TNR - December 2010 by The Niche Report (Media Kit)

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Issue 041 December 2010

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TheNicheReport.com

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Bringing Up Shhh ... Frank & the Right 54 30 10 Finding 18 The Rear Brian Speak Is The Loan Officer Branching Company FEATURE ARTICLE!

Asking the right questions determines your success.

Dead? 2010 Market Trends & 2011 Predictions.

So who's going to originate these loans?

Martin Joel Erzinger, et al.

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ADCODE: MANRMERC1210 a la mode and its products are trademarks or registered trademarks of a la mode, inc. Other brand and product names are trademarks or registered trademarks of their respective owners. All prices, terms, policies, and other items are subject to change without notice. Copyright ©2010 a la mode, inc.

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(1) Identifying the most likely candidate investment vehicles. This is the entry-level product that clients choose in order to determine whether a loan was securitized and which avenue it likely took into the securitization market. Our researchers look for typical characteristics with appropriate cut-off dates to narrow the ballpark and provide a basis for a Tier Two Memorandum. (2) Identifying the Note holder and the specific investment vehicles into which your client’s loan was securitized. This is not always possible due to SEC regulatory limitations, however, the Tier Two Memorandum can provide a much more complete and detailed account of where the loan went and, in many cases, which investor purchased it and who the last holder of the Note was reported to the SEC. (3) Public Records Research and Report: Our experienced and dedicated team will comb through County records to obtain evidence of fraud or unauthorized transfers and assignments of property. A comprehensive report details our findings. • Also performing Securitization Training Webinars and Courses starting in Fall 2010 • See Website for upcoming MCLE Continuing Education Seminars on Securitization

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310-432-6304

CONTENTS

Issue 041

December 2010

Is The Loan Officer Dead? 2010 Market Trends & 2011 Predictions.

NICHE REPORTS Agency & FHA

pg 45

COMMERCIAL

pg 45

HARD MONEY & NON-PRIME

pg 46

ConStruction

pg 46

Service Providers

pg 47

Rick Roque FOUNDER & PRESIDENT Robert Pegg robert@thenichereport.com CO-FOUNDER & PRESIDENT David Pegg david@thenichereport.com MANAGING EDITOR Stewart Mednick stewart@thenichereport.com

10 14

28 37

Finding The Right Branching Company

Title XIV: The Mortgage Reform and Anti-Predatory Lending Act

Security, Privacy and Ethics Molly Dowdy EVP of Marketing, A la mode How to get new clients now.

Kurt Reisig CEO American Pacific Mortgage Asking the right questions determines your success.

DEPARTMENTS

peter hĂŠbert cec trainer mortgage industry author

Twas The Night Before Christmas

shhh ... Frank & BRian speak

Martin Andelmann mandelman matters ml-implode.com

THE VOICE OF HOUSING

What's your mortgage IQ?

LENDER & RESOURCE DIRECTORY

BRINGING UP THE REAR

Center Stage with United Wholesale Mortgage The Niche Report The Niche Report talks with Executive Vice President Mat Ishbia

December 2010

from the editor's desk

EDITORIAL / CONTENT MANAGER Kristen Moser kristen@thenichereport.com ACCOUNTING MANAGER Shawna Ingram shawna@thenichereport.com Advertising Director Jessica Grizzle Jessica@thenichereport.com Advertising sales Heather Bopp Heather@thenichereport.com Production Manager Henry Suchman henry@thenichereport.com Production Assistant Dawn Exner dawn@thenichereport.com COLUMNISTS & Contributing Authors Martin Andelman Molly Dowdy Frank Garay Peter Hebert Stewart Mednick Joe Murin Kurt Reisig Rick Roque Brian Stevens

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Published monthly by BODA Publishing, LLC PO Box 494, Bentonville, AR 72712 Phone: 866.964.2695 Fax: 703.991.2362 Email: info@thenichereport.com www.TheNicheReport.com

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EDITORIALS / ARTICLES To submit an article for consideration in The Niche Report, please send an email to stewart@thenichereport.com or call 866.964.2695. We are interested in original writings relevant to mortgage brokers and other real estate finance professionals. If you have a comment or question about an article or editorial published in The Niche Report, or if you have a suggestion for a topic you would like to see featured in a future issue, please send an email to stewart@thenichereport.com.

THE NICHE REPORT POLICY The information and opinions expressed by contributing authors and advertisers within The Niche Report do not necessarily reflect those of BODA Publishing, LLC employees and should not be considered as endorsed or recommended by BODA Publishing, LLC.

FROM THE EDITOR'S DESK

This year is finally coming to an end. So much has happened in this year that I can not even begin to summarize. I do want to mention some landmark events in The Niche Report realm. We have developed some fantastic partners, sponsors and readership. The bandwagon grows and we are all enriched with knowledge, humor, points-of-view, and controversy. I want to recognize all of the contributing authors and columnists for their outstanding content of articles and professionalism in responsibility to write them. I want to thank the advertisers for believing in the magazine while our industry has been turned upside down. The greatest acknowledgement goes to the reader. I know we have independent brokers to company executives reading. No matter. If our content is good, then the reader is enriched. The Niche Report has grown in record proportion because of all the above mentioned. I see many aspects of the business in a different light because of the content I read every month. I find new lenders with cutting edge products and processing methods. I find new technology. I hold on to what I am familiar with and what is newly discovered. A personal story about such an epiphany: I have been a Calyx user my entire professional career. I have upgraded each new version of Point and originated hundreds of loans with their products. I now read the magazine and see advertisement by the company, articles written about the company and now hope that the company will even pony-up an executive author to write for the magazine. All this presence reinforces the fact that I now know that I have chosen an industry leader and an ethical and quality company to partner in my professional development. I never knew I would be an editor for an industry magazine ten years ago when I was using Point. Now, I am proud that this company, like tens of others, has chosen to be part of the best magazine in the industry. This reinforcement of seeing the advertisements of the companies I use and rely upon is testament of the quality, dedication and moral fiber that makes up these fine partners. OK, I am off my soap box and the flag waving, tear-jerking schmaltz is over. But to all of you readers, all of you authors, all of you advertisers, and all of you professionals that make this magazine successful, on behalf of the entire staff of The Niche report, we take a bow and acknowledge your contribution to a good thing. Thank you, and Happy New Year! May 2011 be even better!

Stewart Mednick

Official

MEMBER

TheNicheReport.com

Finding the Right Branching Company Asking the Right Questions Determines Your Success By kurt reisig

efore mortgage professionals start the process of evaluating branching companies, it is vital they perform due diligence to ensure they select a credible, stable, transparent company that will have longevity. Due to shifts in the industry, there has been an influx of new branching businesses that grew from other sectors. Many principals at these companies have backgrounds other than retail branching. This creates challenges as they are often unable to understand how to best support branches or loan originators. As the decision to affiliate with a branching company has the potential to shape one’s career, it is important to research, qualify and vet as thoroughly as possible. The selection of a top branching company will allow success for branch managers and employees.

The Right Questions, To Get the Real Answers Once a business owner or mortgage professional decides that they are ready to become affiliated for the first time, or to change affiliations, there are questions that are important to ask the potential employer. The first question to ask is “how long have you been in business?” It is important to have a deep understanding of not only how long the company has been around, but to have a clear picture of what type of business they have 10

December 2010

conducted over the years. For example, has the company always focused on retail branching or have they transformed and reinvented their focus recently? The longer they have been in the branching business, the better equipped they are to support their individual branches. Knowing how long the company has been in the branching business indicates how familiar they are with helping new branches transition into their organization, what support their branches need, the training they can offer to branch managers and staff and how to help support a successful transition. It is important to understand the company’s goals for the future, including how they will navigate regulatory reform. This will provide insight on where they are headed and the viability of their future survival and success. Research their mission and decision making processes, then evaluate how these have affected the company and how future decisions could impact your individual branch. Another important question to ask is “do the principals of the company have a mortgage origination background?” Listen to their response and attempt to identify the orientation of the company. For example, was the company leadership team formed by individuals that used to work originating loans, or are they currently producing loans? If the company does not understand today’s challenges at the branch level, it becomes difficult for them to relate to the day-to-day issues at the branch level. Ideally principals are in touch with what happens at the branch level and can make changes based on those experiences. If they have

“ENTITLE DIRECT has received regulatory approval to sell title insurance... with a simple pricing strategy: Charge a ﬂat 35% less than the going rate in the local market.” Forbes

People are talking about title insurance. Weird, huh?

“The biggest cost that’s almost always negotiable are the charges for title insurance and related title services... ENTITLE DIRECT... charged $857.50 for that entire package — a savings of $787.” CBS Moneywatch

“[ENTITLE DIRECT] aims to undercut other insurers by at least 35%.” Wall Street Journal

But true. And maybe it's time you did too. Before your client reads about ENTITLE DIRECT1 or hears about it from a friend or an advisor or worse — your competition. ENTITLE DIRECT can save your borrower hundreds, even thousands of dollars on a jumbo closing. Being the first to tell your client and offering to request our title insurance on their behalf (it's easy with our dedicated call center) can help build a relationship and position you as a trusted advisor. It's also a great way to re-engage with refi prospects. There’s nothing to lose, except high-priced retail title costs. ENTITLE DIRECT has instant online quotes. If you like our rates — and what's not to like with savings of 35% or more — we'll guarantee them for your GFE in minutes. Use our closers or your own.2 So repeat after me: "I can save my borrowers hundreds, even thousands off closing costs with ENTITLE DIRECT." That wasn't too weird, right?

Call us at 1.877.936.8485 All title insurance policies are underwritten and issued and all licenses to issue policies and regulatory approvals received are held by EnTitle Insurance Company, 4600 Rockside Road, Independence, OH 44131. EnTitle Insurance Company is regulated by the Ohio Department of Insurance. * Except in NM where rates are set by statute. Subject to state laws and approval by EnTitle Insurance Company. Certain title and escrow services are not available in all states. CBS Moneywatch, Wall Street Journal and Forbes are copyrights owned by their owners.

worked their way through the business, they understand the production side and the tasks of branch managers and loan officers. This helps them to better relate to individual branches, answer questions and give branches the support they need on a daily basis. Retail branching requires a unique set of additional staff and knowledge. Human Resources must be able to seamlessly integrate new employees and branches and easily transition benefits. Furthermore, licensing procedures for the branch and its staff must be clear. Most importantly for your customers, the support and loan processing capabilities must be available from day one. It is vital for success to affiliate with a company that understands and in turn will best support branches. Are they Transparent? How have they been able to navigate the changes in the industry over the last five or more years? How strong of company are they? It is crucial to know that a company has adequate net worth and that they are profitable. As important, do they generate timely, accurate P & Lâ&#x20AC;&#x2122;s for their branches? An additional investigative tactic is to ask for a complete list of branch managers, then randomly select a few to call and interview. Calling these managers at random ensures that they have not been coached for your call and allows you to capture candid, unrehearsed, first-hand testimonials from their experience with the retail branching company. Partners. With whom does the company partner? What services do those partners provide? How long have they been partners with each company? Every company has a variety of other companies they work with that are integral to the products and services they provide. Retail branching companies are no different. Long lasting partnerships mean that both have found the relationship to be beneficial and it often means better service. Knowing how much warehouse capacity they have and who they sell their loans to is crucial to the success of your branch. It is essential that they demonstrate openness when it comes to credit facilities and all partners throughout the process.

Industry Changes With new regulations being imposed across the mortgage industry it is important to ask questions about how the company has dealt with previous changes, and how it plans to deal with upcoming changes. Knowing how they have reacted to previous industry changes should give you some insight as to how they will make changes in the future. One looming regulatory issue is compensation reform. With this reform scheduled to be implemented across the industry in April 2011, ask how is the company planning on dealing with this huge change? What will their new 12

December 2010

compensation criteria be? There is no denying that these changes will be profound, but it is clear that successful loan officers and branch managers will still be rewarded. The model may change to compensate loan originators based on the volume and quality of the loans, instead of revenue.

