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Thinking of a FinTech Solution for Your Mortgage Business ?

How Mortgage Lenders Should Evaluate Fintech Solutions

BLOG VIEW: As the mortgage industry continues to face the challenge of increasing origination costs – not to mention margin compression and rising interest rates – it’s becoming imperative for lenders to evaluate their current cost to produce, from both a technology and personnel standpoint.

Now is the time when CEOs and executives should be examining their technology production costs in comparison to their labor expenses with the aim of discovering ways to originate more with fewer employees and increased efficiencies.

Technology cannot solve for all, and lenders still need human expertise. So has the growing fintech stack really increased efficiencies and reduced origination costs? Or are lenders adding to their fintech stack without any real return on investment?

The following checklist can help lenders determine if the solution being considered is worth the price.

Does it align with your business strategy?

Established organizations always have dependable, tested and proven procedures in place and do not often embrace new technologies quickly. However, the technology driven world we live in today demands innovation. Therefore, if a lender’s business strategy includes scalability and sustainability, it is critical that it evaluate its current fintech solution to ensure it aligns with strategic initiatives.

Does it utilize data for sales strategy optimization?

If a company doesn’t have adequate computational resources, it won’t be able to monitor all the critical customer-facing activities like organizing, managing and strategically using large datasets to enhance sales procedures.

Does it have a user-friendly interface?

You’ve likely heard the expression that “time is money.” A fintech solution that is difficult to navigate or does not have features that reduce the time it takes to fulfill a loan will not achieve the end goal of reducing the cost to originate.

Does it offer built in compliance monitoring?

It’s challenging to originate loans in this heavily regulated industry. The technology under consideration should track compliance to the various rules such as initial disclosure, issuance of CD, tolerance cures, etc. It is imperative that a lender’s fintech solution help manage regulatory standards now, to avoid undesired outcomes later.

Does it support a fully digital origination process?

A fully digitized loan origination process allows mortgage bankers to immediately issue agency approval while talking to the borrower, which saves time and allows an increase in productivity on the number of loans that can be processed per day.

Does it offer a guided workflow?

There are several steps that take a loan from verification to approval faster. These steps can take over 30 days because of the validation necessary to complete the process accurately. When a fintech solution has a guided workflow, it allows automatic approval where possible and has built in tutorials to help both seasoned and new mortgage bankers streamline their procedures for faster completion.

Does it incorporate sales strategies in CRM?

Sales activities drive revenue and therefore the habits of loan officers are critical to meet and exceed revenue targets. When a fintech solution incorporates sales strategies in a lender’s CRM system, all customer data is organized to inform the highest value sales activities for the day based on previous actions and the stage of the customer journey.

Does it offer a single data warehouse?

When a fintech solution has one database for originations, processing, funding, marketing and sales activities, the lender will have a streamlined process that reduces errors and makes historical reporting and future projections easier to prepare.

The global fintech adoption rate rose to 64% in 2020. This reveals how important fintech technologies have become to the mortgage industry. We can expect that rate to be closer to 100% over the next couple years as the industry pivots to more online solutions.

Whether your company is part of the 64% that already have a solution or the 36% that will, it is critical to accurately assess every solution in order to get the most value for your investment. 

Lenders that evaluate fintech solutions using this checklist will align their business strategy with their sales strategy and create a seamless workflow that promotes employee engagement, agency and regulatory compliance, faster loan processing, and satisfied customers.

Source:https://mortgageorb.com/how-mortgage-lenders-should-evaluate-fintech-solutions

Do You Know The Latest HMDA Requirements?

HMDA purpose and coverage

The federal Home Mortgage Disclosure Act (HMDA) was passed in 1975 to address concerns that lenders were contributing to the decline of some urban areas by failing to offer adequate home financing to qualified applicants on reasonable terms and conditions, in violation of their bank charters. [12 United States Code §§2801 et seq.]

From 1988 to 1992, substantial changes were made to the HMDA under the Financial Institutions Reform, Recovery and Enforcement Act of 1989 (FIRREA) and the Federal Deposit Insurance Corporation Involvement Act (FDICIA). FIRREA and FDICIA required independent mortgage lenders who met certain loan volume criteria to collect HMDA data. Thus, federal and state banks, credit unions, savings associations and independent mortgage lenders can be required by the HMDA to compile home loan application and closed loan data.

