Mar. 16, 2013: News from PHH on USDA, FAMC on broker comp; lenders responsible for UW, not CPAs
Rob Chrisman

How does a 33 year old non-athlete, non-heiress, non-actress, non-model obtain enough money to buy a $10 million house? Well…


Many people beside the daughter of an ex-president are on the move. In recent years, per the Census Bureau, numerous metropolitan statistical areas, “micropolitan” statistical areas, and counties that were among the fastest-growing last year were located in, or at least near, the Great Plains and West Texas. The prize goes to Midland, Texas, was the fastest-growing metro area over the July 1, 2011, to July 1, 2012, period, with its population increasing 4.6 percent. Adjacent Odessa, Texas, ranked fifth overall, Austin-Round Rock, Texas, was seventh, while two areas in Wyoming (Casper and Cheyenne), along with Manhattan, Kan., and Bismarck, N.D., were also among the 20 fastest-growing metropolitan areas. The energy boom is playing a role. For instance, the Permian Basin, located primarily in West Texas, and North Dakota accounted for almost half of the total U.S. growth in firms that mine or extract oil and gas, during a recent one-year period.


And Realtors in the counties of Williams, ND, Geary, KS, Richland, MT, and Stark, ND, are happy: they are the five fastest-growing counties with populations of 10,000 or more. But those are all percentages. Turning to numbers, the metropolitan areas of Dallas-Fort Worth, Houston, Los Angeles and New York each added more than 100,000 people over the July 1, 2011, to July 1, 2012 period. Meanwhile, Austin, Texas, and Orlando, Fla., were not only among the top 20 numeric gainers, but also among the top 20 in terms of rate of growth.


And the cost for every one of them to obtain a home loan has gone, and will continue to go, up. I was reminded yesterday to clarify the Fannie gfee increase for all those LOs out there who think that 2-3 basis points is 2-3 basis points in price. It is not. Bill Petersohn, a director at MCT, writes, “Regarding the gfee increase - when you say there will be a 2 to 3 basis point gfee increase, that is the gfee increase. This will translate to a 14 to 25 basis point ding in price (assuming a 6 to 8 multiple give today’s buy down grid) would that be correct.” Thanks Bill. Now, whether or not any gfee increase is passed on to rate sheets, and thus borrowers, is obviously up to the discretion of the lender. With locked pipelines dipping, we may see firms absorb this into their margins…


The conversation regarding vetting closing agents continues. There are two sides to the arguments that title companies, escrow officers, attorneys, and so on should be under much greater scrutiny. Bob Hanson with Risk Placement Services Inc. ( writes, “As a risk management specialist in the insurance industry, the commentary in your 3/9 blog against third party vetting companies, like Secure Settlements, is a perfect example to bring up the need for independent third party vetting in the closing process. The commentary gave us no legitimate examples of what title insurers are doing, or what improvements have been made, from a risk management perspective to help mitigate defalcation loss or negligence that affects consumers, lenders, and investors PRIOR to a loss occurring. The one example given, reconciliation of accounts (which, as a former auditor, I hope is not a new risk management tool), would potentially catch a defalcation AFTER the loss has occurred.”


Bob’s note continued. “From an insurance perspective, escrow theft and closing agent negligence produced some of the biggest overall insurance losses during the financial crisis. This is why insurance premiums have substantially increased for any business or individual involved in the closing process. With that said, we in the P&C insurance industry have little faith in title insurer risk management...mainly because it is limited to only their direct and managed agents. Independent third party vetting companies, like Secure Settlements, are not able to stop all loss; however, they can significantly help PREVENT or minimize escrow theft loss or other fraudulent acts from occurring at the closing table (much like a Corelogic or Internthix on the front end). If other good players in the closing process, including title insurers, "welcome and encourage" strong and honest operations, they should open their doors to these third party vetting companies who can 1) help the overall reputation of the industry by strengthening minimum qualifications; 2) help to minimize questionable individuals who are entrusted with 6 and 7 figure dollar amounts wired by lenders to escrow agents (would you wire your savings to anyone in the phone book that you don’t personally know anything about and be confident to get it back?); and 3) reduce operational insurance costs (Fidelity Bonds, Professional Liability, Surety Bonds, etc.) by helping to prevent loss. I would encourage those who have questions to reach out to these third party vetting companies to find out the facts of their operations and the purpose for any information requested. I'd personally rather deal with a third party vetting company instead of the Consumer Protection Financial Bureau (who will get to the Title Industry / closing process in due time) or any other federal / state bureau or regulator…just ask all your mortgage lending partners. A small fee to be vetted is nothing compared to the cost of compliance that may eventually be mandated on you.”


Alternatively, a senior title company officer wrote, “The problem with any vetting process is that we take a snapshot of the current events, and use that as a predictor of future behavior.  What we should be looking at is making sure that we have the most current information available, and that in the event that the prediction of future behavior is incorrect, that there be something in place to make the parties who relied on the same whole.  When you look at those two factors, the parties that are in the best position to provide vetting is the underwriter, who has real time access to claims, premium remittances, personnel turnover, and lifestyle changes. Are they fool-proof? No, but then again no system will be 100% accurate in predicting that future behavior. However, they do, through CPL coverage and the requirements of fidelity/surety bonds, have the ability to cover or make whole any aggrieved party.”


