Is the mortgage broker an endangered species? It’s starting to look that way. The new Obama administration approved regulations that are going to put one of the last nails in the broker’s coffin. Effective April 1, 2011 the Federal Reserve is going to prohibit loan originators and mortgage brokers from receiving compensation based on a borrower’s interest rate or other loan terms. While I support the regulation, I can’t believe that this only applies to Mortgage Brokers while Mortgage Bankers and FDIC insured banks are exempt. They will still get to charge whatever interest rate they want to the consumer, sell the loan off, and receive back-end compensation.

So we’re all on the same page, there is no difference between a broker’s YSP or Yield Spread Premium (rebate), a mortgage bankers SRP or Service Release Premium, or a banks selling spread. They are all the same thing.

How can our government so clearly miss the mark? If you are going to penalize an industry, then do it unilaterally and don’t just pick and choose who gets screwed. Once again this is a have versus a have not issue. The banks and large mortgage bankers have the lobbying strength in Washington to make sure they are not included in the legislation. The smaller brokerage shops do not. If the banks and bankers have their way and mortgage brokers are ran out of the mortgage business who do you think is going to pay the price? Not the brokers as they will just go to work for a bank or a mortgage banker. It’s the consumer. A smaller competition pool will leave the consumer with less options, with the supply diminishing the demand will go up. It’s basic economics. Oh by the way, if you are a smaller mortgage banker who do you think the banks are going to target next? Until next time…

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11 months to close a Short Sale! According to a study just published by Deutsche Bank that ranked prime and subprime servicers. That’s the average time it is taking for Bank of America/Countrywide to close a short sale.

The study went on to rank GMAC at the top of the prime list at an average short sale closing time of 6 months. On the subprime side, the numbers were even worse with Ocwen being the worse with a time to process and close a short sale of 29 months, while Home Equity Servicing was the best of the subprime servicers at a closing time of 15 months. Why is all of this data important? Good question. Bank of America reported that 59% of its dispositions, or closings, are short sales.

Why would you not give NQS a try? National Quick Sale has an average closing time that is far less than normal servicer averages. Go to their website and give them a try. www.nationalquicksale.com

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I know it’s been a while but I have been busy with SAFE act tests. But this nugget was too good to not pass on. Earlier this week FHLMC (Freddie Mac) CEO Ed Haldeman stated that his company has seen over a 600% increase in the number of short sales that have closed with his company. The increase he was citing was tracked from 2008.

This is sign that banks are looking for ways to soften the blow of foreclosures entering the economy. Haldeman went on to say that “Freddie Mac is doing everything it can to prevent more foreclosures, and that short sales are becoming an ever popular tool in situations where foreclosure is imminent and modifications have failed.” Look for that number to increase even more dramatically as HAFA (Home Affordable Foreclosure Act) program starts to be implemented since its enactment in April of 2010.

What does this mean for the average Realtor? More business!

Stay tuned for more updates.

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So I took the S.A.F.E. Act test last week and I started last week’s blog with some of the injustices of the new system. Go read it if you haven’t already.

The test is 100 questions (of which 10 don’t count. Why?) and to pass you have to get 75%. To be fair the test is designed to weed the weak people out. In other words it is HARD. As I said last week why wouldn’t HUD and the rest of the U.S. Government want all loan originators tested, not just the little guys? Didn’t the big guys have just much responsibility for the mortgage meltdown as we did? Clearly not!

Anyways, the test is very heavy on federal statutes (RESPA, TILA, FACTA, ECOA, etc.), lending practices and the new policies that have been enacted since the meltdown. Again, I want to stress something had to be done and our government did. Just like the case of the HVCC appraisal debacle, the new regulations are designed with the big guys in mind (In case you hadn’t heard most of the HVCC companies are owned by the Banks that ask for them to be used). I knew that there would be a day of reckoning when the meltdown started; I just didn’t think that such a large segment of mortgage industry was going to be exempt from feeling the pain.