HMDA rules are promulgated under Regulation C (Reg C). [12 Code of Federal Regulations §§1003 et seq.]

In 2015, the Consumer Financial Protection Bureau (CFPB) made changes to the HMDA and Reg C according to the requirements of the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act). Clarifying changes were made in 2017. Generally, these changes modified the types of institutions and transactions subject to HMDA and expanded the scope of the data required to be collected.

Modifications to reportable data

HMDA data added to reporting requirements in 2018 includes:

a) the property address;

b) the borrower or applicant’s age;

c) the borrower or applicant’s credit score;

d) total points and fees charged at the time of origination;

e) the total borrower-paid origination charges;

f) the total discount points paid to the lender;

g) the amount of lender credits;

h) the interest rate;

i) the term (in months) of any prepayment period;

j) the debt-to-income ratio (DTI);

k) the combined loan-to-value ratio (LTV);

l) the loan term (in months);

m) the introductory interest rate period (in months);

n) the presence of terms resulting in potential negative amortization;

o) the property value;

p) whether the property is manufactured housing;

q) the ownership of land when the property is manufactured housing;

r) the total number of units related to the property;

s) the total number of income-restricted units related to the property;

t) the lending channel, e.g., retail or broker;

u) the originator’s NMLS ID;

v) the automated underwriting system (AUS) used to evaluation the application, and the result generated by the AUS;

w) whether the loan is a reverse mortgage;

x) whether the loan is an open-end loan; and

y) whether the transaction is a business-purpose loan. [12 CFR §1003.4(a)]

Why more criteria? For example, the current HMDA data can tell regulators whether a loan exceeds high-cost loan thresholds, and by how much. Regulators can further break the data down to show how often APRs exceed the high-cost loan thresholds for different ethnicities and races, and pinpoint a potentially discriminatory pattern.

Source:https://journal.firsttuesday.us/mlo-mentor-the-home-mortgage-disclosure-act/82209/

Mortgage Fraud – Beware of This Bias

Underwriters are presented with 1,500 loans marked as “fraudulent” and they have to find the one that is genuinely fraudulent — a near impossible task.

KEY TAKEAWAYS

a) Repetition bias happens when mortgage underwriters have to wade through thousands of applications that have been marked as fraudulent by automated machinery — most of which are not actually fraudulent.

b) Lenders typically flag 40% of loans that come in with at least one fraud flag to review, so underwriters are essentially left in charge of finding a needle in a haystack.

c) This issue will only become more exacerbated as we enter a tighter housing market in 2022; applicants are more likely to fudge their income or their credit score to get their loan approved.

d) As the mortgage industry consolidates and layoffs begin, there may be fewer underwriters and analysts in the industry to sift through all these loans marked as fraudulent.

In the housing bubble era, fraud was running rampant all across the mortgage industry and the entire economy suffered the consequences. 

In the run-up of the crisis, underwriters facilitated wide-scale fraud by knowingly misreporting key loan characteristics, according to Griffin’s analysis. Credit rating agencies inflated their ratings on both mortgage-backed securities and collateralized debt obligations (CDOs), while originators also engaged in mortgage fraud to increase market share, and appraisers would inflate appraisals in order to gain business. 

The industry changed drastically after the financial crisis and with the creation of the Dodd-Frank Act. Entities and mortgage professionals are concerned about protecting themselves from fraud. Today, many are wary of fraud and fraudulent applications, which could end up costing their companies a pretty penny. But the industry is still struggling to establish an efficient system for identifying fraudulent loans. 

Point Predictive Chief Strategist Frank McKenna said that while mortgage lenders have implemented additional tools to identify mortgage fraud, problems related to mortgage applications are increasing at an alarming rate due to “repetition bias”, often causing hundreds of thousands in losses.

Repetition bias happens when mortgage underwriters have to wade through thousands of applications that have been marked as fraudulent by automated machinery. In some cases, the rate is 1,000 non-fraudulent applications (marked as fraudulent) for one truly fraudulent application. Repetition Bias creeps in when underwriters are quickly scanning and approving applications that were marked as fraudulent and they miss that one genuinely fraudulent application. Even one fraudulent mortgage that is approved can cost lenders hundreds of thousands of dollars.

