Naughty or Nice: What Will 2019 Bring for Mortgage Professionals?

Naughty Boston Terrier has eaten the door

“It was the best of times, it was the worst of times.”

If you’re like me, the famous opening sentence to Dickens’ A Tale of Two Cities
calls to mind memories of droning college lectures on Victorian literature that made you yearn for more pleasant surroundings such as the DMV or dentist chair, but it’s also a fitting description of today’s housing and mortgage markets. Given that we’re nearing the end of 2018, it makes sense to use this month’s blog post to take a look at the current state of the mortgage market and some trends to consider as we enter the new year, so here goes.

All real estate is local – except when it’s not

My favorite thing about my job is that I get to travel the country and talk with people across the spectrum of the mortgage business, from MLOs to regulators, and discuss the market with them. While often there are a few common topics of concern raised across different locations, this year was the first in a long time when MLOs in every single region of the country ranked the same two issues in order as the biggest impediment to growth: Lack of inventory and rising mortgage rates.

Of course, those issues are very closely related, as homeowners with low interest rate loans put off potential moves while the refinance market craters at the same time. The good news for mortgage professionals (according to CoreLogic data from July of this year) is that 41% of renters in the 100 hottest housing markets plan to buy a home in the next year, and with unemployment at multi-decade lows and wages beginning to show steady growth, they’re in a good position to follow-through on those plans. Unfortunately, that same data tells us that only 11% of homeowners plan to sell in the same time period, leading to the likelihood that inventory concerns will persist into 2019. While new construction may alleviate some of the pressure, it should remain a seller’s market for much of the next 12 months, even if rising interest rates do lead to a slowing of home price growth.

The incredible shrinking margin

Independent mortgage banks have had (to put it bluntly) a terrible year when it comes to origination profits. In the third quarter, IMBs recorded an average profit of just $480 per loan, which is slightly better than the $118 per loan loss posted in the first quarter, but down year-over-year. Given typical fourth quarter struggles, 2018 is on pace to be the worst year for origination margins since the crash of 2008.

The good news is that companies that own mortgage servicing rights (MSRs) are seeing strong value from them. This should continue, as MSRs tend to be a very stable investment in rising interest rate environments because loan payoffs decrease as refinance volume falls. Perhaps the most important line in the linked article above: “Including all business lines (loan production and servicing), 71% of the firms studied posted a pretax profit in the third quarter. Without servicing, that percentage would have dropped to 52%.” Unfortunately, that does not bode well for IMBs that only participate in the origination side of the business, so look for this winter to bring another wave of consolidation among that segment of the business to the benefit of the larger IMBs that service AND to mortgage brokers who aren’t faced with banker levels of overhead expenses.

Land of opportunities

Fear not, mortgage originators! While the ride is certainly choppy and likely to become more so in 2019, there ARE opportunities to grow your business over the next 12 months. The first thing you need to do, however, is accept that we’re not in Kansas anymore. If you’ve been operating in the confines of the Fannie/Freddie box and/or relying on refinances for more than 20% of your income, there are some things you can do NOW to set yourself up for success:

  1. Get out of your comfort zone. Examine the full suite of products your company offers. Read and memorize guidelines and niches! As volume and profits shrink, the credit box is expanding. To date, much of this guideline expansion has been in the jumbo QM loan market, but I expect the non-QM market to pick up significantly at all loan levels as we go through the winter. This will be the first “slow period” in a long while where the refinance market is almost all needs-based (cash-out, divorce settlements, etc.), and lenders will need to find ways to fill the refi void. If you’re the market-watching type, keep an eye on companies like Verus Mortgage Capital and Neuberger Berman as they continue to bring non-QM securities to market. If investor appetite increases for these mortgage-backed securities, expect more companies to jump into the non-QM pool with both feet. The key is to know your product offerings inside and out, be able to explain them to consumers and referral sources and lend responsibly. (State regulators will be watching.)
  2. Get back to basics. When purchase business accounts for 80% of residential originations, you can’t afford to be lax in maintaining your referral sources and looking for new ones, especially among real estate agents. No, this doesn’t mean you should consider violating RESPA’s prohibition on referral fees. What it DOES mean is that you need to be in regular contact with those who trust you and add value to their business instead of just bringing doughnuts, asking for referrals and taking them for granted. How do you add value? One of the easiest ways is to show them how your expanded product selection and knowledge can translate into more closings for both of you. With technology tools like social media and CRM platforms, there really is no excuse for not getting your name out there (in a compliant manner, of course). Don’t let others eat your lunch; market yourself like it’s 1999.
  3. Go where the business is. Work on a strategy to penetrate sectors of the market that are either underserved or outperforming (or both). Wondering where to start? Think inventory shortages. If people are remaining in their homes because their next “dream home” isn’t available, that doesn’t mean they’re satisfied with the status quo. In fact, renovation spending has been on the rise for a while now. Combine that with the fact that there’s almost $6 billion in tappable equity available, and renovation lending becomes a very attractive option to add to your suite of products. If you’re not able to go that route, consider finding ways to service the most consistently expanding demographic in home purchases: the Hispanic population. This doesn’t mean that you need to be multilingual (though there are certainly myriad opportunities to service the Limited English Proficiency – or LEP – market for those who are), but it does mean that you may need to brush up on underwriting guidelines for situations that arise more often in this community like gift funds, non-occupying co-borrowers, wage earners with multiple employers and multifamily dwelling considerations. Also, please consult management about fair lending considerations that may arise here so that you can do things the right way.

