Tommy's Blog

MERS® Sends Non-Compliant Notices

Tommy — Wed, 25 Jan 2012 19:14:49 +0000

MERS® began sending notices immediately after the January 24, 2012 deadline extension for the Annual Report, to mortgage servicers for breach and failure to respond to the 2011 Annual Report notification from MERSCORP, Inc. Basically, if a servicer did not submit the MERS® Quality Assurance plan with the Annual Report on or before January 24, 2012, they received a notice. Mortgage servicers are warned in the MERS® notification that they are not complying and the member is in
violation of the MERS® System Membership Agreement and could invoke Rule 7 of the MERSCORP Rules of Membership that has disciplinary actions that are outlined in Rule 7.

The MERS® notification reminds the member of the supporting announcement bulletins and training bulletins issued throughout 2011. MERS® continues by reminding members that the 2011 Annual report may be completed by an independent review organization not affiliated with the company.

MERS® allows the member mortgage servicer the ability to take action promptly to cure the breach to avoid the disciplinary action outlined in Rule 7 and that noncompliance could ultimately lead to termination of the servicer’s MERS® System
membership and revocation of the signing authority of the MERS Signing Officer listed under the MERS Corporate Resolution.

MERS® take advantage the notification warning to encourage to the member to comply and provides the mortgage servicer every opportunity to comply.

Quality Mortgage Services supports mortgage servicers with servicing quality control and MERS® quality assurance. The QMS staff is ready and willing to coordinate with the mortgage servicer the data and document delivery in order expedite
the MERS® QA compliance review and QC Plan for MERS® compliance.

MERS® 2011 Annual Compliance QC Review Discovery

Tommy — Thu, 19 Jan 2012 18:00:56 +0000

As we approach the MERS® dead line extension for the annual MERS® compliance review that was moved from December 31, 2011 to January 24, 2012, we are finding that there are many servicers waiting to the last minute to wrap up the year. Quality Mortgage Services continues to receive calls daily from servicers rushing in a panic to complete the MERS® QC audit. The servicer must realize that there are a number of logistical items that must be completed before the MERS® review can begin. Most all servicers have compliance protocols that must be followed prior to vendor relations begin and the legal run through and the vetting of the agreement takes time sometimes weeks. Most servicers do not realize the logistical requirement
from the servicer that QMS must have in order to complete the MERS® QC review. The servicers will need to have a number of MERS® reports, servicing software and MERS® data exports and uploads, and documents. We have seen some servicer needing up to a month to provide this information so the 100% MERS® audit can be performed. Whereas there are some servicers are better equipped and better prepared in reducing the logistical support required in supporting the MERS®
compliance review.

MERS® QC audit and compliance reviews undercover some huge findings that will help a number of players in mortgage banking space. As a result of the MERS® audits QMS found a discrepancy in servicing software in the way that prevented correct information from being reported in MERS®. The MERS® QC Reports provided by QMS has trending that pointed this
out. The mortgage servicer will be able to work with the servicing software provider to correct the glitch and the mortgage servicer will be able to correct the errors in MERS®. The bottom line the servicing software provider will have a better product, the servicer will have reduced risks and compliance defects, and the MERS® data will be correct.

Quality Mortgage Services offers a Gross & Net Report that compares and contrast the initial MERS® QC Report provided by QMS and the correction made by the servicer. The Gross & Net Report is very important because the servicers are able to document responses and actions taken to correct compliance discrepancy all in the Mortgage Analysis Review Software
(MARS) so that Credit Risk and Compliance Officers can track progress. Quality Mortgage Services is the only MERS® compliance company that offers robust portal capability for capturing trends and using the trends to capture corrective
actions.

Aggressive Litigation of Appraisers Slows Housing Recovery

Tommy — Tue, 10 Jan 2012 19:34:17 +0000

In analyzing factors regarding the slowness of the current Housing Recovery, one needs to look no further than the FDIC.
FDIC policies are at least partially responsible for slowing the Housing Recovery by encouraging appraisers to low-ball their valuation reports. The FDIC’s overly aggressive tactics in suing appraisers who provided valuations for failed lenders, which the FDIC has since taken over, is not only hurting the appraisal profession as a whole, but also hurting consumers and borrowers. It is slowing the housing recovery because it is encouraging appraisers to low-ball valuations in an effort to avoid being named a “defendant” in FDIC lawsuits years down the road should the lender fail.

Most people, those not employed by FDIC, realize that the lending issues that most directly impacted failed banks were sloppy loan underwriting and misrepresentations by originating lenders and borrowers about credit, employment and occupancy — not any failure by appraisers. When a borrower fails to make the very first payment on a loan, it is not an appraisal problem. Borrowers do not fail to make their house payments due to either the appraiser or his appraisal. Loans do not go into default due to the appraiser or appraisal; loans go into default because borrowers fail to make payments.