Transition Planning Once you have talked with the branching company and think you are ready to make your final decision, there is one more set of questions to ask. What type of planning and support does the retail branching company offer? Chances are it will take time to build the relationships with the right people at the branching company. What are their policies to help you meet those people? How quickly can they get you and your staff licensed? What type of training do they offer to get you and your staff familiar with new computer systems and processes? Is the branching company willing to bear the cost of the transition? HUD rules regulate that a company may not ask for a start up deposit, so make sure you are familiar with these. When a branch manager makes the decision to move to a retail branching company there is an essential paradigm shift that takes place. This shift is often accompanied by a turbulent first 30 to 60 days, but by having a plan in place to address the key questions above, much of the turbulence can be resolved before it starts. If there are issues that arise having a plan in place to get answers addressed quickly and correctly will be important. Overall, having a transition plan in place helps to make sure that all parties involved stay on a profitable track. When entering into this partnership remember that both companies are making the transition together. Individuals should take the time to do their research, to ask questions and then to make a plan for the transition. Doing this research and having a series of comprehensive, transparent meetings before a transition is finalized will help reduce problems in the future. Knowing the appropriate research has been done will give the peace of mind that you have made the right decision for you and your staff. Ultimately, this means that the relationship will be mutually beneficial for both you and the retail branching company. Kurt Reisig is a licensed originator, the owner of a successful originating branch; a business coach and a speaker at various mortgage industry events. He Reisig is the founder and the current CEO of a leading retail branching mortgage banking firm. More information is available on American Pacific Mortgage Corporation and its â&#x20AC;&#x153;Open Platform Retail Branchingâ&#x20AC;? at www.apmortgage.com. Comments or questions for Mr. Reisig can be sent to kareisig@apmortgage.com.

TItle xiv: The Mortgage reform and anti-predatory lending act By peter hĂŠbert

enator Chris Dodd (D-Connecticut) and Congressman Barney Frank (D-Massachusetts) introduced the Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act). It is made up of 16 titles, 2,319 pages, and almost 390,000 words. The Mortgage Reform and Anti-Predatory Lending Act under Title XIV of the Dodd-Frank Act begins on page 773 and ends on page 850. Within those 73 pages, Title XIV places several curbs on loan officers for the purpose of protecting consumers and ensuring financial stability. There are eight subtitles with affirmations of existing law, amendments to existing legislation that result in significant lender curbs, enhancements to consumer protections, exemptions, and Congressional blame shifting.

Subtitle A - Residential Mortgage Loan Origination Standards Subtitle A affirms the Housing and Economic Recovery Act of 2008, which implemented the Secure and Fair Enforcement for Mortgage Licensing Act (SAFE Act). Loan officer compliance is monitored by the Nationwide Mortgage Licensing System and Registry (NMLS). The underlying purpose is to ensure that loan officers working within federally regulated depository institutions and their subsidiaries are registered, licensed, and qualified through ongoing training. Subtitle A amends the Truth in Lending Act (TILA) by barring loan officers from discouraging borrowers to 14

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competitively shop and compare mortgage products, interest rates, and loan fees by contacting and also applying with other lenders. Loan officers, who violate the steering for profit ban, can face up to three times the ill-gotten compensation. This is significant, because when a borrower applies with three lenders, there is a one in third chance of originating a loan. The net impact of this will be that loan officers will be forced to become more competitive in their service and knowledge that they provide customers. Subtitle A amends TILA by barring lenders from steering borrowers into mortgages that net loan officers higher fees. Originators, who violate this prohibition, will face repayment penalties of up to three times the total compensation. Loan officer fees are now capped at 3 percent, down from 4.5 percent that was permitted under the Home Ownership and Equity Preservation Act (HOEPA).

Subtitle B - Minimum Standards For Mortgages Subtitle B amends TILA. Under this subtitle, mortgage lenders are now barred from requiring their borrowers to sign an arbitration agreement as a condition of applying for and obtaining a mortgage to finance a home purchase or refinance an existing mortgage. This means that customers will be entitled to judicial redress and due process. Complaints will be heard in the discovery process in a conference room, and if not settled out of court, the complaints will be heard in a public courtroom. Subtitle B also requires that lenders ensure that their borrowers have a reasonable ability to repay their

debt. This means that loan officers will need to verify their borrowers’ incomes and assets and ensure that they can support the new monthly debt obligations. In other words, the loan officer’s role will not be to get the borrower qualified, but rather to make sure the borrower can repay the obligation. Regarding seasonal income, creditors “may” consider this income. The law does not say “shall.” The net impact of this will be that the low prima facia standard established under the HOEPA will be bumped up to a higher level that approaches due diligence though this provision does not amend HOEPA. Lenders must produce a net tangible benefit for their borrowers. While the new law is silent on what specifically constitutes a net tangible benefit to the borrower, the Federal Reserve will implement regulations over time, that provides more clarification. Loan officers must qualify borrowers applying for “non standard” loans like an interest only mortgage or an Option ARM based on a fully amortizing schedule. Moreover, loan officers must calculate and take into account when making a lending decision the increased loan balance, due to negative amortization for their Option ARM borrowers. Moreover, loan officers must qualify adjustable rate mortgage (ARM) borrowers based on the fully indexed rate, which is the index plus the margin at the time of origination. Subtitle B amends TILA further by enabling borrowers to defend themselves against foreclosure actions. This amendment requires lenders to disclose to borrowers that they have a right to sue a lender attempting to foreclose. There is a no-time-limit provision, which permits borrowers, who have lost a home due to foreclosure, to offset their loss by not being liable for a deficit judgment. Moreover, another TILA amendment validates the anti-deficiency judgment statues across the different states designed to protect consumers. There is a new required disclosure to borrowers that they could lose these protections through a refinance. Also under Subtitle B, loan officers are prohibited from offering a borrower a mortgage that has a prepayment penalty if an alternative mortgage without a prepayment penalty is also available. Lenders, in other words, are required to place both mortgages before the customer for the customer to decide what is better for them. Subtitle B states that mortgage lenders are also barred from requiring borrowers to directly or indirectly, through a third party, finance various insurance plans through single premiums at closing. This provision protects

consumers from higher closing costs. The prohibition covers life insurance, disability insurance, unemployment insurance, loss of income insurance, accident insurance, health insurance, and mortgage pay off insurance in the event of death. Subtitle B also requires lenders to provide existing ARM borrowers six months advance notice of an interest rate adjustment, information about the index and formula, an explanation of the how the new interest rate and monthly payments were calculated, and a list of alternatives that include refinancing, renegotiation, forbearance, and a preforeclosure sale. Because of the widespread trouble many ARM borrowers experienced and the impact on financial stability, the advance notices must also include the complete contact information for HUD-approved counseling agencies and the borrower’s state housing agency. Lawmakers exempted reverse mortgages under Subtitle B. This is significant, because the reverse mortgage is a non-standardized product. Most of the reverse mortgages offered to consumers are not government loans.

Subtitle C - High Cost Mortgages This subsection amends TILA not HOEPA, which was the one law that established curbs on costs and rates. Loan officers are now limited in the interest rate reductions that they can offer borrowers. Interest rates can only be bought down based on the use of 2 percent in fees to secure a true discounted rate. This rate reduction limit tied to cost constrains a lender’s ability to offer the lowest available interest rate on a product in the market at a given time. The intention of this provision is consumer protection by limiting costs. Also under Subtitle C is another TILA amendment, loan officers are no longer permitted to tell their borrowers to not make a scheduled mortgage payment if they are refinancing them into a high-cost mortgage. To ensure that sub prime borrowers are not taken advantage of, loan officers are barred from originating a high-cost mortgage unless those borrowers have secured HUD-approved counseling. Subtitle D - Expand and Preserve Home Ownership Through Counseling Act Subtitle D establishes the Office of Housing Counseling within the U.S. Department of Housing and Urban Development (HUD). HUD-approved counseling will be made available to borrowers in order to educate consumers about procedures, financial planning and budgeting, mortgage products, and high-cost mortgages. TheNicheReport.com

HUD will authorize software for consumer use in mortgage finance decision making. HUD will also provide default and foreclosure data to the public. Public access to non proprietary default and foreclosure data will have the net benefit of aiding in the clearance of real estate owned and foreclosed properties from the real estate market.

Subtitle E - Mortgage Servicing Subtitle E amends TILA and requires servicers to establish escrow accounts for real estate taxes, private mortgage insurance, and homeowners insurance in connection with first mortgages. Servicers are required to pay customers the interest accrued on these escrow accounts. Servicers shall maintain the escrow account for at least 5 years. Borrowers can waive the escrow requirement if they have sufficient equity in the property or do not have to pay private mortgage insurance. Servicers are required to provide borrowers with a prominent disclosure of the consequences for failure to pay their real estate taxes and homeowners insurance premiums. Subtitle E amends the Real Estate Settlement Procedures Act (RESPA) by establishing tighter limits on loan servicers in connection forced placed in insurance. These are homeowner’s insurance policies that lenders require when borrowers permit an existing policy to lapse. The penalties against loan servicers violating this amendment have doubled. Subtitle E amends TILA by requiring servicers to post payments upon receipt unless a delay would not adversely impact the borrower. Moreover, loan servicers must provide a loan payoff within seven business days when requested. Subtitle E amends RESPA to require servicers of federally related mortgages to provide their customers with the complete contact information of the owner of the mortgage within 10 business days of a written request. Subtitle F - Appraisal Activities Subtitle F amends TILA by obligating borrowers to only pay for the first ordered appraisal. Lenders requiring additional appraisals must pay for those additional appraisals. In other words, the risk of lending and the required due diligence falls on the lender, not a marketplace participant; the purchaser. Moreover, lenders must provide a copy of every appraisal done in connection with a high-cost mortgage three days before closing. Appraisers will be protected by law to ensure appraisal independence. Loan officers are expressly forbidden to “coerce, extort, collude, instruct, induce, bribe, or intimidate”

December 2010

an appraiser in connection with a property value or payment for the appraiser’s services. Lenders, however, will be permitted and expected to ask appraisers to: Consider additional, appropriate property information, including the consideration of additional comparable properties to make or support an appraisal; Provide further detail, substantiation, or explanation for the appraiser’s value conclusion; and Correct errors in the appraisal report. The appraisal independence stipulation under Subtitle F is a major issue, and much attention is devoted to studying, monitoring, and enforcing the law. The title addresses the need to study the impact of the Home Valuation Code of Conduct (HVCC) in the selection of appraisers, the impact on cost and quality, the impact on mortgage brokers, and the impact on consumers. Of interest to lenders is that Subtitle F establishes an appraisal complaint hotline to ensure appraisal independence. Lenders will be required to deliver, at no cost, a copy of each appraisal in connection with a higher-risk mortgage within three days of closing pursuant to an amendment of the TILA and a copy of the appraisal on all mortgages pursuant to an amendment of the Equal Credit Opportunity Act (ECOA). An ECOA amendment requires lenders to provide their borrowers with a copy of each appraisal three days before closing. Lenders that willfully refuse to comply with this amendment may be subject to a $2,000 fine.

Subtitle G - Mortgage Resolution and Modification Subtitle G addresses Mortgage Resolution and Modification and affirms the Home Affordable Modification Program (HAMP) of the Making Home Affordable initiative of the U.S. Department of the Treasury (Treasury) established through the Emergency Economic Stabilization Act of 2008 intended to help between 7 and 9 million homeowners. Subtitle G reiterates that the Treasury is to post both guidelines and a net present value calculator on the Internet for consumer use. The modification guidelines and net present value (NPV) calculation are used as the basis for determining the eligibility of an applicant’s loan modification inquiry. The mortgage loan limits for owner occupied properties are:

1 Unit—$729,750 2 Units–$934,200 3 Units–$1,129,250 4 Units–$1,403,400 The Treasury’s standing offer on this voluntary program with loan servicers acting on behalf of investors is a dollarfor-dollar match when the front end debt to income ratio is reduced from 38 percent to 31 percent per mortgage. In exchange for that, the Treasury will pay $1,500 to lenders and investors and $500 to servicers for negotiating the trial loan modification while the borrower was less than 30 days late. The U.S. Treasury pays servicers $1,000 per modification and $1,000 per year for up to three years provided that borrowers stay in the trial loan modification. The U.S. Treasury will also apply up to $1,000 per year for up to five years towards the borrower’s principal balance if they are current on their monthly trial loan modification. The Treasury’s trial loan modification program is authorized through December 31, 2012. The trial HAMP loans may result in a permanent HAMP loan modification or a lender’s in-house modification.

