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All title insurance policies are being underwritten and issued by EnTitle Insurance Company, 4600 Rockside Road, Independence, OH 44131. EnTitle Insurance Company is regulated by the Ohio Department of Insurance. * Except in NM where rates are set by statute.
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COM PLIA NCE MAR KE SALE TING/ S SETT LE SERV MENT ICES TREN DS
Ask Tommy: Your QC Expert By Tommy A. Duncan, CMT Value Nation: Will Property Values Rebound Anytime Soon?
By Charlie W. Elliott Jr., MAI, SRA
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Federal Agencies Finally Issue FACTA Rules on Risk-Based Pricing Notices By Terry W. Clemans SAFE Smart Testing, Education and Licensing: We Are All Going Back to School By Paul Donohue, CRMS Trend Spotter: Three Ways to Transform the New Good Faith Estimate Into Your Secret Weapon By Gibran Nicholas
Scenes From NAMB/WEST 2009 Forward on Reverse: HECM at 20: Leaders and Pioneers in U.S. Reverse Mortgage Series (V) The HECM Sub-Servicing Innovator and NRMLA Founder By Atare E. Agbamu, CRMS The Secondary Market Overview: From Bonds to Production Fraud and the Secondary Markets By Dave Hershman Regulatory Compliance Outlook: January 2010RESPA, TILA and HMDA for the New Year By Jonathan Foxx The NAMB Perspective
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The New RESPA Reform Rule: An Overview By Jonathan Foxx A Walking Contradiction? FHAs Stevens foreshadows RESPA reform confusion for consumers By Eric C. Peck Winning the Mortgage Fraud Game By John Frank
FHA Insider: Fraudulent Home Loans Available Abuse of the FHA program By Jeff Mifsud How Do You and Your Company Combat Fraud?
By Tommy A. Duncan, CMT
Turning Good Data Into Good Information Makes Good Loans By Brad Kelso The Red Flags of Mortgage Fraud By Howell Haunson
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January 2010
Volume 2 Number 1
A Message From NMP Media Corp. Executive Vice President Andrew T. Berman
Welcome Greg Frost!
I am honored to have Greg Frost join our list of featured contributors beginning with our January 2010 issue. Greg is the industrys first billion dollar agent, and a man who I consider to be one of the all-time GREAT mortgage industry speakers. Additionally, I have been told countless times that he is a great person to work for. In Gregs first installment, he shares the five-pronged marketing approach he uses to continue to dominate the New Mexico mortgage marketplace.
Mortgage PROFESSIONAL
N A T I O N A L
MAGAZINE
1220 Wantagh Avenue Wantagh, NY 11793-2202 Phone: (516) 409-5555 / (888) 409-9770 Fax: (516) 409-4600 Web site: www.nationalmortgageprofessional.com
STAFF Eric C. Peck Editor-in-Chief (516) 409-5555, ext. 312 ericp@nmpmediacorp.com Andrew T. Berman Executive Vice President (516) 409-5555, ext. 333 andrew@nmpmediacorp.com Domenica Trafficanda Art Director domenicat@nmpmediacorp.com Karen Krizman Senior National Account Executive (516) 409-5555, ext. 326 karenk@nmpmediacorp.com Jennifer Moeller Billing Coordinator (516) 409-5555, ext. 324 jenniferm@nmpmediacorp.com
ADVERTISING To receive any information regarding advertising rates, deadlines and requirements, please contact Senior National Account Executive Karen Krizman at (516) 4095555, ext. 326 or e-mail karenk@nmpmediacorp.com. ARTICLE SUBMISSIONS/ PRESS RELEASES To submit any material, including articles and press releases, please contact Editor-in-Chief Eric C. Peck at (516) 409-5555, ext. 312 or e-mail ericp@nmpmediacorp.com. The deadline for submissions is the first of the month prior to the target issue. SUBSCRIPTIONS To receive subscription information, please call (516) 409-5555, ext. 301; e-mail orders@nmpmediacorp.com or visit www.nationalmortgageprofessional.com. Any subscription changes may be made to the attention of Circulation via fax to (516) 409-4600. Statements of fact and opinion in National Mortgage Professional Magazine are the responsibility of the authors alone and do not imply an opinion on the part of NMP Media Corp. National Mortgage Professional Magazine reserves the right to edit, reject and/or postpone the publication of any articles, information or data.
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Combating fraud
Dave Hershman shares his thoughts on frauds impact on the secondary market and issues a call to action to fight fraud. Later in the magazine, you will find this months focus Fighting Fraud, featuring PRMIs John Frank sharing his simple steps that all originators must follow to nip fraud before it blossoms out of control. Our resident FHA master himself, Jeff Mifsud, shares his experiences in confronting organizations that didnt address fraud, and also shares an excellent source of financing that allows third-party originations. Included in our Fighting Fraud section is an article by Andrew Schell, CPA, CMB, about securing your own organization to keep the perpetrators of identity theft out of your own organization. Brad Kelso shares with us the level of creditability for various income verification methods. Our focus on fraud wraps up with a submission from Howell Haunson on the Red Flags of Mortgage Fraud (not to be confused with the ever popular and often-postponed identity theft Red Flags rules).
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National Mortgage Professional Magazine is published monthly by NMP Media Corp. Copyright 2010 NMP Media Corp.
Directors
Joe Camarena The Mortgage Source 10120 Southwest Nimbus Avenue, Suite C-7 Portland, OR 97223 (503) 443-1060 O joecamarena@namb.org John Councilman, CMC, CRMS AMC Mortgage Corporation 2613 Fallston Road O Fallston, MD 21047 (410) 557-6400 O jlc@amcmortgage.com Olga Kucerak Crown Lending 8700 Crown Hill Boulevard, Suite 804 O San Antonio, TX 78209 (210) 828-3384 O olga@crownlending.com Walt Scott Excalibur Financial Inc. 175 Strafford Avenue, Suite 1 O Wayne, PA 19087 (215) 669-3273 O waltscott@namb.org Don Starks D.C. Starks Mortgage Associates Inc. 141 South Main Street O Bourbonnais, IL 60914 (815) 935-0710 O donstarks@namb.org
Sanford (Sandy) LubinDirector (805) 481-3155 slubin@cbslo.com Judy RyanDirector (800) 929-3400, ext. 201 jryan@kroll.com Tom SwiderDirector (856) 787-9005, ext. 1201 tswider@creditlenders.com Donald J. UngerDirector (303) 670-7993, ext. 222 don@advcredit.com
NCRA Staff
Terry ClemansExecutive Director (630) 539-1525 tclemans@ncrainc.org Jan GerberOffice Manager/Membership Services (630) 539-1525 jgerber@ncrainc.org James SuttonNCRA Legal Counsel (972) 680-2665 james.sutton@prodigy.net
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On Dec. 22, 2009, more than six years since President George W. Bush signed into law the Fair and Accurate Credit Transactions Act of 2003 (FACTA), the Federal Reserve Board (FRB) and the Federal Trade Commission (FTC) announced the final rules that require creditors to provide consumers with a notice when they have been charged more for credit based on their credit score. The final rules implemented in FACTA amends the Fair Credit Reporting Act (FCRA), the primary federal law that governs the use of credit reports. Credit score-driven risk-based pricing has been in practice in almost all sectors of consumer lending for close to two decades. To protect consumers from being overcharged for credit terms based on inaccurate information in their credit files, the FCRA has required lenders to provide consumers a notice of adverse action when the lender has denied the consumer a loan based on their credit report contents. There has been a gap in the consumer disclosures due to the creation of risk-based lending. Often, risk-based lending does not deny the consumer a loan, but approves the consumer at a higher interest rate and this model was not covered under FCRA. Consumers in this category were not provided any notice regarding their rights to check the accuracy of the credit data. In many lending models, more loans have fallen into this category of approved, but at a higher rate than the yes/no based loan underwriting of years gone by. Congress closed that gap in the lender-provided consumer notices in 2003 with the provisions of FACTA that started requiring the use of a risk-based pricing notice; however, its been a long and slow bureaucratic process to get the actual rules of the 2003 law written by the FRB and the FTC finally implemented. Lenders will have time to adjust their practices for the new law as well, since it does not go into effect until January 1, 2011.
How long has it been since you had to pass a rigorous test? For me, it had been 14 years since passing the National Association of Mortgage Brokers Certified Residential Mortgage Specialist (CRMS) exam. That obsession to cram, that difficulty sleeping the night before, that vague feeling youve forgotten something, that nervous unsettled stomach in the morning, the dreaded start of the timer here it comes! All non-depository Mortgage Loan Originators (MLOs) will face the challenge of the SAFE MLO National Test component sometime this year. Also, you may have to pass a state test! If your states deadline is March or June, dust off your calculator and bring it to class NOW! Thats right, I suggest you make sure the class you take contributes significantly to your passing the SAFE MLO National Test. If youve been renewed (and therefore dont need the 20-hour course), I suggest you take a Test-Oriented NMLS CE course or purchase a Test Prep product.
Be careful
In a few states, instructor-led online is disallowed for the state portion of PE. Selfpaced online courses (typical old-school CE format) are never permitted for PE.
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BY GIBRAN NICHOLAS
Three Ways to Transform the New Good Faith Estimate Into Your Secret Weapon
The new Real Estate Settlement Procedures Act (RESPA) rule and Good Faith Estimate (GFE) has changed the entire sales process for our $2 trillion per year mortgage industry. What if you could transform industry chaos into your secret weapon to crush the competition and make 2010 your best year ever? Here are three strategies to help you do just that:
free sooner, and achieve the things in life that are most important to them. This brings us to the next point:
Number two: Do not fill out the voluntary portions of page three of the GFE
Number one: Do not give a GFE too soon in the loan process
Once you have a loan application as defined by the U.S. Department of Housing & Urban Development (HUD), you need to give the borrower a GFE within three business days. There are six elements of an application according to HUD:
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1. Borrowers name; 2. Borrowers monthly income; 3. Borrowers Social Security Number to obtain a credit report; 4. Property address; 5. Estimate of property value; and 6. Loan amount. The ironic thing is that if you give a borrower a GFE without having all six pieces of information outlined above, you cannot revise the GFE at a later time once you receive the missing piece or pieces of information! HUD says that later receipt of one of these six items does not qualify as a changed circumstance that would result in your ability to issue a revised GFE. For example, imagine that Jane Doe Borrower calls you up and says that she is in the market to purchase a home. You take her loan application in order to approve her for financing. However, she does not yet have a property address because she is still shopping for a home. If you give Jane a GFE at this stage in the loan process, you will be bound by the terms of the GFE and you will not be able to change your estimate of closing costs (appraisal fee,
Remember, the GFE is all about you and your story as a loan originatorwhat etc.) once Jane actually finds a home are your fees, how much you are makand signs a purchase agreement. ing on the loan, etc. If you really want Our industry has grown accustomed to win the battle over the hearts and to giving borrowers a GFE even if the minds of clients, you need to fight the property address is still to be deter- battle on a battlefield where you know mined (TBD). Under the old rules, this you can winby making the conversawasnt really a problem, because you tion about the client and their story. didnt have to guarantee the fees listed You need to answer the question, on the initial GFE. Whats in it for me? However, under the new from the clients perspecrules, giving borrowers a tive. The GFE does not GFE without them having allow you to do that, a bona fide property because the GFE is all address could be very about you and your story. detrimental to you. So, while your competiRemember, you are on tors are tripping all over the hook for guaranteethemselves helping clients ing all the fees you estishop them out of business mate on the initial GFE. by focusing on page three Why should you eat the of the GFE, you fight the extra costs if the property battle for the client on a they select requires a battlefield where you the first thing more elaborate appraisal know you can win. It you can do to transwith higher fees? empowers you to make form the new GFE With this in mind, the the conversation about into your competitive first thing you can do to the client, about their advantage is simply transform the new GFE story, about their life, dont give a GFE too into your competitive about whats in it for soon in the loan advantage is simply dont them. give a GFE too soon in the process! Only give loan process! Only give Number three: borrowers a GFE borrowers a GFE once you once you have all six Do not guaranhave all six pieces of pieces of information tee the interest information required by rate on line one required by HUD. HUD. In the meantime, if of the GFE you want to help borrowbeyond todays ers compare their loan options, as any date if the borrower is true mortgage professional should, uti- unwilling to lock the rate lize software programs like Mortgage There is a lot of confusion in the indusCoach Analyze. try as to how long you need to guaranWith Mortgage Coach, you could tee the interest rate and settlement illustrate the borrowers cash to close costs listed on the GFE. Heres the under different scenarios, compare scoop: The settlement costs (Line 2 of loan options and illustrate various cash the GFE) need to be guaranteed for at flow opportunities. Perhaps most least 10 days. However, the interest rate importantly, Mortgage Coach makes (Line 1 of the GFE) does NOT need to be the numbers come alive by making guaranteed at all if the borrower does them relevant to the clients life. It is not lock in their mortgage rate. HUD ideal for illustrating which mortgage specifically states that it is up to the strategy would best help the client send loan originator to determine how long their kids to college, retire comfortably, they want to keep the rate available. care for elderly parents, become debt For example, the interest rate on the
GFE could expire in five days, three days or within one day; in fact, if your company doesnt offer rate locks, you could even fill out Line 1 of the GFE by writing in Not Available or NA in that field. With this in mind, the smartest way to deal with Line 1 of the GFE is simply dont guarantee the interest rate unless the borrower is willing to make a commitment and lock in their rate. You could best explain this policy to clients and prospects by illustrating market volatility using RateWatch, a service that tracks the prices of mortgage backed securities (MBS). Its really very simple: O Show clients and prospects a picture of the market using the RateWatch charts O Focus on volatilityillustrate how the market moves every minute of every day and how this impacts mortgage rates O Offer to be the clients personal shopper when it comes to tracking mortgage rates and locking in at the appropriate time The new RESPA rule and GFE represents the biggest change our industry has seen in its sales process in over 30 years. This is an unprecedented opportunity for you to transform industry chaos into your opportunity to outshine the competition. To that end, CMPS certification includes exclusive training and resources to help you transform the new RESPA rule and GFE into your secret weapon to crush the competition and make 2010 your best year ever! Gibran Nicholas is the founder and chairman of the CMPS Institute, which administers the Certified Mortgage Planning Specialist (CMPS) designation. The CMPS Institute has enrolled more than 5,500 members since its founding in 2005. Gibran is also the chairman of Published Daily, a customizable online magazine, newsletter and marketing service that helps professionals transform their clients and prospects into a referral-generating sales force. He may be reached at (888) 608-9800, ext. 101 or e-mail gibran@cmpsinstitute.org. Visit author Gibran Nicholass blog at http://gibrannicholas.com where he shares his insights on economics, real estate and financial issues, including the current mortgage and credit crises.
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value nation
tem, they have until Dec. 31, 2010, to bring them in line with the Acts requirements. For more information, visit www.hud.gov or www.nationwidelicensingsystem.org.
clean bill of health. If we believe that it has just digested an oversized meal and is getting over the indigestion, we must not forget that we still have credit cards to swallow and delinquent commercial mortgage loans to consume. These are not directly related to the housing market, but they will create a ripple effect. In summary, the worst of the housing debacle is over. Much, however, is left to be done. There are still too many homes on the market for our slow economy to absorb. Home appreciation will take place in a less robust way than we have become accustomed to. Over the next few months, there will be fewer buyers and more-cautious lenders. Meaningful home price appreciation can only come when
unemployment abates, the stock market improves, banks become more aggressive about lending money and the glut of homes on the market has been sold. This should not be rushed and must be handled in an orderly manner. We are looking at two or three years, in my opinion, before home appreciation can return. That can happen only when the economy returns to hitting on all eight cylinders. Charlie W. Elliott Jr., MAI, SRA, is president of Elliott & Company Appraisers, a national real estate appraisal company. He can be reached at (800) 854-5889, email charlie@elliottco.com or visit his companys Web site, www.appraisalsanywhere.com.
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Highest Paid Commissions In The Industry Nationwide FHA Direct Endorsed Lender Reverse Mortgages New Branch Assistance Programs-Quick Start No Hidden Fees-Total Support State-Of-The-Art Technology 100% Qualified Leads Compliance, Accounting & HR Support
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1-866-394-4140 - www.4abranch.com
Rebecca Hinds and Tom Duncan from Quality Mortgage Services LLC were on hand to explain their line of QC product offerings
Bill Wogan, Mark Karanovich, Lisa Schreiber and Mark Freedle proudly represent NetMore America during NAMB/WEST in Vegas
Jason Berman of the J. Berman Group delivers his session on properly utilizing social media
NAMB President Jim Pair welcomes attendees to the opening session launching NAMB/WEST 2009
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Ken Perry from Broker Knowledge, one of the presenters of the SAFE Act, MDIA, HVCC and Red Flags Panel session
J. Kevin Foster, Pam Teer and Monty Ervin from TRW Credit Group
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Reps from Flagstar Bank show their support for the mortgage broker community during NAMB/WEST 2009
NAMB CEO Roy DeLoach (center) stops by the Fannie Mae booth for a chat with company reps Thomas Collins (left) and Dana Keeney (right)
NAMB Director John Councilman provides an FHA update during the Government Affairs Committee Meeting
Fred Kreger from American Family Funding (far right), with (from left to right) Scott St. John, Melissa Arntzen and Joann Anderson from American Pacific Mortgage
Reps from NetMore America field questions from brokers during the Speed Dating Mortgage Style session
NAMB Government Affairs Committee Chair Harry Dinham discusses the latest news from Capitol Hill with attendees during NAMB/WEST
Reps from Wells Fargo Home Mortgage on the exhibit hall floor of the MGM Grand in Las Vegas Art Ski Swiatkowski and Mary Jo Cioffi pause for a photo during NAMB/WEST in Las Vegas
Ron Vaimberg discusses the importance of social media and text messages during his presentation
Dr. Ted C. Jones, director of investor relations with Stewart Information Services, kicks off the day with his economic update
Mike Anderson, Denise Leonard, John Councilman and Harry Dinham take questions during the Government Affairs Committee Meeting
Jim Brown delivers his presentation on Veterans Affairs loans during NAMB/WEST 2009
facta rules
ent than the credit report used to make the loan decision. The methods of compiling the data for a lender credit report vary greatly from the methods used for consumer disclosure reports and discrepancies between the two report methods can have huge impacts on credit scores. This means that hundreds of thousands or even millions of consumers who think they have gone through their credit report as directed on the government-required disclosure and corrected any problems they discovered in the data, will find that when they apply for credit again there may be other problems on the report that were undisclosed to them previously and they may still fall into higher risk-based credit terms. Based on the track record of how long it took this section of FACTA to
actually becoming a reality that is an issue for another day likely many years from now. The FTC/FRB official notice can be found online at www.ftc.gov/opa/2009/12/rbpricing.shtm, and the full 202-page Federal Register Notice with details about all aspects of the rule can be found at: www.ftc.gov/os/2009/12/R411009riskbased pricingfrn.pdf. Terry W. Clemans is the executive director of the National Credit Reporting Association Inc. (NCRA). He may be reached at (630) 539-1525 or e-mail tclemans@ncrainc.org. Visit the National Credit Reporting Association Inc. (NCRA) on the Web at www.ncrainc.org.
