LenderNews by Rob Chrisman
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Dec. 8: IT, bus. development, wholesale jobs; CFPB targets reverse lenders; MBA reports on lender profits; legal trends

December 8, 2016

“I find it ironic that the colors red, white, and blue stand for freedom, until they’re flashing behind you.” The OCC doesn’t have flashing lights, but the feeling in one’s stomach is probably like being pulled over. The OCC is set to downgrade WFC’s fair lending scorecard by two notches, a move that would give regulators an even greater say in the bank’s day-to-day operations.
 
In retail news, First Community Mortgage in Murfreesboro, Tenn. has launched FCM Cares, an employee-managed foundation that raises funds for charities and other worthy causes in the communities the company serves. FCM employees serve as foundation directors and distribute funds throughout the year in accordance with the foundation’s budget and the board’s approval. Four areas of focus include education, women’s / children’s issues, housing and the military. Funds are raised through direct contributions by First Community Mortgage, contributions from employees and business partners, and fundraising efforts by employees. Per Keith Canter, FCM’s CEO, the company was looking for a more efficient way to channel its giving program to do the most good while keeping with FCM’s “Human Mortgage” approach. FCM is also looking for loan originators. Click here to learn about working at a company where humans are the stars.
 
For wholesale & Ops job news, “Applying a fresh approach to today’s lending challenges, Angel Oak Mortgage Solutions delivers an extraordinary mortgage experience for all stakeholders by always providing MORE. With a breadth of alternative lending products, its partners can close more loans by serving those borrowers that don’t fit neatly into the agency box. To continue Angel Oak’s aggressive growth into 2017, management is hiring experienced Wholesale Account Executives across the country to help partners understand the variety of programs available to serve today’s unique borrower. In addition, they are looking for underwriters and other operations positions in their Atlanta headquarters. If you’ve been looking for the right entrepreneurial organization with a strong, service-based culture, look no further. Come join the nation’s top Non-QM lender by emailing careers@angeloakms.com for consideration.”
Mobile is a hot topic these day. Most vendors offer some sort of mobile app, and they are really piling up on borrowers and LO’s phones. SimpleNexus offers an out of the box, but customizable solution, that can consolidate these down and provide a singular experience for LO’s, borrowers and even Realtors. LOs can use the app to check the status of their loans, send pre-approvals and more. Borrowers can use the app to quickly connect with the LO, apply for a loan, run accurate calculations, scan documents, and follow loan status. SimpleNexus has over 10,000 LOs using this white-labeled app to provide a great customer experience and keep their borrowers in the loop. Management is hiring software sales executives to help them expand – contact Ben Miller to learn more about an opportunity.
 
As one of the largest outsource providers in the United States, Digital Risk, LLC, is looking for an experienced Business Development leader. The ideal candidate will have established relationships in the financial sector and the ability to match Digital Risk products and services to client need. If interested, email Careers@DigitalRIsk.com for more details or view our posting.
 
Columbus, Ohio-based Equitable Mortgage Corporation announced a few major changes in upper management. Bruce A. Calabrese, current President of Equitable Mortgage will be moving to the CEO position and Anthony R. Butler, “Tony” current Vice President and CIO will be promoted to The President of Equitable Mortgage.
 
If you work for a lender that lost money in the 3rd quarter, you’re “special.” And if you’ve lost money this year, do you really think you’re going to improve your bottom line in 2017? The Mortgage Bankers Association reported that its study of independent mortgage banks and mortgage subsidiaries of chartered banks showed companies had a net gain of $1,773 on each loan they originated in the third quarter of 2016, up from a reported gain of $1,686 per loan in the second quarter of 2016.
 
"Including all business lines, 94 percent of mortgage lenders in our study reported pre-tax net financial profits in the third quarter of 2016, compared to 90 percent in the second quarter of 2016," said Marina Walsh, MBA’s Vice President of Industry Analysis. Heck, what about that other 6%??
 
Ms. Walsh observed that, "An increase in production volume and slight decrease in expenses in the third quarter kept production profits relatively stable. These profits would have been even higher were it not for a decline in net secondary marketing income, primarily income related to mortgage servicing rights."
 