Subtitle H - Miscellaneous Provisions Subtitle H is an opportunity for Congress to lay the blame for the failure of Fannie Mae and Freddie Mac on HUD. Subtitle H notes that in 1995, HUD authorized Fannie Mae and Freddie Mac to purchase sub prime loans made to low income borrowers. In 1996, HUD then mandated that 42 percent of Fannie Mae and Freddie Mac’s mortgages be made available to borrowers with incomes below the median income levels for the nation’s metropolitan statistical areas. “Affordability products” made this possible. In 2006, HUD increased the target imposed on the agencies to 56 percent. As a result of these policies, Fannie Mae and Freddie Mac’s subprime loan securities increased from 9 percent in 2001 to 40 percent by 2006. The risk in these agencies further grew between 2005 and 2007 as they purchased approximately $1 trillion in subprime and Alt-A mortgages. The conservatorship of Fannie Mae and Freddie Mac exposes taxpayers to $5.3 trillion of risk. As of June 2010, Fannie Mae and Freddie Mac owned 13.3 percent of the nation’s outstanding mortgages. In addition, these agencies issued 31 percent of the nation’s recent mortgage securities, which were either held or purchased by the Federal Reserve. Structural reforms imposed on Fannie Mae and Freddie Mac will be forthcoming.

Concluding Thoughts There is no such thing as a perfect law. Opposing interests intersect, compromises are made, and the end result almost always never pleases everybody. Lenders violating any provision of the Dodd-Frank Act will not be criminally liable. Violating any of the new provisions are just civil offenses. The Dodd-Frank Act is nothing like the New Deal that protected depositors, borrowers, and investors between 1933 and 2000. Even with the short comings, the mortgage reform provisions within Title XIV of the Dodd-Frank Act are good first steps towards ensuring higher standards within the lending industry, promoting financial stability, and aiding in consumer protection. Peter Hébert is a mortgage finance and real estate industry subject-matter expert and CEC trainer with a master of business administration degree in finance and marketing from Mount St. Mary's University in Emmitsburg, Maryland. Hébert is the author of Mortgaged and Armed (Freedom House Press, July 2010), which is available on Amazon.com. His upcoming book, Predator Nation, will be available in Spring 2011. He can be reached at PeterHebert@verizon.net.

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Is the Loan Officer Dead? 2010 Market Trends & 2011 Predictions BY Rick Roque

he tables have turned. The organizational dynamic of a mortgage operation dramatically shifted with the 2010 adjustments to the GFE and the timing of the issuance & acceptance of disclosures. Most mortgage companies and technology vendors were ill prepared to support the regulatory demands of the market. For mortgage companies, it was a lack of certainty, understanding and implementation of the evolving regulation(s). For technology vendors, they struggled for the same reasons however for most of them, they experienced a significant reduction in revenue, customers and staff. But up to this point, many of the changes did not fundamentally alter the ‘behavior’ of the mortgage operation. Yes, companies had more liability; yes, we saw the emergence of the compliance officer whose role has never been greater; yes, we saw the workload of processors and underwriters significantly increase for every file, but for most part, the job and role of the loan officer didn’t change. Other than the challenge of

passing a state and federal tests, and getting their borrowers qualified, their approach to the business has not really changed; “It is about working harder rather than picking up the phone to take an order,” said one loan officer about 2 months ago, based in Cleveland, Ohio. Loan officers make up the majority of employees within your average mortgage operation. The April 1st, 2011 changes to Loan Officer Compensation are dramatic and will fundamentally restructure how a company operates as a result. Up until now, the changes to a loan officer’s approach to the business seemed to be understood as “demand” driven and less systemic in their approach to the business. If you listen to many of the industry evangelists, the challenges to the loan officer revolved around the drop in demand (due to increase underwriting requirements) and rise in opportunity as a result of low interest rates, REO and Bank Owned properties. The message appears more cosmetic such that loan officers would simply have to work the same way, but harder to get the same business they did 2 years ago. If this is all that has changed for the loan officer, then not much has changed for the mortgage company as a whole. But is that all that has changed? Or has the fundamental nature and purpose of the mortgage operation? With the new changes in loan officer compensation, the genetics of the relationship between the loan officer and consumer will change – are you ready?

Death of a Salesman I left the conversation with that loan officer in Cleveland, Ohio dissatisfied thinking that something was missing. The driving momentum behind the mortgage market collapse and the backdraft of legislation that followed remains unclear for many loan officers. It reminded me of the classic play, Death of a Salesman , the 1949 play written by American playwright Arthur Miller. The play attempts to raise a complex drama of values, success and how we are fashioned by a profession’s rules that have been defined for us. The temptation toward a perception of money and success, along with the need to withhold criticism and personal opinion tends to dominate any sales profession; however it was personified in the mortgage industry. Loan Officers became all things to all people and as a whole, the mortgage profession was afraid of levying criticism toward any company or technology. This was fundamentally wrong. Many loan officers need to understand they need to stop blaming the market for their lack of performance. Some consumers simply need to wait for a mortgage until a point in time when they have earned the privilege of home ownership; some mortgage technology vendors simply need to be told their solutions are no longer relevant as they stand today or they lack innovation. Whichever the case, open clarity and direction is necessary for our industry leaders. Loan Officers need to reexamine how they, particularly, perceive their role as sales professionals and the motivation with which they advise consumers. Willy’s criticism of his oldest son’s (Biff ) lack of success was laced with his own failings and had little to do with Biff ’s true ambitions or goals. Death of a Salesman is a modern day Greek Tragedy with a salesman’s (Loan Officer?) obsession with the questions of greatness and subsequent decline as a result of such delusions that greatness results directly from personal charisma or popularity. If the recipe of success for a loan officer has changed then what is it? What do loan officers need to do to be successful in this business? What market trends have reshaped today’s lending environment? How will this impact mortgage technology and what are some predictions for 2011? In the backdrop of a number of mortgage market trends, the loan officer is being forced to make changes in how they approach his/her job, their consumer goals and the process with which they build effective relationships. Key Trends in 2010 & 2011 Access Mortgage Research & Consulting (www. accessmrc.com) and my firm, MENLO (www. menlocompany.com note: as of the writing of this article, I am only a non-operating partner) released the 2010

Mortgage Origination Study, that reviews the major regional and national industry production, retail, wholesale and broker segmented trends along with industry leading mortgage commentary. What the data reflects is a significant push away from operating as a mortgage broker and a migration pattern driven by market & regulatory pressures.

Regulation & Risk: Broker to Banker In 2010, an overwhelming majority of existing brokers did one of the following in response to the ongoing regulatory changes to the mortgage business: they remained solely brokering, partnered with a larger banking platform, pursued ‘captive’ or broader warehouse relationships or went out of business altogether. The regulatory changes have made it increasingly difficult to operate small to mid-size firms. This part of the mortgage market largely does everything themselves with little (to no) adoption of enterprise technologies that could assist in the origination and compliance related requirements. Since this is the case, the job is left to the originating broker to wear every hat in the mortgage operation in order to originate, process and submit a loan for underwriting with the goal of having it funded.

Source: Bureau of Labor Statistics, Mortgage and Nonmortgage Loan Brokers

The reduction in the numbers of mortgage brokers have been written over the last 2 years. However, the operating assumption was that becoming a mortgage lender was a safety net against many of the disclosure (YSP) and compensation requirements. We know that with the increased costs for technology and quality, tighter regulatory oversight and now with the passing of DoddFrank, this is not the case. The capital outlay in becoming a mortgage banker that pays for additional backend technology while adding additional underwriting, funding, closing and secondary staff members is significant. If one is not familiar with the compliance and financial skills to manage a warehouse line and the opportunities (and potential losses) that exist in the secondary market, it can be an expensive proposition to acquire this talent for your operation. As a result, such costs have driven an industry consolidation that saw depositories and large national lending platforms significantly add to their origination staff.

1997 Loan Production….. But in 2011? I gave a mortgage market overview at Prime Source Mortgage’s (www.PSMHoldings.com) internal employee conference in January of 2010. In this presentation, I had a slide that read: “Party Like It’s 1999: The Lost Decade”. Stemming from my love ‘anything Minnesota’ and with Prince’s song looming in the back of mind, I spoke about how new purchase and refinance origination activity for 2010 was going to fall around 1999 levels – roughly at $1.4T. Despite my enthusiasm, there was little excitement in the audience. I told them I was confused because 1998 and 1999 were great years for the real estate and mortgage sectors. My Father had a vibrant real estate business in Vermont – he supported the upbringing and education of 8 children, had secured a retirement for my Mother and conducted his business transactions with the highest levels of professionalism - what else would one want for themselves and their family? I asked the question, isn’t

such an example an illustration of many stories that once made up the mortgage industry? Up to 2000, many mortgage broker and mortgage banking companies were family run businesses. Between 1998 and 1999, the mortgage business had never been better with a thriving economy, low unemployment, the dot com boom at its peak, and interest rates at or around eight percent; so what was wrong? Why didn’t it feel positive that were back to 1999 levels? If a decade of government assurances behind Fannie Mae, a Democratic initiative to make homes affordable to every person (citizen or non-citizen in the United States), artificial reductions in interest rates resulting in lax underwriting & credit requirements for mortgages didn’t occur, I am not certain we would have known anything different other than the successes that many of us had at $1.4T levels.

Data Source: Mortgage Bankers Association

We are quickly sliding back in time to 1997 levels with the recent forecast by the MBA; the 2011 forecast was outlined at the MBA conference in Atlanta to be around $1.0T. In many respects, no one really can predict where these numbers fall. All I know, economists tend to get it right around the end of the 3rd Quarter and the beginning of the 4th Quarter of each year when much of the production has been logged and there is not much risk in such a “prediction.” Having said that, at the beginning of 2010, 2010 forecasts ranged from $1.6 to $1.0T, and with the Treasury’s cessation of MBS purchases in the 2nd Quarter of 2010 and subsequent rate reductions in the 3rd Quarter, we saw a significant boom in refinance activity that kept many of us busy and origination volumes modestly higher than expected. The MBA’s $1.0T forecast, led several economists to privately speculate their predictions to as low as $0.6T, however the questions and focus of this article are the following: What are some driving trends behind the forecasts? What will this impact the mortgage operation

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and the loan officer? How will this impact mortgage technology and what are some predictions for 2011?

Mortgage Origination Drivers & Trends: Uncertainty is never good for capital risk and our economy as a whole. With virtually no private appetite for Mortgage Back Securities, it is difficult to determine when and how this will come back. Much will depend upon longer term mortgage performance levels, shorter term demonstrated process improvements in mortgage origination initiatives such as the Loan Quality Initiative (LQI) by Fannie Mae and the definition & Implementation of Quality Residential Mortgage (QRM) as introduced by the Dodd-Frank Reforms. There is wide spread opinion as to what is a loan that meets “QRM standards” and what the parameters mean in real terms. For instance, in determining whether or not the borrower received a mortgage at the lowest possible rate, what does this really mean? “What everyone is adjusting to now are changes to the TILA; there are other changes required under DoddFrank - but that rule won’t be enacted until after April 2011”, says Josh Weinberg, a national expert on mortgage

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regulatory reform and Director of Compliance at First Choice Bank (www.firstchoicebank.com). “The Feds will need to focus on this and included in the Rule that subsequent rule making is necessary to pare the Originator Compensation requirements to those in the Dodd-Frank rule. If I had to bet, I’d say the Fed will issue an interim rule not long after the beginning of 2011 to bridge the gap. Under the TILA rule, there is a prohibition against steering a borrower to a less favorable loan, or one that simply increases the compensation for the Originator. The Rule provides for a “safe harbor” of compliance if you provide borrowers with multiple loan options (as a broker) - banks are exempt from this requirement. That same 'safe harbor' outlined in Title XIV of the Act ((titled the “Mortgage Reform and Anti-Predatory Lending Act”) doesn't exist for Banks - so what is the industry to do? In addition, many feel the “safe harbor” in the TILA rule is likely unobtainable and are imploring the Board to clarify many of the requirements to achieve the presumption of compliance. Is there additional guidance that can be provided to assist mortgage companies in their interpretation and implementation of these rules? In today’s rapidly changing compliance environment, each new Rule and each Josh Weinberg new interpretation carries extensive cost and requires substantial systems changes, which take time to implement. All of these issues need to be addressed.” It is important to note how profoundly the DoddFrank Reform and Consumer Protection Act will affect the mortgage industry in its final form. Certain classes, most notably “qualified residential mortgages” are exempt from risk retention requirements, and such regulations adopted under the SEC Act of 1934 state that a securitizer is not required to retain any part of the credit risk for an asset that is transferred or sold through the issuance of an asset backed security by the securitizer provided that all of the assets that collateralize the asset backed security are “qualified residential mortgages” or QRM. This standard is intended to take into account underwriting and other

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loan characteristics that reflect lower risk of default and higher loan performance metrics. With such initiatives, the goal is to instill a sense of predictability in a market that has investors both burned and wary from historic losses experienced over the last several years.