In 2011, the Federal Deposit Insurance Corporation has continued to file a high number of lawsuits against real estate appraisers blaming them for loan losses of the failed lenders that the FDIC and other agencies supervised during the mortgage bubble years 2004-2008. Most of the FDIC’s recent lawsuits concern loans made or purchased by Indymac or loans made through Downey Savings. Even though the FDIC has sued or threatened to sue hundreds of appraisers, the FDIC has almost never filed any form of disciplinary complaint against appraisers for any alleged USPAP violations. The reason is that the FDIC’s only purpose in its professional liability actions is to try to recover money from a defendant. As a general rule, if there’s no money to recover, the FDIC has no interest in pursuing any action. However, in the FDIC’s 12 most recent lawsuits, filed in November 2011, involving 29 California appraisers who delivered appraisals to Downey Savings, the FDIC’s failure to report the defendant appraisers to the State Board may also be due in part to a nagging suspicion on the part of FDIC attorneys that the California Appraiser Board might find the FDIC complaints against the 29 appraisers to be without merit. This would not be a good thing if you are planning to make those same appraisers defendants in a lawsuit.

In the FDIC lawsuits against the 29 Downey appraisers, FDIC attorneys demonstrate once again that they either do not understand or are intentionally misrepresenting to the court the purpose of an appraisal – it is not a guarantee of value in a down market. An appraisal is a time-specific opinion of value – nothing more, nothing less. Appraisers are not fortune tellers. Appraisal reports do not, and are not intended to, predict home values 6 months, one year or five years from now and yet, FDIC
attorneys are seeking to hold appraisers, or rather appraisers’ E&O carriers, accountable for their lack of clairvoyance.

A little background might prove helpful in order to fully appreciate “the creativity”, so to speak,, exhibited by FDIC’s attorneys in the Downey appraiser lawsuits. Downey Savings had an appraiser panel; they did not use an AMC. Downey Savings is all too familiar story of a lender being willing to buy loans from mortgage brokers without any checking or quality control of the accuracy of information submitted by the broker regarding the borrower’s financial qualifications. Every (yes, E-V-E-R-Y) loan
at issue in these lawsuits contained lies or fraud with respect to the borrower’s income or assets which meant that ultimately borrowers could not afford the loans and defaulted ,obviously, they too lacked clairvoyance.

Curiously, the FDIC acknowledges in the complaints that Downey relied on the financial representations made by the borrowers and confirmed by the brokers in making its determinations to approve and fund the loans which constitute the basis for the FDIC’s claim against the appraisers. And yet, despite that admission, FDIC looks to the 29 appraisers as guarantors for the
entire unpaid loan balances, unpaid interest, and foreclosure costs. Remember what was said earlier about the FDIC’s sole purpose in pursuing litigation being to recover money? The borrowers involved in these loans are broke, appraisers, on the other hand, carry E&O insurance. The FDIC has not sued any appraiser officials or managers at Downey Savings.

The FDIC lawsuits against the 29 Downey appraisers seek to hold appraisers liable for things most appraisers would not normally expect — such as failing to provide analysis of whether the appreciation of a comparable sale “was sustainable or the product of real estate speculation.” Admittedly, the FDIC attorneys are 100% correct in this allegation; however, they are 100%
wrong that an appraiser’s failure to speculate on either buyer’s or the markets motives for home purchases being a USPAP violation, gross negligence or for that matter, any negligence at all. A standard residential USPAP-compliant appraisal report does not provide that level of analysis. That level of analysis is better handled by a Tarot Card Reader, not an appraiser. The FDIC also accused one appraiser of being grossly negligent because he used one comp that was over 6 months old. In another complaint, the FDIC contends the appraiser was grossly negligent because his comps were more than 1 mile from the subject.

The FDIC’s overly aggressive litigation tactics not only hurt the individual appraisers, but hurt the appraisal profession as a whole. Many of the companies providing E&O insurance to appraisers have not only raised their rates but implemented exclusions for claims made by the FDIC. Some appraisers are leaving the profession due to what they see as increased liability risk, particularly in light of lower appraisal fees from many AMCs. Many more appraisers are coming in “low” on value, practicing defensive appraising, which is the inevitable result of the FDIC’s overly aggressive litigation tactics. The FDIC needs to be aware of the harm that it is causing by filing lawsuits against appraisers simply because they are easy prey and have E&O carriers who might pony up money to FDIC. Defensive appraising is slowing the housing recovery, it hurt lenders and borrowers alike, and the FDIC only has its own lawyers to blame.

Quality Mortgage Services is a full service mortgage compliance company that provides Appraisal Management, Appraisal QC such as Appraisal Defect Detection and Prevention, appraisal management software, and appraisal management analytics to support inter-agency compliance.