HECM at 20: Leaders and Pioneers in the U.S. Reverse Mortgage Industry Series (V)
www.thebondexchange.com
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244 Fifth Avenue Suite P 206 New York, NY 10001-7604 Toll Free: 888-833-5478 Direct Line: 718-502-6563 Fax: 212-710-4326 www.WallStreetList.Com
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forward on reverse
news flash
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agreed to study three NRMLA issues at that time: Single national HECM loan limit, a reduction in mortgage insurance premiums for seniors who purchase LTC (this is a taboo subject today), and evaluation of cooperatives for inclusion in the HECM program. Much of the improvement in the HECM product and in the industry since 1997 can be traced to NRMLA-led initiatives. In short, NRMLA put reverse mortgages on the map in America. After founding NRMLA and serving as its chairman for two terms (hes still on the board as founding chairman), the leader retired. Unknown to him, a second chapter of his work in reverse mortgages was about to begin. In November of 1998, Wells Fargo Home Mortgage hired him as a consultant. And on Jan. 1, 2000, Wells Fargo lured him out of retirement to lead its senior products group. Jeffrey S. Taylor, CMB is that leader. His innovation in sub-servicing HECMs and leadership in creating NRMLA were crucial additions to the industrys architecture. Although he was a pioneer in wholesale and correspondent reverse mortgage lending at Wendover Funding, during his decade-long tenure at Wells Fargo, Taylor focused on a retail origination strategy and made Wells Fargo into the nations largest retail reverse mortgage lender, a ranking Wells Fargo continues to maintain. Following his August 2009 retirement from Wells Fargo, a third chapter of Jeff Taylors reverse-mortgage life began as chairman of Reverse Mortgage Insight, a California-based advisory and data provider. The following is Jeff Taylors reflection on the first 20 years of the industry he helped to build. What attracted you to reverse mortgages, and why did you commit to the business? Back in 1989, I read of a pilot program by HUD that was going to provide home equity loans to seniors without requiring monthly payments, letting them use a portion of the equity in their house. At that time, only 50 lenders were being selected in a lottery administered by HUD. The 50 lenders could make only 50 loans, a total of 2,500 loans. Being in the loan-servicing business, I knew it was going to be difficult for only 50 lenders to design and build a servicing system to actually build this product. Secondly, I felt that this could be a new frontier in mortgage lending because in the past the regular mortgage business that I had been in for the previous 20 years was doing well, and the new market that everyone was focusing on was the first-time homebuyers and new immigrants moving into the United States. But the demographics for seniors both then and today would suggest that this is a new frontier that needs to be
served. We needed to understand the product. At that time, I was the president and chief executive officer of Wendover Funding, which was a large servicing organization, and we designed a servicing system and offered to sub-service those loans for those original pilot lenders which, essentially, got us into the business. And why did you commit to the business? I could see that there were adult children like myself who are always looking for options for mom and dad or grandparents. And the whole idea was that without a reverse mortgage option, many adult children were using their own money, their after-tax dollars to help support them. As always happened in the past, they then waited for the property to be sold to be paid back. In my own case, my mother got a reverse mortgage. It allowed her to continue her independence and her financial dignity, and it just changed her life. When I saw that I felt that this business had a future. And 20 years after, do you still feel that way? Oh yes, I do. Its been stated that weve had more growth in the last four years than we had in the previous 16, and we are yet to reach more than two percent of eligible homeowners in the demographics of 65-plus. So, I think that over the past 20 years, the first 16 years were education. The next four were fueled by falling portfolio values, the financial crisis and a number of other things. Another thing that helped was changing the lending limits, which, not much over a year ago, 80 percent of the counties in the United States had a maximum lending limit of $209,160. The problem was that if a senior had a $300,000 home value, and they were in the lower lending limit, they only could get the amount available based on their age and a maximum value of $209,160. Today, we have $625,500 as the ceiling which has resulted in many more seniors taking advantage of the HECM program because of their ability to get more access to their equity. Moving into next fiscal year, it could be extended. So, we have been able to help a broad range of senior households based on different home values. How has the industry changed since you came in? First and foremost, within the last couple of years, weve been in the spotlight, in other words, many are taking notice of the program, lenders advocacy groups and federal and state regulators. I remember attending several
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The lawsuit alleges that the rating agencies made spectacularly misleading evaluations of the MBS due in part to the lucrative fees they received from the same issuers they were supposed to be objectively evaluating. Public statements and testimony indicate that rating agency executives and analysts knew their ratings of the MBS were wrong. Indeed, one rating agency analyst admitted that the market for MBS was little more than a house of cards with a much higher risk of devaluation than indicated by the purported investment-grade AAA rating. Another rating agency analyst said that we rate every deal. It could be structured by cows and we would rate it. Raymond McDaniel, CEO and Chairman of Moodys, described the ratings frenzy: What happened in 04 and 05 is that our competition, Fitch and S&P, went nuts. Everything was investment-grade. It really didnt matter. No one cared because the machine just kept going. McDaniel added that Moodys also [drank] the Kool-Aid. Cordray said, Our lawsuit against these rating agencies is another step toward holding Wall Street accountable for its wrongs. AG Cordrays fight to hold Wall Street accountable now includes eight major lawsuits, which have recovered more than $2 billion to date. Recent settlements include $284.5 million with secondary defendants in a case involving AIG; $400 million with Marsh & McLennan; $475 million with Merrill Lynch; and the cancelling of $922 million in improperly granted stock options to corporate executives at UnitedHealth. AG Cordray continues to represent the Ohio Funds in several major securities cases, including class action securities lawsuits against AIG, Bank of America, Fannie Mae and Freddie Mac. For more information, visit www.ohioattorneygeneral.gov.
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services they deliver. FHA is soliciting comments on its proposals and the comments received will be considered in the development of a final rule. With FHAs crucial role in todays housing market, it is critically important that we are able to manage risk and to ensure that our reserves are adequate to cover future losses, said FHA Commissioner David Stevens. We are taking a number of aggressive steps to ensure that we are able to continue to support the housing market in the short-term and provide access to home ownership to the underserved in the long term, while minimizing the risk to the American taxpayer. On Sept. 18, 2009, Stevens announced a set of credit policy changes that will enhance FHAs risk management function, including the hiring of a chief risk officer for the first time in the agencys 75-year history. In addition, Stevens announced his intent to propose new regulations to further strengthen FHAs risk management. Since 1993, FHA has required approved mortgagees have a net worth of at least $250,000. To strengthen the financial capacity of FHA counterparties to ensure they can meet their obligations, the proposed rule would require mortgagees maintain a minimum of $1 million in net worth within the first year and at least $2.5 million of net worth within three years of the effective date of the rule. These changes are consistent with industry standards and will ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting FHA to mitigate losses and decrease risks to its insurance fund. Lenders seeking approval to originate underwrite or service an FHA loan must meet the eligibility criteria for a supervised or non-supervised mortgagee. FHA-approved mortgagees must assume liability for all the loans they originate and/or underwrite. While loan correspondents (mortgage brokers) will continue to be able to originate FHA-insured loans through their relationships with approved mortgagees, they will no longer receive independent approval for origination eligibility. This will require the FHA-approved mortgagee to assume responsibility and liability for the FHAinsured loan underwritten and closed by the approved mortgagee. These changes align FHA with Fannie Mae and Freddie Mac and will potentially increase the number of loan correspondents (mortgage brokers) who are eligible to participate in the origination of FHA-insured loans while providing for more effective oversight of loan correspondents through the FHA approved mortgagees. For more information, visit www.hud.gov.
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I joined Frost Mortgage and immediately saw my revenue get back to what it used to be. I now have the tools I need to be successful in todays market place. - Bill Morris Lancaster, OH "I've known Greg since 1992. After an exhaustive search, I found the Frost/PRMI business model to be the very best. I should easily double my income in 2010." - Robert Shaffer Lancaster, CA
I've never worked for a lender with such a hard working closing department. I really appreciate all they do to help keep my business running smoothly. - Ryan Morrow Lancaster, CA Our semi-annual BranchPartner Master Mind Meetings are what really motivate me. Great mentoring and loads of business building ideas coupled with the hands on How to. - Momi Pointer Tustin, CA I can't tell you how different this whole experience has been. I'm now going out to celebrate; not that I funded a loan, but that I didn't have to process the le or beg the funder to review my conditions and hope that it funded on time. - Tim Ross Lancaster, CA
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Greg is doing what he promised. Great pricing, fast underwriting, on time closings! Thats all I needed and thats what Greg has delivered. - David Hoffman Westlake Village, CA
A PRMI Company
If you would like to learn more about our BranchPartner business model, please inquire:
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Regulation and Licensing Department, Financial Institutions Division #621 Branch License #00621
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news flash
NeighborWorks reports: Homeowners seeking counseling are 60 percent more likely to avoid foreclosure
NeighborWorks America, the administrator of the National Foreclosure Mitigation Counseling (NFMC) Program, has announced that NFMC clients who receive foreclosure counseling are 1.6 times more likely to avoid losing their homes to foreclosure than homeowners who do not receive foreclosure counseling, according to recent findings. As a result of NFMC Program funding, families who sought and received foreclosure counseling were provided much needed information, assistance and guidance to address their risk of foreclosure, which helped them find a solution to foreclosure. The report, which analyzed NFMC Program activity during the first year of the program (Jan. 1-Dec. 31, 2008), also found that NFMC Program clients were more likely to receive a loan modification than homeowners who did not receive counseling, and NFMC Program clients who received loan modifications lowered their mortgage payments significantly more than homeowners who received loan modifications without NFMC Program counseling. NFMC Program clients, with the help of their counselors, secured loan mods that lowered their monthly mortgage payments $454 more than the clients who received modifications without foreclosure counseling, which results in an average annual savings of $5,448. The findings announced today demonstrate the real impact foreclosure counseling can have for families facing foreclosure, said Ken Wade, chief executive officer of NeighborWorks America. Thanks to the hard work of non-profit, HUD-approved housing counseling agencies around the country, and the expertise of their certified counselors, families are less likely to lose their homes to foreclosure and receive substantially better mortgage modifications, significantly reducing the likelihood of falling behind again on their mortgage. While the report analyzes the program data through Dec. 31, 2008, to date, more than 750,000 families have received foreclosure counseling as a result of NFMC Program funding. The NFMC Program was created by Congress to address the nationwide foreclosure crisis by dramatically increasing the availability of housing counseling for families at risk of foreclosure. The $180 million program was authorized through the FY 2008 Consolidated Appropriations Bill, which named NeighborWorks as its administrator. An additional $180 million was appropriated to this effort on
July 30, 2008 through the Housing and Economic Recovery Act of 2008, and the Omnibus Appropriations Act of 2009 appropriated another $50 million to the program on March 11, 2009. For more information, visit www.nw.org.
Here is the problem, if we dont all band together to fight this fraud, we will be paying a long term price in terms of tighter guidelines and higher rates in the secondary markets.
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The decline of the housing market was precipitated by many factors. Certainly one was the tightening of loose underwriting guidelines, which shut out many who wanted to qualify for loans. This continues today with Fannie Mae the latest to raise minimum scores and lower maximum debt-to-income (DTI) ratios. High default rates, due to declining property values and poor credit quality of borrowers, also contributed to wider
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forward on reverse
meetings I put together with large banks back in the early 1990s. There was a lot of hesitation by the banks because, essentially, they did not want to even consider the fact they were ever going to foreclose on a widow or a senior. And I think after the first 15 or 16 years, the press started writing a lot of positive articles about how reverse mortgages changed the lives of seniors. The industry, including the Mortgage Bankers Association, and our trade association, NRMLA, realized that more lenders, banks and other financial services companies will need to offer this product to the coming age and demographic changes this product is going to change lives for many seniors and help keep them financially independent. In the early days of marketing the HECM program, some lenders or brokers tried to offer other products in conjunction with the reverse mortgage which was not viewed as favorable for many seniors. Regulators and legislators began hearing of possible abuses and began changing laws to stop this kind of activity. I remember saying at the NRMLA meeting in San Diego about two years ago that: If you think the line is long of people waiting to get into our business, the line will be twice as long of those waiting to regulate us. That is where we are today. And then, of course, no one could have foretold where home values have gone over the last two years. This product has a tendency to rise to the top. It makes me cringe when I hear people say this is the next sub-prime crisis. First of all, the sub-prime loans never had any insurance. There is a lot more thought and design in this product than there has ever been in the sub-prime, as well as increased emphasis on the many consumer protections outlined for the seniors in the HECM program, counseling etc. What are some lessons you have learned about seniors, the market, and the business? Lets start with seniors. When dealing with seniors, basically, its all about trust. They have to trust you and trust your organization or they are just not going to do business with you, period. And so I think it comes down to trust, understanding that you have trained loan officers, that you have a very compliant organization, and that you follow all the rules to the letter of the law. That, in itself, will continue to garner more and more trust because, at the end of the day, are we still doing reverse mortgages in spite of the articles? We certainly are, and it is because, I believe, the senior, first and foremost, trusts who they are doing business with. That is invaluable. And if you lose that trust, you need to exit the business.
I dont profess to be an expert on seniors as a market itself, but I know that everything we read comes down to the trust factor. The market is there. The public sector is looking to the private sector for a solution to their epidemic of runaway Medicaid expenses and states financial crises. They were looking primarily at reverse mortgages as potential solution to alleviate some of the funding shortfalls to keep people in their homes and out of nursing homes. That holds true today.
How about the business? What are some lessons you have learned about the business? Well, we all know capital is king. In this business, because the product is still so young even though it is 20-years-old, we are indebted as an industry to Fannie Mae. For the past 20 years until about 18 months ago, Fannie Mae was the primary investor in this product. It pioneered the secondary market and enabled many lenders to get in the business to help more than 500,000 seniors since 1989. What I learned about the business is that what Fannie Mae did in the previous 20 years was assume the rewards, as well as the risks, that go with the product. No one in the business ever
assumed that some seniors will not pay their taxes and insurance. There appears to be a systemic problem which is driving an increasing number of seniors to default on paying their taxes and insurance. And that is problematic for the program. Do you have a theory on what is causing the tax and insurance defaults? Well, I think you can look at a couple of drivers. First of all, if you have a senior who is already in trouble and is facing foreclosure, and they take all the proceeds of the loan to pay off back taxes or to pay off the lender, there is a high probability that in year
continued on page 20
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Initial TILs High Cost Mortgage Loans Higher-Priced Mortgage Loans Timing of Disclosures (Proposal) O Initial Truth-in-Lending. On July 30, 2009, new requirements became effective. These requirements: (1) broaden the coverage of the type of loan that must receive an early disclosure; (2) mandate that basically any mortgage loan subject to RESPA and secured by the consumers dwelling must receive an early disclosure; (3) includes new timing requirements for the delivery of disclosures; and (4) restricts the collection of any fees beyond the credit report fee until the consumer has received the initial disclosures. O High-Cost Mortgage Loan. Effective Oct. 1, 2009, new requirements were mandated for determining and verifying repayment ability. There is also a new prohibition on prepayment penalties if the total monthly debt payment, including the mortgage, exceeds 50 percent of the monthly gross income. O Higher-Priced Mortgage Loans. Effective Oct. 1, 2009, higher-priced mortgage loans became subject to a new set of requirements. A higher-priced mortgage loan is specifically defined as a consumer purpose loan secured by the principal dwelling where the Annual Percentage Rate (APR) exceeds the Average Prime Offer Rate (APOR) by certain percentage points. Any consumer closed-end mortgage, including purchase money, is affected.
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7 9 p.m.
New for 2010! Opening Residential Networking Cocktail Reception in the Mark Etess Arena (Commercial Attendees Invited)
Wednesday 9 a.m. 12 p.m. General Session: The Mortgage Summit: Confront the New Decade with Advice from Respected Mortgage Professionals 12 5 p.m. Exhibit Hall Open 12 2 p.m. Lunch in the Exhibit Hall 1:45 3:15 p.m. Legends of Industry 3:15 4:30 p.m. Regulators Roundtable 6 8 p.m. Networking Cocktail Reception Security Atlantic Thursday 9 a.m. 3:15 p.m. Critical Issues Day 1:00 p.m. 2:30 p.m. Luncheon with Speakers
RESPA (Regulation X)
Good Faith Estimate (GFE) HUD-1 and HUD-1A Settlement Statement The final regulation requires substantial changes to Real Estate Settlement Procedures Act (RESPA) disclosures, including the Good Faith Estimate (GFE), the HUD1/1A Settlement Statements, and the Settlement Cost Booklet. The U.S. Department of Housing & Urban Development (HUD) continues to issue comments on compliance requirements by updating their frequently asked questions, known as New RESPA FAQs. Implementation is effective on Jan. 1, 2010. Loan originators must understand the regulatory changes and how the changes affect RESPA documents. Classroom, Webinar or online training should be conducted to familiarize loan officers with the revised disclosures; inevitably, customers will have questions when they review their mortgage disclosures. Lenders must be
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For more information on the National Association of Mortgage Brokers, visit www.namb.org.