Risk Retention: Dodging a Bullet….for now. For asset classes other than QRMs, Dodd-Frank requires the securitizer to retain not less than 5% of the credit risk that is transferred, sold or conveyed through the issuance of an asset backed security by the securitizer. In a time when few victories can be claimed by mortgage industry lobbyists, the Act establishes a number of exemptions such as assets issued or guaranteed by the United States or Agency as well as an exception for a “qualified residential mortgage.” There will be ongoing discussions and comment periods in 2011 to assist federal banking agencies such as the SEC, HUD, and the Federal Housing Finance Agency to define this and further provide insight to the industry. Investors do not like uncertainty and the work that still remains provides plenty to go around. With the November elections behind us, a more divided Congress and momentum shifting against President Obama’s

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Cnv Fxd

Fxd 100%

5/6 ARM

Fxd Pmt

1%ByDn

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$400,000

$320,000

$388,000

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7.042%

5.819%

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6.597%

6.175%

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$2,463

$1,842

$2,326

$1,988

$1,919

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N/A

$80,000

N/A

$40,000

Term

N/A

30 Years

N/A

30 Years

Rate

N/A

10.500%

N/A

10.750%

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N/A

$731

N/A

$373

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$40,000

$14,238

$11,763

$13,041

$11,648

$10,838

$14,238

$11,763

$25,041

$51,648

$50,838

$3,004

$2,814

$2,855

$2,323

$2,522

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Closing Cost Est

Seller/Lender Pays Total $ Required Total Payment

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Economic Trends for 2011: Let’s look at several key economic trends to watch and review how these factors will impact mortgage origination demand and closed loan volume:

It is interesting to note that the Federal Reserve, the CBO and OMB are all federal bodies with key positions filled by political appointees. It is worth nothing that the CBO does state that no positions are filled with political affiliations in mind however this is Washington DC and at a minimum the Director of the CBO is appointed by the Speaker of the House of Representatives and the President pro tempore of the U.S. Senate – the present Director of the CBO Douglas W. Elmendorf, was appointed in 2009 by a single party controlling all three branches of government. It is an interesting coincidence that these federal bodies had the most optimistic picture for economic growth, unemployment and inflationary pressures for 2011. What this means is a prolonged recession with no convincing indication that the economy will be better off in 2011 as it was in 2010. With the plans for the Federal government to begin its purchases of Mortgage Back Securities in the second quarter, 2011, and the present Federal Reserve initiative called the ‘quantitative easing package’ to purchase $600B in treasuries over the first 3 quarters of 2011, fears have been raised as these may push the dollar firmly onto a downward path and raises the risk of inflation. This devaluation of the dollar will increase the national debt by increasing trade deficits. What does this have to do with mortgage volume – everything. With the risk for a rise in inflation, it will force the Fed to raise interest rates thus creating a drag on refinances and new purchase volume.

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Interest Rates: The opinions vary as to whether or not interest rates will remain flat or they’ll make marginal increases. If so, refinance activity will significantly reduce. In the short term, with enough notice, the mere possibility of increasing rates may drive short term refinance and new purchase activity squeezing out of the market whatever is left in those residential channels. Consumers are sensitive

and jittery; if there is a threat they can lose out on an opportunity to take advantage of historic lows in 30 year fixed mortgage rates, they will do it. The forecasts are mixed but at the present historic lows there is only one way for interest rates – and that is up.

The forecast for housing starts is flat to slightly optimistic at best. With over 3.5M new and existing still on the market, the number of actual housing starts will remain depressed and home sales will continue to remain flat or decline all together.

Multi-Generational Households and Housing Trends: A common trend in 2010 and one that is expected to continue in 2011 are trends in living arrangements. With so much uncertainty in the mortgage market, property values and unemployment, retiring baby boomers and other senior citizens are moving in with younger family members thus having the impact of zero “replacement growth” for housing. In years past, retirees sold their existing home and purchased a smaller home for later retirement years. To minimize their risk and to assist their under employed younger children or family members, they are moving in. This further depresses housing activities given the number of baby boomers transitioning into retirement and the opportunity for them to move into a newly constructed home, townhome or condominium. With little appetite for these types of lending products and the economic challenges of younger family members, they are forgoing home ownership – for now.

My parents who are retired and living in Vermont exhibit this trend. Born in 1934 & 1935, both children of the depression era. My Father was a cold war era Air Force Military Officer while my Mother was a stay at home Mother of 8 children. Both frugal and resourceful, they purchased their last home (2300 square feet – yes it was crowded) in 1971 for $42,000. In 2010, after two years

Source: National Association of Realtors

and several reductions in price, they sold their home for $260K after having a peak value of $320K. After selling their home, they moved in with one of my brother’s since he had been laid off from his high tech manufacturing position. With a secure retirement and money in the bank, they aren’t motivated to purchase a house that could feasibly drop in price another 10 or 20 percent, and besides, they are assisting one of the many ‘longer term’ unemployed at least until the economy picks up; so, they will wait it out along with the realtors and mortgage companies vying for their business. Other factors that could threaten economic growth • Stimulus effects on consumption going away and changes in personal consumption • Housing Inventory buildup or sell off • No follow-on construction • Exports falling due to strength of dollar and further slowdown in Europe • Tax increases

Impact on the Mortgage Operation: 2010 was the year of the GFE and tolerance violations and 2011 is the year of the enactment of

the Dodd-Frank legislation. In addition, we will see dramatic changes in Loan Officer Compensation and the establishment of the Consumer Financial Protection Bureau (CFPB). The sweeping changes to loan officer compensation and the undefined (and un predictable) powers of the CFPB are going to continue leaving mortgage professionals relatively confused and unguided regarding how to implement these reforms in 2011.

Loan Officer Compensation: The main focus is on the Reg. Z: the Truth in Lending Act and Home Ownership Equity Protection Act, with new policies for how loan originators may be compensated. Effective April 1 2011, all loan originators (including brokers, brokerage companies, depository loan officers, etc.) will no longer be able to receive compensation based on the interest rate or other loan terms, but instead be compensated based on a percentage of the loan amount. This will end the so-called "yield spread premium" payments, and prohibit loan originators from "steering" consumers into mortgages that increase payments or bonuses to a broker or loan officer. These changes are just another pressure point on the mortgage broker community since they will only be able to get funds from 1 source - if

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you collect fees from the borrowers - you can't collect from the lender on the back; for all broker deals, this will be challenging. This poses some interesting challenges: in today’s environment, the way most companies deal with, transfer taxes on the GFE, for instance, should the Loan Officer under disclose this, the lender could credit the borrower between what was disclosed versus what it actually was; that fee is then passed down to the loan officer. In the new world, you can’t charge the originator’s compensation based upon the terms or factors of the loan. Companies will have to create an office pool or a kitty - to feed tolerance violations. This will only reduce profit margins and will continue to frustrate sales managers as they manage and coach loan officers through these transitions.

The Changing Face of the Loan Officer: The impact of this will be dramatic. It is widely understood that given lengthening turn times, limitations on loan officer compensation and a reduction in mortgage volume as a whole, loan officers will have to have a deep pipeline of prospects so the right ones will close in each month. With Investor (underwriting) turn times close to or greater than 90 days, brokered deals will be extremely frustrating. Many loan officers from depository institutions complain that their compensation is restricted to 60, 70 or 80 bps per deal. With these kinds of limits, the loan officer doing 1 or 2 deals per month will simply be pushed out of the market. In order to make what loan officers make today on 2 or 3 deals, one will have to close 4 or 5 deals per month. This will increase the competitive nature between loan officers in a market that is expected to do 30 percent less volume in 2011 than it did in 2010. Is the loan officer dead? In effect yes. The lower producing part time loan officers, closing 1-2 units per month will be pushed out of the market due to clear economic and competitive factors. Loan Officers who leverage automation to remain in contact with the borrower in the months before and after the close (or denial) of a mortgage will clearly have an advantage. With far more borrowers having to save money for a down payment or work on their credit position, the loan officer is in a clear position to help the borrower; those who do, will get the business. Brokers, Bankers and Mega Lenders: The mid-sized lender is going to be squeezed out of the market. They will either need to capitalize for growth to account for the reduction in origination volume and the need to capture more business with more ‘feet on the street’, or they will be acquired by one of several national

lending platforms across the country. Well capitalized firms such as Primary Residential Mortgage (www. primeres.com) based in Salt Lake City, Utah are taking advantage of these trends. With an average annual funding of over $5B, significant funding capacity and a national licensing footprint, lenders like PRMI have the luxury of selecting their branch partners from around the country. Operations like this can provide a stable platform to originate. Other firms such as Residential Pacific Mortgage, (www.rpm-mtg.com) Walnut Creek, California, and Waterstone Mortgage (www. waterstonemortgage.com/), Milwaukee, Wisconsin all have strong origination platforms, strong management teams and are stable operations. But how does one compete against such firms? It is difficult to do so without the technology, investment and capacity. “I see more consolidation but this is not a new trend but it will continue,” says Dave Savage, CEO of Mortgage Coach. “The velocity of change will exist in the middle market guy - you either need to grow or become small – there is no in between. The smaller shops are religious about remaining small - this remnant will capture the 'last man standing' type opportunity in the market. Those companies doing $20M-$100M/month need to do - continued on page 42

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T'was the Night Before Christmas 2010 By Martin Andelman T’was the Night Before Christmas, 2010 And as I sat down, to pen this poem, once again, My mind started thinking about the haves and have nots This year, I decided, I’d better pour me two shots.

It was Blankfein and Lewis and Dimon and Pandit, And Prinze, Stumpf and Mack, that were all in fact bandits. Dick Fuld was home wondering, Who is John Gault? He kept right on saying Lehman wasn’t his fault.

For this past year I started without that much hope, The question was more about how we would cope. Although it was change for which I was still yearning, I’d soon learn that I did not like what I was learning.

We found out mortgage servicers were not in alignment, And then we found out, the banks lost all assignments. They had robo-signers, to bring fraud on the court. It seems to banks, a foreclosure was some kind of sport.

So, while stockings were hung by our chimney with care, My hopes for St. Nicholas, just weren’t there. I wanted to bring Christmas cheer to each person, But I couldn’t help thinking our world would soon worsen.

Then November arrived, and the Dems were shellacked, They’d forgotten who’d brung them, and so were attacked. Voters cared little about who was a smartie, In fact many decided to attend a tea party.

Some said this past year we would start to recover, But as stimulus wore off, we would come to discover, That our housing crisis was not a thing of the past, As we waited to see Option ARMs that recast.

And then up on the roof, there arose such a clatter, I sprang to my feet to see what was the matter. Away to the window I flew like a flash, It was Bernanke and six hundred billion in cash.

As last year began, the earth shook beneath Haiti, We sent food and money, and a song by some lady. A month later Chile’s earthquake caused a giant Tsunami, Then the next one hit China, and I wanted my mommy.

My eyes couldn’t believe it, as I stood there freezing, Ben said Ho, Ho, Ho, I’ve brought quantitative easing. But will that help people, from LA to Carolina? Because one things for sure, it’s gonna’ piss off China.

Around the world wars still raged, and not peace, But the real news was S&P downgrading Greece. Soon their streets would erupt into televised riots, Seems austerity programs don’t keep people quiet.

He said he had to do something, the economy to spark it, And this would keep rates low and help the stock market. And that would in turn mean we’d feel wealth affected, Which would allow consumer spending to be resurrected.

It seems the EU would now need a bailout of billions, But Germany didn’t even want to send millions. Then Spain was in trouble, and soon there’d be others, And they’d all fail, if Germans had had their druthers.

Okay Ben, I said, although what I was thinking, Was that this guy had done just a bit too much drinking. It wasn’t rates or the market that caused spending to stop, It was housing prices that did nothing but drop.

But just as we’d done, they came up with the money, This culture of bailouts was no longer that funny. Because even with the trillions we’d given to banks, They didn’t modify or lend, or even say thanks.

Ben said he must go, for he had many stresses, He had left Santa running his cash printing presses. I asked him, please give Santa my best regards, But he said all he cared of, was people charging with cards.

Then BP in the Gulf caused an oil eruption, The media forecasted 100 years of disruption, But they cleaned it all up, it was ultra-high-tech, BP off to keep drilling, after writing a check.