Year-end Review of Mortgage Banking

Tommy — Fri, 23 Dec 2011 18:41:06 +0000

This year brought with it a new and bitterly divided Congress, with more than 100 members new to the complex issues facing the real estate finance industry. It also brought about a fresh focus on the implementation of last year’s historic Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank), and the launch of that law’s newly-created regulator, the
Consumer Financial Protection Bureau (CFPB).

After the Obama administration released its February “white paper” on housing finance reform, Congress turned its attention to Fannie Mae and Freddie Mac for what is certain to be a long, drawn-out debate.

The Federal Housing Administration and mortgage banking advocacies like the Mortgage Bankers Association, worked with Congress to provide it with more funds for staff and technology, raise the multifamily commitment authority to $25 billion and extend the single-family loan limits for an additional two years–an effort that seemed all but impossible in the face of opposition from House Republicans and the Obama administration. Also, there was a five-year reauthorization of the National Flood Insurance Program in the House, with Senate consideration more likely than ever in 2012.

The CFPB was scrutinized and a call for structural changes to its governance. The industry saw legislation to the congressional budget process, alter the CFPB’s leadership from a single director to a bipartisan five-member commission, and strengthen the ability of federal banking regulators to overturn CFPB rules that would threaten safety and soundness.

Federal Update

Buybacks
There is concerns from the mortgage banking industry the growing concerns regarding GSE repurchase activity. There are industry groups preparing proposals to address the GSE repurchases.
CFPB
The CFPB has been extraordinarily active since well before its transfer or set up date of July 21, 2011. It has vigorously pursued the “Know Before You Owe” RESPA/TILA simplification effort, worked on the Qualified Mortgage rule, set up a mortgage consumer complaint system and issued notices and requests for comments on confidentiality, investigation and adjudication procedures, to name a few. Recently, it announced a regulatory streamlining effort and new rulemakings to revise rules transferred to its authority.

Compensatory Fees
As part of the Servicing Alignment Initiative, Fannie Mae and Freddie Mac announced in June that they would begin imposing compensatory fees on servicers who fail to meet their foreclosure timelines. Concerns were expressed to the FHFA on a variety of issues including the retroactive timeline, uncontrollable delays, and calculation methodology.

Department of Labor Litigation
On January 12, 2011, MBA filed suit against the United States Department of Labor (DOL) under the Administrative Procedure Act (APA) asking the United States District Court for the District of Columbia to set aside an Administrative Interpretation (AI) that reversed and withdrew a September 8, 2006 opinion to MBA from the Wage and Hour Division. The 2006 opinion permitted the use of the administrative exemption from the Fair Labor Standards Act (FLSA) for loan officers. MBA’s lawsuit takes the position that when an agency reverses its interpretation of its own regulations the law requires that the new interpretation be issued only after notice and an opportunity for public comment. Since this public process was not followed, the AI should be set aside. From January to late May 2011, both sides filed briefs. MBA is now awaiting a decision from the U.S. District Court for the District of Columbia that could come at any time. To read MBA’s complaint, the motion, MBA’s summary
of the case and other related materials, please visit MBA’s DOL Overtime Compensation Resource Page.

Evidence of Insurance: Lender Coalition to Support Lender Right to Evidence of Insurance Coverage
For nearly a decade, lenders and industry activist have made efforts regarding evidence of insurance forms. In July 2006, in response to property and casualty members, the standard ACORD (an insurance industry standards organization)
evidence of insurance form utilized solely by commercial/multifamily lenders was revised to change its status from an evidence form to another category of ACORD forms that are “for information only.” In addition, the MBA developed its own evidence of insurance form as an alternative to the ACORD “for information only” form. During the 2010-2011, a coalition of lenders and their government affairs representatives, in more than 20 states, opposed legislation or regulation adverse to lender interests.

FHA Update
The year has been a busy one for FHA. In April 2011, via Mortgagee Letter, FHA implemented a change in its premiums, raising the annual from what was a maximum of 50bps to 85-90bps, depending on the LTV. In November, FHA’s actuarial report on the FY2010 book was released, showing that the FHA capital reserve ratio has fallen again, this time to 0.24 percent, far below
the required 2.0 percent threshold. In November, Congress passed legislation raising FHA loan limits, allowing loans to be originated for up to $729,000 in high-cost areas. FHA has issued a mortgagee letter on this issue.

FHA Multifamily In 2011, MBA’s Multifamily Council formed a Task Force to discuss and develop recommendations focused on improving operational efficiencies in FHA’s multifamily programs. These 14 recommendations were intended to help streamline HUD’s multifamily application process and reduce the current backlog of applications. The letter recommended, among other things, increasing the minimum dollar threshold for loans subject to review by HUD’s “National Loan
Committee,” as well as creating training opportunities to enhance underwriting and risk management skills at HUD.

