New Predatory Scam: Mortgage Litigation Services

The subprime lending industry barfed out hundreds if not thousands of loan originators in 2008 who had a taste of the six figure lifestyle and didn’t want it to end. The predators quickly swarmed into the loan modification industry and when state regulators started clamping down, they morphed into predatory short sale negotiators like parasites steadily evolving to bypass an organism’s defenses.

halo 3 plasma pistolSo where might they go now that the Federal Trade Commission is using the Halo plasma pistol on upfront fees Jan 31, 2011? Do you think they might crawl under a rock and die? Of course not.  The newest scam is called “mortgage litigation services” and the scammers are already swarming my inbox with email spam telling me that I can make six figures a year with no experience. All I have to do is refer people to their company. So what is the new scam?  From their email marketing:

“This is not a loan modification. Mortgages can become free and clear! XYZ Legal Services has put together a turnkey system that allows you to start offering mortgage litigation to your clients in days. This turnkey system is designed to run side-by-side with your existing company. XYZ provides all the required backend services to support your sales operation and business objectives. Our focus is on providing the very best customer service and attorney services for your customers. I am very confident that we will be able to help you and I think you will quickly see why our customers find our attorneys to be the experts when it comes to helping them get their financial issues resolved. Here are just a few key components that separate XYZ from the competition:·
Provide a REAL service to homeowners
You collect NO paperwork
All you do is fill out a one-page form online
Highest Marketing Fees to Affiliates
Make a Huge Income by Helping Others

Someone with a law license please explain to raincityguide readers how this could be legal.  It looks like they want people to sign up to become an affiliate and send referrals to their company, and for that the company is going to send out a referral fee. Predators love scams where they do no work and collect a fee.  So if these ads are targeting loan originators and other people in the real estate and mortgage lending industry, it looks like the company wants referrals of consumers who are in a position to challenge their lender.

We already have a 2009 law in Washington State where the lender is required to prove they hold the note before foreclosing. I don’t see how this service can help struggling homeowners. I do see how people who will believe anything will once again be scammed out of an upfront fee before any work is performed.

13 Reasons Why 30% of LOs Fail the National Loan Originator Exam

The first time “pass” rate of the national loan originator exam has fallen to 69 percent.  This is an indication that the test is not too easy.  A high pass rate means an exam is too easy.  A low pass rate means an exam is too hard.  The numbers that tell a different story are the repeat test takers.  Test candidates who fail the LO exam the first time and retake the exam pass the exam only 44 percent of the time.  The SAFE Mortgage Licensing Act is working the way it was intended.

This blog post is for loan originators seeking help who are trying to pass the test the second, or third time.  Test candidates must wait 30 days between tests and if they fail after their third attempt, they have to wait 6 months before taking the test again.  I know it sounds unfair, but in all seriousness, not everyone is going to be able to pass this exam. The six month cooling off time is like a forced reflection period for a candidate to either get serious in addressing their repeated fails or get serious about studying.  The SAFE Mortgage Licensing Act of 2008 is only the beginning.  Over the next decade loan originators will slowly transform from being less like retail salespeople and more like professionals. The loan originator exam will never be as easy as it was in 2010.

I teach the SAFE Pre-Licensing course for new to newer loan originators which is a 20 hour course. I also teach an exam prep course for experienced loan originators and have had the opportunity to interact with hundreds of loan originator students. In this blog post I’d like to share some reasons why folks are not passing the exam so those who need help can identify their challenges and meet or reset their goals.  The following reasons are numbered for conversation sake and do not appear in any particular order.

1. One reason why people are not passing the loan originator exam is the same reason why people all over the world don’t pass comprehensive exams: Not enough studying. A 20 Hour pre-licensing course is definitely not enough time to teach and learn all the complex knowledge required to pass the national LO exam.  20 hours could be three, 7-hour days or two, 10-hour days.  Take a look at the test content outline.  There’s NO WAY an average human, who has never been in the mortgage lending industry, is going to be able to learn let alone understand, memorize and apply this content with only 20 hours of education.  One reason the number of classroom hours was set at 20 may have been because during 2010 there were a huge number of experienced LOs who worked at non-depository lenders who needed this course. Two days is plenty of time to spend with an experienced originator but not someone brand new.  In the future, expect the pre-licensing hours to be expanded to a full week of education. Until then, some students will have to spend way more time outside of the classroom studying on their own.

