizes. This means that the deals buying them, and they will increase available in six months are likely to be interest rates instead of lowering rates. the same exact deals available today. If This will drive up mortgage rates in the you could save money by refinancing future; probably 12 to 24 months from (and paying points), the longer you now, depending on what happens with wait, the more money you lose. You the economy. see, every month is a lost opportunity to save money. By doing nothing, you Risk #2: Interest rates go down. If this are actually losing money each month happens, you lose because you paid and paying not to refinance! points for an interest rate that would have been available to you anyhow with- Question #3: Which decision would I out paying those points. What is the like- regret the most? lihood of this happening? It is probably Financial decisions have long-term not too likely that rates will go down fur- implications. Your decisions today will ther because the Fed has already inter- not only impact your life now, but also vened in the mortgage markets and they your life in the future. Imagine looking
back at this decision in say five or seven years from now when higher rates and inflation will likely become reality. Do you think you’d look back at your decision today and regret that you paid points when rates were artificially low due to government interventions? Or, is it more likely that you’ll regret a decision not to pay points because you missed the chance to lock in the historically low interest rates at what turned out to be the “bottom of the market?” Client: Well, this certainly makes a lot of sense to me … I’m so glad you took the time to explain it all! How many points do you think I should pay and what else should I be aware of? You: Are now jumping with joy because you’ve successfully converted a misinformed rate shopper with unrealistic expectations into a client that values your insight and advice! Whoever said our job as mortgage professionals shouldn’t be a fun and rewarding experience? You can have the time of your life if you spice up your client discussions with unique knowledge and insights—especially in this age of loan level price adjustments, nonsensical rate sheets, Home Valuation Code of Conduct (HVCC) madness, and 4.5 percent mortgage rates (with points) … 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 firstname.lastname@example.org. 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.
Obama Administration announces new details on Making Home Affordable Program
continued from page 4
On Jan. 1, 2010, HUD will require that lenders and mortgage brokers provide consumers with a standard Good Faith Estimate (GFE) that clearly discloses key loan terms and closing costs. HUD estimates its new regulation will save consumers nearly $700 at the closing table. Closing agents will also be required to provide borrowers a new HUD-1 settlement statement that clearly compares consumers’ final and estimated costs. Donovan indicated after a thorough review of more than 1,200 public comments, HUD will propose a new “required use” definition to help consumers shop effectively and safely for homes and mortgages, free from the influence of discounts and incentives that steer consumers to the use of affiliated businesses. In the interim, HUD’s existing “required use” definition will remain in effect. For more information, visit www.hud.gov.
NAMB comments on House passage of HR 1728
The Obama Administration has announced details of new efforts to help bring relief to responsible homeowners under the Making Home Affordable Program, including an effort to achieve greater affordability for homeowners by lowering payments on their second mortgages, as well as a set of measures to help underwater borrowers stay in their homes. “With these latest program details, we’re offering even more opportunities for borrowers to make their homes more affordable under the Administration’s
continued on page 12
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. 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.
O JUNE 2009
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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The U.S. House of Representatives passed HR 1728, the “Mortgage Reform and Anti-Predatory Lending Bill of 2009,” by a vote of 300 to 114 on May 7. The National Association of Mortgage Brokers (NAMB) has commended the House and the House Financial Services Committee for its efforts to address predatory mortgage lending practices and is appreciative of the open and inclusive process in the development of the provisions of the bill; however, significant areas of concern still remain. NAMB President Marc Savitt, CRMS has issued the following statement on HR 1728: “NAMB is concerned that the bill’s provisions may have negative consequences on consumers and hard-working small business owners in the mortgage origination industry, including: The restriction on the ability of consumers to finance their mortgage loan in the manner of their choice, elimination of competition in the marketplace, a two percent cap on mortgage originator compensation, and the potential inability of small business owners involved in the mortgage origination industry to earn a living. “We are especially concerned that the bill, as amended, does not preserve a consumer’s financing options when working with a mortgage broker. NAMB looks forward to working with Congress to ensure that consumers still have this option. Consumer choice must be protected in order to maintain competition in the marketplace. When competition is eliminated, costs for consumers increase and small business suffers. “NAMB is supportive of the appraisal standards articulated in the bill, but has great concern with the Home Valuation Code of Conduct (HVCC), a truly anti-consumer effort promulgated by Fannie Mae and Freddie Mac (GSEs) and New York Attorney General Andrew Cuomo last December. NAMB is sup-
portive of the language in the bill which requires a study on the effects of the HVCC on consumers, small business and the appraisal process. “NAMB applauds the provision in the bill which requires the Housing and Urban Development (HUD) to halt its RESPA rule and requires the Federal Reserve and HUD to implement a joint rulemaking on mortgage disclosures. NAMB is supportive of a joint effort as we believe it will help to simplify the home buying process for consumers.” For more information, visit www.namb.org.
housing plan,” said Treasury Secretary Tim Geithner. “Ensuring that responsible homeowners can afford to stay in their homes is critical to stabilizing the housing market, which is, in turn, critical to stabilizing our financial system overall. Every step we take forward is done with that imperative in mind.” The Second Lien Program will work in tandem with first lien modifications offered under the Home Affordable Modification Program to deliver a comprehensive affordability solution for struggling borrowers. Under the Second Lien Program, when a Home Affordable Modification is initiated on a first lien, servicers participating in the Second Lien
continued from page 5
In closing, I’d like to list the five things the FHA urges you to review with respect to your company’s policies and procedures, to make sure you are prepared and prevent the SWAT Team from interrupting your business:
2. Be sure to monitor your loans and be sure to review loans that go into default. In a previous article, I elaborated about the “3Ds of Foreclosure: Denial, Disgust and Destruction.” If you monitor your clients’ loan payment history, you can be in a perfect position if, down the line, they run into trouble. For example, I once had a client go into default when she experienced an unexpected financial crisis. I tried contacting her, but she wouldn’t return my calls, so I went to the home to see if I could speak with her. She wasn’t home at the time, so I left her a note telling her that she should take action and not panic. I told her to contact an agent and get the house sold. Sometime later, she followed up with me to let me know that the house sold, thanking me. This prevented the need to make a claim to FHA for a foreclosure. 3. Develop company advertising policies to make sure you do not engage in false or misrepresentative advertising. Know the required elements of an advertisement and the trigger terms
4. This should be elementary, but you must be able to fully document the stability and amount of borrowers’ income. This is where lenders can take advantage of FHA and close loans that do not fully meet income guides. Historically, many lenders have gotten away with pushing loans through and as long as the payments are made, things were cool. FHA aspires to increase their Post Endorsement Technical Reviews (PETRs) to weed out the shady lenders. 5. Set up protocol to assure that you are not charging excessive and unallowable fees to borrowers. I am continually amazed at how many loan officers do not know the FHA allowable fees, and how to properly disclose these on a Good Faith Estimate (GFE) to produce an accurate Truth-inLending (TIL).
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By Philip Dushey With more than three million foreclosures anticipated this year, the federal government becoming more restrictive and the entire mortgage industry in turmoil, it is essential for mortgage brokers to “think outside of the box.” Some have discovered they can not only survive, but they can easily regain their high average annual incomes and the prestige of being in the finance industry.
Significant opportunities for commercial If you’re wondering about the PETRs, loans
I mentioned in item four above and would like to know what’s FHA looks for when they review a file, then Google (yes, I would call it a verb now!) “HUD Form 54118” to give you an idea of what the FHA looks for. This will help you improve the documentation of your files, and keep you out of the line of fire of the FHA SWAT Team. 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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1. Implement and maintain a comprehensive quality control plan. It is critical that you work with a CPA who understands FHA guidelines and policies to assure that you are properly protected. George Daugharty is a Virgina-based CPA who handles clients in the county’s southeast region, specializing in FHA audits and approvals for his clients. He spends too much of his time cleaning up messes that previous CPAs (CPAs who were not wellversed in FHA) made for his clients. Get an expert on your quality control team!
that cause you to require further disclosure.
O Business owners make up approximately 25 to 30 percent of a mortgage broker’s database, creating immediate access to a huge market. Many loan products (i.e., working capital, new equipment leasing or financing, new business acquisitions and debt restructuring) fall under the commercial loan umbrella. l. Equipment leasing This is by far the largest growing segment of financing in the country. This year, it is estimated that U.S. companies will finance more than $350 billion of equipment. Rather than drain cash reserves for new equipment, they can finance the equipment with no money down.
A huge, largely untapped opportunity exists for nonmortgage commercial business loans. One example is a Connecticut mortgage broker who felt the pressure of a 60-plus percent drop in mortgage “Expanding your loan applications and product line to O Typical commission: looked into becoming a include commercial Seven to 10 percent of commercial loan broker to loans places you in the amount financed. increase his product line. a premium position O Typical transaction size: He decided to specialize in to supplement your $10,000 to $500,000loan products for medical income or to replace plus. professionals: Signature lost income from loans, practice acquisition sharply declining II. Accounts receivable and debt restructuring. In mortgage financing his first six months, he applications.” When a company transearned $70,000 in comacts business, it sends an missions and has transactions in progress worth $100,000 in invoice. People usually take 60 to 90 days to pay, which creates a huge cash income. flow problem for the company sending the invoice because suppliers, payroll, Why non-mortgage comrent, etc., need to be paid each week. As mercial business loans? O Amounts funded for commercial a result, you provide them with a line of loans often are much higher than a credit so they can borrow money typical mortgage, giving brokers against outstanding receivables. greater income for the same amount of work. The potential of O Typical commission: Two percent of the initial line of credit and ongoing commissions of up to 12 percent on income each month for the life of very large transactions are possible. the loan. O Some loan products offer residual O Typical transaction size: $100,000 to income. $3 million. O It is a logical fit for brokers who are experienced in creating attractive III. Business acquisition financing loan packages. O Unlike the residential mortgage O Typical commission: Negotiable, usually three to five percent of the industry, commercial loans are not amount financed and a small regulated and require no license. amount of equity in the company. O The market is wide open. O Banks are tightening standards for O Typical transaction size: Usually $500,000-plus. loan approvals, turning away businesses and turning them toward continued on page 16 commercial loan brokers.
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Gregory Lutin, Executive Vice President and National Sales Manager of Flagstar Bank
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 e-mail at email@example.com for consideration in being featured in a future “Mortgage Professional of the Month” column. This month, we had the chance to chat with Gregory Lutin, executive vice president and national sales manager of Flagstar Bank, headquartered in Troy, Mich. A 1987 graduate of Skidmore College with a degree in business, Greg joined Flagstar in 1994 as an account executive, when the company was known as First Securities Bank. He was there for three years and left for a brief twoyear span (1997-1999) when he joined Equibanc, World Mortgage, only to return to Flagstar. He returned to Flagstar as Florida area sales manager in 1999, moved up to vice president/sunshine regional manager in 2003; first vice president/southeast regional sales manager in 2006; senior vice president/divisional sales manager in 2007; and in 2009, became Flagstar’s executive vice president/national sales manager. He resides in both Boca Raton, Fla. and Bloomfield Hills, Mich., and is married with three children, Danielle, Allie and Grayson.
How did you first get involved in the mortgage industry? I grew up in the northeast, having not worked in the mortgage business when I was up there. The economy was slow in 1992, and that same year, Hurricane Andrew hit south Florida. In rebuilding the area, there was plenty of work available, and I spent six to eight months as a catastrophe adjuster. I had a bit of a construction background, and was able to fit right in and hit the ground running. I enjoyed my time in Florida, and in order to remain there and enjoy that lifestyle, I needed a career. I answered an ad in the newspaper seeking a mortgage originator. Just prior to accepting the position, a friend of mine had a family-owned bank, Prime Bank, in Boynton Beach, Fla. and informed me they were opening a mortgage department. He asked me to come in and gave it a whirl, and I truly enjoyed it. I would see the rate sheets that would come across in the morning and it opened my eyes to the wholesale world. The fact that we were selling whole loans to investors was a foreign concept to me. It made me realize that there were investors, people underwriting these loans, and from there, I learned about different products and programs. I enjoyed interacting with the investors to whom we were selling these loans. One of my investor contacts gave me a call and asked if I was interested in coming to work for them. I went to work for Unitower Mortgage in 1993, a servicer that was acquired by a bank, and from that point, I must say, I was pretty successful. I lived in the area, but didn’t know any mortgage brokers. I got a list of active brokers from the Florida Association of Mortgage Brokers (FAMB), and just smiled, dialed, faxed and ran the phones. I was drawn into it. I liked the concept of providing value to mortgage brokers. At that point, it was 1994 and rates started to rise. I got a call from First
Security Savings Bank, now known as Flagstar Bank, who was looking for an account executive in southern Florida, and I joined the company in 1994. What keeps you in the mortgage business and drives you to remain in this industry? I have always seen opportunity. When I made the move over to Flagstar, it opened my eyes to a number of inefficiencies in this business. It was antiquated. The fact is you just need to apply basic business principles … we recognized the opportunity, and did things faster. We always had something interesting to sell. I think that’s what has kept me in this all these years, knowing that we have always been visionaries. People look at this place as “just a mortgage company,” but we were an evolving mortgage company. We weren’t the size of the bigger companies. We did things differently, and that was what intrigued me. If you think outside the box and take advantage of the flexibility of our systems, you will realize that this is truly your own business. This has afforded many of us a great opportunity for success. In January 1995, we rolled out automated underwriting, we were one of the first at the third-party originator (TPO) level to use Loan Prospector (LP). We did that in conjunction with using live video conferencing. We could sit down at the originator’s office, complete the application and have the underwriter on video conferencing from the desktop, run through LP and give the conditions on the spot. It was unheard of at the time. Do you think if the mortgage professional thinks outside the box, there will always be an opportunity for them, despite the state of the economy? Absolutely. Relationships will always be at the forefront and serve as a driving force. But it’s time we took a look— after this restructuring period—on the broker, banker and correspondent
sides. We need to set the appropriate standards for mortgage professionals. We need to implement standard quality control procedures, and improve the overall perception of the mortgage broker. Right now, the broker, in many cases, is looked down upon and is seen as one of the many causes of our current economic situation. We obviously believe there is a definite need for brokers. Some of these originators will make the transformation to the correspondent side, which many will need to consider, and depending upon what type of regulatory restrictions they face, may or may not be a reality for some. What is the difference between the companies that are failing and a company such as Flagstar that is still standing among this current crisis? You had traditional A-paper lenders that either set up sister companies or were cross-selling conforming and non-conforming products through their channels and a lion’s share got sucked into it. The margins were high, and those, like us, who chose not to loosen credit as much as the rest of the industry lost market share. Based on our view of risk, we did not believe the yields justified the risk during the years where a number of the riskier loan products were prevalent. The industry jumped in, and is now paying for it with severe losses. At Flagstar, we stayed true to our core business of agency products and did not get heavily involved in many of the riskier non-conforming products. When we look at those times, we see that Flagstar kept account executives who could have went elsewhere. Flagstar was able to maintain these employees and the fact is that AEs normally stay with their companies an average of three years. How has Flagstar been able to retain their employees in creating a corporate culture that fosters longevity? Many of us were here prior to going public in 1997. It was a family-driven
company and still is today. The Hammond family has done a phenomenal job … they’re personable and remain in touch with what’s going on in the street. They’ve always allowed their salespeople to have certain flexibilities and opportunities. Technology has been a driving force here. We’ve invested heavily in technology over the years in building a firstrate platform. People who come aboard and recognize how to truly take advantage of that and utilize it to its fullest extent, have been more successful than they would have been at any other company. We take pride in being able to sell something other than rate. Our team services the broker and correspondent channels, as well as warehouse lines of credit. We have a great emerging correspondent program that we’ve done a great job with over the years, and in a normal environment, having two-hour underwriting turnaround time doesn’t hurt either! If you figure out the way to be successful in this company, and many have, there is no reason to leave. The grass isn’t always greener, and believe me, I know! We’ve had a lot of people who have left and returned.
Do you feel that the mortgage industry will come out better as a result of what it has had to go through? Yes, I agree 100 percent. Those who survive are going to make it by changing old habits, moving forward with professionalism, and implementing certain initiatives throughout their organization. When you let things continue without change, it becomes tougher going in the other direction. I’ve been pleased to see our competitors finally saying, “You cannot have a 40 percent lock fallout rate with us … it costs us money and not a way we can do business.” Flagstar has always done that. I think that the broker community has to understand that there will be minimum standards of performance that they have to adhere to, and it’s vital for the long-term survival of the industry. Flagstar has played a major role in converting brokers to bankers and there is currently a major shortage of warehouse lines available. Is the broker-to-banker platform something that you’ll continue to support? Yes, we will absolutely continue to support it. Warehouse capacity is an issue, especially with several of the larger players exiting. We support our emerging correspondents, as we like to call them. In this environment, we need to be very selective in terms of the quality of whom we do business with and their overall financial condition What we’re trying to accomplish now is getting loans through our system in a much more rapid manner. Loans are already underwritten, closed and are sitting in our acquisitions department, but how do you get them through? We are encouraging those who do business with us to use the eClosing platform and it’ll
turn within two days, rather than normal turnaround times that fluctuate. Correspondents need be going in that direction. To me, it’s a no-brainer. Again, I’m not sure if it is a matter of lack of awareness, but what we’re trying to do is spread the message of paperless technologies and electronic closings. The industry should be paying attention and know how to operate efficiently. How will Flagstar continue to support the brokers and expand its wholesale operations? First of all, being a financial institution that has the ability to service its own originations has and will continue to give us the stability necessary to fund our production. That alone has helped us. Of course there are always regulatory pressures and capital requirements from regulators, but we’ve always had to deal with that and have been successful in raising capital, both privately and through the Troubled Asset Relief Program (TARP). When I started in 1994, we had one retail banking location in the lobby of our corporate headquarters and that was used to fuel our mortgage operations. We were never a bank that entered the mortgage business. We are a mortgage operation that expanded into the bank, and we currently have approximately 180 retail bank locations. Wholesale comprises approximately 90 percent of our business. We’ve grown our wholesale platform over the years to the point where there’s no stopping now. We are committed to it, we do a good job at it, but it’s not easy. If it were easier, there’d be a lot more competition right now. We know what we need to do to remain profitable. We aim to maintain minimum standards and demand that those standards be met by our employees and customers. If you don’t move forward and manage your business in today’s environment, you’ll never live to see tomorrow. We’ve always known that, so we are
always trying to look a little further down the road to see what lies ahead. Do you have any particular management style or business philosophy that you’ve exercised over the years? I want to surround myself with the best people. I’ve learned not to be a control freak, to relinquish control and delegate assignments. As long as I’m kept in the loop on everything going on, I try not to get knee-deep in it. I’m comfortable knowing that, with the right individuals executing and understanding a particular vision, we’ll get the job done. I’ve been successful hiring managers under me who understand my thought process, and challenge or question when something doesn’t seem right. I don’t micro-manage and don’t like to be micro-managed. If I need to be micro-managed, then I’m not the right guy for the position. Are there any books that have influenced your career? Good to Great: Why Some Companies Make the Leap … and Others Don’t by Jim Collins is one book I always enjoy referring back to. On a plane, I occasionally read different economics books and trade publications. I stay on top, as best as I can, of the latest regulatory changes by the agencies, which is a full-time job in and of itself. Any closing comments? I hope that we all come through this current situation a lot stronger and take along those survivors who won’t let history repeat itself. We shouldn’t look for shortcuts and should look to elevate the level of professionalism, and treat this as a true profession. People need to realize that there is a reason why we survived. We need to partner with someone strong and increase the level of efficiency in delivery and do things with quality in mind in order to ensure future success of the TPO channel.
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What is the next big thing mortgage professionals need to embrace? It shocks me that everyone hasn’t already, but we’ve been paperless for years. Back in 1999, we were doing a pilot program, which means we’ve been completely paperless for nearly a decade. The benefits we’ve gained from it have made us a very efficient operation. One of the things we’ve rolled out is DocVelocity. DocVelocity is a turn-key imaging platform we offer to all industry professionals. It’s not just exclusive to a Flagstar customer, as it can be used for any investor. People ask why would we do that, and the answer is that we know the importance of becoming paperless and the benefits it has provided, and as an industry leader, we need to be there and make things better for our customers. Brokers need to get on the bandwagon and need to invest in this technology for their companies. They need to be a professional operation, not just for doc retention, but for overall efficiency. We have a whole Doc Velocity team and that’s all they do, they educate, train and help customize workflows. Recently, we’ve been pretty heavy involved in our eClosing initiative, something that also needs to be embraced by the industry. It expedites the process, and it makes the most sense, especially if you are a correspondent using our warehouse line. Your loans are going to be purchased within 48 hours, regardless of the normal acquisition times. The paperless environment, the eClosing platform, its all there … people just need to come to terms with the fact that they need to embrace these concepts. It’s similar to automated underwriting. People refused to use it. We were using automated underwriting in
1995, and I don’t think it became mainstream until around 1998. Everybody needs to move forward and we provide these technological solutions.
