OPED: CFPB Fines Prospect Mortgage $3.5M for Alleged Kickbacks

The following news was released at the end of 2016.  IMO when clients are given a choice, they will select value and get a better mortgage fit when allowed to apply with licensed mortgage originators that take the time to understand their client's needs and fit the mortgage product to those needs.  Keller Williams and Remax employ a lot of great Realtors and IMO the actions of a few should not define two super organizations.  Hopefully this action better defines what is acceptable in our industry.  IMO we should stay in our lanes and allow Realtors to do their job advising clients on homes that fit their need and Mortgage Originators should be selected based on Service and Competence.  If these lanes are respected its a win win.  Realtors will get more referrals due to a great Mortgage Experience and Clients win by getting their dream home and a mortgage that meets their needs today and into the future.

Please read the latest CFPB action below.

The Consumer Financial Protection Bureau hit Prospect Mortgage with a $3.5 million fine for allegedly paying kickbacks to two real estate brokers and a servicer for referrals of government backed mortgage loans. The bureau also took action against Keller Williams Realty Mid-Willamette and Remax Gold Coast, which were among more than 100 real estate brokers that had "improper arrangements" with the Sherman Oaks, Calif., firm, the CFPB said.

"Today's action sends a clear message that it is illegal to make or accept payments for mortgage referrals," CFPB Director Richard Cordray said in a press release. "We will hold both sides of these improper arrangements accountable for breaking the law, which skews the real estate market to the disadvantage of consumers and honest businesses."

The CFPB said that Prospect created marketing services agreements from 2011 to 2016 and made payments to various companiesthat were disguised as advertising and promotional services. Prospect paid real estate brokers from $200 to $20,000 a month inreturn for borrower referrals, the bureau said.  Prospect tracked the number of referrals made by each broker and also paid various real estate brokers to locate loan officers at Prospect using desk licensing agreements, the CFPB said. Additionally, Prospect allegedly paid brokers to "prequalify" home loan borrowers with Prospect and to "write in" the lender’s name for anyone seeking to purchase a listed property, the CFPB said. The company allegedly split fees with Planet Home Lending, a Connecticut mortgage servicer that it hired to identify and help persuade eligible consumers to refinance into a government-backed loan through Prospect.

Under the consent order, Prospect will pay $3.5 million to the CFPB’s civil penalty fund. Keller Williams Realty Mid-Willamette willpay $145,000 in disgorgement and $35,000 in penalties and Remax Gold Coast will pay $50,000 in civil money penalties, the CFPB stated. Planet Home Lending, a Meriden, Conn., mortgage servicer, will pay $265,000 in redress to harmed consumers for accepting illegal kickbacks for referrals in violation of the Real Estate Settlement Procedures Act, which prohibits making payments or giving kickbacks to anyone in return for a referral to a real estate settlement service provider.

Prospect would not confirm or deny the CFPB's charges."Today's settlement with the CFPB regarding alleged origination practices initiated under the prior management team, closes an important chapter in the company's history," Prospect said in an emailed statement. "Under Prospect Mortgage's new leadership team, the company has rebuilt its legal, regulatory and compliance practices."

A manager at Keller Williams Realty Mid-Willamette in Corvalis, Ore., did not return a call seeking comment. The CFPB did not identify the specific office of Remax Gold Coast. Planet Home did not return a call seeking comment. Planet Home had ordered so-called trigger leads from a major consumer reporting agency to identify customers seeking to refinance, which is a prohibited use of credit reports under the Fair Credit Reporting Act.  Prospect had run afoul of California regulators in 2015. The lender agreed to pay $10.1 million for inflating settlement service fees charged for more than 70,000 borrowers during a four-year period, according to California's Department of Business Oversight.
In November, Prospect, which is backed by the Chicago-based private equity firm Sterling Partners, sold its sales and operating assets, including 150 retail offices, to Homebridge Financial Services, an Iselin, N.J., lender. Many of the Prospect's executives, including Michael Williams, a former Fannie Mae president and CEO, joined HomeBridge.

Source:

http://www.nationalmortgagenews.com/news/compliance-regulat…ge-35m-for-alleged-kickbacks-1096061-1 

Mortgage Lenders Responsible for Vendors - CFPB via Dodd-Frank direct enforcement

                In Georgia, only an attorney can close a real estate transaction.  The attorney who closes on a residential mortgage purchase loan is frequently selected by the real estate agent representing the seller of the home.  Many borrowers do not fully understand that the closing attorney at most real estate closings (and usually there is only one attorney present) represents the Mortgage Company, not the buyer/borrower or the seller.

