LenderNews by Rob Chrisman
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Aug. 26: Notes on occupancy fraud, appraiser training, blockchain, LO transition; a HMDA deep dive

August 26, 2017

Nationstar converting to Mr. Cooper? Bill L. sends, “They should have named it Mrs. Cooper. We all know who makes the financial decisions at home.”
Upcoming events
Marcia Davies from the MBA jotted, “MBA has been hosting events for women in the mortgage industry for years and is hosting a full day summit for women in Denver on October 21st. Our ‘mPowering You Summit has an impressive list of speakers and many industry women participating in the program.” Thanks for the reminder Marcia.
Blockchain for mortgages? Here’s a primer.
Credit trends
“We have a subprime financial system, not a subprime mortgage market…So if you’re calling your product ‘Outside Dodd Frank,’ consumers and regulators know exactly what it is. It sounds jarring, but better to be jarred by overt subprime marketing now than leveled by a stealth subprime financial system later…there is indeed wiggle room in defining a subprime mortgage. We should be watching these definitions and marketing labels very closely.” Julian Hebron penned a piece titled: “The subprime mortgage cycle begins anew.”
Appraisal profession in transition?
Both Fannie and Freddie announced changes to their collateral valuation policies in recent weeks. Regarding the changes, one source wrote, “This is one way to alleviate the problem of appraiser shortages.” That prompted Mike Simmons, co-president of Axis AMC, to remark, “This doesn’t ease any shortage, it just eliminates the need for appraisers altogether by replacing the appraisal with an AVM. Freddie Mac & Fannie Mae know this – and ultimately the ranks of appraisers will decline even more.
“Our push at AXIS and through other AMCs within the Collateral Risk Network is to help facilitate the growth of a new generation of appraisers by leveraging the support of industry vendors in technology and data services and develop superior inspection training methods through standardized mentoring. We believe we can re-engineer the appraisal process to match the kind of efficiencies that lender have achieved in today’s world. That way, consumers will still have the benefit of an experienced knowledgeable local appraiser independently determining the value of the property they’re purchasing – instead of an automated valuation model tool that really serves just to protect and warrant just the lender’s risk.”
Joan Trice, founder of Clearbox, published this note on the situation titled, “A 12 Step Program for Fannie Mae and Freddie Mac.”
William Fall, CEO of Valuation Partners, writes, “A healthy mortgage industry is made up of many components, but few are as critical as the appraisal. We don’t have to look too far back in time to see what happens when appraisal quality isn’t there. That’s why many of us are very concerned about the very real probability of an appraiser shortage in our near future—and everyone is wise to try to figure out how this shortage will impact his or her business.
“With the average certified appraiser nearing 60 years old, attrition is a real concern. Meanwhile, an estimated 20 million new households are projected over the next decade – and you can bet many will be new homeowners, all needing appraisals.
“First, the industry is trying to get young talent into the profession. The Appraiser Qualifications Board, which doesn’t take policy changes lightly, has proposed changes to the requirements for becoming a licensed appraiser. But was this a good thing – or will it erode the appraisal quality our industry has worked so hard to build?
“The ABQ voted allow a different approach for appraiser candidates to obtain relevant experience and academic background needed to earn an appraiser’s license. While this may sound like a bad omen for appraisal quality, I think they are on the right track. For example, the board plans to have alternatives for the 2015 requirement for appraisers to have bachelor’s degrees or a certain set of college coursework before getting licensed. For many appraiser candidates, this was too much of a financial hardship to add on top of the burden of getting real-world training.
“Under the AQB’s new proposal, candidates can achieve educational requirements by passing a college level equivalency program equivalent to 21 semester hours of college level coursework. A second option exists for licensed residential appraisers to take 21 hours of specified college coursework. And a third method is suggested that combines both college level courses with the CLEP program tests.
“The ABQ has also created modules that may be utilized to gain important experience prior to becoming credentialed. The previous standard ignored basic objectives of the profession – creation of competent, well-rounded appraisers, not just those that potentially went through repetitive basic activities for two or more years.
“The new approach underscores that most certified appraisers work alone and lack the time or the resources to train an apprentice—especially when handling an increasingly busy workload. Working appraisers are also not highly motivated to train someone who may someday become a competitor. As a result, many people trying to break into the industry are having trouble finding someone to mentor them. The ABQ’s proposal would lessen some of this burden.
“The ABQ’s changes are going to take a few years to take hold, but I’m very optimistic of the direction being set forth. However, we need to do more. While coursework and the amount of time a person spends learning how to appraise property are important, our industry could also benefit from “simulative” and “experiential” forms of training, such as virtual reality. Physicians and commercial pilots are already using this technology, which I believe is going to have an enormous impact on how we learn and interact as a society. These sorts of tools can be an excellent supplement to the appraiser’s education.
“While our industry needs to carefully weigh any changes in training requirements with appraisal quality, a wider on-ramp to the profession will help attract a new generation of appraisers we so urgently need.”
Last Saturday I mentioned reverse occupancy fraud and found in my in-box a note from Bridget Berg, Senior Director, Fraud Solutions Strategy, Property Information and Analytics, for CoreLogic. “Hello Rob! I enjoy reading your blog updates and had a couple comments on the post regarding reverse occupancy fraud August 19.
“Apart from lenders reviewing for red flags, the CoreLogic LoanSafe Fraud Manager tool has automated alerts for this type of fraud. We also did a study of it last year when developing the alerts, and published an article that may be of interest to your readers. Freddie Mac’s August 9 Bulletin 2017-12 (the same one that discusses short-term rental income) includes a policy change that should deter many reverse occupancy schemes; in most cases, the borrower qualifies with a majority of their income coming from the rental revenue from the subject property being purchased. Freddie Mac is capping the income at 30% of total qualifying income. Excerpt follows:
