LMC wk 6 Comprehensive Industry Issues

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Forced placed insurance has been a hot topic in the industry? What? What has changed since the financial crisis.

"Force placed insurance," also referred to as "creditor placed" or "lender placed" is insurance that banks/mortgage companies purchase to cover a home when a homeowner lapses on mandated insurance coverage. This practice, while legal, has been linked to other unethical, deceitful, and illegal tactics aimed to benefit lenders and insurance providers at the homeowner's expense. Placing forced insurance policies on homes already covered by insurance. Keeping the force placed coverage even after receiving evidence that a borrower has recovered their own insurance. Purchasing a force placed plan at a rate substantially higher than the current market rate. Charging homeowners for more that the actual cost of the force placed insurance policy. Failing to inform the homeowner that their insurance lapsed and setting up force placed coverage without homeowner's knowledge. Purchasing the force placed coverage from the bank's own insurance subsidiary. UNDER FEDERAL LAW... The servicer must send TWO (2) notices to the borrower. 1 at least 45 days BEFORE purchasing forced place insurance. then a second reminder notice - 30 days AFTER the original notice. The servicer must then wait 15 days before charging the borrower for forced place insurance. The notice must include the cost of the forced place insurance. Taking commission payment or other incentive from insurance provider for their service.

You are the Compliance Manager for a retail shop. What are 3 ways you can protect your company against Fair Lending violations?

1. Designate a Fair Lending Officer. Ensure you have a policy for monitoring third parties! 2. Institute a review process for denied loans 3. Change your policies, processes, and procedures on how loan apps are taken, underwritten and approved / denied 4. Institute an effective, reoccuring and thorough employee training / education program 5. Testing, monitoring, data analysis and reviews should be completed regularly 6. Implement a system of controls to stop this practice (bias, discrimination, etc...) before it starts 7. Understand and implement CRA (Community Reinvestment Act) guidelines

Name Four (4) myths of the rising IMB market share

1. IMB Market share growth is new and unprecedented 2. Unregulated IMBs are part of the risky "shadow" financial system where nonbanks are taking market share from regulated institutions 3. IMBs originated high-risk mortgages that threaten a return to pre-crisis days 4. IMBs pose taxpayer risks and systemic risk to the economy/financial system

Vacant Properties.

1. There is not a clear and statuatory definition for vacant property in every state, city and county. 2. Often times - when a property is vacant - you still have to go through the normal FC process. While this is changing for the better - some delays still exisit. Vacant properties should be fast tracked to prevent blight and to help communities. 3. The rebuttal presumption is not efficient, fair or reasonable in all circumstances regarding vacant property.

What is a systemically important institution? What does too big to fail mean?

A systemically important financial institution (SIFI) or systemically important bank (SIB) is a bank, insurance company, or other financial institution whose failure might trigger a financial crisis. They are colloquially referred to as "too big to fail". Some argue that the increased regulatory burden has in fact exacerbated the risk of financial contagion: since larger banks are better able to shoulder the extra costs, they come out stronger—and bigger—as a result, ironically giving rise to greater concentration in the financial sector. SIFI's in the USA include JPM, Wells Fargo, BofA, Goldman Sachs, and Morgan Stanley to name a few. "Too big to fail" describes a concept in which the government will intervene in situations where a business has become so deeply ingrained in the functionality of an economy that its failure would be disastrous to the economy at large. If such a company fails, it would likely have a catastrophic ripple effect throughout the economy.

How does or could a lender's Neighborhood Watch rating impact its relationship with investors and warehouse partners, and is a 115% rating good or bad?

A ratio of 115 is concerning - but not catastophically horrible. It is something to watch though. At 150 FHA has the right to terminate Lender Insurance. At 200 FHA can terminate your direct endorsement and the relationship in its entirety. Having said that - there are folks in the industry with high ratios who are still operating and have robust plans in place to reduce this number downward. The quality of a loan correlates highly with the risk appetite of investors and warehouse banks. Lenders cannot survive long term originating poor quality loans. Delinquent loans are a HUGE drain on cash since you have to buy the loan out OR advance. There is also significant headline, reputational, compliance and regulatory risk. FHA Servicing is complex. If you miss First Legal, Reasonable Dilligence, etc... it can cost you $1,000's in curtailments. You never got dollar for dollar back in the claims process. Even if you are a tier 1 servicer - you get 75 % reimbursement. MORE INFORMATION Neighborhood watch is FHA Quality Assurance measure. It is an early warning system It applies to all channels (wholesale, retail and correspondent). Neighborhood watch compares your book of business to the books of business for other lenders on a granular / geographic level (nationally, city, state, zip, etc....). It compares (COMPARE RATIO) your seriously deliquent loan population (90 + days DQ) AND loans with claims paid DIVIDED by those same figures with other lenders in a specific geographic area such as an area served by a HOC (Home Ownership Center) A Compare Ratio of 100% means a company is performing at a level equivalent to FHA's benchmark rate. A Compare Ratio under 100% means a company's loans are performing better than the full FHA book, and a rate over 100% indicates worse performance. Should the Compare Ratio exceed 200%, black suv's will begin to show up in front of your house and the FHA could terminate your lending authority.

How big is the Independent Mortgage Bank (IMB) market

According to HMDA data, those companies accounted for 16% of all HMDA reporting companies, but originated 54% of 1-4 family mortgages, up from 25% in 2008

Fannie / Freddie Conservatorship. What circumstances lead to this? Why take them out of conservatorship? Why leave them in?

Argument is that Gov does not want to let them go They are bringing in SO MUCH CASH They have to adjust capital standards - Fannie / Freddie has no profits - so they could not whether the storm - they have no reserves Another crisis (right now) would just be another default since Fannie / FReddie would hav eto go back into conservatorship

Describe CECL

CECL (Current Expected Credit Loss) will require companies to take a long forward-looking approach when establishing reserves for loan and credit losses. CECL will fundamentally change how banks and other financial companies recognize credit losses in their loan and held-to-maturity debt security portfolios i. In contrast to the long-standing U.S. GAAP approach, which required companies to establish a reserve when a loan loss is probable and reasonably estimable, CECL requires day-one upfront recognition of credit losses using long-term economic forecasts over the contractual life of the loan but does not allow a similar upfront recognition of corresponding future revenues associated with the loan.

What is the CFPB's role in fair lending?

CFPB is the first agency that is only responsible for monitoring Consumer harm. All of the other regulators are responsible for Safety and Soundness, and eventually get to consumer harm, whereas the Bureau is entirely focused on consumers being treated fairly

Conventional vs agency vs non agency

CONVENTIONAL = Fannie or Freddie. A conventional mortgage loan is one that is not insured or guaranteed by any government agency, such as the Federal Housing Administration of the Department of Veterans Affairs. Conforming only deals with the SIZE of the loan. Conforming loans can be conventional or Jumbo.

What is GSE reform and why is it important?

Conservatorship of the Enterprises has already persisted far longer than intended. The U.S. Congress should not allow conservatorship to continue indefinitely, as market participants will suffer in a number of ways. Borrowers will be denied the benefits of a more vibrant secondary market, lenders will face increased uncertainty about the future, and private-label security (PLS) issuers and investors will hesitate to fully engage in the market. In short, the status quo is an unacceptable long-term outcome.

What is the difference between disparate treatment and disparate impact?

DISPARATE = "similarly situated" and "prohibited factor." A lender treats similarly situated consumers differently based on a prohibited basis (i.e. race, gender, marital status, etc.).Disparate treatment occurs when members of a prohibited basis group are treated differently than others, even if it's not overt. Disparate treatment can be unintentional. For example, if you have pricing discretion that results in white applicants receiving better pricing than Asian applicants, that might be considered comparative evidence of disparate treatment. Redlining is a type of disparate treatment where a lender provides unequal access to or terms of credit because of the prohibited characteristics of the residents of an area in which an individual lives or in which a residential property to be mortgaged is located. It may violate both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA). Disparate impact occurs when an otherwise neutral policy or practice has unintended consequences of creating a disproportionately adverse impact on protected classes of people, even if that policy or practice is applied equally to all individuals. For example, "we have a 75k minimum for all home equity loans."

What is the Controversy regarding appointment of director?

Dodd - Frank directed that the CFPB would have one director rather than a commission. The director would be nominated by the president and approved by the Senate. The director would serve a five year term and could not be removed by the president except for a good cause. This type of leadership has already been ruled unconstitutional by the Washington D.C. U.S. Circuit Court of Appeals.

HMDA Changes

Essentially the CFPB has made the data LESS precise (using ranges for borrower ages (25-34, 35-44, etc... and using midpoints of $10,000 increments for income, property value, etc...) Other data has been excluded or will not be publicaly released. Items such as FICO, UW system, dates, property address, UW decision, race and ethnicity are included

You are the CEO of a mortgage company that is owned by a bank. You have had three houses that went into foreclosure, but they have FHA insurance on them. After researching the files you determine that the originator committed income misrepresentation on the files. You decide that it is worth the risk and file the insurance claim. If you are caught, what Act can the Department of Justice charge you with violating, why, and what are the penalties?

False Claims Act. FCA This occurs when someone knowingly presents or causes to be presented false, misleading, or fraudulent claims or records for payment or approval to the US Government. In this case HUD. DOJ, Inspector General, US Attorneys, HUD, FHA - everybody gets in involved. The penalties are treble (triple) damages. The statute of limitations is 6 years. The government can extrapolate the damages across an entire portfolio. For example - they sample 100 loans - find 10 defects (10 %) and use that 10 % across your 1,000 loans. Many banks have paid hundreds of millions of dollars to settle these allegations. Bill Emerson (Quicken) stood up to them - fought a great fight - and ultimately prevailed. They found 55 loans out of 250,000. They refuted 47 and had to pay the fine of $32 MM. The 4 years of legal costs through were likely astronomical. The law was originally from the Civil War to protect the government and punish bad suppliers (horses) to the Union Army.

It's believed independent mortgage bankers carry more risk than more traditional GNMA market share leaders. What risks add to this opinion and why is it important to GNMA?

