More Lender Updates; Letters from the Trenches and Legal Updates Focused on the CFPB

London
plans to use a painfully “High-Pitched Sound Generator” to disperse large
crowds at the Olympics. Observers note that it will be Cindy Lauper’s first
paying gig since ’86.

Speaking
of high-pitched noises (and no, this is not a lead in to a Taylor Swift joke), the constructive clamoring about the CFPB’s
flat fee continues
. “The CFPB for consumer finance, in my opinion, is the
same thing as the CFTC for commodity trading overseeing Future Commission
Merchants and the SEC for stock broker/dealers.  Both the futures and
stock brokerage industries have formed self-regulating entities. The
National Futures Association for commodities and the Financial Industry
Regulatory Authority (FINRA) for stocks. The mortgage industry would be
well served if the industry itself through the MBA or other entity to set up
their own SRO. Have the industry clean up its own act, rather than the
CFPB.” So observed John Ohman with Flatirons
Capital Management
.

“Rob,
in regards to the Flat Fee Pricing the Government is considering, perhaps they
could lead by example and make sales tax, income tax and real estate tax a flat
fee per person or transaction amount. I see no difference with the logic.”

And another from John Jacobs with Patriot
Bank Mortgage
: “Rob, I certainly understand the ruminations around a
flat fee for loan originations.  It is emotional more than economic. 
I have maintained for many years that our costs in mortgage-banking, except for
commissions, are in dollars, but we receive our revenues in basis
points.  It has always been difficult to justify aggressive pricing for
small loans, and everyone, including your contributor, uses the average loan
size as a benchmark.  What is really happening is that the larger loans
are currently subsidizing the smaller loans, by using averages. My biggest fear
is not the flat fee per se, but rather the competition to see how low one can
make the flat fee, which will create a race to the bottom.  As an
industry, we have never been very disciplined in how we approach pricing. 
Just call us farmers growing corn.  The lowest cost producer makes the
most money, because we will all receive the same or similar income
stream.”

Don from Colorado wrote, “Flat Fee Pricing turns us all into bus drivers.
Nothing against bus drivers and I am sure you get my point. The competition
factor would die and again the lower income borrower will continue to suffer. I
expect a real true answer to this sometime in the next century. With the lack
of true leadership at all levels of government and finger pointing at our
industry, we will never get this resolved. If there is a resolve, it will
surely push for more government control and intervention. I believe this is
called Socialism.”

K&L Gates‘ Kris Kully reported that “the CFPB
is considering putting strict limits on a creditor’s ability to price its
mortgage loans, and on a consumer’s ability to choose among pricing options. By
way of implementing the far-reaching provisions of the Dodd-Frank Wall Street
Reform and Consumer Protection Act, the CFPB is proposing to require that when
a creditor pays a mortgage loan originator’s compensation (which includes most
mortgage loan transactions), any up-front amounts the consumer pays for the
loan must be in the form of bona fide discount points that reduce the interest
rate or a flat origination fee that does not vary with the loan amount. This
proposal, which the CFPB announced last week in presenting a cost-benefit
analysis for regulating small entities, is actually an attempt to pull back on
the Dodd-Frank Act’s absolute ban on any ‘up-front payment of discount points,
origination points, or fees, however denominated (other than bona fide third
party charges not retained by the mortgage originator, creditor, or an
affiliate of the creditor or originator).’  The Dodd-Frank Act would apply
that ban on consumer-paid up-front costs any time a mortgage loan originator
receives any compensation from a person other than the consumer – so, any time
a creditor or mortgage brokerage pays transaction-specific compensation to
their loan officers, or a creditor pays that compensation to a mortgage brokerage. 
As the CFPB notes, those ‘creditor-paid’ transactions comprise nearly every
mortgage loan origination.”

Kris
continues, “The CFPB has rightly indicated, in its cost-benefit analysis, that
the Dodd-Frank Act’s widespread ban on consumer-paid points or fees would ‘significantly
change the financing’ for most mortgage loan originations, could ‘negatively
impact consumers’ access to credit,’ and could lead to ‘significant
unanticipated consequences.’  However, as described below, the CFPB’s use
of its exemption authority to rein in those consequences would likely create
seismic shocks of its own. Specifically, the CFPB would allow the consumer the
choice of paying discount points in creditor-paid transactions, but only
if:  (1) the points actually result in a “minimum reduction” in the
interest rate for each point paid; and (2) the creditor also offers the option
of a no discount point loan.  The CFPB does not provide any details for
how that ‘minimum reduction’ in the rate would be calibrated.

“Similarly,
the CFPB would allow a consumer to pay up-front origination fees in
creditor-paid transactions only if it is a flat amount that does not vary with
the size of the loan (and if it is not compensation to the individual loan
originator). The Dodd-Frank Act does allow consumers to pay bona fide
third-party charges (even in a creditor-paid transaction).  The CFPB would
clarify that third-party carve-out, so that consumers could pay up-front fees
to affiliates of the loan originator or of the creditor, provided that those
fees are flat (although title insurance fees could still vary with the loan
amount, even if paid to an affiliate). While the CFPB appears willing to try to
avoid a ‘significant restructuring’ of mortgage loan pricing, its proposed
restrictions on discount points and origination fees in creditor-paid
transactions as described above are still severe, and would if adopted create
their own uncertainties – including whether consumers can choose how to pay for
their mortgage loan.” [The CFPB will solicit the public’s input by issuing a
proposed rule on these and other mortgage loan originator topics.  It
plans to issue the proposed rule this summer.]