Fannie Mae and Freddie Mac G-Fees
As part of year-end negotiations over an extension of the Social Security payroll tax cut, additional unemployment benefits, and higher Medicare reimbursements to doctors, Congress is likely to increase guarantee fees for Fannie Mae and Freddie Mac to offset the cost of the legislation. Both the House and Senate passed similar versions of a 10-point g-fee increase earlier this month. The final package is also expected to include an increase in FHA’s single-family premiums and possibly an increase in the g-fees for Ginnie Mae.

HARP 2.0
HARP 2.0 was launched by FHFA on November 15, 2011, and became effective on December 1, 2011. The new version extends the program to December 2013 and lifts the 125 percent LTV limit for fixed rate loans, limits valuation and credit rep and
warrant relief, reduces loan level pricing adjustments, and prohibits “re-HARPing.”

Housing Finance Reform
Congressional action on housing finance reform, including FHA and the future status of Fannie Mae and Freddie Mac, looks to be a multi-year process, as both Congress and the Obama administration have shown caution in tackling what is likely to be a contentious issue. In the House, key Republicans have favored moving to a fully private system and are focusing on an incremental approach that would allow the private market to return as the GSEs are phased out; the Senate has taken a more moderate approach with an early focus on hearings.

Loan Originator Compensation
After the Federal Reserve’s Loan Originator Compensation rule was issued; the industry aggressively sought reasonable guidance from Board staff to facilitate implementation of the rule by the April 1, 2011 effective date. As a result of the mortgage banking involvement, Questions and Answers documents that included guidance on the many issues raised by the final rule including loan type, incentives, periodic compensation, managerial and administrative staff exemptions, and RESPA and TILA issues, to name a few. Since the Q&A, a new list of suggested changes for the CFPB to consider in providing guidance and
redrafting the rule.

Loan Limits
Thanks to the MBA, for leading a coalition of housing groups to successfully reinstate the higher loan limits for FHA loans for an additional two years. The temporary higher limit of $729,750, which was first established three years ago, expired on October 1, 2011, and was reduced to $625,500. The extension was part of a compromise reached between the House and Senate after the Senate passed an amendment to the HUD appropriations bill to reinstate the increased limits for FHA, VA and the GSEs.

National Flood Insurance Program
The National Flood Insurance Program (NFIP), originally set to expire at the end of September 2011, has faced a series of temporary extensions via stop-gap budget bills. Congress recently passed a temporary extension, via an omnibus appropriations package, that runs through May 31, 2012. President Obama is expected to sign the legislation before the holiday recess.

Qualified Mortgage/Ability to Repay
There are 3 proposals for addressing the Federal Reserve’s Ability to Repay/Qualified Mortgage (QM) proposed rule.

(1) structure the QM only as a legal safe harbor, even with requirements that may be more extensive than the requirements proposed, in order to ensure the availability of sustainable, affordable mortgage credit to the widest array of qualified mortgage borrowers;

(2) significantly adjust the limit on points and fees in the QM to avoid undermining consumers’ ability to choose affiliated settlement service providers and double counting of lender compensations; and

(3) facilitate the convergence of the QM safe harbor and the proposed QRM along the lines of the proposed QM. The right QM definition will incentivize the origination of sustainable mortgages and, thus, serve the interests of investors as well as borrowers and invite private capital back to the market.

The CFPB indicated that it will publish a final rule in the first half of 2012. For more information, see MBA’s Ability to Repay/QM Issue Brief or MBA’s Comment Letter to Federal Reserve on Ability to Repay/QM Proposed Rule
Qualified Residential Mortgage/Risk Retention
QRM continues to be actively engaged on Capitol Hill. The below links are resources that the Mortgage Bankers Association has produced in order to address the adverse effects of QRM.

Risk Retention Resource Center

MBA’s Risk Retention/QRM Comment Letter

Joint Trades QRM White Paper

MBA’s Presentation on the Impact of Risk Retention Rules on the Mortgage Market
Real Estate Investment Trusts
The MBA submitted a comment letter urging the Securities and Exchange Commission (SEC) to maintain its existing regulatory framework for mortgage real estate investment trusts. The letter responded to the SEC’s Concept Release on regulation of mortgage-related pools and underscored the assertion that changes to the regulatory structure could have a negative impact
on real estate finance activity and provision of liquidity to the mortgage market.

Reg AB: Comments on SEC’s Re-proposal of Regulation AB
On July 26, 2011, the SEC issued a re-proposal of Regulation AB, which governs shelf registration of securities and filing deadlines. The proposal included substantial revisions that MBA requested when the proposal was first issued in April 2010. The letter underscored the importance of market efficiency, transparency and liquidity and observed how the re-proposal is interconnected with other regulations, including rules promulgated under the Dodd-Frank Act.
Risk Retention: Comment Letter Provides the Path Forward for Commercial/ Multifamily Risk Retention
Aspects of the rule, however, were problematic. Like the Premium Capture Cash Reserve Account (PCCRA) and a proposal was made to replace it with a methodology that more closely matched the policy purposes underlying risk retention; addressed the conditions under which third-party, “B-piece” purchasers could meet the risk retention requirements; and recommended a more targeted role for “Operating Advisors.”