18
tion to all the hard workers who made this event in Vegas a great success, and to give a big heartfelt THANKS. I want to say thank you to all who came out to the conference and fully packed the rooms of speakers for each and every session, and to say thanks for your respect that the National Association of Mortgage Brokers would put on a conference that makes it worthy of attendance like in years past. Attendance was strong at the event, with nearly 1,000 attendees making the trip to Vegas for NAMB/WEST. I am pleased to report that we had strong attendance from all of NAMBs state affiliates. My hat goes off to the state representatives who made this happen in their state. These people took this conference on their backs and pushed it to their state members and provided the reasons why these people needed to attend and be on hand in Las Vegas for the full conference. The individual speakers all delivered very strong presentations, and must admit that I gained a wealth of great new knowledge out of every time slot. As a veteran of 35 years in the business, I took home some tips and tricks from the speakers and sessions in Vegas that I plan to use in my everyday business plans. I am still toying with the fact that some type of video can help us. I just dont know if America is going to want to look at me day in and day out! I want to send a big thank you to Wells Fargo Home Mortgage for sponsoring Sundays entire day of education. Dr. Ted C. Jones, director of investor relations for Stewart Information Services, delivered his upbeat 2010 economic forecast to a packed house to kick off Sundays mornings events. Members of the NAMB board, including Jim Pair, Harry Dinham, Denise Leonard and Roy DeLoach, provided a very insightful look at the latest in legislative and regulatory changes coming down the pipe. Theresa Ballard of BFO Solutions, Ken Perry of Broker Knowledge and Ginger Bell of Go2Training kept pace with the regulatory updates by focusing in on the SAFE Act, MDIA, HVCC and the Red Flags Rule in their session. After a lunch break, the afternoon continued with Nancy West from HUD with a presentation on the FHA marketplace and Jeff Wilson from the U.S. Department of Veterans Affairs dissected VA loans. Sundays sessions concluded with a unique first-of-its-kind speed dating style roundtable event where attendees had 10 min. to spend moving from table to table and meeting one-on-one with the industrys top wholesalers and affiliated service providers. In addition, Rene Rodriguez from Volentum and Fred Arnold from American Family Funding delivered their presentation on honing your leadership skills in a troubling economic environment. Mondays sessions focused on networking and social media and we kicked things off with the duo of Blogger Mark Madsen and Mark Green from Top of Mind Networks providing their tips on effectively utilizing social media outlets, such as Twitter and Facebook, to enhance and market your business. In a second Monday morning session, Frank Garay and Brian Stevens from Think Big Work Small discussed how to enhance your business through the use of video. The information we received from Frank and Brian was presented in everyday language that will surely benefit us all. The exhibitor showcase, as I mentioned earlier, featured nearly 50 companies that wanted to meet with mortgage brokers. The role of the exhibitors, who included the industrys top lenders and affiliated service providers, was to help the mortgage broker attendees find the newest products and services to enhance their business. I personally went to each booth and they were all inquisitive on how I did business and exactly what type of business I did. They presented me with ideas and plans on how to make my business more profitable and better equipped me to handle the changes that are coming down the pike. The other response from them was to talk to me as a decision-maker in my office and how they might be able to help me improve my loan officer quality and the quality of my business. I feel a great deal of the success of the exhibit hall may have been attributed to our Free Pass Program. Through Free Pass Program, managed by National Mortgage Professional Magazine, NAMB industry partners and exhibitors distributed free passes to their clients and their guests that provide access to the expo.
JANUARY 2010 O
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Certification? Certainly!
The BE group
We are now getting ready to start planning the 2010 installment of NAMB/WEST. All attendees should receive a survey on the last event. Please help us in the answering the questions so that we may make the necessary changes that will improve this conference for all. I want to thank all of the NAMB staff who came out to help, and even those who stayed back in Washington, D.C., because without you, we cannot pull all of events of this magnitude. I would also like to thank our knowledge of this fraud is increasing. event planners, Kinsley and Associates Allison, Stephanie and Devon. You three Thus we see stats of increased fraud did a tremendous job, and as smooth as NAMB/WEST 2009 went, the future should being released by the Federal Bureau be even smoother. of Investigations (FBI). These stats NAMB now turns its attention to Washington, D.C. for its 2010 Legislative & influence those who are looking to Regulatory Conference, set for Saturday-Wednesday, Feb. 21-24. As our industry purchase mortgages as an investment. faces regulatory pressures on almost a daily basis, now is the time to show our O People are more desperate right elected officials the important role that mortgage brokers and the mortgage now. If you are about to lose your industry will play in the recovery of the American economy. Our strength in numhome, you will do just about anybers through our participation in the Legislative & Regulatory Conference and our thing to save itincluding lying, march on Capitol Hill will demonstrate to our elected officials that we are here to cheating or stealing to get a loan. help and educate the American consumer, contrary to the picture painted by O There are opportunities to make mainstream media. So make you plans today to join us as we take to the halls of money. Just as people saw opportuCapitol Hill and convey the message of NAMB to the members of Congress. For nities to flip houses during the heymore information, visit www.namb.org and click on the NAMB 2010 Legislative & day, today, foreclosures are attractRegulatory Conference link. ing investors who see the opportunity to make a quick buck. And any Donald J. Frommeyer is treasurer and Membership Committee chair of the National time there is that get rich quick Association of Mortgage Brokers, and senior vice president of Amtrust Mortgage mentality attached to real estate, it Funding Inc. in Carmel, Ind. He may be reached by phone at (317) 575-4355 or erepresents a bad combination. mail dfrommeyer@amtrust.net. Here is the problem, if we dont all band together to fight this fraud, we will be paying a long term price in terms of tighter guidelines and higher rates in the secondary markets. For decades through my books, such as The Book of Home Finance, I have been teaching concepts such as the long-term value of owning real estate instead of over-leveraging and getting rich quick. And I have been teaching ethics in lending. Our Certified Mortgage Advisor I have thought about the many seminars and classes we take from course has always had a segment on ethics people who have information and advice for our careers and lives. After thinking about the many directions I could take, I have decided that I want to be a part of the Be group. I have listed a few key concepts we are all familiar with and may even already follow. But, I know I need to review them frequently and thought a support group of BElievers could help us all connect. The following is my initial BE list
and our CMAs are all provided with an ethics policy to which they must adhere (www.webinars.originationpro.com). This is one reason that our partner RateLink has started offering the program to their subscribers. As the secondary marketing experts, they understand the connection between doing things right and the longterm benefit to all of us. But this is not enough. We must become proactive. It is time we stopped looking the other way. For every individual who benefits from a fraudulent action, the populace as a whole must pay a price. Think of the industry as all living on a river and make our living off the river. If one person throws their garbage into the river, no big deal. But if a bunch of people do itour living goes away. It is incumbent upon all of use to make sure that this does not happen. Dave Hershman is a leading author for the mortgage industry with eight books and several hundred articles to his credit. He is also head of OriginationPro Mortgage School and a top industry speaker. Daves Certified Mortgage Advisor Program can be found at www.webinars.originationpro.com. If you would like to stay ahead of what is happening in the markets, visit ratelink.originationpro.com for a free trial or e-mail success@hershmangroup.com.
A Message From NAMB Certifications Committee Chair Pava J. Leyrer, CMC, CRMS
O BE Dedicated: Hard work and dedication are keys to success. Know the balance between work and pleasure. Making and following through on your plan is extremely rewarding. O BE Thoughtful: Think about what you want and how you want to get it. Make plans and goals and stay focused to attain them. Dont let thinking become a lost art. O BE Respectful: Respect others and yourself. Showing care and concern for your family, friends, colleagues and customers will always be a benefit to you, as well as those you interact with everyday. O BE Humble: Sincere gratitude and humility are important character traits that are very noticeable in people. O BE Involved: Life is truly short and what you do with it does make an impression and leaves a mark. Making a difference in a professional, community and charitable organization is rewarding for both you and the people you touch. Your time and talents are valuable assets, and do make a difference. O BE Committed: To knowledge and growth. Ask questions if you want to know more or you do not understand. Take the time to really listen to others and you will always learn something. O BE Happy: Yes, I do like the song! Happiness is an attitude about life. It is important everyday and not easy to maintain. There will always be something to try and disrupt your attitude, but you do have a choice. Be the first to spread some happiness wherever you go. I must include one more BE especially because of my commitment and belief in certification. I have seen a difference in many people that have attained their certification. The level of professionalism and pride increase and I think that BE CERTIFIED should also be included on the list. Make this the time to obtain yours. Pava J. Leyrer, CMC, CRMS, is president and owner of Heritage National Mortgage Corporation in Grandville, Mich., and Certifications Committee chair for the National Association of Mortgage Brokers. She may be reached by phone at (616) 534-4993 or e-mail pava@heritagenational.com.
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1. Go to www.ruralhomeloan.com 2. Pick a low xed rate for your borrower 3. Enjoy an easy closing, and then relax!
O JANUARY 2010
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forward on reverse
two, they may have difficulty paying taxes and insurance. Looking at the programs structure, years ago, when proprietary products were introduced, the comparison was the FHA [Federal Housing Administration] product gives you so much more principal limit. The difference was that the costs were financed, and you had to get more principal limit to cover the closing costs. In other words, if it was a $300,000 property value up to the maximum claim amount, and the closing costs were say $14,000, you would have to have at least
$14,000 more on your principal limit because that was your initial balance. From the proprietary side, many of them began saying if I am going to make a loan on a $3 million property, I had better check to see if there had been a prior history of tax delinquency because the property taxes on a $3 million home is huge. So, where is this all going? I have seen suggestions that we eliminate the servicing fee set aside and put taxes and insurance set aside as well. No matter how you get there, you will have to reduce the principal
limit and hold some money back. In the event the senior does not pay their taxes and insurance, there is money there to do it. That is the future. Let me talk about the servicing fee set aside. When I was involved in the primary design of this product, one of the difficulties was comparing the reverse mortgage and the way it is structured with origination costs, servicing costs, compared to the forward side of the business. In a forward mortgage, the servicing fee is built into the interest rate. But we couldnt because the only product available was an adjustable loan product, and it has a line of credit feature. We never knew what the balance would be, and we didnt want lenders to have an incen-
tive. So, we created a fixed dollar amount that would be added to the borrowers balance, regardless of the loan balance. Thats how we got $30, $360 a year. Now, thats all a lender can get for servicing the loan. However, that is a consistent revenue stream, and in the forward mortgage business, your income goes down as the loan balance goes down because it is a function of the interest rate. But I believe now, if you look at the fixed-rate product that is available, most of those loans are eventually going into securities. And I think you can do away with the servicing fee set aside because you already know what the balance is. You can make the servicing fee as part of the interest rate and put in a tax and insurance set aside for emergencies. Those are concepts that have been talked about that I think have legs. What are the prospects and some challenges for the industry? There is a significant group of seniors that still have home equity that will have a need for this product. The current challenges are convincing both federal and state regulators that (a) the product is sound; and (b) that there are significant controls to protect the consumer. The counseling component is huge. Over the years, it hasnt been funded. A couple of years ago, counseling agencies were asking lenders for money. That was the only way we were going to get any loans closed. Now, thats all been shut off. And the customer is paying for counseling. It will come to ongoing scrutiny of individual mortgage company, either non-bank or bank-owned, as to playing by the rules and total transparency. The days of what I am going to call the mortgage cowboy are gone. They are gone because they never had any capital to start with and, essentially, after they closed the loan, they were selling it to whoever the highest bidder was. And they were using different margins because they could get a different SRP, depending on how they can convince the senior to take product A over B. Thats exactly where we were. Unfortunately, the forward mortgage business has been around a lot longer than 20 years. Talking about the future, with the continuing cloud of yield spread premiums now under scrutiny at the state level, I think eventually they will be gone. So, that takes one leg of the three legs of the three-legged stool away, brokers relying on the yield spread premium. That comes down to origination income and selling your loans servicingreleased and servicing income. I think it is going to be more of a restricted playing field. At the end of the day, any lender who wants to play by the rules can do so and do so nicely provided they have capital and a line of credit, and they have the trust of the senior consumer.
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2. Set a fixed time every morning to answer e-mails and then get on with our day Send them out during the day as we need to, but stay away from that e-mail time By Greg Frost alligator as much as possible. Keep our calendar up on our computer screen so During my 37 years in the mortgage well-versed on the additional overlay that we can continually see how few lending industry, I have seen many eco- underwriting criteria that most investors appointments we have and how much nomic swings that have stimulated are now adding to the basic agency regu- time is available for prospecting. both dramatic increases and decreases lations. We need to time block to read in mortgage lending volume. I live in industry information. Start every day 3. Never eat alone Albuquerque, N.M., and our volume of reading and use the information to The best way to work a referral partner purchase money lending opportunities become an authority in our market. This and prospect database is in person. The in 2008 were only 35 percent of what publication is one of the best and should best way to meet in person is at breakfast be on our must read list every month. they were at our peak in 2006. and lunch. There are 22 work days in a Fortunately, historic low mortgage month, with 44 opportunities to have interest rates have stimulated refinance Selling and presentation one-on-one personal, productive sales opportunities; however, we are chal- skills calls with our referral partners and lenged with credit and property value We must be sharper here than ever before. prospects. We should schedule half of our issues along with a continually shrinking Why? Because we are going to get in front appointments for protecting and half for of fewer people. If we have prospecting. I dare say that most of us do list of available loan profewer selling opportunities, not make 44 meaningful sales calls in a grams. Therefore, what we must close a much high- month. We will, if we schedule two each should have been a lander percentage of them if we day at the morning and afternoon meal. slide of opportunity has hope to earn as much this been tempered by the year as last, or to enjoy a 4. Get active in the local board of Realtors new realities of the mortraise. Practice selling scripts Join a committee. Scour their roster for gage industry. and dialogues. Make certain familiar names. Make a prospecting list So, many of us have rethat we have an elevator from this roster. Then take them to breakread Who Moved My response to the common- fast or lunch. Cheese?, and are reading of place mortgage questions other success stories as we that always ends in an offer 5. Stop in and visit our referral partners desperately try to re-invent of assistance and the setting and prospects ourselves and find a more This is an uncertain of an appointment to proproductive approach to our Very few of our competitors are. The art of business. An old guy like time. We can become vide it. We need to take off the personal sales call was lost in favor of the certainty in the the headset, stop answering technology somewhere along the way. Call me suggests that you glance professional lives of every insipid e-mail that a referral partner or prospect and schedover your shoulder and comes our way and get out ule an office visit. If we make regular vistake a look back. What was our referral partners among them. Here are five its, we will run into a deal that someone old is once again new. Dust and prospects by things that I think we need else in the office needs help on. Go where off your old flyer from The being consistent. to focus on in this level of your competitors are not. And there is no Loan Tool Box, illustrating the pyramid: the Pyramid of a Complete one making office calls these days. Loan Originator, and focus on the first three levels: Essential Knowledge, Selling 1. Start every day with 30 min. of read- Personal marketing and Presentation Skills, and Personal ing industry publications Branding yourself is more important Marketing. These three skill sets can be We need to be the source of accurate than ever. Mortgage companies have instrumental in helping you kick start your mortgage information to our professional come and gone. We each have an production. Remember, the Lord giveth network and our market. A daily regime opportunity to stand out in our market, and taketh away. These low interest rates of reading and gathering timely industry just by still being here. Let everyone can be gone in a flash, so take advantage of information will contribute to our becom- know youre still here. Focus your marthe current refi revenue opportunities to ing an authority. keting efforts towards tapping into invest in rebuilding your referral network and mining your relationships.
these principles of ethical influence as taught by Dr. Robert Cialdini: 1. Reciprocity Be the first to give. Trigger the time-honored social principle of reciprocation by giving of your time, your talent and your knowledge with every contact. Never leave a prospecting or protecting meeting without leaving a well-written, personalized article, leaflet or booklet. Use personalized scratch pads as a giveaway. Business cards regularly get trashed. No one throws a scratch pad away. 2. Authority: Showing and knowing Establish yourself as the mortgage authority in your market, again, by providing timely, accurate information that is well-designed and personalized. I use The Loan Toolbox and Mortgage Market Weekly to disseminate information to the local media, as well as my network, and in so doing, brand myself, get published and called upon when the media needs accurate mortgage information. 3. Consistency: The starting point When we determine our course of action, commit to six months and stay on track. Set our calendar and fill the blank spots each day with prospecting and protecting. A regular routine of communication, visits, calls, etc. will become more and more noticed and appreciated once the recipients of our effort realize that we can be counted on. This is an uncertain time. We can become the certainty in the professional lives of our referral partners and prospects by being consistent. 4. Liking: Making friends to influence people I try not to court those who I would not want to invite to my dinner table. So, I do business with my friends and make friends of those I do business with. Like my buddy Tim Braheem always said, The loan originator with the most friends, wins. Life is too short to work and rely upon people that you dont like enough to invite to your home.
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Essential knowledge
We are all originating the same five or six loan programs. The days of a competitor finding a new, funky, no qualification program that you dont have, and stealing your deal, are over. If we all have the same products, how are we going to differentiate ourselves in our market? Simple. We need to know more about Federal Housing Authority (FHA), U.S. Department of Veterans Affairs (VA) and conventional conforming products than anyone else. We need to know how to tell the story on a full doc loan with additional documentation and notes to the processer and the underwriter. We commit to always turn in our loan files with a memo to the underwriter. Remember, no one but you has had the time with the client to get the whole story. Relate the story to all concerned and get more loans approved. Thorough knowledge of agency underwriting guidelines and product descriptions is just the start. We also need to be
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Copyright 2009 Emigrant Mortgage Company, Incorporated (Emigrant). All rights reserved. Emigrant is a subsidiary of Emigrant Bank, Member FDIC and is an Equal Opportunity Lender. All product names, company names and logotypes are servicemarks or trademarks of Emigrant in the United States and other countries. The information, products and services contained in this advertisement are believed to be correct but may include inaccuracies, typographical errors and/or omissions. Emigrant does not guarantee the accuracy of the data contained herein. This information is intended for mortgage and/or real estate professional use only and should not be distributed or presented to consumers or any other third parties. This is not an offer or guarantee to extend consumer credit. Program guidelines, terms and/or conditions are subject to change by Emigrant without notice. All loans are subject to submission of a complete application, underwriting review and credit and property approval by Emigrant. Not all products and/or programs are available in all states and/or localities and/or for all loan amounts. Certain products / program are offered through third parties. Other restrictions and limitations may apply. New York Licensed Residential Mortgage Lender: Exempt. Emigrant is registered or licensed with the Banking Departments or Divisions in CT, DE, FL, MA, NH, NJ, NY and PA.
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forward on reverse
What is your favorite reverse mortgage story? My favorite reverse mortgage story is the one that is most close and personal to me. And that was actually seeing my mother use it. My father died in 1990. We didnt realize that my father had taken a second mortgage out on the property so that he could buy a car. And when we discovered that my mother (then 70) was not eligible for enough, under the maximum lending limit of those times, to pay off both her first and second mortgage, she had to continue to use her own capital to pay off the second. Five years later, she was eligible for more money because she was five years older. Meanwhile, her home in Denver had gone up in value. She was able to pay off her first mortgage with the reverse mortgage and put about $360 a month back in her pocket. And a year later, she called and said I need a new furnace. And I said, Mom, good for you. Here is the phone. Call, use your line of credit. She got the money and put a new furnace in. About four years later, she sold her property in Denver. It had gone up significantly in value. She paid off her reverse mortgage and put money in the bank, and moved to Maryland to be with my sister. Thats the perfect story.