Law firm Ballard Spahr spread the
word that, “Two recent notices published by the CFPB in the Federal Register
shed some light on the CFPB’s plans for testing the mortgage servicing
disclosures it’s developing and for collecting information about the potential
compliance costs of its proposals. A notice published on May 11 seeks comments
on the CFPB’s plans to qualitatively test mortgage
servicing related model forms and disclosures
. The research is to primarily
be conducted by ‘an external contractor employing cognitive psychological
testing methods,’ an approach that, according to the CFPB, has been shown to be
‘feasible and valuable’ in developing disclosures. Comments are due by July 10,
2012: http://www.gpo.gov/fdsys/pkg/FR-2012-05-11/pdf/2012-11369.pdf.”

And, “Another
notice published on May 15 seeks comments on the CFPB’s request for ‘generic
clearance’ from the Office of Management and Budget of the CFPB’s efforts to
collect ‘qualitative information on the
potential costs of complying with potential new regulations
and other
effects the rules may have for providers and consumers.’ The CFPB states that,
through its collection of such information, it ‘seeks to ensure that it has
considered the compliance burdens and costs before completing a rulemaking
action.’ The CFPB notes that it’s ‘particularly interested’ in collecting
information on the impact of its proposals on the unit costs of delivering
specific consumer financial services and products because this will help it determine
whether a proposal has ‘unnecessary costs for providers or consumers.’ The CFPB
intends to obtain cost information through structured interviews, focus groups,
conference calls, written questionnaires, and online surveys. The CFPB also
states that because it recognizes that burdens
are not the same for all institutions
or all products and services offered,
it will attempt to sample providers ‘that are representative of affected
markets.’ Comments are due by June 19, 2012: http://www.gpo.gov/fdsys/pkg/FR-2012-05-15/pdf/2012-11668.pdf.

How do Ops
and compliance folks keep up with things? Here are some somewhat recent lender/investor updates. As always, it is best to
read the actual bulletin, but this will give one a flavor for what is happening
out there. In no particular order…

US Bank Wholesale has issued a
clarification on its Conventional Purchase transaction policy for newly
constructed homes.  In these circumstances borrowers are not permitted to
be affiliated or have a relationship with the property’s builder, developer, or
seller.  Although, under Freddie Mac policy, this applies only to second
homes and investment properties, USBHM has extended the requirements to all
occupancy types.

Clients are reminded that, upon submission to USBHM for underwriting, any Loan
Prospector and Desktop Underwriter eligible loan findings should be final
assigned where appropriate.  If the feedback response in the loan file
does not correspond to the last submission to the applicable automated
underwriting system, the discrepancies will be corrected and the loan resubmitted. 
Loans underwritten by USBHM or USBHM Delegate Correspondents may not be
resubmitted to LP or DU after the final underwriting approval is issues. 
Discrepancies between a loan’s feedback certificate number and final
underwriting certificate number will render a loan ineligible for purchase.

Fifth Third reminds correspondents that it will
not purchase loans without sufficient evidence of a loan’s status as “Final
Assignment” in LP or “Final” in DU.  Correspondent sellers should be sure
that the AUS reflects the terms of the loan as approved and closed as well.

Fifth Third loans from $250,000-$299,999 are subject a new adjuster of +0.125,
while loans of $300,000 up to Conforming Jumbo are subject to a new adjuster of
+0.25.

In light of Fannie’s enhancements to DU relating to escrow waivers and PIWs, Kinecta Federal Credit Union has issued
a reminder that it does not permit escrows to be waived for DU Refi Plus loans
for which Kinecta was not the original servicer and with LTVs over 80% (90% in
California).

New Penn Financial has updated its HARP DU Refi Plus
rate sheet, which now includes pricing for loans with MI or LTVs of over
105%.  It is no longer necessary to select “NPF Expanded Agency” to price
these loans in the Client Portal.  Clients will also be able to convert
LPMI HARP loans to monthly BPMI for UGIC and MGIC.  Monthly BPMI transfers
to Genworth, MGIC, United Guaranty, RMIC, PMI, and Triad Mortgage Insurance are
still permitted.

Platinum Home Mortgage has recently
tripled its geographic territory and expanded its reach to 43 states.

Franklin American has removed the
overlay for alimony, child support, or separate maintenance income
documentation from its requirements except where it is required by DU or
LP.  A clarification on HO-6 insurance has been issued for conventional,
FHA, and USDA loans, which require 100% coverage of the insurable replacement
cost of the unit’s interior improvements and betterments but do not need to
state “Replacement Cost” or “100% coverage.”

Most folks
like dogs. And many that do, like teasing them occasionally. But a video with
over 100 million hits? Wow: http://www.youtube.com/watch?v=nGeKSiCQkPw&feature=player_embedded.

…(read more)

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