HUGE ISSUE. I am really worried about this! GNMA has more than 30 % market share today. Before the crisis it was less than 10 - maybe even 6 or 7 %. Out of that 30 + % market share - more than 75 % of the counter parties are Non Banks. WHY? The oppressive regulatory environment has made a lot of large banks shy away from Government Lending. So what is the problem with Non Bank Lenders? In the crisis - all the big banks were involved in PLS. They all got sued. They all gave their profits back. JPM, Wells, Citi, BofA.... they have deep pockets! After 2009... there was no more sub prime. No more PLS. No securitization market to speak off. Someone had to fill the void. Enter the Non Bank.Smaller non bank lenders and servicer DO NOT have the liquidity, the back stop, the pedigree to hang around when stuff goes south. Most are pass through LLC's with limited liability. Some are head quartered off shore or have complicated holding company structures. GNMA is going to have a serious problem on thier hands. 9 % + of the FHA book is delinquent. Non Bank Servicers will not be able to buy the loans out or advance. They will likely get hurt 2-3 years from now on the claims process after the OVER advance and realize the 75 % reimbursement, first legal and max allowable expenses. In my opinion - GNMA will be in crisis mode within the next 24 months when this market corrects.

Why is this a myth "Unregulated IMBs are part of the risky "shadow" financial system where nonbanks are taking market share from regulated institutions"

IMBs are subject to the same consumer facing regulations promulgated by the CFPB as any other mortgage lender. They are regulated at the state and federal level and are subject to rigorous counterparty oversight by FHA, Ginnie Mae, the GSE's and warehouse lenders In addition, depositories have advantages over their IMB, lower-cost federally insured funds, access to cash and preemption of many state laws

Why is this a myth "IMBs pose taxpayer risks and systemic risk to the economy/financial system"

IMBs do NOT accept federally insured deposits (no FDIC insurance) and have no government backstop. If IMB fails, the owners of the company lose their entire investment Financial Oversight Council (FSOC) has not identified the IMB sector as a systemic risk

The CFPB published something called "Know Before You Owe" - What does this mean for you as a mortgage lender?

Know Before You Owe rule, also called the TILA-RESPA Integrated Disclosure rule, addresses when mortgage lenders with a valid justification can pass on increased closing costs to consumers and disclose them on a Closing Disclosure. The CFPB's rule created new, streamlined forms that consumers receive when applying for and closing on a mortgage. Mortgages are complex and confusing. This new rule primarily does two things: 1. It simplifies and consolidates some of the required loan disclosures (Loan Estimate and Closing Disclosure), and 2. It changes the timing of some activities in the mortgage process. The rule covers a few topics such as: 1. Tolerances for the total of payments. The rule changed the total of payments calculation. How you calculate total payments and finance charge is different yet parallel. 2. Housing Finance Agencies (HFA) get a partial exception - yet can still charge for some fees and transfer taxes 3. Privacy and sharing of information. The industry called this rule the "BLACK HOLE" until it was recently fixed. The rule contained no provision that allowed creditors to use a Closing Disclosure to reflect the revised disclosures if there are four or more days between the time the revised disclosures are required to be provided and consummation. As a result, it created a situation where creditors are unable to provide either a revised Loan Estimate or a corrected Closing Disclosure to reset tolerances. There are SIX reasons when lenders can issue a new closing disclosure.

What is the Non QM Patch. When does it expire? Why is it important?

Known as the QM patch, the rule exempts GSE-backed loans from abiding by the full scope of the Ability to Repay/Qualified Mortgage rule, which requires lenders to adequately verify a borrower's ability to repay their mortgage in the underwriting process. This includes a review of a borrower's debts and assets to ensure they have the ability to repay the loan, AND a stipulation that their debt-to-income ratio not exceed 43%. The GSEs' exemption from these rules has significantly elevated their share of the mortgage market, giving rise to concerns about an uneven playing field holding back other lenders. Is is estimated that roughly 1 in 7 loans (15 % ish of the market) get this Non QM patch exception. Some interested parties have expressed concern. Stating that simply doing away with the QM patch could be catastrophic for the mortgage market, as it enables thousands of borrowers who might otherwise not qualify to obtain a mortgage. The Non QM Patch Expires in January of 2021

The GSE's recently made changes to it's repurchase language. What was the change?

Life of loan exlcusions were clearly identified and spelled out: 1. Misrepresentations, misstatements and omissions 2. Data inaccuracies 3. Charter compliance issues 4. First-lien priority and title matters 5. Legal compliance violations 6. Unacceptable mortgage products Also... a minimum number of loans that must be identified with misrepresentations or data inaccuracies to trigger the life-of-loan exclusion, so that the GSEs will be responding to a pattern of misrepresentations or data inaccuracies, not just outliers. Fannie Mae has Day 1 Certainty and Freddie has Loan Advisor

What is MAX LO Comp you can get on a loan?

Max lender paid comp is 2.75 %

MORE INFORMATION on Neighborhood Watch - Compare Ratio

MORE INFORMATION The Neighborhood Watch Early Warning System (Neighborhood Watch) is a secure web-based application designed to provide comprehensive data querying, reporting and analysis capabilities for tracking the performance of loans originated, underwritten, and serviced by FHA-approved lending institutions. Neighborhood Watch is used by FHA employees, lending institutions and the general public to monitor the performance of insured mortgage loans by highlighting instances of high defaults and claims among lending institutions by geographic area, loan characteristic, and other factors. This is accomplished by developing compare ratios to identify lenders within various geographic areas (from zip code up to the national level) that exhibit a higher level of risk to the FHA insurance fund than other institutions due to excessive default and claim rates on endorsed loans with a beginning date of amortization within the previous 12 or 24 months from analysis. The system provides a critical component for FHA's risk management strategy by allowing for predictive analysis to be performed on lending institutions based on observed trends in the number of defaults and claims over time, among geographic areas, and across product types. Neighborhood Watch also allows for analysis to be carried out on the nature of the delinquencies that are reported to FHA by its servicers, the period of the mortgage lifecycle in which those delinquencies took place and the success rate of loss mitigation actions in bringing mortgagors current. Both of these capabilities better position FHA to manage current and future risk to its insurance funds by providing the means for evaluating the causes for delinquencies and for assisting lenders develop effective remedies/improved origination and underwriting practices, thereby preventing unnecessary foreclosures and costly conveyance claim payments.

What is PACE Lending?

Property Assessed Clean Energy (PACE) loans-a financing structure lacking vital consumer protections and presenting lien priority risks to lenders, investors and guarantors. Federal consumer protection regulations are needed, because all PACE loans are not subject to appropriate, standardized consumer protections. Following enactment of S.2155 during 2018, the CFPB is now authorized to issue rules to shield consumers from the well-documented dangers posed by PACE loans. Without such federal standards, more states will continue to act independently and create a patchwork unequal and divergent safeguards. Also, PACE loans upend traditional lien priority, exposing investors and guarantors to increased loss severities. MBA supports the continued ban on PACE loans in housing programs offered through the GSEs, FHA and VA.

MORE on TARP

The Troubled Asset Relief Program was a $700 billion bailout. On October 3, 2008, Congress authorized it through the Emergency Economic Stabilization Act of 2008. It was designed to keep the nation's banks operating during the 2008 financial crisis. The treasury Department used $105 billion in TARP funds to launch the Capital Purchase Program. The U.S. government bought preferred stock in eight banks. They were Bank of America/Merrill Lynch, Bank of New York Mellon, Citigroup, Goldman Sachs, J.P. Morgan, Morgan Stanley, State Street, and Wells Fargo. When all was said and done the Government made money ($3 BN)

What has the expanded role of the IMBs provided to the industry?

The expanded role of the IMBs has strengthened our housing finance system by bringing local market knowledge, diversifying risk across a larger number of lenders and servicers and fostering greater competition and innovation

What was noted to cause the housing and mortgage market crash?

The general collapse of the housing bubble: 1. Low interest rates 2. Easy and available credit (underwriting standards) 3. Inadequate regulation 4. Toxic mortgages

What is SOFR? How does it relate to LIBOR?

The publication of LIBOR is not guaranteed beyond 2021. Much work lies ahead in order to implement a successful reference-rate change and time is of the essence. If you or your staff needs a primer, check out this LIBOR Transition Briefing with policymakers at the center of the transition. SIFMA Insights provides an overview of the LIBOR transition, as well as an actionable checklist -- with a focus on the proposed US alternative reference rate, Secured Overnight Financing Rate (SOFR). Banks are largely ahead of other financial institutions in replacing Libor with other interest-rate benchmarks and are playing an important role in helping clients grapple with the impact, industry leaders say. "Our role is to make [customers] aware of the looming urgency of all this," says Phil Lloyd, head of market structure and regulatory customer engagement for NatWest Markets. The Federal Reserve-backed Alternative Reference Rates Committee says markets for derivatives referencing the Secured Overnight Financing Rate haven't had enough volume to be the basis for a forward-looking rate to replace Libor. However, the International Organization of Securities Commissions says some markets are gaining liquidity and could be ready to support a forward-looking rate by the 2021 transition deadline. Federal Reserve Bank of New York President John Williams recently said that Libor's survival is ensured for only about 900 more days and that the financial industry must migrate immediately to the Sterling Overnight Index Average, the Secured Overnight Financing Rate and other risk-free rates. UK Financial Conduct Authority CEO Andrew Bailey warned that the transition must convert legacy contracts, in addition to new business (see the actionable transition checklist from SIFMA Insights). "Don't wait until 1 January 2022 to manage your business' transition away from Libor, because it's going to be too late," Williams said. ARRC outlined a path for SOFR mortgages. The Adjustable Reference Rates Committee has outlined a proposal for mortgage lenders to build new adjustable rate mortgages using the Secured Overnight Financing Rate ahead of the phase-out of Libor at the end of 2021. The Committee consists of private market participants brought together by the Federal Reserve and New York Fed to help the transition away from Libor, outlined in a white paper how lenders can use a 30 or 90-day SOFR average instead of one-year Libor in adjustable rate mortgages (ARMs). Government-sponsored mortgage enterprises Fannie Mae and Freddie Mac said they supported the proposals and intended to use a SOFR rate for new adjustable rate mortgages before the end of 2021. Folks should know that because SOFR tends to be lower than Libor, the margin for new SOFR linked mortgages would be higher - in the 2.75%-3% range compared with the 2.25% area at present for Libor-linked loans. Indeed, the two rates are different. SOFR is a secured funding rate, while Libor is not. The SOFR rate would be set every six months, instead of once per year as is the standard for Libor based mortgages.