Risk-Based Capital: Life Company Risk-Based Capital Reform
Over the past four years, MBA has worked closely with its life insurance company members, the National Association of Insurance Commissioners (NAIC), and the American Council of Life Insurers (ACLI) to reform the risk-based capital (RBC) treatment of life company holdings of commercial real estate mortgages. This effort involved tightening the range of the Mortgage Experience Adjustment Factor (MEAF), which has significantly narrowed year-to-year RBC fluctuations for life companies.

RESPA/TILA
In May, the CFPB launched its “Know Before You Owe Project.” Under the Dodd Frank Wall Street Reform and Consumer Protection Act, the CFPB is charged with issuing a proposed rule by July 21, 2012, to combine and simplify mortgage
disclosures under the Real Estate Settlement Procedures Act (RESPA) and the Truth in Lending Act (TILA). In May 2011, in contemplation of next year’s rule, the CFPB began an iterative process of issuing prototypes of an initial disclosure for public comment. By the end of October, five successive sets of prototypes had been issued. In October, the Bureau also began issuing
prototypes of the final disclosure. So far, MBA has submitted five separate comment letters expressing several concerns over the content, governing rules, terminology and format.

Joint comment letter on Round 6, settlement disclosures to CFPB

MBA’s comment letter on Round 4, initial disclosures to CFPB

MBA’s comment letter on Round 3, initial disclosures to CFPB

MBA’s comment letter on Round 2, initial disclosures to CFPB

MBA’s comment letter on Round 1, initial disclosures to CFPB

MBA’s comment letter on Research for RESPA/TILA forms to CFPB

Servicer Compensation
In December, a comment letter filed with the FHFA in response to its “Alternative Mortgage Servicing Compensation Discussion Paper,” a September proposal to overhaul the mortgage servicing compensation system that has the potential to dramatically change residential servicing, origination, and secondary market operations. The comment letter expands
on why a change does not needs to be made to the servicers’ compensation model at this time. In the event that FHFA
does move forward with changes to the compensation model, the comment letter recommends a “cash reserve structure,” which calls for deferring part of the existing servicing fees as a cash reserve to cover servicing costs for catastrophic economic and default situations. The cash reserve model was developed by MBA and its members and presented to FHFA during the summer of 2011. Comments on this paper are due to FHFA by December 26, 2011. Download a sample letter to send to FHFA.
For additional background see Residential Mortgage Servicing for the 21st Century Resource Center.

Servicing Standards
MBA’s Servicing 21 Council Workgroup on National Standards has produced a draft set of servicing standards that is working its way through the MBA review and approval process. These standards are designed to ensure that borrowers are treated fairly without imposing unnecessary, onerous and costly requirements on servicers. The working group diligently reviewed policy positions on servicing standards developed by various state and federal policymakers, such as the OCC, the Federal Reserve, the New York State Banking Commissioner, and proposed AG settlements. Congressional testimony in support of the need for National Mortgage Servicing Standards supports the implementing reasonable national standards rather than retaining or adding to the patchwork of state, local and federal agency requirements.

Supercommittee Debt Deficit Reduction
After months of negotiations, the Joint Select Committee on Deficit Reduction (Supercommittee), which was charged with identifying $1.2 trillion in deficit reductions, announced it failed to forge a bipartisan agreement. The failure invokes an automatic elimination of $1.2 trillion in spending beginning in 2013. The cuts will be spread evenly between defense and domestic spending programs. Many members of Congress have publicly discussed attempting to remove these mandatory cuts through legislative action, although congressional leadership has pushed back heavily on those suggestions and President Obama warned that he would veto any such attempt.

Transitional Licensing
In 2011, MBA drafted transitional licensing model legislation to permit qualified mortgage loan originators moving from a federal bank to a state chartered non-bank or from one state to another to work while completing state licensing formalities. A helpful legal opinion from the law firm of Patton Boggs concludes that it is within a state’s province to allow transitional licensing. Ohio, New Hampshire and Colorado have expressed their intent to introduce the model legislation.

State Advocacy Update
The pace of state legislation affecting the mortgage industry did not relent in 2011. Nearly 1,400 real estate finance bills were introduced in statehouses across the nation. In addition to state legislative accomplishments, Activist affected in this space participated jointly to create the blueprint for better coordination between state and the national associations. In this vein, activist and the states also worked together on a federal regulatory matter by sending a joint letter to FHFA opposing changes to the servicing fee compensation structure.

