May 26: Letters regarding the future of the LO, technology & borrowers, pros and cons of S. 2155 signed this week

“Poor man want to be rich, rich man want to be king, and the king won’t be satisfied til he owns everything.” With a nod to Bruce Springsteen, whom I had the good fortune to see this week in New York, something similar could be said about loan officers in the current environment. Every LO is being recruited, and many will make a switch if they can be a branch manager because they “know some other LOs” they can bring over. And a branch manager will make a move if they can be a regional manager, because they “know some other branches that aren’t happy.” And the regional manager… well, you get the idea: they want to run the division. Folks often use a company move to get ahead, and with good reason.

Life as a LO

Greg Grandchamp writes, “As you know, I’m an old timer – been around the block more than a few times in my 4 decades in the industry. I’ve seen trends come – and go. Remember 125’s? Of late, we here at Lenox have been looking at adding a new consumer facing portal and, thanks in large part to Rob Chrisman and Garth Graham, have been looking at some pretty advanced technology to ‘improve the borrower experience.’ Just this morning I had a long conversation with someone regarding this precise subject, but frankly my take is a bit different. While I run the risk of sounding ancient (which I am…) I wish to sound a word of, well…caution.

“I enjoy classic cars and one day when I grow up I’m going to buy one (oh, if I had only kept the first three cars I ever owned). My problem is, I know so little that I am ignorant of all the important things I really ought to know – and fear I will end up getting ripped off or making a poor investment because of what I don’t know. I just know the rear axle is going to fall off the moment I drive it off the lot. So, I will take advantage of the knowledge and experience of my brothers-in-law who know their way around such things. And I do their mortgages.

“Whether a borrower is an old guy like me or a millennial – most borrowers are as ignorant about mortgages as I am about classic cars. And while we all sit back in our chairs and talk about borrower experience – we must remember that most borrowers can’t spell FHA, VA or USDA, never mind know the differences between them and the risks/rewards of each. They don’t know conventional from unconventional – and/or what their best options are for their financial needs and their family.  The moment we forget that – the moment we truly rely on technology to provide a ‘borrower experience’ – we achieve exactly the opposite.

“In my personal experience over the past 40 years, borrowers had it best long before there were credit scores and automated underwriting. Those were tools for lenders and investors – not for borrowers. The technology we are building is nothing more than a tool to help us process loans more efficiently – perhaps. It will be interesting to see how efficient the technology is for the deals with significant ‘hair’ on them that we have all experienced all too often –  that borrower who has a 620-credit score, credit issues, employment gaps, union jobs, second jobs that are ‘under the table’ – you name it. My fear is – at some level, those borrowers may get left behind in our rush to ‘improve the borrower experience.’

“You had a small bit in his commentary this week how every vendor at the conference is going to help lenders do more loans. I keep hearing from the tech providers how they’ll help us do more loans. That answer is – no, they will not. They will simply provide a different way to originate, process, underwrite and fund the loans we obtain elsewhere. More efficient? Maybe – maybe not.

“I hope I am wrong. I hope we are not investing in this technology simply to keep up with the Jones’ Mortgage – or because we keep hearing how we must improve the borrower experience. I also hope that we, as an industry, recognize that ultimately borrowers are looking to us for our expertise and financial guidance in helping them buy a home. A home – not a classic car.

“I guess I’m getting too old for this.” Thank you very much Greg!

What factors control the loan officer’s future? Mortgage Network EVP Brian Koss sent over his views, and he didn’t hold back. “’Adapt or die’ is not just a clever saying—it’s reality. In the past, technology had some internal benefit, such as increasing efficiency. Now it’s all about the customer experience. Borrowers want more personal choice and the ability to do things themselves. Right now, the independent mortgage bankers like us that have jumped on this have removed a ton of manual work and generated significant operational savings. This causes the loan officer’s productivity to grow exponentially.

“That’s the good news. On the other hand, you have banks and credit unions that will continue to compete on price. They believe the customer is theirs and not the loan officer’s, so they can offer rates .25 to .375% below market in a rising rate environment, while paying little to no commission. On top of that, you have new entrants with self-serve models that eliminate the need for loan officers altogether. Previously, neither model would be able to close a purchase loan in 30 days, so they didn’t pose much of a threat to loan officers. With today’s technologies and much lower predictable purchase volume, that’s no longer true. They can meet the dates more than in the past but are still unpredictable.