By Charlie W. Elliott Jr., MAI, SRA
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Why appraisal management companies are important
Lately, appraisal management compa- think that all appraisers would appreciate nies (AMCs) have been in the news. In the reduced loan officer pressure offered fact, few people had heard of AMCs until by the AMCs. This is simply not always the recently. Perhaps that is because they case. Some appraisers find AMCs to be the are business-to-business entities, usually enemy. Appraisers and appraisal organizanot catering to the general public. tions are banning together to promote AMCs, by definition, are vendor man- anti-AMC legislation at the state level agement companies acting on behalf of requiring, among other things, that AMCs appraisal users. AMCs are becoming more register with state appraisal boards. popular among lenders, Among those other requireand not everyone is ments are large registration pleased. Why would anyfees and complex regulatory one care whether a bank demands. outsources its appraisals? Some say that requiring Furthermore, why would AMCs to register in 50 states a bank want to farm out and to comply with all reguits appraisals? lations will put them out of Lenders outsource business. This would appear these services for three to be the goal of those sponreasons. First, it helps soring the legislation. There reduce fraud between are two primary reasons for the lender’s salespeople this. First, many appraisers “There will be varyand the appraiser, thus do not like the scrutiny ing opinions on AMCs reducing losses, while offered by AMCs and prefer and their role in the pleasing the regulators. the more relaxed relationvendor management Fannie Mae and Freddie ship and oversight of the process. It is not sugMac recently implementlender. There is opposition to gested that every ed new rules regarding delivery schedule timetables lender should use an this which some say sometimes imposed by some AMC or that every favors outsourcing to AMCs as well. There is further appraiser should AMCs. Second, it saves the opposition to the AMC work for one. ” bank money. Banks have appraiser-fee controls, as we high overhead and canhave experienced by the not compete with the efficiencies of AMCs. medical profession with doctors. It should Finally, some banks are subscribing to be noted that not all AMCs operate the vendor management because of federal same, nor do they have the same policies. Real Estate Settlement Procedures Act Just as with banks and appraisers, not all (RESPA) laws. RESPA, in part, is designed to AMCs are perfect. Second, in spite of what protect consumers from fee gouging. many appraisers say about wanting indeBanks must account for closing cost fees pendence, some are willing to trade this charged to customers. It is hard for them for the cozy relationship they enjoy with to define and recoup all of these costs. lenders, who select them to do work. Collectively, these issues cause banks to Appraisers have the option of either outsource their appraisals. It is easy to doing AMC work or declining it. explain to regulators, it protects their bot- Appraisal management is part of our tom line and it frees bank managers to do free enterprise system. what they do best, make loans. There are misconceptions about fees Now, back to who would object to collected and paid by AMCs. I have heard banks outsourcing appraisals. Ironically, it appraisers say that AMCs collect full fees seems to be okay with everyone except continued on page 15 some in the appraisal profession. One may
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Program will automatically reduce payments on the associated second lien according to a pre-set protocol. Alternatively, servicers will have the option to extinguish the second lien in return for a lump sum payment under a pre-set formula determined by the Treasury, allowing servicers to target principal extinguishment to the borrowers where extinguishment is most appropriate. Separately, the Administration has also announced steps to incorporate the Federal Housing Administration’s (FHA) Hope for Homeowners into Making Home Affordable. Hope for Homeowners requires the holder of the mortgage to accept a payoff below the current market value of the home, allowing the borrower to refinance into a new FHA-guaranteed loan. When evaluating borrowers for a Home Affordable Modification, servicers will be required to determine eligibility for a Hope for Homeowners refinancing. Where Hope for Homeowners proves to be viable, the servicer must offer this option to the borrower. To ensure proper alignment of incentives, servicers and lenders will receive pay-for-success payments for Hope for Homeowners refinancings similar to those offered for Home Affordable Modifications. These additional supports are designed to work in tandem and take effect with the improved and expanded program under consideration by Congress. The Administration supports legislation to strengthen Hope for Homeowners so that it can function effectively as an integral part of the Making Home Affordable Program. For more information, visit www.ustreas.gov.
HUD allocates $1 billion in Recovery Act funding to support community development In an effort to stimulate community development and job growth, HUD Secretary Shaun Donovan has allocated $1 billion in funding to nearly 1,200 state and local governments through the American Recovery and Reinvestment Act of 2009 (Recovery Act). These grants will be provided through HUD’s Community Development Block Grant (CDBG) Program and will primarily benefit low- to moderate-income persons living in these communities. CDBG enables state and local governments to undertake a range of activities intended to create suitable living environments, provide affordable housing and create economic opportunities. Under the Recovery Act, recipients shall give priority to prudent projects that can award contracts based on bids within 120 days of the grant agreement. “Today, we make another investment in the economic recovery of our cities, counties and states,” said Donovan. “President Obama and I are anxious to put this money to work for long-term, sustainable community development. And
like this Administration, American taxpayers expect these funds to be spent prudently so they can quickly contribute to America’s economic revitalization and growth.” President Obama directed all Recovery Act funding to be spent responsibly and in a transparent manner in order to provide a necessary economic boost, create jobs and strengthen America’s middle class. HUD is reminding CDBG grantees that while the program has historically supported a variety of public improvements, the Recovery Act prohibits certain activities, including “any casino or other gambling establishment, aquarium, zoo, golf course or swimming pool.” In a letter to CDBG recipients of Recovery Act funds, Donovan wrote, “In accepting these funds, it is imperative that you be good stewards of these precious taxpayer dollars by focusing your efforts on the Recovery Act goals of investing in infrastructure that will create or sustain jobs in the near-term and generate maximum economic benefits in the long-term.” For more information, visit www.hud.gov.
Ginnie Mae MBS continue to surge The Government National Mortgage Association (Ginnie Mae) has announced that the corporation posted $34.5 billion in total mortgage-backed securities (MBS) issuance in April. For the first four months of calendar year 2009, Ginnie Mae provided $124.18 billion of liquidity to the secondary market, compared to $58 billion for the first four months of 2008. “We are stable, secure and steadily growing,” said Joseph Murin, Ginnie Mae president. “Our issuance growth represents the trust our issuers and investors continue to have in Ginnie Mae securities. Providing a secure secondary market outlet for governmentbacked loans is absolutely critical as the economy continues to stabilize.” Ginnie Mae I single-family pools led the way with more than $26 billion in MBS issuance, while Ginnie Mae II single-family pools totaled nearly $7 billion. Total single-family issuance for April soared past $33 billion. Ginnie Mae’s multifamily MBS issuance was more than $707 million. For more information, visit www.ginniemae.gov.
FDIC announces expansion of Ombudsman’s Office The Federal Deposit Insurance Corporation (FDIC) has announced the creation of a new unit within the Office of the Ombudsman designed to assist customers with loans at failed continued on page 15
Jack Kemp: A reverse remembrance
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O JUNE 2009
“… my hope is that this idea [reverse mortgage] will eventually become a pillar of security for older Americans and a foundation for greater dignity, hope and financial independence for their retirement years.”
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
that became operational in late April. The Olsomes’ mortgage payment is nearly $1,000 a month. It consumes almost 80 percent of her take-home pay. The home’s value is down and a refinance will cut their interest cost by 50 percent and save them almost $300 dollars a month. It will preserve their shelter from potential foreclosure and give them ReverseAbilitySM* when she turns 62 in about seven years. Peter will hit that mark in three. “It is the only asset we have left,” Cheryl said. As she spoke of the relief that will come to her and Peter when they close on their refinance under the Obama Plan, the raw human dimension of the President’s economic recovery strategies came into sharp focus for me. It reinforced the premise of Part One of my recent book, Think Reverse! In Think Reverse!, I proposed that, in an age of deep economic uncertainties about retirement, the home, the senior homeowner’s reverse-capacity has become the new pillar of retirement security. Her words also reminded me of Jack Kemp, who died in early May. Jack Kemp’s words inspired the theme of Part One of Think Reverse! Jack was a rev-angelist almost two decades before I coined that word in my book. He believed reverse mortgages can change seniors’ lives. In the last few years of his very useful life, that belief led him to become an investor in Generation Mortgage Company, a top-10 reverse mortgage lender in the nation. As Secretary of U.S. Department of Housing and Urban Development (HUD) in the Reagan Administration, Jack Kemp was present at the inception of the Home Equity Conversion Mortgage (HECM) and the modern reverse mortgage industry. The words which inspired Part One of my book came from his preface to the first HECM guide in 1989 …
Cheryl Olsome was a traffic-stopper in her prime. Even at 55, with four grown boys under her maternal belt, she retains her drop-dead Nordic beauty: Tall, blond and elegant. You cannot tell from her calm presence that she has any cares in the world. But appearance can fool us. Beneath the beauty, underneath the mild makeup, below her Nordic calm is an ocean of worry. She worries about her family’s financial survival. She agonizes about her husband’s acute joblessness. She frets about their retirement security for they have depleted their savings and the 401k account they had when her husband Peter had steady employment. For more than 30 years, Cheryl Olsome was a stay-at-home mother, and she successfully raised four sons. The last boy will leave home for college in September, and Peter and Cheryl Olsome’s nest in south Minneapolis will be empty. Far from celebrating her liberation from child-rearing, Cheryl is deeply concerned about their future. For most of the last 30 years, Peter, her husband of 33 years, was handsomely employed in the printing business. His single income was robust and secured enough to keep the Olsomes squarely in the middleclass lifestyle column: A nice, old, fourbedroom stucco home in south Minneapolis, two family cars, a cabin in northern Minnesota, a boat, vacations and other extras … life was good. The printing industry’s collision with digital technology came and life has never returned to normal for the Olsomes. In a three-year period, Peter was laid off four times, each time the new temporary job came with lower hourly pay and no benefits or health coverage. That was how the careful savings and the 401k from the formerly secured job disappeared. Today, they are barely getting by on the meager income from Cheryl’s substitute teaching position in one of the school districts in Metro Twin Cities. The job provides healthcare coverage because she is a “permanent” substitute. That is helping. The Olsomes’ story and those of millions of homeowners like them across the country illustrates the necessity and the rightness of the Obama Refinance Plan
JUNE 2009 O
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
BY DAVID LYKKEN
1728, the Mortgage Reform and Anti- imagined. (I’ve personally experiPredatory Lending Act that passed the enced success and failure and learned U.S. House of Representatives and now is more from failure than success.) Well, making its way to the U.S. Senate. This is I am happy to report that I have just one example of many pending initia- found the secret to this mystery. tives that could forever and dramatically Here’s the little known secret as to change our industry, not to mention the why some companies succeed while American dream of homeownership. A others failed … recent report stated that there are more than 2,500 (and growing) pieces of legis- “Successful companies have a track lation moving through various state leg- record of making the right decisions at islatures across the country, any number critical junctures/times in the industry, of which could be devastating to some, and conversely, the companies that fail, have done so because their yet a boon for others. No executives made the wonder we are experiencwrong decisions … and ing serious climate sometimes it only came changes obscuring the down to ONE decision.” vision of many C-level executives. For many CGranted, on the surlevel executives today, the face that may seem to be decisions they will be right down the lines of a making in the weeks and similar “secret” behind months ahead will make that as the famous stock the difference between trading “secret” that has success and failure down made so many successful the road. And as the old stock market traders … “For many C-level saying goes, “a failure to executives today, the “buy low and sell high!” plan is a plan to fail!” But Wait, before you dismiss decisions they will how can you plan if you this and start reading the be making in the are not seeing what is next article, consider this weeks and months coming at you? The …“What is the common ahead will make the answer is that you can! denominator between a difference between Have you ever wonsuccessful stock market success and failure dered why one company investor and a successful down the road.” succeeds and another C-level executive?” They fails? I sure have. As a 35got good advice and the ones who year industry veteran, and an ardent failed got bad advice … it’s as simple as observer and student of this industry, I have pondered this question for years. I that. This has the same simplistic prinam dumbfounded as to why some com- ciple as we read in “We’ve all been panies fail and equally, if not more, sur- given the same 24 hours in a day, so prised by those companies that I thought what are you doing to make the most didn’t-have-a-snowballs-chance-in-hell out of your 24 hours?” In moments when one is facing frusof surviving not only survive, but trating or even (business) life-threatenprosper beyond anything I could have ing circumstances, these types of oversimplistic and generic statements can be the hardest things to hear. They can be downright irritating … at least they are for me. But once we get into a more rational and contemplated frame of mind, these simple truths start resonating in our subconscious and we begin Full Service QC/QA Q Contract Underwriting to seek the right counsel so we as Clevel managers “see” more clearly what Q Loan Imaging Storage to do. Default Reviews One of my life’s goals is to help company executives make the right deciQ Software Lease/Purchase HVCC Reporting sions, thus avoiding some of the same mistakes I and others have made, and IRS & SSA Reports Q Modiﬁcation Reviews ultimately, to achieve success they otherwise may not have thought possible. www.qcmortgage.com One of my favorite sayings is that 800-939-5383 “Success is a journey, not a destination.” The goal of my firm and me, and inspi-
There’s nothing like a serene panoramic view from a high-rise building on a clear day. With just the right climate and atmospheric conditions, you can see clearly for miles across the landscape. This has been certainly the case for years, metaphorically speaking, for many C-level mortgage executives like a CEO or a CFO. They have been able to look out their windows from their posh high-rise “C” Suites, enjoying what looked like endless days of perfect climate conditions allowing them to see the industry landscape clearly for a good distance. But the views from the “C” Suites have been anything but serene these days. If anything, they have been more surreal than serene. Today, many C-level executives have witnessed unprecedented climate changes that have obscured or are obscuring their view of the industry landscape. Many seasoned veterans are struggling to see clearly how to lead their businesses. All they see from the “C” Suite today are violent storm clouds along with new fears bombarding their thoughts. They are awake at all hours, trying to figure out what to do or where to turn. We are getting an increasing number of distress calls from company C-level executives seeking direction. They say that they cannot see the ground anymore and don’t know which way to turn. These calls are not just coming from newer industry participants, but from many seasoned veterans with 30plus years of experience who have a long and successful track record running their business. They are confused by how all the rules seemed to have changed or are changing. To give testimony on how things could be changing from a regulatory standpoint, all you have to do is consider HR
ration for writing an article each month in this valuable publication, is to help those C-level executives not only achieve success, but become successful beyond anything they otherwise thought possible. One of the ways this will be accomplished will be by offering each month through National Mortgage Professional Magazine, a critical perspective to C-level executives to navigate these stormy and seemingly uncharted waters. Along the way, we hope to provide information and inspiration to those considering climbing the corporate ladder to the “C” Suite, or to those considering starting your own company thus creating their own “C” Suite. Each month in this column, you will be able to read about topics included the future of: O Independent mortgage brokers and mortgage bankers. O The entire wholesale lending business channel … will it survive? O Pending regulations like HR 1728 and corresponding strategies for success! O Net branching: What is right and is it right for you? O Warehouse lines of credit: Accessing funding capacity. O And much, much more! In the course of advising literally thousands of C-level executives responsible for the future of their own companies, we can share a unique perspective that you will read about each month. My view as a business advisor is the proverbial “crows nest” which allows me to give a heads-up on what is coming over the horizon and provide you with business strategies on how to survive and thrive. My goal in writing this monthly article is to help you succeeded beyond your wildest dreams. Another simplistic but profound saying is that the difference between one who is successful and one who isn’t is that the successful one is willing to do (or make the necessary adjustments) that the unsuccessful person is not. In this column, I will explain what that is. Again, for those asking the question, “What is the ‘C’ Suite” anyway? It’s where all the C-level senior executives work or go to master mind the direction of a company. It’s where all the “big” decisions are made by the executives running the company. To give you additional insights to what the “C” Suite is all about, maybe if I changed the continued on page 17
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and associations to share guidance with their members, provide low-risk entities an opportunity to use the template in developing their programs, and give Congress time to consider the issue further,” said FTC Chairman Jon Leibowitz. The Fair and Accurate Credit Transactions Act of 2003 (FACTA) directed financial regulatory agencies, including the FTC, to promulgate rules requiring creditors and financial institutions with covered accounts to implement programs to identify, detect, and respond to patterns, practices, or specific activities that could indicate identity theft. FACTA’s definition of “creditor” applies to 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. Some examples of creditors are finance companies; automobile dealers that provide or arrange financing; mortgage brokers; utility companies; telecommunications companies; non-profit and government entities that defer payment for goods or services; and businesses that provide services and bill later, including many lawyers, doctors, and other professionals. “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. During outreach efforts last year, the FTC staff learned that some industries and entities within the agency’s jurisdiction were uncertain about their coverage under the Red Flags Rule. During this time, the FTC’s staff developed and published materials to help explain what types of entities are covered, and how they might develop their identity theft prevention programs. For more information, visit www.ftc.gov.
The Federal Trade Commission (FTC) will delay enforcement of the new “Red Flags Rule” until Aug. 1, 2009 to give creditors and financial institutions more time to develop and implement written identity theft prevention programs. For entities that have a low risk of identity theft, such as businesses that know their customers personally, the Commission will soon release a template to help them comply with the law. The announcement does not affect other federal agencies’ enforcement of the original Nov. 1, 2008 compliance deadline for institutions subject to their oversight. “Given the ongoing debate about whether Congress wrote this provision too broadly, delaying enforcement of the Red Flags Rule will allow industries
When consumers evaluate banks, factors such as brand image and an institution’s reputation for providing good customer service strongly affect levels of consideration and selection, and ultimately a bank’s bottom line, according to the J.D. Power and Associates 2009 Banking Purchase Funnel Special Report. The report, based on initial findings from the J.D. Power and Associates 2009 Bank Shopping Study, identifies the decision-making process shoppers undergo when choosing banks. It is designed to assist executives in understanding their bank’s relative strengths and weaknesses during the key phases of the bank shopping process—awareness, consideration and selection—which are collectively described as the purchase funnel. A bank’s market
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and pay out only a portion of the fee to the appraiser. AMCs do operate on a gross margin of profit as any business, and no management company is going to be any more willing or able to perform services for free than appraisers would be. Fees vary, but let’s say that the average fee charged by an appraisal management company is $360 for a standard home appraisal. Gross margins before expenses, which AMCs typically earn, range between 30 and 40 percent of the fee charged, or let’s say approximately onethird of the fees charged. Therefore, the AMC will pay the appraiser, on average, about $240, leaving the AMC $120 to pay all of its expenses and cover any profit that it may make. For this fee, the AMC must accept the order, proof and edit it, select the best appraiser, negotiate a fee, place the order, monitor the progress, take product delivery, review the appraisal, supervise corrections, ship the appraisal, field any client questions, bill the client, pay the appraiser, collect client fees and securely store the product for five years. These functions of the process involve mostly labor. They do not reflect other overhead costs experienced by the AMC, such as rent, utilities, janitorial, liability insurance, equipment, supplies, advertising and technology. There will be varying opinions on AMCs and their role in the vendor management process. It is not suggested that every lender should use an AMC or that every
appraiser should work for one. Lenders and appraisers have the right to pursue any business relationships they choose. They should be allowed to exercise this right without disruption from those who do not have a dog in the fight. AMC registration in each state is simply a burdensome minefield and is perceived by some as a violation of free trade. Any AMC regulation should be at the federal level, only one fee should be charged and rules should be uniform across the country. Finally, it is, without question, that AMCs offer by far the best possible solution to deter mortgage fraud. The true separation of the lending and appraisal process can only be accomplished in this manner. The process removes most of the opportunity and temptation for participants to become involved in collusion, which is the root of most fraud cases. AMCs also represent our best option for holding down mortgage fee cost to consumers and encouraging competition among appraisers. In these trying economic times, given the mortgage crisis and the economic meltdown, AMCs represent a bright ray of positive direction for the mortgage industry. 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 email@example.com or visit his company’s Web site, www.appraisalsanywhere.com.
O JUNE 2009
J.D. Power study: Among bank shoppers, brand image and service drive higher close rates
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
FTC further delays enforcement of Red Flags Rule
bank. Now, convenience is more about availability at any time and any place.” The report finds that providing high levels of service to current customers drives higher levels of consideration and selection among these customers in the future. Among customers who have switched to a new bank, 27 percent attributed their decision to either having had a previous good service experience with the new bank or receiving a positive recommendation about the institution. In contrast, better interest rates, lower fees and perceptions of the bank’s involvement in the local community were notably less important selection drivers among customers who switched. For more information, visit www.jdpa.com.
banks. This new unit will complement the work that the FDIC conducts on behalf of the public in an effort to provide effective avenues to address the questions or concerns of borrowers of failed banks. The FDIC’s Division of Resolutions and Receiverships (DRR) will continue to have primary responsibility for working closely and proactively with customers of failed banks to address their concerns and transition them to new banking and lending relationships. This new unit will give borrowers an additional venue for having their concerns addressed by the FDIC. The FDIC has also produced a new “A Borrower’s Guide to an FDIC-Insured Bank Failure,” available online at www.fdic.gov/bank/individual/failed/ borrowers/index.html. This guide helps inform customers who had loans with failed institutions about what they can expect to occur in the receivership process, including the disposition of loans, workout steps taken on delinquent loans and an explanation of borrower rights. The FDIC is committed to make every effort to ensure that borrowers are aware of the FDIC’s resolution process and have information to minimize the impact of their institution closing. This guide will also provide borrowers with the resources to address issues with the FDIC, including contact information for the Ombudsman’s Office. “I’m pleased to announce these additional resources for borrowers of failed institutions,” said FDIC Chairman Sheila C. Bair. “As the pace of bank failures increases, the FDIC will be handling an increased volume of loans from failed institutions. Each of these loans represents a customer relationship. It is critical that these borrowers have the necessary information and avenues of communication available to them from the FDIC.” For more information, visit www.fdic.gov.
share is driven in large part by its success at each stage of the purchase funnel. The report finds that a bank’s brand image and reputation—particularly as influenced by events covered in the media—have a strong effect on consideration, and specifically, active avoidance. Among consumers shopping for a bank, 30 percent report deliberately excluding a bank from consideration due to perceived financial instability, the bank’s bad reputation or its questionable ethics. The report also finds that banks with particularly high consideration rates are perceived as having an innovative array of product offerings. In particular, shoppers are more likely to consider banks that offer a range of online functionality, mobile banking services, debit cards with reward programs and account alerts. “The importance of innovation is somewhat unexpected, considering that many consumers perceive banks to be largely conservative,” said Rockwell Clancy, executive director of financial services at J.D. Power and Associates. “This suggests that being on the leading edge with new products is an actionable way to differentiate an institution from the competition. What may be emerging here is a fundamental redefining of ‘convenience.’ In the past, this has meant having more branch locations—which has historically been a primary reason for consumers to choose a
forward on reverse
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Think of Cheryl and Peter Olsome and of millions like them across our land whose only asset is their home, their shelter, their homestead. The Obama Plan assures that Jack Kemp’s hopes for the Olsomes of America will endure. Jack Kemp was an American original. We will miss him. * ReverseAbilitySM is a trademark of AdvisorNet Mortgage LLC. The word was coined by AdvisorNet Mortgage President Vaughn C. Kavlie, CMPS. It means the ability to convert a senior’s home equity into reverse mortgage cash for living. It also has a wider life-planning meaning that is unique to AdvisorNet Mortgage’s way of doing business.