Vacant and Abandoned Property
Several cities with high inventories of properties vacated and abandoned by their owners present safety risks to the community and affect the appeal of those neighborhoods. Many municipal governments have responded by issuing ordinances that increase the requirements for mortgage servicers maintaining these properties, two of which sought to include requirements for the
mortgagee, including in Chicago, IL and Springfield, MA. The requirements in Chicago were modified, though not satisfactorily, and FHFA has filed a lawsuit complaining that the requirements would impact lending there and Fannie Mae and Freddie Mac would be taxed and regulated by another agency other than FHFA. More action is expected in this space in 2012.

Licensing
In addition to SAFE Act updates and changes, several states also saw legislation introduced that would require loan servicers to be registered. Most of these bills died when the final HUD rules stated that it was not mandated under the SAFE Act that servicers be licensed. Additionally, a handful of states took up bills to exempt seller-financed transactions from licensing requirements, including Colorado (enacted), Kentucky, New Hampshire and Mississippi.

Foreclosure Prevention and Mediation
Foreclosure legislation was introduced in nearly every state (43) this year, and half of those states (22) enacted bills. Foreclosure mediation, notices of default, affidavits of accuracy and short sale were the major trends in legislation across the country. Other legislation that stood out this session would stay foreclosure proceedings and prohibit dual track foreclosure,
effectively prohibiting servicers from scheduling foreclosure hearings while a borrower seeks mediation.

Servicer Conduct Regulations/Legislation
Several states considered legislation pertaining to servicers’ business practices, such as application of payments, fees, disclosures, and loss mitigation requirements. Arizona, Ohio, Nevada and Oregon have introduced bills in 2011.

My hat is off to the Mortgage Bankers Association for it countless hours, efforts, and demonstrating leadership in addressing these issues and provided solid written comments, testimony, and working groups. The content of this material would not be
possible without the efforts of the MBA. Also, I can not forget the members of the Mortgage Action Alliance, MAA, who sent thousands of letters to their respective representative in order to help shape a positive mortgage banking climate.

FHA Body Slams Net-Branches

Tommy — Wed, 14 Dec 2011 15:02:49 +0000

When the Housing Urban and Development no longer approved brokers according to ML 2011-02, brokers were quick to seek a net-branch model to avoid disclosure of their yield spread premiums to the borrower on the HUD-1 Settlement Statement. By joining a net-branch, brokers had a completive advantage over sponsored brokers who had to disclose the yield spread on the HUD-1.

The net-branch corporate structure was able to fund loans with its own line of credit also know as a warehouse line. Because the net-branches were able to finance loan internally, the net-branch corporate model was technology and legally defined as a creditor, which was exempted from the Loan Officer Compensation Rule April 1, 2011, under the Federal Reserve. The Federal Reserve’s Final Rule about loan originator compensation and steering takes effect on April 1, 2011. The rule, which is intended to protect borrowers from unfair lending practices stemming from loan originator compensation practices; and applies to “mortgage brokers”, loan officers, and loan originators employed by creditors.

Once HUD announced that the net-branch model was no longer acceptable, that left the brokers with an option to become a full mortgage branch or break away and become a sponsored broker or STPO. The new requirement resulted in the brokers
losing their identity and prevented the non-supervised mortgagee DBAs (Doing Business As) business structures.

Brokers are now looking for FHA sponsorship in order to keep their FHA mortgage loan production moving. When the brokers apply for sponsorship with a sponsoring mortgagee, the sponsoring mortgagee is citing ML 2011-02 which requires the broker to have a quality control plan and historical quality control audit reports of the mortgage loan production for the past 12
months. The broker has no options but to have the post closing audits performed in order to receive sponsorship. Unfortunately, many of the brokers who were in a net-branch, paid a fee to the net-branch for each loan to be reviewed for
post closing quality control. However, the net-branch is not releasing the reports to the broker.

Quality Mortgage Services is an company that mortgage enterprises turn to for many quality control solutions.

Alternative Mortgage Servicing Compensation

Tommy — Thu, 08 Dec 2011 19:40:31 +0000

On September 27, 2011, FHFA issued Alternative Mortgage Servicing Compensation, a discussion paper seeking public comment on two servicing fee structures. The first structure, which was proposed to FHFA by the Mortgage Bankers Association, would make only modest changes to the existing fee structure. It would require the servicer to set aside separate cash account within the MBS trust which would be a reserve for unusual non-performing loan servicing costs. If not needed, the cash would inure to the servicer. The second fee structure proposed by FHFA in the discussion paper, would make some fundamental changes to the current fee structure.

Recommendations to the Federal Housing Finance Agency (FHFA) are the following:

No change is needed to the current servicer compensation model as this model has served the market well for decades;
The changing regulatory environment makes consideration of any change to the model premature at this time, especially in light of the ongoing process to develop national servicing standards; and,
If FHFA is determined to adjust the current compensation structure, the cash reserve model is the best option and also the only option that meets the stated goals of FHFA.