Then all of a sudden from out of his sack, Came Elizabeth Warren, and she gave him a smack. “That’s enough Ben,” she said, and her voice was quite stern, There’s a few things about people that you need to learn.

Meanwhile here at home, our homes just kept foreclosing, While politicians continued with smiling and posing. I knew Dems would get crushed in the mid-term election, The only thought that could give John McCain elation.

You see Christmas will come, with the sun of tomorrow, And you’ll see that it’s not about how much you can borrow. Because Christmas is not what is under the tree, The spirit of Christmas is something that’s free.

But, for reasons unknown, it was health care reform, That took up Barack’s time, as the lobbyists swarmed, And as I sat writing, dressed warm in my flannels, I couldn’t help but smile at the thought of death panels.

I wanted to give Liz a great big loving hug, I wished we could bottle her up like a drug. She threw Ben in the back and took off in the sleigh, And she promised to send Santa before the next day.

This year financial reform, would top Barack’s list, But with the bankers opposed, we’d be screwed but not kissed. Prevent the next crisis, was the theme we were drumming, But what passed wouldn’t have stopped even this one from coming.

I called after her, Liz… where will you go from here? I wanted to offer to share Christmas cheer. She said she’d be back, in a few hours at most, Tonight she’d visit Geithner, in her role as a ghost.

About HAMP, Treasury would spend the year in denial, While Senate investigations put bankers on trial. Yes, the acts of the bankers were meticulously tracked, Our economy, it seemed, had been Goldman Sach’d.

I wished she’d stay’d longer, as I wanted to thank her, But I loved her for rattling chains at the country’s top banker. And I heard her exclaim as she flew out of sight, Merry Christmas, Happy Hanukah… and to all a good night.

HO, HO, HO! Merry Christmas & Happy Hanukah!

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Frank & Brian Speak

So Who’s Going To Originate these Loans? by frank garay & brian stevens

as it occurred to anyone that we are going to have a shortage of qualified loan officers and appraisers in a couple of years? Now, when I say a couple of years, I mean when the housing industry finally and honestly turns around and makes a recovery. By the way, isn’t it funny (in a not funny way) that whenever something "kind-of" sounds like it might be positive real estate news, someone in of the media predicts the "beginning of the recovery." This is similar to an anxious sprinter that keeps leaving his block early, only to go back for a restart. I believe we will all know when a recovery truly begins. Our eager desire, anticipation, and prognostication will not make it come any sooner… but lets get back to the point. When we do finally begin to realize our recovery, who is going to originate the loans? I don't know if you are aware of this, but NMLS has wrecked havoc on loan officer numbers over the past year. Sure, I know that we had too many people in the industry and Steve and Charlie needed to go back to their jobs selling Buicks and Mocha Frappa, and Darly and Cletus were fraudsters and had to go back to their jobs welding …. The truth of the matter is that at this point, thousands and thousands of good qualified loan officers are simply out of business. Sure, they needed to become better sales people and maybe they should have opted for Kias instead of Jaguars,

December 2010

or "starter-trailers" instead of "starter-mansions." I know there is personal accountability for independent contractors that run their own business. What I am talking about is simple: there will not be enough qualified loan officers to push the loan volume necessary to get us out of this mess if, and when, that time occurs. In Arizona alone, prior to NMLS, there were approximately 18,000 loan officers. Post NMLS there is approximately 3,200. Sure, 18,000 may have been too many loan officers, but they were all finding a way to make a living. So, if any industry employment level drops off by 20 percent, it is a bloodbath. In fact, in my beloved state of "The People's Republic of California," if there is even a whisper of laying off five percent of our state employees, there is all but rioting in the streets. If state employee unemployment were to drop 20 percent it would be chaos. So, consider the plight of Arizona. The state had over 82 percent of its loan officer work force depleted. To be clear, by any industry standard, to lose those types of numbers would not be considered a hit to the industry; it would be considered the death of the industry. Yet, Arizona Loan Officers are cross bread with enough "can't kill'em cockroach" to keep on fighting (by the way, good for you!). So we would all agree that the numbers are staggering

Frank & Brian Speak and that is bad for Arizona Loan Officers. However, what about the clients they service? Sure, from 2007 until a yet to be determined date, it has been ok, because the loan volume is greatly diminished. What happens, though, when loan volume grows legs and arms and decides to climb out of the toilet? The only way for that to occur is with the help of your friendly neighborhood, and endangered species, the loan officer. So with over 82 percent of their numbers depleted, its going to be a total pain in the ass to close loans. I can hear it now; a wouldbe home purchaser calls a â&#x20AC;&#x153;call centerâ&#x20AC;? to get a loan. The highly inflected and rather accented voice tells the wouldbe client "your wait will be approximately 26 weeks. Sure we are waiting on short sales now and its driving everyone crazy, but you just wait and watch how crazy everyone gets when you have pools of people that want these homes and want them now. It will be a nightmare. My biggest fear is the collective "we" will simply not have the manpower to get these loans originated in a timely enough fashion to get us out of this mess. Think about it. Again, 82 percent of Arizona's loan officers are gone (by the way, Arizona is not unique. Every state has numbers that mirror Arizona). That is bad enough, but what makes it worse are the loans themselves that now have ten times

the number of burning rings that everyone needs to jump through to originate. Really, underwriters are now looking for reasons to turn down loans rather than approve them as was the case in years past. Sure we only have a handful of products to sell, but loans have become difficult to close. Since I know a bunch of Loan Officers are reading this article, I do not need to go into all the detail about approvals, condition sheet, and re-condition sheets. OK I will give one example. I had a loan turned down for a client that had retained $150 thousand down payment on a $215 thousand dollar house. His credit score was a 760 mid score, 10 years on the job, and his back ratio was 26 (I swear to you I'm not kidding). The reason for the denial: the state of the kitchen cabinets. You see, the kitchen was missing a couple kitchen cabinet doors and it made the pictures in the appraisal. I tried to reason with the underwriter by telling her that the at the loan to value of 33 percent, having a roof was a plus. So I spent my weekend installing doors in this kitchen... doors that were going to get ripped out the minute the deal closed. I am sure you have done the math by now. I made a couple hundred bucks and invested 45 days in the transaction and 25 hours on the kitchen. That means I would have been better off working the banana boat ride at Wally World for 4 bucks

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an hour. Point being, navigating a loan right now is a total pain in the ass and now more than ever we need highly motivated, learned, loan officers to help navigate the waters of a transaction. The people that can actually wear the captainâ&#x20AC;&#x2122;s hat are disappearing in record numbers; a huge problematic exodus. So what happens? Well, I suspect it will simply drag the recession out longer than it needs. Sure, we will eventually mobilize and spirited individuals will find ways to thwart the deeply troubling problems NMLS has caused but it is going to take time. Now here is the kicker. As I sit writing this article, we have three more major hurdles in front of us. Hurdles that stand to make the carnage at our feet look like a walk in the park. First is January 1st, the date where Loan Officers must have their designation. If they do not they are getting their walking papers. The second point is the March NMLS Credit Reporting deadline. That, by the way, is when all loan officers must have their credit report pulled and reviewed in order to continue writing loans. Oh yes, we are talking about the same loan officers that have hung on by threads over the past few years. Loan officers that collectively, surely, have pretty beat up credit reports. Finally, we have the final rule on compensation. This is when we all learn if we even want to originate loans anymore after they take away are ability to make a living. So, after the next three waves, loan officers might start to feel like the only one left in the stadium rooting on the team. It really changes things. So, when the culling of our loan officer numbers is finally completed, I ask you - who in the hell is going to write these ever increasingly difficult loans? Anyone? Our national goal to clean up the industry has cleared out the industry. You do not clean colors with bleach, you do not hunt squirrels with bazookas, and you do not alienate the entire industry you are depending on to help you out of our recession. Yet that is exactly where we find ourselves. Right in the spot where all our actions were supposed to put us, and itâ&#x20AC;&#x2122;s not good. Thinkbigworksmall.com (TBWS) was founded in 2007 by a group of highly successful real estate and mortgage industry entrepreneurs. Born in the most battered market in the real estate and mortgage industry history, Thinkbigworksmall.com was conceived after decades of observing how the most successful professionals always seem to work smarter not harder. Frank & Brian can be reached at tbwsdaily@gmail.com

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Largest Lenders Control Mortgage Industry Time to Engage Community Bankers by Joe Murin

he government initiated HAMP program has failed to address loan modifications effectively and short-sales have failed to efficiently mitigate housing's losses. These two outcomes have played out for the same reason: Four major banks control over 75 percent of the nation’s mortgage servicing. The GSE’s (government sponsored enterprises) failure can also be linked to Fannie and Freddie controlling over 70 percent of the nation’s mortgage-backed securities market during their hay day. Too much control in the hands of the few has ultimately ended in chaos. The same four major banks have controlled the majority of the mortgage servicing for the past two decades. During that time, their primary responsibilities have been the collection of monthly remittances, payments to bond-holders and submission of the accompanying reports. This responsibility was relatively straight-forward and with the ability in the past decade to send processes off-shore the profitability grew at an enormous rate.

As annual mortgage volume grew from $500 billion in 1990 to an excess of $3 trillion in 2006 so too did the number of outstanding mortgage accounts that were being serviced by the large financial institutions. As these numbers continued to grow, so too did the number of delinquent files. Unfortunately, loan servicers are not properly set up with the experienced personnel or the technology required to effectively managing these delinquent assets. As a result, too many delinquent accounts are being managed by institutions that have not adequately prepared for such an anomaly and we have experienced a massive back-up in the modification/ loss mitigation process. The solution is not simple but it is doable... First, congress MUST redesign the nation’s Housing finance System to adequately supply the necessary liquidity to meet its future housing needs. This can only be accomplished if congress is willing to address an entire system overhaul and not just Fannie and Freddie. Congress should also provide the Federal Home Loan Banks (FHLB) the authority to securitize mortgages. This would serve two purposes. It would first help to de-leverage the percentage of the mortgage-backed securities (MBS) market that the GSEs currently enjoy. After all, that is what got them into the situation they find themselves today.

TheNicheReport.com

Owning 70 percent of the MBS market was doomed to failure. Allowing the FHLB to securitize would also allow the industry to begin to shift some of the servicing responsibilities from the few to the many. Engaging the community banking system to assist in the de-leveraging of the big players should be a goal of the administration. More importantly, however, moving the servicing back down to these local bankers in local markets makes much more sense and improves the odds of future catastrophic failure of our mortgage system. If the market ever expects housing to contribute 25 to 30 percent of GDP again, it will require congress to completely overhaul the housing finance system, de-leverage those institutions that have enjoyed the “too big to fail” status and let the private markets control housing rather than the socialized housing system currently in place. Murin is a managing director of the Collingwood Group, a Washington-based advisory firm for the financial services industry. Murin is the former President of Ginnie Mae. Prior to that, he served as Chief Executive Officer of Lender Services Inc.

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WHAT IS YOUR MORTGAGE IQ?

What's your mortgage IQ? BY MortgageCurrentcy

aybe you know the answer—or maybe not! Some of the answers may even help you put together deals that you never thought had a snowball’s chance… MortgageCurrentcy.com gets hundreds of questions per month from our subscribers. Every month, we will share the answers to the most frequently asked. Here are just a few we get over and over again—including some marketing tips to get the word out to your real estate agents. (The answers are extracted from the guidelines and do not cover lender overlays. Charts, checklists, Mortgage Talking Points, Ask the Experts’ Help Desk only available to subscribers.) FHA: Does FHA require 30 percent equity like FNMA to count 75 percent of the rental income received when a current residence is converted to a rental property? FHA does have a 25 percent equity rule (instead of 30 percent) but they also have the following exception to that rule: The borrower is relocating with a new employer, or being transferred by the current employer to an area not within reasonable and locally-recognized commuting distance. A properly executed lease agreement (that is, a lease signed by the borrower and the lessee) of at least one year's duration after the loan is closed is required. Note: FHA recommends that underwriters also obtain evidence of the security deposit and/or evidence the

first month's rent was paid to the homeowner. Some investors do not embrace this exception, so double check before you make a commitment to your borrower. Marketing Tip: Let your agents know that FHA waives the 25 percent equity requirement when employer relocates borrowers to an area outside reasonable commuting distance and they want to use rental income from their current house to qualify for new FHA financing.