And another wrote, “The policies implemented, and routinely updated, by the nation’s title insurance underwriters, together with the all-important coverage of title insurance, will eliminate the lender’s concerns over fraud by settlement agents, without the need for nor the interference of outside ‘vetting’ companies.”


Continuing on in the vein of confirming information, but turning to something else near and dear to us, April 15th is less than a month away. As we approach tax time, CPA’s start to become busy. Increasingly, CPAs are receiving requests from clients, lenders, loan brokers, health insurance providers, adoption agencies, regulators and various other agencies to confirm client information.  The requested information may relate to a pending loan, employee medical insurance, child adoption applications or use-tax certification.  Mortgages originated by private mortgage companies, which were resold to Fannie Mae and Freddie Mac and past due, are subject to required quality reviews. An expert in compliance wrote, “Quality review standards may require the mortgage originator to contact CPAs whose comfort letters are contained within the loan file to confirm the statements made in such letters.  In most cases, CPAs are asked to provide a confirmation letter containing specific language, a verification statement, a comfort letter, or a certification form (collectively “Verification Documents”).  By providing such Verification Documents, a CPA may unintentionally violate professional standards.  The CPA also may confront the risk of a malpractice claim in the event that a third party detrimentally relies on an alleged inaccurate statement made in a Verification Document. Third parties are responsible for performing their own due diligence rather than relying on a representation or verification of information by a CPA.  This is especially true when the requested representations are outside the scope of the CPA’s engagement and the requested verification relates to information that comes from the client, for which the CPA has no first-hand knowledge.  Additionally, while clients desire the flexibility to obtain credit in the marketplace, the responsibility for underwriting a loan and determining the creditworthiness of the borrower lies with the lender — not the client’s CPA.” Thank you for that!


Verifying information and knowing one’s customer is becoming more and more important. This week, my colleague Garth Graham’s column in National Mortgage News should start with a joke like “a mortgage banker walks into a bar….” Actually, the column is about what he learned in the bar about knowing your customer and how it applies to the mortgage industry:


Let’s move on to the endless stream of bank and investor news, giving us a flavor for current events. As always, read the bulletin for full details.


There will be one less Peoples Bank in the nation: the parent of Spirit of Texas Bank ($463mm, TX) will buy Peoples Bank ($73mm, TX) for an undisclosed amount.


PHH alerted clients, “Unless Congress passes a bill to extend the use of the current USDA maps by March 27th 2013, the eligible geographic areas may be significantly reduced on March 28th. Should this occur, over 900 counties will no longer be eligible to participate in the USDA program. At this time, USDA has still not released the maps reflective of these potential county reductions. For Tier 6- Non Delegated: Due to the potential adverse impact to eligible geographic areas on March 28th and to insure PHH is able to obtain a USDA conditional commitment, PHH will implement the following deadlines for USDA loans: All USDA loans must be delivered to PHH underwriting by March 20th. All outstanding conditions on USDA loans must be delivered to PHH underwriting by March 22nd. After March 22nd if PHH is unable to obtain a USDA conditional commitment due restrictions in geographic areas, USDA loans will be declined. For Tier 7- Delegated: Correspondents are reminded that they are responsible for obtaining and delivering to PHH the USDA conditional commitment. Loans impacted by potential USDA geographic restrictions on March 28th cannot be funded without a USDA conditional commitment.


Franklin American has announced the details of its new wholesale loan origination compensation, which allows compensation on Lender Paid transactions to be set based on the subject property state and offers the Borrower Paid compensation method for wholesale brokered loans.  To that accord wholesale brokers who opt for Lender Paid compensation and are approved to do business in multiple states must select a compensation for each state in which they’re licensed, and the amount selected will apply to all transactions in the property state.  In cases where there are multiple branches in the same state, the broker selection applies to all branches.  The compensation range for each state is 0.500, and selections within that range can be made in 0.125 increments.  Wholesale accounts will need to provide a letter stating the Lender Paid compensation amount using the Lender Paid Compensation Selection Form, available via the FAMC website (  Borrower Paid transactions will be permitted for each state in which a wholesale account is licensed, the acceptable range for will be based on the property state and the corresponding Lender Paid compensation amount, which must exceed the minimum Borrower Paid compensation by 0.500.  Although FAMC has not yet set a date by which the new compensation plan will apply, rate sheets will be updated to require the selection of the compensation method for new loans being locked or registered once it is effective, and loans with GFE or application dates before this goes into effect will remain under the previous pricing model and will be required to fund within 120 days of its announcement.



(Parental discretion heavily advised.)

John O'Reilly hoisted his beer and said, "Here's to spending the rest of me Life, between the legs of me wife!"

That won him the top prize at the pub for the best toast of the night!

He went home and told his wife, Mary, "I won the prize for the Best toast of the night."

She said, "Aye, did ye now. And what was your toast?" John said, "Here's to spending the rest of me life, sitting in church beside me wife."

"Oh, that is very nice indeed, John!" Mary said.

The next day, Mary ran into one of John's drinking buddies on the street corner. The man chuckled leeringly and said, "John won the prize the other night at the pub with a toast about you, Mary."

She said, "Aye, he told me, and I was a bit surprised myself. You know, he's only been in there twice in the last four years. Once I had to pull him by the ears, to get him there, and the other time he fell asleep.”



If you're interested, visit my twice-a-month blog at the STRATMOR Group web site located at The current blog is how "Basel III Could be a Game Changer for Lenders and Servicers." 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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