TEXAS MORTGAGE PROFESSIONAL MAGAZINE JUNE 2009 O
Fifth Third Mortgage implements Obama’s Making Home Affordable Visit author Atare E. Agbamu’s Program
blog at http://thinkreverse.com Eight weeks after for his thoughts and Fifth Third Mortgage insights on the reverse mortAuthor and columnist, Atare E. Agbamu, Company, a subCRMS is director of reverse mortgages at gage marketplace. sidiary of Fifth Third Bank, announced its intention to participate in the government’s Homeowner Affordability and Stability Program (HASP), customers have been refinancing at a record pace. Since the program began, the mortgage company has worked with more than continued from page 8 11,000 homeowners to refinance more than $1.95 billion in loans. “Fifth Third Mortgage remains comIV. Sale and lease-back programs mitted to helping our mortgage borequipment. Additionally, you will be Companies are always looking for addi- able to provide working capital … sig- rowers with refinance options,” said tional working capital. Many of them nature loans up to $250,000 that can Bob Lewis, president of Fifth Third have a lot of money sitting in their busi- be used to upgrade their facilities, Mortgage Company. “The program has ness that they do not even know exist- expand their practice, update equip- proved to be great in helping customers ed. You will be able to take the existing ment, pay taxes or for any other pur- rebuild consumer confidence.” equipment they own and finance it so pose they choose. These high-demand Fifth Third Mortgage Company has they have working capital. loans are approved within 24 hours, already refinanced more than $21 million close very quickly and will earn you Freddie Mac-owned or guaranteed mortO Typical commission: Three to five high commissions. gages through the Freddie Mac Relief percent of the loan amount. Refinance Mortgage, making it one of the O Typical transaction size: $100,000 to O Typical commission: Three to six nation’s most efficient Relief Refinance $1 million. operations in the country. Freddie Mac’s percent of the loan amount. O Typical transaction size: $100,000 to Relief Refinance Mortgage, which V. Debt restructuring launched April 1, is a component of the $1 million. Companies saddled with several loans Obama Administration’s Making Home and high monthly payments can refi- Sources for business Affordable plan to refinance or modify as nance them into one convenient loan and The types of businesses that need many as nine million mortgages. arrange one low monthly payment, usual- financing options like these are limit“We applaud Fifth Third for its early ly saving at least 30 percent each month. less: Construction companies, retail- success at using the national Making ers, software manufacturers, equip- Home Affordable plan to help homeO Typical commission: Two to six per- ment suppliers, churches, schools, owners and stabilize housing markets,” cent of the loan amount. government agencies, franchises and said Donald J. Bisenius, senior vice O Typical transaction size: Usually employment agencies, just to name a president of single family credit guar$100,000-plus. antee at Freddie Mac. “Their achievefew. The skills, practices and expertise ment underscores Fifth Third Bank’s VI. Commercial bridge loans of mortgage brokers easily transfer to and Freddie Mac’s mutual commitment Many times, after a company is the field of commercial loans. to help more families preserve the approved for a loan at its bank or finan- Expanding your product line to promise of homeownership in this cial institution, the loan will not close include commercial loans places you challenging market.” for four to six months. During that in a premium position to supplement For more information, visit www.53.com. time, short-term or bridge loans, paid your income or to replace lost income when the senior loan closes, satisfy from sharply declining mortgage Bank of America launches their immediate capital needs. applications. The time is now for Home Loans Brand and exploring commercial loans for your reinforces responsible O Typical commission: Three to five business! lending practices percent of the amount financed. Bank of America O Typical transaction size: $300,000 to Philip Dushey is president of Global Finance. has introduced $3 million. He can be reached by phone at (212) 480- its Bank of America Home Loans brand at locations nationwide and unveiled 4900 or e-mail firstname.lastname@example.org. VII. Medical practice acquisition financnew tools through which homebuyers ing and working capital loans Visit Philip Dushey’s Global and homeowners will find greater clarYou can generate loans for medical proFinance on the Web at ity in the home finance process. The fessionals to help finance their existing Clarity Commitment, a single, one-page www.globaleasing.com.
six figure incomes
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 email@example.com or firstname.lastname@example.org.
loan summary, presents borrowers their interest rate, terms and other details of the loan in plain language. The Bank of America Home Loan Guide is an interactive Web site that arms customers with the personalized information to prepare for homeownership and make informed home buying and refinance decisions. “We met with thousands of customers and created tools that reflect the transparency they want in the home buying process,” said Barbara Desoer, president of Bank of America Home Loans. “Doing the right thing for our customers is the foundation of our brand promise to always be a responsible lender and help create successful homeowners, and these tools exemplify that promise.” The Clarity Commitment is a onepage summary in straightforward language designed to make it easier for customers to understand the terms of their loan. The summary includes information regarding interest rate, monthly payment, payment terms, and an explanation of closing costs and other loan information. Provided both at application and at closing, the Clarity Commitment document is available on most new purchase and refinance transactions, including traditional and government-backed loans. In addition, the company introduced the Bank of America Home Loan Guide as part of the new Bank of America Home Loans Web site (www.bankofamerica.com/homeloans). The interactive guide was designed to provide prospective homebuyers and existing homeowners looking to refinance with a personalized simulation of the home loan process. It helps consumers understand the criteria that drive lenders’ decisions, steps they can take to be more successful in the search for the appropriate home loan, and how a home loan fits into their budget and total financial picture. By explaining key data inputs, highlighting “rules of thumb” and tips with each step, and providing context around the results, the easy-to-use guide gives consumers relevant, personalized information that helps them understand their options and make informed decisions. The Bank of America Home Loans brand represents the combined operations of Bank of America’s mortgage continued on page 21
You are doing the right thing and you did not know it By Tommy A. Duncan
A 2008 report from the Mortgage Asset Research Institute (MARI) stated that identity theft comprised less than one percent of the mortgage fraud schemes across the nation. The new Red Flag Rules has many mortgage operations stressed. What many do not realize is that many of the 26 Red Flag Rules items are being performed on each loan already. Now is the time to capture your procedures by writing them into Red Flag Rules Plan and Program. You can find a copy of the 26 Red Flag Rules by searching the Internet for “Illustrative Examples of Red Flag Supplement A to Appendix J.”
account privileges by a financial institution or creditor.
Suspicious documents Suspicious documents may be detected if the loan officer or processor is trained in what to look for when collecting identification document during loan origination or processing. The rule of thumb is to check and validate, regardless of the commissions and production demands. Some steps of the checking process may include:
O Documents provided for identification appear to have been altered or forged; O The photograph or physical description on the identification is not conThe Red Flag Rules fall into four catsistent with the appearance of the egories: applicant; O Other information on O Alerts, notifications the identification is or warnings from a not consistent with the consumer reporting information provided agency; by the person; O Suspicious documents; O Other information on O Suspicious personal the identification is not identification inforconsistent with readily mation; or accessible information O Unusual use of, or susthat is on file, such as picious activity relatnicknames, alias, mided to, the covered dle names used; account. and/or “With all the bad O Application appears to Alerts, notificapress mortgage be altered or electrontion or warnings professionals have ically recreated. from a consumer
This occurs when the credit report is pulled during pre-qualification or the credit report that is pulled during prefunding quality control (QC) check. The checklist that may be used for this category may include the following:
The use of a report from the Social Security Administration to verify Social Security Numbers (SSN) and Death Master supports this category. Some examples include:
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In larger corporations, you may see a long list of C-level corporate officers with titles such as chief sales officer (CSO), chief lending officer (CLO), chief
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 email@example.com.
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O The SSN has not been issued, or is listed on the Social Security Administration’s Death Master File; O There is a lack of correlation between the SSN range and date of birth; O Different addresses were provided on the documentation and identification; O A bogus address can be checked by ordering tax transcripts with a 4506T from the IRS; O Phone number discrepancies or pager and answering services will come from a manual verification with cross checks from the internet and calling the numbers; O Phone number similar to credit
O Chief executive officer (CEO); O Chief financial officer (CFO); and O Other senior “chief” officers.
credit officer (CCO) and/or chief compliance officer (CCO), chief technology officer (CTO) or chief information officer (CIO), chief legal officer (CLO) and as one self appointed manager called himself, the “chief what-ever-else officer (CWO).” I’m sure you could improvise on a few other choice C-level manager titles based upon your own work experiences. It may be cathartic for you to e-mail me some C-level titles. I’m sure I would enjoy reading them. What ever your experience has been with senior executive managers, a well-run company more times than not has a talented Clevel management team. It is the “view” of what is going on in the industry that will make the difference between success and failure for your company.
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
O A fraud or active duty alert is included with a credit report; O A credit report providing notice of credit freeze in response to a request for a credit report; O A credit report providing notice of address discrepancy; O A credit report providing a pattern of activity that is inconsistent with the history and usual pattern of activity; O A recent and significant increase in volume of inquiries; O An unusual number of recently established credit relationships; O A material change in the use of credit, especially with respect to recently established credit relationships; or O An account that was closed for cause or identified for abuse of
Suspicious personal identifying information
spelling to “the ‘See’ Suite,” it would come into better focus for you. Success is more determined by what you “see” coming at you (before it gets to you) than anything else. To be successful, you need the ability to anticipate what is coming in advance of it happening. In other words, being able to “see” circumstances and situations coming at your business beforehand will allow you to plan and be proactive rather than reactive. The most expensive approach is being reactive and can have a “ready, shoot, aim” affect on your business. The most cost effective way is to be thoughtfully and intentionally proactive. This is not only possible, but necessary and critical to your success … especially in these stormy days. For smaller companies, the C-level management team can be comprised of just one individual, commonly referred to as the “Chief Cook and Bottle Washer.” More commonly, C-level executives include the:
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received in the media, I am excited to see that identity theft ranked the lowest of all fraud classifications ...”
a view from the “c” suite
TEXAS MORTGAGE PROFESSIONAL MAGAZINE JUNE 2009 O
Legitimate compensation or an illegal referral fee (kickback) … really two existentially different and diametrically opposed concepts! Each claims reference to the yield spread premium (YSP). An entire class of financial institutions serving the consumer is being held up to public opprobrium over the legal practice of receiving YSPs from a lender for assisting in the negotiation and origination of residential mortgage loans. The class of financial entities we refer to, of course, is mortgage brokers. A political storm is raining down on YSPs and mortgage brokers, as typified by the rhetoric of Barney Frank (DMA), Chairman of the House Financial Services Committee, whose HR 1728,1 passed by a vote of 300 to 114 on May 7, bans “yield spread premiums and other abusive compensation structures that create conflicts of interest or reward originators that “steer” borrowers.”2 Titled the “Mortgage Reform and Anti-Predatory Lending Act,” HR 1728 now moves to the Senate, where there is no equivalent legislation. If it passes on to the White House and President Obama signs it, this legislation will become the law of the land. There are several features to HR1728 that offer significant protection to the public. However, the provision to remove YSPs as “abusive compensation” is pivotal. Rep. Frank has taken to demonizing non-bank financial institutions, not just mortgage brokers. He has opined that “if, in fact, mortgage loans, residential mortgage loans, were made only by banks or thrifts or credit unions, then we would not have a sub-
prime crisis and I think we wouldn’t have the economic problem we now have.”3 With this scenario declaimed by this leading politician, one can only marvel at such successful bank lobbying efforts! The level of scorn and malign commentary has gradually reached a fevered pitch, where certain consumer advocacy groups, politicians, heralded economics professors and some professor-politicians alike now willfully call the YSP a kickback. For a very long time, however, they viewed the YSP as a vital, functional component within the broader context of mortgage loan originations. These aforesaid protagonists, however, have now become muted observers or antagonists, such as the professor-politician Austan Goolsbee, a member of the President’s Council of Economic Advisers, who stated in March 2007 (prior to joining the Obama Administration) that “the mortgage market has become more perfect, not more irresponsible,” 4 because of innovation, responsiveness to market forces and borrowers’ needs. These days, Mr. Goolsbee seems to be more circumspect when it comes to such observations.
“More perfect” then, but not now? It is indisputable that borrowers’ financing needs caused lenders to originate new loan products and, mutatis mutandis, permitted mortgage brokers to offer them. And it is also indisputable that the legitimately applied YSP was a feature to the growth of this innovation.
Linking the nomenclature of “yield spread premiums” with “kickbacks” is an attempt by various parties, including the mainstream media, to sway public sentiment toward viewing YSPs as inherently, adversely affecting the borrower, and by extension, implying that the mortgage broker’s receipt of a YSP from a lender is somehow a kind of sneaky, underhanded act. A New York Times editorial recently inveighed that the “first step must be to outlaw the kickbacks” and “the most clearly unethical form of payment is the so-called yield spread premium.”5 These assertions amount to inferring that the YSP is a prime causative agent of the mortgage meltdown crisis, and specifically, the sub-prime defaults, because brokers had allegedly “steered” borrowers to inappropriate loans that paid higher YSPs. This allegation is really part of the ongoing “blame game”6 that has saturated the economic environment for the last two years. In this circular firing squad, the last one standing (rightly or wrongly) takes all.
HUD and YSPs Nevertheless, in October 2001 the U.S. Department of Housing and Urban Development (HUD) issued a Policy Statement that was introduced by a press release from HUD’s Secretary, Mel Martinez, stating, in part, that “yield spread premiums are legal if the broker actually performs services for the homebuyer, and if the total compensation the broker receives is reasonably related to the total value of the services the broker performs.”7
HUD’s view, enunciated by Mr. Martinez in the aforementioned announcement, is that “it has always been HUD’s position that yield spread premiums serve an important purpose in the housing market,” and that “YSPs are a legitimate tool to help families become homeowners;”8 but, they can certainly be abused. For example, when “a broker may persuade the homebuyer to accept a higher interest rate without enjoying lower upfront costs” and consequently the lender or broker “pockets the yield spread premium, and the homebuyer is worse off.” There is a considerable difference between a fee that “serves an important purpose,” but may be abused, and a fee that should be entirely “outlawed” because it is “clearly unethical!” We will not debate here the fundamental merits of the YSP, its role in residential mortgage loan originations, or even how to keep it as a viable, “legitimate tool” which will not adversely affect the consumer. Those endeavors should be high priorities for public debate. Our interest here is in providing clarity to the more narrow issue of whether a YSP should even be considered under current law to be an illegal referral fee or characterized as a kickback.
Terminology matters! Let us turn to the very definition of an illegal referral fee, a “kickback,” given in Regulation X, the implementing regulation of the Real Estate Settlement Procedures Act (RESPA).9 RESPA devotes an actual section to
kickbacks and unearned fees, centered on the concept of a “thing of value”10 being exchanged between two or more entities that provide settlement services, known as “settlement service providers.” A “thing of value” is a broad term and does not mean just a transfer of money; that is, it includes any payment, advance, funds, loan, service or other consideration. Let’s see how the term “thing of value” is used by a relevant statute and how a settlement service provider is legally compensated for an actual service rendered. First, there is the prohibition against kickbacks:11 No person shall give and no person shall accept any fee, kickback or other thing of value pursuant to any agreement or understanding, oral or otherwise, that business incident to or part of a settlement service involving a federally related mortgage loan shall be referred to any person. Any referral of a settlement service is not a compensable service, except as set forth in Sec. 3500.14(g)(1). A business entity (whether or not in an affiliate relationship) may not pay any other business entity or the employees of any other business entity for the referral of settlement service business.
No split of charges except for actual services performed. No person shall Mortgage give and no person shall accept any portion, split, or percentage of any charge made or received for the rendering of a settlement service in connection with a transaction involving a federally related mortgage loan other than for services actually performed. A charge by a person for which no or nominal services are “The YSP certainly can be abused. But does performed or for which that mean it should be duplicative fees are eliminated, thereby charged is an unearned fee and violates this sec- economically diminishing an entire class of tion. The source of the financial institutions— payment does not determortgage brokers—the mine whether or not a same institutions that service is compensable. have been at the foreNor may the prohibitions of this part be front of originating residential mortgage avoided by creating an loans for millions of arrangement wherein people across the ecothe purchaser of services nomic spectrum?” splits the fee. A concise reading of these sections of Regulation X reveals that no kickback occurs when: 1. A lender (a settlement service provider) pays a mortgage broker (that is, another settlement service provider) for rendering “compensable services,” pursuant to §3500.14(g)(1), such payments being reasonably related to the value of the services that are actually rendered, and 2. No fees may be charged by, or split between, settlement service providers, for services not rendered, or considered to be nominal or duplicative.
Compensable services list brokers provide various services in processing mortgage loans, such as filling out the application, ordering required reports and documents, counseling the borrower, and participating in the loan closing. They may also offer goods and facilities, such as reports, equipment and office space to carry out their functions.
Clearly, there has been a recognition—by the way, dating all the way back to 1992 when HUD first defined the term “mortgage broker”—that certain, actual services rendered by a mortgage broker constitute a legitimate business practice and are compensable. Whether compensation consists of direct (i.e., broker fee paid by borrower), indirect (i.e., YSP paid by lender), or some combination thereof, the consumer is paying the mortgage broker’s compensation.
HUD’s Two-Part Test In the same Statement of Policy, HUD offered a Two-Part Test to determine the legality of payments made by a lender to a mortgage broker (or other settlement service provider): Two-Part Test: (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.
Examples of compensable services
But what are compensable services?
Using HUD’s own 1995 letter to the
a. Taking information from the borrower and filling out the application; b. Analyzing the prospective borrower’s income and debt and pre-qualifying the prospective borrower to determine the maximum mortgage that the prospective borrower can afford; c. Educating the prospective borrower in the home-buying and financing process, advising the borrower about the different types of loan products available, and demonstrating how closing costs and monthly payments could vary under each product; d. Collecting financial information (tax returns, bank statements) and other related documents that are part of the application process; e. Initiating/ordering VOEs (verifications of employment) and VODs (verifications of deposit); f. Initiating/ordering requests for mortgage and other loan verifications; g. Initiating/ordering appraisals; h. Initiating/ordering inspections or engineering reports; i. Providing disclosures (Truth-inLending, Good Faith Estimate, others) to the borrower; j. Assisting the borrower in understanding and clearing credit problems; k. Maintaining regular contact with the borrower, realtors, lender, between application and closing to appraise them of the status of the application and gather any additional information as needed; l. Ordering legal documents; m. Determining whether the property was located in a flood zone or ordering such service; and n. Participating in the loan closing. Although the list is not, and was not meant to be, exhaustive, it is clear that numerous services are rendered by mortgage brokers in return for direct and/or indirect compensation from the borrower. All the goods, services and facilities, when actually continued on page 20
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If these criteria are met, the fees received are considered legitimate compensation.
Independent Bankers Association of America as a basis for describing a generic, though not necessarily complete, set of compensable services for which a broker may charge a fee to the consumer, providing that such services were actually rendered, HUD’s 1999-1 Statement of Policy indicated numerous types of services for which the mortgage broker may be compensated, either directly or indirectly, and therefore “compensable services.”
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(i) A payment to an attorney at law for services actually rendered; (ii) A payment by a title company to its duly appointed agent for services actually performed in the issuance of a policy of title insurance; (iii) A payment by a lender to its duly appointed agent or contractor for services actually performed in the origination, processing, or funding of a loan; (iv) A payment to any person of a bona fide salary or compensation or other payment for goods or facilities actually furnished or for services actually performed; (v) A payment pursuant to cooperative brokerage and referral arrangements or agreements between real estate agents and real estate brokers. (vi) Normal promotional and educational activities that are not conditioned on the referral of business and that do not involve the defraying of expenses that otherwise would be incurred by persons in a position to refer settlement services or business incident thereto; and (vii) An employer’s payment to its own employees for any referral activities.
Fortunately, HUD has opined regarding the fundamental requirements for a compensable service. Back in 1999, when mortgage brokers originated an estimated half of all residential mortgage loans in the United States, (and the number of loans so originated grew significantly since then), HUD issued a Policy Statement15 which recognized that mortgage brokers were providing many services in their intermediary capacity between applicant and lender. HUD’s Statement of Policy (1999-1) crisply stated:
Clearly, a “compensable service” is not a kickback if it complies with Section 3500.14(g)(1), et sequi. That section outlines compensable services12 as:
HUD has noted the legislative history demonstrates that “[t]o the extent the payment is in excess of the reasonable value of the goods provided or services performed, the excess may be considered a kickback or referral fee proscribed by Section .” 13 So, the payment must be reasonably related to the value of the services actually furnished and performed. Additionally, there is the following prohibition against splitting fees:14
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furnished and performed, are entirely legal, and receiving compensation for providing such goods, services and facilities, directly and/or indirectly, is not a violation of RESPA’s prohibition against kickbacks. HUD’s position has consistently been that YSPs are not per se legal or illegal: The legality of YSPs is based on the application of HUD’s test, as stated in its 1999-1 Statement of Policy (and described, in part, above).