More market information

If you like forecasts and economic news, there’s certainly no shortage of it this time of year. Here are three of my must-reads:

  1. Freddie Mac 2019 Market Outlook
  2. Fannie Mae Research and Insight
  3. NAR National Housing Forecast

As the year comes to a close, I want to thank all of you for your support of Real Estate Institute and my monthly ramblings. It’s because of you that I look forward to coming to work every day and pursuing my passion for residential finance and education. I wish you all a safe and happy holiday season, and I’m looking forward to continuing this journey in 2019!

Happy Originating,

Peter



Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.

Changes to Illinois Mortgage Advertising Rules – Effective Immediately

Tunnel of media, images, photographs. Tv, multimedia broadcast.

Gov. Bruce Rauner has signed into law the bill known as SB 2615, which amends the Residential Mortgage License Act of 1987 and makes minor changes to advertising requirements. The bill, which passed both houses of the Illinois Legislature unanimously, removes the need for mortgage companies licensed by the IDFPR to use the phrase “Illinois Residential Mortgage Licensee” in all advertisements.

As of August 10, 2018, mortgage advertisements in Illinois “must reference the Nationwide Multistate Licensing System’s Consumer Access Website” (www.nmlsconsumeraccess.org). In addition, all mortgage advertisements must now include the company’s NMLS unique identifier.

Now is a good time for companies to do a thorough review of their advertising policies and procedures to ensure continued compliance with state and federal advertising requirements. As always, MLOs are reminded that social media pages and posts promoting their employment are considered advertisements and must be compliant with all relevant laws. (We’ll discuss this further in our comprehensive CE class this year.)

Thanks to the folks at the Greater Midwest Lenders Association (www.GMLAonline.org) for spearheading this legislative effort to standardize Illinois advertising law with those found in many other states.

Peter


Real Estate Institute offers top-rated Mortgage Loan Originator Continuing Education and Pre-License courses in all three formats: Classroom, Live Webinar and Online, Self-Study. These courses were designed BY loan originators FOR loan originators covering topics you need to know to navigate today’s ever-changing lending landscape.

3 Tips for a Successful (and On-Time) MLO License Renewal

Hand writing the text: Time to RenewIt’s difficult to believe that another year has come and gone, and the license renewal period for Mortgage Loan Originators is now in full-swing. While this time of year generally involves visions of turkeys, football and sugarplums dancing in heads, let’s not forget that our careers also need some tending to prior to the end of the year. Here are some tips to make sure that the Grinch doesn’t steal your ability to originate loans in 2018.

  1. DON’T WAIT UNTIL DECEMBER 31!
    While it’s true that the federal SAFE Act sets a December 31 deadline for an on-time renewal application, waiting until the last minute won’t give the licensing agency time to process and approve your application before January 1. Some states will not allow you to originate new business (even with a timely renewal request) until your application has been formally approved, meaning that you will not be able to take applications or review loan terms with new clients until this happens; doing so could land you in hot water with your regulator and face discipline for unlicensed activity. Other States (like Georgia) have earlier deadlines for submitting on-time renewal requests, so please make sure you know the requirements for each state in which you’re licensed. For those of you in Illinois, the IDFPR will only guarantee that your renewal request will be processed before January 1 if you submit it by December 1.