“To compete against this, we have built a model that helps maximize a loan officer’s business day, earning them more per hour. With the average age of loan officers now over 50, many will struggle to truly adapt in this new world. A strong producer can sell a .125% higher rate, but even the good Lord couldn’t sell .25 plus. Some middle ground, like providing borrowers a self-serve option with the loan officer giving something up in exchange for customers who do the work themselves, might be the only solution to bridge that gap and hold onto a larger portion of referred business. But how do you make that compliant and clear, so everyone wins? That’s the key question.”

This week in Washington

President Trump signed the Economic Growth, Regulatory Relief, and Consumer Protection Act (S. 2155) which modifies provisions of the Dodd-Frank Act and eases certain regulations on certain smaller banks and credit unions.

 

House Financial Services Chairman, Jeb Hensarling, originally pushed for additional reform provisions to be included. Specifically, the bill does not include certain provisions that were part of Hensarling’s Financial CHOICE Act, such as (i) a complete repeal of the Volker Rule; (ii) subjecting the CFPB to the Congressional appropriations process and restructure the agency with a bipartisan commission; and (iii) reducing the Financial Stability Oversight Council’s (FSOC) authority to designate nonbank financial institutions as Systemically Important Financial Institutions (SIFIs).

 

Proponents say that the bill improves consumer access to mortgage credit. Banks with less than $10 billion in assets are exempt from ability-to-repay (ATR)requirements for certain qualified residential mortgage loans held in portfolio. Appraisals will not be required for certain transactions valued at less than $400,000 in rural areas. Banks and credit unions that originate fewer than 500 open-end and 500 closed-end mortgages are exempt from HMDA’s expanded data disclosures (the provision would not apply to non-banks and would not exempt institutions from HMDA reporting altogether). Amendments to the S.A.F.E. Mortgage Licensing Act will provide registered mortgage loan originators in good standing with 120 days of transitional authority to originate loans when moving from a federal depository institution to a non-depository institution or across state lines. The CFPB must clarify how TRID applies to mortgage assumption transactions and construction-to-permanent home loans, as well as outline certain liabilities related to model disclosure use.

There’s more. It permanently extending from nine months to one year the protection that shields military personnel from foreclosure proceedings after they leave active military service. The Bill adds a requirement that credit reporting agencies provide free credit monitoring services and credit freezes to active-duty military personnel. The bill also addresses the creation of an identity theft protection database. Additionally, the bill instructs the CFPB to draft federal rules for the underwriting of Property Assessed Clean Energy loans (PACE loans), which would be subject to the TILA ability-to-repay requirement.

 

Each provision of the bill will take effect at various intervals from the date of enactment up to 18 months after.

Put another way, the bill will provide Qualified Mortgage designation for most mortgages held in portfolio by banks with less than $10 billion in assets. Given the rate difference between QM and non-QM, arguably for not a lot of reason, borrowers are better off with QM, so this helps them. The SAFE Act amendments to provide 120 days of transitional authority for MLOs to originate when leaving a depository to join a sponsoring non-bank (or when crossing state lines) should help LOs moving.

Small lenders (but no, not brokers) are helped with the relief for certain small lenders from HMDA (500 loans per year), and language to address problems with TRID which will eliminate CD re-disclosure when rates go down and direct the BCFP to provide written guidance in other areas of confusion and uncertainty. The churning with VA loans is a huge PR nightmare, and the industry is helped by anything that cuts it down. Most in the industry don’t do it.

Yet Mortgage News Daily points out that, “The bill did not go nearly as far as the House had hoped in rolling back Dodd-Frank. Leadership agreed to vote on the compromise bill negotiated in the Senate between Republicans and Democrats only after a promise of a vote later this year on other changes House members, especially House Financial Services Chair Jeb Hensarling (R-TX) were demanding.”

The Bill’s passage prompted one veteran broker to write, “There are some advantages. The 120 days on MLOs getting licensed in cross states is a little scary. I can see people soliciting loans in states they are not licensed and then if the loan closes get a license there. That is not the intent.

“HMDA will help the mini-correspondents. Most don’t realize that the CFPB said they were brokers except on HMDA. A few I talked to were not disclosing comp on CD, an issue.

“Unfortunately, Congress didn’t get rid of the 3-Day Rule, a major cost to the consumer. Congress didn’t fix the MLO Comp that views mortgage brokerage companies as MLOs and they should have made all MLOs the same, regardless of company they work for, the same as Registered Reps. For all the work, there is little visual change.”

This Monday is Memorial Day in the United States. It honors the men and women who died while serving in the U.S. military. One can’t say enough, but nothing more be said. It is a sacrifice for every person in America that we don’t think about often enough.

Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “The Plight of the Small Independent Lender.” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.

Rob

(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2018 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)