The new age of the government ruling the people, not the people ruling the government (like it was in my parent’s day) is upon us. I don’t want to get too far off the topic from the SAFE Act test but I was more than a little upset…can you tell? The bottom line is this, the test, while excessive, is passable (if you study). I did pass and am happy to say I am now “S.A.F.E Act” approved. I am realistic enough to know that my opinions fall mostly on closed eyes and deaf ears.

Thanks for reading my blog Dad. But the new guidelines hit home.

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I know I haven’t updated the blog in a while but I have been stuck studying for the S.A.F.E. Act (Secure and Fair Enforcement Act) test.

For those of you who don’t know, this is the National test that the Government is requiring loan originators to take in order to continue originating loans. The new test must be passed by all originators that work for a mortgage broker or a mortgage banker (the little guys). The only originators who don’t have to take the test are those individuals who work for a federal or state chartered bank such as B of A, Wells, Chase (the big guys). I could harp on the fact that the requirements should be for everyone…but who would listen?

If you haven’t started your transition into the NMLS (Nationwide Mortgage Licensing Service) you should do it soon. It takes an immeasurable amount of time and patience. Plus you now have to get an FBI background check, submit your credit and prove that you are “solvent” (can pay your debts).

I agree that changes had to be made but it seems terribly unfair that as a little guy myself and my employees have to incur additional expenses (nothing about the NMLS is free) and headache (due to testing) and the big guys don’t have to lift a finger. However, they do have to sign up for the NMLS but are not subject to any other requirements.

I finished the SAFE act test today and I will let you know how I did and some additional information about the test and the process in next week’s blog.

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Just a quick word about the impending changes to the FHA rules that are set to take effect on May 20th 2010. Specifically two items that are going to drive all but a select few from being able to originate FHA business. The first item is the increased net worth requirement for all FHA lenders from $250,000 to $1,000,000. I agree with HUD’s net worth increase. Most warehouse line providers will not look at an applicant before they have that same amount so why shouldn’t the government be up with the times. Second, is the elimination of the FHA correspondent program.

As of the end of this year HUD is eliminating the FHA correspondent program and making the FHA lender responsible for all approval criteria for a third party originator. The most significant part of this change is that it will prohibit loan correspondents from using FHA systems like the Technology Open to Approved Lenders (TOTAL) Scorecard and the FHA Connection software systems. Both systems are crucial to the mortgage origination process. So what does this mean? Less competition for the industry in turn means higher rates and fees to the consumer. My recommendation is to increase the net worth requirement for Loan correspondents and have HUD still oversee this category of originator. I know that I am not alone in my feeling but it remains to be seen if HUD will listen.

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The purpose of debt consolidation plan is to help you get control over your financial issues. But first the most important thing is debt consolidation good. Debt consolidation plans normally involves third party intervention either by court order or personal initiation where a professional debt manager draws up a budget plan to help you spend less than your income. Therefore, budgeting has an important role to play while you’re on a debt management plan.

Where to start

To begin with the debt consolidation plan and budgeting accordingly, the debt counselor would first compile a list of all your creditors. However, secured debts might not qualify for the DMP plan.

Next, all your income resources would be pulled together to get a better understanding of your financial situation. If your debt exceeds income, it would call for serious budgeting.

The next step would involve listing all your expenses and looking for scopes to minimize spending on certain sections. There can be items where one can curtail spending without severely cutting back on necessary expenses. The purpose of DMP is to put the customer into the habit of regulated spending without making it very trying for him at the same time.

How to create an effective budget

You can either use a piece of paper and a pen or the budgeting calculators available online to prepare the budget. There are free online budgeting software which can be used for this purpose.

• Anyway, once you list out all your expenses and total income, look for sections where you can lower your expenses. There can be recreational items, club memberships or magazine subscriptions where you can save money. By cutting down on all these expenses you can actually save quite a significant amount which then can be put towards the debt management plan.

• Next you must assess your variable income. Not many people have a control over it and there also can be emergency issues which can further jeopardize your financial stability. Once you determine the variable expenses over two months period, try to set aside a portion of your income for that purpose.