Income from rental properties not owned in the prior calendar year For Borrowers who do not have a documented one-year history of investment property management experience, the Seller may only consider net rental income in an amount up to 30% of the sum of the net rental income and all other stable monthly income that is used to qualify the Borrower. This change provides support to sustainable and successful homeownership by requiring a reasonable limitation upon the reliance on a newer type of income stream. Guide impact: Section 5306.1(c)(ii)
Loan officers moving
From Bill Kidwell comes, “On Friday, August 18th, I had the opportunity to go on record with my opposition as a mortgage professional to the two bills that, if passed and signed by the President, could open up our industry to thousands of inexperienced MLOs. These bills provide for transitional licensing of federally registered LOs with a four-month period in which to originate loans while they attain the required education, testing, etc. I encourage you to spend the 10 minutes or so to watch the exchange between Brian Stevens of the National Real Estate Post and me as we discuss my opposition to the bills as written. Click here to go to the video. Then, whether you watch the video or not, if you share my concerns I ask you to contact your Congressional representatives and ask them to oppose the bills as written. Ask them to support the addition of an amendment requiring federally registered LOs who want to transition to be required to sign a sworn affidavit that they have actually performed the origination function for at least the past twelve months.”
There continue to be plenty of lenders out there who seem to be relying on their vendors to accommodate the HMDA changes. That isn’t good. On the broader scope, let’s not forget the American Bankers Association’s White Paper on the CFPB and HMDA. Among other things, the ABA is very concerned with data privacy and data protection threats, and that “the vast expansion of data collection unrelated to the purpose of HMDA may cloud any focus on data collected for HMDA’s antidiscrimination goals.”
Earlier this week the Federal Financial Institutions Examination Council (FFIEC) issued new FFIEC Home Mortgage Disclosure Act Examiner Transaction Testing Guidelines. Examiners will use the new guidelines to assess the accuracy of the HMDA data recorded and reported by financial institutions and determine when an institution must correct and resubmit its HMDA Loan Application Register. The guidelines will apply to data collected beginning January 1, 2018.
Buckley Sandler reports that, “As further explained in a CFPB blog post issued the same day, this will be the first time all federal HMDA supervisory agencies—including the CFPB, FDIC, Federal Reserve, NCUA, and the OCC—will adopt uniform guidelines, which are designed to ensure HMDA data integrity (HMDA data includes certain information financial institutions are required to collect, record, and report about their home mortgage lending activity). The purpose for collecting the HMDA data is to evaluate housing trends and issues to monitor lending patterns, assist agencies with fair lending and Community Reinvestment Act examinations, and help identify discriminatory lending practices.
“According to a FDIC financial institution letter (FIL-36-2017) released on August 23, the highlights of the guidelines include, among other things, a data sampling process, error threshold levels, tolerance levels for minor errors, and the ability of examiners to direct a financial institution to make appropriate change to its compliance management system to prevent recurring HMDA data errors.”
And law firm Ballard Spahr checks in with, “The CFPB adopted significant revisions to Regulation C, the Home Mortgage Disclosure Act (HMDA) rule, most of which become effective January 1, 2018. On August 24, 2017, the CFPB finalized a rule to increase the threshold for collecting and reporting data about HELOCs (the “Rule”). Under the Rule, financial institutions originating 100 or more HELOCs but fewer than 500 in 2018 or 2019 would not be required to begin collecting and reporting HELOC data until January 1, 2020. This temporary increase was adopted amid concerns from community banks and credit unions about the challenges and costs of reporting open-end lending.  The CFPB will assess whether another rulemaking is required to address the appropriate permanent threshold for smaller-volume lenders. Accordingly, the reporting threshold commencing in 2020 may still be revised.
“The Rule also finalizes certain substantive changes and technical corrections to the 2015 HMDA Final Rule that were proposed in April 2017. First, the Rule establishes transition rules that permit financial institutions, under certain conditions, to report “not applicable” for two data points – loan purpose and the unique identifier for the loan originator (the NMLSR ID).  Second, the Rule amends the 2015 HMDA Final Rule to clarify certain key terms, such as multifamily dwelling, temporary financing, and automated underwriting system, and to create a new reporting exception for certain transactions associated with New York State consolidation, extension, and modification agreements. 
“These changes, which we discussed in detail when they were initially proposed in April,  were largely adopted as proposed because according to the CFPB, the ‘comments [received] did not raise points relevant to the Bureau’s decisions raised in its proposals.’ Third, the Rule provides that a census tract reporting error will be considered a bona fide error and not a violation of HMDA or Regulation C if a financial institution obtains an incorrect census tract number from the CFPB’s soon-to-be-online geocoding tool, if the financial institution entered an accurate property address into the tool and the tool returned a census tract for the address entered.
“Concurrent with the issuance of the Rule, the CFPB released an executive summary of the final rule, updates to technical filing instructions, and other implementation materials. Note that the changes include revisions to the Filing Instructions Guide for data collected in 2017 that must be reported in 2018.
“With few exceptions, most of the amendments included in the 2015 HMDA Final Rule will take effect on January 1, 2018.  Interested parties should assess if programming and operational changes made necessary by the Rule can be appropriately completed by January 1, 2018.”

The star of Cake Boss was arrested for DWI. Police interrogated him for 30 minutes at 350 degrees.
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