  2. COMPLETE YOUR EDUCATION EARLY

    Most states will not let you submit a license renewal request through NMLS unless you’ve completed your continuing education requirement. Seems simple enough, right? Just do the education on December 30th and renew on the 31st! Unfortunately, to quote a recent nationwide commercial sensation, “That’s not how this works.”

    Course providers have seven days from the day you complete your education to report your hours to NMLS. This means that the latest you can complete education (in most states) and still be guaranteed a timely renewal is December 23. Note that Real Estate Institute will report all course completions until 1:00 PM on Friday, December 29 to allow some extra time, but even WE don’t recommend waiting that long! The good news is, If you need to get your education done, we have options to meet your needs through the end of the year.

  3. REMEMBER TO CHECK YOUR NMLS RECORD AHEAD OF TIME

    When logging in to NMLS, the “individual dashboard” will tell you how many licenses you have that are eligible for renewal, and how many you are prevented from renewing (generally because of issues like outstanding education or a required fingerprint submission). You’ll need to address any “deficiencies” prior to being able to submit for renewal, and you can find out what those are by clicking on the number of licenses that cannot be renewed. (This will take you to the renewal page, where you’ll have to click “attest and pay” to see a list of licenses that are not eligible.)

    Don’t wait until the last minute to check your record; allow yourself time to address any issues that may come up. This is ESPECIALLY true for those of you licensed in many states, as it’s easier than you think to forget a state-specific education requirement.

If you follow these three tips, you should have an easy and pain-free license renewal, not to mention a more enjoyable holiday season. As always all of us at Real Estate Institute appreciate your time and business, and we wish you the best for a successful 2018.

Happy Holidays!

Peter

BREAKING NEWS: TRID Delayed

TRID Deadline ExtendedIn response to what the CFPB claims was a “technical error in the regulatory process” – but likely has everything to do with continued concern from creditors about their ability to implement and guarantee compliance with the new disclosure rules by August 1 – the effective date of the new Loan Estimate and Closing Disclosure has been delayed two months to October 1, 2015.

Many lenders are calling TRID the biggest change in the mortgage industry since the 1960s. Understanding the new TILA-RESPA integrated disclosures is critical for anyone working with the real estate industry, from loan originators to real estate agents, to real estate attorneys.

Real Estate Institute has been offering courses for mortgage loan originators that provide an in-depth look at the disclosure changes for a year. The newest course designed to prepare Illinois attorneys who support both buyers and sellers of residential real estate has been very popular. New TRID course content for Illinois real estate agents will be released this summer.

 

TILA-RESPA DISCLOSURE RULE – VERBAL CLARIFICATION FROM CFPB ON DOC REQUESTS AT PRE-APPROVAL

If you’ve taken Real Estate Institute’s 2014 CE class, you know there have been some questions raised regarding the borrower providing documentation to the creditor before receiving the new Loan Estimate under the rules that take effect on August 1, 2015.  Specifically, the question was how pre-approvals would be conducted given the language in Section 1026.19(e)(2)(iii) of Regulation Z going into effect next year, which states:

“The creditor or other person shall not require a consumer to submit documents verifying information related to the consumer’s application before providing the disclosures required by paragraph (e)(1)(i) of this section.” (Referring to the Loan Estimate.)

The official comments to the rule further state:

“A mortgage broker may ask for the names, account numbers, and balances of the consumer’s checking and savings accounts, but the mortgage broker may not require the consumer to provide bank statements, or similar documentation, to support the information the consumer provides orally before the mortgage broker provides the disclosures required by § 1026.19(e)(1)(i).” (Comment 19(e)(2)(iii) to the TILA-RESPA Rule)

As our instructors have mentioned in class, I wrote a letter to the Consumer Financial Protection Bureau some months ago asking for clarification on this section of the rule.  Specifically, I was concerned about the CFPB’s interpretation of the word “required” and whether a lender or broker would be in violation of the rule if we went through the typical pre-approval process as it exists in 2014.