FHA: What are FHA’s Rules for a borrower to qualify on a “rent-to-own” option agreement? Rent-to-own agreements and / or sales transactions between tenant and landlord are affected if any family or business relationship exists between the two. There are also specific restrictions on allowable ‘rent credit’ that a landlord can apply towards down payment on the property. On a side note: VA has absolutely no rules or guidance on the subject of rent-to-own or identity of interest issues. Those situations are up to investor and underwriter interpretation. Marketing Tip: Rent-to-own is a big deal these days— so why not hold a sales meeting using these two Mortgage Talking Points™ as your guide: “Getting it Right The First Time: FHA Rent-To-Own Underwriting Rules” “Offering Rent-to-Own Option? The Road to a Conventional Mortgage Loan!” TheNicheReport.com

WHAT IS YOUR MORTGAGE IQ? VA: I have a client who is moving 100 miles away and has a VA loan on his current home. They want to use FHA financing and qualify for both payments. The underwriter says that we cannot do ANY loan for them as VA requires the current home to be owner occupied at all times? Is this true? Absolutely not!!! (Okay...I'll admit that there could be ONE instance where this could be true and that's when a State Housing Agency First Time Homebuyer Program was used in conjunction with the VA guaranteed loan. Those programs have mandatory occupancy rules and can call the loan due if they find out the owner is renting the home out.) VA does require on a purchase transaction that the home be occupied by the Veteran or spouse in order for the transaction to be eligible. (In other words a single Veteran could not be deployed overseas and purchase a home without being able to occupy it for the next year.) Once a Veteran buys a home and has used it for his/her primary residence he/she is free to retain that home WITH VA financing, even if they turn the home into a rental. Fannie : What is the max LTV for cash out Refi--on a 1-4 family investment property and how many properties will Fannie allow? Fannie will purchase loans for borrowers with up to 10 financed properties. Cash out for investment is 75 percent and is limited to 4 properties. Properties 5-10 are not allowed to be cash-out transactions. Marketing Tip: Let your agents know that working with investors can recession-proof your business because these are the people who are buying properties these days. Mortgage Talking Points™ “Working with Investors? Know the Rules! Compliance: I am trying to find out how to comply with LQI if new inquiry? Is the borrower’s statement enough? Or do you have to check with Creditor or credit bureau? Fannie is allowing each lender to set its own policy, but here is an example – • MERS check • Inquiry Status update – borrower explanation for all inquiries • New Report – soft report, full report, or other monitoring service • State new inquiries or none • State new trade lines or none • Update existing balances for consideration • Update MERS • Update original inquiries • New Inquiry Status update – for borrower explanation 36

December 2010

• Underwriter is responsible to reconcile with original report. Fannie requires this reconciliation to be complete – all trades and inquiries fully updated and a determination made as to how they affect qualifying. Yes this may cause a number of delays and/or issues that can lead to the declination of the loan. The set up is for an endless loop for inquiries – if any borrower just doesn’t get the message to stop opening credit during the process…but the reality is for only one shot – if underwriter is not comfortable with the reconciliation, the loan will be denied. Freddie: Thanks for the clarification on Short Sales and Deed-in-Lieu for Fannie. I would like to know if Freddie’s rules are different? Freddie's approach is a bit different... Foreclosure, bankruptcy, short payoff, or deed-in-lieu within past 7 years is considered significant adverse or derogatory info. Two categories -- Extenuating Circumstance or Financial Mismanagement • Extenuating Circumstance • Written explanation • Third-party documentation • No prior credit issues • 3yrs from foreclosure or multiple bankruptcy • 2yrs from deed-in-lieu, short payoff, significant credit lates or single bankruptcy • Financial Mismanagement • 680 credit score • 5yrs from foreclosure, multiple bankruptcy • 4yrs for bankruptcy, deed-in-lieu, or significant credit lates • 2yrs for Ch 13 bankruptcy • Must re-establish credit 24 months – must have housing payment history • Must be current on all credit (12 months) • No new derogatory public record • No 60 day lates • No more than 2 30 day lates • No housing lates • Limited revolving debt utilization • Borrower Explanation leading to reasonable conclusion that borrower has re-established an acceptable credit reputation Provided monthly by www.MortgageCurrentcy.com - Interpreting the Rules and Regulation Changes for loan officers, processors, underwriters and owners/managers. Mortgage Talking Points ™, charts and checklists included.

Center sTage

Center stage with united wholesale mortgage The Niche Report talks with Mat Ishbia, Executive Vice President of UWM

by the niche report

Mat, can you give us a little insight on how United Wholesale Mortgage (UWM) has evolved to become one of the Fastest Growing FHA and Conventional Lenders in the Country? We have been asked this question many times at UWM and we believe our formula for success starts with our employees. Everyone in our organization has a designated role. All our employees share the same vision of becoming the #1 Lender in the country. If you were to walk through the departments at UWM you would feel the positive atmosphere and witness the Teamwork of a Premier Lender. Our employees are our greatest asset. Utilizing the knowledge, skills and experience of everyone in our organization allows us to capture and maximize their greatest strengths to the benefit of our clients. Our employees are the ones on the front-lines working with our clients. They represent us with their positive attitude, providing excellent customer service. This is what sets us apart from our competitors. Our formula for success works because of our people and the team we have assembled. You just can’t take our formula for success and try to plug and play; you need the right chemistry in order to make things work. There is a lot of buzz right now throughout the country that lenders are taking 30-40 plus days to close a Purchase or Refinance. UWM consistently advertises the “Home of the seven day paycheck” and “The home of the quick close,” how does UWM continue to close loans quickly and efficiently? It begins with knowledge, service and speed. At UWM, we make sure our Account Executives and Operations Staff are knowledgeable about what they are selling. Everyone takes great

pride in researching the products we offer. As a salesperson you need to know what you are selling and why. We deal with Mortgage Brokers, Banks and Credit Unions throughout the country that rely on the Knowledge we deliver. We understand the importance of strengthening relationships with Realtors, Bank Depositors, and Credit Union Members. If we provide information that is incorrect, it will cost everyone involved in the transaction. When you relay the correct message it creates a domino effect which leads to building more business referrals. This is one of the main reasons we continue to grow our business and our Brokers, Bankers & Credit Unions business. The second reason for our continuing growth is our ongoing top notch Customer Service. Our Account Executives and Operations Staff take great pride in their work and hold themselves accountable to provide the highest level of customer service throughout the industry. When it comes to Service, it’s simple. At UWM we return phone calls and emails before the close of every business day and provide the right solutions and answers to questions the Originator or Processor may have. The third reason for our continued success is Speed. In today’s market, turn times play a key role in the success of all Brokers, Banks and Credit Unions. We underwrite files in 48 hours or less, clear conditions in 24 hours and allow loans to close 24 hours after the Clear to Close. Our average turn time from submission to close for Purchases and Refinances is typically 7-10 days. Our turn times are made possible in part by our cutting edge technology. Here at UWM we are a paperless lender. Our website is designed to help Originators and Processors move with ease through the submission to closing process. The UWM website technology has given back the control to Originators and Processors. They are able to run DU findings, Disclose and Generate the GFE and TIL from our site. TheNicheReport.com

Center Stage This helps everyone stay compliant with the new laws. A lot of your competitors consider United Wholesale Mortgage to be a regional lender. How do you feel about that and where do you think UWM ranks among household names that have been around the industry for a very long time? We provide the personal customer service of a regional or Local Lender, with the strength and stability of a National Player. Currently we are approved to lend in 44 states and will be expanding that number by the end of the first quarter next year. We rank among the top ten FHA lenders in the Country and have recently become the fastest growing Conventional Lender in the Country. We currently have a staff of more than 85 Underwriters, growing monthly, accompanied by a Sales Force of 50 plus Account Executives; this puts us in an excellent position to be recognized as a National Lender. Inside our Organization we try to maintain the feel of a small lender. This allows us to keep things simple and informal while allowing us to grow with great ideas from our entire staff. All of this exceptional Speed, Service, Technology and Knowledge must come at a price? Does United Wholesale Mortgage offer a price that is competitive with other major

lenders, or are you essentially marketing a premium service at a premium price? Our prices are very competitive. You don’t become a top 10 Lender in the Country by charging premium prices. At UWM our Network of Originators, Banks and Credit Unions use our 15 day locks to close their loans. UWM helps the Originator capture the “time value” of money that is lost by the need to use a 30 or 45 day rate lock. Let’s face it, why would you leave a client sitting on the fence and constantly asking you how long will it take to close their loan? Instead WOW them, and in less than 15 days, you will earn their respect and gain more referrals. We have helped thousands of Originators across the Country close more loans and make more money every month. We are helping Broker Owners, Banks and Credit Unions re-coop their marketing costs in the same month with UWM’s TIL advantage, E-Consent and quick close process. Originators are building stronger relationships with Realtors because they are able to close their purchase transactions in 7-10 days with UWM. How is United Wholesale Mortgage viewing the new changes coming in April 2011 regarding Loan Originator Compensation? The new change that is coming will level the playing field for everyone involved in the industry. UWM is committed to our Network of Originators and we believe that the new changes will be positive for our customer base. The new changes will eliminate brokers from sending loans to certain lenders based on their personal compensation, and focus 100 percent on putting all borrowers in the best possible situation. With this change, brokers will STILL be able to earn a great income and continue to originate loans very successfully. At UWM we feel that providing the knowledge to our brokers is the KEY to a great relationship. For example when Loan Originators were not sure how to handle the new GFE and TIL changes they looked to UWM. We held Live Webinars with highly respected lawyers in Washington D.C. to allow our approved Originators the opportunity to ask questions and feel comfortable with the changes. In the near future we will also be holding a Webinar regarding the New Loan Originator Compensation changes for our approved Customer Base.

Security, Privacy and Ethics How to get new clients now BY MOLLY DOWDY

’ve been sharing marketing advice here for the past several months, and I’m certain all of my columns have been critically important to you. I have strong suspicions, fantasies even, that your life has changed thanks to my tips for landing more referrals from real estate agents. My advice about e-mail marketing undoubtedly blew your mind and you are probably still recovering. But this month, I feel an urgency to communicate with you effectively because time is of the essence and I strongly believe this topic will have a bigger impact on your business than any of my advice to date. In marketing, there are specific periods in time where just the right message will be wildly successful. Stars have aligned. We call it a “sweet spot,” and there is a big one upon us right now. It is up to you to jump on it. If you were my child, I would hold your cheeks in my hands and look right into your eyes to make sure you are listening to this: Right now, seize the opportunity to market yourself to borrowers with a message that focuses on security, privacy and ethics. You should unequivocally acknowledge the reputation that financial services and mortgage lending has in the minds of Americans right now, and differentiate yourself immediately. If you do it right, you will have more business than ever – more than you had during the boom. Even better, you’ll build a foundation that will sustain you during the next slump.

To help you, I have again put together some templates for you to use and customize for yourself. Visit www. alamode.com/niche and grab the files you need for free.

You’re not in the movie rental business Thank goodness, right? The movie rental business has devolved into a pure commodity – a market tempered only by varied claims of convenience. If you were in the movie rental business, the only way you would make any money is by squeezing every penny out of your margins. Movies are movies are movies, and the successful rental businesses are the ones that rent movies for the cheapest price because they get them for pennies less than the other guy. That is why you can get a movie for a dollar a night at an automated kiosk. Sound familiar? Fortunately for smart marketers like you, many originators are only advertising low rates. Low rates, lowest rates, lower rates, who’s got the lowest rates? The truth is that you will not get rich hawking the lowest rates unless you miraculously secure lower rates than anybody else. Like a sweaty hamster in a squeaky wheel, you will chase those low rates forever. You can not afford to be the kiosk vendor. Yes, you should have good rates. But if that’s all you have got, then it’s all that matters. Is that all you’ve got?

Borrowers want someone in their corner Right or wrong, our industry’s reputation has taken a beating in the court of public opinion. Between bailouts, robo-signing investigations, foreclosure horror stories, identity theft crises, election year sound bites and more, your prospects are incredibly skeptical. Yes, they want low rates. TheNicheReport.com

But more than that, they want someone to care about them, to protect them from those who would do them harm. They want someone, an expert, fighting on their side. That can be you.

and that you are available for interviews. The free publicity is more valuable than some of the most expensive advertising out there.