NMLS Resource Center2. “There’s no good study material available”
NMLS-approved course providers are not allowed to take the test only for the purpose of telling everyone what’s on the test.  In fact, we agree to NOT do this.  If we’re caught doing this we lose our ability to teach NMLS approved courses! If you think about it, if it were that easy to cheat on the exam then why bother with the SAFE Act? Why not just give anyone who wants a license a license and not test them.  The Nationwide Mortgage Licensing System (NMLS) does not provide a study guide book. Instead they encourage test takers to seek out study material from course providers….however, slow down a bit and you’ll see right inside the test content outline, NMLS TELLS YOU WHERE THE TEST QUESTIONS COME FROM. Look at page 3 of this pdf.  Those who are seeking good study material don’t have to pay to get it.  It’s all available for free. However, that means you’ll have to actually read it. More about reading soon.

3. Wanting the answers/not wanting to study
Loan originators ask their compliance person for the answer when they have a question about Fannie Mae, RESPA, disclosure requirements, etc.  So in attacking this exam, LOs expect to call a course provider and have that course provider hand them a set of 100 questions that will be on the exam. And by the way, anyone who claims to “have THE 100 questions you MUST know” is probably wrong. Any list of questions floating around out there will eventually make their way to NMLS and I’m sure they’ll pull those questions. Okay, so maybe you don’t expect the answers but you expect someone to sell you a book that tells you what will be on the exam.  That book doesn’t exist either.  What about a book that summarizes the test content outline?  Yes there are books available and I think those books would be very helpful for some folks but no book will tell you the exact test questions you’re going to get! Relying only on a book is a mistake.

4. “I know the material, I just can’t pass the test.”
It’s possible you don’t know the material. Re-read numbers 1-3. Or perhaps you have test anxiety.

5. Test Anxiety
I  have met several LOs who are have a high degree of test anxiety that goes way beyond normal nervousness.  Yes, passing the test is important. In their mind, people with high test anxiety go from “not passing” to “living in a van down by the river” in one heartbeat.  Test candidates get themselves all worked up so they can’t eat, sleep, think, or do anything let alone actually learn and understand the test content.  There’s lots of tips and ideas that have been written about dealing with test anxiety and even a little self-quiz you can take here.  One thing the experts agree on is that a person with high test anxiety isn’t going to be able to learn much while studying.  If you want to pass the LO exam, you must deal with your anxiety first and foremost before taking any exam prep classes.  There is no time in anyone’s classroom to give personalized psychological counseling.  Besides, most of the instructors teaching classes whether they’re live or online specialize in mortgage lending not test anxiety. Your challenge is different. Know thyself….pass the test.  Maybe your anxiety comes from not wanting to be honest with yourself about a possible learning disability.

6. Maybe you have an undiagnosed learning disability.  As I’ve mentioned in other articles, back in the 1970s there were no para-educators available to follow kids around giving rambuncious kids extra support. Instead students survived in other ways. Humans listen and talk at a much faster and higher rate than we read and write.  Some LOs are high functioning talkers but low functioning readers.  Some people are dyslexic or have other bona fide learning disabilities that they know about but don’t want to deal with the stigma associated with being labeled.  Well if you want to pass the LO test this might be that point in your life where you finally are going to have to come out of the closet and get some help.  Repeated on purpose: Most of the instructors teaching classes whether they’re live or online specialize in mortgage lending and not learning disabilities. Ask your primary care physician for a referral to a doctor or counselor who specializes in diagnosing learning disabilities in adults.  The Nationwide Mortgage Licensing System will make reasonable accomodations for people with documented learning disabilities.  See page 14 of the MLO Testing Handbook for more details.

7. Subprime LOs who fell out of the industry during 2008 and are trying to re-enter the business are having a very, very hard time passing this test.  The main reason is because they think they already know how to originate and don’t want to spend the time studying or don’t think they have to study so they repeatedly fail the test. Anyone who entered the industry around 2002, left the industry in 2007 or 2008 and only originated subprime received very little compliance training if any. 2011 is a radically different world compared with 2007. If you still think stated income loans should come back, if you still believe that a pay option ARM is “the right product for the right person” and if you think it’s unfair that people can’t use seller downpayment assistance programs please do not re-enter the industry.