Capital Issues and effect on Warehouse Lending

There are five important vulnerabilities associated with the warehouse funding of IMBs: (i) margin calls due to aging risk (that is, the time it takes the non-bank to sell the loans to a mortgage investor and repurchase the collateral), (ii) mark-to-market devaluations, (iii) rollover risk, (iv) covenant violations leading to cancellation of the lines, and (v) changes in warehouse lender risk appetite. With IMBs representing 50% or more of all mortgage originations, liquidity to these instititutions are fundamental to maintaining stability in the U.S. Housing market...Most IMBs carry a B risk rating by their warehouse lender...IMBs that carry more than one warehouse line typically receive better rates than those with only one (the largest IMBs can maintain upwards to 10-15 warehouse lines) ...various technological and process enhancements to the loan pooling and securitization process have shortened further the amount of time that mortgages are funded on warehouse lines..the average time that loans stay on the lines as collateral has fallen to only 14-15 days (from 18 days)...As long as this situation continues, the aging risk [and evaporation of investor outlets- similar to COVID-19 circumstances] that contributed to the collapse of warehouse lending in the private-label securities market during the financial crisis appears less likely....when faced with adverse [stressed] market conditions, or risk of breaking covenants and/or cross-default clauses, those IMBs with multiple line are at risk of their warehouse banks competing for seizing collateral, essentially accelerating the cease of business operations to the IMB...providing confidence remains in both the liquidity implied by GSEs as well as speed and reliability of securitization markets, then non-bank mortgage lending and liquidity risks will be mitigated. This means that housing finance reform must maintain a structure where investors on the secondary market can also maintain confidence in securities performance, or at the very least, assurances or guarantees of stability during times of stress and rises in potential mortgage default. Without such confidence, nor ability for Warehouse Banks to maintain profits at low relative risk [a growing concern with the emergence of eClosings/eNotes and the further commoditization of warehouse lending], the total number of credit facilities available to IMBs is at further risk with speculation that some will leave warehouse lending altogether.

Describe the recent change to HMDA and some of the concerns it raises. PART 2

These fields will be modified: (1) the DTI ratio of the applicant's or borrower's total monthly debt to the total monthly income relied on in making the credit decision; (2) the number of individual dwelling units related to the property securing the covered loan or, in the case of an application, proposed to secure the covered loan; and (3) the number of individual dwelling units related to the property securing the covered loan or, in the case of an application, proposed to secure the covered loan, that are income-restricted pursuant to Federal, State, or local affordable housing programs. This public HMDA data will be excluded: The universal loan identifier or non-universal loan identifier, The date the application was received or the date shown on the application form , The date of action taken by the financial institution on a covered loan or application ,The address of the property securing the covered loan or, in the case of an application, proposed to secure the covered loan, The credit score or scores relied on in making the credit decision The unique identifier assigned by the Nationwide Mortgage Licensing System and Registry for the mortgage loan originator, andThe result generated by the automated underwriting system used by the financial institution to evaluate the application. These fields were also excluded: Applicant or borrower race, Applicant or borrower ethnicity, The name and version of the credit scoring model used, The principal reason or reasons the financial institution denied the application, if applicable The automated underwriting system name. AUS

Define UDAAP

Unfair, deceptive, or abusive acts or practices (UDAAP)

Why is this a myth "IMBs originated high-risk mortgages that threaten a return to pre-crisis day"

While IMBs on oroginated loans that on average have lower credit scores, higher LTV and DTI, they are underwriting to agency guidelines and don't control the "credit box". IMBs are subject to the same restrictions on high-risk mortgage products as depository institutions

Name six reasons why lenders can issue a new disclosure within the four-day time period during TILA - RESPA - Know Before you Owe?

1. A defined set of changed circumstances that cause estimated charges to increase or, in the case of certain estimated charges, cause the aggregate amount of such charges to increase by more than 10%. 2. The consumer is ineligible for an estimated charge previously disclosed because of a changed circumstance that affects the consumer's creditworthiness or the value of the property securing the transaction. 3. The consumer requests revisions to the credit terms or the settlement that cause an estimated charge to increase. 4. Points or lender credits change because the interest rate was not locked when the Loan Estimate was provided. 5. The consumer indicates an intent to proceed with the transaction more than 10 business days, or more than any additional number of days specified by the creditor before the offer expires, after the Loan Estimate was provided to the consumer. 6. The loan is a construction loan that is not expected to close until more than 60 days after the Loan Estimate has been provided to the consumer and the creditor clearly and conspicuously states that a revised disclosure may be issued.

Non Agency MBS - how do we get it back in the market Need 3 examples

1. Economics. They have to make sense. The risk reward has to make sense. Investors make a lot of decisions around yield, duration, and risk. Non QM is great - but nobody has any idea what the REAL pre pay speed is. Yet - our Non QM deal went off with a 7 handle and was 3x over subscribed. 2. Regulatory pressure / penalties / etc... 100 % there are some bad actors in the industry. However... some of the CFPB - Dodd Frank regulation was more politics and optics than punishment. If private capital is going take risks in the market - they need a clearly defined, transparent, fair, guideline driven environment . 3. Market opportunity / need. Currently... you have a lot of scope creep from the GSE's. Calabria is trying to rein this in. However... Fannie / Freddie are doing HIGH DTI and LTV loans. GNMA is the new sub prime in terms of risk, FICO, LTV, DTI. Private capital wil not come in until the government exits. If the government exits - the economics, optics, home ownership rate, etc... suffer. This is a chicken and egg thing. 4. Track record. If some of these securitizations go it will attract additional folks into the market. Nobody ever wants to be the first penguin in the water.

Briefly define ATR/QM

1. Lenders must make a reasonable determination that the borrower has an "Ability to Repay" reviewing the following - 1. Current/reasonable expect to continue income/assets. 2. Employment Status. 3. Mortgage Payment. 4. Escrows - Taxes, Insurance, HOA. 5. Second Mtg Payments. 6 Reoccuring debt. 7. DTI limited to 43% 8. Credit History. 2. Temporary QM -Exception to the DTI of 43% - FHA, VA, FANNIE MAE, FREDDIE MAC, USDA. 3. QM Loans - Loans that must meet the 43% requirement are Jumbo Non-Conforming Loans and Bank Portfolio products 4. Borrowers may not be charged points and fees that exceed 3% of loan amount for loans = > $107,747. Loans below $107,747 can have fees exceeding 3%. b. Safe Harbor- A lender has a safe harbor for liability for ATR if a loan meets the designated criteria of a Qualified Mortgage (QM).

Five vulnerabilities of Warehouse Funding on non-banks

1. Margin calls due to aging risk 2. Mark-to-market devaluations 3. Rollover risk (renegotiate a new contract with warehouse lender on annual basis) 4. Covenant violations leading to cancellation of the lines 5. Changes in warehouse lender risk appetite

What are the 3 stages of money laundering?

1. The placement stage represents the initial entry of the "dirty" cash or proceeds of crime into the financial system. Generally, this stage serves two purposes: (a) it relieves the criminal of holding and guarding large amounts of bulky of cash; and (b) it places the money into the legitimate financial system. It is during the placement stage that money launderers are the most vulnerable to being caught. This is due to the fact that placing large amounts of money (cash) into the legitimate financial system may raise suspicions of officials. Examples include loan repayment, gambling, smuggling, and blending funds. 2. After placement comes the layering stage (sometimes referred to as structuring). The layering stage is the most complex and often entails the international movement of the funds. The primary purpose of this stage is to separate the illicit money from its source. This is done by the sophisticated layering of financial transactions that obscure the audit trail and sever the link with the original crime.During this stage, for example, the money launderers may begin by moving funds electronically from one country to another, then divide them into investments placed in advanced financial options or overseas markets; constantly moving them to elude detection; each time, exploiting loopholes or discrepancies in legislation and taking advantage of delays in judicial or police cooperation. 3. The final stage of the money laundering process is termed the integration stage. It is at the integration stage where the money is returned to the criminal from what seem to be legitimate sources. Having been placed initially as cash and layered through a number of financial transactions, the criminal proceeds are now fully integrated into the financial system and can be used for any purpose. Examples include purchases of property, art work, jewelery, or high-end automobiles

Recently you denied a borrower for a loan. When the borrower was notified, he claimed that it was discrimination and that you would be hearing from his attorney. However, instead of the attorney, you were contacted from the CFPB and told that you would be facing Civil Investigative Demand (CID). What do you do to prepare for the CID, and if you are found in violation of discrimination, what kind of penalties might you face?

A Civil Investigative Demand (CID), similar to a subpoena, requires a company to provide documents to the CFPB. There is often a quick turnaround time to respond. As such, a company should first establish who will manage the process. That person(s) should be their legal representation and that person(s) should remain in contact with the CFPB to ensure that all timelines are met. Since the turnaround time is short, the company should also establish a core team that includes all areas of the business (e.g., operations, IT, legal/compliance). And, once you receive notice of a CID or the actual CID (whichever comes first), a litigation hold should be issued to prevent the destruction of responsive documents. It is important to note that, on April 23, 2019, the CFPB announced changes to the CID process. Moving forward, the CFPB will provide more information about potentially wrongful conduct under investigation, provide the potentially applicable provisions of law that may have been violated, and typically specify the business activities subject to the CFPB's authority. This policy change will help businesses better prepare and respond to CIDs. If found in violation of discrimination, penalties may include an enforcement action, an injunction, restitution/redress to consumers, and civil money penalties. civil penalties: 16k (1st), 65k (after), up to and possibly over $100k - and costs can triple (treble)

Your warehouse lender wired funds to a closing, but prior to closing you learned that the agent embezzled the funds. You cannot claim this against the CPL. · Why can't you use the CPL? · What must you have in place to protect you from this situation?

A closing protection letter "CPL" forms a contract between a title insurance underwriter and a lender, in which the underwriter agrees to indemnify the lender for actual losses caused by certain kinds of misconduct by the closing agent. In this scenario - the crime happened BEFORE the letter was issued. If you have adequate insurance (Fidelity Bond) or Crime Insurance you may be covered. The best thing to have in place is a thorough system of checks and balances, experienced employees, and a robust training program to guard against fraud

ROBO SIGNING

A robo-signer is an employee of a mortgage servicing company that signs foreclosure documents without reviewing them. Rather than actually reviewing the individual details of each case, robo-signers assume the paperwork to be correct and sign it automatically - like robots. Some robo signers were middle managers, others were temporary workers with virtually no understanding of the work they were doing. Some signers would sign up to 10,000 foreclosure documents a month. GMAC was a big offender as was Chase, BofA and Wells.

The FHA has recently announced that it will eliminate streamline refinances from their Neighborhood Watch Compare Ratio. What is not required to be provided on a streamline refinance that is required on a full documentation loan? And what are the likely consequences of this action?

