AUG 5, 2011

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Has the FDIC Gone Too Far on Loan Brokers?

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Readers of the National Mortgage News website and our weekly have probably noticed our stories about the Federal Deposit Insurance Corp. going after loan brokers on buyback claims. When looking at the issue as an objective third party we try not to take sides. But when it comes to column/blog writing, those rules are thrown out the window. And since this is a blog I might offer this: Hey, FDIC, what are you thinking? As many brokers have pointed out to me, they do not underwrite mortgages. They act as facilitators by finding the client, approving them using the wholesaler's criteria and collecting certain loan documents. The rest falls into the hands of the wholesaler/underwriter. It stands to reason that if someone “looked the other way” it was the underwriter. Or am I missing something? Anyway, I would venture that quite a few brokers who were involved in facilitating risky loans—including no-doc and NINA products—have left the business or found religion. Meanwhile, the NAIHP has launched a legal defense fund for brokers. See story on the National Mortgage News website at www.nationalmortgagenews.com...

As for the FDIC, I covered that agency (and still do, to some degree) many years ago during the bank and S&L crisis. (See the book “Inside Job, the Looting of America's S&Ls,” published by HarperCollins.) In the old days it was standard practice to sue the directors of failed S&Ls to go after their D&O (directors and officers) insurance. During the crisis I interviewed FDIC chair Bill Seidman and asked when the agency might get around to suing Neil Bush, the son of the then-sitting president. Young Neil sat on the board of the recently failed Silverado Savings. Bill gave me a funny smirk and said he couldn't comment. The very next day the agency filed its suit against Neil and his friends. But the larger point is this: directors and officers oversee the management of an institution and actually make real decisions on funding loans. They should be held responsible. (Note: It seems to me that in this decade Sheila Bair took her own sweet time suing D&Os for bank failures.) But loan brokers? Don't get me wrong. There were many bad brokers in this business making easy money during the go-go years. If they committed fraud, the government should go after them. But if a broker was merely a middleman for a loan that went bad 18 months to two years later (or more), it seems a bit unreasonable. Then again, the FDIC is using outside attorneys who probably share in the take. As Shakespeare once wrote: First we…

Onto another topic: servicing rights. In Monday's NMN we're running a story about $260 billion in MSRs being up for grabs. And we name names. Don't subscribe? Call 800-221-1809. If you need a list of the nation's top 100 servicers and top 40 subservicers drop a line to Deartra.Todd@SourceMedia.com and ask her about the Quarterly Data Report

We understand that Capital Markets Cooperative is going great guns these days. CMC is based in Ponte Vedra Beach, Fla., near Jacksonville. Tom Millon is the president and founder. Look for a story on them on the NMN website next week at www.nationalmortgagenews.com...

One firm that isn't exactly going great guns is AppraisalLoft whose CEO Aman Makkar stepped down this past week. We know of at least one company that may make an offer to AL…

In other people news, Paul Green, senior vice president of corporate relations for the Mortgage Bankers Association, left the trade group two weeks ago. An MBA spokesman confirmed Green's departure but did not provide any further information. Meanwhile, some top industry officials seem pleased with the performance of (relatively) new MBA president David Stevens. Stevens, of course, got high marks for helping usher in major changes at FHA, and going after the industry “bad guys”…

Former senator and (current) actor Fred Thompson is now a pitchman for American Advisor Group, a reverse mortgage firm. I recently saw one of its ads while watching NBC Nightly News. Thompson did a brief stint on one of my favorite TV shows, “Law & Order,” as Manhattan DA Arthur Branch. In the show Branch/Thompson had a deep Southern accent. In New York? Get out of here…

THE FINANCIAL CARNAGE OF THE PAST WEEK: There's no sense in rehashing the stock market meltdown and the debt crisis circus. If an election were held today, 75% of the House would lose their seats. Bottomline: rates are falling and that's good news for lenders. But consider this: as investors flee overseas markets they will find peace in two assets: gold and U.S. Treasuries. Would you rather own stock in a bank that has exposure to European debt or a bank/mortgage company that has exposure to U.S. homes whose values have fallen but appear to be stabilizing? Drop me a line at Paul.Muolo@SourceMedia.com...

A SIGN OF THE TIMES: Underscoring that worried investors are increasingly seeking cold cash, the Bank of New York Mellon is preparing to charge some large depositors to hold their funds. The biggest U.S. custodial bank said this week in a note to clients that it will begin slapping a fee next week on customers who have vastly increased their deposit balances over the past month.

MUST ATTEND MORTGAGE CONFERENCES: On Sept. 19-20 NMN and SourceMedia will hold its Mortgage Regulatory Forum show at the Washington Marriott in the nation's capital. Speakers include OCC chief John Walsh, Rep. Shelley Moore Capito, R-W.Va., and some congressman from Massachusetts whose last name is Frank. More info visit http://www.nationalmortgagenews.com/conferences/mr

IMPORTANT DATA STUFF: MortgageStats.com has been updated to include not only full year 2010 figures but first quarter information as well. MortgageStats boasts the nation's top 400 lenders and servicers, including hard volume numbers and contact information. It also includes exclusive monthly analysis from me. (You can't get this information anywhere else.) For more information drop an email to Deartra.Todd@SourceMedia.com...

