Jan. 18, 2013: F&F approve National MI; new national SAFE MLO test; affiliate relationship thoughts; oh, and those 1,200 pages of servicing rules
Rob Chrisman


Here’s your reminder for the weekend. Go out and buy some “Forever Stamps” during lunch or tomorrow (assuming your local post office is still open Saturdays.) The price of mailing a letter goes up to 46 cents on January 27 – and why wait for the last minute?


It is being reported that the CFPB has a 2PM EST conference call today for the news reporters. Given the short time frame until the 21st, it has more announcements coming out. (Not the least of which is LO comp.)


Speaking of which, I received this note: “Rob, QM really beat up affiliate relationships so I’m wondering if the CFPB attacks the brokers on MLO compensation soon.” Hey, not so fast on the affiliate presumption. First of all, remember that the CFPB may take a look at the auto industry, and the way its companies often have financing divisions. (“Chet, you look great in that Suburban – let’s go have a visit with our finance guy.”) Affiliate relationships, like where a builder or Realtor works with a lender, often offer better efficiencies, and therefore pricing, to consumers – that can’t be ignored. Second, remember that Debra Still, the chairman of the Mortgage Bankers Association of America (MBAA, or MBA), comes from Pulte Homes. And under that corporate family are PulteMortgage, PCICInsurance Agency, Pulte Homes, and Centex. And whether it is Windermere in the Northwest, Richmond Homes, Standard Homes, K. Hovnanian, the list goes on and on… I am optimistic that calmer minds will prevail. (As a quick side note, when I was a kid, a rule was a rule. These days with kids, a rule is a rule until it is changed or done away with. From an outside observer’s perspective, these “rules” being issued by the CFPB seem to fall into the latter category, since as soon as they’re released special interest groups immediately announce how they’re going to modify or further clarify them.)


“The Conference of State Bank Supervisors (CSBS) announced that a new National SAFE MLO Test with a uniform state component will be available on April 1, 2013. With the implementation of this new test, 24 state agencies will no longer require a second, state-specific test component to be taken by mortgage loan originators (MLOs) seeking licensure with their state agency. With the implementation of the new National SAFE MLO Test with a uniform state component, 20 state agencies – DE, GA, ID, IN, IA, KY, MD, MA, MI, NH, NC, ND, PA, SD, TX, UT, VA, WA, and WI  – will no longer require a state-specific test component as of April 1, 2013. Additionally, four state agencies – Alaska, Kansas, Nebraska, and Vermont – will remove their requirement for a state-specific component on July 1, 2013. Remaining state agencies will continue to require state-specific test components, though additional states are eventually expected to adopt the new National SAFE MLO Test with a uniform state component. The Secure and Fair Enforcement for Mortgage Licensing Act of 2008 (SAFE Act) requires MLOs to pass the SAFE MLO test before they can be licensed with a state agency through NMLS. The test was comprised of two parts: a national component and a state component. In addition to passing the national component, MLOs seeking to hold licenses in multiple states were required to pass the state component for each state in which they wish to do business. Under the new National SAFE MLO Test with a uniform state component, a license applicant who passes the test will not need to take any additional state-specific tests to hold a license with 24 state agencies.”


The industry was excited (is that an exaggeration?) to see the CFPB issue another set of rules – this time nearly 1,200 pages on servicing. The Consumer Financial Protection Bureau released its second set of major final rules in a week, targeting mortgage servicing policies and procedures. The Mortgage Bankers Association said a preliminary review suggests that the CFPB made “productive changes” to a number of provisions, many of which were suggested by MBA and other industry stakeholders.


So the intended consequences are good, but what about the unintended consequences?

“As with any rule of this size, the devil is truly in the details, and for servicers, that means how the rules are implemented and operationalized,” said MBA President and CEO David Stevens. “Overall, the objective of this effort is the right one--create one set of rules so that borrowers know how they will be treated and servicers know what is expected of them.” The rules (http://files.consumerfinance.gov/f/201301_cfpb_servicing-rules_summary.pdf), which will take effect on January 10, 2014, implement the Truth in Lending Act and Regulation X, which implements the Real Estate Settlement Procedures Act. The rules cover nine major topics and implement provisions of the Dodd-Frank Act that relate to mortgage servicing.


The final rules include a number of exemptions and other adjustments for small servicers, defined as servicers that service 5,000 or fewer mortgage loans and service only mortgage loans that they or an affiliate originated or own. This definition covers substantially all of the community banks and credit unions that are involved in servicing mortgages. The final rules cover nine major topics. 1. Periodic billing statements. Creditors, assignees, and servicers must provide a periodic statement for each billing cycle containing information on payments currently due and previously made, fees imposed, transaction activity, application of past payments, contact information for the servicer and housing counselors, and, where applicable, information regarding delinquencies. 2. Interest-rate adjustment notices for adjustable-rate mortgages. Creditors, assignees, and servicers must provide a consumer whose mortgage has an adjustable rate with a notice between 210 and 240 days prior to the first payment due after the rate first adjusts, including any estimate of the new rate and new payment. 3. Prompt payment crediting and payoff statements. Servicers must promptly credit periodic payments from borrowers as of the day of receipt.


Number 4 is force-placed insurance. Servicers are prohibited from charging a borrower for force-placed insurance coverage unless the servicer has a reasonable basis to believe the borrower has failed to maintain hazard insurance and has provided required notices. 5. Error resolution and information requests. Servicers are required to meet certain procedural requirements for responding to written information requests or complaints of errors. The rule requires servicers to comply with the error resolution procedures for certain listed errors as well as any error relating to the servicing of a mortgage loan. 6. General servicing policies, procedures and requirements. Servicers are required to establish policies and procedures reasonably designed to achieve objectives specified in the rule. The reasonableness of a servicer’s policies and procedures takes into account the size, scope, and nature of the servicer’s operations. 7. Early intervention with delinquent borrowers. Servicers must establish or make good faith efforts to establish live contact with borrowers by the 36th day of their delinquency and promptly inform such borrowers, where appropriate, that loss mitigation options may be available. In addition, a servicer must provide a borrower a written notice with information about loss mitigation options by the 45th day of a borrower’s delinquency. The rule contains model language servicers may use for the written notice.