And thats the way the program was designed to work. That is the way it did work. And that is the way it can work for many. She had the components: Need and some challenges, and she had the ability to tap her line of credit when she had an emergency. Her home went up in value. And when she paid off the mortgage, she had money left over. Author and columnist, Atare E. Agbamu, CRMS is director of reverse mortgages at Minneapolis-based AdvisorNet Mortgage LLC. A member of the BusinessWeek Market Advisory Board, Agbamu is author of Think Reverse! and more than 130 articles on reverse mortgages. Through his advisory firm, ThinkReverse LLC, Agbamu advises financial professionals, institutions and regulators across the country. In a 2007 national report on reverse mortgages, the AARP cited Agbamus work. He can be reached by phone at (612) 436-3711 or (612) 203-9434, and e-mail at aagbamu@advisornet.com or atare@thinkreverse.com. Visit author Atare E. Agbamus blog at thinkreverse.com for his thoughts and insights on the reverse mortgage marketplace.
Lobby Your Representatives on Capitol Hill There is no better way to build relationships with your senators and representatives than by attending Lobby Day. Getting face-to-face with the decisionmakers who create important policy is invaluable during such historic and unprecedented times in our industry. Bill Kidwell Dont Miss Out on What This Conference Has to Offer If you can only attend one national meeting this year, make it the NAMB 2010 Legislative & Regulatory Conference. It is a great opportunity to meet with fellow NAMB members and work together to formulate NAMBs policy agenda. Don Fader, CRMS
will report the spread between a loans annual percentage rate (APR) and the new comparable called the average prime offer rate (APOR): The spread must be reported if it is equal to or greater than 1.5 percentage points for first lien loans or 3.5 percentage points for subordinate lien loans.
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HMDA (Regulation C)
New Reporting Spread O Effective Oct. 1, 2009, a lender
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news flash
tance needed to move from the trial to the permanent modification phase. All mortgage modifications begin with a trial phase to allow borrowers to submit the necessary documentation and determine whether the modified monthly payment is sustainable for them. As the first round of modifications reaches the time to convert, the Administration has identified several strategies for addressing the challenges that borrowers confront in receiving permanent modifications. For more information, visit www.MakingHomeAffordable.gov.
for each group at the end of the third quarter were as follows: O CMBS: 4.06 percent (30-plus days delinquent or in real-estate owned); O Life company portfolios: 0.23 percent (60-plus days delinquent); O Fannie Mae: 0.62 percent (60 or more days delinquent); O Freddie Mac: 0.11 percent (90 or more days delinquent); and O Banks and thrifts: 3.43 percent (90 or more days delinquent or in non-accrual).
The MBA analysis looks at commercial/multifamily delinquency rates for five of the largest investor-groups: commercial banks and thrifts, commercial mortgage-backed securities (CMBS), life insurance companies, Fannie Mae and Freddie Mac. Together these groups hold more than 80 percent of commercial/multifamily mortgage debt outstanding. The analysis incorporates the same measures used by each individual investor group to track the performance of their loans. Because each investor group tracks delinquencies in its own way, delinquency rates are not comparable from one group to another. For more information, visit www.mortgagebankers.org.
Find Out What Guaranteed Can Do For You. Branch Program for Professionals
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O JANUARY 2010
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By Jonathan Foxx
In 2008, the U.S. Department of Housing & Urban Development (HUD) issued both technical and substantive amendments to the rule that implements the Real Estate Settlement Procedures Act (RESPA). 1 The technical changes took effect on Jan. 16, 2009 and substantive changes have taken effect on Jan. 1, 2010. Last month, I provided a brief analysis of the new Good Faith Estimate (GFE).2 In this article, I will offer some procedural guidance that incorporates several substantive changes that took effect on Jan. 1, 2010. This analysis is meant as an overview of those changes.3 Notably, the federal regulatory agencies will now begin examining for compliance with the new substantive provisions of the new RESPA Reform Rule on Jan. 1, 2010.4 Among other things, substantial changes have been made to: O O O O Good Faith Estimate (GFE) HUD-1 Settlement Statement (HUD-1) HUD-1A Settlement Statement (HUD-1A) Settlement Cost Booklet5
O www.NationalMortgageProfessional.com
I will consider the five following RESPA revisions:6 1. New GFE Form 2. Binding GFE 3. Tolerances on Settlement Costs 4. HUD-1/1A Settlement Statement 5. Settlement Cost Booklet
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settlement charges are disclosed in Block B. The amounts in the blocks are to be added to arrive at the Total Estimated Settlement Charges, which is required to be listed at the bottom of the page. 8 Block A: Disclosure of Adjusted Origination Charge Block A addresses disclosure of origination charges, which include all lender and mortgage broker charges. The Adjusted Origination Charge results from the subtraction of a credit from the origination charge or the addition of a charge to the origination charge. Block 1: The origination charges, which includes lender processing and underwriting fees and any fees paid to a mortgage broker. Note: This block requires the disclosure of all charges that all loan originators involved in the transaction will receive for originating the loan (excluding any charges for points). A loan originator may not separately charge any additional fees for getting the loan, such as application, processing or underwriting fees. The amount in Block 1 is subject to zero tolerance (i.e., the amount cannot change at settlement). (See Tolerances below.) Block 2: A credit or charge for the interest rate chosen: Note: Differentiation is made between transactions involving a mortgage broker and transactions that do not involve a mortgage broker. I Transaction involving a mortgage broker. Block 2 requires disclosure of a credit or charge (points) for the specific interest rate chosen. The credit or charge for the specific interest rate chosen is the net payment to the mortgage broker (i.e., the sum of all payments to the mortgage broker from the lender, including payments based on the loan amount, a flat rate or any other compensation, and in a table funded transaction, the loan amount less the price paid for the loan by the lender). When the net payment to the mortgage broker from the lender is positive, there is a credit to the borrower and it is entered as a negative amount. [For example, if the lender pays a yield spread premium (YSP) to a mortgage broker for the loan set forth in the GFE, the payment must be disclosed as a credit to the borrower for the particular interest rate listed on the GFE (reflected on the GFE at Block 2, Checkbox 2). The term yield spread premium is not featured on the GFE or the HUD-1 Settlement Statement.] Note: Points paid by the borrower for the interest rate chosen must be disclosed as a charge (reflected on the GFE at Block 2, Checkbox 3). A loan cannot include both a charge (points) and a credit (yield spread premium). I Transaction not involving a mortgage broker. For a transaction without a mortgage broker, a lender may choose not to separately disclose any credit or charge for the interest rate chosen for the loan in the GFE. If the lender does not include any credit or charge in Block 2, it must check the first checkbox in Block 2 indicating that The credit or charge for the interest rate you have chosen is included in our origination charge above. Only one of the boxes in Block 2 may be checked: a credit and charge cannot occur together in the same transaction. 8 Block B: Disclosure Of Charges For All Other Settlement Services Block B totals the sums for all settlement services (other than the origination charges). Block 3: Service providers selected by the lender (i.e., appraisal, flood certification fees) Block 4: Title service fees and the cost of lenders title insurance Block 5: Owners title insurance Block 6: Other required services for which the consumer may shop Block 7: Government recording charges Block 8: Transfer tax charges Block 9: Initial deposit for escrow account Block 10: Daily interest charges Block 11: Homeowners insurance charges
BRANCH OPPORTUNITY
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Steven A. Milner
President & CEO - MORTGAGE CONCEPTS
GET FAMILNER WITH US YOULL BE GLAD YOU DID!!
O JANUARY 2010
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Mortgage broker buys mortgage banker as First Priority acquires Austin Perry
First Priority Financial Corporation, a privately held retail mortgage origination firm, has announced the intended acquisition of Austin Perry Financial Corporation, a privately held residential wholesale mortgage banker based in Santa Rosa, Calif. Funding more than 10,000 loans annually, First Priority Financial was one of few companies surviving the industry meltdown without posting any losses or going through a single layoff. Similarly, Austin Perry has earned a reputation as a cost and customer service leader in the wholesale mortgage banking arena with a similar approach to the market, quality and cost control, Austin Perry was also among the elite few who remained financially strong while the majority of their mortgage banking peers floundered or barely hung on. Our success has always been based on doing whats best for the consumer, said Tim Kearns, chief executive officer of First Priority Financial. This means operating on thin margins and delivering greater funding choices and flexibility than the rest of the industry and offering unprecedented work-flow efficiencies for originators. This mindset will never change for us and was also a driving force behind the decision to make this acquisition. The motivation to bank loans in the past was purely profit margin based and not client facing. So we stuck to brokering because it was mathematically best for our clients and loan producers. The changing lending environment makes it prudent to expand and refine banking delivery and continuing to improve upon an already fantastic brokerage channel to best serve our borrowers needs. When asked about the acquisition, Kearns stated that building a banking division internally is the norm but is too often fraught with growing pains for which the consumer and loan producers would ultimately pay the price. Choosing Austin Perry was the easy part, said Kearns. We have our loan originators rate the lender on every transaction. With over 100,000 transactions funded through virtually every lending source in America, we have the
most thorough lender rankings in existence and Austin Perry has always been one of the top lenders. Kearns says that the company will take the same low margin, high-efficiency approach to banking that made it the leading broker in the nation. The company will continue to focus on expanding and refining the brokerage channel in tandem with the internal banking division. We are excited to begin integrating the teams and scaling the funding operation to accommodate the expected increase in volume, said Steve Weaver, president of Austin Perry. The cultural fit between the two companies is hard to describe, both entities have such a strong commitment to their people and clients; Its not something you see much anymore. For more information, visit www.austinperry.com.
Visit our website or Call 877.353.2233 or For Faster Service Please Fax Your Scenarios To 240.241.5160
JANUARY 2010 O
www.WeApproveLoans.com
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= The credit or charge for the interest rate chosen (i.e., yield spread premium or discount points) while the interest rate is locked. = The adjusted origination charge while the interest rate is locked. = State/local property transfer taxes. 2. Ten percent tolerance category: For this category of fees, while each individual fee may increase or decrease, the sum of the charges at settlement may not be greater than ten percent above the sum of the amounts included on the GFE. These fees include: = Loan originator required settlement services, where the loan originator selects the third-party settlement service provider. = Loan originator required services, title services, required title insurance and owners title insurance when the borrower selects a third-party provider identified by the loan originator. = Government recording charges. 3. No tolerance category: This category of fees is not subject to any tolerance restriction. The amounts charged for the following settlement services included on the GFE can change at settlement and the amount of the change is not limited. These fees include: = Loan originator required services where the borrower selects his or her own third-party provider. = Title services, lenders title insurance and owners title insurance when the borrower selects his or her own provider. = Initial escrow deposit. = Daily interest charges. = Homeowners insurance.
With limited exceptions, the loan originator will be bound to the settlement charges and loan terms listed on the GFE. For the interest rate, the loan originator will be required to indicate on the GFE the period during which a rate is available. After that period, the interest rate and other rate related charges, the adjusted origination charges, and the per diem interest can change until the interest rate is locked. For settlement charges and all other loan terms, the loan originator will be required to honor the estimated settlement charges and loan terms for at least 10 business days from the date the GFE is provided. The charges and terms in the GFE will be binding, unless a revised GFE is provided to the borrower prior to settlement based on changed circumstances as defined in the rule (see below). NOTE: if a lender accepts a GFE issued by a mortgage broker, the lender is subject to the loan terms and settlement charges listed in the GFE, unless a revised GFE is issued prior to settlement. Changed circumstances are: G Acts of God, war, disaster or other emergency. G Information particular to the borrower or transaction that was relied on in providing the GFE that changes or is found to be inaccurate after the GFE has been provided. G New information particular to the borrower or transaction that was not relied on in providing the GFE. G Other circumstances particular to the borrower or transaction, including boundary disputes, the need for flood insurance or environmental problems. Changed circumstances do not include: borrowers name, borrowers monthly income, property address, estimate property value, mortgage loan amount, and any information contained in any credit report obtained by the loan originator prior to providing the GFE (unless the information changes or is found to be inaccurate after the GFE has been provided). Also, market price fluctuations by themselves do not constitute changed circumstances. Changed circumstances affecting settlement costs are those circumstances that result in increased costs for settlement services such that the charges at settlement would exceed the tolerances or limits on those charges established by the regulations. Changed circumstances affecting the loan are those circumstances that affect the borrowers eligibility for the loan. For example, if underwriting and verification indicate that the borrower is ineligible for the loan provided in the GFE, the loan originator would no longer be bound by the original GFE. In such cases, if a new GFE is to be provided, the loan originator must do so within three business days of receiving information sufficient to establish changed circumstances. The loan originator must document the reason that a new GFE was provided and must retain documentation of any reasons for providing a new GFE for no less than three years after settlement. None of the information collected by the loan originator prior to issuing the GFE may later become the basis for a changed circumstance upon which it may offer a revised GFE, unless: 1. It demonstrates that there was a change in the particular information; or 2. The information was inaccurate; or 3. It did not rely on that particular information in issuing the GFE. A loan originator has the burden of demonstrating non-reliance on the collected information, but may do so through various means (for example, through a documented record in the underwriting file or an established policy of relying on a more limited set of information in providing GFEs). Note: if a loan originator issues a revised GFE based on information previously collected in issuing the original GFE and changed circumstances, it must document the reasons for issuing the revised GFE, such as its non-reliance on such information or the inaccuracy of such information.
United Northern is Seeking Highly Qualied, Experienced Mortgage Professionals To Grow as We Grow
Operations Manager Production Manager Senior Underwriter Virtual Mortgage Loan Ofcers (VMLOs) In-House Mortgage Loan Ofcers (MLOs) Team Leaders/Sales Managers
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O JANUARY 2010
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Websters New Universal Unabridged Dictionary, defines the word simplify as to make less complex or complicated; make plainer or easier. We as a society know that in todays times, when government interjects itself in the affairs of the people in order to make things simple, that simplicity doesnt always come to fruition, and in fact, often results in unintended negative consequences. Its no mystery that when on March 14, 2008, the U.S. Department of Housing & Urban Development (HUD) decided to simplify the homebuying process for the American consumer through revisions to the Real Estate Settlement Procedures Act (RESPA), that a virtual train wreck of confusion was on the horizon. One of the aims of HUDs RESPA reform was to standardize the Good Faith Estimate (GFE) to improve disclosure of loan terms and settlement costs for the consumer. The end result of HUDs vision of RESPA simplification is a more complicated and confusing process for the homebuyer, the lending industry and the government. As of Jan. 1, 2010, HUD requires that lenders and mortgage brokers provide consumers with a standard GFE that clearly discloses key loan terms and closing costs. Closing agents will also be required to provide borrowers a new HUD-1 Settlement Statement that clearly compares consumers final and estimated costs. The new RESPA rule initially became effective on Jan. 16, 2009, but HUD provided a one-year transition period for the mortgage industry to incorporate these changes. The confusion on the government side is evident when you rewind nearly 18 months ago. It was on Sept. 16, 2008, before the U.S. House of Representatives Subcommittee on Oversight and Investigations of the Committee on Financial Services, when David H. Stevens, then president of affiliated businesses for Long & Foster Companies and current Assistant Secretary for Housing/FHA Commissioner, testified on behalf of the Real Estate Services Providers Council Inc. (RESPRO) at a hearing on HUDs proposed RESPA rule. RESPRO is a national non-profit trade association of residential real estate brokerage, mortgage, home building, title and other settlement service companies who work to promote an environment
enabling providers to offer diversified services for home buyers through affiliations, joint ventures and other strategic alliances. RESPA reform has been a nightmare for the mortgage industry since it was proposed back in 2002, said Marc Savitt, CRMS, president of Martinsburg, W. Va.-based The Mortgage Center. If the industry cannot understand the revised GFE due to confusion, how is the consumer going to understand it? On behalf of RESPRO, Stevens weighed in on supporting HUDs goal of providing simplified mortgage disclosures that make it easier for consumers to shop when they purchase or refinance a home. However, in the testimony, Stevens and RESPRO believed that the RESPA reform proposed by HUD in March of 2008 would have the opposite effect. HUD fully understands how bad this rule is, as evidenced by David Stevens September 2008 testimony before the House Subcommittee on Oversight and Investigations of the Committee on Financial Services, said Savitt, then president of the National Association of Mortgage Brokers (NAMB) who sat beside Stevens on Sept. 16, 2008 and represented the mortgage broker trade association at the House Subcommittee on Oversight and Investigations of the Committee on Financial Services during the RESPA reform hearing. I also testified at that same hearing and remember the passion in his voice, with respect to his concern of consumer confusion and damage to the overall housing market. Quoting the testimony of Stevens from the hearing: The proposed Good Faith Estimate (GFE) is lengthy, complex, and cannot be easily compared by a borrower with the HUD-1 Settlement Statement at closing to determine whether the actual costs exceed the estimate provided at the time of the loan application. The proposed GFE contains terminology that conflicts with other disclosures consumers receive under the Truth-in-Lending Act (TILA) and the Equal Credit Opportunity Act (ECOA), which will add to the borrowers confusion during the loan application process. HUDs proposed new GFE and mortgage application process would overlap and
conflict with the broader federal mortgage regulatory framework under TILA and ECOA, which would further add to the borrowers confusion. Lengthy and complex? Quite the polar opposite of Websters definition of simplify, the initial intent of the RESPA rule. Conflicting terminology in the GFE? Why burden the borrower with more troubles as they embark on what is likely the single largest purchase they will make in their life. Overlapping regulatory framework? Wasnt this supposed to be made, again, simple? In studies conducted by the Federal Trade Commission [FTC] in 2004 and 2007, it was determined that the new GFE was confusing to consumers, said Savitt. If HUD allows this rule to go in to effect on Jan. 1, the housing market will be seriously injured. Stevens as new FHA Commissioner is no stranger to the mortgage lending arena, as he has seen both sides of the fence. Before accepting the role of FHA Commissioner, he served as president and chief operating officer of The Long & Foster Companies. With Long & Foster, one of Stevens responsibilities was president of affiliated businesses, overseeing the individual business units for mortgage, title, insurance and settlement services for the company. Prior to that, Stevens had a brief stint of a little over a year as executive vice president, national wholesale manager for Wells Fargo from 2005-2006. Prior to his short tenure with Wells, he served as senior vice president for the single family division at Freddie Mac for approximately seven years. Stevens got his start in the financing world back in 1983, with World Savings for 15 years, working his way up to the role of group senior vice president. Doing the math, thats a grand total of 26 years in the finance industry prior to his accepting President Obamas nomination as FHA Commissioner back in March of 2009. Less than half the way through Stevens prepared testimony, he makes the statement: These are just a few reasons why we believe HUDs 2008 proposed RESPA reform rulewhich was almost 100 printed Federal Register pageswas fundamentally flawed. Given the short
timetable for public comments (March 14-June 13, 2008), the thousands of comments received, and the extremely short time after the deadline for comments that HUD took to analyze them, draft a final rule, and send it to OMB [Office of Management and Budget] ( June 13August 14, 2008), we think that it is extremely unlikely that HUD has modified the proposed rule in a manner that would resolve these and numerous other potential problems.