A streamline does not require an appraisal. If an appraisal has been performed on a property, and the appraised value is such that the borrower would be better advised to proceed as if no appraisal had been made, then the appraisal may be ignored and not used. FHA does not require a credit report on streamlines. Employment and income do not need to be certified. Consequently, it is believed that the previous overlays and restrictions that investors had placed on streamline refinances will be removed. This will allow more borrowers to obtain streamline refinances than those that could obtain one previously. The FHA states that lenders will be able to monitor their compare ratios both with and without streamline refinances factored into the equation

BSA - Bank Secrecy Act What is penalty

Also known as the Currency and Foreign Transactions Reporting Act, the Bank Secrecy Act (BSA) is legislation created in 1970 to prevent financial institutions from being used as tools by criminals to hide or launder their ill-gotten gains. The law requires banks and other financial institution to provide documentation such as currency transaction reports to regulators. Such documentation can be required from banks whenever their clients deal with suspicious cash transactions involving sums of money in excess of $10,000. Keep records of cash purchases of negotiable instruments. File reports of cash transactions above $10,000. Report suspicious activity that might signify money laundering, tax evasion or other criminal activities. A person convicted of money laundering can face up to 20 years in prison and a fine of up to $500,000. Financial institutions MUST provide BSA / AML training

Define Basel III

Basel III strengthened regulatory capital ratios, which are computed as a percent of risk-weighted assets. In particular, Basel III increased minimum Common Equity Tier 1 capital from 4% to 4.5%, and minimum Tier 1 capital from 4% to 6%. The overall regulatory capital was left unchanged at 8%. Limits the value of MSAs (mortgage servicing asset) that can be included in Common Equity Tier 1 (CET1) capital to 10 percent

What is appendix Q? How does it tie into ATR / QM rule?

Appendix Q sets forth the requirements and Standards for Determining Monthly Debt and Income. It is very big and covers almost every document a lender could / would ever ask for. Tax returns, w-2, paycheck stubs, etc... The rule also states that a borrower's monthly debt-to-income ratio cannot exceed 43%. Government-insured or -guaranteed loans (FHA, VA, USDA) are exempt from Appendix Q and the DTI threshold, as are any loans held in portfolio by banks or credit unions with $10 billion or less in assets. The CFPB also determined that any loan backed by GSEs, meaning Fannie Mae or Freddie Mac, was eligible for QM status, which means the loan would also be exempt from these Appendix Q and DTI requirements. This particular exemption is known as the GSE QM patch. This patch is scheduled to expire in January 2021. To be sure, in the long run, it is preferable to do away with the patch so as to provide a more level playing field between GSE and non-GSE loans. Almost 25 % of all GSE loans have DTI's above 43 % . When this patch expires....many of those loans would shift to another form of government backing - such as FHA - or simply not be made at all. Statistically under-served african american and hispanic borrowers are more likely to have high DTI's.

What is the difference between disparate treatment and disparate impact?

DISPARATE = "similarly situated" and "prohibited factor." A lender treats similarly situated consumers differently based on a prohibited basis (i.e. race, gender, marital status, etc.). Disparate treatment occurs when members of a prohibited basis group are treated differently than others, even if it's not overt. Disparate treatment can be unintentional. For example, if you have pricing discretion that results in white applicants receiving better pricing than Asian applicants, that might be considered comparative evidence of disparate treatment. Redlining is a type of disparate treatment where a lender provides unequal access to or terms of credit because of the prohibited characteristics of the residents of an area in which an individual lives or in which a residential property to be mortgaged is located. It may violate both the Fair Housing Act and the Equal Credit Opportunity Act (ECOA). Disparate impact occurs when an otherwise neutral policy or practice has unintended consequences of creating a disproportionately adverse impact on protected classes of people, even if that policy or practice is applied equally to all individuals. For example, "we have a 75k minimum for all home equity loans."

Name 3 reasons a fixed rate mortgage is a better hedge against inflation than renting from a homeowner's perspective.

Depending on exogenous and endogenous variables and overall socio demographic and economic conditions... Sometimes buying is cheaper than renting (often during a recession) With a fixed rate mortgage, your payment will not change (bearing changes in taxes and insurance). Rent can and usually does ALWAYS increase. Inflation makes your dollars less valuable - so having a fixed rate that you locked in years ago - actuall makes today's time value of money more valuable Historically - the value of your home will usually increase / go up Historically - as you get older, usually you also make more money

What is the definition of Fair Lending?

Dodd-Frank describes fair lending as "fair, equitable, and non-discriminatory access to credit for consumers". The primary legislation behind fair lending is the Fair Housing Act (FHAct) and Equal Credit Opportunity Act (ECOA). Dodd-Frank granted a broad oversight for fair lending to CFPB, and established the Office of Fair Lending within CFPB.

Eminent Domain What is it What conditions must be met

Eminent domain is the power possessed by governments to take over the private property of a person without his/her consent. The government can only acquire private lands if it is reasonably shown that the property is to be used for public purpose only. Federal, state, and local governments can seize people's homes under eminent domain laws as long as the property owner is compensated at fair market value. No person must be deprived of his/her property without due process of law. CA is building (maybe...) a high speed rail project through the center of the state from San Francisco to Los Angeles. They have seized hundreds of pieces of land from farmers, home owners, land / business owners for this public works process. A lot of land owners have said the state has given them low ball offers and have sued. The train has not even gotten approval everywhere to be built.

What does E&O Insurance provide coverage for?

Errors and Omissions (E&O) - This insurance protects residential or commercial mortgage banking or brokerage firms and their employees when accused of negligence in the performance of professional duties and services. This policy provides liability damages and legal defense costs arising from lawsuits. Suits that can be covered include: wrongful loan applicant counseling; wrongful Truth in Lending Act disclosures; mortgage broker/originator/correspondent disputes; loan commitments to mortgagors; wrongful foreclosure and eviction; lock-in representations; unintentional underwriting discrimination (defense costs only); miscalculated ARM adjustments; claims arising from misrepresentation

Fannie vs Freddie

FNMA DU FHLMC LP Fannie and Freddie are BOTH GSE's. Both Fannie and Freddie are under the conservatorship of the Federal Housing Finance Agency. The U.S. Treasury Department owns all their senior preferred stock. All of their profits go to the U.S. Treasury. Investors can still buy common stock and junior preferred stock. The conservatorship doesn't allow them to pay dividends. Fannie and Freddie has repaid their bail out money and then some - giving the treasury department almost $60 BN extra. Fannie has been around since 1940. In 1968 - the US Government needed money for Vietnam war and let Fannie Mae go public - however they still guaranteed its mortgages.. In 1970 - Freddie was born to compete against Fannie Mae. While Fannie used to keep loans on balance sheet - Freddie was the FIRST to resell loans on the secondary market. The role of Fannie / Freddie was to buy mortgages to free up money for banks to do other things. Fannie buys them from large commercial banks. Freddie buys them from smaller banks. Fannie Mae offers the Home Ready loan. Applicants can't earn more than 80% of the area's median income. Freddie offers the Home Possible program. It requires that applicants live in the home and no more than the area's average income.

What is the Fair Housing Act?

Fair Housing Act Administered by HUD prohibits discrimination in all aspects of a real estate transaction: · Making loans to buy, build, repair, or improve dwelling · Purchasing real estate loans · Selling, brokering or appraising real estate · Renting a dwelling, etc

Fair Lending

Fair Lending Laws Equal Credit Opportunity Act (ECOA) This law affects every phase of the lending process and prohibits discrimination on the basis of: Age, Color, Sex (including gender), Marital status, National origin, Race, Religion, Exercising rights under the Consumer Credit Protection Act, Receipt of public assistance The provisions of the ECOA make it illegal to discourage an applicant, decline a request for, or terminate a loan based on any of the factors listed above. Fair Housing Act (FHA) This law prohibits discrimination in the sale, rental, and financing of property based on: Handicap / Disability, Familial status (for example, the presence of children in the household), Sex / Gender, National origin, Race or color, Religion, Sexual orientation, gender identity and marital status are also considered protected groups for housing under rules adopted by the Department of Housing and Urban Development (HUD) Disparate Treatment Disparate treatment occurs when a lender treats a credit applicant differently based on one of the prohibited bases. It does not require any showing that the treatment was motivated by prejudice or a conscious intention to discriminate against a person beyond the difference in treatment itself. Disparate Impact When a lender applies a racially or otherwise neutral policy or practice equally to all credit applicants, but the policy or practice disproportionately excludes or burdens certain persons on a prohibited basis, the policy or practice is described as having a "disparate impact." Enforcement of Disparate Impact has been controversial since it was originally introduced. Some argue that the rules governing disparate impact are vague and can be loosely interpreted. They argue that they can be penalized for making sound business decisions that may have the unintended consequence of disparate impact. Lenders are hesitant to introduce innovative products for fear of violating disparate impact rules and tend to stay conservative when introducing new products.

Fee Simple and different types

Fee simple ownership. Fee simple ownership is probably the form of ownership most residential real estate buyers are familiar with. Depending on where you are from, you may not know of any other way to own real estate. Fee simple is sometimes called fee simple absolute because it is the most complete form of ownership. A fee simple buyer is given title (ownership) of the property, which includes the land and any improvements to the land in perpetuity. Aside from a few exceptions, no one can legally take that real estate from an owner with fee simple title. The fee simple owner has the right to possess, use the land and dispose of the land as he wishes — sell it, give it away, trade it for other things, lease it to others, or pass it to others upon death.

How could an equity share agreement be used in lieu of foreclosure or short sale?