Number 8 is continuity of contact with delinquent borrowers. Servicers are required to maintain reasonable policies and procedures with respect to providing delinquent borrowers with access to personnel to assist them with loss mitigation options where applicable. And #9 is “Loss Mitigation Procedures.” Servicers are required to follow specified loss mitigation procedures for a mortgage loan secured by a borrower’s principal residence. The rule also restricts “dual tracking,” where a servicer is simultaneously evaluating a consumer for loan modifications or other alternatives at the same time that it prepares to foreclose on the property.


Law firm Ballard Spahr sent out its take on the rules (http://www.consumerfinance.gov/regulations/2013-real-estate-settlement-procedures-act-regulation-x-and-truth-in-lending-act-regulation-z-mortgage-servicing-final-rules/) set to take effect in year. “Consumer representatives believe the rules are a good first step and advised that additional changes are needed, such as requiring borrowers to be entitled to an affordable loan modification and requiring servicers to communicate with borrowers in their native language. Industry representatives welcomed the uniformity in practices that the rules will promote, but noted that further analysis of the rules is needed. These representatives also said the industry likely would ask for reconsideration of the one-year implementation time frame for certain requirements. In addressing the final rules, the CFPB noted that borrowers will have the right to file lawsuits claiming servicers failed to comply with the loss mitigation requirements of the rules. Significantly, these requirements include a prohibition on making the first notice or filing required for a judicial or non-judicial foreclosure until the loan is delinquent at least 120 days. Borrowers will not be able to file lawsuits based on the requirements for servicers to provide for continuity of contact with delinquent borrowers or to establish policies and procedures to meet the objectives of the final rules. The CFPB also indicated that it will have more to say on mortgage servicing transfers in the next month or two.”


So what does the public see about this? Here’s one initial story: http://www.businessweek.com/articles/2013-01-17/mortgage-reforms-keep-coming. The CFPB actually softened language in the final rules by backing away from a "single point of contact" requirement that would have required servicers to have individual employees assigned to defaulted borrowers. Under the final rule, servicers only have to provide dedicated employees who may be knowledgeable about a defaulted borrower's loan.


But the industry, in general, is a little nervous. Certainly the days of ol’ Betsy and her crew handling the servicing for $20/per loan per month are long gone. Servicing has become a very expensive endeavor and I am sure some servicers will be selling/transferring more of it. Costs per loan to service have gone up. Servicing “brokers” such as Phoenix or Mountain View are keenly watching, especially the non-bank mortgage servicers that were not subject to the national consent orders by the Office of the Comptroller of the Currency or the national mortgage settlement with the top five bank servicers. Much of the new rules were based on those settlements.


Currently, servicing practices also differ widely – that will come to an end. The servicing regulations are so detailed, and more changes are on their way, that some servicers may have a problem changing processes, updating their technology, or training employees – if they can find qualified servicing employees.


So what if a servicer messes up? The agency's enforcement authority includes the ability to enact civil penalties of banks and non-banks alike, including requiring restitution to consumers based on the severity of the problem. Servicers are concerned about penalties if they miss certain deadlines. For example, under the final rules servicers must review and respond within 30 days to any completed loss mitigation application that is received 37 days before a foreclosure sale. We could be looking at a massive influx in court cases as rules are interpreted, penalties assessed, and cases argued. And we can expect the costs of anything (legal, compliance, IT) to be moved to the borrower.


Congrats to National Mortgage Insurance Corporation (National MI): it received its approvals by both Freddie Mac and Fannie Mae. (Being an eligible mortgage insurer, as the other MI companies will tell them, is subject to maintaining certain conditions.) National MI has already been approved by about half the states (including CA, NY, and The Great State of Texas), and F&F told it that they will be ready to accept loans insured by it in the second quarter of 2013. Obviously the folks in Emeryville, California see this as a huge milestone (do countries still put down stones to mark miles?) for National MI after it brought in $550 million in private capital, and after the entire MI industry dodged a bullet when the CFPB’s QM rules didn’t wipe the industry out entirely. (“Private capital” is a key phrase there.) As we all know, in the last several years there has been plenty of turmoil in the MI industry (remember that private MI is an insurance benefit to the lender, or investor in a mortgage loan, under certain circumstances when a loan defaults.) Check ‘em out at www.nationalmi.com.


Who cares about the market when all this is going on? We still have the ongoing debt debate in Washington. Earnings are getting their share of the spotlight as well though – more on that tomorrow. Treasuries traded lower yesterday following the release of some better than expected housing and employment data.  A report yesterday showed that housing starts increased about 12% in December – stronger than expected. We have a little minor news today (the University of Michigan consumer confidence index for January), but before that the 10-yr is nearly unchanged at 1.87% as are MBS prices versus the Thursday close.



I just got skylights put in my place. The people who live above me are furious.

Imagine if birds were tickled by feathers.

I remember when the candle shop burned down. Everyone stood around singing "Happy Birthday".

Did Washington just flash a quarter for his ID?

I accidentally installed the deer whistles on my car backwards. Now everywhere I go, I'm chased by a herd of deer.

I got stopped by a cop the other day. He said, "Why'd you run that stop sign?" I said, "Because I don't believe everything I read."



If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at www.stratmorgroup.com. The current blog discusses the role of the IRS and REMIC's in the current credit crisis. 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.


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