my old pug, Orson

The term “mortgage broker” has become bastardized in recent years by the media and our elected officials in Congress.   The term is often wrongly used to describe a mortgage originator who’s gone bad or done something wrong.   Mortgage brokers are blamed for what’s gone foul in the mortgage industry when the room was packed with mortgage originators who work for banks, correspondents and credit unions…it’s just so much easier to blame the dog.

Yesterday, when Jillayne wrote a post about Shawn Portmann, the Seattle PI originally has the title to their article incorrectly calling him a “Mortgage Broker”; after the Washington Association of Mortgage Professionals contacted the author, he corrected the title to read: “Feds to mortgage banker: We want your giant bag of money”.    I considered this a small victory for WAMP and applaud them for getting the Seattle PI to correct their title and for defending the mortgage industry.

I wasn’t so lucky last spring when I tried to get the Seattle Times to correct calling a mortgage orignator who worked for Chase Bank a “mortgage broker“…you might remember the story involving stated income loans for hot dog vendors and limo drivers from Russia who were trying to sue Chase for hundreds of thousands of dollars over their lost earnest money.   She refused to correct her article.   How an employee of Chase is a “mortgage broker” beats the heck out of me.

It’s very convenient for big banks to vilify “mortgage brokers” because somehow they believe it makes their mortgage originators appear to be of a higher quality.   And….once the small mortgage broker industry has reduced to almost nothing, consumers will all have to go to one of three banks or a handful of remaining correspondent lenders or credit unions for their mortgage needs. 

The big bank$ have convinced Congress that it is the “mortgage broker” who has smelled up the industry.   Somehow they forgot to mention that:

• mortgage brokers only sell bank products and programs.   Wholesale bank reps call on mortgage brokers and correspondent lenders begging for our business.    Back in the subprime days, they’d be lined up out my door pushing Countrywide, Washington Mutual or World Savings/Wachovia option ARMs stated income or 100% financing.   These programs were created by the banks/lenders not brokers.   The broker was the street dealer (sales) and the bank was the drug-lord/meth-lab (supply).
• mortgage banks/wholesale lenders underwrite the loans that brokers originate for the bank.   Brokers do not make underwriting decisions–mortgage banks do and correspondent lenders do can (per bank guidelines).    If a wholesale lender/bank did not want to make a loan sent to them by a mortgage broker–they could decline it!

This morning, I’m reading the White House Blog’s “Top 10 Things You May Not Know About the Wall Street Reform and Consumer Protection Act” and number 2 is:

“Mortgage brokers will be prohibited from making higher commissions by selling mortgages they know consumers can’t afford.”

First of all, I agree that NO mortgage originator, regardless of the type of institution they work for, should earn a higher commission for selling inappropriate mortgages–in fact, they should not originate that loan <period>.    This point is so poorly written — is it saying that a mortgage banker CAN make a higher commission originating bad loans?   Our own White House has joined in on bastardizing the “mortgage broker”!  

My plea is that Congress and the media use the term “mortgage originator” when in doubt of what type of institution the MLO is employed by or if they’re making a general statement about mortgage originators.   The definition of  “mortgage broker” is not an unsavory mortgage originator.   This is reckless to an industry that is fighting to stay alive.

We’ve had three months to work with the “new” good faith estimate designed by HUD.   We had an even longer period of time to review this document, however in a mortgage originators defense, I will say that until you can use this GFE “in real practice”, you don’t truly know the nuances.   With all the updates to the RESPA FAQs, I’ll argue that HUD’s in the same boat! 

On March 18, 2010, HUD posted a new presentation “RESPA 2010 – Implementation Consistency”.  I recommend watching the video with access to the slides.  Vicki Bott, Deputy Assistant Secretary for Single Family Housing with HUD, covers the information more indepth than if you were to watch the slides alone.   During this presentation, it sounds like we should have a newly revised set of FAQs for HUD soon.  I’ve actually lost count on how many times it’s been updated…and a part looks forward to the revisions since I have hopes that some of the glaring issues will be addressed and remedied.

Here’s an email I recently received from a mortgage originator:

I have a question that I have been searching the internet for and was wondering if you might know the answer? … I have a rural development loan that I took an application for last week.  I didn’t realize before I disclosed to the borrowers that the 2% up front mortgage insurance fee did not populate into my good faith estimate.  The borrowers are aware that there is a 2% up front funding fee but since it wasn’t on my originally disclosed good faith, is there anyway to correct that?  I mean, it isn’t like I am adding a fee that goes in my pocket or anything, it is a fee that is associated with the loan itself, for anyone who gets a government loan with a funding fee or upfront mortgage insurance.

First of all, I am in no way an expert on the Good Faith Estimate and I’m not a replacement of a mortgage originators compliance department or managers.   This LO needs to immediately contact her manager and compliance officers at this point.   Emailing a mortgage blogger isn’t going to resolve her issue.