For example: It is 2009. We are in CA. Let's say the house is worth $100,000 and is 4 payments down. The current value of the home is $90,000. The LTV is around 110 %. The borrower is upside down BUT DOES NOT want to loose the home. Their mortgage payments are $1,000 a month and now due to delinquency there is another $1,000 in fees. The investor brings the delinquency / loan current. The investor pays the $4,000 in missed payments + the $1,000 in fees. $5,000 total. The borrower and investor work out a deal an agree to split any future appreciation of the home 50/50. After all - the investor saved the borrower from FC and put $5,000 up to pay off the DQ. The investor and borrower also agree that the $5,000 will be paid back at some point in the future (there is a note) and that every year the borrower does not pay the $5,000 back - another $500 gets added to the unpaid principal balance. In 2019 - the economy is healthier - housing prices have recovered - the borrower decides to move to CO. Now the house is worth $200,000. The borrower never touched the original $5,000 he owed the investor who bailed him out. 10 years @ $500 a year = $5,000. This original $5,000 is now $10,000. When the borrower sells - he pays the investor this $10,000. He splits the appreciation of the home 50/50. Since the home went up $100,000 the investor get $50,000. The $10,000 + $50,000 = $60,000. $60,000 - $200,000 leaves the borrower $40,000 in profit. Shared equity is a good idea for the following reasons: It prevents foreclosure It stabilizes the housing market It reduces the supply of REO for sale and downward pressure on price It encourages home owner commitment It saves the lender money - by the time a lender pays a realtor, asset manager, attorney, etc.. it could be 10 % or more of the value

What is the MBA's position on Basel III (the proposal will amend Basel III rules by increasing the 10 percent cap to 25 percent and eliminating the 15 percent aggregate cap)

MBA recommends raising the proposed cap on the value of MSAs that can be included in Common Equity Tier 1 (CET1) capital to at least 50 percent. MBA recommends reducing risk weight for MSAs from 250 percent to no more than 130 percent. MBA recommends that the final rule, revised consistent with our recommendations above, will be applicable across both advanced and non-advance approach banks

How could an equity share agreement be used in lieu of foreclosure or short sale?

For example: It is 2009. We are in CA. Let's say the house is worth $100,000 and is 4 payments down. The current value of the home is $90,000. The LTV is around 110 %. The borrower is upside down BUT DOES NOT want to loose the home. Their mortgage payments are $1,000 a month and now due to delinquency there is another $1,000 in fees. The investor brings the delinquency / loan current. The investor pays the $4,000 in missed payments + the $1,000 in fees. $5,000 total. The borrower and investor work out a deal an agree to split any future appreciation of the home 50/50. After all - the investor saved the borrower from FC and put $5,000 up to pay off the DQ. The investor and borrower also agree that the $5,000 will be paid back at some point in the future (there is a note) and that every year the borrower does not pay the $5,000 back - another $500 gets added to the unpaid principal balance. In 2019 - the economy is healthier - housing prices have reversed - the borrower decides to move to CO. Now the house is worth $200,000. The borrower never touched the original $5,000 he owed the investor who bailed him out. 10 years @ $500 a year = $5,000. This original $5,000 is now $10,000. When the borrower sells - he pays the investor this $10,000. He splits the appreciation of the home 50/50. Since the home went up $100,000 the investor get $50,000. The $10,000 + $50,000 = $60,000. $60,000 - $200,000 leaves the borrower $40,000 in profit. Shared equity is a good idea for the following reasons: It prevents foreclosure It stabilizes the housing market It reduces the supply of REO for sale and downward pressure on price It encourages home owner commitment It saves the lender money - by the time a lender pays a realtor, asset manager, attorney, etc.. it could be 10 % or more of the value

Difference between Fannie / Freddie / GNMA

Ginnie Mae is a Government Agency. GNMA is owned by the FHA (Federal Housing Administration). Fannie / Freddie are GSE's. Government sponsored enterprises. GNMA loans include VA, USDA, FHA, and Public Indian Housing (PIH). Freddie Mac and Fannie Mae both do essentially the same thing: they repackage mortgages into investments (aka mortgage-backed securities) and sell those securities to investors. If a mortgage borrower defaults, it affects the value of the securities. Ginnie Mae performs the same function as Freddie and Fannie, except they only deal with government-insured mortgages, such as those backed by the Federal Housing Administration (FHA). Example: If a FHA mortgage borrower defaults, FHA and Ginnie Mae continue to make payments to those who invested in Ginnie Mae securities. Ginnie Mae provides insurance on the timely payment of interest and principal on the entire value of a Ginnie Mae mortgage bond issue. Ginnie Mae is not involved in buying home loans or putting together the pools of mortgages that back a Ginnie Mae bond. Ginnie Mae leaves the issuing and managing of mortgage bonds to independent financial companies. In contrast, Fannie Mae provides insurance and a guarantee on the individual home loans that make up a Fannie Mae MBS. Fannie will buy home loans that meet its standards, produce its own MBS, hold securities in its own inventory and handle the repossession and marketing of homes with defaulted loans.

Why did G fees increase?

Guarantee fees refer to the amount paid to mortgage-backed securities (MBS) providers in return for services rendered. MBS providers like Freddie Mac, Ginnie Mae and Fannie Mae charge lenders guarantee fees for the creation, servicing and reporting of an MBS, as well as for the guarantee that the provider will supplement the MBS to make certain that payments of principal and interest are made even if borrowers default. This payment guarantee is the main component of the guarantee fees. The guarantee fees are often referred to as a type of insurance for mortgage-backed security, although it covers other services as mentioned. Guarantee fees have seen a sharp increase since the financial crisis and great recession. Compared to pre-meltdown averages of 15 to 25 basis points, the post-meltdown average is more than double. The Federal Housing and Finance Agency (FHFA) provides an annual analysis of guarantee fees charged by Freddie and Fannie. The FHFA reported an average guarantee fee of 59-61 basis points on a fixed-rate 30-year mortgage loan issued in 2016.

What is Reg. C

HMDA (Regulation C) Mandates that lenders (for banks - asset size must be less $44 million in 2016 to be exempt) must report certain loan application information as well as gender, sex and income of applicants to regulators. The loans are limited to purchase, refinance, and home improvement loans

It's believed independent mortgage bankers carry more risk than more traditional GNMA market share leaders. What risks add to this opinion and why is it important to GNMA?

Why is this a myth "IMB Market share growth is new and unprecedented"

IMB model has been in place for > 140 years and has grown/contracted over the years based on shifts in other market developments, such as share of government lending and appetite of banks for mortgage risk.

In regards to NMLS, what advantages do employees of financial institutions have over non-depository organizations?

If you work for a bank, trust, savings & loan, etc... you are federally exempt. Essentially - you can work anywhere. However, you still must submit fingerprints, an MU-4 form and have a unique identifer number. It is easier to get in the business, have a lower cost of capital, perhaps more options, etc... Some feel this is a hugely unfair advantage since BOTH loan officers play in the same market and sell similar products. Non Banks: All of the above + credit check, 20 hours of pre licensing education, pass the state and national mortgge exam and take 8 hours of annual continuing education Non banks cost to get licenses is $800 ish. Banks cost to get licenses is less than $100.

RESPA Reform

In 2008, the U.S. Department of Housing & Urban Development (HUD) issued both technical and substantive amendments to the rule that implements the Real Estate Settlement Procedures Act (RESPA). The final rule, which was issued in November 2008, amends the previous regulations to further RESPA's purposes by requiring more timely and effective disclosures related to settlement costs. The technical changes took effect on Jan. 16, 2009 and substantive changes have taken effect on Jan. 1, 2010. Changes included: 1. New GFE Form 2. Binding GFE. 3. Tolerances on Settlement Costs 4. HUD-1/Settlement Statement 5. Settlement Cost Booklet Lenders and mortgage brokers must provide a standard GFE form to a borrower within three business days of receipt of an application for a mortgage loan. The new GFE compares settlement costs and loan terms from various loan originators. In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act transferred the RESPA regulatory responsibilities from HUD to the new CFPB. The act mandated other changes to RESPA as well. It shortened time limits, increased penalties, and provided numerous amendments.

What is a Fidelity Bond?

Insures against losses due to dishonest employees and may be extended to include closing agents, third party originators, servicing contractors and others

The GSE's recently made changes to it's repurchase language. What was the change?

What are the components of Mortgage Call Reports?

Licensed companies must file the Mortgage Call Report through the NMLS. The Mortgage Call Report is filed by the company on behalf of its originators. The report is not filed by individual mortgage originators. The Mortgage Call Report is a requirement of the SAFE Act. All licensed Mortgage Broker and Consumer Loan companies who make, service or broker loans secured by residential real estate must file the report. In addition, exempt companies who employ licensed mortgage loan originators must also file the report. The Mortgage Call Report must be filed 45 days after the end of each quarter through the NMLS. The Mortgage Call Report (MCR) contains two components: 1. Residential Mortgage Loan Activity (RMLA) - This component collects application, closed loan, individual mortgage loan originator (MLO), Line of Credit, servicing, and repurchase information by state 2. Financial Condition (FC) - This component collects financial information at the company level; it does not have to be completed for each state

What Are Mortgage Servicing Rights (MSR)?

Mortgage servicing rights (MSR) refer to a contractual agreement in which the right to service an existing mortgage is sold by the original lender to another party that specializes in the various functions involved with servicing mortgages

What function does MERS serve and why did MERS appear in newspapers around the country appearing to be foreclosing on thousands of homeowners?

MERS acts as nominee in the county land records for the lender and servicer. Any loan registered on the MERS® System is inoculated against future assignments because MERS remains the mortgagee no matter how many times servicing is traded. Since MERS was the nominee of record many times the newspapers ran the MERS name as the foreclosing lender rather than the underlying MERS member. In 2011 MERS announced that no more foreclosures were going to be allowed in MERS name. MERS has the power to assign the mortgage to the lender, and therefore the lender has standing to foreclose on the property. In various court cases around the country, judges have sided with MERS and as stated that MERS, as the deed of trust beneficiary, has the right to assign its interest in the deed of trust and that the same deed of trust expressly provided that MERS held the deed of trust for the benefit of the original noteholder and its successors and assigns. Stated another way MERS has the power to assign the mortgage to the lender, and therefore the lender has standing to foreclose on the property. Judge Saylor recognized that MERS, as the holder of the mortgage, holds the mortgage in trust for the purchaser of the note, who has an equitable right to obtain an assignment of the mortgage. The opinion states, "Plaintiff's theory that the note and the mortgage somehow became disconnected from one another, and that the mortgage should disappear as a result, is therefore not tenable as a matter of law."

MORE ON Lender Paid Compensation

MORE INFORMATION Nowhere is it written that consumer/borrower paid compensation may not be different than lender/creditor paid compensation. Removing the double negative leads to borrower paid compensation may be different than lender paid compensation. They are not required by current regulations to be the same. Lenders may place creditor paid compensation in one "bucket", and consumer paid in a different bucket - that is at their discretion, but comparing "buckets" is not required. There is no rule that says all transactions must pay the LO the same amount/way. So yes, lenders may opt to pay the same scale on every transaction, but it is not mandated by the regulations. And thus the market may see different wholesalers paying different amounts (wholesalers have the option to impose their own compensation rules, if the prefer, as long as they don't go against the industry-wide rules). There are three things that are NOT mandated by the rules put forth by the CFPB. 1. Creditor and consumer paid compensation be the same. 2. Between two transactions, the LO must make the same amount of money. (The rule does not prohibit it, but this turns on facts based on the terms of the loan, or any proxy for the terms of the loan. The interpretations, of course, go to differences between programs - these impact the terms of the loan. So we find that the rule does not dictate that a lender can't pay different amounts on different programs. But the reality of the situation is that programs contain distinct requirements, and thus will probably have different loan terms.) 3. Two originators be paid the same. (The CFPB's rule making does not specify that two LOs in the same office be paid the same, but that all applicable provisions, such as the LO comp rule, or Fair Lending, must be adhered to.)

