MBA of Central Florida Washington Update Brian Chappelle Potomac Partners
Overview Some things haven t changed Companies that know how to implement & follow rules have benefited Knowledge and customer service remain key More rules are coming RESPA-TILA merger What has changed Washington recognizes there is an access to credit problem Importance of housing to economy Expect even more RESPA & MLO Compensation enforcement actions New Twist: Penalties against individuals (in addition to companies)
2013 HMDA Data Demonstrates The Access to Credit Problem
2015 is off to a good start FHA annual premium reduction Goal: Boost first-time homebuyer activity Economic cross-currents March jobs number disappointing 1 st Quarter comparable to 2014 Q1 & less than 2013 Q1 Add in weak consumer spending & strong dollar Fed Chair Yellin March 27 th speech on balance, appropriate for monetary policy to remain accommodative for some time Fed will likely err on side of moving slowly NAR Pending Home Sales are increasing Encouraging demographic data
DEMOGRAPHICS SET THE TABLE Population and Its Characteristics Define the Future 5,000,000 4,500,000 US Live Births by Year and Generation Boom X Y Z 4,000,000 3,500,000 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 1909 1911 1913 1915 1917 1919 1921 1923 1925 1927 1929 1931 1933 1935 1937 1939 1941 1943 1945 1947 1949 1951 1953 1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 Source: US National Center for Health Statistics
Three Issues Enforcement Concern: Using enforcement actions to establish policy More Regulations RESPA-TILA Merger August 1, 2015 Access to Credit Pricing & Products Repurchase relief to encourage less overlays
CFPB Two areas of focus Examinations (have gone pretty well ) CFPB Supervisory Highlights Winter 2015 Loan originator compensation Cannot pay originators who own ancillary businesses based on profitability (tied to own production) RESPA disclosure issues Monitoring of social media Reg B adverse action notices in timely manner Specific business practices Servicing Sourcing the business (RESPA) Loan originator compensation
CFPB Enforcement Actions 50+ enforcement actions Payday lending, auto loans, credit cards, etc Mortgage-related actions RESPA 16 enforcement actions 6 actions in 2014; 4 actions already in 2015 Good news : all allegations have been clear-cut violations Deceptive advertising 3 actions implying government endorsement Loan originator compensation 2 actions Former CFPB manager there are more cases on the way
RESPA Hot Buttons Desk rentals permissible if based on market rent Joint ventures must be bona fide entity Affiliated business arrangements must be disclosed properly Marketing service agreements (MSAs) Lighthouse consent order September 30 th
CFPB MSA Enforcement Action Allegations against Lighthouse Title Did not document basis for fee Did not monitor counterparty to ensure compliance New ground : Entering into an agreement is a thing of value Assessment CFPB does not like MSAs More enforcement actions expected NAR has published Do s & Don ts
NAR Do s & Don ts: MSAs Do s Make sure fee for services actually performed Prepare written agreement detailing services Consider reporting and/or audit function Document how fee determined 3 rd party Don ts Verify basis for any change in fee Include services for agent direct marketing Designate any preferred vendors No exclusive arrangements w/ one company Do not permit access to sales meetings, etc.
RESPA Class Action Litigation U.S. District Court in Maryland certified a class in January 2014 Another suit filed seeking class action status in July Case involved a title company and a real estate team (not the company) Two allegations Paying a family member who did no work Improper marketing agreement There is no record of any real joint marketing services reasonably related to actual amount paid by title company.
RESPA Enforcement Action January 2015 Run of the mill RESPA violation Lenders/staff cannot give or receive things of value for referrals Some loan officers at 2 banks were allegedly taking marketing services in return for referrals Title company was paying for stationary, mailing, etc Paying for leads Most significant finding Loan officer was fined & banned from mortgage industry for two years.
February 2015 Actions RESPA Lender paid marketing fee to intermediary Paid transaction fee to intermediary & veteran organization No work performed Deceptive advertising CFPB/FTC reviewed 800 advertisements 3 lenders implied government endorsement Led to RESPA investigation above
Loan Originator Compensation CFPB settlement w/ Castle & Cook & officers Summer - 2013 Quarterly bonuses based on interest rate Ranged between $6,000 & $8,700 per loan officer $13 million penalty plus Must give copy of order & have signed: current staff New officers & prod. hires must be given copy 3 yrs. CFPB sent compensation to affected consumers Reminded consumers of private right of action Private class action litigation filed in July 2014
LO Compensation Case Nov. 2014 CFPB alleged lenders paid quarterly bonuses to loan officers based on terms of the loans LOs paid upfront commission based on loan amount (permissible) Issue was quarterly bonus based on retained rebate (interest rate premium) & origination fees On per loan basis, excess amount above upfront commission placed in LO expense account Lender would share 50-60% w/ originator Penalty was amount of bonuses = $730,000 CFPB did not seek civil penalty lender s finances LOs not penalized violations were pre-2014
CFPB Hot Buttons Complaints & regulator referrals Unfair, Deceptive, or Abusive Acts or Practices (UDAAP) violations Advertising deceiving the consumer Reverse mortgages Steering Sourcing the business Marketing services agreements LO compensation 2014 violations can penalize loan originator Examinations Importance of compliance management system Must include review vendor relationships
RESPA/TILA Rule August 2015 Closing Disclosure (HUD-1): 3 business days before closing New waiting period (3 business days) required if: Change in rate = 1/8% Product change Prepayment penalty added Bona fide personal financial emergency Changes definition of application to 6 items Property address, borrower name, SSN, income, estimate of value and mortgage amount requested Zero tolerance for more categories Post-closing changes require revised disclosures w/i designated time frames (60 days)
Administration Goal: Expanding Access to Credit
FHA Importance to first-time homebuyers Annual premium reduction 50 bps Charging highest premiums on best loans in years Stats: 86% of portfolio is post-housing crisis Impact of life of loan MIP requirement? 95% of portfolio is 10 years old or less Promoting changes to encourage lenders to reduce overlays Proposal would compare performance by risk category credit scores FHA currently compares lenders to industry average Products Condominium changes?
New FHA Handbook New Handbook Effective June 15 th??? Goal: Be equivalent to Fannie/Freddie guides Underwriting changes Origination docs (new & existing)=120 days old max All deferred obligations must be included in ratios Student loan: If 0 or unknown, use 2% of balance Installment debt w/ 10 payments remaining Must be included if they are more than 5% of monthly inc. New definition of satisfactory credit Borrower has made all housing & installment debts for last 12 months
FHFA Fannie Mae/Freddie Mac Decision on pricing changes expected soon Treasury report higher G-fees stifle demand Product changes Announced 97% LTV product last year More repurchase relief Impact of Collateral Underwriter shift? Optimistic about more changes if necessary Administration is committed to stimulating purchase mortgage market Housing reform is very unlikely until after 2017 if not longer
What does it all mean? Positive Lending Environment Hedge: Economy vs. Interest Rates Fed understands importance of housing to economy Consumer Protection Regulations are not going away Knowledge and customer service are critical No let-up on enforcement Want to show they are tough on crime. Access to Credit Expect more positive changes (if necessary) Bottom line: Tremendous Opportunity in 2015 Caveat: Stay off regulator radar screens