HUD fully understands how bad this rule is, as evidenced by David Stevens September 2008 testimony before the House Subcommittee on Oversight and Investigations of the Committee on Financial Services. Marc Savitt, CRMS, President, The Mortgage Center
Fundamentally flawed was the Stevens/RESPRO description of the rule. Now that may have been back in September of 2008, but with a rule set for enactment on Jan. 1 and nothing having been done to rectify these fundamental flaws, it looks as though a fundamentally flawed rule will be governing the industry responsible for the single greatest investment in ones life as of Jan. 1. He concluded this section by stating, we think that it is extremely unlikely that HUD has modified the proposed rule in a manner that would resolve these and numerous other potential problems. Now that he is in charge of enforcing this revised RESPA rule, Mr. David Stevens, in his position as FHA Commissioner, has the power to change things. As of this writing, there has been no movement on modifying any portion of this rule that would resolve any of its potential problems. As recently as last month, Vicki Bott, HUD Deputy Assistant Secretary of Single Family Housing, called the revised RESPA rule confusing, while speaking on a Webinar, said Savitt. The last thing our economy needs right now is another housing crisis.
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O www.NationalMortgageProfessional.com
news flash
728,000 modifications underway across the country, the program is on track to meet its goals over the next several years. Borrowers in modifications are saving an average of over $550 per month, however, the report shows that servicers have only converted 31,382 modifications to the permanent phase. According to servicer reports, most borrowers in modifications are meeting their responsibilities to make their payments. Servicers need to do their part to help borrowers complete the process and get to the finish line. Top Administration officials recently met with servicers in Washington, D.C. to urge a faster pace in converting borrowers to permanent modifications. As this report illustrates, struggling homeowners across the country continue to receive immediate relief in the form of reduced monthly payments and a second chance to stay in their homes, said Chief of Treasurys Homeownership Preservation Office (HPO) Phyllis Caldwell. Our focus now is on working with servicers, borrowers and organizations to get as many of those eligible homeowners as possible into permanent modifications. Our challenge now is to keep the pressure on, said HUD Senior Advisor for Mortgage Finance William Apgar. HUD approved counselors are working with borrowers to ensure they are doing their part to transition into sustainable permanent modifications and we will ensure that servicers convert as many of those modifications by the end of the year as scheduled as they are scheduled to. For more information, visit www.financialstability.gov.
from 10 percent in Missouri to as high as 22.7 percent in Florida. Foreclosure sales jumped in October, with the rate at 5.6 percent of foreclosures in inventory. The number of foreclosures on the market continues to stall as foreclosure timelines extend. Nearly 30 percent of properties that have been in foreclosure for 12 months have not yet been put on the market for sale twice the level of the prior year. Foreclosure inventories continued to
climb to record levels. Octobers foreclosure rate stood at 3.14 percent, a month-over-month increase of 0.7 percent and a year-over-year increase of 85.1 percent. Total delinquencies, already at record highs, edged up 0.85 percent in October over Septembers figures and were 32 percent higher than the same period last year. Loans rolling to a more delinquent status remain elevated, but totals are below the Nov. 2008 peak. Roll rates into foreclosure remain low as a result of loss mitigation efforts and elevated delinquent loan volumes. For more information, visit www.lpsvcs.com.
Your turn
National Mortgage Professional Magazine invites you to submit any information on regulatory changes, legislative updates, human interest stories or any other newsworthy items pertaining to the mortgage industry to the attention of:
Why some Mortgage Professionals fail in Credit Repair while others Make Serious Money
Mortgage Professionals make money in credit repair while getting borrowers Mortgage Ready!
You dont need to be a credit expert to they couldnt close before due to bad credit! It means more loans and more revenue for my loan start your own Credit Repair business
Fortunately, with HTDI Financials Credit Services Organization (CSO) program, you will be able to handle ALL aspects of your business except having to do the actual repairs; we do that for you! We will train you on how to handle these customers and you will have the support you need every step of the way. We will make you look like a Fortune 500 company even if you work from home! YOU control how much money you make. In fact, through our CRM, we give you the tools and resources to harvest leads, manage prospects and monitor their progress.
officers. Even better than that, it is very rewarding to be able to help a client regain their credit and be able to get the loan they need.
You dont have to spend tens of thousands of dollars for start-up costs for your own Credit Repair Company
Once you are set up in our system, you will get access to software and tools that HTDI has spent over $1 million on research and development. You dont need to spend an arm and a leg to start building your own credit repair business. Here is a quote from a mortgage company located in upstate New York who spent months of research before choosing HTDI:
LPS report shows loan deterioration ratio above the 3:1 mark
The November Mortgage Monitor report, released by Lender Processing Services Inc. (LPS), has revealed a nationwide loan deterioration ratio higher than 3:1, indicating that for every one loan improved, three more loans are deteriorating. Published by LPS, a leading provider of mortgage performance data and analytics, the November 2009 Mortgage Monitor report is an in-depth summary of mortgage industry performance indicators based on data collected as of Oct. 31, 2009. Of home loans that were current as of December 2008, more than two million, or 4.02 percent, were delinquent or in foreclosure by the end of October 2009. High rates of deterioration were particularly evident in the Northeast and Northwest. Thirty-one states now have non-current loan rates (delinquency plus foreclosure rates) ranging
Until last year, I owned a large mortgage company in upstate NY with over 125 employees. We got hit hard during the mortgage industry crash and had to close our doors. I was stuck in a position with thousands of leads and customers that couldnt get qualified for anything. I decided to start looking for a way to capitalize on my left over resources and help people in the process. I called many other credit repair companies and was very unimpressed. One west coast based company was charging $15,000 and had nothing but negatives written about them on the Internet. Then I found HTDI. They helped me to get started at the beginning of this year and it has been great. I have not only made great money helping people to repair their credit, but I have refinanced 8 of them and helped 6 buy houses that would have never qualified with the new guidelines. The software is very user friendly and all of my clients, affiliates and Brokers have increased business because of it.
Ive been in the mortgage business over 22 years. A year ago, as the mortgage crisis worsened, I began trying to find a way to help clients who needed a better credit profile in order to get a mortgage. Fortunately for both me and my clients, I stumbled on HTDI. After a year of experience, I can honestly say the success rate is 100% and client satisfaction is through the roof. All of my clients have seen significant improvements, and some have experienced breathtaking jumps in their credit scores, even on the first round! From Day One you can be sure your back office (HTDI) has you covered. They will execute their part of the job seamlessly, with precision, on time, and with total consistency. All you have to do is SELL the service! Just sign people up, collect the money, and send HTDI the paperwork they need to get started. If you simply focus on selling the service, you will make lots of money, the work will get done, and you will never have to worry about unhappy customers. Although I got into it as a part timer, I now realize this is an excellent full time business opportunity. (Frankly, these days its probably a better business than the mortgage business!) You could easily make six figures in the first year with a minimal investment of money. How many opportunities like this exist these days? What you must invest is your time SELL, SELL, SELL & SELL some more! Ultimately, what you are selling is the professionalism of HTDI, which is why this really rocks as a business opportunity.
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I have many loan officers that are now able to send their clients through the credit repair, raise their scores, and then close the clients loan that
There is only one step you need to take; visit www.startacreditrepaircompany.com or call us at 877-877-4834 option 5.
O JANUARY 2010
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all mortgage brokers prior to approval and will follow by building its Professional Branch System, which is dedicated to supporting only the very best retail mortgage professionals in their respective markets. Currently able to do business in 26 states and operating 18 professional retail branches, NetMores production volume surpassed the $1 billion milestone for its fiscal year that ended Sept. 30, 2009, a 300 percent increase compared to the same period in 2008. For fiscal year 2010, the company is projecting production volume to increase to the $1.3 billion to $1.5 billion range. For more information, visit www.netmoreamerica.com.
Cole Taylor Bank, a subsidiary of Taylor Capital Group Inc., has announced that
it has established a new residential mortgage origination line of business. The new business will be headed up by Willie Newman, former executive vice president of ABN AMRO Mortgage Group, and a recognized industry expert with more than 24 years of mortgage banking experience. Newman will report to Randy Conte, Taylor Capitals chief financial officer and chief operating officer, who was chief operating officer of ABN AMRO Mortgage for several years. The unit will have offices in several states, with production to come from established relationships with mortgage brokers, remote retail origination sites and production from Cole Taylors retail banking locations. The loans will not be held in the banks portfolio but rather sold after origination. We expect that the addition of this new line of business will be an important new source of fee income for our organization and will provide additional earnings diversification, said Bruce W. Taylor,
chairman of Taylor Capital. We believe that this is a significant opportunity for us, and we are fortunate to be able to attract an industry leader like Willie Newman for this new line of business. Randy Conte said, Im delighted to welcome Willie and his team to our organization. His leadership and industry contacts should enable us to grow this businesswhich we understand very wellinto a strong source of fee income for the bank. We expect to begin originating high-quality, first mortgage loans in the first quarter of 2010. For more information, visit www.coletatylor.com.
will consider implementing. Failing to plan is planning to fail. Theres no substitute for good, old fashioned, belly-tobelly selling. People have been looking for shortcuts for years. Some work for a time and then the cheese gets moved and its back to basics. Greg Frost is president of Frost Mortgage Lending Group, a PRMI Company. Greg has a proven track record as the first billion dollar producer. Gregs Albuquerque team regularly originates more than 800 loans each year. Last year, his team originated financing for 5.5 percent of all resales as reported through the Albuquerque Board of Realtors, which translates to one out of 19 homebuyers in Albuquerque, N.M. alone. He may be reached by e-mail at info@gregfrost.com.
Marshall & Swift, a provider of building cost data and estimating technology and a MacDonald, Dettwiler and Associates (MDA) company, announced that the U.S. Department of Housing & Urban Developments (HUD) Office of Single Family Asset Management (SFAM) will use Marshall & Swifts cost estimator data and solutions to provide repair, replacement, maintenance or improvement costs on Federal Housing Administration (FHA) housing units, as a pilot initiative. Marshall & Swifts cost estimator responds to the industry need to estimate repairs on the growing number of residential properties now in or entering the real estate foreclosure market. The subscription services establishes repair costs to increase the time for understanding repair needs in the overall real estate transaction. HUDs decision to use Marshall & Swifts data will help it simplify and ultimately eliminate the manual cost allowable updates routinely performed to develop and confirm costs for the industry across the United States and its territories on a consistent and totally verifiable basis. Marshall & Swift is proud to continue to provide support to the FHA and HUDs Office of Single Family Asset Management, said Salil Donde, chief executive officer of Marshall & Swift. The selection of Marshall & Swifts industry leading total component database, offers defendable repair cost estimations in the fifty states and territories, and will streamline validating costs for residential property repair and preservation. Marshall & Swifts objective thirdparty information will provide a conduit for the agency and industry to work more closely with each other and reduce unneeded time, costs and expenses associated with the protection and preservation of assets. For more information, visit www.marshallswift.com or www.hud.gov.
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the HUD-1/1A and the GFE, as indicated above. Each designated line on the second page of the revised HUD-1/1A includes a reference to the relevant line from the GFE. O No Cost Loans: Where no cost refers only to the loan originators fees (see Section L, subsection 800 of the HUD-1 form), the amounts shown for the origination charge and the credit or charge for the interest rate chosen should offset, so that the adjusted origination charge is zero. Where no cost encompasses loan originator and third-party fees, all third-party fees must be itemized and listed in the borrowers column on the HUD-1/1A. These itemized charges must be offset with a negative adjusted origination charge (Line 803) and recorded in the columns. O Comparisons: The revised HUD-1 includes a new third page (second page of the HUD-1A) that allows borrowers to compare the loan terms and settlement charges listed on the GFE with the terms and charges listed on the closing statement. The first half of the third page includes a comparison chart that sets forth the settlement charges from the GFE and the settlement charges from the HUD-1 to allow the borrower to easily determine whether the settlement charges exceed the charges stated on the GFE.14 O As indicated above, inadvertent or technical errors on the settlement statement are not deemed to be a violation of Section 3500.4 of RESPA if a revised HUD-1/1A is provided to the borrower within 30 calendar days after settlement. 15 O The second half of the third page sets forth the loan terms for the loan received at settlement in a format that reflects the summary of loan terms on the first page of the GFE, but with additional loan related information that would be available at closing. A note at the bottom of the page indicates that the borrower should contact the lender if the borrower has questions about the settlement charges or loan terms listed on the form. O Section 3500.8(b) of RESPA (Charges to be Stated) and the instructions for completing the HUD-1/1A Settlement Statement provide that the loan originator shall transmit sufficient information to the settlement agent to allow the settlement agent to complete the Loan Terms section. The loan originator must provide the information in a format that permits the settlement agent to enter the information in the appropriate spaces on the HUD-1/1A, without having to refer to the loan documents.
4Lenders are responsible for the disclosures provided by mortgage brokers and, therefore, should implement procedures to assure that mortgage brokers with whom they do business comply with the new RESPA requirements. 5HUD issued the revised Settlement Cost Booklet on Dec. 15, 2009. Entitled Shopping for Your Home Loan, the new booklet must be used with the new GFE and HUD-1. 6Portions of this overview incorporate guidance from OTS: Consumer Affair Laws and Regulations, Section 1320.1 (12/2009) 7The GFE must be completed in accordance with the instructions set forth in Appendix C of 24 CFR Part 3500. 8The RESPA Reform Rule changed the definition of mortgage broker to mean a person or entity (not an employee of a lender) that renders origination services and serves as an intermediary between a lender and a borrower in a transaction involving a federally related mortgage loan, including such person or entity that closes the loan in its own name and table funds the transaction. The definition will also apply to a loan correspondent approved under 24 CFR 202.8 for Federal Housing Administration (FHA) programs. The definition would also include an exclusive agent who is not an employee of the lender. 9Weekdays, except Sundays and specified, legal holidays. 10See: 24 CFR 3500.7(f). 11See: 24 CFR 3500.7(e) and (i). 12See: 24 CFR 3500.8. 13No settlement statement is required for home equity plans subject to the Truth-in-Lending Act and Regulation Z. 14If any charges at settlement exceed the charges listed on the GFE by more than the permitted tolerances, the loan originator may cure the tolerance violation by reimbursing to the borrower the amount by which the tolerance was exceeded. A borrower will be deemed to have received timely reimbursement if the financial institution delivers or places the payment in the mail within 30 calendar days after settlement. 15See: 24 CFR 3500.4: Reliance upon Rule, Regulation or Interpretation by HUD. 16Op. Cit. 5.
A loan originator is required to provide the borrower with a copy of the Settlement Cost Booklet, entitled Shopping for Your Home Loan, at the time a written application is submitted, or no later than three business days after the application is received. If the application is denied before the end of the three-business-day period, the loan originator is not required to provide the booklet. If the borrower uses a mortgage broker, the broker rather than the lender, must provide the booklet. The booklet does not need to be provided for refinancing transactions, closed-end subordinate lien mortgage loans, and reverse mortgage transactions, or for any other federally related mortgage loan not intended for the purchase of a one-to-four family residential property. Jonathan Foxx, former chief compliance officer for two of the countrys top publicly-traded residential mortgage loan originators, is the president and managing director of Lenders Compliance Group, a mortgage risk management firm devoted to providing regulatory compliance advice and counsel to the mortgage industry. He may be contacted at (516) 442-3456 or by e-mail at jfoxx@lenderscompliancegroup.com. For more information on author Jonathan Foxx, visit Lenders Compliance Group on the Web at www.lenderscompliancegroup.com.
Footnotes
173 Fed. Reg. 68204 (Nov. 17, 2008). 2Regulatory Compliance Outlook, National Mortgage Professional Magazine, December 2009, Volume 1, Issue 8. 3For detailed information, review the following Appendices from the RESPA regulation: Appendix AInstructions for completing the HUD-1 and HUD-1A; Appendix CInstructions for completing the Good Faith Estimate (GFE).
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Mortgage fraud continues to increase, The FBI clearly states that fraud is, despite the numerous news articles and The intentional misstatement, misrepmedia attention that bring to light the resentation or omission by the applicant many schemes designed to take advantage or other interested parties, relied on by of mortgage processes. National banking, a lender to provide funding for, to purfinancial and mortgage trade associations chase, or to insure a mortgage loan. invariably include, in their annual events, Government insuring programs and specific topics for fraud detection and miti- recent laws are now being designed to gation strategies. Individual state legisla- strictly follow the historical definition of tures are taking action in an attempt to sta- fraud, and not allow anything into the bilize internal economic facloan decision that has not tors; including property valbeen verified and validatues. Incidences of reported ed through independent fraud have increases so consources. On the heels of sistently that trending charts the demise of popular can be confused for those mortgage programs that measuring the popularity of were designed to Trust leading video games. With the word of the borrower, increasing pressure on it appears that the legislamortgage income streams tive pendulum has swung due to newly enacted legisin the opposite direction. lation, it is fair to ask if it Although in some cirwould have been less turbucles, the past programs of lent to have chosen a career the past programs NINA (no income, no asset) of NINA (no income, in politics. and SISA (stated-income, no asset) and SISA In July 2009, the Federal stated-asset), are rememBureau of Investigations (stated-income, statbered with fondness, most(FBI) released its mortgage ed-asset), are remem- ly for the ease of processfraud statistics for 2008. The ing and the profits they bered with fondness, report identified an increase generated, it can well be mostly for the ease of of reported fraud of 36 perargued that they representprocessing and the cent over 2007s totals. profits they generated, ed the brink of disaster for Figures for 2009 were also the mortgage industry, it can well be argued reported as showing signifespecially when allowed that they represented icant increases. The FBI for the salaried borrower. the brink of disaster Web site categorizes mortWhat cannot be quesfor the mortgage gage fraud as either, Fraud tioned is the demise of industry, especially for Property or Fraud for many origination compawhen allowed for the Profit. Fraud for Property nies that relied heavily on salaried borrower. entails the borrower misthese programs and upon stating income and/or debts ever increasing property in order to qualify to purchase a property. values and funding volumes. Many comThe borrower usually enters the transaction pany income strategies fell victim to the with the full intent of making payments, lure of easy profits and were crushed by although their plan may be short-term in unscrupulous borrowers who chose to lie areas where property values are rapidly or scheme their way through the mortincreasing. Fraud for Profit usually gage process. involves, multiple loans and elaborate Mortgage companies can successfully schemes, in order to gain large proceeds navigate these potentially dangerous from the purchase transaction. These waters by recognizing the changes in the schemes often leave the loan origination industry and responding with a strong company facing indemnification since any fraud policy that focuses quality control government insurance program (FNMA, (QC) resources heavily upon prevention. FHLMC, FHA, VA) would be withdrawn once Preventative audit and systemic controls fraud is identified. provide the ability to mitigate risk, while
managing large loan populations and large numbers of satellite branches, yet remaining flexible enough to meet each borrowers individual financial needs. Although individual companies must set policies that best suit their corporate objectives, the prudent executive will be sure their policy includes these basics.
enables systemic review of values for the appraised property and the appraisal comparables with a comparison to current local market values. Identified exceptions can then be reviewed manually to ensure validity of the appraisal value.