Can you do both Borrower Paid and can a Loan Officer earn Yield Spread?

Most companies DO NOT allow this. We do not. However.. The CFPB rules are not super clear. Technically.. You can place borrower paid and lender paid in two distinct buckets and they can be different. If it were me... I wouldn't do it. Just easier and safer to err on the side of safety, caution, and compliance. Pigs get fat - hogs get slaughtered. Make something, give great service and get paid again and again on the referrals that come from a happy borrower.

Lessons from Hurricane Rita and Katrina Forced Placed insurance Forbearance

Natural disasters are becoming more common and can have significant impacts on real estate. For example Sandy destroyed more than 650,000 homes along the east coast. Harvey, Irma and Maria impacted close to 5 MM homes. During this crisis, many loan servicers adopted forbearance programs that waived fees for late payments, and permitted homeowners to skip or make partial payments for a period of time without triggering delinquency reports to credit reporting agencies. Some borrowers totally worked the system though!!! They asked for and received forebearance and were not even in disaster zones. Mortgage contracts and the National Flood Insurance Program require that insurance payments be made payable jointly to the homeowner and mortgage companies that hold a secured interest on damaged properties. As a result, homeowners must work with their mortgage servicer and originator to ensure any insurance proceeds are released on a schedule that can facilitate repairs and/or rebuilding where financially feasible. As a result of the increase in customer communication, servicers will need to increase staffing in call centers and correspondence groups and train employees to respond to inquiries stemming from the hurricanes. Conversely, fewer resources will be needed for loan originations, as applications for new loans will decrease in hurricane-affected regions. Usually the GSE's place a 90 day moritorium on evictions and FC when disaster strikes. Disasters can also have a huge impact on servicers. Expect litigation. Homeownwers often sue the servicer claiming the servicer is the hold up for insurance payments and the reason that repairs are not getting done. Other consumers sue over allegations that their credit was harmed due to faulty reporting (Fair Credit Reporting Act) or that they were told they did not need or did need flood insurance.

What is a PACE Loan?

Property Assessed Clean Energy (PACE) loans to finance energy efficient home improvements. Concerns exist because financing structure lacking vital consumer protections and presenting lien priority risks to lenders, investors and guarantors. Federal consumer protection regulations are needed, because all PACE loans are not subject to appropriate, standardized consumer protections Without such federal standards, more states will continue to act independently and create a patchwork unequal and divergent safeguards. Also, PACE loans upend traditional lien priority, exposing investors and guarantors to increased loss severities. MBA supports the continued ban on PACE loans in housing programs offered through the GSEs, FHA and VA

LO COMP MORE.....

RESPA (Regulation X) and TILA (Regulation Z) include certain rules related to broker compensation, including RESPA's requirement that lender's compensation to the mortgage broker be disclosed on the Good-Faith Estimate and HUD-1 Settlement Statement, and TILA's requirements that broker compensation be included in "points and fees" calculations, and its restrictions on broker compensation and prohibition on steering to increase compensation. Those requirements do not apply to exempt bona fide secondary-market transactions, but do apply to table-funded transactions, the difference between which depends on the "real source of funding" and the "real interest of the funding lender." The CFPB states that the requirements and restrictions that RESPA and TILA and their implementing regulations impose on compensation paid to mortgage brokers do not depend on the labels that parties use in their transactions. Rather, under Regulation X, whether compensation paid by the "investor" to the "lender" must be disclosed depends on determinations such as whether that compensation is part of a secondary market transaction, as opposed to a "table-funded" transaction. And under Regulation Z, whether compensation paid by the "investor" to the "creditor" must be included in the points-and-fees calculation and whether the "creditor" is subject to the compensation restrictions as a mortgage broker depends on determinations such as whether the "creditor" finances the transaction out of its own resources as opposed to relying on table-funding by the "investor."

What is Reg. B (ECOA)

Reg B prohibits discrimination in any aspect of a credit transaction, including real estate lending on 8 measurable factors: · Race or color · Religion · National Origin · Sex · Marital Status · Age · Source of income (e.g. public assistance programs · Applicant's right under Consumer Credit Protection Act (e.g. the right to complain) The intent is to ensure that all consumers have access to credit

LO Comp Rule Continued....

Regulation Z already provides that where a loan originator receives compensation directly from a consumer in connection with a mortgage loan, no loan originator may receive compensation from another person in connection with the same transaction. The Dodd-Frank Act codifies this prohibition, which was designed to address consumer confusion over mortgage broker loyalties where the brokers were receiving payments both from the consumer and the creditor. The final rule implements this restriction but provides an exception to allow mortgage brokers to pay their employees or contractors commissions, although the commissions cannot be based on the terms of the loans that they originate. The first prohibits the inclusion of clauses requiring the consumer to submit disputes concerning a residential mortgage loan or home equity line of credit to arbitration. It also prohibits the application or interpretation of provisions of such loans or related agreements so as to bar a consumer from bringing a claim in court in connection with any alleged violation of Federal law. The second provision prohibits the financing of any premiums or fees for credit insurance (such as credit life insurance) in connection with a consumer credit transaction secured by a dwelling, but allows credit insurance to be paid for on a monthly basis

What is SOFR? How does it relate to LIBOR?

SOFR is a much more resilient rate than LIBOR because of how it is produced and the depth and liquidity of the markets that underlie it," the ARRC said in a statement. "As an overnight secured rate, SOFR better reflects the way financial institutions fund themselves today. The transactions underlying SOFR regularly exceed $800 billion in daily volumes. The volumes underlying SOFR are far larger than the transactions in any other U.S. money market. This makes it a transparent rate that is representative of the market across a broad range of market participants and protects it from attempts at manipulation. Also, the fact that it's derived from the U.S. Treasury repo market means that, unlike LIBOR, it's not at risk of disappearing." The publication of LIBOR is not guaranteed beyond 2021. Much work lies ahead in order to implement a successful reference-rate change and time is of the essence. If you or your staff needs a primer, check out this LIBOR Transition Briefing with policymakers at the center of the transition. SIFMA Insights provides an overview of the LIBOR transition, as well as an actionable checklist -- with a focus on the proposed US alternative reference rate, Secured Overnight Financing Rate (SOFR). Banks are largely ahead of other financial institutions in replacing Libor with other interest-rate benchmarks and are playing an important role in helping clients grapple with the impact, industry leaders say. "Our role is to make [customers] aware of the looming urgency of all this," says Phil Lloyd, head of market structure and regulatory customer engagement for NatWest Markets. The Federal Reserve-backed Alternative Reference Rates Committee says markets for derivatives referencing the Secured Overnight Financing Rate haven't had enough volume to be the basis for a forward-looking rate to replace Libor. However, the International Organization of Securities Commissions says some markets are gaining liquidity and could be ready to support a forward-looking rate by the 2021 transition deadline. Federal Reserve Bank of New York President John Williams recently said that Libor's survival is ensured for only about 900 more days and that the financial industry must migrate immediately to the Sterling Overnight Index Average, the Secured Overnight Financing Rate and other risk-free rates. UK Financial Conduct Authority CEO Andrew Bailey warned that the transition must convert legacy contracts, in addition to new business (see the actionable transition checklist from SIFMA Insights). "Don't wait until 1 January 2022 to manage your business' transition away from Libor, because it's going to be too late," Williams said. ARRC outlined a path for SOFR mortgages. The Adjustable Reference Rates Committee has outlined a proposal for mortgage lenders to build new adjustable rate mortgages using the Secured Overnight Financing Rate ahead of the phase-out of Libor at the end of 2021. The Committee consists of private market participants brought together by the Federal Reserve and New York Fed to help the transition away from Libor, outlined in a white paper how lenders can use a 30 or 90-day SOFR average instead of one-year Libor in adjustable rate mortgages (ARMs). Government-sponsored mortgage enterprises Fannie Mae and Freddie Mac said they supported the proposals and intended to use a SOFR rate for new adjustable rate mortgages before the end of 2021. Folks should know that because SOFR tends to be lower than Libor, the margin for new SOFR linked mortgages would be higher - in the 2.75%-3% range compared with the 2.25% area at present for Libor-linked loans. Indeed, the two rates are different. SOFR is a secured funding rate, while Libor is not. The SOFR rate would be set every six months, instead of once per year as is the standard for Libor based mortgages.

Relative to Compensation Rules, what does Lender Paid mean?

The Loan Originator Compensation Rule under the Truth in Lending Act (Reg Z). The rule is designed primarily to protect consumers by reducing incentives for loan originators to steer consumers into loans with particular terms and by ensuring that loan originators are adequately qualified. Further, it deals with loan originator compensation; qualifications of, and registration or licensing of loan originators; compliance procedures for depository institutions; mandatory arbitration; and the financing of single-premium credit insurance. The main difference is that Borrower Paid Broker Compensation is disclosed on the Loan Estimate while Lender Paid Broker Compensation is not disclosed on the Loan Estimate. Any true discount paid to a creditor to reduce the interest rate must be disclosed in the first line of the Loan Costs on both the LE and the CD as Points. As per Regulation Z, a loan originator is prohibited from receiving compensation, in connection with a particular transaction, from both a consumer and another person or party. Therefore, the Broker may only receive compensation on a particular mortgage loan from the borrower (BPC - Borrower Paid Comp) or from the lender (LPC - Lender Paid Comp), but never from both. Such compensation must be appropriately reflected on the corresponding loan disclosures. Our policy states , compensation may not exceed a maximum of 2.75%. Broker compensation may not exceed any federal, state, or local high cost loan limitations. BORROWER PAID - NO DISCOUNT The Borrower Paid Compensation of 2.500% ($5,000) is disclosed as follows on the Loan Estimate (LE). The Lender Credit, if any, left after subtracting all LLPA's from the rate price is disclosed on Part J of the Loan Estimate. The amount of this credit is found on the Rate Lock Confirmation Sheet BORROWER PAID WITH A DISCOUNT The Borrower Paid Compensation of 2.500% ($5,000) and the discount of 0.500% ($1,000) are disclosed as follows on the Loan Estimate (LE). The discount (Points) is reflected on the Rate Lock Confirmation Sheet.

