Mortgage Broker Commission Meeting Tomorrow

There’s a Washington State Mortgage Broker Commission meeting tomorrow, May 7th at the Renton Community Center to discuss the impact of State Senate Bill 6471. This legislation ammends the Consumer Loan Act and Mortgage Broker Practices Act requiring all lenders to become licensed under the Consumer Loan Act (except those licensed under RCW 63.14)

This change in the state law was put in place to close a loophole. Some mortgage brokers were issued an exemption certificate by their regulator, DFI, because they had received approval as a Fannie Mae/Freddie Mac direct lender. Though still subject to the MBPA, these lenders, an estimated 300, were operating with no state regulatory oversight. This loophole is now closed.

Mortgage brokers are complaining loudly that this change will cost their firm lots of money. I would like to see the raw numbers on their estimates.

I will be attending tomorrow’s meeting, and if I can catch a wifi signal, I will blog live.

This does not appear to be a “closed” meeting since DFI is indicating that the room capacity is 100. I received no notice about this meeting, which is odd, since DFI is always very good about notifying all of us via their listserve.

Time: 1:00 PM
Location: Renton Community Center
Address: 1715 Maple Valley Highway, Renton 98057
Driving Directions

Common myths & misconceptions of Escrow.

Please do not construe this as legal advice, it is not. The sampling below is general in nature and is referencing common escrow misconceptions we see in the course of conducting business.

Here are a few to get started.

1) Escrow firms produce and verify the validity of Legal Descriptions.

  • Incorrect. In a sale it is the Seller’s responsibility to correctly identify the property that is being sold. The Buyer should verify that the legal description matches the property that they intend to purchase.

2) Escrow firms are bound by Northwest Multiple Listing Rules.

  • No. Escrow is bound by the Escrow Agent Registration Act of Washington. Some managing real estate brokers erroneously believe otherwise. The Legislature also has determined that escrow officers are subject to the Consumer Protection Act.

3) Escrow firms never have conflicts of interest or problematic transactional issues.

  • Untrue. Escrow firms commonly run into potential conflicts of interest, and problematic issues. The idea is to reduce the exposure of potential conflicts and issues as much as possible via a variety of means. For example, escrow commonly discloses those problems to the principals in the transaction so they can consult appropriate professionals and give escrow additional instructions on how to proceed.

4) Independent Escrow firms are sued more often than attorney-owned escrow firms.

  • No. Ironically, Attorneys who own escrow firms have earned that privilege. (Source: Fred Phillips- Attorney, LPO Seminars).

5) Limited Practice Officers at escrow firms are tested & licensed by the Washington State Dept. of Licensing.

  • No. The LPO exam is administered by the Washington State Bar Association twice a year. The pass rate has been under 30 % for quite a while, but has recently improved. LPOs are regulated by the Washington State Bar Association and Washington State Supreme Court. Independent Escrow Companies are regulated by the Washington State Dept. of Financial Institutions.

6) Escrow staff work at all hours of the day and evening.

  • Traditionally, no. Most are open from 9-5pm. From a practical standpoint, ownership does work at all times (speaking only for our company). Escrow firms have banking hours for a reason. Escrow firms are closed when the there are Federal holidays and when the Federal Reserve is closed. The receipt of lender wires occurs up to specific times in a business day, typically until about 2 pm. This may depend upon the trust account banking policy the escrow firm has with its own bank.

7) Loan officers and real estate agents are principals in the escrow transaction.

  • Incorrect. The buyer(s) and seller(s) are the principals and escrow can only be instructed by these parties. Loan officers and agents cannot instruct escrow or influence the escrow transaction in any manner.
    • Example: a loan officer who calls escrow to request proceeds check mailed to their customer instead of being wired to the customer’s bank as the client previously instructed escrow in writing.
    • Example: a real estate agent/Broker instructing escrow to refund an earnest money check to a borrower (buyer) without a rescission agreement.

8) Escrow staff can produce, prepare and/or instruct their clients (buyer or seller) on drafting purchase & sale addenda for common things such as extending a closing date.

  • No. This is tantamount to practicing law and may be a conflict of interest. Only a licensed real estate agent, attorney or principal parties can draft addenda.

9) Loan documents are almost always perfect when submitted to escrow.

  • No. Loan documents frequently and frustratingly have errors, such as incorrect fees, incorrect name spellings, incorrect vesting, among other errors.
  • Loan documents take time to prepare after receiving them from the lender, particularly if docs are re-drawn several times. This is a reason many escrow firms refuse to set up signing appointments with clients (who sometimes have to take off work early or are inconvenienced in other ways) until the docs are at escrow, prepared and confirmed correct with the borrower, mortgage broker and real estate agent.

10) Escrow staff have no deadlines.

  • Emphatically incorrect. Escrow staff are looking at the clock all day long. In our State, disbursing funds cannot take place until confirmation that the documents have been recorded.
  • Escrow staff must get loan payoffs to Fed Ex or UPS on time. This is a prime reason our company is located just blocks away from the major UPS terminal for Snohomish Co. It allows just that much more flexibility in TIME. Time is precious in the escrow business.
  • There are many other time-sensitive tasks as well.

11) Once escrow has been opened and is progressing towards closing, Escrow cannot refuse to close a transaction.

  • Incorrect, and it does happen.

