I recently contacted Jillayne to see if she would be open to an “interview” geared to Loan Originators who plan to sticking around beyond the end of this year…of course, she agreed! Jillayne offers training and clock hour approved courses to LOs and I thought this would be good timing to touch base with her. This will be a two part series with the next post addressing the SAFE Act (national licensing). My questions to Jillayne are in italic text.
What should Loan Originators be doing right now to prepare for 2009?
Jillayne: Well, let’s first define LO’s. In my mind, we’re talking about LO’s who work for non-depository lenders such as mortgage broker LOs and CLA [correspondent lenders, credit union and consumer loan] LOs. Loan originators who need to work for an FHA lender have all ready made that move. Those who have not, will. LOs who work for a lender or broker that is not FHA approved are all ready finding other sources of money. Some LOs have already positioned themselves nicely but are experiencing a dramatic drop in income.
Many LOs made six figures income during 2006 and 2007 and subsequently have a six figure lifestyle that they are already trying to pare down to match 2008 income levels. Income levels will remain volatile in 2009. Existing client bases will not return the same income level as prior years. LOs must prepare for the recession and start to research what kinds of industries survive and thrive in a down market and begin to reach out to people in those industries today.
Loan modifications have popped up out of nowhere to become the current “get rich quick” scheme marketed to hungry LOs. Stories are circulating about LOs wo are closing 60 loan mods a month. This is a possible untapped revenue source for LOs, however, there are some big liability pitfalls to navigate in the form of state laws, federal laws and contract laws. Loan mod salesmen have been pitching lots of different programs, charging LOs thousands to buy into a “system”, without knowledge of state and federal laws. LOs must be cautious and do their homework before jumping in head first. Massive government intervention in foreclosures may make that “system” investment worthless. There are ways to do loan modifications without putting your license in danger.
What trends are you seeing in the mortgage industry?
Jillayne: Mortgage lenders, no matter where they work; banker, broker, consumer lender, credit union, ought to be prepared for more regulations at the state and federal level. The winds of change are blowing in favor of the consumers. The industry went through this in the 1970s when we saw a wave of consumer protection legislation such as the Real Estate Settlement and Procedures Act (RESPA), Truth-in-Lending, the Equal Credit Opportunity Act, and the Fair Credit Reporting Act.
We have only seen the beginning of what will likely be more consumer protection. The consumer must be told in a clear way what fees will be charged and how much the loan originator is making on the deal. The mortgage broker industry mis-used Yield Spread Premium. Because of this, the government will now tell mortgage brokers exactly how to explain that fee, and the brokerage industry won’t like it. Watch for RESPA reform to pass and a new Good Faith Estimate.
I expect that underwriting guidelines will continue to go up as banks and conforming paper sold to Fannie and Freddie will raise minimum credit score requirements to 800 and require 20% down. Everyone else will be pushed to FHA.
On the broker side, we’ll likely see more of the smaller, non-FHA approved brokers joining larger, branch office brokers with FHA-approval already in place. Brokers who do not want to join the FHA party could take a look at the hard/private money side of the industry, which will likely grow as more people who always will be subprime return to their broker. Brokers always have been a source of non-traditional money. Now more than ever, subprime borrowers need that broker. FHA is not the world’s subprime lender. It was never intended for that purpose.
If we continue to push subprime towards FHA, then we will soon be looking at an FHA bailout. Let’s not act surprised when it happens.
We are likely to see government intervention in the foreclosure crisis on a massive scale. FHA Secure and Hope 4 Homeowners will be deemed colossal failures because the underlying lenders simply cannot write down the principal balance on those non-performing loans without sending their own banks teetering into receivership. I believe we are inching closer each day toward eventual nationalization of banks.
What are your most popular classes that you’re teaching right now?
Jillayne: The short sale class, which I’ve taught for over ten years now, is very hot. Other best sellers: Foreclosure; Losing the American Dream, Current Issues in Lending, FHA Loans, Fiduciary Duties for Mortgage Brokers, and for Real Estate Agents: How to Survive in a Down Market and How to Become an REO Agent. I’m starting to teach the fundamentals of a loan modification inside the Short Sales/Short Refis class and my class last week loved it so watch for one on loan mods.
On that note, I really recommend that Washington State LO’s make sure they’re signed up for their 2008 clock hour classes, if they have not all ready met their education requirements for licensing this year. Be sure to check out Jillayne’s new Professional Education page here at RCG and watch for Part 2 of my interview with Jillayne where we discuss national licensing: The SAFE Act.