What is a streamline REFI? How do they work? Who allows them?

Streamline refinance programs typically allow borrowers to bypass many of the traditional mortgage requirements by offering minimal credit scoring requirements, no new appraisal, easier income and asset verification, and limited paperwork. Reducing the paperwork can often make the process easier and faster, which is why it's called "streamline refinancing." These streamline refinance programs are available to consumers with an existing FHA or VA loan. The primary streamline refinance programs available in the market today include: 1. FHA Streamline Refinance 2. VA Interest Rate Reduction Refinance Loan (AKA "VA IRRRL" or "VA Streamline Refinance") The VA IRRRL offers relaxed credit score, income and asset requirements, and limited paperwork. Additionally, if you have a VA IRRRL loan, the mortgage insurance requirement is waived, regardless of Loan-to-Value (LTV).

Discuss the use case of fraud which was uncovered by Taylor Bean and Whittaker - TBW -What happened? -Impact that is still happening today (past 2yrs) -Case that was settled/parties involved?

TBW has a top 10 wholesale lender and top 5 GNMA Seller / Servicer / Issuer. They were once the largest privately held mortgage company in the USA. They serviced over 500,000 loans / $80 BN and had significant concentrations of GNMA and Freddie mac loans. They failed in 2009. Colonial Bank in AL also failed. Colonial was a $25 BN bank and one of the larget bank collaspes during the recession. The $3 BN fraud started in 2002. TBW borrowed money from Colonial Bank (its warehouse lender) to buy FHA loans. TBW pooled the loans into securities and sold them to investors. GNMA would then guarantee those securities. When TBW began to have cash flow problems (over drafts) - they covered the shortfall with loans from Colonial Bank. At the end of each day, Colonial would determine the amount of TBW's ongoing overdraft and transfer funds (sweeping) from other TBW accounts to its master operating account to cover the overdraft. The following morning, Colonial would transfer the same amount of funds back to the accounts from which they had been diverted. When the fraud caught up to them (first year) and grew to over $125 MM - TBW sold fake loans and/or previously sold loans to Colonial to cover the overdraft. Colonial then moved money to another type of account with different settlement procedures and less scrutiny. These loans were collateralized by securities that never really existed or that were collateralized to many different people. In 2005 - TBW created a shell company - Ocala Funding (OF). OF acted like a warehouse bank. They sold commercial paper to investment banks for cash. The proceeds of the commercial paper were supposed to be used to fund the origination or purchase of loans that would be subsequently sold to investors, in order to repay the commercial paper debt. BNP and Deutsche bought almost $ 2BN of this paper. Hardly any of that $2 BN had sufficient collateral. Lee Farkas - their CEO was sentecned to 30 years in prision. The CEO of Ocala funding went to jail as did the treasurer and the head of the warehouse bank @ Colonial Bank.

What is table funding? Does it apply to wholesale, retail?

Table funding (also known as WET funding) is an option which allows brokers approved for Wholesale Traditional Lending to originate, process and close loans in their name. But at the time of settlement, the loan is transferred to the lender. And the lender simultaneously advances funds for the loan. This is very common on the east coast.

Describe the TCPA

Telephone Consumer Protection Act (TCPA) was updated in 2015 to protect consumers from unwanted "Robocalls", but instead exposes mortgage servicers to significant liability for making good faith attempts to contact delinquent borrowers about their possible home-retention options. Data following the housing crisis demonstrate that these calls are crucial to ensuring borrowers are informed of their options to stave off a foreclosure. Federal regulators require servicers to go to great lengths to establish borrower contact because it is the most critical step in foreclosure prevention. MBA has filed an Application for Review to exempt these calls from Telephone Consumer Protection Act (TCPA) coverage

Describe the recent change to HMDA and some of the concerns it raises.

The CFPB recently announced that it would modify and elminuate it distributes, shares and publishes some loan level data. This specifically includes data modifications to protect consumers' privacy, including excluding certain data from publicly disclosed HMDA data, such as the property address and applicant's credit score. The bureau also announced it intends to disclose certain information with less precision and presenting the data as a range instead, by disclosing ranges rather than specific values for an applicant's age, the amount of the loan, and the number of units in the dwelling. Some critics charge that by eliminating this data - you rob the world of transparency, fairness, equality and opportunity for those who are under served. Democrats charged that this change is discriminatory. SEE BELOW:

Legislation

The Real Estate Settlement Procedures Act (RESPA) provides consumers with improved disclosures of settlement costs and to reduce the costs of closing by the elimination of referral fees and kickbacks. RESPA was signed into law in December 1974, and became effective on June 20, 1975. The law has gone through a number of changes and amendments since then, all with the intent of informing consumers of their settlement costs and prohibiting kickbacks that can increase the cost of obtaining a mortgage. RESPA covers loans secured with a mortgage placed on one-to-four family residential properties. Originally enforced by the U.S. Department of Housing & Urban Development (HUD), RESPA enforcement responsibilities were assumed by the Consumer Financial Protection Bureau (CFPB) when it was created in 2011. In July 2010, Congress passed the Dodd-Frank Wall Street Reform and Consumer Protection Act. The act transferred the RESPA regulatory responsibilities from HUD to the new CFPB. The act mandated other changes to RESPA as well. It shortened time limits, increased penalties, and provided numerous amendments.

How do compensation rules differ from Wholesale to Correspondent?

The CFPB spells out the folliwing: 1. The RESPA requirements to disclose mortgage broker compensation on the Good Faith Estimate and HUD-1 Settlement Statement. 2. The TILA requirements to include compensation paid to a mortgage broker in points and fees under the high-cost loan rule and to satisfy the qualified mortgage conditions under the ability to repay rule. 3. The TILA requirements regarding compensation paid to a mortgage broker under the loan originator compensation rule, and the prohibition against steering by a mortgage broker under such rule. IF... you are a correspondent ... or MINI Correspondent (broker... GRAY LINE) (1) No more worrying about the 3% cap as fees paid by a lender to its loan officers are not included. (2) The lender paid compensation does not need to be included on Box 1 of the GFE. (3) The mini-correspondent could receive fees from a borrower (on a borrower paid transaction) and also from the investor on the sale of a loan. (4) Many anti-steering concerns are eliminated as the mini-correspondent is not a lender and not a broker. Wholesale customers must select a Compensation Plan, no more than quarterly, and will be able to lock in interest rates with a particular investor and earn the agreed upon Comp. Correspondent Lenders handle their compensation plans internally following strict LO Compensation rules that ensures the originators are not paid based on the profitability of the loan.

What does the Neighborhood Watch Compare Ratio mean? If it is too high, what can happen?

The FHA compare ratio is a metric used to assess the loan performance of a lender in a specific geography by comparing its default (90+ days delinquent) and claim rate to its peers in the same jurisdiction. Lenders with compare ratios at or above 200% may be subject to a 6 month termination of their origination authority in the geographic region in which their compare ratio exceeds 200%. FHA conducts quarterly reviews of the compare ratios of its approved lenders to identify those with 2 year compare ratios of 150% or higher. A compare ratio of 100% means that a lender has exactly the same loan performance as its peers in a given jurisdiction. Compare ratios are tabulated for both 1 year and 2 year periods. Most warehouse lenders evaluate a lender's compare ratio before agreeing to extend a warehouse line, and continue to monitor the lender's compare ratio on an ongoing basis to determine continued eligibility for the warehouse line. Wholesale lenders consider the compare ratio of correspondents before entering into a wholesale agreement with them.

What is the FDCPA?

The Fair Debt Collection Practices Act (FDCPA) is a federal law that limits the behavior and actions of third-party debt collectors who are attempting to collect debts on behalf of another person or entity. The law restricts the means and methods by which collectors can contact debtors, as well as the time of day and number of times contact can be made. If the FDCPA is violated, a suit may be brought within one year against the debt collection company and the individual debt collector for damages and attorney fees. Debt collectors cannot contact debtors at inconvenient times. That means they should not call before 8 a.m. or after 9 p.m., unless the debtor and the collector made an arrangement for a call to occur outside of those hours. Within five days of contacting a debtor, a debt collector must send a written "validation notice" that includes: 1. How much money is owed 2. The name of the creditor the debt is owed to. 3. What to do if you think the debt is not yours Debt collectors can attempt to reach debtors at their homes or offices. However, if a debtor tells a bill collector, either verbally or in writing, to stop calling his place of employment, the collector must not call that number again. If a bill collector does not have contact information for a debtor, he can call relatives, neighbors, or associates of the debtor to try to find the debtor's phone number, but he cannot reveal any information about the debt, including the fact that he is calling from a debt collection agency. (The collector may only discuss the debt with the debtor or their spouse.). The law has made it illegal for them to harass debtors and in particular, they cannot threaten bodily harm or arrest. They also cannot lie or use profane or obscene language. Additionally, debt collectors cannot threaten to sue a debtor unless they truly intend to take that debtor to court.

False Claims Act. What is it and how was it recently used? FHA's recent Taxonomy changes.

The False Claims Act, also known as the "Lincoln Law," was enacted during the Civil War to combat the fraud perpetrated by companies that sold supplies (bad mules) to the Union Army. It is a whistleblower law that allows private citizens to sue any individuals, companies or other entities that are defrauding the government and recover damages and penalties on the government's behalf. The statute provides whistleblowers financial rewards as well as job protection against retaliation. Liability under the False Claims Act (FCA) includes: 1. Presentation of a false claim for payment. 2. Use of a false statement to get a claim paid. 3. Reverse false claims. For example, if a company makes false statements during the course of a government audit that would reduce the amount of money it owes the government or fails to return an overpayment, those can be reverse false claims. HUD has sued counteless lenders under the FCA and extracted payments ranging from hundreds of millions to over $1 BN. The DOJ and HUD seek TREBLE (3x) Damages and often extrapolate the sample to your entire portfolio. For example - if your total portfolio is 1,000 loans - HUD may pull a sample of 100 loans (10 %). If HUD finds that 10 loans of those 100 loans have defects - they then apply this 10 % defect rate across your entire portfolio and multiply that figure by the average loss per claim. REALLY SCARY STUFF.