                The Dodd-Frank Wall Street Reform and Consumer Protection Act, enacted in 2010, gives the CFPB the ability to supervise a mortgage company’s vendors in the same manner as a bank regulator. The CFPB may also bring a direct enforcement action against a mortgage company’s vendors and, if it finds that the vendor violated federal laws dealing with consumer protection because a mortgage company did not have adequate oversight, the CFPB can:

 

•     require the mortgage company to improve its vendor management program;
•     bring an enforcement action directly against its vendor; and
•     bring an enforcement action against the mortgage company if it is found to have knowingly or recklessly provided substantial assistance to the vendor in a practice deemed to be an unfair, deceptive or abusive act. 

                On April 13, 2012 the Consumer Financial Services Protection Bureau (CFPB) issued Advisory Bulletin 2012-03 addressing vendor/supplier/service providers to covered companies including state-licensed and regulated finance companies of all types.  Since the Bulletin is based on vendor management rules and processes used in the banking industry, this new layer of federal oversight is a major change in compliance for non-bank consumer finance companies, including mortgage lenders.

                As a result of this new regulatory oversight and vendor management requirements, mortgage lenders are responsible for managing the closing attorneys that represent the lender at closing.  At a minimum, every lender should ensure (and document) that:

 

·       The closing attorney is licensed in the state in which the property is located;
·       The closing attorney has professional liability insurance in place;
·       The closing attorney has adequate expertise to close a residential mortgage loan (which will be more critical when the new integrated disclosure rules take effect on August 1, 2015);
·       The closing attorney is an authorized agent of the title insurance company used by the lender;
·       The closing attorney has an insured escrow account into which funds can be deposited by the lender's bank or source of funds;
·       The borrower is not the closing attorney or any partner in the law firm that is closing on the loan (a frequent violation in Georgia), or that there are any other conflicts of interest; and
·       The closing attorney has systems and processes in place that enable the required closing documents to be produced.

                In addition, the mortgage company should have in place a system through which consumers can register complaints about the closing attorney, and a process for responding to those complaints.

                Under current practice in Georgia, mortgage companies have little control over the selection of the closing attorney, and allow the real estate agent, the seller or the borrower to select the closing attorney.  The attorney selected by one of those parties to the transaction may be unknown to the lender, and the lender will not have conducted any due diligence on the attorney or the attorney's law firm. The failure to do so would be a violation of the mandate under the Dodd-Frank Act and the CFPB's Bulletin to adequately manage a vendor. 

               With the upcoming changes to the process and time in which closing documents will be prepared and delivered to borrowers (the HUD-1 Settlement Statement and Final Truth-in-Lending disclosure will be replaced by a new document called a Closing Disclosure), the interaction between the lender and the closing attorney will be more critical. 

 

Since the lender will have liability for any errors on the Closing Disclosure, many lenders will take over the responsibility for preparing the Closing Disclosure.  Also, a draft of the Closing Disclosure that will be used at closing must be received by the borrower three business days before closing (no more rush closings). 

 

If the closing attorney does not have the ability to interact with the lender though compatible software systems, the possibility of failed, delayed, or non-compliant closings is greatly increased. Because of this, it is becoming more and more important that the lender have a well managed relationship with the closing attorneys it uses to close loans. 

 

The selection of the closing attorney is important to exceptional service and soon will be critical to comply with the pending changes.  Adaptation to changes in our industry is key to longevity in the Georgia Mortgage Industry.  Given the Attorney represents the Mortgage Company, it makes sense they should be selected by their client.

 www.southeastmortgage.com

770-279-0222

Qualified Mortgage (QM) - Lender Responsibility and Definition

Residential Mortgage Lenders primary purpose is to provide consumer loans secured by single family housing to facilitate acquisition for a consumer purpose.  Consumer purpose is housing the primary borrower, co-borrower, and or family.  Residential Mortgage Lenders have due care responsibility to ensure applicants can afford the loan for the term of the loan and it fits the applicants purpose.
 
Commercial Purpose loans secured by residential zoned property (Rental Properties, Industrial, and general purpose) should be handled by a small business lender that is tasked to originate this type of credit facility.
 

IMO: Just because a Residential Non-Qualified Mortgage product is offered for a residential consumer purposes is not a justification for a licensed or registered residential mortgage professional to sell it.  Licensed Mortgage Loan Originators (NMLS and State License Compliant Mortgage Loan Originators) and Registered Bank Mortgage Employees (Bank Employees whose job is to Originate Mortgages and is not Licensed) should be a fiduciary for the consumer and ensure they recommend the right product.  Mortgage product recommendations should only be made after understanding the client's needs through an interview process and ensuring the client can afford the loan today and for the term of the loan.  In the future all Bank and Non-Bank Mortgage Professionals will be licensed to the same standard which will ensure all consumers have consistent protection when shopping for their mortgage.
This trust and due care is the key to referrals and the key to longevity in this business. 
 