A fraudulent application occurs when a borrower lies about their credibility and financial status by either fudging their income, credit score, or anything that might make them look more trustworthy. Today’s lenders use various approaches for identifying these fraudulent loans, mainly with automated machinery, but most of these systems are not smart enough to accurately analyze applicants.

“Lenders flag 40% of loans with at least one fraud flag to review,” McKenna said, “and sometimes much more than that. So, underwriters are essentially left in charge of finding a needle in a haystack.” 

An overwhelming amount of loans are being flagged as fraudulent and these all need to be reviewed by underwriters or fraud analysts. After reviewing a hundred or so applicants and finding out they are all non fraudulent, it creates a false-positive bias. However, this makes underwriters and analysts more susceptible to missing genuinely fraudulent loans. 

For example, applications can be flagged as fraudulent because the listed social security number (SSN) is also associated with other names; yet, only 1 in every 750 applications flagged with this are genuinely fraudulent. Oftentimes, the SSN appears on other applications with different addresses, but only one out of every 1,000 is actually fraudulent. Even more often, the SSN is randomized issued after 2011, though, only one out of every 1,500 of these are fraudulent applications. 

“It has the exact opposite effect of what a lender would want,” McKenna said. “You think by presenting more flags means you’ll catch more fraud, but actually the reverse is true. You create a bias towards the fact there’s no fraud.”

The amount in losses lenders could potentially face from accepting fraudulent loans is going to vary based on the lender’s portfolio, and lenders don’t typically release their fraud loss numbers, whether they’re public or private. However, McKenna estimates that slightly less than 1% of all mortgage originations are fraudulent. 

“I think the estimates that are done by industry experts indicate that fraud probably runs about 80 basis points so if you were to take the mortgage originations…” McKenna said, trying to calculate a rough estimate in his head, “I think about 80 basis points is kind of the standard calculation, so if there’s $2.6 trillion in originations it’s a very big number.”

McKenna believes this issue will only become more exacerbated as we enter a tighter housing market in 2022 where refinances have dried out and purchase originations are in. As it becomes harder to purchase a home — with bidding wars, rising prices, low inventory, and higher rates — applicants are more likely to fudge their income or their credit score to get their loan approved.

“With refinances, you’ve been in the house and have been paying their mortgage,” McKenna explained. “In tighter markets, which are typically purchase markets, there is more risk involved — especially with first-time home buyers.”

“You have a lot more people in the industry who need to keep making money, [brokers, lenders, …etc] so they want to get creative on how to close deals,” McKenna continued. “So that also plays a huge factor in increasing the risk of fraud.” 

As the mortgage industry consolidates and layoffs begin, there may be fewer underwriters and analysts in the industry to sift through all these loans marked as fraudulent. However, McKenna presents an alternative mechanism that is more selective and precise when it comes to identifying fraud. 

Point Predictive’s Mortgage Pass reduces false positives by 65% or more over current solutions. Mortgage Pass is a machine-learning AI that’s taught much in the same way that a human learns, where it’s shown lots of examples of fraud and lots of examples of non-fraud to differentiate. 

“It’s able to differentiate when a pattern exists on a problem that doesn’t exist on a good loan,” McKenna said. “So it is a version of artificial intelligence because it’s being trained with lots of data.”

“I wouldn’t recommend lenders discard any processes they currently do,” McKenna added, “but they can layer this process over what they do.”

Currently, much of the burden and responsibility for identifying fraud falls on underwriters that are already understaffed. 

“Layoffs in the mortgage industry are going to happen,” McKenna said. “So mortgage lenders are gonna be looking at ways to reduce costs. They’re going to have to kind of look at reducing false positives as part of that cost reduction.” 

Source:https://nationalmortgageprofessional.com/news/repetition-bias-leads-increased-mortgage-fraud?utm_source=National+Mortgage+Professional&utm_campaign=ed7a5d97c3-EMAIL_CAMPAIGN_2022_03_03_07_03&utm_medium=email&utm_term=0_4a91388747-ed7a5d97c3-71467005

New Lending Rules on Condominiums Take Effect

Fannie and Freddie tighten condo-lending rules. Details vary, but they generally won’t back single-unit condo loans if a building has deferred maintenance issues.