HUD does have what is called a “restrained enforcement” period which is the first four months of this year, which is touched on during this slide show.    I have no idea if this mortgage originators mistake would qualify her to call a “mullagan” or if she is obligated to pay the difference between the 2% loan fee factored into the 10% accumulative tolerence bucket.  If so, she’s paying to have this loan close…it’s a very expensive mistake that most mortgage origintors cannot afford to make.  On a $300,000 mortgage, the 2% fee is $6,000.   According to HUD’s powerpoint (slide 5):

“Restrained enforcement…is intended to provide lenders and HUD time to understand the implementation gaps and interpretation inconsistencies and resolve them while providing RESPA benefits to the consumer…. Guidance will be rolled out to the industry regarding specific areas of restrained enforcement.” 

I’m hearing  that most lenders will not allow re-issue of a good faith estimate once they’ve received it.  Mortgage originators are having to pay for upfront FHA mortgage insurance premiums (soon to be 2.25% of the loan amount) even though it was not a case of bait and switch–the borrowers knew about it and it was simply a human error.   Good faith estimates can only be modified if there is a qualified “changed circumstance” which must be documented.

Our company is currently using Encompass 360 for our loan operating system and I can tell you that it’s been a lot of effort to make sure that loan fees not only populate, but actually show up in the section they need to be.   The 2010 good faith estimate basically puts fees into 3 sets of buckets with different tolerances on how much those fees can change.   The funding fee referenced in the email above is subject to a 10 accumulative tolerence.   Assuming the rest of that mortgage originators estimate is perfect, she may be responsible for $5,400 ($6000 less 10%) assuming this is a bona fide transaction.

Mortgage originators must be very careful when issuing a good faith estimate.  We cannot rely on our loan operating systems to spit out the correct information in the specific spot required.   Here’s what I’m doing when I’m working with a client and the good faith estimate:

• I prepare a work sheet first — IF the consumer has not yet identified a property.   NOTE:  HUD says this is acceptable unless it’s a refinance and you know the property address…ya’ better issue that GFE.   (Check out the new HUD video).
• I’m using on-line rate calculators from my preferred title company  (who also guarantees their rate quotes).  
• Once I have the 6 points of information as deemed by HUD, I create a good faith estimate.   LO’s–the only other choice you have is to “deny” the “application” if you do not issue a GFE within 3 days of receiving the 6 points.
• Review–review–review that GFE before you provide it to your client.   If you need to, buddy up at your office and help each other be a second set of eyes.  
• Especially watch out for FHA Upfront Mortgage Insurance Premiums, VA and USDA Funding Fees (which go on Block 3 of the GFE) and the Owners Title Insurance Policies for purchases (Block 5).   Also watch for excise tax if you need to disclose that in  your area.  (HUD addresses excise tax and owners policies in the recent video). 

Most fees aren’t that huge…. I’m finding that I’m typically off very slightly between my good faith estimate and HUD-1 Settlement Statement.    A little precaution will really pay off, my fellow Mortgage Professionals.

Last but not least, if you’re not getting the training you need, seek it out for yourself.  Seek many–do not rely on your employer or their educators.   Are they going to cover your 2% funding fee mistake?   Learn from many different educators and formats…visit’s HUD’s RESPA webpage often!  …this is what I recommend if you’re committed to sticking around this industry as a mortgage originator.   

Good luck!

As the days wear on, we are learning more and more about HUD’s 2010 Good Faith Estimate.   Yes, we’ve had the 2010 GFE to review for quite some time and HUD has offered several updates on their RESPA FAQs…however it seems to be taking a lot of practice, trial and error and communicating with fellow mortgage professionals and HUD to try to interpret what is intended and/or allowed with this new document.

HUD’s last revision to the FAQs made it loud and clear, in my opinion, that they want the Good Faith Estimate to be a tool for rate shopping… however unless the borrower has a bona fide property an address, this may not be possible.   Why?   As it currently stands, HUD will not allow later identification of a property address to create a “changed circumstance”.   A “changed circumstance” (as defined by HUD)  is required in order for a mortgage originator to be allowed to issue a revised Good Faith Estimate…otherwise, the mortgage originator is bound by that Good Faith Estimate until it expires (10 business days if the borrower does not express an intent to proceed with the application).

Per the most recent HUD RESPA FAQs  from January 28, 2010 on page 17 regarding what qualifies for a changed circumstance:

Q&A 8ii:  If a loan originator issues a GFE without identifying a property address, the subsequent identification of the property address, in and of itself, is not considered a changed circumstance.

If a mortgage originator issues a good faith estimate without a property address, they do so at considerable risk as the later identification of a property address does not constitute a changed circumstance.     For example, a GFE was issued with the property address TBD and Block 8 = $0.   The borrower later identifies a property and Block 8 should have been $2,000, but the originator cannot issue a revised GFE and is bound to the original GFE.     Excise tax in most parts of King County is 1.78% of the sales price which would be a very bitter pill for a mortgage originator to swallow.   

As a side note, it’s still hit and miss if lenders are disclosing seller paid excise tax on their Good Faith Estimates in Washington State.   I’m hearing that some are making the mistake of not showing the owners title policy since it is also seller paid–this if flat out wrong–the owners title policy (even though it is paid by the seller) must be disclosed on the 2010 GFE.

I’m hoping for a revised FAQ soon (funny thing to hope for) where HUD may reconsider or clear this up.  If they truly want home shoppers to be able to use the Good Faith Estimate to shop for a mortgage before they’ve signed a purchase and sales agreement…they need to provide us with more clarification…and soon!