In its simplest form, Qualified Mortgages (QM) meet the following requirements:
> A loan that meets the requirements of GSEs, FHA, VA, or USDA and can be sold in the primary secondary market
> Consumer has a documented and verified ability to repay
 

Starting January 10, 2014, you must assess the borrower’s ability to repay all term residential mortgage loans. All QMs are presumed to comply with this requirement. As described below, a loan that meets the product feature requirements can be a QM under any of three main categories:

 

 

Mandatory product feature requirements for all QMs

1. Points and fees must be less than or equal to 3% of the loan amount (amounts less than $100k, higher % thresholds are allowed);
2. No negative amortization, interest-only, or balloon loans that increase risk (BUT NOTE: balloon loans originated until January 10, 2016 that meet the other product features are QMs if originated and held in portfolio by small creditors);
3. Maximum loan term is less than or = 30 years. 

Three main categories (CFPB Definition) 
1. General definition of QMs

Any loan that meets the product feature requirements with a debt-to-income ratio of 43% or less is a QM

2. "GSE-eligible" category of QMs

 

Any loan that meets the product feature requirements and is eligible for purchase, guarantee, or insurance by a GSE, FHA, VA, or USDA is QM regardless of the debt-to-income ratio (this QM category applies for GSE loans as long as the GSEs are in FHFA conservatorship and for federal agency loans until an agency issues its own QM rules, or January 10, 2021, whichever occurs first).

 

3. Small creditor category of QMs  

 

If you have less than $2B in assets and originate 500 or fewer first mortgages per year, loans you make and hold in portfolio are QMs as long as you have considered and verified a borrower’s debt-to-income ratio (though no specific DTI limit applies).

I truly hope our industry learned from the last recession that mortgages are a cornerstone of the US economy.  We make a difference every day and should govern the products we offer consumers with due care at the fore front.  Today we are seeing a similar trend to 2006 - 2009 when the industry evolved product features to target a broader category of borrower to increase origination volume.  I believe there are some products that are needed for borrowers that are not currently participating in today's mortgage market; however, we need to ensure industry risk remains low.   

Cal Haupt
Chairman and CEO
Southeast Mortgage of Georgia, Inc.
770-279-0222
www.southeastmortgage.com

Consumer Will Benefit From Simpler Mortgage Disclosure Form

Consumer Will Benefit From Simpler Mortgage Disclosure Form

Posted on June 25, 2012 by SaportaReport

For more than 35 years, two federal laws (the Truth in Lending Act or “TILA,” and the Real Estate Settlement Procedures Act or “RESPA”) have required lenders and settlement agents to give consumers who take out a mortgage loan separate but overlapping disclosure forms regarding the loan’s terms and costs. This duplication has long been recognized as inefficient and confusing for consumers and the industry. However, TILA and RESPA are separate laws with different requirements.

Cal Haupt, Chief Executive Officer
Southeast Mortgage of Georgia, Inc.

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the Consumer Financial Protection Bureau is responsible for solving this problem by combining the disclosures and will propose rules that integrate the statutory requirements and resolve any inconsistencies.
Since late last year the CFPB has been testing two mortgage disclosure forms, nicknamed Butternut and Hemlock, and asking for feedback to create a single mortgage disclosure form. The form is scheduled to be released July 21.

Their goal, as clearly stated on the website, is “to provide consumers all the information they need in a clear and simple format: Are you closing on the loan you want, for example, a fixed as opposed to an adjustable rate? Do you know how much money you will need at closing and what you are paying for? Are the conditions and requirements for your loan clear? And we want to provide lenders and settlement agents with a document that is easy to use and reduces unneeded regulatory burden. In the end, we want a closing disclosure that meets the needs of both consumers and industry.”

The CFPB’s thorough and innovative approach to the disclosure forms not only clearly conveys the information that the laws mandate but also highlights the information consumers really need to know.
Combining overlapping disclosures for consumers that clarify and help the consumer better understand their mortgage terms is good for consumers and good for the mortgage industry.
Combining the various agency interpretations and forms is needed in an industry that has evolved over many years with agencies acting sometimes prior to analysis of how their actions affect other regulations or the industry as a whole.

In my opinion, the consumer would be better served and protected with a more concise to-the-point disclosure written in plain English. The mortgage industry is already complicated from a consumer’s point of view. Fewer and simpler disclosures will help the consumer focus on what is important versus redundant and hard-to-understand technical and legal jargon.

— Cal Haupt, Chief Executive Officer, Southeast Mortgage of Georgia, Inc.

Call: 770-279-0222

Visit: www.southeastmortgage.com
Email:  ClientServices@southeastmortgage.com
Helpful Blog: http://southeastmortgage.blogspot.com/