ORLANDO, Fla. – In response to the Surfside tragedy, Freddie Mac announced last week that it would immediately start taking a closer look at a condo development’s maintenance issues before approving individual loans. The change follows a similar announcement made earlier by Fannie Mae. The two mortgage giants back over half of all U.S. loans.

The new requirements can be complex – Freddie Mac posted its announcement online – but they will generally deny condo and co-op unit loans if the building has deferred maintenance issues, special assessments to fix deferred issues or other problems.

All changes announced in Freddie Mac’s bulletin “will be effective for Mortgages with Settlement Dates on or after Feb. 28, 2022.” Fannie Mae’s earlier bulletin says its rules will be “effective for whole loans purchased on or after Jan. 1, 2022, and for loans delivered into MBS pools with issue dates on or after Jan. 1, 2022.”

Both policies “remain in effect until further notice.”

As part of the process, Fannie Mae lenders will send condo managers a five-page form that must be completely filled out. Under the section that covers insurance types and amounts, it even includes instructions, such as “Do NOT enter ‘contact agent.’” The regulations apply to all condominiums with five or more units, even if that complex is otherwise exempt from review.

While individual condo buyers may immediately face hurdles getting a loan approved, the tighter policies could have a longer-term impact on entire condominium complexes. Even condo associations without concerning maintenance issues could find that unit owners – without the backing of Fannie Mae and Freddie Mac – will have a harder time selling their property if the new paperwork isn’t filled out correctly and returned promptly.

“Loans secured by units in condo and co-op projects with significant deferred maintenance or in projects that have received a directive from a regulatory authority or inspection agency to make repairs due to unsafe conditions are not eligible for purchase,” Fannie Mae states in its Oct. 13 announcement. And those projects “will remain ineligible until the required repairs have been made and documented.”

Fannie Mae considers acceptable documentation to be “a satisfactory engineering or inspection report, certificate of occupancy, or other substantially similar documentation that shows the repairs have been completed in a manner that resolves the building’s safety, soundness, structural integrity, or habitability concerns.”

While Fannie Mae and Freddie Mac’s changes apply nationwide, Florida may feel a greater impact due to the number of condo buildings across the state.

In addition, condo complexes that have deferred maintenance issues or one of the other problems noted won’t be approved for Fannie Mae- or Freddie Mac-backed loans until those issues have been fixed.

Source:https://www.floridarealtors.org/news-media/news-articles/2021/12/new-lending-rules-threaten-some-condo-sales

Alert – 2022 Thresholds for Regulations Z, M, V

NCUA issued a Regulatory Alert (21-RA-11) with the 2022 annual adjustments for three exemption thresholds under the Truth in Lending Act (TILA or Regulation Z) and the Consumer Leasing Act (CLA or Regulation M). The thresholds exempt loans from special appraisal requirements for higher-priced mortgage loans and determine exempt consumer credit and lease transactions under Regulation Z and Regulation M.

The 2022 thresholds, effective on Jan. 1, 2022, are an increase from the 2021 thresholds.

The CFPB also issued an annual adjustment to the maximum amount credit bureaus may charge consumers for making a file disclosure to a consumer under the Fair Credit Reporting Act (FCRA or Regulation V). The 2022 ceiling, effective on Jan. 1, will increase from the 2021 ceiling.

1 ) The appraisals for higher-priced mortgage loans exemption threshold for 2022 will increase to $28,500 from $27,200 based on the annual increase in the Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) in effect as of June 1, 2021.

2) The consumer credit and consumer lease exemption threshold for 2022 will increase to $61,000 from $58,300 based on the annual percentage increase in the CPI-W in effect as of June 1, 2021.

3) The credit bureau consumer report fee maximum allowable charges for 2022 will increase to $13.50 from $13.00, based proportionally on changes in the Consumer Price Index for all urban consumers. The ceiling does not affect the amount a credit union may charge its members or potential members, directly or indirectly, for obtaining a credit report in the normal course of business. Such cost is expected to be accurately represented in all advertising, disclosures, or agreements, whether presented orally or in written form.

Source:https://news.cuna.org/articles/120322-compliance-2022-thresholds-for-regulations-z-m-v

Latest Lender Regulatory Changes YOU Need to Know

This regular publication by DLA Piper lawyers focuses on helping clients navigate the ever-changing consumer finance regulatory landscape.