8. “The test contains trick questions!”
Actually, the test doesn’t have any trick questions.  Test writers try very hard NOT to write trick questions. The reason the test question sound tricky is because LOs are not use to looking up answers and reading the statute.  Instead they ask their boss or the compliance person, their processor or the person sitting next to them for the answer and move on.  People use language differently in different parts of the U.S.  Teaching a class in Oklahoma or Idaho is vastly different compared with teaching in Seattle or Virginia.  Test writers can’t use spoken language and coloquialisms from different parts of the U.S. when writing test questions for an exam to be delivered in all 50 states. The only fair way to write test questions is to copy and paste directly from the law.  That’s why the test questions sound and look “tricky” but really the trick is on you. If LOs would simply study directly from the law, the test questions would look very, very familiar. Re-read number 2.

9. You’re ESL
English language learners are my best students. Why? Because they are typically more emotionally mature, know good and well that they have to listen, ask lots of questions, and study over and over again to pass this test.  ESL LOs…you WILL pass the test. Read more here.

10. The test has too many “situational” questions
So you know RESPA. You know TILA.  You’re scoring high on all your practice exams but the test isn’t going to be as easy as just knowing that you have to send out early disclosures within 3 days of the application.  Instead the test will contain situational questions that will require you to understand how and also why TILA and RESPA interact with each other. This requires you to look at a test question and understand what information you DON’T need and cast it aside. Only then will you be able to understand what content the test writer is testing you on.  This means memorizing test questions is a bad way to study. Instead you’re better off studying the laws and rules that govern mortgage lending.  Mortgage loan origination is all situational. These are highly appropriate questions for the exam and I hope we see more in the future.

11. Part Timers
The national LO test sets a bar and asks people who want to originate to show proof of knowledge of a body of information. Loan origination is no longer a sales job. It’s transforming into a profession. It’s really hard to be a part time doctor, lawyer, engineer, dentist, CPA unless that person is entering semi-retirement. The knowledge, skill set, and industry changes are too wide and deep and the consequences of screwing up are too high.  Welcome to mortgage lending in 2011.  You must be on your game full time or no one will want to hire you. And those companies that do hire part timers are going to have huge liability issues supervising you in 2011 and beyond.  Commit to origination as a profession. Now start over and re-read items 1-3. Part timers have a high opinion of their knowledge of mortgage lending and are sometimes too proud to want to hear that they need more basic education on the entire mortgage lending process.

12. Lack of Basic Education
The SAFE Mortgage Licensing Act does not require a high school diploma or equivalent to become a licensed loan originator. Instead, those without a diploma simply must have proof of three years of experience in the mortgage lending industry.  Subsequently, the national LO exam will be that barrier to entry for folks who may have a learning disability or folks who may not have the ability to think, reason, and understand above a 9th grade level. Some of the math questions on the exam will require a basic understanding of 9th grade algebra. Some of the questions will require the ability to understand how two federal laws relate to each other and to the consumer.  Some people only have the ability to understand one federal law at a time.  Mortgage loan origination today requires the ability to multi-think all day long.  My recommendation: Finish high school first.  The discipline required to obtain a GED will be good practice for studying for the LO exam.

13. Learning Style Not Matched with Study Choice
Visual, auditory, tactile, whole body, emotional…These are all learning styles and passing the test means knowing how you best learn. Learning requires understanding. If you can teach another person something, this is a good sign that you know that concept and will be able to select the correct answer on an exam.  Some people have to see pictures. Other students need to hear the content.  Sometimes instructors tell stories about legal cases. Stories evoke emotion which triggers long term memory.  Sometimes students learn best if they get their whole body involved in the learning process. Everyone is different. Choose a course provider that understands learning styles and find one that matches your particular style.  In my experience, most students have a mixed style so find an instructor/course provider that mixes it up for you. One student had me on the phone grilling me with questions about my course for at least 15 minutes. We figured out that we’d be a good match for each other. She attended my course and passed the test the next day.  Don’t be afraid to call course providers and ask lots of questions.

Every test candidate is different. Some people listen at a higher/faster rate than they can read and write. Some people need to simply read through 400 sample test questions and that’s all they’ll need.  Some people have undiagnosed learning disabilities.  If you’ve taken the LO exam and failed, re-evaluate your learning style, the time you’ve spent studying and any of these other ideas and try again.  If you still cannot pass the exam ask yourself how much you love the mortgage lending industry because there are other positions available in lending that do not require an LO license.  And remember, you can always go work at a depository bank.  Bank LOs do not have to pass the exam…..yet.  Someday they will.