If you think your mortgage servicing operations will be adversely affected by the mortgage servicing compensation I urged to take action. Join the Mortgage Action Alliance, it is free, click here.

To download a sample letter to send to FHFA, click HERE.

To review the FHFA’s September 27th discussion paper, click HERE.

COMMENTS MUST BE SUBMITTED TO FHFA BY DECEMBER 26th.

There is additional background provided by the Mortgage Bankers Association’s Resource Center for Residential
Mortgage Servicing for the 21st Century, click HERE.

Quality Mortgage Services is an active member and participate of the Mortgage Bankers Association and a member of the Mortgage Action Alliance. QMS encourages all mortgage professional to be a member of the Mortgage Action Alliance so that your voice is heard on the hill.

Quality Mortgage Services is a mortgage compliance company that performs regulatory quality control reviews on mortgage loans in servicing to include MERS audits.

Mortgage Servicing Compliance and Quality Control

Tommy — Mon, 21 Nov 2011 16:14:31 +0000

Mortgage servicers are now required to maintain servicing compliance and establish oversight with effective reporting that can provide an accountability of the effectiveness of the mortgage servicer’s compliance as set forth in the consent order. Along with the compliance and reporting, mortgage servicers are required to have a servicer compliance committee made up of a minimum of three directors. Two of the directors are required to be non-employees who will be responsible for the assessment of the servicer and validate that the servicer has initiated the servicer compliance practices, technology, and best practices of policies and procedures complying with the requirements of the consent order. This committee’s purpose is to provide direction so that the servicer can meet the compliance requirements. The committee is also responsible for submitting a quarterly progress report to the appropriate oversight agencies.

The servicer has a responsibility to vet the third party servicing compliance team and ensure the third party compliance team meets the compliance requirements of the consent order. The mortgage servicer must have a continuous due-diligence review process in order to validate the third party servicing compliance team for compliance with the consent order.

Mortgage Servicers need a Course of Action

Tommy — Fri, 18 Nov 2011 14:43:39 +0000

Since the consent order of the top 14 mortgage servicers, consultants and servicers have been trying to build a comprehensive action plan in order to meet the demands of the consent order published April 2011, Interagency Review of Foreclosure Policies and Practices. In order for mortgage servicer to get this going, the servicer must perform a self assessment in order for the mortgage servicing to launch the quality control requirements set forth in the consent order.

The mortgage servicer is required to develop an Audit Methodology Plan. A basic technique could be to take the results from the interagency audit and build from the areas of examination with more micro questions into the process and actions. Work with doers of these functions and learn from the unique scenarios and situations and evaluate for cause-effect-solutions. Once there is an acceptable solution, provide guidance to the independent auditors so that they can provide feedback on how well processes worked. Because there are so many unique situations homeowner scenarios, trends will surface and be visible in order for mortgage servicers to move to the next step of a Remedy Plan.

The Remedy Plan is simple, a plan of action that needs to be executed to fix the problems. This will include unilateral coordination and support within and from the mortgage servicing operations. However, the Remedy Plan should be a working document so that as unique situations arise, decision makers and responders can begin the on-the-spot actions that will find fulfillment to the ongoing compliance reviewer.

Mortgage Servicers should integrate the Remedy Plan with the Risk Management Plan so that ongoing assessments of operations are evaluated. The “Dove Tail” effect must be seamless and overlapping where action personnel and management have real time ability to facilitate coordination. Of course this will not be possible if information systems are not flexible and responsive.

Recently, the Mortgage Electronic Registry System also called MERS®, announced that general members will no longer be able to perform MERS® compliance reviews internally. The general member is required to out-source the MERS® compliance to a third-party vendor. This new requirement will be part of the mortgage servicer’s compliance requirement in order to track how well the servicer‘s data synchronized between the servicing system and MERS®. Recent audits of MERS® data and servicing system data has found many discrepancies because of the lack of compliance and oversight of the process.

Now that regulatory oversight has forced the issue because of consumer complaints, the mortgage servicing industry has to re-engineer itself. Having a strong compliance plan of action will help mitigate problems regardless if it is origination or servicing. And the mortgage industry will be on side of a healthy recovery and mortgage banking standards.

Mortgage Servicing and the Road Ahead

Tommy — Wed, 09 Nov 2011 17:15:45 +0000

When the mortgage meltdown occurred in 2008, the mortgage broker was the first hit by the wave of change struck by the mortgage industry and regulatory reform. In 2011, the mortgage servicers, the back side of mortgage industry, are having its day of reckoning. The mortgage industry will have several more years before mortgage professionals will refer to these past years of mortgage correction as an historical event that they endured.