Enforcement actions

Federal

CFPB files complaint against debt buyers for debt-placement practices. The Consumer Financial Protection Bureau (CFPB) filed a complaint in the US District Court for the Western District of New York against a group of New York-based companies and their principals for unfair, deceptive or abusive acts or practices (UDAAP) and Fair Debt Collection Practices Act (FDCPA) violations in connection with buying and placing debts with third-party debt collectors. The CFPB alleged that the companies, which collectively managed more than $8 billion in debt, (i) intentionally disregarded red flags from compliance staff that their third-party collectors were engaged in deceptive and abusive debt-collection practices, such as making false threats of arrest, jail time or lawsuits if consumers did not pay and (ii) intentionally increased the amount of business with such companies.

CFPB announces inquiry into “buy now, pay later” credit providers. The CFPB has issued a series of orders to five companies offering “buy now, pay later” (BNPL) credit in an effort to gather information on the risks and benefits of this type of lending. The CFPB expressed concern that (i) this type of lending could lead to the accumulation of large amounts of debt by unqualified consumers with subprime credit histories, (ii) BNPL lenders may not be adequately applying consumer protection laws and (iii) it needed to better understand BNPL lenders’ data collection, behavioral targeting and data monetization practices. A sample copy of the CFPB’s order to BNPL lenders is available here.

FTC announces $675,000 settlement and permanent ban against merchant cash advance provider for deceptive marketing and abusive collection practices. The FTC announced a stipulated order with a New York-based merchant cash advance lender for alleged unfair and deceptive acts and practices (UDAP) and Gramm-Leach Bliley Act (GLBA) violations. The FTC alleged that the lender misrepresented the terms of loans issued to small businesses, made unauthorized withdrawals from customer accounts and engaged in unlawful collection practices, including the illegal use of confessions of judgment and threatening customers with physical violence.

FTC announces settlement with mortgage analytics firm for data security violations. The FTC announced a settlement with a Texas-based mortgage analytics firm for alleged violations of the GLBA Safeguards Rule. The FTC alleged that the firm hired an outside vendor to perform text recognition scanning on mortgage documents, most of which included sensitive consumer data. The vendor stored these documents on an unsecure server without any protections to block unauthorized access. The server was allegedly accessed in an unauthorized manner dozens of times. The settlement will require the firm to bolster its data security protections and oversight of vendors to ensure compliance with the Safeguards Rule.

FTC announces $12 million settlement and permanent ban against debt collectors for phantom debt collection. The FTC announced a settlement with several South Carolina-based debt collection companies and their principal for alleged Fair Debt Collection Practices Act (FDCPA) violations. The FTC alleged that the defendants used threats of imminent legal action to collect payments for consumer debts that were not real or that the companies had no right to collect. In addition to the monetary judgment, which is partially suspended due to inability to pay, the defendants are required to surrender numerous assets, including bank accounts, investment accounts and real estate owned by the companies or their principal.

FTC announces $500,000 settlement with payment processor for assisting in fraudulent student loan relief scheme. The FTC announced a stipulated order with a Washington-based payment processor for alleged violations of the Telemarketing Sales Rule (TSR). The FTC alleged that the payment processor knowingly processed approximately $31 million in payments for a student loan debt relief company that was charging illegal upfront fees from borrowers, during which the payment processor ignored multiple red flags including high return rates and multiple company name changes. The order also permanently bans the payment processor from processing any future payments relating to “Debt Relief Services,” including, but not limited to, the student loan-related debts.

State

California DFPI announces settlement with auto lender for loan marketing and servicing violations. The California DFPI announced a consent order with an auto lender for alleged violations of the California Fair Access to Credit Act’s interest rate cap of approximately 36 percent. The DFPI alleged that the lender was unlawfully partnering with an out-of-state bank in order to circumvent the interest rate cap. The consent order (i) prohibits the lender from marketing or servicing automobile title loans worth less than $10,000 with interest rates greater than 36 percent in the State of California over the next 21 months and (ii) prohibits the lender from making any loans available through a state-chartered bank partner until September 2023, unless there is an intervening change in the law or regulation that would otherwise permit it to do so.

Source: https://www.lexology.com/library/detail.aspx?g=43821fc9-dfb0-4a37-9ec3-4eaa61595327

2022 Mortgage Origiantion Outlook

KEY POINTS

1) The average rate on the popular 30-year fixed loan will rise to 4%, according to the Mortgage Bankers Association’s forecast.