"For the first time since the second quarter of 2015, production expenses were below $7,000 per loan, at $6,969 per loan. These expenses, however, remain elevated by historical standards.  Given the increase in loan count and the higher pull-through rate compared to the second quarter, we would have expected an even larger reduction in production expenses.” Average production volume increased, as did loan count.
 
The MBA said that, “The average pre-tax production profit was 74 basis points (bps) in the third quarter of 2016, compared to an average net production profit of 73 bps in the second quarter of 2016. Production profits for the third quarter of 2016 are also up from production profits of 55 bps in the third quarter of 2015. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 53 bps.”
 
One key to profitability is not paying large fines. The Consumer Financial Protection Bureau (CFPB) has taken action against three reverse mortgage companies for deceptive advertisements, including claiming that consumers could not lose their homes. The companies sanctioned are American Advisors Group, the largest reverse mortgage lender in the United States, Reverse Mortgage Solutions, and Aegean Financial. They were ordered to cease deceptive advertising practices, implement systems to ensure they are complying with all laws, and pay penalties totaling more than $800,000.
 
The CFPB fined Orange County’s American Advisors Group $400,000, the nation’s biggest reverse-mortgage lender, for falsely telling customers that they weren’t at risk of losing their homes, and that they could live in them for the rest of their lives. Bloomberg reports that Reza Jahangiri, American Advisor’s chief executive officer, said in a statement the company has "made a significant investment in our compliance and legal infrastructure to ensure we fully conform to all marketing laws and rules." American Advisors didn’t admit to or deny the CFPB’s findings.
 
Certainly, residential lenders and the court system are tied inexorably together. Recently a federal judge in Las Vegas blocked implementation of a Department of Labor rule that would have taken effect December 1st, increasing the salary level that an employee can earn and still be eligible for an exemption from overtime under the Fair Labor Standards Act (FLSA). The government is expected to appeal the decision.
 
The lease between a Landlord and a Tenant specifies the terms under which a Landlord can evict a Tenant. One condition often found in residential leases is the requirement for Tenants to obtain renters insurance. The Law Offices of Peter N. Brewer reported that a California Landlord tried evicting a Tenant for not having insurance in a rent-controlled apartment after 15 years of not having renter’s insurance. The Landlord served a three-day notice to perform or quit to obtain insurance on a Friday before a holiday weekend. The Tenant obtained insurance after the expiration of the three-day notice. The Landlord filed an unlawful detainer suit to evict the Tenant. At the trial court level, the Court ruled in favor of the Landlord. The Tenant appealed to the appellate division of the superior court. The appellate division affirmed the trial court’s ruling and in addition, held that since the lease contained a forfeiture clause in the lease stating that any breach was sufficient grounds for termination of the lease, it did not matter if the breach was of a material term. Once again, the Tenant appealed the ruling.
 
The California Court of Appeals for the Second District reversed the lower court’s rulings and held that a lease can only be terminated for a material breach of the lease. The Court cited previous cases in which a breach must be of a material term. Although this case was different because of the forfeiture clause, the Court refused to enforce the clause as it was against public policy and needed to be strictly construed. Landlords have disproportionately more power in lease agreements as such the court generally favors tenants who hold less bargaining power and hold Landlords to a higher standard.
 
This case represents the best possible case for a tenant. The insurance provision only benefited the tenant and the landlord was unable to articulate a reason how the tenants lack of insurance would harm the landlord. Also, the 3-day notice on a Friday before a national holiday is technically legal but the court noted the landlord was gaming the system and possibly retaliating as there was no reasonable way for the tenant to obtain insurance in time.
 
What about trends in bankruptcy law? Many debtors will file a Chapter 7 bankruptcy to obtain a discharge. Some will follow that discharge with a Chapter 13 bankruptcy. What does all that mean? Well in the case of HSBC Mortgage, it meant the borrower with two mortgages was granted a lien cancelation at the completion of bankruptcy.
 