Removing ambiguity HUD elaborated further its position with respect to YSPs. Indeed, as stated in HUD’s subsequent 2001-1 Statement of Policy:16
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The Conference Report on the Department’s 1999 Appropriations Act directed HUD to address the issue of lender payments to mortgage brokers under RESPA. The Conference Report stated that “Congress never intended payments by lenders to mortgage brokers for goods or facilities actually furnished or for services actually performed to be violations of [Sections 8](a) or (b) (12 U.S.C. Sec. 2607) in its enactment of RESPA.” H. Rep. 105-769, at 260.17
The 2001-1 Statement of Policy further supports the legality of YSPs when services are actually rendered for compensation reasonably related to the value of the services. The 20011 Statement of Policy was issued, in part, to clarify HUD’s position on YSPs, due to a decision of the Court of Appeals for the Eleventh Circuit, in Culpepper v. Irwin Mortgage Corp.,18 which upheld certification of a class in a case alleging that YSPs violated Section 8 of RESPA. In Culpepper, the Court found that the defendant lender, pursuant to a prior understanding with mortgage brokers, had paid YSPs to the brokers based solely on the brokers’ delivery of above par interest rate loans. Thus, the Court asserted that YSPs are kickbacks where the lender’s payments were based exclusively on interest rate differentials reflected on rate sheets, and the lender had no knowledge of what services, if any, the broker performed. Furthermore, the court described HUD’s 1999-1 Statement of Policy as “ambiguous.”19 Other courts were rendering conflicting decisions. Consequently, to remove any “ambiguity” regarding Section 8 of RESPA, HUD issued its 2001-1 Statement of Policy, as a means to clarify its interpretation for lenders, brokers, and consumers. This issuance is a very detailed
and somewhat complex document, addressing several areas of importance, such as the splitting of fees. However, it also seeks to make clear the operational effectiveness and purpose of YSPs in increasing homeownership, as well as those areas where the YSP may be abused. In addition to reiterating HUD’s Two-Part Test to determine the legality of the YSP (supra), the 2001-1 Statement of Policy emphasizes the importance of full disclosure of any broker fees, including the YSP, as early in the loan application process as possible. Meaningful disclosure of all charges and fees is essential under RESPA, HUD maintains, and “such disclosures help protect consumers from paying unearned or duplicate fees.”
HUD’s view HUD devotes an entire section in the 2001-1 Statement of Policy to the prohibition against unearned fees, colloquially, kickbacks. According to HUD, YSPs are not per se unearned fees or illegal. They can serve a “useful means” and, if such means is appropriately provided and not abused, the YSP is not a kickback. As HUD describes that “useful means”: A yield spread premium is calculated based upon the difference between the interest rate at which the broker originates the loan and the par, or market, rate offered by a lender. The Department believes, and industry and consumers agree, that a yield spread premium can be a useful means to pay some or all of a borrower’s settlement costs. In these cases, lender payments reduce the up front cash requirements to borrowers. In some cases, borrowers are able to obtain loans without paying any upfront cash for the services required in connection with the origination of the loan. Instead, the fees for these services are financed through a higher interest rate on the loan. The yield spread premium thus can be a legitimate tool to assist the borrower. The availability of this option fosters homeownership. [HUD 2001-1 Statement of Policy, Part A.] Indeed, HUD further seeks to demonstrate the importance of YSPs to the loan origination process and the means by which borrowers may benefit from it: 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. [HUD 2001-1 Statement of Policy, Part A.]
Compensation? It would seem, then, that because the YSP can be abused, it does not infer that it serves no useful means or is inherently a kickback. Of course, some mortgage brokers have used YSPs as a way to enhance the profitability of mortgage transactions without offering the borrower lower upfront fees. YSPs can be used to increase the borrower’s interest rate and the broker’s overall compensation, without lowering upfront cash requirements for the borrower. That would mean a total compensation in excess of what is reasonably related to the total value of the origination services provided by the broker, and it would fail to comply with the second part of HUD’s Two-Part Test. This use of the YSP is not a bona fide source of financing. Obviously, using the YSP in this way is clearly abusive, leads to price discrimination, inter alia, and violates Section 8 of RESPA. The YSP certainly can be abused. But does that mean it should be eliminated, thereby economically diminishing an entire class of financial institutions—mortgage brokers—the same institutions that have been at the forefront of originating residential mortgage loans for millions of people across the economic spectrum? And does its removal disadvantage prospective homeownership and refinance, given HUD’s view of the role played by the YSP in the loan origination process?
Kickback? The scope of this article focused on whether the YSP is a kickback, not an evaluation of its merits, lack thereof, or effectiveness in increasing homeownership and the ability to refinance. Certain factors may be dispositive in deciding if the YSP has an inherently adverse impact on borrowers, such as determining whether its legitimate use causes price discrimination, costs the borrower more, provides a dollar for dollar financing offset, or covers the cost of goods and services. These areas of review must be carefully elucidated, if we are to determine whether the YSP should be banned or better regulated.
However, so long as the mortgage broker fully discloses, meets HUD’s Two-Part Test, and there is no illegitimate fee splitting in the loan transaction, the YSP is not a kickback. 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. For more information on author Jonathan Foxx, visit Lenders Compliance Group on the Web at www.lenderscompliancegroup.com.
Footnotes 1- HR 1728, the “Mortgage Reform and Anti-Predatory Lending Act.” 2- Press Release, the House Committee on Financial Services, April 29, 2009. 3- Rep. Barney Frank, guest speaker, address to business leaders at the Boston Harbor Hotel, NECN broadcast, “Barney Frank Defends His Foreclosure Plan,” May 16, 2008. 4- Goolsbee, Austan. “Irresponsible Mortgages Have Opened the Doors to Many of the Excluded,” The New York Times, New York Edition, page C3, March 29, 2007. 5- Editorial Opinion, The New York Times, New York Edition, page A22, April 10, 2009. 6- Christie, Les. “Sub-Prime Blame Game,” CNN.com, July 4, 2007. 7- Press Release, U.S. Department of Housing and Urban Development, Oct. 15, 2001. 8- Idem. 9- 24 CFR 3500 Real Estate Settlement Procedures Act (RESPA). 10- 24 CFR 3500.14(d); codified to 12 USC 2602. 11- 24 CFR 3500.14; 12 USC 2607. 12- 24 CFR 3500.14(g)(1)(i-vii). 13- 24 CFR 3500 Real Estate Settlement Procedures Act (RESPA) Statement of Policy 1999-1 §D U.S. Department of Housing & Urban Development, Feb. 22, 2009. 14- 24 CFR 3500.14(c). 15- Op. Cit. 16- 24 CFR 3500.14 Real Estate Settlement Procedures Act (RESPA) Statement of Policy 2001-1 Section I-A. 17- Section 8 is the provision of RESPA that addresses kickbacks, fee-splitting and unearned fees.
heard on the street
continued from page 16
and home equity business and Countrywide Home Loans, which Bank of America acquired on July 1, 2008. The Countrywide brand has been retired. For more information, visit www.bankofamerica.com.
Retreat Capital Management collaborates with Ellie Mae to provide modification services
Lenders One Mortgage Cooperative, a national alliance of mortgage bankers, has announced the extension of its contract with Fannie Mae as a preferred investor. Extending this relationship ensures that cooperative members who sell to the government-sponsored enterprise (GSE) will gain access to more competitive pricing and technology, as compared to working with Fannie Mae independently. â€œWe cultivate our preferred investor relationships so that everyone benefits,â€? said Scott Stern, Lenders One CEO. â€œBased on our recent contract renewal, our members will enjoy superior secondary market execution, while Fannie Mae can buy high quality loans from high quality lenders from across the country. As our delivery to Fannie Mae is currently at an all-time high, this contract extension comes at a fortuitous time for both parties.â€? This relationship provides several key advantages to Lenders One members, such as quick funding. Fannie Mae also benefits from the alliance with Lenders One, specifically in being able to expand its market share with the cooperativeâ€™s members and minimize the costs associated with originating that production. Leveraging the combined strength of its members, Lenders One is able to form these strategic alliances and negotiate preferred pricing, priority service and additional program benefits from mortgage investor partners. Fannie Mae has been working with Lenders One for seven years and is the only GSE in its network of preferred investors. â€œAligning with Fannie Mae provides revenue-enhancing, cost-saving and market share-expanding opportunities and that translate into true growth strategies for our members,â€? Stern added. For more information, visit www.lendersone.com or www.fanniemae.com.
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O JUNE 2009
StreetLinks National Appraisal Services has announced a full systems integration with Ellie Mae Inc., makers of Encompass loan origination software. This integration allows Encompass users to order appraisals and receive completed reports within their loan origination system, thus eliminating the use of separate systems and entry of duplicate information. â€œThrough this integration, lenders
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The banks have stopped lending, but you can have the ability to make the loans that businesses so desperately need.
Retreat Capital Management Inc., a third-party arbitration services company that specializes in bringing loans back to performing status in order to keep borrowers in their homes, has announced a collaboration with Ellie Mae, a software and services provider for the mortgage industry. As part of this collaboration, Ellie Mae will make Retreat Capital Managementâ€™s mortgage loan modification services available to its customer base of more than 120,000 mortgage professionals using its Encompass Mortgage Management Solution. Retreat Capital Management handles the entire mortgage modification process for its client lenders, from initial analysis to closing and MIS reporting, giving lenders the ability to have a full-fledged loss mitigation division without the costs and ramp-up times involved in hiring a permanent staff. â€œIn this market, lenders are in dire need of loss mitigation and foreclosure prevention services, but unfortunately, thereâ€™s such an influx of activity that they donâ€™t always have the time to develop a workable solution on their own,â€? says Arvin Wijay, CEO of Retreat Capital Management. â€œBy collaborating with Ellie Mae, Retreat Capital is enabling a great number of financial services institutions to access loss mitigation solutions quickly, easily and economically.â€? In order for Ellie Mae users to access Retreat Capital Managementâ€™s loss mitigation solutions, they may either directly upload borrower information through their Encompass systems, or fax the information to Retreat Capital Management. Retreat Capital uses an advanced rules-based loss mitigation technology platform that interfaces with the lenderâ€™s servicing system. Once a mortgage is submitted, the technology matches that loan against all available loss mitigation options to determine the most suitable solution. At that point, one of Retreat Capitalâ€™s negotiation specialists contacts the borrower to present the available options. Once a resolution is reached, Retreat Capital handles all of the required paperwork and closing activities. For more information, visit www.retreatcapital.com or www.elliemae.com.
Lenders One announces contract renewal with Fannie Mae
For more information on the National Association of Mortgage Brokers, visit www.namb.org.
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A message from NAMB President Marc Savitt, CRMS
The Home Valuation Code of Conduct (HVCC) went into effect on May 1, 2009. Unfortunately, the entire system is broke. Some lenders, as late as May 1, did not have any way for the appraisal to be ordered. Other lenders were only using the companies that they had chosen. If we want to transfer an appraisal, our biggest question will be whether the new lender will accept it or order another “review” appraisal. The costs to the consumer are going to be staggering. Not to mention the added time and poor quality of work. Who is protecting the consumer? Certainly not the appraisal management companies (AMCs). Their fee schedules have increased appraisals by 20 to 35 percent. Is that fair to the consumer? I don’t think so. Let’s take a look at the big picture. We will use an example of a loan in the amount of $224,778. The time-frame to close this loan will be more, so add a minimal 0.25 percent to extended the lock, equaling $561.95. Then, let’s add an additional $150 (at the minimum) for the added expense of the AMC. This adds up to $711.95 per loan! Outrageous! On average, there were, let’s just say, brokers and small banks originate 3,932,860 loans this year … the added costs will be approximately $2.8 to $3 billion. Now who is predatory? What were they thinking when they set this up? It does not make sense and the government is encouraging overcharging and fee splitting. This could be stopped, but it seems Congress thinks it is okay for a department of a state to dictate policy on a federal level. Brokers have taken the brunt of the regulations and legislation, we have even helped pass some of it, but this is ridiculous to single us out, when all the time, the problem cited in the settlement was with Washington Mutual on the retail side and their appraisal subsidiary. How did the banks get carved out? This process needs to be changed. The costs are astronomical and senseless. The settlement has created an unregulated cottage industry. We have seen legislation and regulations that have been good, okay and bad, but this is the worst. Marc Savitt, CRMS is president of the National Association of Mortgage Brokers and president of The Mortgage Center in Martinsburg, W. Va. He may be reached at firstname.lastname@example.org.
NAMB Broker of the Year finalists Congratulations to the following three finalists for the National Association of Mortgage Brokers Broker of the Year Award. All three have exhibited great professionalism and service to their local community and industry as a whole, and should all be lauded for their dedication to the mortgage profession.
Mike Anderson, CRMS Mike Anderson, CRMS has worked tirelessly to shed light on government-sponsored enterprise (GSE) adverse market fees. He has worked not only on behalf of his home state of Louisiana, but on the behalf of every state by bringing the issue to the attention of Congress. He’s been actively involved with NAMB since he joined the Board of Directors of the Louisiana Mortgage Lenders Association (LMLA) in 2001. He is also chair of NAMB Political Action Committee for 2009-2010. In the aftermath of Hurricane Katrina, Mike evacuated to Lafayette, La. where he used his extensive knowledge of the industry to help people get into homes. Mike loves spending time with his five children, and in his spare time, coordinates fundraisers for the Easter Seals.
John Councilman, CMC, CRMS John Councilman, CMC, CRMS has been serving on the Federal Housing Administration/Veterans Affairs (FHA/VA) Subcommittee since 1995, and has established himself as the foremost FHA resource for NAMB. John helped form the Maryland Association of Mortgage Brokers (MAMB) in 1986 and helped spearhead the movement for licensing and mandatory education requirements in the state of Maryland. His accomplishments on the legislative front are accompanied by a love for his community at home in Washington. Outside of NAMB, John is involved with his church and he also enjoys playing the piano for residents of a local assisted-living facility.
Bill Howe, CMC, CRMS Bill Howe, CMC, CRMS has a strong passion for education and helped NAMB develop the exam for the General Mortgage Associate (GMA) designation, and he was selected to help re-write new exams. He has served on nearly every NAMB committee. Bill works hard on the Arizona Association’s Board of Directors, as well as serving on the NAMB Board of Directors as the vice president in 2008-2009. Aside from NAMB, Bill has four children and enjoys going above and beyond as a property owner/manager in his home state of Arizona.
Are you busy? By Kate Crawford, CRMS
Rates have caused an influx of business. Now what do we do with it? Ever-changing guidelines are challenging the most experienced loan officers. Every time I see an e-mail from a loan officer, I wonder, have they read the new guidelines? Just taking applications and generating business is not your entire job. Today, more than ever, being up-to-date on the laws, the guidelines and each lender’s requirements will keep you ahead of the competition. Your loans will close quicker and smoother. Don’t rely on your manager, owner or processor to do your job. If you a licensed loan officer it is your responsibility to know all the facets or your profession. If you don’t have time (which is doubtful) or don’t think you need to keep abreast—please get out. Mistakes and problems arise when you don’t keep up. As you know, what were loans and loan processing a last year are not acceptable practices or programs now. You have to prepare your borrowers and real estate agents for the turn times and changes that underwriting is experiencing. Thirty-day contracts are becoming a dinosaur in some parts of the country. Some lenders are 30 days in underwriting, while others will put your borrowers’ file at the back of the list once they receive conditions, and take another 20 to 30 days to clear, and if more conditions, another 20 to 30 days. Frankly, this is bad management and poor work flow on some operation centers. I try to avoid sending to lenders who are going to create more problems for my borrowers. Educating yourself and communicating the changes to all parties involved in a transaction are extremely important. Don’t put off getting conditions met. Get all of them and send at one time, and by all means, follow up with the lenders to be sure they have received them. Customer service is very important. Service has always made the mortgage broker stand out. I get told over and over again, “You call me back” and “You are available.” I get transactions because of those two things. I have seen real estate agents tell their clients to call me because I don’t screen my calls and I answer the phone after 5:00 p.m. Trust me, I am busy, but I am going to be available for business. Simply answer your phone, keep people updated and learn the new guidelines. Your business will pick up and you will be busy. Kate Crawford, CRMS is with Carolina Home Mortgage in Burlington, N.C. She may be reached by phone at (336) 226-9191 or e-mail email@example.com.
Critical considerations for mortgage modification programs By Don Iannitti
Finally, the modification must be documented just like any other mortgage transaction. Depending upon the circumstances and applicable law, this may involve modification of both the promissory note and the security instrument. The loan modification agreement is generally always recorded. Lenders that can effectively implement a loan modification program will fare better than those that choose to proceed with foreclosure and then take on the responsibility of maintaining properties or try to dispose of them at a loss in a weak housing market. However, before proceeding with a loan modification, lenders must be prepared to meet any documentation and investor-specific requirements for the modification to be a success. Don Iannitti is CEO of Carson, Calif.based Document Systems Inc.(DSI), a company he founded in 1988. His firm’s DocMagic software revolutionized the mortgage document industry and turned DSI from a small southern California document service into a national phenomenon. Don can be reached at firstname.lastname@example.org.
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There can be no denying the fact that the factor involved in borrowers getting into government is not in favor of forcing trouble has been their inability to pay homeowners out of their homes, even the monthly mortgage loan payment when they are in default and facing fore- after an adjustable-rate mortgage loan closure. Legislative bodies around the ticked up. In an effort to keep these borcountry, as well as Fannie Mae and rowers on track, some lenders are modFreddie Mac, have all taken action to ifying loans such that the borrowers’ stall the foreclosure process in an effort monthly payments (including principal, to keep more borrowers in their homes. interest, taxes and insurance) fall From the early days of this crisis, the fed- between 31 percent and 38 percent of eral government hoped that lenders gross income. Lenders are doing this by would begin to actively modify existing reducing interest rates, extending amormortgages to meet this goal. While pro- tizations, and/or forbearing the princigrams advanced by the U.S. Department pal owed on the loan. of Housing and Urban Development Finally, and perhaps most significant (HUD) did not attract the attention of to the long-term success of the lender’s mortgage lenders, changes in the way modification of a loan, lenders must deal the industry is approaching this prob- with the fact that many of the loans they lem—and the high risk of class-action will attempt to modify have already been lawsuits against those pooled into mortgageinstitutions that do not backed securities that act—are leading more have been sold off to lenders to consider movinvestors. This means that ing forward with mortgage it would be prudent for modification programs. the lender to determine In the end, lenders who whether investor approval can effectively modify is required for the loan mortgages for borrowers modification. If investor in default will be in a posiapproval is required, then tion to get those borrowthe lender must ensure ers back on track, keep that it satisfies all of the them in their homes and criteria necessary to “The bottom line is, revitalize the income obtain approval of the depending on the streams from these deals. modification. (Note, too, With housing prices conthat the approval of junior terms of the loan tinuing to fall across the lien holders may be modification, other country, refinancing these required to modify a loan.) disclosure mortgages is often not an For the protection of the obligations under option, making loan modlender and the investors in Regulation Z and ifications the most viable these securities, proper applicable state law strategy. But, there are a documentation and regumay be triggered.” number of challenges latory disclosures are critilenders will face with this cal during this process. plan. There are three essential types of The first challenge involves attempt- documents that must be part of any ing to modify the mortgage without giv- loan modification program. They ing away too much of the revenue include consumer disclosures, investorpromised by the borrower in the origi- related documents and the loan modinal deal. When lenders were offered fication documentation. the opportunity to refinance troubled Like any mortgage transaction, there borrowers into Federal Housing are disclosures that must be presented Administration (FHA) loans last year, the to the borrower at prescribed times. fact that they would have to agree to The modification process changes the accept the proceeds of the new mort- process somewhat. A new Regulation Z gage as payment in full of their preex- disclosure is ordinarily required when isting senior loan and release their lien an existing obligation is satisfied and made the offer unappealing for many replaced by a new obligation undertaklenders as that meant that the out- en by the same consumer. However, a standing principal balance owed would workout of a delinquent loan will not not be fully paid. Unfortunately, loan require a new Regulation Z disclosure modification programs will also involve unless the rate is increased or the new lenders leaving some money on the amount financed exceeds the unpaid table. While specific features of the var- balance plus earned finance charges ious programs will vary, most lenders and certain insurance premiums. will find that they are waiving prepayIf the rate is increased based on a variment and restructuring fees associated able-rate feature that was not previously with mortgage modifications. disclosed or if a new variable-rate feature The second challenge lies in finding a is added to the obligation, a new discloway to give borrowers a deal they can sure will be required. The lender will also still afford. By far, the most significant not have to worry about providing a new
notice of right to rescind under Regulation Z for a modification of a closed-end mortgage by the original creditor. However, the right of rescission will apply to the extent the new amount financed exceeds the unpaid principal balance, any earned unpaid finance charge, and amounts attributed solely to the cost of the transaction. Lenders subject to state regulation governing mortgage lending will also be required to provide state-specific disclosures. The bottom line is, depending on the terms of the loan modification, other disclosure obligations under Regulation Z and applicable state law may be triggered. A lender may want to engage legal counsel to ensure that all required federal and state disclosures necessary to complete a loan modification are provided to the borrower. If investor approval of the modification is indeed required, the lender should ensure that any investor-specific documents required to be included in the loan modification are, in fact, provided to the borrower and/or included in the modification package.
doing the right thing account numbers is usually found on the 1003 when the borrower discloses credit information or when the borrower has account information and uses the account number as a bogus phone number (this activity is very rare); or O Failure to provide additional documentation for vetting or re-verification (the processor/loan officer will discover this while building the loan).
Unusual use of, or suspicious activity related to, the covered account When the credit report is pulled during pre-approval, many of the Red Flags can be detected, but a second credit report is often pulled the day of closing to monitor suspicious account activity. The mortgage professional who is underwriting and funding loans may want to practice ordering a credit report the day of closing.
Receive a request of new, additional, or replacement cell phone It is a Red Flag when the borrower is difficult to contact because of a misplaced cell phone or using a relative or friend’s phone.
Available credit is used for cash advances or large withdrawals
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This will be detected with a second credit report the day of closing or funding.