Use technology to protect them and tell them all about it

I strongly believe in using eSignatures for a wide variety of reasons you’ve probably heard many times. You’ll save money, time and hassles. But another benefit you don’t hear about very often is the protection of some of your clients’ most private information. As the loan progresses, using eSignatures on disclosures will again reinforce to your clients that you take security seriously. Unsecured fax machines, mailed packages, and unencrypted e-mails all put their confidential information at risk. Get creative with your eSignature application, and you’ll realize it’s also a secure way to send and receive all kinds of documents electronically and with the same audit trail that you get with a document that needs a signature. Other originators ask borrowers to fax over a pay stub, W2, or bank statements. They’re asking the borrower to trust that the fax won’t be intercepted at your office, or even at the origin, where many fax machines will gladly spit out the first page of the last document sent. Pointing out these concerns shows you’re not a commodity originator – you care about security issues that haven’t even occurred to other, less enlightened loan officers. Using the same software you use for eSignatures, you can provide the borrower with a secure web site that accepts their faxed documents, and automatically converts them to electronic documents and stores them in the client’s dedicated, secure, password-protected online loan file. Complete with audit trails and a full log of all documents received, the borrower will easily see the difference between you and the riff-raff. In addition to privacy protection, an added benefit of using the secure web repository for borrower information is that your client can log in anytime and see what they’ve sent and what they still need to provide. You eliminate those stacks of papers on and around your desk, and you won’t misplace documents then have to ask for new copies. Remember, everyone is hesitant to change their ways. If they are used to faxing, they might not immediately understand eSignatures. The key to overcoming that hesitancy is to explain the benefits. Why are you using eSignatures? There are many reasons to do it for yourself and your business, but you need to clearly and consistently communicate to your prospects and clients how eSignatures will protect them and they’ll gladly participate. Plus, they will wonder why others don’t treat their safety with the same conscientious diligence.

In the origination process, there are dozens of tools you can use to protect your clients’ non-public information (NPI) during every step of the process. Use these tools at every opportunity and don’t forget the important part: Tell everyone what you’re doing and why.

Start at the beginning – the loan app Every originator worth their salt has an online loan app. But is it encrypted? Does it transmit the borrowers’ private information securely? Is it hosted on a shared web server? Are there risks that someone could steal their private information? Could it end up in a dumpster? Many of the online loan apps I’ve seen are nothing more than a web form; the same type of web form that my cousin uses to get feedback about his rock band’s performance at the state fair. There’s nothing secure about it. Get a secure loan application immediately. They are not expensive at all (ours is less than $200 a year) and very easy to add to any website. Go to www.alamode.com/niche for a checklist and for questions to ask your webmaster or software vendor about online loan app security. Once your loan app is state-of-the-art, secure, and installed to protect your borrowers, let the world know about it. Issue a press release (get a template at the URL above), and add content on your website that lets prospects know there are tremendous differences between you and the other loan originators out there when it comes to protecting private information. When you’re developing content for your website and other marketing materials about your secure loan app, don’t hesitate to question what your competitors are doing to protect prospects’ privacy. There are legal lines you shouldn’t cross, but give your readers tough questions to ask other originators. Position yourself as the expert in security and privacy, and they’ll be far more likely to trust you. Another benefit to marketing your superior security is that your local news media will take interest if you alert them. With so many scandalous stories covered in the news, reporters are always looking for experts with tips to help people avoid pitfalls. Send a media alert (template at www. alamode.com/niche) to your local and regional media to let them know you’re a mortgage privacy and security expert

December 2010

Then protect them throughout the process

How to make security, safety and ethics your marketing message While borrowers don’t always understand all the nuances of the current controversies, they definitely have a very negative impression of the entire mess. You can use that to your advantage if, and only if, you differentiate yourself from the mess. Make sure your website, brochures, and all your advertising communicates your focus on safety and security. Explain the technology you use in terms they’ll understand in every communication you send. Think about incorporating it in your byline, in your outgoing voice mail messages, and your automatic e-mail responses. I have got some website content and graphic templates for you at www.alamode.com/nich. A side benefit of this particular marketing strategy is that it raises questions about - and to - your competitors. Prospects will wonder why others are not so concerned about security. Every billboard of yours that reads, “Call _____ for secure, fraud-proof mortgages” will irritate your competitors to no end. The fact is, they may be equally concerned but are failing to communicate it. Their loss is your gain. Remember to emphasize your ethics and charitable

commitments in your business communications, too. Do you donate a portion of your proceeds to charity? Do you support a local school with supplies or personal finance workshops? Let people know about it through your monthly newsletters or with requests for matching fundraising efforts. Those with your same interests will naturally turn to you and recommend you to others when they’re looking for mortgage loans. The point is to position yourself and your company as credible, ethical professionals that look out for others. Right now, people want to do business with other people who are doing the right thing. Who knew… It’s really much simpler than this long article might lead you to believe. Doing the right thing, and publicizing why you’re doing it, will help you beat your competitors and reel in more borrowers. Everybody wins. Except the other guys. Molly Dowdy is the EVP of Marketing for a la mode’s Mortgage Solutions Division. Dowdy manages the marketing and communications for a la mode’ s full suite of mortgage products. Dowdy can be reached at Molly.Dowdy@alamode.com or 1-800-ALAMODE.

- continued from page 27

something because it is up or down.” I couldn’t agree with him more. I am seeing a tremendous amount of movement for mortgage firms in that space who are either scaling back due to fears of increased risk, joining national lending platforms or are seeking outside capital to build a regional or national banking fulfillment operation. The costs of this are significant however there are several firms competing and doing very well in local markets. Companies such as Prime Source Mortgage in Albuquerque, New Mexico (www.psmholdings.com) , Southeast Mortgage in Atlanta, Georgia (www.southweastmortgage.us), Milestone Mortgage in Los Angeles, California (www.milestonemtg. com/),and Iwayloan, Houston, TX (www.iwayloan.com) all fit this profile. These are all fast growing mortgage banking firms with aggressive regional and/or national expansion plans with the leadership and/or capital to do it.

Impact on Mortgage Technology The impact on mortgage technology couldn’t be greater. With a number of new regulations or disclosures soon to be announced and implemented in 2011, technology vendors will be hard pressed to keep with the changes. Given the continued downward forecast in mortgage originations, sustainable investment capital in mortgage technology is limited to non-existent. There are several firms that are hanging on to their 200 or 300 customers (or less) looking for the right partnership to take their revenue to the next level or quite frankly, looking for a buyer to pull out all together. Mortgage technology has never been this competitive and challenging. “Vendors will get hurt by the Dodd/Frank rules,” says Scott Cooley, 1982 founder of Contour Software and principal at Cooley Consulting (www.scooley.com), “vendors can't get all of the regulations implemented on time and correctly; In 1983, there was a company LoanStar, out of Sacramento, California - a predecessor to Calyx and was Contour's biggest competitor; In 1986 Fannie Mae came up with a new loan application from 2 pages to 4 pages and for whatever reasons they could not get the changes made in their software - they had to fill out the old 1003 in the old 1003 and then print it up in a separate solution - in a matter of a few months, the company went under because of their reliance on a separate 3rd party software provider. Some vendors are really good at adapting to change while others simply do not.” Scott referenced a “trend of nothing” during our conversation, which essentially means very little outside investment capital would be placed in the segment and no new innovations would be introduced since technology firms will be consistently reacting to changes in regulatory requirements. I think this poses a significant challenge to existing and 42

December 2010

legacy mortgage technology firms, particularly those who are either niche products or ones that have struggled to adapt to the banking & regulatory changes. The market is continuing to move away from them and their lack of leadership and innovation in these areas will eventually find their market share and customer base reduced further.

2011: Predictions To begin the New Year, several industry leaders were interviewed to get their input on what 2011 may bring. Below is a summary view from each: Scott Cooley, Cooley Consulting: www.scooley.com •

In 2011, The days of the LO handling 1-2 deals a month are over

•

Loan Officers will need to handle higher volumes of prospects with fewer closings;

•

Getting the big deals and the big points, those days are gone.

•

Loans are costing more today than ever- the Frank Dodd Act is only increasing costs;

•

2011, will mark an all-time high in the costs to originate a single loan;

•

Market volume will continue toward depositories and consumer direct operations;

•

Brokers will sustain themselves but will hit their market share all time low in 2011;

•

2011 is going to be the year that a new foundation will be built for the LOS vendors.

•

LOS Vendors who respond will be competitive in 2012 and beyond those who don’t will spiral out of business or be sold.

Dave Savage, CEO of Mortgage Coach www.mortgagecoach.com/

Vladimir Bien-Aime, President / CEO of Global DMS www.globaldms.com

•

In 2011, Interest rates will remain low until 2012

•

2011 production numbers - $1.2T with a reduction in Refi and a leveling of New Purchase business.

•

Loan Officers and their role is being reset to meet the new market

•

Technology vendors who don’t automate, will not survive

•

Brokers will continue to decline but the worst is behind them; the velocity has slowed

•

Loan Officer transition to a “Mortgage Advisor” is firmly in place; it is the only way to build client loyalty in a reducing market.

•

In 2011, Brokers will continue to contract in numbers;

•

Low cost origination model will return in 2013;

•

There is a lot of shadow inventory still left to be dealt with in 2011;

•

AMCs will consolidate given lack of experience and knowledge

•

Lenders will take in house appraisal management functions

•

More web based forms and services will emerge for appraisers, REO and Servicing Elements of the market will adopt these new delivery platforms;

Rick Roque, former Management Team member at Calyx Software & non-operating owner of Menlo Company. If you have any comments on this article, feel free to call Rick at 408.914.5895 or by email: rickproque@yahoo.com

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NICHE REPORTS

Agency & FHA NEW

Axis Capital Group Inc. 888-229-4773

Flagstar Wholesale Lending 866-945-9872

NEW

Specializing in FHA,203k, Reverse. AZ,CA,CO,FL,HI,TX,WA.

Icon Residential Lenders www.iconwholesale.com

NetMore America, Inc. 877-490-3140

United Wholesale Mortgage 800-981-8898 ext. 5515

Offer a full array of FHA and Agency products, coupled with industryleading underwriting turn times and technology. National Wholesale Lender offering a full line of Conforming and FHA products. We offer personalized customer service where our client is our primary focus. 24-48 Turntimes, In side Support, RESPA Help, Friction Free Technology, FHA for Brokers, We value Brokers!

Home of the 7 Day Paycheck. FHA & Conventional Underwriting in 24-48 Hours. Doublewide Manufactured now Available!

COMMERCIAL GreenLake Real Estate Fund, LLC 310-462-4637

Manaseh, Epharim & Associates 770-840-0112

Private direct commercial loans in CA and NV. All property types except raw land. Our latest fund was raised specifically for loans in this tough economy. We're eager to lend, so please call today! Acquisition, Refiâ&#x20AC;&#x2122;s, and Development Commercial Loans. Your source for international and domestic funding.

ADVERTISE YOUR NICHES HERE WITHIN Financing may not be available in all states. The above summaries are intended for Mortgage Professionals only, and not intended for distribution to consumers, as defined by Section 226.2 of Regulation Z, which implements the Truth-In-Lending Act. Information is subject to change without notice. Refer to each lenderâ&#x20AC;&#x2122;s information on products, program, procedures, representations, and warranties for details.

TheNicheReport.com

NICHE REPORTS

HARD MONEY & NON-PRIME B & C LENDING IS BACK. If your client has equity, we have a loan. Loan amounts 100K to 2MM. We are the final decision makers, all decisions made at our location.

ACC Mortgage, Inc. 240-314-0399 X 19

First Mount Vernon

No seasoning requirements, No upfront commitment or processing fees, Minimum credit score 400 - DE, MD, VA, DC, NC, SC, GA, FL.

866-908-FMV1 (3681)

First Mount Vernon

Minimal documentation required, Combined Loan-to-Values to 105% - DE, MD, VA, DC, NC, SC, GA, FL.

866-908-FMV1 (3681)

GreenLake Real Estate Fund, LLC 310-462-4637

Manaseh, Epharim & Associates 770-840-0112

Windvest Corporation 877-285-0777

Private direct commercial loans in CA and NV. All property types except raw land. Our latest fund was raised specifically for loans in this tough economy. We're eager to lend, so please call today! Direct Lender with fast closings. Your source for international and domestic funding. REHAB LOANS for prperty investors. Direct lender on properties in So. California. 24 to 48 hour approvals. Rapid closing. Non-owner occupied. Up to 1-year term. Call for details to get your next deal approved! www.windvestcorp.com.

CONSTRUCTION Bismark Mortgage Company 800-350-7199 x106

Manaseh, Epharim & Associates 770-840-0112

Owner Builder and Spec Construction for residential AL, AK, AZ, CA, CO, GA, HI, ID, IL, IN, KY, ME, MD, MA, MI, MN, MO, NY, NV, NJ, NC, OH, OR, PA, TN, TX, UT, VA and WA. New construction and rehab loans for all types of commercial properties. Your source for international and domestic funding.