Refinancing with a Second Mortgage? Patience, my Friend, patience.

I really try to lean towards writing about purchases here at Rain City Guide…don’t know why that is…it just is.  But the fact is, there are a lot of refinances going on right now and many may have second mortgages that are not going to be paid off as part of the refinance.    A recent comment on my post about unhonored rate locks prompted this post…it’s probably not his mortgage professionals fault his refi is taking this long…it’s his second lien holder.

helocIf a second mortgage is not paid off, the new first mortgage will require it to be subordinated.  This means that a subordination agreement must be recorded to make it public record that the second mortgage (often times a HELOC) is in second lien position and not first lien–this all boils down to who gets what rights in the event of a foreclosure.

Just because a lender request a second mortgage/HELOC lien lender to subordinate, doesn’t mean they have too…they get to mull it over and they can refuse to subordinate…which means that with the refinance, if the first mortgage (the proposed refinance) or the home owner cannot pay off the existing second mortgage, it’s probably a dead deal.

Some home owners want to keep their second mortgage or HELOC (home equity line of credit) because:

  • they can’t get a new one based on today’s guidelines and lack of availability.
  • they have a great rate that can’t be replaced.
  • their refinance will be classified as a cash out refinance if the second mortgage/HELOC was not obtained when they purchased their home.  (It doesn’t matter if the home owner refianced the orignal purchase money second mortgage and NEVER took cash out of the home–it’s treated as “cash out” with a whole new set of rules and pricing).
  • including the second mortgage pushes the home owner over certain loan limts (conforming, FHA, etc.).

Most second lien holders will not consider subordinating until the have a copy of the appraisal for the refinance and full underwriting approval from the first mortgage….then you wait for them to process it.   Some banks are taking more than a month AFTER receiving the appraisal and loan approval before they will CONSIDER IF they will subordinate…and there’s no guarantee they’ll do so.    I’ve seen some banks charge $250.00 to process a subordination REQUEST (no guarantee).    A borrower may be out the appraisal cost and the subordination fee with no refinance worse case scenario.

Have an honest conversation with your mortgage professional and ask questions…

  • Should or can you pay off the second mortgage with your refinance?
  • How long should the subordination take?  (some banks or credit unions take longer than others)
  • What happens if you lock and the subordination takes longer than expected?

If you’re a home owner with a second mortgage/HELOC that you want to subordinate, be prepared for a much longer closing which means, if you’re locking at application, a slightly higher rate or more in points–the longer the lock period, the more expensive it is.   Or you can risk floating your rate.  The choice is yours and there is no guarantee that the second mortgage/HELOC lien holder will subordinate…any risk (borrower or lack of equity remaining in the home) may cause the bank to give the subordination a thumbs down.  It’s nothing new.

Joe Sixpack and the Subprime Crisis



The Subprime Crisis is a broken promise to Joe “Sixpack”.

One Day in early 2006, Joe was feeling pretty darned good about himself. He was making $65,000 a year at a job he held for over 6 years. He had $30,000 saved up in the bank. He had no credit card debt. He owned his car free and clear. He looked at his pregnant wife and his 2 year old son about to outgrow the two bedroom apartment they were renting and said, heck…time for us to buy a house.

He didn’t need no granite counters or stainless steel appliances.  He just wanted a decent neighborhood and decent schools for his kids.  He needed a small yard for a dog and to throw a ball back & forth in with his son and to have a barbecue and a beer in with his buds once in a while.  His American Dream seemed within reach.  He read everywhere that mortgages were pretty easy to get, and interest rates were near all time lows at 5.5%.

Mrs. Joe picked the School District she wanted to live in, and Mr. and Mrs. Joe walked into a real estate office and said, “We’d like to buy a house in this School District”. Ms. Realtor pulled out a big questionnaire asking them to fill in all the things they wanted, while she left to figure out what they could afford.  She did a quick qualification in the back room of the office.  $65,000 a year divided by twelve times 33% equals a payment of $1,787.50 a month and at 5.5% interest rate that equaled a loan of $315,000.  She added the $30,000 they had saved, and came to $345,000. She wondered if that was a little high, but it was certainly the lowest price she could hope to find, so she found them a little old rambler in Kenmore asking $350,000.  They all went out to see it.  It had an old kitchen and needed some work but the couple hugged and said, “We can make this ‘home’ with a little hard work and some paint and curtains”.  Everyone smiled and went back to the real estate office to make an offer of $345,000, with the seller paying the closings costs.