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a contributing factor to discrepancies detected in a file. Maintaining a zero fraud tolerance, both internally and externally, ensures that the company can continue to focus resources and fight fraud as an external foe. Any violation, no matter how insignificant, must be excised like a cancer. The origination company graveyard is filled with those who thought that doing business meant turning a blind eye at times. All too infrequently, requests are received to review tax returns where the borrower has not disclosed certain incomes, but requests that the loan officer include the figures when calculating the debt ratio. There are no grey areas! There are no allowances for either the customer with this mindset, or a loan officer that would even consider allowing this manipulation. These scenarios should be avoided as the ticking time bombs in your loan portfolio which they truly represent. No matter how large the borrowers income, no matter how high their FICO score, if they receive the IRS audit phone call, its game over. Finally, I am frequently asked, What is the reimbursement recovery potential for
money lost due to fraud? Although each situation is unique in some way, with fraud schemes the money disappears quickly and most often is not recoverable. In a USFN article in 2007 by Bruce Bergman, he concludes that suing for fraud is a less profitable route than merely foreclosing on the property. Although it may not offer the satisfaction of seeing punishment enforced, it does have the benefit of returning funds to the company coffers. This is, after all, the primary goal when a fraud investigation turns into a loss mitigation scenario. A successful fraud prevention policy will ensure that the company dollars never fall into the category of potential recovery. John Frank is the vice president of quality control for Primary Residential Mortgage Inc. He graduated from the University of Utah in 1988, and has been in the banking industry for almost 25 years. His background includes management positions with Norwest Bank, The Associates and Citi Group. He may be reached by phone at (800) 255-2792, ext.1017 or e-mail jfrank@primeres.com.
We will be relentless in our investigation of corporate and financial wrongdoing, and will not hesitate to bring charges, where appropriate, for criminal misconduct on the part of businesses and business executives. These were the words of Attorney General Eric Holder, quoted in a Nov. 17 press release announcing that President Barack Obama has established, by Executive Order, an interagency Financial Fraud Enforcement Task Force whose job is to combat financial crime. FHA [Federal Housing Administration] will not tolerate lenders who violate our rules and prey on those who depend on a reverse mortgage to continue to live independently, said FHA Commissioner David Stevens in a press release on Oct. 30 when HUD announced taking action against a reverse mortgage lender in Hawaii. Commissioner Stevens continued, FHAapproved lenders must understand that we mean business when it comes to protecting the FHA insurance fund from those who cut corners and take advantage of unsuspecting senior citizens. In another press release, announcing action taken against a large national FHA
lender on Oct. 20, Commissioner Stevens stated, If we determine that our partners are not playing by the rules, theyll cease being our partners. Its not just about protecting the financial health of the FHA insurance fundthis is about protecting each and every family that looks to the FHA for safe and secure mortgage financing. In this same press release, HUD announced the proposed sanctions and penalties against individual underwriters and alleged that these underwriters falsely certified to the Department that the loans were originated in compliance with FHA requirements and were eligible for FHA mortgage insurance. I think the above material pretty well speaks for itself FHA is serious about ridding our industry of the crooks who take advantage of their clients, their employees and the agencies and companies they do business with. Over the course of my career spanning the past 15 years, I have witnessed firsthand how FHA lenders come and go in the marketplace. I have lost several referral sources because of the thieves who walk among us. Heres one example: Several years ago, I worked very hard to get into a particular real estate office. I finally got in for a presenta-
tion, impressed them with my knowledge of I think we need to really study what FHA and my ability to package the tougher works to keep default levels down, and deals. I soon became their main loan origi- strive to implement a plan that achieves nator and was doing a great job for them, this. In my opinion, a good place to start is but the fact is there remained many deals I to study a company in middle-America could not do because they simply didnt called Farm Credit Services of Midmeet FHA criteria. Before long, the referrals America (FCS), one of the countrys largest from this office ground to a halt and I want- farm lending institutions based out of ed to find out why. I spoke to one of the Louisville, Ky. When Greg Frost was unable agents who said that they to speak at their annual had switched to another LO convention because of who could get more deals scheduling conflicts, he done. Something smelled suggested that FCS contact fishy, and I researched a bit me. My first thought after further, only to find that receiving their invitation they were falsifying docuto speak was, What in the ments in order to get the world am I going to say to loans insured. To assure the a farm lending organizaborrowers didnt go into first tion? This was in April of payment default they would 2008 at the height of the make the payments for the mortgage industry crash borrowers. Not able to comand they wanted somepete with thieves, I stopped one who would explain FHA is about giving marketing to that office. The what had happened in creditworthy goodor bad news, the non-farm mortgage Americans a chance depending on how you look industry, and how it hapat homeownership, at itis that this lenders pened, because while the default ratio grew so much and its FHAs respon- mortgage industry atthat FHA started auditing sibility to put the sys- large may have been their loans and eventually tems in place to make crashing, their business put them out of business. was booming! that happen. Another company I Id like to share with couldnt compete with you the qualities I found would sell the loans to the aggregate in FCS that shielded them from the crash lenders, but would hold the servicing and continues to keep their default rates rights to their loans. They would do FHA low. In 2008, their default rate was only loans that didnt meet FHA guides and, 1.2 percent, but there was concern that on numerous occasions, when a loan the price of corn would have a negative payoff came in, they would keep the impact on their default rates. Sure money themselves and invest it for their enough, the price of corn went down this own benefit, but keep making the pay- year by about 30 percent, and their ments to the investor with the interest default rate did increase to 1.9 percent they would earn from their profits. As (yes, you read right)! When grain goes long as the loan payments were made, down, this equals a potentially significant the investors never knew the loan had drop in income for the farmers. When the been paid off. Pretty clever so clever, result is a mere 0.7 percent increase in in fact, that the owner of this company, default rate, this can only reflect stellar along with the employee who collaborat- lending practices. And despite the current ed with him in this scheme, are now in continued on page 34 jail for the next six years.
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downturn in the market, FCS has still experienced six percent growth from last year. This is a testament to the fact that their corporate culture is in and of itself the best loss mitigation tool. After interviewing a number of people in the organization from the top executives, to operations staff and sales people, these are the 10 qualities that I believe represent the corporate culture at FCS: O O O O O O O O O O Strong relationships with clients Prudent underwriting Servicing the loans originated Staff training Loan officer accountability Compensation structure Selective TPO relationships Clients future dependence on loans Connection to the land The quality of the people they hire
started, you will find the same core qualities. I am pleased with the direction Commissioner David Stevens seems to be taking the FHA, I only hope that he and his staff not to forget the roots of FHA, thus turning it into just another GSE. FHA is about giving creditworthy Americans a chance at homeownership, and its FHAs responsibility to put the systems in place to make that happen. Go FHA! Jeff Mifsud founded Southfield, Mich.based Mortgage Seminars LLC in 2004, has been an FHA originator for 12 years, is a contributor to LoanToolbox.com and is a former FHA underwriter. Jeff may be reached at (877) 342-9100 or e-mail jeff@mseminars.com. Visit author Jeff Mifsuds Web site at http://mseminars.com for tips and information on FHA loans and details from some of the nations top FHA specialists.
bat fraud and having fraud detection tools as a resource is good as well, but too many mortgage professionals rely on them to a great degree than the people who have the ability to reach beyond data models into asymmetrical analysis.
tax transcript service because Social Security, addresses, income and past employment, along with many other things, can be validated. It is my opinion that the tax transcript is the best technology solution for fraud detection prior to funding.
You can see how much we can learn from my friends at FCS. And when you look at the history of FHA and the economic circumstances under which it
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Being that my company, Quality Mortgage Services LLC, is a compliance company, we help many mortgage companies combat fraud. The first thing that a company must have in place is a commitment to combating fraud or what we call the Attitude which emanates from the companys leadership and trickles down. When a company has the commitment to of zero tolerance for scrupulous deals, all the team members will be on board to combat fraud. Many mortgage companies only take their Quality Control (QC) Plan as the tool to receive Federal Housing Administration (FHA), Fannie Mae or Freddie Mac approval. The QC Plan is more than a check the block for correspondent or mortgagee approval it is the companys written policy on quality production. Other mortgage companies have combined their Home Valuation Code of Conduct (HVCC) QC Plan and Red Flag Rules as appendices with their QC Plan. This a great process of using the Red Flag Rules as a pre-funding QC Plan to detect fraud prior to closing and using the HVCC QC Plan as a collateral QC Plan. Training is another way our clients are combating fraud. We audit a number of fraudulent mortgage files and we ask, How did this get through? We base this on training. Having a trained set of eyes that knows how to recognize fraud helps
strengthen the quality of loans. Several months ago, we conducted training for a group of new QC auditors. After the initial test case, we gave the new auditors a set of live files to audit. We had not prescreened the files prior to the assignment, and we discovered a number of digitallyaltered documents of bank statements produced either by the loan officer or the borrower. The electronically-altered documents raised several red flags. The fax date stamp did not align with the Internet printed document. The fonts on the bank statement were not an exact fit. The kicker was when the withdrawals and deposits did not calculate with the available balance on the bank statement. The fraudster did not reconcile the statement. Why didnt the processor or underwriter detect this? Fraud for housing is one of the most common types of fraud and rarely prosecuted. However, the mortgage company had internal problems and the company has deviant and/or untrained personnel who are gullible. There are a number of fraud detection course out there and many of them provide a certification at the conclusion of the course. Also, Campus MBA offers a number of course for underwriters and compliance personnel. Having qualified staff trained in fraud detection is the best way to com-
What systems do you have in place to What sort of job has the industry done spot the red flags of fraud? to police itself and combat fraud? Seasoned and experienced staffs that know I think the industry is doing a good job but it the mortgage process and software called could do better. One of the things it has done Mortgage Analysis Review Software (MARS), well is the requirement of licensing of loan which guides the end user through the originators. I was happy to see the recent loan as they analyze the loan. MARS is Federal Deposit Insurance Corporation mostly data entry, but (FDIC) requirement for loan through the data entry, the officers who work for banks end user applies their fraud to be held to the same standetection experiences and dards as non-banks. Fannie analyzes the loan. This Maes recent announcement method has proven sucabout having another 4506-T cessful when applying signed at closing to verify or asymmetrical analysis that re-verify tax transcripts is yet is not data model driven. another positive step in eradAsymmetrical analysis is the icating fraud at the closing ability to analyze nontable. Training of the Federal measurable red flags, like Bureau of Investigations (FBI) association and link analystaff in mortgage fraud Things that the sis, that is not measured investigation and advancing through data, or discern- industry could do betthe technology of the U.S. ter is to police itself ment of actions for discernDepartment of Housing & include the prevention Urban Development (HUD) ment of actions not taken. of executives of fraud- so that it can be equal to the What technologies are large lenders as per training ulent mortgage comavailable to combat fraud? panies from ever open- and technology, are another I have clients from supering another operation two good things being done vised wholesale lenders to in the combating of fraud. the virtual non-supervised loan corre- phoenix going down Enforcing existing appraisal spondents and I have seen policies through the Home in flames and then about every type of fraud Valuation Code of Conduct coming back to life. detection tool out there, (HVCC) has improved the from document compliquality of loans by 16 perance vendors, credit bureau services, auto- cent according to Fannie Mae. Something as mated valuation model (AVM) products, simple as changing underwriting requirecompliance software checklists and data ments has deterred fraud as well. services. For some reason, regardless of The Mortgage Bankers Association the technologies available, mortgage (MBA) is extremely proactive in working fraud keeps increasing. As more technolo- with industry professionals and vendors gy keeps surfacing the more fraud preven- in communicating actions on Capitol Hill tion data systems and tools become avail- and going back to the professional and able. As far as I know, the industry has not getting feedback on what works and what been able to track the success of mortgage needs improvement. In 2009, MBA had fraud detection, but it can track mortgage several conferences, such as the Fraud, fraud cases. Therefore, with all the tech- Quality Assurance and Residential nologies available for detecting fraud, the Underwriting, Legal and Regulatory, and industry is unable to measure the success of course, their national conference of the technology tool available. where committees met to discuss compliWhen a loan goes into default, we need ance and fraud and what the industry can to know the reason or reasons why. There is do to improve in the department of polino technology available to do this. It is a cies, procedures, technology and lobbying manual audit and it is a human being, not to police the industry. The MBA has lissoftware or a great database, that discovers tened to the voice of the mortgage profesthe fraud. The problem is that, in many sionals who work directly with mortgage fraud cases, technology was used to screen compliance and mortgage fraud and has the loan for fraud, because the mortgage coordinated their unified efforts. professionals who used the tools were not skilled enough to detect the fraud, except Do you feel more legislation is neceswhen the loan arrives at the QC profession- sary to fight fraud? al for audit for fraud. I know that many I do not think the industry needs any technological tools are available to detect more legislation. The industry can place fraud, however, one of the best tools is the policies on itself in order to improve its
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image to the consumer. For example, most people think HVCC is a law. It is not. It is a compliance policy adopted by Fannie Mae, Freddie Mac and other agencies, but approved by the Federal Housing Finance Agency (FHFA) which has oversight of the agencies. Things that the industry could do better is to police itself include: O The prevention of executives of fraudulent mortgage companies from ever opening another operation the virtual phoenix going down in flames and then coming back to life. O Stopping the creation of the Consumer Finance Protection Agency (CFPA) and use the legal authorities that are in the mortgage industry that already exist. O State examiners need to have the equivalent knowledge as QC auditors and underwriters. I would love to report the number of mortgage files that were touched by state examiners and mortgage fraud was prevalent in the file and never noticed by the state examiner. O Force mortgage lenders who use their own appraisal panel and rotation to report to their investors or agencies Sections IV & VI of the HVCC, along with their QC reports. If you think these mortgage lenders and banks who use their own rotation are really giving the appraiser their independence and there is not any persuasive influence going
on, then I need to introduce you to Mortgage Compliance 101 or perhaps you need to actually read the HVCC. It is a matter of time before some the small- or medium-sized lenders, community banks and credit unions get busted on HVCC violations. O Put a policy in place for depository banks to cooperate with lenders and compliance companies when performing re-verification of assets or deposits for the good of the industry. O Create a way for compliance professionals to consolidate data in order to create watch lists of those professionals, such as real estate agents, appraisers, title companies/attorneys, underwriters, loan officers and processors who are associated with high-risk loans in order to enhance fraud investigations through link analysis and trends. Tommy A. Duncan, CMT is executive vice president of Quality Mortgage Services LLC. He may be reached by phone at (615) 591-2528, ext. 124 or e-mail taduncan@qcmortgage.com. Visit co-author Tommy A. Duncan, CMTs Quality Mortgage Services LLC Web site at www.qualitymortgageservices.com for more information on quality control programs and compliance solutions.
When anyone starts talking about accounting, most people cover their ears and run away. Many would prefer to have a root canal than to learn about financial controls. Im a CPA, but also a musician and would personally prefer to write about drum sets than accounting. It is an undeniably dull topic, but proper accounting for any business is immensely important. So why learn accounting? Aside from the ability to know if your business is making money, learning accounting can protect your company from the growing threat of corporate theft.
ing a mortgage bank then you need to understand all the issues addressed here. If you are an originator in a mortgage bank and you want to help your company stay in business, help your management understand the importance of proper accounting. For owners of mortgage banks, you may be surprised at what your accounting department is doing or not doing.
we hear people say is their accounting have a heart issue, we are going to get system is running just fine. When a treatment from a heart specialist, a carmortgage executive says accounting is diologist, because not all doctors know just fine, it typically means they are the details about a heart. The same goes able to get the information they think for CPAs. All CPAs know basic accounting, they need from their accounting sys- but not all CPAs understand the comtems, including their cash balance and plexity of mortgage banking. Just like the total volume closed within a month. wed see a cardiologist for our body, Those two figures are important to wed see a mortgage expert CPA to tell us know, but only represent a fraction of if the heartbeat of our business is okay. the essential information and do not represent fraud prevention. Violation of trust We also note that most often the In our personal lives, we regularly trust founder of a mortgage business or the the people around us. We trust the mortgage executive who is other drivers on the highhappy with their accountway to stay in their lane ing system is not a CPA. This and we trust airplane is an important distinction pilots to land safely at the because knowing if an correct airport. Even accounting system is suffimore, we trust those with cient for a business is not a whom we share a personskill-set that is developed al relationship to be honjust by starting a business. est and trustworthy. Can In fact, assessing an you image the unthinkaccounting system is a very able distress created by complex process that discovering that your requires extensive experichild has been harmed by What if an accountence and training in GAAP, a trusted caregiver or that (CPAs use these guidelines ant stole millions from your best friend has been to record information), U.S. sleeping with your your company by Department of Housing & diverting money from spouse? We all hear about Urban Development (HUD) loan purchases so they the unthinkable, and requirements (this includes hope we never face it, but not only took lots of GAAP, net worth levels and sometimes, bad things money, but they left borrower escrow), warehappen to good people. you with millions of house lender requirements, In our business world, dollars in unpaid liaand Fannie Mae and we trust those around us bility? All it takes is Freddie Mac expectations. without a second thought. five loans to create So, when someone says We are confident that the losses in the millions. accounting department accounting is fine, they are saying they feel good will make the payroll about it and think they are in good deposit on time every time. We trust that shape, but just like a doctor can listen to the receptionist will let us know if we a heartbeat and know if the heart is have a guest. But what happens when the okay a CPA can tell if an accounting fabric of our world is destroyed by a dissystem is running okay. The patient may honest employee? feel fine, but could have congested We initially think of employee disarteries and be on the path to a heart attack. The reality is, if we feel like we continued on page 36
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Tax Return Verication (4506 tax transcript done in less than 24 hours in most cases) Flood Certication Report Automated Valuation Model (AVM) Reports Verication of Employment (VOE)
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By using PCSs VOE service, I was able to move the cost onto the HUD1 and virtually get the VOEs done at no cost to my company PCSs high level of customer service ensures that my loans close on TIME!