December 2010

Service provider classifieds

Service Provider Classifieds Compliance and Audit NEW

Adfitech Inc. 800-880-0456

ADFITECH, has served the Residential Mortgage Industry since 1983, providing Post Closing QC Audits, Due Diligence Reviews, Pre-Funding QC, Default Reviews, Fraud Investigations, Post Closing Fulfillment, and LOANVAULTÂŽ Imaging, of Conventional & FHA products. Clients include Community Banks, Credit Unions, Mortgage Bankers, MI Companies, and Wall Street Investors.

Certified Forensic Loan Auditors, LLC 310-432-6304

Providing Law Firms and Mortgage Professionals with premium Certified Forensic Loan Audits, Securitization Audits, Predatory Lending Lawsuits, TRO's, Lis Pendens, full service Litigation Support, Industry Training and Continuing Education MCLE.

Quality Mortgage Services 615-591-2528

Mortgage Compliance Solutions, Post Closing & Default Audits, HVCC Reporting, QC Software, Federal Regulatory Audits

Waquis 310-696-9515

We provide HUD Auditing and QC on every loan type

Credit Repair & Restoration HTDI Financial 877-877-4834 opt 5

Start your own credit repair company with our state of the art tracking software and dispute outsourcing options. Top notch support by a dedicated Account Expert.

Credit-Aid Software 800-257-1192

Credit Repair Software. Credit repair business opportunity.

Insurance Entitle Direct 877-936-8485 or 877-9ENTITLE

Hundreds of mortgage professionals have saved their borrowers up to 35% or more on their title insurance by recommending Entitle Direct.

Mortgage Insurance Agency 866-355-9944

State Licensed Surety Bonds, Errors & Omissions and Fidelity Bond coverageâ&#x20AC;&#x2122;s for Mortgage Bankers and Mortgage Brokers nationally.

TheNicheReport.com

Service provider classifieds

technology a la mode 800-252-6633 ext 309 AllRegs 800-848-4904

Websites and marketing tools for real estate professionals

Products include single and multifamily underwriting & insuring guidelines, federal & state compliance laws and regulations, contract publishing services, policy and procedure manual templates, AllRegs Academy training programs and more

Applied Business Software 800-833-3343

Origination and Servicing software for hard money lenders.

Calyx 877-862-2599

Affordable software that streamlines and optimizes all phases of the loan process â&#x20AC;&#x201C; from loan marketing through closing.

Corvisa LLC. 800-787-9054

Robust software suite includes appraisal management, business analytics, payment processing and more.

DocMagic 800-649-1362

The largest dedicated loan document production company in the country, delivers a fusion of solutions guaranteed to meet today's complex loan document challenges.

marketing & lead Gen NEW

Lender 411 888-333-6628

Mailer Leads 866-783-4053 ext 14

OSI Express 866-674-1999

Mortgage Leads & Internet Marketing. Sign up FREE on www.lender411.com. Check out testimonials of our existing members about the quality of our leads and the level of our service for web marketing. We are fast becoming the Gorilla in the market. Imagine having 50 prospects per loan officer that are already pre-approved calling you within 10 days from today! Our mailers are FICO and AVM based and are pre-qualified based on credit data. Prospects will be ready to finance when they call you! Not just mortgage flyers and open house flyers, we are a powerful financing analysis tool for refinance and purchase, greatly helping loan originators.

Appraisal & AMC

Corvisa LLC. 800-787-9054

Robust software suite includes appraisal management, business analytics, payment processing and more.

National Valuation Service 786-581-9171

Comprised of thousands of fully vetted Independent Business Owners who as Appraisers, provide valuation and consulting services in 50 States.

ValRev, LCC 323-302-9630

Online solutions to valuation challenges.

December 2010

Service provider classifieds

Training & education 800-848-4904

AllRegs Academy offers online, audio and classroom training, continuing education, certifications, study guides, practical guides and customized training at your site on compliance, underwriting, servicing, FHA, VA, SAFE and more.

Certified Forensic Loan Auditors, LLC

AllRegs

310-432-6304

NEW

Kaplan Real Estate Education

Kaplan is the nation’s leading provider of licensing and exam prep courses. We offer the SAFE Licensing Course in the classroom and live online. To help you pass the SAFE Exam, we also offer exam prep courses in the classroom and OnDemand online.

MortgageCurrentcy.com

Interpreting the complicated mortgage rules in plain language (Fannie, Freddie, FHA, VA, Compliance, Credit) that ONLY affect the loan origination side of the business. Help Desk. Rule Change Calendar. Automatic Face Book posts & Mortgage Talking Points™ for your real estate agents. Online e-zine published 2X month. Try for $1.

800-231-4787

Branch Opportunities

NEW

American Pacific Mortgage 866-625-9352

Join American Pacific Mortgage and become a direct lender with the option of brokering

GSF Mortgage Corporation 877-494-4448

Be in business for yourself, but not by yourself. Join GSF Mortgage's Professional Branch Network! Enjoy freedom and stability and reap the rewards

Guaranteed Home Mortgage Company, Inc. 888-572-3602

NEW

Specialized Retail Platform for Experienced Loan Officers

Land Home Financial branchsales@lhfinancial.com

Direct Lender that has been in business for over 22 years. We have prospered and grown in a climate of turbulence and change. We have adapted and helped our branches adjust to the new rules and regulations that have occurred over the last few years and helped them take control of their future in today's mortgage industry.

Sierra Pacific Mortgage 800-447-3386

Retail Branches and Wholesale Lending Nationwide. Privately owned specializing in residential conforming, FHA, VA and Jumbo. Wholesale: www.spm1.com Retail: www.spmloans.com

Top Flite Financial, Inc. 866-301-0653

Home of the “No Fee” Program!

TheNicheReport.com

LENDER & RESOURCE DIRECTORY

Adfitech Provides Residential Mortgage Post Closing QC, Due Diligence Reviews, Pre-Funding QC, Default Reviews, Fraud Investigations, Post Closing Fulfillment, and LOANVAULT Imaging of Conventional & FHA Products. www.adfitech.com John Rosenhamer 800-880-0456 sales@adfitech.com

All Credit Considered Mortgage B&C LENDING IS BACK. www.weapproveloans.com National Sales Manager 240-314-0399 X 19 newloans@accmortgage.com

a la mode, inc. Websites and marketing tools for real estate professionals. www.alamode.com 1-800-ALAMODE info@alamode.com

AllRegs Leading information provider for the mortgage industry. www.allregs.com 800-848-4904 help@allregs.com

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December 2010

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December 2010

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BRINGING UP THE REAR - continued from page 54

for that, I tried but couldn’t help it.) The D.A. in this case is trying to say that he didn’t want to take away Martin Joel Erzinger’s ability to repay the victim by impeding on his ability to make the money he needed to compensate the victim as a result of a felony conviction. Well… horsepucky. A former 26 year Assistant U.S. Attorney with whom I consulted as I was writing this article, said: “I would think that in this case, the potential reduction in prospective earnings has nothing to do with his ability to compensate the victim, as we can assume that Martin Joel Erzinger is already quite well off.” And, according to what Dr. Milo wrote to District Attorney Mark Hurlbert, he didn’t want the D.A. to do him any favors, stating: “Mr Erzinger struck me, fled and left me for dead on the highway. Neither his financial prominence nor my financial situation should be factors in your prosecution of this case.” My friend, the ex-U.S. Attorney went on to say: “The law is designed both to punish and deter illegal conduct. Martin Joel Erzinger obviously deserves, and in fact needs to be severely punished, as his behavior is so offensive as to defy all reason. He not only left Dr. Milo on the road to die, but then he thought to call in damage to his vehicle before considering the damage to a fellow human being. It’s outrageous.” And what is the message sent to private wealth managers, hedge funders, and other members of the banking class in this country? If you happen to almost kill someone, there’s no reason to not to simply leave the scene and head for Pizza Hut, perhaps for a slice and a cola? You can always just have your girl write a check later to straighten things out? Oh, really? Well, let me just introduce what sort of behavior that will lead to on the part of victims of such egregious crimes. If the wrong person happens to be almost

killed by one of these rich scumbags, he might not bother with the cops. Instead, he may just recover, load up a couple of clips of hollow points for his 9-millimeter, find out where the guy parks his car and blow the guy's head off his damn self, and figure he's done the country a public service. You see, this article isn’t really about District Attorney Mark Hurlbert, Martin Joel Erzinger, or even Dr. Milo. This story is about an America that has so lost its way that, although the facts of this story were reported by the U.K.’s Daily Mail, Cycling News, and a host of others online, including Naked Capitalism, by the way… you won’t find it published in the headlines of any major media outlet. Why? I fear that I don’t even want to know the answer to that question. Martin Joel Erzinger told police that he didn’t know he had hit Dr. Milo. So, he didn’t know he had hit a cyclist. Was Martin Joel Erzinger that drunk when he struck Dr. Milo and his bicycle that he didn’t even know? Is that why he fled the scene? Considering the decision made by the D.A. not to prosecute Martin Joel Erzinger, is it really so hard to believe that the D.A. wouldn’t cover up such a detail? We’re about to enter yet another season of Wall Street bonuses, and there will be hundreds of billions showered upon those who caused the crisis that has left hundreds of millions struggling, and many of them likely for the remainder of their lives. What shall we as a nation do about that… let them eat cake? The path we’re on only has two possible endings, radical revolt or radical reform. I pray we wake up and choose reform before it is too late. Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on ML-Implode called Mandelman Matters. He also publishes a Monthly Museletter and you can follow “Mandelman” on Twitter. Send your responses to Martin@TheNicheReport.com

BRINGING UP THE REAR

Martin Joel Erzinger, Et Al BY MARTIN ANDELMAN

ome months this column is harder to write than others… this month it practically wrote itself. There’s no reason you should know the name, Martin Joel Erzinger. He’s a 52 year-old private wealth manager, who manages more than $1 billion for uber-rich clients of Morgan Stanley/Smith Barney in Denver, Colorado. Well, apparently on July 3rd this past year, Martin Joel Erzinger was speeding along in his black 2010 Mercedes… rich guys are always understandably in a hurry… when he allegedly slammed into one Dr. Steven Milo from behind. The thing is, Dr. Milo was riding a bicycle on Highway 6, near Eagle, Colorado at the time, so “struck from behind,” is really more like “ran over from behind”. According to court documents, Dr. Milo suffered spinal cord injuries, bleeding from his brain and damage to his knee and scapula. He has suffered “disabling' spinal headaches and faces multiple surgeries for a herniated disc and plastic surgery to fix the scars he suffered in the accident.” His attorney, Harold Haddon told the court that Dr. Milo will have a lifetime of pain and that: “His ability to deal with the physical challenges of his profession - liver transplant surgery - has been seriously jeopardized.” So, Dr. Milo is a liver transplant surgeon who lives in New York City with his wife and two children. Clearly, this was a tragic accident… just one of those things that everyone wishes never happened. Well, sort of… there’s a little more to it, actually.

You see… the thing is that Martin Joel Erzinger, according to police, fled the scene and had to be arrested later. Reports say that he drove until finding a Pizza Hut parking lot where he stopped and called Mercedes Roadside Assistance to report the damage to his vehicle. And, although Martin Joel Erzinger was all set to face felony hit-and-run charges, but as it turns out… he’ll only be charged with two misdemeanor traffic charges from the July 3rd incident. District Attorney Mark Hurlbert explained that the decision not to prosecute Martin Joel Erzinger was made because: “Felony convictions have some pretty serious job implications for someone in Mr. Erzinger's profession, and that entered into it. When you're talking about restitution, you don't want to take away his ability to pay.” Excuse me, DA Hurlbert? You’re not going to prosecute Martin Joel Erzinger for running down someone riding a bicycle and then fleeing the scene because it wouldn’t look good on the guy’s resume? Seriously, Mr. Hurlbert? Where did you get your law degree, sir… and more importantly, where did you leave your ethics and responsibility to our society? Prosecutors say the decision is theirs, and thank you for stating the obvious. But prosecutors that fail in their duty should also be removed from their office, and replaced by those that will protect our society and uphold our laws regardless of how much money the alleged offender earns or manages. And what about Dr. Milo’s career as a liver transplant surgeon? What is he, chopped liver? (I sincerely apologize - continued on page 53

December 2010

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