2) Refinance originations will drop 62% in 2022 to $860 billion.

3) However, mortgage originations for the purpose of buying a home are forecast to rise 9% to a record of $1.73 trillion in 2022.

Rising interest rates will result in a sharp drop in refinance demand in 2022, meaning a lot less business for mortgage bankers, according to the Mortgage Bankers Association’s just-released annual forecast. It predicts total origination volume will drop 33% to $2.59 trillion.

The average rate on the popular 30-year fixed loan will rise to 4%, a full percentage point higher than it is now, MBA economists say.

That will result in a 62% drop in refinance originations to just $860 billion. It deepens the anticipated 14% decline in 2021 to $2.26 trillion

“The economy and labor market rebounded in 2021, but overall growth fell short of expectations because of stubborn supply chain issues that fueled faster inflation, slowed consumer spending, and presented challenges in filling the record number of job openings available,” said Michael Fratantoni, chief economist at the MBA. “With inflation elevated and the unemployment rate dropping fast, the Federal Reserve will begin to taper its asset purchases by the end of this year and will raise short-term rates by the end of 2022.”

Originations for the purpose of buying a home, however, are forecast to rise 9% to a record of $1.73 trillion in 2022.

Overall, this will mark a change from the record-high production profits of 2020, when interest rates fell to record lows and homebuyer demand soared due to the coronavirus pandemic. The drop will likely result in increased competition among lenders.

“Many lenders will rely more heavily on their servicing business to achieve financial goals,” said Marina Walsh, vice president of industry analysis at the MBA. “The servicing outlook is more complicated today, with the expiration of many COVID-19-related forbearances and the need to place borrowers into post-forbearance workouts.”

Walsh added that servicing costs may rise as servicers work to meet the needs and requirements of borrowers, investors and regulators.

Source: https://www.cnbc.com/amp/2021/10/18/real-estate-mortgage-originations-will-drop-33percent-in-2022-as-interest-rates-rise.html

Updates to Mortgage Debt Collection Rules that YOU NEED TO KNOW

WASHINGTON, D.C. – The Consumer Financial Protection Bureau (CFPB) today announced that two final rules issued under the Fair Debt Collection Practices Act (FDCPA) will take effect as planned, on November 30, 2021. The CFPB issued a proposal in April 2021 that, if finalized, would have extended the effective dates to January 29, 2022. The CFPB has now determined that such an extension is unnecessary. Following this announcement, the CFPB will publish a formal notice in the Federal Register withdrawing the April 2021 proposal.

The CFPB proposed extending the final rules’ effective date by 60 days to allow stakeholders affected by the COVID-19 pandemic additional time to review and implement the rules. The public comments generally did not support an extension. Most industry commenters stated that they would be prepared to comply with the final rules by November 30, 2021. Although consumer advocate commenters generally supported extending the effective date, they did not focus on whether additional time is needed to implement the rules. The alternative basis for an extension that many commenters urged, a reconsideration of the rules, was beyond the scope of the NPRM and could raise concerns under the Administrative Procedure Act. Nothing in this decision precludes the CFPB from reconsidering the debt collection rules at a later date.

Two final rules under the FDCPA will take effect in November. The first rule, issued in October 2020, focuses on debt collection communications and clarifies the FDCPA’s prohibitions on harassment and abuse, false or misleading representations, and unfair practices by debt collectors when collecting consumer debt. The second rule, issued in December 2020, clarifies disclosures debt collectors must provide to consumers at the beginning of collection communications. The second rule also prohibits debt collectors from suing or threatening to sue consumers on time-barred debt. Additionally, the second rule requires debt collectors to take specific steps to disclose the existence of a debt to consumers before reporting information about the debt to a consumer reporting agency.

The CFPB is committed to informing consumers about their rights and protections under the rules and assisting debt collectors in implementing them. Consumer education materials on debt collection and resources to help debt collectors understand, implement, and comply with the rules are available through consumerfinance.gov.

The CFPB will consider additional guidance for debt collectors, including those that service mortgage loans, as necessary. The CFPB recognizes that mortgage servicers are expected to receive a potentially historically high number of loss mitigation inquiries in the fall as large numbers of borrowers exit forbearance and that, as a result, mortgage servicers in particular may face capacity constraints. The CFPB will continue to work with all market participants to ensure a smooth and successful implementation.