• List your debts according to their priorities. Credit cards with higher interest rates but low limits should be paid off first. However, the basic needs – food, mortgage, student loan, health care and insurance premium shouldn’t be ignored.

Budgeting would help you in generating the extra income which can then be used in paying off debts in a systematic manner.

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To continue from last week when I was telling you about the ill’s of the HVCC. This means that the appraiser no longer has the time or desire to do the research to make an educated assessment of value. This is not the independent appraiser’s fault it is just simple economics. Our government was on the right track when the HVCC was developed. They were trying to stop collusion by the involved parties to a transaction. And in my opinion they almost got it right. The problem is the independent appraisal companies are having trouble getting appraisers to accept the fee and therefore, are having trouble getting the local appraisers to do their appraisals. So they bring in an out of area appraiser who doesn’t have the time nor desire to figure out the accurate value figures for a subject property. Both the National Association of Realtors and the Mortgage Broker Association have lobbied to get the HVCC rule changed but up to now, no one in Congress or in President Obama’s cabinet appear to be listening. What is the solution? Change the rules of HVCC to set the fee that the third party provider can charge for referring an appraisal out and give the bulk of the fee where it rightfully belongs, to the appraiser. I agree with regulation to prohibit another meltdown but stopping the process by muddying up the process is not the answer.

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Have you ever heard of the Home Valuation code of Conduct or as its better known “HVCC”? If you have done any conventional mortgage business since June of 2009 or FHA mortgage business since January 2010, you have not only heard about it you have undoubtedly been affected by the agreement. Essentially HVCC is an agreement that was drawn up by the Office of Federal Housing Enterprise and Oversight that requires the GSE’s (Government Sponsored Enterprise’s) namely FNMA “Fannie Mae” and FHLMC “Freddie Mac” to only accept appraisals that are done by a company that is independent of the loan process. Bottom line is any entity (lender, broker, escrow, title, etc) that is listed on the HUD 1 Settlement Statement as being paid at closing cannot order the appraisal. Why is this a bad thing? Simple, we now have national third party appraisal companies that have cropped up and lenders are directing their sales people and their brokers to use. They charge approximately the same price for an appraisal (350-400 dollars) for a standard URAR appraisal. BUT they only pay the appraiser, who does all of the work, approximately half of the fee. This has put the independent appraiser in a position to have to do twice the work to make what he/she was making in the past. Why is this important? I will finish the thought in next week’s Blog.

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Here is the conclusion to the new HAFA regulations that goes into effect on 4/5/2010. HAFA prohibits the servicers from requiring the consumer to carry on any future liability for any uncollected debt arising from the short sale of a consumers property (NO cash contribution, NO promissory note or NO deficiency judgment is allowed). HAFA also makes the servicers use a standard process, documents, timeframes and deadlines. The regulation also provides financial incentives that go like this: $1500 will be given for borrower relocation assistance, $1000 to cover the administrative and processing costs to the servicer, $1000 to the investors for giving any subordinate lien holders up to $3000 (in other words the servicer is to give the 2nd mortgage holder up to $3000 to forgive their note on the property) the government will pay the servicer on a one dollar for three dollar matching basis. Here is the big one: The Home Affordable Foreclosure Alternatives Program requires all servicers who are, or were, participating in HAMP to implement HAFA in accordance with their own guidelines and investor policy. It can include language for potential loss, local markets, timing of pending foreclosures, and borrower cooperation and motivation. What is the bottom line? This program is drastically changing the way that servicers are allowed to disperse property. The servicer must try to keep the borrower in the property. If that can’t be done and all options have been exhausted then a Short Sale is the next step, where the servicer must take on the liability of the loss. Foreclosure is the LAST resort. The program is in effect until 12/31/12. If you are a real estate agent, you had better be ready for the onslaught of Short Sales. In my next blog I will let you know where you can get help to close your Short Sales faster.

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