Covered account used in a manner that is not consistent with established patterns of activity Suspicious credit activity will be detected the day of closing or funding when a second credit report is pulled. For the majority of brokers, good Red Flag Rules practices, such as analyzing the credit report and close examination of the applicant’s identification will meet the Federal Trade Commission’s (FTC’s) standards for Red Flag Rules compliance. However, the larger the mortgage operation, the more of the 26 Red Flag Rules will apply, such as income verification checks with the IRS, and Social Security Administration reports and Death Master File checks, as well as a final credit report pulled the day of funding. Most mortgage professionals have been practicing these procedures for years. All that is left is capturing internal practices and procedures in written form and to have them approved by the principals. Create some type of checklist that can be placed in each file so the state examiners, agencies, investors and
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lender can see that the Red Flag Rules are checked and signed off by a mortgage professional. Implementation of Red Flag Rules compliance is easy. The FTC has not created anything new … it has just borrowed compliance standard operating procedures from existing financial institutions and expanded them to other financial entities. Conscious mortgage professionals may want to consider expanding beyond the 26 Red Flag Rules checklist by using Freddie Mac’s “Discover Gold Through Quality, Fraud Prevention Best Practices, Chapter 2” (located online at www.freddiemac.com/dgtq). I will agree that a mortgage professional has a responsibility to prevent a stolen identity from being used for the purchase of a home, but that same mortgage professional also has a responsibility to protect and prevent a client’s identity from either being stolen or compromised. It is a matter of time before all mortgage professionals will be inspected on data and non-public information security and protection. I encourage all mortgage professionals to begin putting plans and policies together to address the protection and safeguarding of client’s non-public information, while working on the Red Flag Rules program. MARI’s 2008 “Eleventh Periodic Mortgage Fraud Case Report” shows that identity theft was the type of mortgage fraud least performed, compared to 64 percent in the “General Application Misrepresentation” category and an average of 29 percent “1Q3Q 2008 Tax Return and/or Financial Statement Misrepresentation” category. I believe the reason identity theft is extremely low compared to other fraud types is because the mortgage professionals are taking Red Flag Rules precautions and are doing a good job of it. The lenders are using pre-funding QC and pre-funding fraud prevention tools that are detecting suspicious activities, which are preventing loans from closing using a stolen identity. With all the bad press mortgage professionals have received in the media, I am excited to see that identity theft ranked the lowest of all fraud classifications and we have all of you to thank because you were doing the right thing and didn’t even know it. 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.
heard on the street
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can launch an appraisal order with the push of a button from within their loan origination system,” said Tony Ebeyer, StreetLinks’ COO. “This will reduce processing time and eliminate errors inherent in duplicate entry. We look forward to providing Encompass users with easy access to our industry leading, fully compliant appraisal solution.” Tom Hurst, StreetLinks’ SVP, said, “We are very excited to be partnered with the market share leader in loan origination software. Our focus on service, technology and quality will provide an ideal solution for Encompass users. We provide a full suite of valuation tools that are compliant with HVCC and all other state and federal regulations.” For more information, visit www.streetlinks.com or www.elliemae.com.
Lend America receives H4H approval and launches new site Lend America, a direct-to-consumer Federal Housing Administration (FHA) lender, has announced that the company has been officially informed by the U.S Department of Housing and Urban Development (HUD) that they have satisfactorily completed the pre-closing review period of the Direct Endorsement HOPE for Homeowners (H4H) program. Lend America may now begin to underwrite, close and insure H4H loan transactions without prior HUD review. The government’s Hope for Homeowners initiative allows lenders to refinance current or delinquent borrowers provided that the first lien holder of the loan writes the loan down to less than the current home value and waives any late fees or pre-payment penalties. The FHA insures the new loan and subordinate lien holders get a share in future appreciation of the loan. “As the approval letter states, participation in the Lender Insurance Program is a privilege accorded only to mortgagees who continue to demonstrate the ability to originate mortgage loans in accordance with HUD underwriting policy,” said Michael Ashley, chief business strategist of Lend America. “We are very proud to be amongst the first to receive this approval. Despite some early obstacles with the H4H program, Lend America did not abandon this important solution to the housing crisis, but has taken a leadership role and is committed to saving 10,000 homeowners from foreclosure and allows families to remain in their homes on affordable terms. We may have to extend our timeline, but this mission to Lend America is extremely important, and with HUD’s approval, we are moving full speed ahead to save one homeowner at a time.” Lend America also announced the launch of a new Web site, www.refiportfilio.com, for its institutional mortgage
solution, Maximum Principal Recapture Program, that allows institutional investors to quickly monetize their residential mortgage portfolios. The focus of this platform is to help institutional holders of mortgage portfolios, including hedge funds, investment banks and loan servicers to use refinancing options, including the H4H program, to quickly monetize their distressed residential mortgage portfolios, maximize cash flow and have a profitable exit strategy. “Lend America is already working with some of the largest institutional holders of mortgage portfolios to identify individual mortgages within the bundled loans that are in or close to foreclosure,” said Nick Bratsafolis, senior managing director of structured refinance at Lend America. “Once the loans have been identified by Lend America’s proprietary residential loan analytics technology called Metamorphosis, our teams of 400-plus mortgage specialists are reaching out to homeowners to begin and successfully complete the refinancing process.” For more information, visit www.lendamerica.com.
Mavent and QuestSoft alliance assists in secondary market demands QuestSoft, a provider of mortgage compliance software and services, has announced a partnership with Mavent Inc., a provider of automated compliance solutions for the financial services industry, to address regulatory changes in the lending process, specifically those impacting the secondary market. The partnership will pair QuestSoft’s Compliance EAGLE with Mavent’s rulesbased enterprise application as part of an end-to-end compliance solution that identifies regulatory exceptions throughout the origination life cycle for improved loan quality. Increased focus by secondary market investors on compliance have led to integration improvements, so correspondent sellers can access extensive compliance reviews from QuestSoft and Mavent on one platform. “The current dislocation in the mortgage market, onslaught of stricter regulatory requirements and budgetary constraints makes an effective automated compliance solution more critical than ever before,” said Louis Pizante, chief executive officer of Mavent. “Manual compliance is bulky and carries with it great potential for material errors. Maintaining a proprietary system is costly. Relying on a mediocre vendor in today’s chaotic environment will prove even more costly. Mavent provides lenders the same cost-effective, independent, loan-level compliance review continued on page 26
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Allow me to share with you the obser- am looking at several job opportunivations of a mortgage market analyst ties. It will be most interesting to see who has been plying his trade for near- how the next chapter of life proceeds ly 32 years. I spent a decade working for â€Ś time will tell. With that backdrop, let me next a Fortune 500 company, four years working for medium-sized companies, point out that three decades as a readand almost two decades at a small firm er, writer and researcherâ€”always that I co-founded with another econo- grounded as a money market economist. Our firm focused on mortgage mistâ€”have allowed me to observe and banking research, primarily the whole- chronicle industry issues and trends, the interactions between sale market. More specifthe economy and the ically, we studied and mortgage marketâ€™s anatomeasured the production my and dynamics. In 1996, revenue and expense I warned (at the Mortgage structures of the large Bankers Associationâ€™s mortgage companies that Annual Convention) that originated loans through Fannie Mae and Freddie multiple channels. We Mac were â€œout of control,â€? began this in 1993, and siphoning off mortgage continued through 2008. banking revenue and likeThe other major compoly to end in ruination, serinent of our research was ously harming taxpayers. I examining the mortgage â€œAs the philosopher maintained my antiorigination business and George Santayana Fannie/Freddie campaign industry: The primary cautioned, â€˜Those up to their takeover by mortgage market. Every who cannot remem- the federal government, other year from 1991 on under conservatorship last through 2006, we comber the past are September. Several years pleted a rigorous and stacondemned to earlier, I was privileged to tistically valid examinarepeat it.â€™â€? tell a Congressional subtion of the mortgage brokerage business and industry. We also committee about the positive and studied non-broker originators (or prominent role of the mortgage broker â€œlendersâ€?). In both cases, we examined in the mortgage delivery system, and firmsâ€™ demographics, use of technology, about the threat posed by the two govproduct menus, interface with whole- ernment-sponsored enterprises (GSEs), sale investors and their operations a statutory duopsony. In 2005, my partners and I were (including profitability). No one else counted operating firms, measured hearing about the rapid growth of nontheir production, inspected their prime lendingâ€”namely alt-A and substaffing structure, probed how they primeâ€”and we launched a study to used the Internet and other technolo- measure the size of this market as of gies, calculated their market share of early 2005. We were shocked by the residential originations and on and on. results. Wild things were now going on Our two-decade old business col- in the primary and secondary markets. lapsed last year. Revenue began declin- Forty percent of new originations in the ing in early 2007, and by early 2008 was first half of 2005 were non-prime! Years insufficient to maintain a payroll. Iâ€™ve earlier, around 1996-1998, when we set up a one-person consultancy and studied the earlier generation of non-
prime lenders which was now shuttered for about six years, we found a subprime world accounting for five to eight percent of total originations, not 4 of 10 loans and still expanding! In horror, I wrote to U.S. Department of Housing and Urban Development Secretary Alphonso Jackson in August 2005, warning him to slow his incessant cheerleading for homeownership. I admonished that this advocacy could and would hurt many young households financially, harming marriages and families. Since 2005, Iâ€™ve been telling anyone who would listen that the mistakes of the mortgage market were in all likelihood going to spill over to the broader economy, sending it into eventual recession. All of these claims are supported by many articles, speeches and conversations laying out my fears and expectations. In 2006, I called the publisher of this magazine to tell him I thought the types of loans that Argent Mortgage (Ameriquest) and others like them were soliciting brokers to originate would later boomerang on them. Recall that before the second half of 2004, there were few sub-prime brokerages and many of them were producing Federal Housing Administration (FHA) loans to satisfy Community Reinvestment Act (CRA) goals. It is with this vantage point that my local trade association asked me several months ago to address them. I was told to pick my topic, make it contemporary and make it relevant to both the residential and commercial sides of our association. It was obvious what I needed to address and discuss with my peers. Adapted from that earlier speech and updated, this article shares my personal assessment of the cosmology, or origins, of the economic and financial crisis we find our country and world mired in today. The crisis has worsened quarter by quarter since June of 2007, the month the two Bear Stearns hedge funds, highly levered and collateralized almost exclusively by non-prime mortgages, defaulted. Since then, the credit markets have been in turmoil and real Gross Domestic Product (GDP) has been faltering. More than five million folks have lost jobs, me among them, and the jobless rate now hovers around 16 percent nationwide. In light of this background, I had asked myself why? Why had it happened and who was responsible for creating it? This article shares my assessment of culpability. Read it and see if you agree or disagree. The assessment is mine in the sense of summarizing how I saw it evolve and pass by from where I was sitting. The currency trader in Frankfort, the oligarch in Moscow, the sugar cane farmer in Cuba and the partner at Goldman Sachs might have differing accounts. Hereâ€™s how I saw the crisis appear on the radar. My current favorite metaphor for todayâ€™s financial crisis is the â€œperfect
heard on the street
The five biggest reasons your direct mail doesn’t work A common statement I frequently hear from clients goes something like this: “I hear direct mail works, but I have tried it and have received a very poor response.” Instead of trying to break down the process and discover why it isn’t working, most just give up and say, “Direct mail just doesn’t work.” Most of them then usually move on to the next shiny magical lead generation tool that hits their inbox. I want to share with you the five biggest reasons most originators have not yielded optimal results from their direct mail campaigns. For each of these “misses,” there are quick and easy ways for you to fix these marketing campaigns so you can start generating some big commissions on a consistent basis.
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Mistake #1: Mailing only once
Those of you who know me have probably heard me ask, “Who ever gets married on their first date?” No one, right? Well it’s the same with your direct mail campaigns. The big mistake here is mailing to a group one time and then deciding whether or not it works. If I gave you a budget of $5,000 and told you that you had two choices: First, you could mail your piece to 5,000 people once, or you could mail that same piece to 1,000 people five times, which option would you choose? Most would mail to the whole group of 5,000 and that’s a big mistake. People require a little direct mail “dating” in order for them to respond. You will get a much better return on your investment by doing five mailings instead of just one. Don’t listen to people who tell you that you should be getting a two percent response on your direct mail efforts. Here’s a better way to judge it. How much did you invest? How much did you earn in commissions? All you really need to care about is your return-on-investment. If you got 20 people to respond, but didn’t close any loans, your returnon-investment is zero!
Mistake # 2: Not fishing in the right ponds This is a very common mistake. I’ll keep it short here for space reasons. It’s just as easy to do a $500,000 loan as it is to do a $200,000 loan. So, mail to the people in the higher-income zip codes who
are closest to your office. Even if you are in a rural area, there is typically a high-end area within a 30- to 40-mile radius so no excuses here!
Mistake # 3: Not having a message to market match You must have a message that fits the market you are mailing to. No one wakes up each day and says, “Gee, I really need a mortgage.” No one wants a mortgage … what they want is a nice home so they can spend time with their family. Or, they want to refinance so they have more income each month to spend on the things they like or need. You must try to reach your prospects on an emotional level. Your message should show them how they can get the benefits of your mortgage not the terms of the loan or rate.
Example Stop making your landlord rich! Enjoy the American dream now while rates and home prices allow you to finally live in that dream home you’ve been thinking about! Or Would an extra $300 per month help you during these tough economic times? (A refi headline …) Or Are you making your local banker rich as you struggle to get by? (Another good refi headline …) Lastly, you want to make sure that you are targeting people with a list who are actually the ideal prospects for what you offering. Sending college students a marketing piece for reverse mortgages won’t work and offering seniors a first-time homebuyer program won’t work either.
Mistake # 4: Not tracking your results We tend to use the “throw it up against the wall and see what sticks” theory when it comes to our marketing and mailings. As I mentioned earlier, you continued on page 32
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that leading investors use for due diligence and loss mitigation, ensuring lenders are funding salable loans and mitigating the costs associated with put backs, fines and civil damages.” Mavent and QuestSoft’s partnership eliminates the need for their customers to perform data re-entry and manual manipulation of information between different fields, allowing them to save time, improve workflow and allocate resources elsewhere within the organization. The compliance suite provides compliance with current federal, state and local regulations in effect at the time of the request, including pre-purchase and post-closing compliance checks, as well as verification of prepayment penalty collection. “The key to making loans attractive to the secondary market and preventing loan buybacks is compliance,” said Leonard Ryan, president of QuestSoft. “Lenders are working with a more concentrated staff, and they face an increased number of regulations, more stringent lending legislation and investors that request buybacks. In order to continue successful and prudent lending, they must turn to automated compliance, which gives investors the assurance that each loan meets every necessary requirement.” For more information, visit www.questsoft.com or www.mavent.com.
Indiana law firm merges with Morris|Hardwick|Schneider Atlanta-based Morris|Hardwick| Schneider (M|H|S) has expanded its national default services division through a merger with Valparaiso, Ind.-based law firm, Phillip A. Norman PC. Phillip Norman joins M|H|S as senior managing attorney for Indiana and LandCastle Title district president of Indiana. In his new position, he will manage M|H|S’s practice in Indiana, which will focus on real estate-owned (REO) properties, and oversee a local practice specializing in real estate law, business transactions, litigation and probate. “With the addition of Phil and his team, M|H|S’s national default services division can now offer default services to 11 states, further increasing our ability to provide real estate solutions for the entire life cycle of a property,” said Nat Hardwick, M|H|S managing partner. “In the unfortunate event that a foreclosure can’t be avoided, it’s important to have seasoned attorneys who are able to handle things smoothly and in a professional manner. Phil’s experience will be very beneficial to our team.” The national default services division provides loss mitigation, bankruptcy, foreclosure and eviction services in Maryland; Virginia; West Virginia;
Delaware; Washington, D.C.; Florida; Ohio; Georgia; Alabama; Tennessee and now in Indiana. M|H|S and its title company, LandCastle Title, provides REO and default services to 31 states through its national default services and national REO divisions and strategic alliances with partnering law firms and title companies. “Like M|H|S, I view foreclosures as a last resort,” said Norman. “I’m excited to join a firm that is focused on providing exceptional customer service, which is very important when dealing with complex default cases.” Norman comes to M|H|S with more than 20 years of legal experience. Prior to joining M|H|S, Phillip was president of Phillip A. Norman PC, where his practice areas included general civil, state and federal litigation, real estate, municipal and zoning, banking creditor’s rights, foreclosure and bankruptcy and administrative law. Norman received his Juris Doctor from Valparaiso University School of Law and graduated with a Bachelor’s Degree from Georgetown College. For more information, visit www.closingsource.net.
LoyaltyExpress announces alliance with XINNIX LoyaltyExpress, a provider of mortgage marketing solutions, has announced a strategic alliance with XINNIX Inc. that will provide marketing and training solutions to mortgage lenders and brokers nationwide. The relationship combines the strengths of LoyaltyExpress’s two flagship marketing solutions— CustomerManager and LoyaltyPrint— along with XINNIX’s world-class online and offline proprietary training programs, including the EDGE Online program that brings all of the interaction of live classroom learning without the cost of travel. CustomerManager is an online service that deploys intelligence and information at a hierarchical level, so that intuitive and effective marketing decisions can be made and fulfilled. LoyaltyPrint is an online marketing store allowing customers access to high-quality direct mail and closing gift products. “For many years, XINNIX has been scrutinizing the market to identify best practices for intelligent relationship marketing solutions,” said Casey Cunningham, founder and president of XINNIX Inc. “We were ecstatic to finally be able to endorse a company’s platform that represents quality communications and marketing excellence. As soon as we discovered LoyaltyExpress and their products and services, we knew that our organizations were percontinued on page 33
financial and economic crisis storm.” A confluence of factors came together to create it. In addition to “animal spirits,” to employ Adam Smith’s term for greed, these factors included: 1. Monetary ease; 2. A lack of regulatory and Congressional oversight; 3. Rapid home price appreciation (in many markets after 2000); 4. Funky mortgage products with low start rates and layered risk; 5. Lax underwriting standards; 6. A political establishment enamored with homeownership and an endless need for campaign contributions; 7. An excess of sub-prime wholesalers, brokers and loan officers, all poorly supervised and state regulated; 8. An oftentimes greedy, undisciplined consumer seeking a free lunch; 9. A cheerleading media that, for years, dutifully boosted housing; and 10. A large network of interested parties who promoted housing unendingly—from builders to realtors to brokers. Take all of these ingredients, mix them together and let it ferment for a few years. Presto … a black swan event landed in our laps. The financial mar-
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kets went from equilibrium to mania to panic to crash, to cite the title, Manias, Panics and Crashes, is the title of an important economics text by Charles P. Kindelberger, an economic historian and emeritus professor at MIT. Kindelberger is, in the view of many, the authority on financial crises, having studied them for nearly 50 years. There seems to me a great need for Americans to understand why this crisis occurred and to apportion culpability. Just as a commission was established to examine the causes of the Great Depression, I’d argue that we must do likewise. As the philosopher George Santayana cautioned, “Those who cannot remember the past are condemned to repeat it.” In apportioning blame, I start with the Federal Reserve because that’s where Kindelberger starts with all manias: Phase one, always easy money. To soften the pain from the popping of the tech bubble and the events of 9/11, the Fed eased monetary policy dramatically in 2002. The funds rate was cut to one percent in 2003, lower than at any time even during the Great Depression. It was held there for 13 months after a fast descent in 2002 and a slow, incremental tightening late in 2004. Fed policy essentially flooded the market with credit for five straight years and cheap
credit got borrowed. Without this single ingredient, easy money, the financial crisis could not have occurred. Unfortunately, monetary policy errors weren’t the whole of the Fed’s fatal errors. It and its fellow regulators at the Securities and Exchange Commission (SEC), Federal Deposit Insurance Corporation (FDIC), Office of Thrift Supervision (OTS), etc. also failed to police the financial markets—from the primary mortgage market through Fannie Mae and Freddie Mac, from Wall Street and its structured products to the credit raters. Congressional oversight and the regulators could have, and should have, warned of market excesses: uninsured 100 percent lending, loans paying less than accumulating interest, no income/no asset loans (NINAs), home equity loans. Similarly, a vigilant SEC should have connected the dots in the Madoff scandal a decade ago, not four months ago. But they didn’t kick the tires, not even any periodic jawboning from the Fed or other regulators. Thus, I conclude it was a government failure, not a market failure, that precipitated this crisis, and unfortunately, not the last of the government failures in this crisis. After the central bank, next up in terms of culpability is the federal government—both the legislative and executive branches and both political parties. Presidents Clinton and Bush and senators and representatives— Republicans and Democrats alike— promulgated housing and homeowner-
ship. They cheered it along beyond reason. The Bush Administration advanced the “ownership society” and Congress led bi-partisan cheers for a 70 percent homeownership goal for the United States. They ignored huge problems at Fannie and Freddie. Sadly, the law of unintended consequences stepped in, and when home prices stopped rising and started falling, we got payback: Delinquencies and defaults. I had written to the HUD Secretary in August 2005 to warn him that his unqualified advocacy of homeownership would backfire. In part I wrote, “Government officials really need to be careful on their advocacy for housing at this point in time or they will lead young working-class families, already confronted by myriad challenges, to financial hardship.” Delinquencies and foreclosures are now running at record levels. After the Federal Reserve—which is neither federal nor holds reserves— the Congress and the federal regulators, I place Fannie Mae and Freddie Mac next up for culpability. Both GSEs were always a flawed business model, as I first suggested 12 years ago. Public choice theory, the capture theory and the law of unintended consequences told me so. Public choice theory is the branch of economics dealing with public decision-making. Captive theory involves relationships between regulated and regulator—for example, continued on page 32
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Advertising secrets from one of America’s most successful copywriters and direct marketers By Linda Moore MacCoy
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Times are tough. The mortgage industry has been tainted and blamed for the tough times we’re in. And we’re left with repairing the damage and building our business at the same time. Recently, I had the honor of hearing Joseph Sugarman, one of the top copywriters and direct marketers in America, speak before the National Association of Mortgage Women (NAPMW) at their Regional Education Conference in Portland, Ore. After his presentation, I asked him if he would let me interview him for National Mortgage Professional Magazine. What follows is our discussion. There are some really valuable gems here and some really good advice on how to kick-start your business and build it even during difficult times. Joe has written several books on the subjects of sales and marketing.