Perspectives: Is this a former loan officer or a customer of a LO/subprime lender?

Evidently, this is circulating in e-mails everywhere. Depending upon your perspective it could be funny or not so funny. On the one hand it could be a former employee of a defunct sub-prime lender or it could be a customer with a toxic loan. Either way this evokes a lot of different views.


The Pre-Payment Penalty: Gold mine or equity Quicksand?

Ninety-one year old Seattle woman’s mortgage mess as detailed by the NY Times.

“……That was the case for Gertrude Robertson, a 91-year-old widow and nurse’s aide living in Seattle who took out an adjustable-rate mortgage of $450,000 in January. Even at her age, Mrs. Robertson was earning $3,500 a month, largely by caring for another elderly woman. Then the woman died. Mrs. Robertson’s income was reduced to her monthly Social Security payment of $1,500. Meanwhile, her loan ballooned to $475,000. Unable to make the payments, Mrs. Robertson is listing her home for $510,000.”

Mrs. Robertson’s pre-payment penalty was $14,400.00. We have seen pre-payment penalties slightly higher than this paid out through our escrow office. I think there are many cases where consumers really don’t understand what they are signing. My wife Lynlee and I argued about this pretty robustly this morning. Lynlee contends that people should know what they are signing and if they are uncomfortable for any reason, they should not sign or at least consult an attorney or other party to help them understand the documents. She argues that if people get in trouble with loans they should not blame the loan officers or anyone else but themselves.

I don’t think Lynlee and I will agree on this issue. I think she is very naiive about why pre-payment penalties were so widely used. I think there are a lot more pressures to consumers and it leads them to make decisions that are not necessarily wise. How many Gertrude’s are out there? Thousands.

Update :  the New York Times Article was available through the link earlier this morning, but as of 9:50am it has been archived and you have to  log-in to access it.  Sorry about that.

Because it was a Wacky Wednesday…

Will Hicks lets us know that there are plenty of US embassies still on the market

Ron Ares leads us to the ultimate real estate ethics guru: Ted Truitt

[photopress:wacky_wednesday.jpg,thumb,alignright]Because Flipping should only be practiced by professionals

How not to show a home

It’s the little things that get so darn messy

If you’re willing to follow, Marlow leads us toward a worldly journey of kitchens, bathrooms, bedrooms, etc where there is no normal: Normal Room

And, of course, the original: Wacky Wednesday

Professional Status: Perceptions and Reality

In part one of this series of blog articles about the subprime meltdown, I briefly sketched the rise and fall of subprime loan products and their relation to predatory lending practices within a capitalist system.

Today’s part two will examine the structural relationship between a professional and his or her client.

Is your barista at Starbucks or the person who bags your groceries a professional? If you answer “yes,

A case for the ages. Perry Mason, where are you?

Here is a scenario bouncing around in my mind. Complicating this problem, imagine this scenario occuring two days prior to closing. What would an attorney think?[photopress:j0402451.jpg,thumb,alignright]

The facts:

A buyer who happens to be a real estate managing Broker-owner is purchasing new construction from a builder. The buyer (Broker) asks for a discounted escrow fee because buyer (Broker) has a history of referring business (sellers or buyers) to escrow company handling this closing. The escrow company refuses to discount buyer escrow fee. The seller (builder) receives an estimated HUD-1 Settlement Statement which shows an escrow fee based upon each party paying an equal 1/2 of the total escrow fee, in full compliance with the local Northwest Multiple Listing Service (NWMLS) Purchase and Sale Agreement (PSA). After reviewing the settlement statement, the builder-seller calls the escrow company and requires escrow company to reduce the escrow fee because it is “tradition” or the seller (builder) will refuse to close. Learning of this, the buyer wants the same fee as the seller. To comply with the law, the escrow company must comply with the terms of the purchase and sale agreement, in addition to complying with RESPA. Locally, the Northwest Multiple Listing Service Form 21 Section ‘H’, line 56, provides that:

Seller and buyer shall each pay one-half of the escrow fee unless the sale is FHA or VA financed, in which case it shall be paid according to FHA or VA regulations.

Escrow raises this issue and asks parties for clarification because the purchase and sale agreement in question has no other addenda indicating disclosure of builder-seller receiving a discounted escrow fee. Once again, the seller (builder) immediately requests escrow to discount escrow fee or they refuse to close and further escalates the issue by threatening to move the transaction.

This problem raises a few issues.

  1. Is the Broker/buyer in clear violation of RESPA regarding potential kickbacks?
  2. In this case,there is no builder addendum indicating or disclosing to buyer/Broker that the builder will be receiving a discount. Builders routinely receive significant discounts on escrow fees, particularly if closing through a title company. Many builder generated addendums address the discounted escrow fee.
  3. Under the terms of the purchase and sale agreement, is the builder potentially in breach of contract by refusing to close? For example, if the buyer, who happens to be a real estate broker, (never mind asking for a discount equal to the builders perceived “traditional” escrow rate) stood firm by indicating each party shall pay an equal escrow fee as provided in the PSA, would the builder be in breach of contract?
  4. Does the buyer and seller understand the purchase and sale agreement terms?
  5. How does HUD treat the situation where builders receive discounts in title or escrow fees?
  6. Do you think this scenario is plausible?

All you Perry Mason’s, looking forward to your comments…..