The real estate agent called her favorite lender and put Joe on the phone with the lender while she typed the offer.  The lender faxed over a pre-approval letter for a purchase price of $345,000 to submit with the offer.  Joe’s agent called the Listing Agent of the little rambler who said, “We already have 3 offers, and we’re presenting offers at 7 o’clock tonight”.  It was 4:30 p.m.

Joe’s agent called the lender who shot over a new pre-approval letter for $375,000.  Joe’s agent added an Escalation Clause for $1,000 more than any one else’s offer up to $375,000.  She took out the seller paying the Closing Costs explaining that with multiple offers, that wasn’t going to fly. She took out the home inspection clause explaining that would strenghten the offer. She told them to up their Earnest Money Deposit from $5,000 to $10,000 to make the offer really solid. Mr. and Mrs. Joe  signed it, and the agent faxed the offer to the Listing Agent.  That night Joe’s family got the call that they got the house for ONLY $364,000!  WOO-HOOS and High Fives all around.  They WON!

Joe went to the lender’s office a couple of days later and made a full loan application.  He got a Good Faith Estimate saying his payment was going to be $2,646.47 a month. $1,937.36 on the first mortgage of $291,200 at 7% +$459.11 on the 15% second mortgage of $54,600 at 9.5% + $200 a month for real estate taxes and $50 a month for homeowner’s insurance.  Total payment $2,646.47 a month.  Joe started sweating profusely.  He called his agent and said, can we cancel this?  She said not without losing your $10,000 Earnest Money.  There was no home inspection contingency and the Finance Contingency didn’t have a little blank space to put in a rate cap.  There was no “legal out” for “OMG the payment is $1,000 more than I thought it was going to be”.

The agent called the lender and he switched the loan to an interest only on the first with a fully amortized 40 year second and added a two year pre-payment penalty.  That brought the payment on the first mortgage down from $1,937.36 to $1,698.67.  The fully amortized 2nd at 40 years vs. 30 years dropped that payment from $459.11 to $442.29. Total payment $1,698.67 + $442.29 + $200 + $50 is $2,390.96.

Joe scratched his head and asked, “Where’s the 5.5% lowest interest rate in years?”.  The lender explained that rate was only for people with credit scores of 660 or better, and Joe’s score was 640.  Also, that rate was for people whose ratios were 33/40 and Joe’s payment, even at the reduced rate of $2,390.96, was just over 44% of his gross income of $5,416.67 a month.  His ratios were “out” which made him SUB-PRIME.  BUT, here’s the good news! IF you can stick this out for 12 months…24 tops…and make your mortgage payment on time, you can RE-FI at the lower rates! The value of your house will grow so that the 5% you put down will be 20%, and you will have ONE mortgage at the low rate instead of TWO mortgages at SUB-PRIME rates.

Joe went home.  He was feeling a little sick in the stomach and he had a massive headache.  He looked at his pregnant wife.  She was packing and making yellow curtains for her new kitchen.  He kissed her on the forehead and went to the corner store and bought a sixpack.  Two weeks later they closed escrow, moved into the house and he and his son went out and bought a new puppy.

Joe worked hard for a year.  He put in overtime and drew down on the little savings he had left.  He was able to make his mortgage payment on time for 12 months.  He called the lender to get that RE-FI he was promised.  The lender said…oh, well…you really should wait another year because of that 2 year pre-payment penalty.  Joe said, I really can’t do this for another year.  The lender said OK, but I’m going to have to add the costs of the re-fi and the pre-payment penalty to the principal of the mortgage.  Joe asked how much the pre-payment penalty was and nearly fell off his chair.  He said, OK…I’ll stick it out for another year.  He went out in the yard where his son was playing with the dog and drank a couple of sixpacks.