I’m pleased to report that I received a call from Jeff Riley at the CFPB and had a lengthy discussion with him about this issue.  Jeff provided verbal clarification* that it is permissible for creditors/brokers to REQUEST information and documentation from the borrower prior to providing a loan estimate, including at the pre-approval stage.  However, the borrower cannot be REQUIRED to provide documentation before a creditor (or broker on behalf of a creditor) provides a loan estimate, nor can the collecting any of the six pieces of information that constitute an application be intentionally delayed until the borrower provides the documentation.  Put simply, if borrowers verbally provide you the six pieces of information (name, income, Social Security number, subject property address, estimate of value of the subject property and the desired loan amount), you must provide a loan estimate within three business days even if they refuse to furnish any documentation to substantiate what they verbally disclose.

What’s the takeaway here?  Carry on with your pre-approvals as you normally would after August 1, 2015.  Obtaining documentation from the borrower in order to issue a pre-approval would not appear to put you in violation of the TILA-RESPA rule (although I would certainly avoid giving the impression through verbal or non-verbal clues that any documentation is “required” or “mandatory”).  Also, if borrowers want to give you all of the required information verbally, don’t stop them from doing so until you’ve seen documents, as that would be a violation of the rule.

*NOTE – Verbal clarification is NOT official staff guidance or an official interpretation of the rule by the CFPB.  I encourage all readers to consult with a qualified attorney on all matters of law or regulation.  I am not an attorney (nor do I play one on TV), and no blog post can or should substitute for competent legal counsel.

Happy originating!

Peter

CFPB Finalizes Rules on New RESPA & TILA Disclosures

As widely expected, the Consumer Financial Protection Bureau (CFPB) today issued the final rules to implement the “unified disclosures” required under the Dodd-Frank Act.  Rules will go into effect on August 1, 2015. Readers who have been following this blog will recall that getting to this point has been a relatively long and in-depth process, with the agency issuing several draft documents and soliciting comment from the public and industry in a process it named “know before you owe.”

The big surprise today, however, was the length of time the agency gave to industry to implement these new requirements.  A 20-month implementation period comes as a surprise, especially in light of the compressed time period the industry has been working under to implement the oft-amended ability-to-repay and qualified mortgage rules.

In a very brief overview of the final rule (I’ll be getting much more in-depth into it over the next few months to prepare next year’s CE course), it becomes apparent the reasoning behind the extended implementation widow becomes apparent:

  • There is no exemption from the rule given to small creditors, despite heavy involvement from the Independent Community Bankers of America and various State Community Bankers Associations.
  • The fairly controversial provision in the proposed rule requiring borrowers to receive the new Closing Disclosure (replacement for the current HUD-1 and final TIL disclosure) three days before closing was not removed from the final rule – over the objections and warnings of many industry trade groups.

Such a long window of preparation is likely to make beleaguered technology vendors struggling with the QM/ATR implementation – such as LOS providers like Ellie Mae and Calyx – as well as compliance consulting companies, loan pricing engines and mortgage law firms, breathe a long sigh of relief.

You can find a narrative description of the disclosure initiative, as well as links to the final disclosures and the rule itself, at:

http://www.consumerfinance.gov/blog/a-final-rule-that-makes-mortgage-disclosure-better-for-consumers/

Additionally, the CFPB will be publishing the rule in the Federal Register as required by law.

Happy originating,

Peter

Loan Originators May Face Delayed Renewal-Are Your Fingerprints Expiring?

As we approach the loan originator license renewal period this year, PLEASE check your fingerprint expiration date inside the NMLS system.  Fingerprints expire every three years per FBI rule, and there WILL be states that will require a refreshed criminal background check for renewal this year.  We don’t have a comprehensive list of states that will be requiring updated criminal background checks (or credit checks) at this point, but the NMLS will be releasing its state-by-state renewal requirements list in the upcoming weeks.  Please make sure to check that list (we’ll link to it on this blog and at www.InstituteOnline.com as well) when it’s released so you are not surprised by a requirement that you cannot quickly satisfy because of expired fingerprints.

IF your fingerprints are expired and you are licensed in a state that will require an updated CBC (criminal background check), please do not wait until the last minute to be re-printed.  Reviewing CBCs is a time consuming process for state regulators – many states only have one person to review these reports – and you don’t want to be forced into a delayed renewal because you waited until the deadline to be re-fingerprinted.

More thoughts from the AARMR conference to come both here and in our all-new 2013 CE courses.

Thanks for reading, and happy originating!

Peter