The borrowers filed for Chapter 7 bankruptcy protection and obtained their discharge. The next day, they filed for Chapter 13 protection to restructure their debts. In the second bankruptcy, HSBC filed a proof of claim for the first mortgage. The borrowers challenged the claim and HSBC failed to respond. Accordingly, the bankruptcy court issued an order disallowing HSBC’s claim. Not only did they not object but HSBC requested not to be further notified about the proceedings. After the order, the borrowers moved to void the lien secured against the property as the underlying claim had been disallowed.
 
HSBC appealed to the district court but the decision was upheld. The United States Court of Appeals for the Ninth Circuit affirmed the district court and bankruptcy court’s to permanently void the lien. In this case, HSBC filed a proof of claim and it was successfully objected to by the borrowers. Since HSBC had timely filed the claim, the standing exemption refers to the statute which explicitly states a lien cannot be voided because a creditor did not file a claim. In other words, HSBC’s failure to take appropriate action to protect the first mortgage left it negligent and vulnerable.
 
We had a little bond rally yesterday, and a big rally in stocks, once again proving they don’t always move in opposite directions. WTI (West Texas Intermediate) crude fell 1.94% to $49.94/bbl. In mortgage land, the MBA Mortgage Market Index fell to its lowest level since January while the average 30-year mortgage rate rose to its highest since October of 2014. JOLTS – Job Openings fell to 5.534 million in October from 5.631 million in September, indicating less slack in the labor market – no surprise there. We had a report on consumer credit, the key takeaway from the report being that consumer credit (both revolving and nonrevolving) continues to expand, which is a supportive element for the U.S. economy
 
Agency MBS closed the day “tighter vs. both treasuries and swaps” as the treasury market was better bid, curve flatter, ahead of Thursday’s ECB decision. For the day, the risk free 10-year T-Note improved .375 in price closing with a yield of 2.35% – not much higher than where we were last December at this time. Agency MBS prices improved about .250.
 
That was all so… yesterday. This morning from overseas we’ve had the ECB decision and Mario Draghi’s press conference with markets more comfortable that European QE will be extended well into 2017. In the U.S., we’ve seen Initial Jobless Claims for the week ending 12/03 (-10k to 258k) – and that about does it for market-moving scheduled news. Without much in the way of news the focus tends to shift on what the NY Fed is doing in terms of buying agency MBS, although it is very, very well forecast and described. Today will see the Desk of the New York Fed conduct two morning FedTrade operations: purchase up to $925mn Class B 2.5% ($450mn) and 3% ($475mn) followed by $1.5bn GNII 3% ($725mn) and 3.5% ($775mn). We find the benchmark 10-year yielding 2.39% this morning with agency MBS prices worse .250 versus last night.
 
 
(Thanks to Dale for this one.)
The motivational seminar is packed to the gills with people. The speaker starts off the event by asking for some audience participation.
He says “How many of you have sex once a day?” Many people raise their hands.
“Okay, how many of you do it once a week?” A few more folks raise their hands.
“Okay, how about once a month?” A few more sheepishly raise their hands.
“Okay, how many of you have sex once a year?” A little guy in the front row is jumping up and down and raising both hands.
The speaker says “Sir, you only have sex once a year?”
The guy yells, “Yes! And tonight’s the night!”
 
 
If you’re interested, visit my periodic blog at the STRATMOR Group web site. The current blog is, “Election Day 2016 is Over – Now What?” If you have both the time and inclination, make a comment on what I have written, or on other comments so that folks can learn what’s going on out there from the other readers.
Rob
 
(Market data provided in partnership with MBS Live. For free job postings and to view candidate resumes visit LenderNews. Currently there are over 300 mortgage professionals looking for operations, secondary and management roles. For up-to-date mortgage news visit Mortgage News Daily. For archived commentaries, or to subscribe, go to www.robchrisman.com. Copyright 2016 Chrisman LLC. All rights reserved. Occasional paid job listings do appear. This report or any portion hereof may not be reprinted, sold or redistributed without the written consent of Rob Chrisman.)