6 months later Joe was told that he couldn’t get any overtime.  They were cutting back on expenses.  He opened his mail and there were those multiple offers for credit cards at ZERO INTEREST!  He got himself three of them.  He started charging stuff to make ends meet until he could get to 2 years and RE-FI his mortgage.  He went out with one of his new credit cards, bought his wife a box of chocolates, his son a new football, the dog a new collar and a case of beer for himself.

Finally…TWO YEARS had passed.  No pre-payment penalty!  Time to RE-FI! He called his lender.  Well Joe, I’ve got some bad news for you.  You did improve your credit score with all those on time payments for two years from 640 to 680, but the best rates are now going to people with scores of 700 or better.  The REALLY bad news is that because of your ratios, you were stated income-SUB-Prime…and those loans don’t exist anymore.  There is no re-fi for people with your ratio of payment to income.  Joe hung up the phone and went out in his yard and drank a couple of six-packs.

At first, Joe was only getting behind in his credit card payments.  He opened his statement and the interest rate jumped to 30%! Joe called around and said “Isn’t charging 30% ILLEGAL?”  Well Joe…it used to be…we used to have something called “Usury Laws”, but no more.  Usury Laws were part of RICO to get rid of Loan Sharks but in 1980 Congress elected to “deregulate” and exempted Banks from Usury Laws for the most part.  30% only seems fair, since you breached your promise to pay on time.  Joe wondered why breaching his promise demanded such a penalty, when those who breached their promise to him of getting a RE-FI and reasonable mortgage payments seemed not to matter.  He put his head down, grabbed a couple of six packs and headed out to the garage trying hard not to turn the motor on in the car.

Joe started getting behind in his mortgage payments.  He had the same job making $65,000 a year…in fact he got a raise to $69,000 a year.  Still he was falling further and further behind.  He called his real estate agent and said, I can’t do this anymore.  I have to sell this place.  The agent told him that prices were down, cost of sale was 8% or more, and there were those payments he was behind getting penalties and interest.  He was “upside down” and the new distressed property law scared her and she couldn’t help him. Meanwhile the mortgage company was calling him every day, sometimes 4 times in one hour.  They had no answers.  They just asked if they could post date a check for the $4,000 he owed them to next week.  He said “Do you really think if I can’t make my full payment again this month, that I can write you a fkn check for $4,000 today that is going to be good “next week” you fkn moron!”  Joe slammed the phone down, turned the ringer off and headed out to the garage with his little TV and a couple of sixpacks.

Joe drank his six-packs and watched all the Presidential Debates and Campaign speeches.  He heard someone talking about “Joe Sixpack” and wondered if she knew how “Joe Sixpack” got that nick-name, and what she was going to do about it.  He watched as everyone fought over the $700 Billion Bailout and wondered if that would help him…and hoped it would.  The Bailout passed, but his phone didn’t stop ringing.  The Credit Card Company was still charging him 30%.  The Mortgage Company still didn’t seem to have any answers.  He called his agent and asked again about selling the house.  She agreed to help him do a “short-sale”, but she didn’t quite know how that worked.  He went out to see where he might rent if he sold his house “short”, but no one would give him a rental, because his credit was now fckd…

He went back to the garage, popped open another beer and stared at the car with the motor off.

IndyMac Leaves the Mortgage Arena

This announcement from IndyMac came via a press release today:

“…effective July 7, 2008, that we will no longer accept any new loan submissions or rate locks in our retail and wholesale forward mortgage lending channels, except for our servicing retention channel. We plan to honor all of our existing rate-locked loans and will continue to fund these loans in the coming weeks. While the managers and employees in these units have worked incredibly hard, these units are not currently profitable due to the continuing erosion of the housing and mortgage markets.”

IndyMac is planning on retaining the FHA portion of their reverse mortgage division, Financial Freedom.

This also means more people will be displaced from the mortgage industry.

“Unfortunately, the above actions will necessitate the reduction in our present workforce from approximately 7,200 to roughly 3,400 or so over the next couple of months…”

The press release mentions a couple locations where employees will be retained…no word or mention of the Bellevue office.

IndyMac had a lot of unique products and were no stranger to the subprime and alt-a markets.   They had their own automated underwriting system, eMits, that provided “risk based” decisions and pricing.    They are reported as being the seventh largest savings and loan in the nation with both retail and wholesale operations.