The Consumer Financial Protection Bureau (CFPB) is a 21st century agency that helps consumer finance markets work by making rules more effective, by consistently and fairly enforcing those rules, and by empowering consumers to take more control over their economic lives. For more information, visit www.consumerfinance.gov.

Source: https://www.consumerfinance.gov/about-us/newsroom/cfpb-confirms-effective-date-for-debt-collection-final-rules/

Mortgage Lenders in Trouble for Shortcutting the Origination Process – Beware !

A former executive at Loan Depot dropped a bombshell on the mortgage industry late Wednesday, alleging in a lawsuit that the California-based nonbank lender, in a ploy to drum up money during the refi boom and in preparation for its initial public offering, closed thousands of loans without proper documentation.

The suit, filed by Tammy Richards, former chief operations officer, accuses loan Depot’s CEO, Anthony Hsieh, of ordering the sales team to “trust [their] borrowers” and close loans, disregarding proper underwriting etiquette. 

Richards claims that this demand was announced during a production meeting in August 2020, where Hsieh allegedly screamed, “I am Mello Clear, and we must immediately close loans regardless of documentation.” Top executives at Loan Depot allegedly didn’t bat an eye at Hsieh’s tactics.

After two months, the same point was made to Ms. Richards, with Hsieh allegedly announcing that the sales team needs to “close all loans…close without credit reports…close without documentation…close all loans.”

Closing loans without documentation violates federal laws, including the Dodd-Frank Act, which requires mortgage originators to follow minimum standards for all mortgage products. The landmark legislation also prohibits lenders from making loans unless they reasonably determine that the borrower can repay based on documentation that proves credit history, and current and expected income.

Officials from the Consumer Financial Protection Bureau, the Federal Housing Finance Agency and Fannie Mae and Freddie Mac did not immediately respond to requests for comment by HousingWire. 

Richards’ suit, filed in California Superior Court in Orange County, claims that her refusal to comply with Hsieh’s demands, specifically with closing loans without credit reports, resulted in her demotion in November.

Richards claims that after her demotion, executives at Loan Depot hatched a strategy dubbed “Project Alpha” in which Hsieh allegedly personally identified over 8,000 loans that were closed without proper documentation. Two-hundred processors were put in charge of closing these loans in exchange for extra bonuses at the end of the year, the lawsuit claims.

Richards accuses the CEO, who founded Loan Depot in 2009, of directing the company’s Chief Credit Officer, Brian Rugg, to refrain from auditing the 8,000 loans.

Richards, who at one point oversaw 4,000 employees, said she was eventually forced out of her job for refusing to break the rules. After a stint on medical leave, she resigned in March 2021.

The lawsuit filed by Richards also includes multiple allegations that male company executives created and enforced a “misogynistic frat house culture” that routinely led to women being harassed and demeaned. 

The nonbank mortgage lender disputed the claims made by Richards, who worked in senior roles at Wells FargoBank of AmericaCaliber Home Loans and Countrywide Financial (one of the bad actors in the subprime loan crisis) before joining Loan Depot. 

“Loan Depot is committed to operating at all times according to ethical, responsible and compliant business practices,” a statement from the company read.

“The claims in the lawsuit, which we take very seriously, were previously thoroughly investigated by independent third parties and found to be without merit,” Loan Depot said, without providing further information about who conducted these investigations and when they occurred. “We intend to defend ourselves vigorously against these outlandish allegations…”

Loan Depot, the nation’s second-largest nonbank retail mortgage lender, went public in February, selling 3.85 million shares at $14 and raising $54 million. The company filed reports that showed its revenues increased from $1.3 billion in 2019 to $4.3 billion in 2020, according to Securities and Exchange Commission filings. The company originated about $100.7 billion in loans in 2020.

Hsieh has been the biggest beneficiary of the IPO – as the largest shareholder, last year he took advantage of a one-time discretionary performance bonus of $42.5 million.

In recent months, the nonbank lender moved to appoint new faces to their board of directors, including Pamela Hughes Patenaude, a former deputy secretary of the U.S. Department of Housing and Urban Development and Mike Linton, marketing expert who currently serves as chief revenue officer at genomics firm Ancestry.