Learn more about our services by calling, Lorenzo Pugliano, President and CEO at 631-299-2084. www.platinumcreditservices.com
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honesty as someone taking your lunch out of the refrigerator, or even taking money out of your desk drawer. But what happens when our closest and most trusted employee, the person who makes sure there is money in the bank, takes advantage of us? We all have accounting people who support our businesses, either as an employee or as a bookkeeper or auditor. These people perform essential functions like transferring money and making payroll; functions that we expect to be done correctly and timely without fail. We grow so comfortable with our accounting staff that we are confident they will continue to do what they have always done move money and make payroll on time every time. We all know there are substantial amounts of money rolling through a mortgage bank. The unthinkable of unthinkable events is when our trusted accountant who manages or money begins to move company money to their own account. At this point, most of you are thinking this is unbelievable. But it has happened. Weve met with companies where the always dependable bookkeeper moved so much money out of the company that the company may not survive thus the ultimate violation. What if an accountant stole millions from your company by diverting money from loan purchases so they not only took lots of money, but they left you with millions of dollars in unpaid liability? All it takes is five loans to create losses in the millions. CPAs call corporate theft DEFALCATION defined as: To misuse or embezzle funds by a person trusted with its charge. Defalcation is similar to DEFICATE creating an interesting metaphor. I cannot divulge any details, except to assure you that this is a true and recent story. The most disheartening issue of all is that it could have been prevented with just a few common controls mortgage CPAs expect to see in any companys accounting system. As a side note, before there was an issue with this business, the owner was confident their accounting was fine; when, in fact, it was dangerously compromised. They didnt know it was compromised because they lacked the knowledge and training necessary to monitor the system and trusted blindly without verification that things were, in fact, just fine. All violations of trust are repulsive and end with the gut-wrenching feeling of pervasive violation. The closer the person is to you, if its a spouse or a longtime bookkeeper, the deeper the pain and the longer the violation is stained in your memory. No one ever thinks it will happen to them. There is a psychological event that we all fall
victim to and this is denial. We engage this defense mechanism and bury our heads in the sand or state that: This cant happen to me nor has it happened to anyone Ive ever known. This is just something that happens to other people. And yet, the risk is real, but most business owners tell us their accounting is fine when the reality is they could be at risk and not know it. There is an interesting quote from the Bible that states Pride Comes Before a Fall. Basically, if you are so confident in your actions and believe that you are right without exception or counsel, it is likely that you are next to fail. Just ask anyone who has failed. Another saying that speaks to the issue of control is absolute power corrupts absolutely. Said another way, someone with unlimited control will use that control to their personal advantage. There are many examples in history of this, from the Caesars through Hitler and on to Saddam Hussein. The lesson learned is without controls or oversight, dictators and those who control money in a business could use their powers to their own benefit.
lations. Many non-certified accountants are excellent bookkeepers and are essential to the accurate record keeping of a company. Just make sure a mortgage CPA helped to set-up the accounting system and reviews the accounting reports on a monthly basis. It is absolutely important to remember that an accounting department is populated by humans, and humans are capable of errors in action or judgment. It is also important for you to pay attention and ask questions about the numbers. If you dont understand the answer, get someone else to help until the answer makes sense. Never accept the answer, Thats just how it is, or Thats want the auditor said. Dig deeper and understand the answer. Your first loss is your smallest loss when detecting corporate fraud. Defalcation usually begins in smaller amounts, and then increases in size if the scheme is undetected. Finding corporate theft early will reduce the loss and digging into accounting is the only way to find it.
When the owner of a car lot buys a car at an auction they can get 100 percent financing from a bank so there is no immediate cash spent. The car lot will record the borrowing from a bank as a liability and the car as an asset held for sale. The fundamental principal here is the moment you borrow money, you have a liability and the moment you close a loan you have an asset. Another important accounting event for a car lot is collecting money from a buyer for the purchase of a new DVD player to be purchased and installed by a specialty auto parts store. The money is a liability of the car lot until they give the money to the auto parts store. When a company receives money from a customer to be held for someone else the money is a fiduciary liability. When we look at mortgage banking, we are surprised to see that many mortgage banks do not follow these basic accounting principals. When they close a loan (buy a car), they do not record the asset. When they borrow money from a warehouse lender (borrow from a bank), they do not record a liability. When they take money from a customer for taxes and insurance, they do not record the money as a liability for escrow impounds. By not implementing these basic accounting principals, the owners of mortgage banks are limiting the accuracy of their financial statement and creating a higher potential for corporate fraud.
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mental accounting principals. When we ask why the owners do not implement comprehensive accounting protection, we usually hear one of three reasons: 1. The most common answer the warehouse lender doesnt make me do it. We work for many of the significant warehouse lenders, and I can state from firsthand experience that if this ever was the case, it is no longer the perspective. With the regulatory scrutiny the warehouse lending community is receiving, they are very aware of the importance of having properly prepared monthly financial statements from their mortgage bank borrowers. I predict that the warehouse lenders will soon require all mortgage bank borrowers to not only submit monthly financials, but to prove they have a dual entry accounting system with proper loan level posting. 2. The second answer we hear is: Our CPA told us this was okay. Recall the reference to the heart doctor above? Not every CPA understands mortgage banking. Please make sure your CPA is a mortgage expert. Unless a CPA is regularly and significantly associated with this business, it is possible they may not understand the intricacies of how a dual entry loan level posting procedure provides protection from corporate fraud in mortgage banking. As a small bonus, the more detailed and clean your accounting system is, the less expensive your annual audit will be. 3. The third answer we hear is: I own a $5 million a month mortgage bank and I do all the accounting myself; no one but me can get to the money. If this is the case, please be sure to have proper loan level posting in a dual entry accounting system to reduce the potential for errors. This way, when your company grows and you need to have someone else in accounting, youll already have a wellstructured accounting system. All that aside, we usually see the owner of a company helping the sales team increase volume, looking for new branches, working on getting better pricing and planning the vision for the company. It will be challenging to get all of this done while wearing a green accounting eyeshade. As an important side note, some companies use Excel as their accounting system. Excel is an amazing spreadsheet tool, but it is not an accounting system. The dual entry nature of an accounting system creates embedded controls and reconciliation points to keep the numbers on track. QuickBooks is a simple accounting system that uses dual entry accounting. The dual entry process is somewhat hidden by the nature of the posting process. Accounting for Mortgage Bankers
and Great Plains are more sophisticated and more expensive accounting systems that can support an automated interface from a mortgage operations system. If you use Excel for your accounting, then you do not have an accounting system. We suggest that you switch to a system that deploys dual entry accounting; otherwise you are exposing yourself to a higher probability of corporate theft among other catastrophic oversights. Metric management is an essential element of an accounting system. Metrics of mortgage banking include: profit per loan, cost per loan, profit per branch, margin per product, profit per originator and on and on. If you are not getting this information, then your accounting system is not giving you sufficient information to run your business. Every business entity needs a system of checks and balances regardless of its size. We have worked with both large and small companies across the country. We find that virtually every company has an opportunity to improve their accounting processes in ways the owner had not seen. It is important to understand that no one is immune, regardless of experience or size. Weve seen the ramifications of an inadequate accounting system have catastrophic consequences to a business. The proper recording of each loan transaction, strong internal controls, and a thorough review of your monthly financial results is the best defense against corporate theft.
involved in your accounting department to have minimal checks and balances. 4. Never have the same person prepare the check, sign the check, and reconcile the bank statement. There are no circumstances that justify having one person with uncontrolled assess to the companys money. There must be oversight. 5. Record loan level financial detail for each loan in your accounting system to track all cash-related events created by or anticipated by the lock registration, closing statement and purchase confirmation. This will include tracking mortgage insurance premium (MIP) payments, impound funds and investor proceeds. Without loan level data capture, it is not possible to properly track branch profitability. 6. Have a monthly financial review with all owners and your chief financial officer. Ideally, your CFO is a CPA with 10plus years of experience in mortgage banking. If you do not have a qualified CFO, it is possible to hire a contract CFO.
2. Implement a robust accounting process with a dual entry system and loan level recording. Do not use Excel as your accounting system; it does not have dual controls. 3. Make sure your accountant/bookkeeper records loan level entries including the creation of an asset when the loan is closed. 4. Have a qualified CFO review your books monthly. Your auditor is usually not able to be your CFO because independence rules prevent them from participating in the management of your company. 5. Calculate financial metrics each month to make sure the numbers make sense. Ask lots of questions. 6. Have a budget and compare your actual result to your budget. If there are any unexplained deviations in the numbers, dont stop asking questions until the answers make sense. This may seem like a lot to implement, but remember the corporate fraud loss that I mentioned above was in the millions. With such a significant potential consequence, it seems reasonable to implement all of these steps together to minimize the risk of corporate fraud and create transparency in your accounting system. There is a lot to digest in this article. The most significant to take away should be: 1. Check the checkers: Make sure someone is watching accounting.
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2. Accounting systems matter: Have a strong set of controls over your accounting procedures all supported by a dual entry accounting system with loan level accounting. 3. Every company needs a qualified CPA/CFO to keep the numbers on track.
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If you dont have a mortgage expert CFO, it is wise to engage these services. 4. At the very least, have a regular independent assessment of your accounting system. This review is not an audit, but an assessment of your corporate theft protection strategy.
an electrical surge and your TV gets fried, youll remember the importance of having proper power controls. Accounting controls are like the power components for the television. Everything can look okay, but when lightning hits bad things happen. Corporate theft is a reality in business, the risk of which can be minimized with proper controls over the financial affairs of a mortgage lender. Andrew Schell, CPA, CMB, is managing partner and president-CFO2Go for Mortgage Banking Solutions based in Austin, Texas. Over the past 30 years, he has been recognized as a results oriented leader who is often published discussing risk management, accounting, and capital markets issues. He can be reached by phone at (512) 977-9900 or e-mail aschell@mbs-team.com.
analyzed. The process of using the data as information can define the difference between a quality loan and one that carries a greater risk of default. Data quality, or its integrity, can be qualified by evaluating three key elements: 1. Credibility of its source: From whom was the data gathered, what are their credentials, in what form or manner was the data received? 2. Accuracy: Can the data be confirmed or verified? By what manner was it gathered? What quality control was employed at the roots of its collection? 3. Depth: Whats included or behind the data score models, logic, as reported, is this an interpreted fact or purely subjective? By way of example, lets consider these data attributes for two common underwriting issues: Previous income documentation and identity verification.
integrity checks (W-2 and 1099 income sources minimally), the IRS provides exceptional accuracy for an underwriter. Manual tax return accuracy: Low A manual returns data accuracy is essentially as stated with few secondary checks possible except from the copied W-2s or 1099s. Fairly obviously, returns prepared by the applicant carry with them far greater risk of error or outright fraud. 4506 depth: Excellent Beyond having logic that checks the math and compares it with W-2 and 1099 data, the IRS also offers access to any adjustments to the return by visibility to a log file that shows dates and filing amendments. This adds additional value to an underwriter as they are assured of getting not just the best known copy of the return, but also the lineage of what was amended, when and why. Often, this lineage itself is information that should be scrutinized. Manual return depth: Excellent. Ironically, a full copy set of tax returns offers good secondary data as the schedules, signatures and secondary identifying data can be gleaned from the actual returns. None of these are easily accessed through IRS transcripts. By this comparison example, its fairly easy to see how 4506 income verifications have become the de-facto tool for underwriters in a very short time. But lets review a slightly trickier comparison requiring much deeper understanding of the source data.
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Never has it been more important for of your underwriting by providing solid underwriters and brokers to assess and information to meet the end needs of understand the reliability of the loan investors. data they rely upon. Such a large porWebsters defines it plainly this way: tion of underwriting is essentially about turning Data: Individual facts, staprovided data into decitistics, or items sionable loan informaInformation: Knowledge tion. Bad or more likely gained through study, fuzzy data going into communication, research; underwriting increases instruction the risk of generating poor loan information Understanding that good and funding riskier loans. information requires good But how can brokers data is key to ensuring the help their own cause quality of the mortgage streamlining their deals lending decision. But how can brothrough to underwritUnderwriters essentially ing? The answer is that gather and compile all the kers help their own brokers must begin causestreamlining data (individual facts, stapackaging their loans tistics or items) provided their deals through with full knowledge of to underwriting? The and available to them. the best practices for the Then, with analysis, they answer is that brounderwriter at the other transform this data into kers must begin end. Failure to underusable information (knowlstand the downstream packaging their loans edge gained) to provide a with full knowledge use of packaged data complete and accurate only slows down underfile about the borrowers of the best practices writing, which ultimatelikelihood of repaying a for the underwriter ly slows closings. mortgage. at the other end. Its easy to confuse The truly differentiatdata with informaed quality of a loans forecast risk tion. So heres a review, and perhaps then is found in the quality of the more importantly, two detailed exam- information that supports it, starting ples as you seek to improve the quality with the original data, and how it is
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Identity verifications: Comparing Social Security Number traces to direct Social Security Administration verifications
With the advent of Fair and Accurate Credit Transaction Act (FACTA) Red Flags regulation, identity confirmation and identity theft mitigation in underwriting has risen to a much higher standard. For that reason, underwriters are turning to identity trace reports or to verifications directly to the Social Security Administration (SSA) for escalation products. But what exactly are the tradeoffs in these products credibility, accuracy and depth? As a review, Social Security Number (SSN) identity trace reports are commonly offered by the bureaus and other aggregators. These reports list all reported SSN usage information and combine these with reported names, addresses number and fre-
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quency of use. They had been most commonly used for skip tracing efforts in collection. The alternative escalation product for identity verification is a consentbased social verification directly to the SSA. This begins with a required consent form, signed by the applicant (form SSA-89) that allows the lender, through an approved vendor, to submit data directly to the SSA in order to verify the name with the SSN and date of birth. As you will see, these products carry very different data integrity levels used to answer the same question: Is my applicant legitimately who he or she claims to be? Below is the comparison of the data integrity attributes of credibility, accuracy and depth. Trace credibility: Fair Why? One would think the bureaus are an excellent and very credible source of high integrity data, and typically, this is the case. However, looking deeper, the root source for most trace data is simply an aggregation of what is reported to them by subscribing creditors. In general, these creditors do operate and
report credibly but by experience, the quality of input, spelling and SSN input is poorly controlled and this impacts its overall quality. SSA direct credibility: Exceptional As with the IRS is with income, not only is the SSA a credible source, but in this case, it is the definitive primary source for identifying a SSN with a name, issued date and address. The data is passed only in a secure environment, and better still, because the applicant consents to allow this verification, fraudsters are often stopped at the gate when they realize that the SSA will be used to verify their identity. Trace accuracy: Fair As suggested, there is wide disparity in the level of data quality control by the credit subscribers who contribute to the bureaus. A trace report is actually a data dump of all the reported combinations of names, addresses and SSNs (misspellings and all) used to report credit. So yes, it is data, but considering it high-quality data may cause misleading underwriting and wasted efforts try-
ing to reach consensus with conflicting information. SSA direct accuracy: Exceptional No database match is ever without possibility of error, but largely, the results from such a requestMatch or No Match are very reputable. Its hard to argue with a primary source that is so tightly controlled as the SSA. Trace depth: Good/excellent Here, the bureaus and aggregators provide good, and sometimes excellent, context and depth by showing timestamped traces of the reported addresses. This presents the data in a more usable framework. For example, the underwriter can orally quiz the applicant about their address lineage using the trace data as a way to validate its accuracy. SSA direct depth: Low Ironically on this point, the SSA falls short because its service only confirms or denies the validity of what the requestor has asked. If one part of the request does not match the records, the entire validation is
returned as a No Match. So, the cost of having a definitive source is there is no additional data returned. In general, this is why using or combining both tools, Trace and SSA Direct is actually a best practice. Through just these two comparisons, you can see that understanding data integritycredibility, accuracy and depthcan be key to obtaining information that will ensure the quality of the mortgage lending decision. Brad Kelso is the vice president, director of marketing and product development at Informative Research, with a cumulative 22 years in financial services. Prior to joining Informative Research, Brad led Countrywides credit fraud initiatives and system development efforts with credits as a national expert and speaker on Authorized User Score Fraud. He is the primary architect of two products related to identity fraud for the mortgage industry. Brad can be reached by phone at (800) 473-4633, ext. 150 or e-mail bradk@informativeresearch.com.