If you were starting a marketing campaign, “Addressing Financial Services to Consumers,” how would you start? What issues would you be focused on in creating your first draft? I think a lot has to do with attitude. For example, I truly believe that for every problem, there is an opportunity so big it dwarfs the size of the problem. And let’s face it … the mortgage industry is
facing some pretty tough problems. The first thing I would do is raise the issue of the problems facing the industry and then resolve them. For example, a radio commercial might start out with, “You no doubt have heard of the financial mess our country is in and how the mortgage industry has been hit hard. But wait. There are banks and mortgage companies that are well-funded and rates are the lowest they’ve been in years.” In short, raise the negative and resolve it with positive comments about your company. With so many ways to communicate with consumers, which medium do you think would be most effective? Due to the recession, media costs have gone way down. This is a great opportunity for small businesses to advertise at rates never before this low. And during a recession, media rates are all negotiable. A radio station, for example, would rather run your advertisement rather than a public service announcement. My preference for the mortgage industry would be radio, the Internet and direct mail. Radio is cheap, reaches a wide audience and with repetition, could make a big difference in your awareness and response.
You state in your book, The Adweek ply by using them in your copy. There Copywriting Manual, that testing is are 30 such triggers which you can use critical. How would that apply to an to control the mind of your prospect to advertising campaign? influence, motivate and persuade. One That’s why direct marketing is the best way of them I mentioned at the beginning to go. You offer something on a specific of this article. By raising the negative medium, let’s say direct issues of the economy mail, you measure the and the mortgage indusresponse and then you can try and then resolving determine if the mailing those issues to your favor, piece was profitable. So if your advertising becomes you spend $1,000 on a more believable, and mailing and earn, as a therefore, more effective. result, $2,000, you’ve douThe trigger relates to the bled your money and importance of raising a you’ve earned $1,000. In negative issue and then short, direct marketing is a properly resolving them measurable way to deterin a positive way. mine success or failure. In the case of radio, you need What kind of approach to “Selling is really repetition. One radio spot consumers will create the building a relationmay not give you a good most favorable response ship of trust with measure of the potential from your experience? your prospect. If you response. And you must I know this may sound exhibit integrity always test. Many times, trite, but I have found with everything you I’ve been fooled by camthat honesty is the most do and with everypaigns I thought were going effective tool in the arsething you write the to be successful only to be nal of a marketer. Selling results will speak for surprised. is really building a relathemselves.” tionship of trust with your —Joseph Sugarman Can writing great copy prospect. If you exhibit be learned? integrity with everything Writing great copy for any advertising you do and with everything you write campaign is usually a skill that takes a the results will speak for themselves. lot of experience, but anybody can write great copy even for the first Any final bit of advice for those readattempt. I have personally built several ing this with the desire to become companies simply from the power of great marketers? my pen. And I’ve taught students who Just as important it is to become an have gone off to achieve great success expert in the product you wish to sell, with just their first ad. I think the key you should also become an expert in to writing great copy is to first become the art and science of selling. It doesn’t an expert on what you are offering. matter if it is selling in person, in print, Most of you are already experts in your on radio or on television—becoming own business. Secondly, I would read an expert will give you a tremendous some good books on copywriting tech- edge over your competition and give niques. My book, for example, gives you a skill you will be able to use for the you step-by-step techniques you can rest of your life. We are always selling, use and includes psychological triggers even from childhood, and may not that influences a prospect to buy from have realized it. If selling is so prevalent you. The book is only $15 on in our lives, why not master it? Amazon.com and truly a great value if Finally, if you fail in your first few you are serious about promoting your attempts, don’t give up. Failure is a business. great teacher and know that you’ll eventually succeed. You mentioned psychological triggers. What exactly are they and how have Linda Moore MacCoy is executive director you used them? of the National Academy of Financial I have discovered through years of test- Literacy. She may be reached by phone ing, that there are certain words that at (503) 639-5500 or e-mail linda@acadcan double or triple your response sim- emyoffinance.org.
A simple formula for direct marketing success By Brian Sacks
What I am about to share with you is so simple you might not even believe it. So please stay with me. It could be that big “aha!” you’ve been wondering about all this time that will finally explain why your marketing may not be working as well as it could. Ready? Here’s the formula: FP + RA + EDRM = $$$$$ So, now let’s break it all down, ingredient by ingredient. Let me first tell you what does not work and why.
What does not work
What does work Alright … let’s get back to that formula at the top of the page.
Ingredient #2: The right audience (RA) Our job now is to find the right audience who meet these guidelines. The mistake here is that we do general brand type advertising instead of only marketing to people who meet the guidelines of the program we are offering. Back to our example of reverse mortgages: Why would you mail to people who are less than 62 years of age? Why would you put an ad in a paper that only 10 percent of seniors read? Instead, market in a senior publication where you know 100 percent of the readers meet your guidelines (at least they are likely to be 62 or older or wouldn’t be reading it).
“Our money is really tight right now for most, so you must make sure that every dollar you invest is accounted for and can be tracked. That means you need to know what results you got from each campaign.”
Ingredient #1: Find the program (FP)
Our money is really tight right now for most, so you must make sure that every dollar you invest is accounted for and can be tracked. That means you need to know what results you got from each campaign. Here are the tools I use.
O www.makemyadspay.com I use this tool to let people call in for a free report. Users can call in 24 hours a day, seven days a week, 365 days a year. I use a different extension for each marketing piece or ad.
Free report? Million dollar idea? You’re probably saying, “Huh?” What’s a
Someone you have targeted who fits the profile for the program you offer responds to your ad or marketing piece. They go online or call a toll-free number to get a free report. The free report is really your sales message, so they now call you already sold on using you! That’s important for a couple reasons.
Trigger mail lends relevancy to offers by mortgage professionals By Debora Haskel
As a mortgage professional, traditional ture just-in-time data and turn that direct mail marketing is likely part of data into executable campaigns before your arsenal to help drive sales. Perhaps the window of opportunity with cusyou’ve heard of the latest game-changer, tomers and prospects begins to close. trigger mail. Trigger proFor example, you might grams deliver relevant generate refinancing offers at the “moment of offers to just those in truth,” rather than using your market who now “spray and pray” marketqualify for Federal ing which may result in Housing Administration reaching the wrong cus(FHA) refinancing. tomer or reaching the right customer, but at the Why use trigger wrong time. mail? The best reason to use Trigger campaigns seek trigger marketing is simto eliminate much of the ple. According to the waste inherent in pushAberdeen Group, many marketing tactics where “According to the companies report a 200 marketers provide unsoAberdeen Group, to 400 percent improvelicited messages and many companies ment in marketing camoffers to consumers. report a 200 to 400 paign performance using Driven by data rather percent improveevent-based triggers. than the constraints of ment in marketing In this article, we’ll individual media, trigger campaign performexplore what trigger mail campaigns are relatively ance using eventis and how it can help channel-agnostic. In based triggers.” boost your sales. addition, trigger campaigns may enhance What is trigger mail? response, while driving multiple funcThe simple definition of trigger mailing tions including: is “A program designed to automatically generate a communication in O Response management: Providing response to an event.” In other words, continued on page 30 trigger-based marketing programs cap-
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O www.whatbrianuses.com/nm I use this tool as an online system to let people visit my site, 24 hours a day, seven days a week, 365 days a year, and receive a free report. The beautiful thing about this tool is that it will automatically follow up with these clients with follow-up messages encouraging them to call for an appointment or fill out an online application. I use a different subdomain or URL (Web address) for each ad or marketing piece.
So here’s the process …
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.
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Think about what we do each day. We try to get people to call us. Then, we find out what they’re looking for and finally try to find a place to put the loan. Sometimes, we are successful … sometimes we’re not. But what a big waste of time that is. Instead, what you need to do is pick a niche—find the investors who offer that product and learn all you can about the guidelines. For example, let’s say you want to do reverse mortgages. You find two or three lenders who offer the program, learn all the program guidelines, and then go ahead and learn the guidelines of the investors. Even if the program has certain guidelines, oftentimes, the investor has additional guidelines. Like the Federal Housing Administration (FHA) … it will insure loans that meet its guidelines, but often, the investors have
Ingredient # 3: Emotional direct response marketing (EDRM)
O It would have the answers to all their questions. O It would have testimonials of all your past satisfied clients. O It would explain why they should use you instead of the competition (your expertise, not price). O It would tell them what to do next. O It would allay their fears.
First, it allows you to get your message out to the right people without spending all the time you now take trying to convince them. Next, each ad or marketing piece has a different toll-free extension number and Web address. That way, you can track every penny you are investing and make sure that you are getting the proper return on your investment. That’s the beauty of emotional direct response marketing. See how formulaic this becomes? Now go ahead and give it a try.
Many of us are bombarded each day by people who tell us that we: “Need to get our name out there so when people need a mortgage they will think of us.” Well nothing could be further from the truth. This causes us to waste money and become frustrated. Why? Well nobody will choose you from a placemat, shopping cart ad or a quick radio or TV message. It just doesn’t work that way. What’s worse is that you cannot track any business you do get from any of these methods.
their own additional guidelines. Now that you know the guidelines, let’s move on to the next ingredient.
free report? Let me explain. Think about what you do every day. A client calls and you give them your sales speech. You tell them why they should use you instead of the competition and convince them to apply after you answer their questions. What if instead you put it all in a report they could read.
a mechanism to satisfy consumer information requests; O Internal transaction history: Responding to known consumer purchase behavior to generate appropriate follow-up offers; O External transaction history: Leveraging a holistic body of known personal information to predict behavior and needs; and O Geo-location targeting: Extending specific offers to consumers at precise times, given expected need, available alternatives, psychographic variables, and specific geographic variables.
Types of trigger programs
O New homeowners in your geographic area may now qualify for FHA refinancing. O A newly-married couple is likely looking to purchase a new home. O Similarly, someone going through a divorce is likely looking for a new residence. O Current customers who may qualify for rate reductions. If you’re not
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. 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 email@example.com for full details on a free two-week trial subscription. MO
May Producer Prices Rate Impact
June 17 May Consumer Prices Rate Impact
June 23 May Existing Home Sales Rate Impact
June 26 May Personal Incomes & Spending Rate Impact
communicating with them, someone else is. O Something as simple as a birthday card sent to your current customers creates a personal connection and keeps you top of mind when they decide to purchase their next home.
Creating trigger mail programs Successful trigger marketing programs rely on a set of tools and capabilities to collect, store, enhance and analyze customer data. According to research by the Aberdeen Group, 63 percent of best-in-class companies integrate customer data analysis into direct marketing campaign creation and 83 percent cleanse their customer data to minimize duplicates. Data is just one component of trigger mail. In order to effectively produce a trigger marketing program, it’s important
to find a print and mailing vendor who has the tools, technology, and experience to turn programs quickly and accurately, along with a postal strategy that ensures fastest delivery at the lowest postage cost. In addition, many of today’s trigger programs are multi-channel programs that include personalized URLs (pURLs) to drive response to Web sites and personalized landing pages. Ask your current direct mail partner if they have trigger mail capabilities. When used effectively, trigger mail can increase sales by providing relevant offers at just the time your prospects are in a mindset to consider them. Debora Haskel is vice president of marketing at IWCO Direct, a provider of integrated direct marketing services. She can be reached by phone at (952) 470-3295 or e-mail firstname.lastname@example.org.
Here are some scenarios you might leverage to generate new business via trigger mail:
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Trigger programs generally fall into three categories. O Notification triggers are used to alert customers to changes in service, account monitoring and data breaches. O Acquisition trigger programs use
event triggers to create a new offer (often an up-sell or cross-sell) for an existing customer or an introductory offer for a prospect. O Retention trigger programs are sent to existing customers and may be based on purchase behavior or account activity.
7 8 6 9
While the pace of inflation has been a “back burner” issue for the past year, there are indications it may return to “front and center” as a concern for the bond market. That’s because the Federal Reserve has been printing money with what some would describe as reckless abandon as it expands its balance sheet by purchasing what could become trillions of dollars of mortgage-backed securities and U.S. Treasury IOUs. Already, the Fed has dedicated up to $1.25 trillion to purchase mortgage paper and $300 billion for Treasuries, with promises of more such acquisitions, if necessary. The core rate of personal consumption expenditure prices edged up to 1.9 percent in April. That figure is almost at the Fed’s implied two percent inflation “speed limit,” leaving little room for error. Today, we will receive the May update on wholesale prices. While the producer price index only covers the price of goods, the consumer price index includes both goods and services, thereby offering a broader inflation perspective. Over the past year, the “headline” number, which includes food and energy prices, has been extremely volatile, jumping to a peak of over five percent on a year-over-year basis and then plunging into negative territory. But the core rate has held tightly to the two percent area, undulating above and below it, with a recent move back up again. The bond market has taken notice, resulting in a sharp yield increase in both the U.S. 10-Year Treasury note and the 30-Year “Long Bond.” Residential fixed-mortgage rates have not been immune, and vaulted three-quarters of one percent in late May, despite Federal Reserve efforts to hold them lower. Inflation is returning to prominence as a key concern. The debate about the health of the residential real-estate market remains heated. At any given moment, Wall Street participants are cheering what they view as a recovery in sales. For instance, in April, transactions rose 2.9 percent from March. But in the next moment, investors and analysts anguish about the fact approximately 45 percent of recent transactions were the result of “distressed“ sales, such as foreclosures. And they point out the inventory of unsold homes, as measured by both the raw figures and the monthly supply, is rising. In April, there were 3.97 million homes on the market, up from 3.65 million in March. It would now take 10.2 months to sell them at the current pace of sales, up from 9.6 months a month earlier. The reason is simple. More sellers have been trying to take advantage of the spring selling season but many prospective buyers remain cautious. May new home sales will be reported on June 24. The national savings rate surged to 5.7 percent of income in April, the highest mark in over 14 years. This was reflective of the fact that personal incomes were seeing their biggest improvement in almost a year while spending was heading down. As a result, the prospects of consumer outlays rescuing the economy from its current malaise are doubtful. The condition of household balance sheets remains shaky after decades of excessive spending based upon borrowed funds. The problem is that both households and the government have exhausted their lines of credit, resulting in a serious dilemma as to who is going to be able to trigger a rise in gross domestic product back into positive territory. Until that question is answered, the unemployment rate may continue to rise. If interest rates move up as well, any recovery effort may be quashed before it can develop sufficient momentum to become self-sustaining.
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need to make sure that every penny you invest in your marketing can be tracked and accountable to you. Money is tight right now for most so you must make sure that every dollar you invest can be tracked and is accounted for. That means you need to know what results you got from each campaign. Here are the tools I use. O www.makemyadspay.com I use this tool to let people call in for a free report. Users can call in 24 hours a day, seven days a week, 365 days a year. I use a different extension for each marketing piece or ad. O www.whatbrianuses.com/nm I use this tool as an online system to let people visit my site, 24 hours a day, seven days a week, 365 days a year, and receive a free report. The beautiful thing about this tool is that it will automatically follow up with these clients with follow-up messages encouraging them to call for an appointment or fill out an online application. I use a different subdomain or URL (Web address) for each ad or marketing piece.
Free report? Million dollar idea?
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You’re probably saying, “Huh?” What’s a free report? Let me explain. Think about what you do every day. A client calls and you give them your sales speech. You tell them why they should use you instead of the competition and convince them to apply after you answer their questions. What if instead you put it all in a report they could read.
financial and economic crisis
continued from page 26
O It would have the answers to all their questions. O It would have testimonials of all your past satisfied clients. O It would explain why they should use you instead of the competition (your expertise, not price). O It would tell them what to do next. O It would allay their fears.
So here’s the process … Someone you have targeted who fits the profile for the program you offer responds to your ad or marketing piece. They go online or call a toll-free number to get a free report. The free report is really your sales message, so they now call you already sold on using you! That’s important for a couple reasons. First, it allows you to get your message out to the right people without spending all the time you now take trying to convince them. Next, each ad or marketing piece has a different tollfree extension number and Web address. That way, you can track every penny you are investing and make sure that you are getting the proper return on your investment. That’s the beauty
of Emotional Marketing.
Mistake # 5: Not having a deadline and call to action The people who read your marketing pieces need you to tell them what to do next. Your ad or marketing piece must have a reason for them to take your desired action now! If you give them the chance to put your piece down so they can “think about it,” they will never respond. You must get them to do something immediately! One way to do this is to offer a bonus for meeting with you, like a gas card or other incentive. Give them a deadline … it could be a time-sensitive deadline: You must respond by______to get______! Or, it could be a quantity discount or call to action: I have set aside_____number of gas ______who are ready to achieve the dream of homeownership or lower their payments. Now that you have these mistakes under control, go ahead and start mailing and tracking those results. You’ll see a major improvement in your results quickly. By the way … the first thing most companies and originators stop doing when things get a little tougher is their marketing. Look in your own inbox and mailbox and you’ll notice very few solicitations from mortgage companies. Now is the best time for you to start mailing since there will be less competition for your prospects attention. So, go ahead and review these tips and get your campaign going. This topic is so important that I have dedicated an entire module of samples and almost two hours of training on just this topic of direct mail online at www.loanofficerformula.com/join. 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.
between the Office of Federal Housing Oversight (OFHEO … pre-2002) and Fannie and Freddie; or between Enron and the Federal Election Commission (FEC); or Madoff and the SEC, and so forth. Problems were ignored until accounting scandals hit all three exampled firms. Both Fannie and Freddie’s CEOs resigned under dark clouds. Three years later and both housing GSEs are under government-imposed conservatorship and are hemorrhaging red ink. Combined, Fannie Mae and Freddie Mac lost $110 billion in 2008. A loss of that magnitude negates decades of past earnings. They are currently on life support. Now their debt costs more, their ability to act counter cyclically is impaired, their credibility is worn globally and they cannot effectively support worthy affordability programs save for the taxpayers’ munificence. The Fed and the Treasury are buying hundreds of billions of their mortgage-backed securities (MBS) to support them, after having provided tens of billions of capital and buying their debt. Without Fannie, Freddie (and Ginnie), there is no market; they are 95 percent of it. The next guilty group resided in Manhattan along Wall Street. This group included investment banks, commercial banks, ratings agencies, hedge funds, law firms and accounting firms. The former participants practiced what ultimately proved to be financial alchemy, while the latter firms cited sanctioned the deception. First, the incentives were wrong. Standard & Poor’s, Moodys and Fitch Ratings were like prostitutes who sold their favors. And why not? They got very rich passing out booty. The more alluring the transaction, the bigger the kisses. Wall Street took home billions in bonuses before 2008. We haven’t yet had a full accounting, but it appears that in 2007, 2008 and 2009, bankers will give back every dime their firms earned over the past two generations! Poof. Total write-offs to date exceed $1.1 trillion. A generation of financiers aided and abetted by the political establishment, especially the Bush Administration, blew up the financial system. They messed up royally, permitting risky bets levered with big multiples. And all predicated on little more than ideology, free markets. Franklin Raines earned $90 million during his reign at the helm of Fannie Mae. Angelo Mozillo earned almost $500 billion running Countrywide. Meanwhile, Wall Street sold investors their fool’s gold, and now having realized the deception, investors are angry and on strike. One result is that none of the five venerable old investment banks exist in their historical form. Even giants die. After the federal government, the regulators, Fannie Mae, Freddie Mac and Wall Street, the next most culpable in my view were the lenders—not all
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but many—predominately state-chartered lenders, non-banks mostly serving non-prime borrowers. Approximately 40 percent of what was originated in 2004 through the second half of 2007 was non-prime, essentially alt-A and sub-prime. Forty percent amounts to $2.8 trillion. Names like Argent, Ameriquest, New Century, First Franklin and Countrywide come to mind. There were dozens, mostly wholesalers, and they compensated loan officers handsomely for any consumer demand they could dredge up. A pulse, a breath and it seemed a loan was granted. No equity, high ratios, poor credit, bad employment history—no problem, there was a mortgage for everyone. A 1999 New York Times article quoted Franklin Raines, Fannie Mae’s chairman and CEO, saying: “Fannie Mae has expanded homeownership for millions of families in the 1990s by reducing downpayment requirements.” The article concluded: “In moving, even tentatively into this new area of lending, Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s.” And it certainly has, hasn’t it? Fannie and Freddie hold 10 million non-prime mortgages, two million of which have defaulted thus far. Congress has allocated $200 billion of capital to each to keep them from exploding. Too big to fail? Next in line for criticism for participating in stupid, harmful lending was the mortgage insurance (MI) industry. Traditionally, they were the defensive line, holding back the offense—production for production’s sake. MIs best understood risk and pretty well priced for it in the 70s, 80s and 90s. Until late 2004 that is. That’s when they were big and bloated coming off a record fiveyear run. Like Fannie and Freddie, the MIs didn’t want to sacrifice market share, they didn’t want to downsize and they didn’t want to leave behind record profits. And like nearly everyone else, they (temporarily) forgot that home prices can fall, borrowers can become delinquent … and lenders can file insurance claims. A “senior moment” they should not have allowed themselves. After the MIs in the chain of culpability come mortgagors. Many were motivated by an opportunity for a free continued on page 34
heard on the street
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fectly aligned. It’s an exciting time to provide unparalleled value to the mortgage industry at a time these essential services are needed most.” For more information, visit www.loyaltyexpress.com or www.xinnix.com.
RealUp partners with MDA DataQuick for commercial data
I have a small warehouse line. How do I meet the Home Valuation Code of Conduct (HVCC) Section VI Appraisal Quality Control Test? The Home Valuation Code of Conduct (HVCC) Section VI states: “Lender will perform a sampling quality control test on a randomly selected 10 percent of the appraisal or valuations used by the lender, including AVMs BPOs and Desktop Evaluations. Lender must report negative finding and code violations to Fannie Mae or Freddie Mac. Enterprises may enforce rights and remedies, including non-participation or loan repurchases.”