The company was trading at $6.98 late Thursday afternoon, with a valuation of $2.1 billion.

Source: https://www.housingwire.com/articles/ex-loandepot-coo-tony-hsieh-cut-corners-to-boos

Mortgage Servicers BEWARE – CFPB is Back !

The Consumer Financial Protection Bureau is back — with a vengeance

As summer begins, while things may look relatively quiet on the CFPB mortgage servicing enforcement front, those of us who remember the CFPB’s early days following the 2008 foreclosure crisis have a different view: What we are seeing now has all the hallmarks of the calm before a huge storm.

President Joe Biden’s nomination of progressive firebrand Rohit Chopra to lead the bureau was the first hint, but the surprise move has been the very meaningful tenure of Dave Uejio as acting director. Despite his centrist credentials, Biden has skewed dramatically to the left with several key appointments and initiatives, and both he and Uejio have made racial equity an administration, and bureau, mantra. Uejio, further, is a wild card who has moved quickly to establish himself in his brief but substantive tenure as acting director.

In a video released June 2,[1] Uejio again committed the bureau to racial justice, speaking in personal terms as a Japanese-American being the “target of hatred and violence on the basis of my race.”

“Rest assured,” he concluded, the CFPB will take action against institutions and individuals whose policies and practices prevent fair and equitable access to credit, or take advantage of poor, underserved and disadvantaged communities.”

On the mortgage front, the CFPB enforcement actions we see today are primarily the product of investigations commenced before the new administration. And while the CFPB has proposed rules[2] to clarify technical aspects of COVID-19 relief implementation in loss mitigation, along with a temporary pause on foreclosures, we have yet to see the regulatory avalanche some anticipated.

But the dynamic has plainly changed, and the bureau has launched several warning volleys. On March 31, the CFPB issued Bulletin No. 2021-02,[3] aptly named “Supervision and Enforcement Priorities Regarding Housing Insecurity,” warning servicers to:

[D]edicate sufficient resources and staff to ensure they can communicate clearly with borrowers, effectively manage borrower requests for assistance, promote loss mitigation, and ultimately reduce avoidable foreclosures and foreclosure-related costs.

Further, at a recent mortgage bankers conference, Uejio warned that servicers may be entitled merely to equitable foreclosure recoveries.

Housing security is likewise a focus of CFPB research. At the bureau’s fifth research conference in early May,[4] researchers presented reports focused both on mortgage credit and housing security, “given that mortgage balances make up the largest component of household debt and housing equity accounts for the majority of wealth for the median homeowner.”

Likewise, on May 27, the bureau issued a report on manufactured house financing,[5] decrying the high interest rates and credit barriers that the bureau claims afflict that industry.

Finally, the CFPB has joined other regulators in expressing interest and seeking information about artificial intelligence.[6] Such scrutiny might adversely affect not just automated underwriting, but also the way mortgage servicers systemically deal with borrowers in distress.

This is a critical time for the CFPB, and we expect its regulatory and enforcement actions in the mortgage space to effect a sea change by 2022.

These early signals are just the beginning of what is likely to be a rocky ride for mortgage servicers. As disruptive as the past foreclosure moratoria and new loss mitigation requirements were, the result was to dramatically slow and, for long periods of time, outright stop the volume of foreclosures needing to be processed.

This period will likely be far more chaotic as servicers continue to implement the new programs and restrictions while at the same time returning to foreclosure and eviction volumes rivaling 2010. This will occur as the CFPB gears up for an intense few years of activity by ramping up staff with new hires.[7]

Consider as well that, to date, the above has been occurring against the backdrop of rapid recovery of the job market and historically low mortgage interest rates. What will happen without a full recovery, and in an environment of rising interest rates associated with inflationary pressures?

Will this become an existential moment for the CFPB? We doubt it. But, if the public, and the politicians who answer to it, come to view the CFPB as having failed in this critical moment, structural reform — toward or away from either end of the ideological spectrum — would not be a surprising future outcome after the next presidential elections.

This likely will lead to splash headlines and major enforcement efforts from the CFPB directed at mortgage servicers, and a natural political target in times of stress. Resolving a now yearslong foreclosure backlog will likely give regulators a target-rich environment in which to work.

Source:https://www.law360.com/articles/1390766/mortgage-servicers-should-prepare-to-be-in-cfpb-crosshairs

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