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Mortgage fraud is a serious problem are more likely to stop paying the note on still. Of course, credit standards are much an investment property than they are to higher today than a few years ago, and it stop paying the mortgage on the home is difficult for a borrower to obtain a mort- they occupy. By lying about ones true gage by fibbing about their intention, the borrower income or otherwise doccauses the mortgage comtoring their loan applicapany to take on more risk tion. But where there is a than it intended to take. will to defraud, fraudsters The lender gave a loan on will find a way. terms it would not have Ironically, federal legisoffered had it known corlation enacted to stem the rect information. decline in the housing marAs we deal with real ket has become a tool in world situations where the mortgage fraud racket. people argue, often conThe $8,000 refundable tax vincingly, that bending the credit to first-time homerules wont hurt anyone buyers is a case in point. Fraud is fraud, even and that their intentions if the borrower According to the Nov. 24, are pure, its good to keep intends to repay the 2009 edition of the Wall in mind that the definition loan in full, and no Street Journal, At least of fraud is really black and fraud is intended. 19,000 filers who claimed white: Providing any incor$139 million in tax refunds rect information or delibunder this credit did not actually buy a erately withholding any information to home, according to Treasury officials. In obtain a loan constitutes fraud, no matter addition, 74,000 filers claiming a total of how pure ones intentions are. $500 million in refunds seem to already have owned a home. Red flags of mortgage Not only is fraud prevalent, it is incred- fraud ibly expensive to mortgage companies. O Attorney-in-fact involved: When On average, a fraudulent mortgage costs someone is acting on behalf of the the lender 37 percent of the amount owner, there is the potential for loaned. A $100,000 fraudulent mortgage fraud. Make sure you are clear about results in a typical loss of $37,000, for the true motivations of the attorneyexample. Approximately 25 percent of all in-fact and that they coincide with foreclosures are due to fraud. those of the owner. If you have a For this reason, anyone involved in the doubt, contact the owner. mortgage industry needs to be alert to the red flags of possible mortgage fraud, and Ill O Title held by virtue of an unrecordoutline many of these red flags in this artied deed: In some states, it can take up cle. But first, lets have a clear idea of what to six months for a recorded deed to mortgage fraud is. Stripping away all of the show up on a title search. In this case, legalities, mortgage fraud boils down to the seller might bring an unrecorded this Mortgage fraud is intentionally getdeed to the closing to speed things up. ting a financial institution to make, buy or However, this is a red flag, as the sellinsure a loan when it would not have done er might not actually be the owner, so, or not done so on the same terms, if it but a tenant who filled in a blank had known correct information. deed. When in doubt, call the previous Fraud is fraud, even if the borrower owner listed on the deed to assure intends to repay the loan in full, and no they actually sold the property. fraud is intended. For example, lets say that, in order to get better terms on a O Loan secured by property recently loan, a borrower tells the lender that they paid off: Usually, when someone intend to live in a property that they are sells a house, they pay off any buying strictly as an investment and, remaining debt with the proceeds they pay off the loan. Is this really fraud? from the sale. Its odd for someone Who is hurt? Yes, this scenario is still to pay off a loan a few months or fraud, and the borrower is still liable and weeks before the sale. Maybe they may be criminally prosecuted because didnt actually pay off the loan at they obtained a loan under false pretensall, and the quit claim/release deed es. Loans are priced higher for investment is forged. To make sure all is aboveproperties for a reasonbecause lenders board, call the lending company, know that if times get tough, borrowers and make sure the loan is paid off.
O Proposed sale within a year of obtaining title: On average, people own an owner-occupied home for at least seven years. If someone is selling their house within a year of buying it, something may be fishy. Perhaps, the current owner is in default to their lender. Call the lender to make sure. Perhaps, the current owner has gotten an appraiser friend to appraise the house for more than fair market value, defrauding both the buyer and new lender. In this case, an appraisal review through another appraiser may be in order. O Contract provides for a large allowance: Lets say the contract provides a $10,000 lighting allowance to the buyer. Well, what if the buyer spends $1,000 of this allowance on lights and uses the remaining $9,000 as a downpayment on the house? In this case, the allowance is actually a way for the seller to funnel downpayment funds to the buyerin violation of the loan contract. To avoid this problem, ask for receipts and make sure the closing statement itemizes each allowance and to whom it was paid. O Excessive commissions: In todays market, when most real estate agents are willing to cut their commissions to get a listing or make a sale, a larger than normal commission is suspect. Maybe its a bribe from one of the parties to keep the real estate agent quiet about some fraud that is being perpetuated. Question the real estate agent about why the commission is so high. There may be a perfectly good reason. After all, it is not illegal to pay someone whatever you wish. But if you get a vague answer, slow down and investigate more thoroughly. O Sales price exceeds fair market value: This is similar to excessive commissions. Why, especially in todays market, would anyone deliberately pay more than market value for real estate? Maybe the buyer is paying more to make sure the seller goes along with fraudulent activity. Time to slow down and ask questions. O Party request to pay debts not secured by the property or required by the lender: For instance, say the loan includes payments to an exterminating company. This could be perfectly legitimate. Or it could be a way to launder money though a shell company or maybe its a kickback to the buyer. To make sure, call the company receiving the payment and check with the secretary of states office to make sure it is a valid, registered company. Above all, obtain
lender approval before paying debts it has not required. O File contains more than one contract with significant differences in price: This is pretty clear evidence that fraud is underway. It has happened twice in the history of our real estate closing firm and we sent the records to law enforcement authorities both times. O Buyers check indicates another to be remitter: In these cases, the buyer shows up with a certified check drawn on someone elses account (for example, his mothers account), and no accompanying gift letter is presented. Chances are it is probably a loan from mom which would affect the terms of the mortgage. Get a gift letter or change the terms of the loan to reflect this debt. O Several closing deals referred from parties with whom you have had no past dealings: If it sounds too good to be true, it probably is, particularly if you dont know the person referring the business. Slow down, check references, do your homework or you might find yourself knee deep in a major scam. O No government-issued ID: A good rule of thumb for a closing attorney is, If you cant fly on an airplane, you cant close on real estate. With no ID, a borrower may not be who they say they are. They may walk out of the closing room with $100,000, and the closing agent may never be able to track them down. As a closing agent, always get a government-issued ID with a photo. If the person closing says their ID card is stuck in their wallet, tell them youll wait. In my own practice, I once had a purchaser go out to his car to get his ID and never return. If I had not asked for an ID, he would have left with the lenders money and never returned. O Anything that does not pass the smell test: If you see or sense anything unusual, slow things down, ask questions and make sure you are comfortable with the answers. If something does not smell right to you, trust your instincts. Its better to be safe than sorry. Howell Haunson has been practicing real estate law for more than 25 years and is partner in charge of education at Morris|Hardwick|Schneider. He has served as member of the board of directors of the Georgia Real Estate Closing Attorneys Association and is actively involved in presenting lectures and seminars relating to real estate issues throughout the country. He may be reached by phone at (770) 955-1763 or email hmhaunson@closingsource.net.
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Here comes
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Your Class!
Anyone new to the industry or originating in a state in which you previously needed no license: you must take an NMLS 20-hr. course. Do y ou ne e d it? G o to: G e tY ourE d.c om to find out. L ink s to e v e ry thing y ou ne e d.
At NexBank, were so proud of the work of the respective mortgage staffs, especially considering the current state of both the lending and general mortgage markets. However, with an increase of this many production officers, well at least double the current size of our production staff, said Davis Deadman, chairman and chief executive officer of NexBank. The level of our growth reveals the true expertise currently available in these respective divisions. The staff and their leadership have done a remarkable job, and were proud of their performances. In December 2008, NexBank launched its wholesale lending division, which gave local mortgage bankers and brokers a new means of traditional mortgage funding when many other organizations were leaving the wholesale category. NexBanks mortgage divisions are in a unique position in an industry that has realized some losses, layoffs and mergers, said John Ory, chief operations officer at NexBank. However, we have been able to carefully manage and grow key areas of our markets, resisting highgrowth speculative opportunities while maintaining high quality services and standards. We had significant goals for our new wholesale mortgage operation and succeeded. In July 2009, NexBank Residential Mortgage was created through a partnership between NexBank and The Funding Source, a former mortgage operation in Dallas. The creation of the new residential mortgage division provided a positioning for NexBank as a multi-faceted mortgage lender in North Texas, an important advancement in the companys desire to service customers and clients with all their financial needs. NexBank saw the opportunity to grab market share as the mortgage markets and funding sources contracted, said Deadman. Were satisfying an absence of funding that every homeowner needs and we couldnt be more excited about the opportunities we see ahead of us. For more information, visit www.nexbank.com.
public affairs; and Teressa Jeffries, Masuda Ranjber and Alicia Roundy to the director position. O Inlanta Mortgage has named Cassy Humberger as branch manager.
O Chris Flanagan has been hired as head of U.S. mortgage and structured finance research for BofA Merrill Lynch Global Research. O Mortgage Contracting Services (MCS) has promoted John Maxwell to the position of executive vice president of operations. O Ed Bratton has been appointed president and chief executive officer of ViewPoint Bankers Mortgage. O Docu Prep Inc. has added Brittany Beavin and Kami Schmidt to its staff. O Prommis Solutions has named Susan Staley as vice president of loss mitigation. O USA Funding Corporation has announced the hiring of Barbara Becker-Oakes, Michael Fabian, Amy Kaufman, Jason Helling, and Shari Middlestead as trusted mortgage advisors; Nancy Yang as human resources assistant; and Jeffrey Middlestead as branch director.
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per loan basis, is only available in the PointCentral upgrade. We do everything we can to make sure our customers remain in compliance while responding to their requests for enhancements, said Douglas Chang, president of Calyx Software. Offering our customers a broader mortgage solution that fulfills all of their needs allows them greater flexibility with room to grow. For more information, visit www.calyxsoftware.com.
Calyx releases Version 7.2 of Point and PointCentral in compliance with RESPA revisions
Calyx Software has announced the release of Point and PointCentral 7.2. Point combines the latest technology with the functionality that mortgage professionals require for loan marketing, prequalification, origination, and processing. PointCentral unites Point with business rules, remote access and consolidated data storage. Version 7.2 offers compliance updates and increased functionality and flexibility for traditional originating and loan processing as well as mortgage banking processes. Point 7.2 complies with RESPA regulations that require loan originators to include a provider list with the new standardized Good Faith Estimate (GFE) statement that became effective Jan. 1,
announced that Wolters Kluwer Financial Services home loan application disclosures and closing documents are now available from within DMDs DataTrac loan origination solution. DMDs DataTrac customers now have seamless, electronic access to Wolters Kluwer Financial Services VMP Mortgage Solutions compliance disclosures and closing document packages through the companys Document Preparation Platform. With the integration to Wolters Kluwer Financial Services Document Preparation Platform, users of DMDs DataTrac solution have the ability to generate standard and customized initial disclosures and closing documents. Because Wolters Kluwer Financial Services platform generates the necessary compliance documentation on behalf of DMDs lenders, they can reduce the regulatory requirement burden associated with determining which documents are required for a specific transaction and jurisdiction. Partnering with Wolters Kluwer Financial Services allows DMD to give the hundreds of mortgage lenders, banks and credit unions that use DataTrac the benefit of accessing these accurate and up-to-date compliance documents without disrupting their lending work flow, said Rob Katz, president of DMD. Were excited about the opportunity to provide a greater number of financial institutions with access to our disclosures and closing packages through our new alliance with DMD, said Jason Marx, vice president and general manager, Mortgage. DMDs DataTrac users can rest assured the compliance content within our documents is built upon nearly 40 years of regulatory expertise and experience in the mortgage industry. For more information, visit www.dmdinc.com or www.wolterskluwerfs.com.
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You can register for the FREE Thursday, March 4, 2010 Webinar at 1 PM (EST) by visiting NMPMag.com/fraudflawedloans. Copies of the report will be sent to all those in attendance.
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Del Mar DataTrac and Wolters Kluwer team for compliance solution
Del Mar DataTrac (DMD), a provider of affordable mortgage lending automation solutions, has
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troubles, stay in their homes, said Ocwen President Ron Faris. One of the multiple ways we do that is to lead customers to resources that can help them manage or solve personal and financial problems that may be at the root of missed or late mortgage payments. Homeowners, communities and our company benefit when mortgages are affordable and sustainable. Ocwen has always been progressive in their work with struggling homeowners, said Rochelle Nawrocki Gorey, president of MortgageKeeper Referral Services. They understand that missing mortgage payments is a symptom of larger, more pressing problems. MKDirect increases the likelihood that homeowners will find high quality help to alleviate personal and financial problemsproblems that keep them from making their mortgage payments. For more information, visit www.Ocwen.com or www.mortgagekeeperdirect.com.
having to turn away what could eventually become viable business, said William DiPaolo, chief executive officer of Cogent Road. Originators using AVAIL can efficiently generate a new source of qualified leads. As applicants adopt better credit behaviors, AVAIL lets them know when these applicants have reached the level required to reapply for their mortgage. For more information, visit www.cogentroad.com or www.fundingsuite.com.
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Your turn
National Mortgage Professional Magazine invites you to submit any information promoting new niche loan programs, new products or any other announcement related to the introduction of a new program, to the attention of:
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Web: www.appraisalsanywhere.com
To submit your entry for inclusion in the National Mortgage Professional Calendar of Events, please e-mail the details of your event, along with contact information, to newsroom@nmpmediacorp.com.
FEBRUARY 2010 Monday-Thursday, February 1-4 Mortgage Bankers Association CREF/Multifamily Housing Convention & Expo Mandalay Bay Resort & Casino 3950 Las Vegas Boulevard South Las Vegas For more information, call (800) 793-6222 or visit www.mortgagebankers.org. Tuesday-Thursday, February 9-11 Nationwide Mortgage Licensing System 2010 User Conference & Training Rancho Bernando Inn 17550 Bernando Oaks Drive San Diego For more information, call (202) 296-2840 or visit www.nationwidelicensingsystem.org. Sunday-Wednesday, February 21-24 National Association of Mortgage Brokers 2010 Legislative & Regulatory Conference Hyatt Regency Washington on Capitol Hill 400 New Jersey Avenue NW Washington, D.C. For more information, call (703) 342-5900 or visit www.namb.org. Tuesday-Friday, February 23-26 Mortgage Bankers Association National Mortgage Servicing Conference & Expo Manchester Grand Hyatt 1 Market Place San Diego For more information, call (800) 793-6222 or visit www.mortgagebankers.org. MARCH 2010 Sunday-Wednesday, March 14-17 27th Annual Regional Conference of Mortgage Bankers Associations Trump Taj Mahal Casino Resort 1000 Boardwalk at Virginia Avenue Atlantic City, N.J. For more information, call (973) 379-7447 or visit www.njamb.org. APRIL 2010 Sunday-Wednesday, April 25-28 Mortgage Bankers Association National Technology in Mortgage Banking Conference & Expo Hyatt Regency Chicago 151 East Wackler Drive Chicago For more information, call (800) 793-6222 or visit www.mortgagebankers.org. MAY 2010 Monday-Thursday, May 3-6 Tennessee Association of Mortgage Professionals 2010 Convention & Trade Show, Tried, Tested & True The Hotel Preston 733 Briley Parkway Nashville For more information, call (615) 302-0001 or visit www.tnamp.com. AUGUST 2010 Wednesday-Friday, August 18-20 California Association of Mortgage Brokers 2010 Annual Convention & Grand Exposition Hyatt Regency Long Beach 200 South Pine Avenue Long Beach Convention Center 300 East Ocean Boulevard Long Beach, Calif. For more information, call (916) 448-8236 or visit www.cambweb.org. OCTOBER 2010 Sunday-Wednesday, October 24-27 Mortgage Bankers Association 97th Annual Convention & Expo Atlanta Georgia Congress Center 285 Andrew Young International Boulevard NW Atlanta For more information, call (800) 793-6222 or visit www.mortgagebankers.org.
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Abacus Mortgage Training and Education .......... www.acethesafe.com ......................................5 & 41 ACC Mortgage .................................................. www.weapproveloans.com ....................................26 AllRegs ............................................................ www.allregs.com ..................................................7 Calyx Software ................................................ www.calyxsoftware.com ........................................25 Debt Aid Processing, Inc. .................................. www.debtaidprocessing.com ................................11 Elliott and Company Appraisers, Inc................... www.elliottco.com ..............................................44 Emigrant Mortgage Company ............................ www.emigrantmortgage.com ................................21 Entitle Direct Group.......................................... www.entitledirect.com ..................Inside Front Cover First Source Capital Mortgage, Inc. .................... www.fscmortgage.com ..........................................19 Flagstar Bank .................................................. www.paperless.flagstar.com ......................Back Cover Franklin First Financial .................................... www.franklinfirstfinancial.com ..............................7 Frost Mortgage Banking Group ......................................................................................................13 Guaranteed Home Mortgage.............................. www.ghm.com ....................................................23 HTDI Financial ................................................ www.htdifinancial.com ........................................29 MBA-NJ/NJAMB ................................................ www.mbanj.com ..................................................17 Mortgage Concepts .......................................... www.mortgageconceptsonline.com ........................25 Mortgage Dashboard, LLC.................................. www.mortgagedashboard.com ..............................31 Mortgage Now, Inc. .......................................... www.mortgagenow.com ........................................16 NAMB.............................................................. www.namb.org/legconference ..................22, 30 & 44 NAPMW .......................................................... www.napmw.org ..................................................43 Platinum Credit Services, Inc............................. www.platinumcreditservices.com ........33, 35, 37 & 39 Presidents First Mortgage Bankers .................... www.presidentsfirst.com ......................................15 Quality Mortgage Services ................................ www.qcmortgage.com ..............................4, 14 & 42 The Bond Exchange .......................................... www.thebondexchange.com ..................................10 The Credit Restoration Expert............................ www.hammeredcredit.com ..................................31 Trump Network................................................ www.trumpnetwork.com ......................................31 U.S. Bank Consumer Finance..........................................................................................................31 United Northern Mortgage Bankers Ltd. ............ www.unitednorthern.jobs ...... 27 & Inside Back Cover Wall Street List ................................................ www.wallstreetlist.com ........................................10 Wells Fargo Home Mortgage.............................. www.brokerfirst.com ............................................20
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At United Northern, we give you the freedom to originate and succeed with our winning team.
About working with United Northern Mortgage Bankers
Ongoing training and consultation with top industry executives An in-house team to monitor SAFE Act compliance Access to in-house marketing services In-house underwriting
Pricing support desk to ensure maximum profitability on each Most loans underwritten in 24 to 48 hours loan, while maintaining a competitive advantage over the street Multiple valuation tools to research value Proven leading-edge technology (built on Encompass 360 In-house valuation desk to help ensure accurate technology) values and responsive turnaround time Virtual office support Multiple established warehouse lines Licensing and regulatory compliance services
Limited room available for established Team Leaders and Licensed Mortgage Originators. Become part of an established 30-year Mortgage Banker with a proven track record and success.
Learn about the great opportunities available by making an appointment with United Northern Mortgage Bankers Executive Vice President Julio de Cardenas by calling 888-600-8808, ext. 1 or by e-mailing info@unitednorthern.jobs.
United Northern Mortgage Bankers, Ltd. Corporate NMLS ID# 7230 New York State Banking Dept. - Licensed Mortgage Banker License #100724 New Jersey Dept. of Banking and Insurance Mortgage Lender License #L0046623 Pennsylvania Dept. of Banking Mortgage Lender License #20887 Connecticut Dept. of Banking - Mortgage Lender - License #20372 Massachusetts Div. of Banks and Loan Agencies - Mortgage Lender & Mortgage Broker License #MC5070 North Carolina Commissioner of Banks Mortgage Lender License #L140365 South Carolina State Board of Financial Institutions Supervised Lender License #S7,461 Florida Dept. of Financial Institutions - Mortgage Lender - License #ML0700679 Senior Security Home Advantage is a lending area of United Northern Mortgage Bankers, Ltd. Direct FHA Endorsed Lender