The CFPB published something called "Know Before You Owe" - What does this mean for you as a mortgage lender?

The Know Before You Owe (KBYO) / TILA-RESPA Integrated Disclosures (TRID) rule was created by the CFPB. The LE (Loan Estimate) replaced the GFE and initial TIL disclosure(Truth In Lending) into one document. Required to be provided to borrower within 3 business days of application along with the Your Home Loan Toolkit booklet. The CD (Closing Disclosure) replaced the Settlement Statement and final TIL disclosure into one disclosure. Rules were created around when these disclosures were to be provided to the borrower(s). Mortgage Companies had to make significant changes to their software to implement these documents.

Provide overview of LO comp. changes

The Loan Originator Compensation Rule (LO Comp Rule) was adopted with the goal of eliminating steering and prohibits compensation based on loan terms, other than loan amount, and proxies for loan terms o Prohibits compensation in 3 broad areas -Prohibits LO compensation based on a transaction term or a proxy for a transaction term -Prohibits dual compensation (borrower and other paid to LO) -Prohibits steering borrowers into more lucrative products -Waived the DFA's ban on consumers paying upfront points or loan fees when the LO's compensation is paid by someone other than the consumer (retail) -Creditor and LOO record retention for 3 years -Qualification and NMLSR document identifier requirements on loan documents

MORE ON SAFE HARBOR / QM and COMPENSATION

The Rule creates two types of QMs, one of which provides a safe harbor from liability and another which does not provide a safe harbor, but does offer a rebuttable presumption of compliance with the Rule. Obviously, the former is preferred, though the latter is not without its merits. Many brokers usually seek to charge fees between 2% and 3% per loan transaction; however, as of January 10, 2014 any excess above 3% in total points and fees virtually guarantees that such loans, originated by brokers, will not be eligible for treatment as a Qualified Mortgage (QM). The result of the Final Rule and specifically the 3% cap is to create an incentive for many brokers to morph into a new kind of correspondent, termed the "Mini-Correspondent." The new origination channel developed by some wholesale lenders is aptly called the "Mini-Correspondent Channel." The safe harbor is only available if the creditor complies with all aspects of the Rule, including, at minimum, all the ATR guidelines, and where the Annual Percentage Rate (APR) on a first lien loan must be within 1.5 percentage points of the "average prime offer rate" (APOR) as of the date the interest rate is set (viz., the APR on a junior lien must be within 3.5 percentage points of the APOR).[vii] If the APR threshold is exceeded, the creditor has a rebuttable presumption of compliance. The distinction between the safe harbor and rebuttable presumption is very significant. With the safe harbor, a lender obtains a conclusive presumption of compliance and may refute a claim that it violated the Rule, such as not complying with the ATR guidelines. But if the lender obtains only a rebuttable presumption of compliance, a claim can be litigated on the basis of a creditor not making a "reasonable" and "good faith" determination of the borrower's ability to repay, irrespective of a lender's complying fully with various aspects of the Rule, such as the ATR guidelines

What is the Texas Ratio?

The Texas ratio was developed to warn of credit problems at particular banks or banks in particular regions. The Texas ratio takes the amount of a bank's non-performing assets and divides this number by the sum of the bank's tangible common equity and its loan loss reserves. A ratio of more than 100 (or 1:1) indicates that non-performing assets are greater than the resources the bank may need to cover potential losses on those assets. The Texas ratio was developed as an early warning system to identify potential problem banks. It was originally applied to banks in Texas in the 1980s and proved useful for New England banks in the early 1990s. The Texas ratio was developed by Gerard Cassidy and other analysts at RBC Capital Markets.

Define TARP and why was it required?

The Troubled Asset Relief Program (TARP) was an initiative created and run by the U.S. Treasury to stabilize the country's financial system, restore economic growth, and mitigate foreclosures in the wake of the 2008 financial crisis. TARP sought to achieve these targets by purchasing troubled companies' assets and stock. TARP's original purpose was to increase the liquidity of the money markets and secondary mortgage markets by purchasing the mortgage-backed securities (MBS). Global credit markets came to a near standstill in September 2008, as several major financial institutions, such as Fannie Mae, Freddie Mac, and American International Group (AIG), experienced severe financial problems, and others, like Lehman Brothers, went bankrupt—the effects of the subprime mortgage crisis that had begun the previous year. Investment companies Goldman Sachs and Morgan Stanley changed their charters to become commercial banks, in an attempt to stabilize their capital situations. Running from 2008 to 2010, TARP ended up investing $426.4 billion in firms and recouped $441.7 billion in return. More than $10 BN upside. TARP was controversial. While it undoubtedly help the financial system and put the economy on the road to recovery - some feel it was a good ol boy bail out for large and irresponsible institutions by giving them a huge earnings boost.

Enforcement

The U.S. Department of Housing and Urban Development had the authority to enforce RESPA until the Consumer Financial Protection Bureau took over in July 2011. Now, the enforcement of RESPA is in the hands of the CFPB with the assistance of state attorneys general

What is the the Volcker Rule? Why is it important to the mortgage world?

The Volcker Rule is a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds. The Volcker Rule aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2008 financial crisis. The Volcker Rule prohibits banks from using their own accounts for short-term proprietary trading of securities, derivatives and commodity futures, as well as options on any of these instruments. The rule also bars banks, or insured depository institutions, from acquiring or retaining ownership interests in hedge funds or private equity funds, subject to certain exemptions. In other words, the rule aims to discourage banks from taking too much risk by barring them from using their own funds to make these types of investments to increase profits. The Volcker Rule relies on the premise that these speculative trading activities do not benefit banks' customers. Criticisms of this rule include that it may unintentionally diminish liquidity in the bond market, its cost to enforce and bring into law outweigh its benefits, the costs for smal institutions (less than $10 BN) is prohibitive, and now it is currently being revised to be more applicable.

What is the the Volcker Rule? Why is it important to the mortgage world?

The Volcker Rule s a federal regulation that generally prohibits banks from conducting certain investment activities with their own accounts and limits their dealings with hedge funds and private equity funds, also called covered funds. The Volcker Rule aims to protect bank customers by preventing banks from making certain types of speculative investments that contributed to the 2008 financial crisis. The Volcker Rule prohibits banks from using their own accounts for short-term proprietary trading of securities, derivatives and commodity futures, as well as options on any of these instruments. The rule also bars banks, or insured depository institutions, from acquiring or retaining ownership interests in hedge funds or private equity funds, subject to certain exemptions. In other words, the rule aims to discourage banks from taking too much risk by barring them from using their own funds to make these types of investments to increase profits. The Volcker Rule relies on the premise that these speculative trading activities do not benefit banks' customers. Criticisms of this rule include that it may unintentionally diminish liquidity in the bond market, its cost to enforce and bring into law outweigh its benefits, the costs for smal institutions (less than $10 BN) is prohibitive, and now it is currently being revised to be more applicable.

What is the Volcker Rule?

The Volcker Rule was enacted as part of the Dodd-Frank Reform. It prohibits any banking entity from engaging in proprietary trading or from acquiring or retaining an ownership interest in, sponsoring or having certain relationships with a hedge fund or private equity fund (covered fund) subject to certain exemptions

Discuss the impacts of the LIBOR Transition

The current processes for establishing LIBOR are expected to cease at the end of 2021 Because LIBOR is in broad use in floating rate mortgage lending, the cessation of the production of daily LIBOR updates will have an impact on the real estate finance industry for a variety of reasons, including the following: · There is no natural successor reference rate at this time with a sufficiently established and well understood track record to serve as a ready substitute for LIBOR. · There is not yet a common industry practice or understanding of how to address LIBOR transition. Given the number of different markets and market participants using LIBOR, there is no one size fits all approach; however, any standards or move towards standardization with respect to transition would be beneficial. · Documentation of loans currently outstanding may not adequately address LIBOR transition. · There is no consensus as to the most effective reference rates, interest-rate structures or loan documentation to address LIBOR transition. · There are no legal precedents as to the enforceability of various applications of loan terms to various events likely to occur in LIBOR transition Recommended transition to: Secured Overnight Financing Rate (SOFR).

How would a well written and developed disaster recovery plan help if your third-party lock vendor had a server crash at 2pm on a heavy rate lock day of an institution that usually sells $75mm a month into the market? Name 3 key areas to help avoid a financial meltdown.

This could be a serious crisis. Well ran businesses plan for this sort of thing - test for this and also dry run these types of scenarios to ensure their plan works. Something like this can and should be written into the statement of work and service level agreement with your vendor. 1. You should have a back up plan. This plan should be tried and tested. 2. You should have a single point of contact - a designated person - to lead - call the shots and help avert this crisis. That person should also have a back up in case they are not available. 3. You should act quickly, commuicate clearly, and work with your back up vendor (if you have one) or the investors directly (if you know them).

LO COMP RULE Wholesale / Correspondent

WHOLESALE 1. Must disclose lender paid compensation RESPA (Regulation X) and TILA (Regulation Z) 2. Broker comp must be included in points and fees calculations 3. Restriction on total compensation 4. Prohibited from steering to increase compensation 5. These ALL APPLY to Table-Funded Transactions. The above rules do not apply to bonafide secondary market transactions. The above DOES apply to wholesale / table funded transactions. The difference between wholesale and correspondent depends on the "real source of funding" and the "real interest of the funding lender." CORRESPONDENT Under Regulation X, whether compensation paid by the "investor" to the "lender" must be disclosed depends on determinations such as whether that compensation is part of a secondary market transaction, as opposed to a "table-funded" transaction. And under Regulation Z, whether compensation paid by the "investor" to the "creditor" must be included in the points-and-fees calculation and whether the "creditor" is subject to the compensation restrictions as a mortgage broker depends on determinations such as whether the "creditor" finances the transaction out of its own resources as opposed to relying on table-funding by the "investor."

You are the owner of a mortgage company and have encountered 3 recent foreclosures on the books all from the same originator, all with FHA insurance. After an in-depth investigation, you notice the originator committed income fraud on all 3 loan files. If you filed the claim, and were caught, what could happen?

You would be subject to the False Claims Act (FCA). HUD / DOJ / FHA would get involved. They would pull a sample of your portfolio. They would undoubtedly find more issues. They would then extrapolate this issues as a percentage of your overall portfolio. You would then have to pay a HUGE fine and perhaps would lose your lending authority with GNMA. You would also face significant headline, reputational, compliance and regulatory risk with the rest of your counterparties and overall market.

LMC wk 6 Comprehensive Industry Issues

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