I'm on Twitter, discussing mortgage matters, big MSR deals and how Barcelona lost to Manchester last week in D.C.

THE LAST WORD: A prediction: 2012 will see a noticeable pick up in home buying.

Comments (8)
going after brokers? really? of course it's the wholesaler/lender. and who empowered the wholesaler/lender...the Wall Street purchasers who performed(?) due diligence. this whole deal is similar to blaming the car salesman for the poorly manufactured "new" car. Brokers CAN'T sell product that someone doesn't fund/buy! Bad brokers, fraudulent brokers - absolutely. Wholesalers/banks/securitizers needing and wanting more volume to fill fixed income sales needs? that was the issue. Blame the broker? Collect from the broker? Obfuscation at its finest.
Posted by OldMortgageGuy | Saturday, August 06 2011 at 11:16AM ET
Remember thee years ago Jamie Dimon of Chase devoted two paragraphs of his annual report blaming brokers for the mortgage meltdown-but not one word about his bank that created the subprime product and aggressively marketed it to brokers. His bank underwrote it, repackaged and sold it off to make handsome profits. But he has Obama's ear as a good old Chicago boy. Retribution will be sweet as the Madoff Trustee is after Chase for billions. And they will prevail over him as Dimon pulled the Chase money but kept their managed accounts of clients with Madoff to collect fat fees.
Posted by Old school | Saturday, August 06 2011 at 3:27PM ET
There's plenty of blame to go around to all the parties. Yes, the wholesalers/underwriters underwrote the loans, but they relied upon the documentation provided by the broker, with some additional diligence. If there was fraud in the loan that could only have been detected if the underwriter had re-processed then entire loan, then there is reason to go after the broker. Even some of the diligence that was done, such as verbal verifications of employment, went to fraudulent phone banks to hide the fraud from the underwriters. Some brokers were complicit and need to be held accountable.
Posted by Old Mortgage Chick | Monday, August 08 2011 at 9:32AM ET
I agree wholeheartedly with Old Mortgage Chick with some additions. First of all back when these loans were underwritten, the underwriters were beat over the head to approve them. If they didn't approve enough of them they were fired. Secondly, there were ways for the underwriters to recheck employments phone numbers for verbals. Some used them and some didn't. I used them and caught many. More often then not, there was appraisal fraud and the appraisals back then were ordered by the brokers. Again underwriters were pressured to let irregularities go. Broker pressures wholesaler (by sending their business to another wholesaler) and wholesaler pressures/threatens underwriter. As far as liar loans go, anyone with half a brain knows that janitors don't make $75,000/year.
Posted by Old Mortgage Underwriter | Monday, August 08 2011 at 5:35PM ET
Could not agree more with Old Mortgage Chick and Old Mortgage U/W. I regularly get GSE and FDIC referrals into no choice banks that have received "letters of concern" from the regulators. In each instance, regulators have told the institution to hire someone in to fix the issues. What I see 80% of the time is an institution addicted to obsene HUD-1 revenue. 20% of the time the institution leadership is mortgage lending ignorant and hired cheap and unqualified leadership to run the mortgage llc or cuso. In one instance, the FDIC had identified (from the institutions SAR's Report) that minorities were regularly being charged up to 5 points from the mortgage lending unit. In fact, the points gouging was particularly coming from one branch. As part of my recommendations, I encouraged the lending ownership to dismiss 2 individuals that had repeatedly violated the law. They refused! By the 6th month of the reorganization, the leading ownership denied the issue ever happened in board meetings. HUD-1 greed will never serve the greater good of the customer. In the early 90's, Fannie Mae did everything possible to avoid "3rd party originations" from entering the secondary market. There was an on going debate that some of us remember well!
Posted by Mortgage Consulting Pro | Tuesday, August 09 2011 at 8:18PM ET
They have the regulations screwed down so tight the "main street" buyer is walking away in frustration and feeling like their private parts have been frisked. This is treating good hardworking starter home and middle class people feel like criminals and it wasn't they who got this country in trouble. It's the hurting the wrong end of the spectrum. I am more than fed up with this as a real estate agent that works with people for months to find them a home, and BAM lending makes them so mad they walk.
Posted by Pam Worster | Tuesday, December 18 2012 at 4:54PM ET
Appraisors over valued anad real estate and lender brokers looked the other way. No doc loans were given to liar buyers to make the sale happen. Everybody looked the other way. Some buyers defaulted because they were just not that savy and bought whatever lenders said they could have, even if it would drive them over the finacial cliff within a few yers. Properties moved so fast that lenders and buyers bought into 0 percent mortgages. Underwiters wholesalers lost nothing! They are still goughing whenever oppotunity presents itself. Ordinary people are learning to do without loans. How sad for everyone.
Posted by i a | Thursday, December 20 2012 at 3:24PM ET
Deartra Todd i sent you an email.
Posted by lasherrick terrell | Saturday, December 22 2012 at 10:37PM ET
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