O Dan Perez has joined Senior Financial Corporation as national sales director. O The Mortgage Bankers Association has named Michael Fratantoni as vice president of single family research and policy development. O Freddie Mac has announced that David Moffet, former chief executive officer, will temporarily return as consultant to interim CEO John Koskinen. O Donna Crosby Sloan has joined the Atlanta-based real estate closing law firm of Morris|Hardwick|Schneider, serving as senior managing attorney of the firm’s general litigation division. O Pro-Teck Services has announced the hiring of Andrew Merz as director of training and professional development. O Michael Bradfield has been appointed general counsel of the Federal Deposit Insurance Corporation (FDIC). O American Foundations MortgageBanc has added Robert D. Santo Paulo as sales manager in the company’s Naperville, Ill. office and Jan M. Brezina as national operations and underwriting manager. O iServe Servicing has hired Richard Cimino as chief executive officer.
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Heard on the Street/Mortgage Professionals to Watch 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.
I recommend that your post-closing quality control (QC) software has an appraisal compliance section in it that can produce its own appraisal report separate from the post-closing QC audit. As you may know, the HUD Handbook 4060.1 and Fannie Mae and Freddie Mac’s Seller’s Guide addresses an appraisal review as part of the postclosing review. The agencies require that an appraisal desk review be performed on every loan audited, except for the Field Review Appraisal that is required on one percent of the total loan production or 10 percent of the total QC audit. If your company is performing the generic 10 percent post-closing review under agency guidelines, then you are meeting the HVCC standards. I do not think that many of the post-closing audit software programs have reached the ability to provide a separate appraisal report that can be sent to Fannie Mae or Freddie Mac. Usually, Fannie Mae and Freddie Mac request copies of the post-closing reports as well as the QC Manager’s Report. Again, very few post-closing QC software programs provide an integration of the QC Report, QC Manager’s Report and the Post-Closing Appraisal Report. Many QC managers or QC departments take on an addition task by preparing separate reports. Another consideration a small lender should consider when using an appraisal management company (AMC) is the ability to track the appraiser associated with high-risk loans that were assessed by the QC department. A QC manager who has the ability to link key player with a loan is essential to the success of mortgage operations and QC functionality. What Quality Mortgage Services and National Mortgage Appraiser provide a lender is a database from the Mortgage Analysis Review Software (MARS) where auditors perform appraisal desk review and an analysis of the Field Review Appraisal. Each loan audited is assigned a risk rating from one to four, meeting the HVCC requirements of review of appraisals. The MARS database, integrated with appraisal management software (AMS) provides the AMC team with the ability to monitor an appraisers’ work and track the quality of the appraisal as part of the QC requirement. The MARS portal empowers the QC Manager to integrate appraisal analysis reports, QC reports and QC Manager Reports where the QC management team integrated actions and responses to QC reports. In order to meet the HVCC Section VI requirement, outsource your QC to Quality Mortgage Services and use National Mortgage Appraisers as your AMC in order to meet all-new QC requirements. This way, all data is centralized and can be empowered to advance lending and QC operations to higher and more efficient standards.
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.
O JUNE 2009
O Ron Sims has been sworn in as deputy secretary of the U.S. Department of Housing and Urban Development (HUD). HUD has also sworn in Helen Kanovsky as general counsel, Peter Kovar as assistant secretary for congressional and intergovernmental affairs, and John Trasvina as assistant secretary for fair housing and equal opportunity.
By Tommy A. Duncan
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
Mortgage Professionals to Watch
O Paul Mooney has been hired by LenderLive Settlement Services as national sales executive.
RealUp, a commercial real estate listings Web site, has announced a multiyear partnership agreement with MDA DataQuick, a division of MDA Lending Solutions and independent provider of real estate data. The partnership will allow RealUp to provide recent sales data for all types of commercial real estate on its Web site, www.realup.com. “We are very excited about this partnership, because MDA DataQuick’s advanced real estate information platform will provide us with a unique edge over all other commercial listing sites,” said Brian Randy Funk, vice president of RealUp. “RealUp will be the ultimate resource for commercial real estate professionals. MDA DataQuick’s quality and quantity of real estate information sends the message that we intend to provide real value to our users.” DataQuick will provide RealUp with recent sales data for commercial property records across the United States, along with the latest transaction information for any given listed property. RealUp’s recent sales information will cover 90 percent of all U.S. commercial transactions and include address, property characteristics, tax assessment, property use classification and many others. “RealUp has created a unique user experience for commercial real estate professionals, and our data serves as a valuable resource and backbone for the user’s decisionmaking process,” said John Walsh, president of MDA DataQuick. “When RealUp’s vision is coupled with the unique data tools and services MDA DataQuick provides, their site will prove highly beneficial in the commercial real estate space.” For more information, visit www.realup.com or www.mdasolutions.com.
JUNE 2009 O
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
financial and economic crisis
lunch. They were swept away by the investment aspect, the lure of easy money, to borrow a phrase from an old Eagles tune. How could homebuyers go wrong? Little or no downpayment required and asset price appreciation of 10, 12, 15 even 20 percent per year for five straight years in markets like Florida, California, Arizona, Nevada and elsewhere looked irresistible. Sign ‘em up! And since 10 percent of $500,000 is larger than 10 percent of $300,000 (which may be affordable) let’s take the $500,000 house and finance it with interest only, at a 2.5 percent start rate (for six months) and a second mortgage. No guts, no glory, no skin in the game. An ATM in every home … if only for a while. In reviewing this presentation, my friend Richard Garrigan, a retired professor of real estate finance at DePaul University in Chicago, noted that much of the housing speculation could be traced to the Federal tax law change that occurred in the late 1990s. This change permitted a married couple to avoid up to $500,000 in capital gains on a primary residence after owning it for a minimum two-year period. Furthermore, a second home could be acquired and become a primary residence after the first home was sold. Think of all the housing demand this tax law change stimulated. Free capital gains and tax write-offs to boot. Again, the law of unintended consequences surfaces. Near the bottom of my hierarchy of blame rest the originators—the brokers, the real estate agents … the street level participants. Sure, they originated many loans now delinquent and foreclosed, and sure, they pocketed lots of commission dollars—though impishly small compared to Wall Street’s take. However, none of these brokers, which The New York Times recently called “predatory,” ever underwrote a loan or approved a commission. None. First and last, they were salespeople. They didn’t create payment option ARMs (POAs) and other risky products. And
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like all salespeople, they sold the products they were given, thinking little about the consequences or risk potential of a black swan. Not surprisingly, most felt they were doing borrowers a great favor, and for years, they literally were. In 2006 brokers, loan officers, real estate agents, lenders, etc. could look back and pat themselves on the back for a job well done. Virtually all of their customers had houses that were worth tens even hundreds of thousands of dollars more than when they were initially financed. Brokers were largely blind to any understanding of the magnitude of what they were doing. If Alan Greenspan didn’t see the crisis coming, nor Henry Paulson or Ben Bernanke, how could mortgage brokers? In the Inferno, Dante reserves separate places in Hell for various transgressors. From where I’m sitting, a largely dispassionate perch, the worse places go to the Fed, the Congress and the regulators. That’s where the buck should stop. Less bad places go to Wall Street. The least of the worst seats are reserved for the mortgagors and mortgagees. Or, to put it in the words of Vijay Mathur, professor emeritus of economics, in a recent op-ed piece: “Hence the ultimate fault lies with Congress, the Bush Administration and the Fed, because they were the only ones who were capable of taking a macro view and seeing the inter-relationships between the various segments of the global financial market. But they all ignored the warning signs of the housing bubble and financial collapse.” And so it goes … we now live with the aftermath and consequences of a two-term Administration and an ideology that put us at the bottom of a deep hole. The challenge ahead is to crawl out as quickly as possible, then fill in the hole so we can never again stumble into the perfect storm. Tom LaMalfa may be reached by e-mail at email@example.com.
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mortgateNOW announces MNI Update mortgageNOW Inc. has announced its MNI Update, a value-added service that provides credit information so that borrower profile information is fairly evaluated on credit decisions. MNI Update will educate the consumer on their credit score, along with providing strategies to assist them to accurately reflect their credit score with continuing oversight throughout the process. “Based on the testimonials from users on our Web site, we have found this program to be extremely successful in helping consumers obtain mortgage financing that may have otherwise been turned down,” said James Marchese, CEO of mortgageNOW Inc. Brooklyn Heights, Ohio-based mortgageNOW Inc. is a national mortgage banker, FHA direct lender, offering the opportunity for experienced loan officers, managers and telemarketers to originate government loans through its branch locations. For more information, call (732) 4500088 or visit www.mtgnow.com.
AllRegs and Mortech offer Leadmark product and pricing engine
AllRegs, an information management provider for the mortgage industry, has announced the availability of Leadmark, a Web-based product and pricing engine, lead management and guideline solution. The Leadmark product, created by Mortech, a mortgage technology software company specializing in daily pricing, product decisioning and lead management, is targeted to smaller mortgage businesses and online mortgage lead purchasers. “Now, more than ever, it is important to support small mortgage organizations and mortgage broker shops with business generation, and we believe that Leadmark is the next great resource in their toolkit,” said Dan Thoms, senior vice president of AllRegs. “The small guys deserve the same powerful tools that large mortgage organizations have to do their business. Leadmark levels the playing field for the small mortgage banker and mortgage broker.”
Leadmark provides access to a lead aggregator, product guidelines and lead management tools in one automated system. The product and pricing engine can be used solely for those in need of an easy way to price loans, or combined with lead management features. A key feature of Leadmark is the ability to integrate seamlessly with one of a variety of Internet lead aggregators. “We designed Leadmark as a simple yet powerful solution for lenders looking to price and manage leads,” said Don Kracl, president of Mortech. “By incorporating AllRegs’ guidelines into the new solution, we’re confident the system can be adopted by any sized organization. Mortgage professionals have enough hurdles today; Leadmark gives lenders the resiliency they need to maximize profits.” For more information, visit www.allregs.com/leadmark or www.mortechinc.com.
Byte announces software for the Home Affordability Modification Program Byte Software has announced the release of the BytePro Loan Modification Edition, providing servicers with an all-in-one tool for processing modifications under the Treasury’s Home Affordable Modification Program (HMP). The BytePro Loan Modification Edition allows servicers to process HMP modifications from initial borrower contact through completion of the modification. It automatically calculates the interest rate, term and balance of the modified loan in accordance with Treasury mandates, and it produces all the documents that must be executed by the borrower and servicer. For loans that do not qualify for the HMP program, the software provides the ability to modify loans according to the lender’s own parameters. “Processing a loan modification is remarkably similar to originating a new mortgage loan,” stated Joe Herb, Byte Software’s general manager. “Both involve gathering application information from borrowers, ordering real estate settlement services, producing loan documents and performing complicated financial calculations.” The HMP program was announced by the Obama Administration on Feb. 18, 2009 and is expected to help between
three and four million borrowers by reducing their monthly mortgage payments to affordable levels. All servicers of Fannie Mae and Freddie Mac mortgages are required to offer loan modifications under the program. Servicers of non-Fannie Mae and non-Freddie Mac loans can also participate and receive incentive payments from the Treasury. For more information, visit www.bytesoftware.com.
FICO debuts Falcon Fraud Manager 6.0 FICO, a provider of analytics and decision management technology, has announced the availability of Falcon Fraud Manager 6.0. This product marks the first payment card fraud management solution to incorporate adaptive analytics, an innovation that accelerates a financial institution’s ability to spot new fraud patterns and prevent them from causing extensive damage. “In this era of rapidly changing fraud patterns, entirely new fraud methods and flash fraud incidents, Falcon 6.0 enables our clients to deploy self-learning models that adjust immediately to minimize losses,” said Doug Clare, vice president for product management at FICO. “Additionally, by combining adaptive analytics with our robust and proven consortium models, Falcon users benefit from an ‘adaptive cascade’ that provides the best of both worlds: Immediate adaptability along with stability and dependability.” Besides incorporating adaptive analyt-
ics technology, FICO Falcon 6.0 expands FICO’s patented fraud detection and profiling techniques by introducing global intelligent profiles to monitor high-risk ATMs, merchants, risky geographic regions and other relevant entities. Falcon 6.0 also includes new detection and case management capabilities relevant to retail banking lines of business, such as demand deposit/current accounts. Extensive testing with client data has shown these innovations yield up to 44 percent improvement in detection model performance, translating to increased fraud detection with fewer false-positives. FICO Falcon Fraud Manager 6.0 is the second element of the FICO Decision Management Suite, a set of applications sharing a common architecture that allows financial institutions to connect decisions across the customer lifecycle. Falcon 6.0 makes extensive use of this new services oriented architecture, including a common data model, case management and rules management components. For more information, visit www.myfico.com.
ComplianceEase launches Web-based HMDA and CRA compliance risk management ComplianceEase, a provider of compliance and risk management solutions for the financial services industry, has announced the launch of HMDA Analyzer and CRA Manager, solutions that enable mortgage lenders to manage the analysis and reporting
required by the Home Mortgage Disclosure Act (HMDA) and the Community Reinvestment Act (CRA). The new solutions will enable the industry to ensure data integrity, edit loan records, conduct dynamic analysis, and generate the Loan Application Register (LAR) and other reports for regulators from anywhere, using only a Web browser. Both HMDA Analyzer and CRA Manager utilize Geocoding and visual presentation technologies, offering several benefits aimed at giving institutions a better picture of their lending operations. Dynamic geographic mapping allows users to create maps on the fly that illustrate their lending patterns in particular areas. Built-in reports can be run as-is or customized in real-time. By examining their own lending patterns, as well as comparing those patterns to their peers in any geographic location, the solutions allow institutions to greatly improve the ongoing management of their lending operations and progress towards lending goals. The solutions also feature industryleading analytics, such as the capability to analyze borrower names to ensure that gender was properly reported. “By introducing our industry-leading Web-based ComplianceAnalyzer solution more than seven years ago, ComplianceEase eliminated the need for lenders to maintain disparate in-house loan-level compliance software,” said John Vong, president of ComplianceEase. “In the same way, HMDA Analyzer and CRA Manager bring HMDA and CRA compliance together in one place as an enterprise Web-
based solution that removes the burden of ongoing maintenance and update costs, allowing institutions to access the full range of features from wherever they have a Web browser and an Internet connection.” For more information, visit www.complianceease.com.
OpenClose releases MemberAssist software for credit unions OpenClose, developers of Webbased, end-to-end mortgage lending software, have announced the release of MemberAssist, a mortgage software platform developed specifically for credit unions. MemberAssist is the newest addition to OpenClose’s recently released AssistSeries, a fully integrated suite of mortgage software that automates loans from first contact with the borrower to post-closing. MemberAssist provides credit unions the tools to push information to members and prospective borrowers through online channels. The credit union software, which can be configured as standalone retail Web site or integrated into the credit union’s existing Web site, pushes consumer-friendly mortgage information, calculators and reference materials to prospective borrowers. The system reduces data entry and lost sales leads by taking information submitted and integrating it into OpenClose’s loan origination software (LOS). continued on page 37
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O JUNE 2009
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Securities-based lending: An alternative source of funding
Third-party originations: What the future may hold
By Adrian Skiles, GML
By David Walden
You may have heard the term “stock with a proposed interest rate. loan,” “stock-secured financing” or “secuThe terms are offered to the borrower, rities-based lending.” All of these terms and upon agreement by both parties, the refer to the type of lending program loan documents are drawn up and where the borrower’s securities (stocks, arrangements are made for the securities bonds, mutual funds or options) are to be transferred to a holding company. A pledged as collateral for a loan. These are final value is then given to the securities “non-purpose” loans and no lien is placed based on an average of the closing price of upon any asset, such as real estate or per- the collateral for three consecutive marsonal property. The securities alone stand ket days. This is called the “strike price.” as collateral for the debt. Proceeds of the The borrower then transfers the ownerloan may be used for any purpose except ship of the securities to the lender. The to purchase or carry securities. borrower still retains all beneficial interInterest rates for these programs are ests in the securities and will receive any usually between 2.5 and 4.5 percent and dividends or interest that accrues from the the loan-to-value ratios offered may be as securities during the term of the loan. high as 80 percent of the securities value. At the end of the loan term, the loan The factors that determine the rate of may be renewed, refinanced or paid off. interest and the amount of the loan are If the loan is paid in full at the agreed how actively traded and upon term, the exact numliquid the securities are on ber of shares or collateral the open market. The loan initially pledged is term is typically between returned to the borrower. three- and 10-years, with a One important point is fixed interest rate and there is a “lock-out” for the “interest-only” payments term of the loan, which due to the lender. These means the borrower may loans are offered with no not make any principal closing costs, broker or reduction payments or pay transaction fees. Funding off the loan entirely until can take place in just a the end of the agreedmatter of days. A credit upon loan term. “These loans are a report is not required, nor If, during the term of “qualifying stock is any income or employthe loan, the value of the ment verification done. securities falls below the lending agreement” Not all types of securities and therefore a nonagreed upon minimum may be used as collateral. fair market value (usually taxable event with The securities must be able 70 to 80 percent of the respect to any gain to be “free traded” without loan amount), then the or loss at the time of any restrictions and the loan would be considered the transfer of the borrower must be able to in default. The contract securities.” prove that they are not a 10 may require the borrower percent or greater holder, to contribute additional director or executive officer in the compa- cash or shares as more collateral to keep ny that is the issuer of the securities. the loan out of default. The decision to Retirement funds (401k’s, pensions, etc), move forward is solely up to the borrowdo not qualify for this type of program. er. Remember, that this type of lending is These are also “non-recourse” loans, non-recourse, so should this type of shortso if the borrower does not make the fall occur, the borrower may stop making interest payments when due or fails to the payments and simply walk away from repay the principal at the end of the loan the loan and forfeit their collateral with term, the lender’s only option is to keep no penalty or recourse from the lender. the securities that were pledged as collatWhen choosing a lender, here are a eral. Should a loan default occur, the loan few items the borrower may want to is cancelled and the borrower keeps the consider prior to entering into this type money received from the loan and the of arrangement: lender keeps all interest in the securities. The loan default is not reported to any O How long has the company been in credit bureau or placed in public record. business? The loan application process is quite O What are the backgrounds of the simple and should take just a few days principals in the company? to complete the loan process and receive O What assurances can the company the funds. To start, the borrower supgive that the full amount of collaterplies the name and number of shares al will be returned to the borrower that they wish to pledge, along with the upon completion of the loan term? loan amount and term desired. The O What is their track record of returning lender will then do a preliminary examthe pledged collateral to the borrowination of the loan request, and based er at completion of the loan term? upon an assessment of risks, they will determine the loan-to-value ratio, along continued on page 39
The views and opinions expressed in the following article do not necessarily represent the views and opinions of NMP Media Corp., its publishers and staff, the National Association of Mortgage Brokers and the National Association of Professional Mortgage Women.
effects of their shrinking net worth resulting from runoff, those lenders will need to stem the tide of rapid runoffs as quickly as possible for their stockholders. There will be limited servicing available to purchase at cost-effective prices. Therefore, it must come from production. Their own existing When offering my opinions on the subject production operations will soon prove to of the future prognosis for the mortgage be insufficiently staffed and trained to broker industry, I have only one agenda meet this demand. This industry has lost a and that is how to save the mortgage bro- lot of its trained, seasoned human ker industry. I certainly do not speak for the resources from the production side of the Mortgage Bankers Association (MBA) as a business. We will absolutely need the surtrade group spokesperson, but I am offer- viving community of mortgage brokers to ing uncensored straight talk from real expe- help generate the volume required to stem rience. I’m entering my 39th year in this the servicing portfolio runoff once this business, and until eight months ago, I co- cycle turns upward! owned a third-party wholesale operation Yet today, their very survival is being that was also a division of a federally-char- threatened by program eliminations, clostered thrift. I am a mortings of wholesale lenders, gage banker, and I mortgage insurance restricexchange knowledge and tions and new legislation. ideas almost exclusively Why? Over the past three within mortgage banking years, mortgage bankers circles from board rooms, have been perpetually anamanagement retreats, and lyzing what went wrong in lounges at industry trade each file that began failing shows, the office water our performance expectacooler, telephone, e-mails, tions, including the and inner-industry trade “what/why/who” of each publications. file. The analysis of data It is a complete mistake across the total industry “Everyone in this born of misunderstanding to indicts the broker more than business, and all believe mortgage bankers any other origination group. want to completely reIn my opinion, the allied business assume the responsibilities compensation structure of groups, are going to of meeting the total demand most mortgage brokerages be even more for mortgage originations. In hungry than today!” is the number one factor the late 1980s and early 90s, that compromises the ethmortgage bankers basically ical focus of the originagave birth to the mortgage broker industry tors. Number two is poor or non-existent of today because the business cycles of orig- supervision, and number three is the inations, coupled with almost uncontrol- absence and/or enforcement of traditionlable losses in other business units of bank- al quality control practices, both of which owned mortgage banks, forced the reduc- are prevalent at the significant number of tions of overhead associated with the mort- poorly-managed mortgage brokerages gage origination platforms. We avoided when compared to the more structured, incremental overhead (on the balance rules-based culture typical of a mortgage sheet) by using outsourced overhead (off bank. Not at the trade association level, balance sheet) thanks to the brokers. but within the individual businesses When we come out of this “meltdown” themselves. Servicing mortgage bankers there is very possibly going to be a fairly conduct the origination business for the rapid ramp-up of business demand for real servicing rights of the loans. They don’t estate financing, especially because the want to put defective business on their downside has been so protracted. Realtors books because it doesn’t perform and are tired of starving and pent up demand contaminates their portfolio or securities. from consumers previously frozen with They certainly don’t incent their originafear will give them the opportunity to get tors to break the rules and will not hesiback on the road to prosperity. The same tate to terminate production personnel holds true for homebuilders. Everyone in found to be involved in fraudulent activithis business, and all allied business ty. That includes fraud by omission or groups, are going to be even more hungry commission. They typically pay the lowthan today! There will be pressure on new est commission rates of all origination product development to assure that the platforms. If one of their originators seeks American dream will again be within reach to achieve gross earning levels comparafor most Americans who wish to own a ble to those working in other origination home. Five major banks will own in excess platforms, they must create that opportuof 65 percent of all mortgage servicing nity through higher volume. Non-servicrights and while Troubled Asset Relief Program (TARP) funds have mitigated the continued on page 38
new to market
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“Credit union members are seeking information about mortgage loans, refi rates and products online,” said J.P. Kelly, OpenClose’s president of operations. “MemberAssist enables credit unions to provide the information their members need, while also giving them an outlet to initiate loan applications online.” MemberAssist can be configured to meet the specific needs of any size credit union and can be designed to reflect a company’s individual brand. It provides members with an initial information portal to explore all available products and loan rates, and for those members interested in applying for loans, online mortgage applications. MemberAssist also integrates with OpenClose’s new AssistSeries, a platform designed to provide mortgage professionals with a suite of products designed to help them attract and service customers, while managing their loan process from loan origination to post-closing. For more information, visit www.openclose.com.