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

CNN Money.com: Appraiser sues WaMu

The intersection of ethics and real estate meet again

As if WaMu didn’t have enough on its public relations plate, CNN Money reports:

Jeniffer Wertz, who is seeking unspecified damages, says WaMu stopped accepting her appraisals in mid-2007 a month after she reported that her local housing market in California was “declining.”

Evidently, Wertz claims that Washington Mutual wanted her to change her forecast to “stable.”

And on the other side of the coin

Bloomberg reporting that inflated appraisals causing significant losses to lenders.

`You started to see more and more loan products that would keep payments low, and I see that as correlating with appraisal pressure because those products only work in a rising market.”

(and, which loan products might those be I wonder tongue in cheek?)

Former guest at Inman Connect, Jonathon Miller, a sought-after New York appraisal and real estate consultant remarked:

“Lenders and mortgage brokers routinely pressured appraisers to boost values, said Jonathan Miller, a New York property appraiser for more than two decades who writes a blog about the problem.”

And more from the Bloomberg article….First American and WaMu working together?

“In New York, Attorney General Andrew Cuomo subpoenaed Fannie Mae and Freddie Mac, the two biggest buyers of U.S. mortgages. He also sued First American Corp.’s eAppraiseIT LLC for allegedly caving to pressure from Washington Mutual Inc., its biggest customer and the largest U.S. thrift, to inflate values.”

Ethics in real estate: oxymoron?

What I love about this business: the people

Escrow is one of the toughest jobs in real estate, for a lot of different reasons. But, it is by far the most interesting from our experiences in that both Lynlee and I have sold (circa 1990) as licensee’s, bought and sold homes as homeowner’s and today as owners of an escrow company.

For example, in a recent day at the office we have had people curse at us, a customer who threatens to sue everyone in the deal including the clerk at the corner 7-11, an angry client yelling at their loan officer so loud that other tennants in our building start calling to see if everything is ok, then, before we have a chance to catch our breath, my wife comes smiling out of the signing room after meeting with a client. Looking at her, I say, “what are you grinning about?” To which she wryly remarks, “that customer just told me, ‘please don’t take me the wrong way, but you are a very pretty lady.”

You can be the scum of the earth to someone at 10am in the morning and then a hero just twenty minutes later.

In escrow you meet the most interesting people: From rock stars, to brain surgeons, shakers ‘n movers, CEO’s, farmers, war hero’s, teachers, politicians, pro-athletes and more. And, the occasional world famous writer to boot.

Let Brokers charge what they want. Do away with YSP.

Couldn’t the whole yield spread premium (YSP) debate with all the trimmings end with a simple solution such as allowing the broker to charge whatever they want? Let the free market sort it out. Certainly lenders would have to be on board and do away with incentives or change them somehow, but it seems to me that everyone is making it so complicated.

Yes, compliance issues, licensing and fair dealing issues are important and should be implemented in some manner.

Solution:

  • Just disclose up front what the compensation is based on the interest rate or program the borrower qualifies for. Therefore…….
    • No more the need to attend sales seminars on learning how to overcome objections, which will allow more time to attend seminars on how to provide sterling service.
    • No more awkward moments for the loan officer attending an escrow singing when the borrower questions that “YSP thingy.”
    • No more loan officers asking escrow “how will you explain YSP” to the borrower, as if escrow’s response somehow dictates whether or not they will receive future business.
    • No more agents having to watch helplessly at their clients becoming frustrated or stressed out due to lending problems associated with YSP’s and the completely preventable situation where a transaction spirals out of control at the last moment.
  • How about lenders just have a simplified schedule of programs and rates that the borrower can choose from and if they pay a higher interest rate they receive a rebate that can be used on their behalf. How about just turning the PC monitor around and showing the consumer the several programs available and then have a good old fashioned counseling session. It would save every single moving part in a transaction a lot of grief. And it would save transactions from failing at the last moment because a “nuclear bomb disclosure” by a lender about the yield spread premium a loan officer is earning that freaks out the borrower.

I can just about darn near guarantee that if a consumer knows where all the chips are on the table, they would have no problem moving forward with a transaction. Give a consumer the very best rate they can qualify for, at the very lowest fee structure you can, with all the chips clearly on the table and Bam! you have a happy client, fostering long-term value.

When will someone just give the consumer what they want? Somebody is working on it and they are going to will be very successful. Is it really more complicated? If so, sound off.