The mortgage servicers have many challenges on their plate. To help mortgage servicers to overcome some of the challenges, the industry is putting into place the National Servicing Standards which is lead by the Mortgage Bankers Association called the National Uniform Mortgage Servicing Standards (NUMSS) New Miss. The new NUMSS is to help unify mortgage servicing standards for the industry. The NUMSS is currently in draft form but could be instrumental in helping mortgage servicers address interagency standards.

In parallel with NUMSS, Fannie Mae and Freddie Mac started the Servicing Alignment Initiative (SAI), which requires extensive new borrower contact activities, foreclosure timelines, compensatory fees, modification program and incentives. The word is still not out on the SAI and what hard line adjustments mortgage servicers will have to do in order to be in servicing compliance with SAI. There are some discussions with the FHFA regarding compensatory fees, however, nothing is finalized.

Litigation efforts are paramount with mortgage servicers and policy will be re-written based on court decisions along the lines on how foreclosures are performed and bankruptcy that are considered in the foreclosure process. The legal fight will not be over for a while; however, with many of the initiatives and standards being implemented, hopefully the industry will see the volume litigation decrease.

The controversial Dodd-Frank has not left mortgage servicers untouched. Mortgage servicers have escow provisions as well as QRM/QM as it relates to mortgage servicing loan assumption issues. Mortgage servicers can anticipate additional DFA issues that will have to be addressed in mortgage servicing operation in 2012 such as the treatment of modifications within Reg. Z, lender-placed insurance, application of payments, pay-off quotes, ARM adjustments notices, SAFE, fair credit reporting, and escrows. This will force mortgage servicers to place additional budgets to mortgage servicing quality control, software and technology adjustments, training, and possibly additional staff in order to maintain the DFA in the roles of quality control and mortgage servicing.

Mortgage servicers have placed a lot of efforts in their loss mitigation efforts such as foreclosure avoidance programs that balance the interest of consumers, investors, and servicers. The loss mitigation teams will continue to develop policies and servicing quality control over the processes and function of principle reduction, short sales, and rental post foreclosure.

The FHA has its part in the mortgage servicing function and has a number of changes that will probably come to fruition in 2012 such as the long-term unemployment forbearance program which may work similar to what was available to the victims of Katrina, trial period modifications that may include an interest rate risk associated with the three-month trial period, revisions to the face-to-face requirements, and revisions to the curtailment of debenture interest.

In the area of property preservation, mortgage servicers have logistic issues in maintaining properties and coordinating with HUD Claims and Vacant Property Registration with vendors. Also, maintaining communications between mortgage servicers and vendors in regards to servicing guidelines changes in support of property preservation operations and linking functions with delinquency management. Some mortgage servicers will have to coordinate with 50 states to avoid enactment of onerous vacant property registration ordinances and inappropriate building standards which are starting to heat up in many jurisdictions.

The mortgage servicing role is expanding and is becoming very complex. It is important that a mortgage servicer can have a resource like Quality Mortgage Services to perform mortgage servicing QC on its servicing functional areas, and customize servicing audits to the unique servicer’s specifications. Knowing a QC company is current and up to date on the latest mortgage servicing issues and understands what the mortgage servicing audits will look like in the future is important for when retaining services and consultation.

7 things a MERS® Annual Quality Assurance Standards Compliance must have

Tommy — Fri, 28 Oct 2011 13:52:30 +0000

The MERS® Annual Independent Attestation has been replaced by an Annual Report of Quality Assurance Standards Compliance. This Report is required from the Executive Sponsor for each Member Servicer or Subservicer each calendar year, and confirms:

1. Member has in place procedures designed to provide reasonable assurance that it has submitted to MERSCORP data for all MERS® System required and conditional reporting fields.

2. Member has conducted system-to-system reconciliations for all MERS® System required and conditional reporting fields at the required frequency.

3. Required and conditional fields entered on the MERS® System match those values in Member’s internal system, and discrepancies and remediation activities necessary to align the two systems are tracked and monitored on aging reports until cleared.

4. Member has in place procedures designed to provide reasonable assurance that it has conducted daily capture of all reject/warning reports associated with registrations, transfers, and status updates on open-item aging reports.

5. Member has in place procedures that are designed to provide reasonable assurance of compliance with the Rules and Procedures applicable to the MERS Signing Officers.

6. Member has monitored its performance against Member’s Quality Assurance Plan and has reviewed the plan at least annually for effectiveness and has revised the plan as necessary.

7. The Member has noted any exceptions to the above conditions as attached.

The Annual Report is due by December 31 and may be completed by an independent control function inside your organization (e.g. Corporate Compliance, Risk Management, etc.), or by an independent quality control company not affiliated with your organization.

Lite Members are not required to submit an Annual Report of MERS® System Quality Assurance Standards Compliance. However, if a Lite Member is upgraded to General membership status because they are servicing one or more loans for more than 90 days, they become responsible for all Member Servicer requirements as soon as they are upgraded.

Due to the revised format of this Annual Report, there is an updated QA manual and QC Plan.