Kroll mitigates loan risk through Third-Party Verification
LenderLive Network offers HMP campaign to servicers
LoanMarket.NET has launched its online marketplace for buying and selling real estate-secured note investments. The Web site, www.loanmarketer.net, empowers both buyers and sellers of real estate-secured notes by creating a neutral, open marketplace that brings efficiency and full pricing transparency to the traditionally opaque secondary market for real estate-secured investments. LoanMarket.NET is designed to offer both existing note investors and those interested in entering the market for the first-time unprecedented access to this asset class. Notes available on LoanMarket.NET come from a variety of sellers, including mortgage originators, banks and lending institutions, mortgage pool investors, small private investors, and seller carry-back note holders (property sellers who provide financing to buyers in order to facilitate a sale). These sellers benefit from the simultaneous exposure of these investment opportunities to a much wider group of individual and institutional investors, resulting in better pricing and increased liquidity. continued on page 39
O JUNE 2009
LenderLive Network Inc., a provider of business process outsourcing and technology to the financial industry, has announced that it has successfully launched the first large-scale Home Affordable Modification Program (HMP) campaign with one of the nation’s top four servicers. HMP is part of the recently passed Making Home Affordable program, which will allow up to nine million Americans to refinance or modify their home loans. With this campaign, LenderLive plans to
LoanMarketer.NET launches marketplace for whole mortgage loans
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
Optimal Blue, developer of a Web-based platform that couples decisioning technology with content management for the mortgage industry, has announced the launch of myLender, a feature that simultaneously displays up to six views of search results for a given borrower’s profile. Each of the six views can be configured independently to the lender’s specification. Using an algorithm, myLender performs a best execution, complete with loan level adjustors, for every possible note rate and lock period combination across all possible products and investors and concisely displays the results in one of the six views. As part of the advanced functionality in the new engine, Optimal Blue added the capabilities to handle a pricing trace for historical pricing of a locked loan. When a loan officer locks a loan, the historical pricing trace allows users to view the entire grid for the loan product, itemizing all of the loan level adjusters and lender imposed factors that are needed to derive the final price. The pricing feature enables originators and secondary personnel to save time and resources by not having to go back to the outdated rate sheets to determine the new price calculation. “While many in our industry face significant market challenges, we believe that now is the time to innovate and offer mortgage professionals the tools that improve efficiencies, increase productivity and ultimately boost profitability,” said Larry Huff, co-CEO of Optimal Blue. “With the release of our new engine and production sites, and now MyLender, we continue to differentiate ourselves in the market by creating a platform that operates at a more advanced level than our competitor’s. This is more than a competitive advantage for our customers—these innovations truly transform the way they do business, positioning them for greater success.” For more information, visit www.optimalblue.com.
systems and knowledge in place to be successful in these campaigns.” For more information, visit www.lenderlive.com.
Kroll Factual Data, a provider of business information solutions to financial organizations and subsidiary of Kroll Inc., has announced the addition of Third-Party Verification (TPV) as an expanded service. Third-Party Verification addresses the growing need of lenders, servicers and financial institutions to obtain an unbiased verification of information. Kroll Factual Data provides solutions enabling clients to make qualified and confident business decisions that transfer risk, enhance safety and soundness, and increase profitability. As a third-party service provider that is financially uninterested in the transaction process, Kroll provides unbiased, manually verified, information. Third-Party Verification improves the quality of loans processed and increases the safety and soundness of the transaction in a cost effective manner. “As the needs of the industry are changing, Kroll Factual Data continues to deliver solutions that help our clients add to the bottom line,” said James Donnan, president of Kroll Factual Data. “By utilizing our Third-Party Verification services, clients are able to implement a variable cost solution raising efficiency and increasing profitability.” Kroll Factual Data performs verifications of information including, identity, employment, assets, tax information and any outstanding liabilities. Since the work and accuracy of verifications performed become the responsibility of Kroll, Third-Party Verification gives clients the ability to transfer risk, while producing quality loans faster. For more information, visit www.krollfactualdata.com.
Optimal Blue releases myLender
manage all of the inbound and outgoing documents required under HMP, including certain fulfillment processes. “At launch, we anticipate processing nearly 2,000 transactions per day, where success is measured in terms of seconds per transaction,” said Rick Seehausen, CEO of LenderLive Network. “HMP is a document preparation- and document management-intensive campaign and also requires thorough customer contact efforts, as well as disciplined underwriting practices. These components have been a significant factor in LenderLive emerging as a leading service provider, and for that reason servicers are seeking our help to ensure they can be in full compliance with these new guidelines.” LenderLive is ready to provide any service function related to HMP, such as counseling functions to reach borrowers, determining trial period and modification eligibility, responding to borrower questions about the program, as well as what they need to provide in the qualification process and the borrower surveillance calls during the trial period, as mandated by HMP. The company’s strength in underwriting will also play a role in verifying borrower requirements of the final HMP loan modification. “This is an effort that was spearheaded by President Obama and is one that certain servicers are mandated to offer to consumers,” said Seehausen. “While many of them are not currently prepared to handle the level of borrower contact nor the volume of documents required, we are operationally ready and have the
An open letter to U.S. President Barack Obama
JUNE 2009 O
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
By Thomas J. Murphy, CMA, CLA, CMPS
Dear Mr. President: environment of severely restricted lendMy compliments to you, on the steps that ing/borrowing opportunities. you have taken so far, in addressing the Now is the time to dust off this negchallenges that we are currently experienc- lected loan program, bring it up-to-date ing in the mortgage and real estate market- with current standards, implement the place. I believe that your actions are a good proper management and supervisory start; now, we need to take the next step. controls, and offer the financing to the One of the most significant issues we thousands of individual, grassroots are faced with is the distressed, aban- investors around the country who would doned and foreclosed housing stocks love to take an active role in real estate located throughout the country; espe- investing and rehabbing—and watch as cially in the blighted neighborhoods of private enterprise floods into the dynamour cities. We are dealing with millions ic American marketplace and takes over of homes that are negatively impacting the job from governmental efforts of the values in their neighborhoods. We reinvigorating our neighborhoods. have thousands of foreclosed properThe ancillary benefits to this proties continuing to flood onto the mar- gram are of no small consequence. An ket; the sooner we work through these increase in construction jobs/employhousing stocks, the sooner we will ment, an increase in commerce for the return to a normal real building trades/supply estate market. industries, increased payYou have a very potent, roll revenue and taxes, yet unused, weapon in the return of more housyour arsenal. The Federal es to the tax base of the Housing Administration municipalities, improved (FHA) has an excellent business prospects for housing rehabilitation thousands of realtors, loan; the 203(k) program. mortgage bankers and This loan program is curregular old, “mom & pop rently offered on an investors” … seems like a owner-occupied basis; win/win proposition. however, in the past, it Americans are industri“We don’t want has been offered as an ous, motivated and entrebailouts, we want investor loan program as preneurial by nature … all well. Real estate investors you need to do is provide opportunity and were allowed to particius with sufficient, effective hope!” pate in the program until funding mechanisms and October 1996. At that point, the investor we will solve the problems of the country part of the loan program was placed the old fashioned way, with hard work, under a moratorium, due to poor quali- motivated by capitalism and a desire to ty control issues, resulting in a number improve our own situation, as well as the of high-profile mortgage fraud cases. situation of our own neighborhoods. We It is self-defeating to take a success- don’t want bailouts, we want opportuniful, viable loan program and place it ty and hope! under a moratorium because some I encourage you to redeploy the people abused it. Instead, let’s figure 203(k) program for Investors. You don’t out how to make it better. It’s kind of have to reinvent the wheel, it already like, “This isn’t working the way I want, exists. The current economic conditions so I’m taking my marbles and going have created a strategic opportunity for home.” Everything is difficult before it this type of financing; you should direct is easy. It is certainly not the American the U.S. Department of Housing and way to quit, we don’t just give up. We Urban Development (HUD) to remove figure out how to make it work the right the current moratorium, institute way. The American genius is that we viable support, managerial and superconstantly re-invent ourselves. If you visory systems, and turn loose the are looking for a methodology to draw American entrepreneurial spirit. private equity off the sidelines and get To paraphrase Victor Hugo: “Nothing people working and investing again, is as powerful as an idea, whose time you have it at your fingertips. has come.” The FHA 203(k) loan program is an Thank you for your time and considexcellent vehicle for neighborhood re- eration. vitalization and increases homeownership opportunities for many low-to- Thomas J. Murphy, CMA, CLA, CMPS may moderate income families by offering a be reached by phone at (540) 786-2646 government guarantee, flexible under- or e-mail firstname.lastname@example.org. writing guidelines, a low downpayment and the opportunity to finance the actuFor more information on al home improvements with the origiauthor Thomas J. Murphy, nal mortgage … the very attributes that visit his Web site at investors find so attractive in today’s www.tjmurphy.com.
third-party originations ing mortgage bankers often pay a slightly more generous commission rate than servicing mortgage banks because their profit and loss (P&Ls) margins are totally fee income-driven, yet still discourage the origination of defective products. They too will terminate any production employee found to be practicing unethical origination tactics of any kind because they are obligated under strictly enforced correspondent lending contracts to repurchase loans determined to be defective, in addition to first pay and early pay default liabilities. Mortgage brokers typically pay the highest per unit commission rate of all origination platforms. They too are totally fee-driven, with commission rates that have ranged from 60 to 90 percent of total fee revenue, including yield spread premiums (YSPs). This is often rationalized due to the lack of benefits offered by the employer and the “harder sell” scenario created by discriminating disclosure requirements that limit those originators from achieving the unit volume enjoyed by servicing and non-servicing mortgage banks, banks and credit unions. If the originator is a valuable contributor to the bottom line of the brokerage, there is a predictable reluctance to take decisive action against the guilty originators by the owner/broker. The wholesale agreements with the lenders have been too weakly worded or passively enforced, and those who were enforced were ignored by the brokers or they simply closed up and re-opened under another name. This author is definitely not for limiting or capping origination income for loan officers. However, I am not an advocate for low volume/high commission incentive programs. But what about the sub-prime and Alta programs? Let’s be clear about this. It is not so much the liberal terms of programs and/or underwriting that caused the majority of the losses driving the meltdown. It is the misuse of those programs and the documentation trickery and counterfeiting that drives a majority of the losses. The analysis also demonstrated that, by early 2008, approximately 60 percent of mortgage fraud was “fraud for shelter,” but only represented approximately five percent of the losses. That’s right … liberal programs only represent five cents of the dollars lost in the meltdown! The explosion of foreclosures skews that figure after the beginning of 2008 due to short sales and rapidly deteriorating property values. But the meltdown was seeded way in advance of 2008! On the other hand, approximately 40 percent of mortgage fraud was “fraud for profit” and represented approximately 95 percent of the losses. That indicates it is not the programs themselves but the abuse of the programs that are the root of the real problem, as well as this disagreement of where we are! Arguably nine out of 10 of the fraudulent loans were broker-originated! Mortgage
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bankers know it. Banks know it. And equally as important, the regulators know it. That’s why modifications of business and risk models used by lenders and insurers are not the principal threat to the survival of the brokers, but rather the eliminations, delivery channel closings, mortgage insurance restrictions and new legislation, much of it directed against brokers who are the principal threat. The fix to this problem is both simple and complicated. First, modify the compensation structure to more closely resemble that of mortgage bankers. Paying a higher rate to offset the lack of a benefits program is fair, but it should be kept at a reasonable level. Reallocating some of the excessive commission rates to payroll to strengthen supervision and quality control systems would improve the business model significantly, and would go a long way to meeting the next objective. Next, push to change some of the laws requiring brokers to disclose their earnings in a manner other origination platforms are not required to do. In other words, level the playing field so brokers can better focus their efforts on unit volume, rather than income per unit. It’s in the mortgage banker’s interest to do whatever it takes to preserve the mortgage broker business. They will need the production, and wholesale platforms are typically less expensive to operate and maintain than retail platforms, especially in stagnant or down cycles. In addition, and at least as important as any other step, mortgage brokers must defeat the reputation that is creating so much fear that the lenders to whom brokers were their best customers are turning their backs on the third-party originator industry? At the trade association level all the way down to the individual broker level, they must become more active and visible in their efforts to clean up their own backyard. They must stop prioritizing fear of litigation over the survival of the more intense threat to your business and industry. They know who the bad guys are. Their own loan officers tell them daily when they report that another broker got a loan approved and closed … that experience tells the honest and prudent broker would absolutely not qualify within the stated and intended terms of any known program. We, as third-party lenders, need the brokers to rebound and survive, but they must take the lead to make that happen from this point on. David Walden is a 39-year veteran of the mortgage banking industry, specializing in the mortgage production management of retail, wholesale, correspondent and affiliate branch origination strategies, and currently owns Production Solutions, outsourced production management and staffing. In addition, David also owns Risk & Recovery Solutions, conducting mortgage fraud detection, investigation, prosecution and asset recovery. He may be reached by e-mail at email@example.com.
new to market
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To enable investors to adequately determine a loan’s risk and establish an appropriate price, all notes listed for sale provide a high level of detailed information, including a current market value and photo of the underlying property (pulled within 14 days of posting), and all vital loan documentation, such as the Note, the Deed of Trust, the Title Policy and evidence of homeowner’s insurance. “The market for buying individual mortgage notes from originating lenders has traditionally been available only to investors such as Wall Street investment banks, large hedge funds, and regional banks,” said LoanMarket.NET Founder and President Jeff Freud. “Now, small institutions and sophisticated individual investors, such as those who have traditionally invested in other debt instruments, can gain access to these incomegenerating notes, collecting principal and interest payments just as the former lender did for the remaining term of the loan or until a refinance or sale occurs.” Unlike traditional purchasing of investment property or auction venues for buying foreclosed homes, where buyers acquire ownership of physical
property, LoanMarket.NET listings are for transferring ownership of incomegenerating notes, which are secured by the real estate. “We understand that LoanMarket is opening the doors to a traditionally closed marketplace and we’re committed to ensuring new note investors a positive experience by offering transparent asset information, real price discovery and seamless transactions,” said Freud. For more information, visit www. www.loanmarket.net.
All Regs .................................................... www.allregs.com ......................................................27 Continental Home Loans ............................ www.chlmortgagebankers.com ....................................31 Elliott and Company Appraisers Inc. ............ www.appraisalsanywhere.com ......................................8 First Fidelity Capital Markets Inc. ................ www.ffidelity.com ....................................................37 Flagstar Bank ............................................ www.wholesale.flagstar.com ..........................Back Cover
Franklin First Financial .............................. www.franklinfirstfinancial.com ....................................23
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:
Global Financial Services ............................ www.globalbrokersystems.com ....................................21 HTDI Financial .......................................... www.startacreditrepaircompany.com ......Inside Back Cover Hudson Valley Processing............................ www.hudsonvalleyprocessing.com ..............................35 Informative Research.................................. www.informativeresearch.com ....................................11 Mortgage Now Inc. .................................... www.mtgnow.com ......................................................9 Multiple Listing Service of Long Island Inc. .. www.mlsli.com ..........................................................3
New to Market column
NAPMW .................................................... www.napmw.org ......................................................13
Phone #: (516) 409-5555 E-mail: firstname.lastname@example.org
Presidents First Mortgage Bankers .............. www.presidentsfirst.com ....................Inside Front Cover
Note: Submissions sent via e-mail are preferred. The deadline for submissions is the 1st of the month prior to the target issue.
Platinum Credit Services Inc. ...................... www.platinumcreditservices.com ..................................5
Quality Mortgage Services .......................... www.qcmortgage.com ........................................14 & 33 ThinkReverse! ............................................ www.mortgageproshop.com ....................................TX 1 United First Financial ................................ www.unitedfirstfinancial.com ....................................25 Value Financial Mortgage Services Inc. ........ www.valuefinancial.net ..............................................17 Wells Fargo Home Mortgage ........................ www.wellsfargo.com ....................................................7
securities-based lending O Does the lender have past client references that the borrower can speak with?
Benefits O O O O O O O
O O O O
For more information on author Adrian Skiles, visit Artice Funding on the Web at www.articefunding.com.
O JUNE 2009
O Lock outs: No early loan pay off is allowed O If the value of the security declines substantially during the loan term, the borrower may have to provide additional funds or collateral to keep the loan viable
Adrian Skiles, GML of Artice Funding, began his career in the mortgage business more than 20 years ago and is the author of the book, Secrets of Mortgage Lending. Since 1997, he has owned his own mortgage firm in Atlanta where he offers mortgage services for both residential and commercial clients. He is a long-time member of the National Association of Professional Mortgage Women (NAPMW) and the National Association of Mortgage Brokers (NAMB). He may be reached by phone at (770) 888-8063 or e-mail email@example.com.
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
Low fixed interest rate Interest-only payments No liens on any other asset Quick fundings Non-taxable event No credit check Loan is not reported to the credit bureaus No verification of income or employment No closing costs, broker or transaction fees Non–recourse loan Borrower receives dividends or interest that may accrue from the securities during the term of the loan At the end of the loan term, the exact number of shares or collateral initially pledged is returned to the borrower
These loans are a “qualifying stock lending agreement” and therefore a non-taxable event with respect to any gain or loss at the time of the transfer of the securities. But as in any major financial transaction, the borrower should consult with their tax advisor prior to entering into any agreement that may have a tax consequence. There is no maximum or minimum loan amount, but typically, lenders like to stay above $50,000 per loan. Nationally, the average amount has been around $500,000 for these types of loans. In today’s tightening credit markets securities-based lending offers a funding option that may be worth exploring.
So if a borrower has securities that would qualify for collateral and would like to borrow funds at a low fixed interest rate, then this may be a viable option with these benefits and drawbacks:
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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.
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 firstname.lastname@example.org. JUNE 2009 Wednesday, June 10 Arizona Association of Mortgage Brokers 2009 Mortgage MarketPlace Education & Expo “Expand Your Mind & Expand Your Business” Phoenix Convention Center 100 North Third Street Phoenix For more information, call (480) 423-7334 or visit www.mortgagemarketplacehome.com.
JUNE 2009 O
TEXAS MORTGAGE PROFESSIONAL MAGAZINE
Wednesday-Friday, June 17-19 National Reverse Mortgage Lenders Association Washington D.C. Policy Conference The Liaison Capitol Hill Hotel 415 New Jersey Avenue NW Washington, D.C. For more information, call (202) 9391760 or visit www.nrmla.org.
Saturday, June 27 2009 National Association of Mortgage Brokers Mid-Year Meeting Crowne Plaza Riverwalk 111 Pecan Street East San Antonio, Texas For more information, call (703) 3425900 or visit www.namb.org. JULY 2009 Wednesday, July 8 11th Annual “Let’s Make a Deal” Tri-State Wholesale Lending Fair Sponsored by the Mortgage Bankers Association of New Jersey/New Jersey Association of Mortgage Brokers, New York Association of Mortgage Brokers and Pennsylvania Association of Mortgage Brokers Trump Taj Mahal Casino Resort 1000 Boardwalk at Virginia Avenue Atlantic City For more information, call (973) 379-7447 or visit www.njamb.org. Wednesday-Saturday, July 15-18 Florida Association of Mortgage Brokers 2009 Annual Convention & Trade Show “World of Wonders” Orlando World Center Marriott Resort & Spa 8701 World Center Drive Orlando, Fla. For more information, call (800) 289-9983 or visit www.famb.org.
Wednesday-Saturday, July 29-August 1 California Association of Mortgage Brokers 2009 Annual Convention & Grand Exposition San Diego Marriott Hotel & Marina 333 West Harbor Drive San Diego Convention Center 111 West Harbor Drive San Diego For more information, call (916) 4488236 or visit www.cambweb.org. AUGUST 2009 Tuesday-Friday, August 11-14 American Association of Residential Mortgage Regulators 20th Annual Regulatory Conference The Hyatt Regency Savannah 2 West Bay Street • Savannah, Ga. For more information, call (202) 5213999 or visit www.aarmr.org. SEPTEMBER 2009 Wednesday-Friday, September 9-11 Mortgage Bankers Association of Pennsylvania Annual Conference The Eisenhower Hotel and 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 visitwww.mortgagebankers.org. Thursday, September 10 Minnesota Mortgage Association 2009 Convention & Exhibitor Showcase The Hyatt Regency Minneapolis 1300 Nicollet Mall Minneapolis For more information, call (952) 3453240 or visit www.themma.org. Thursday-Friday, September 10-11 2009 Nebraska Association of Mortgage Brokers/Nebraska Mortgage Association Fall Conference Embassy Suites Omaha-La Vista Hotel & Conference Center 12520 Westport Parkway • La Vista, Neb. For more information, call (402) 505-7180 or visit www.nebraskamortgagebrokers.org.
Wednesday-Thursday, September 16-17 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.
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.
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.
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.
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.
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.
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.
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.
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. 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) 7936222 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.
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 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.
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
loan 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.”
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
Industry Leading Results 46.95%
20.44% 17.32% 14.21%
Round 1 Round 2 Round 3 Round 4
rocks as a business opportunity.” 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.
FREE demo available
There is only one step you need to take; visit www.startacreditrepaircompany.com or call us at 877-877-4834 option 5.
JUNE 2009 O
NATIONAL MORTGAGE PROFESSIONAL MAGAZINE O www.NationalMortgageProfessional.com