The biggest takeaway for mortgage originators attending the California Association of Mortgage Professionals annual convention in Newport Beach is that they have to pay attention to news that impacts the servicing side of the business, because it could affect their own ability to originate loans.
It goes beyond the loan modification business, which many originators but more than a few ended up running afoul of regulators.
Issues like
Other parts of the discussion centered on the changing relationship (for the positive) between mortgage brokers and regulators and legislators and the future of how mortgage brokers are regulated in the state as their primary regulator is consolidated into another entity.
FINKELSTEIN: During the opening session, Fred raised two issues that most people would believe are just servicing issues, but he pointed out there are implications for originators as well, not just in California but nationally. The first is the California Homeowner Bill of Rights, which is very similar to what the Consumer Financial Protection Bureau just announced. The other is the eminent domain issue, which has not just been brought up in California but in Chicago and even Long Island, N.Y. Why should originators be concerned?
KREGER: The biggest thing is the availability of lending in communities. Regulators and legislators are coming out and saying, “We want to fix the problem. We want to insure there is fair lending in communities that we’re protecting.” The unintended consequences are you hurt the ones you are there to protect. More onerous types of regulations and legislation that comes out, you’re going to have the private sector decide that it is not worth going into the communities. You have the regulators and the legislators saying “we want X,” but it filters down to the private investors (who say), “This isn’t worth doing. This is more onerous, this is going to be more harmful and at the end of the day, we cannot be successful in providing this type of product for you.”
DUARTE: The Homeowners Bill of Rights and the federal version are not necessarily directly related to the specific interests of the origination half of the business. But then again, it goes to create the lending environment—it is just one more brick on the load of creating uncertainty in the marketplace. And as a result, creating an environment that is less friendly towards lenders. Particularly if you are looking to grow the private label brands away from the Fannie/Freddie/government-supported business as many of us are really liking to do. I’m very concerned about the mounting pressure for principal balance reduction. Everybody is jumping on the political bandwagon. I have to give Ed DeMarco some credit for holding on that. Although it is politically expedient, popular and a lot of people would like it, it would be a real bad disincentive on the lending environment. If you’re an investor, you’re the guy who runs CALPERS and you have $35 billion you have to invest and have a 7% return on, are you going to invest in California mortgage, when with the stroke of a pen you could lose $10 billion in your portfolio just like that? I don’t think so, it is not healthy. Plus there is the whole question of fairness. I don’t see how you could justifiably reduce some peoples’ principal balance but not everybody’s.
KREGER: We can agree there are two different classes of people—the people who need the protection, who need principal writedown in order for them to survive. And then there are others who have played the fair game, have been correct, done all the right things and all of sudden (are feeling) “are we a different class of person that we are now going to have damage done to us?”
CRAINE: We’ve seen this through the years. We try to be as a market-based economy as we can. We certainly need reasonable regulations. But why not let the market participants try to do the best they can? There is nothing to keep the homeowners from trying to renegotiate their principal balance. Ed DeMarco is not saying you can’t do it. It is when we have the heavy hand of government forcing everyone to do one thing, the one-size-fits-all approach, it is really troubling for our economic system. I know we don’t like it when markets take their time to play out, we don’t like it when some people may be able to negotiate a better deal than other people. These are private contracts between a lender and a borrower, and then between a lender and whoever invests in the security. We have to tread very carefully when we start trying to make changes in those relationships.
DUARTE: We’re very concerned about the long-term lending environment. We might be doing something that’s popular that people might like, but it is going to be a real problem later, that will be a real hole to try and get out of. I’m thinking back to the question of why isn’t the real estate market coming back? Why is it taking so long? Well, every two weeks you have some new multiletter acronym that comes out, with more creative liability, more regulations that people really don’t understand, more forms that the consumer is supposed to sign. It is all well intentioned, but we all know where the road of good intentions leads. That is what we are very concerned about, where it is leading. As origination professionals, we see ourselves as the defenders of the American dream of homeownership opportunities.
KREGER: I remember this conversation from two years ago. It is almost as if everybody wants to be the doctor. Everybody wants to have a solution and say, “Hey, I did it, I corrected it, I fixed the problem.” We’re now two years later and they’re still saying the same thing—“What about this, what about that?” Too many doctors kill the patient. They’re continuing to still do this. CFPB wants to make their changes with loan officer compensation. Well, why won’t you let this play out a little bit? The discussion of (the definitions) of qualified mortgage and qualified residential mortgage—why don’t you first consolidate the Real Estate Settlement Procedures Act and the Truth-in-Lending Act (disclosures) together and then move forward? We’re looking at people’s knee-jerk reactions and I think where the repercussions are going to come is that it is all rhetoric right now, they are all stump speeches. Because after November, everyone is very, very scared of moving forward, of moving the needle past the point where actually action meets the road. That is what we are seeing right now. We’re reacting to issues that are coming up saying, “I want this, I want that,” but nothing is going to happen until after November, because at the end of the day (the politicians) have to be very careful to ensure their electability. We’re all in the trenches saying “you’re going to do what?” We need to step back and ensure that is the case. “You understand if you do this, that is going to happen?” And I think they agree. We also have to be very precarious about ensuring that we doing knee-jerk reactions. We’re kind of laying back and making sure the powder is dry because when the real fight comes, this is when we are going to need it. In terms of ensuring that we don’t have a “Henny Penny, the sky is falling,” I think things are going to be OK. Yeah I’m always optimistic, even in this position for the last two-and-one-half years of being CAMP’s government affairs chairman, I do think the pendulum will swing. Hopefully everyone takes that as “if he sees it optimistically, maybe I should relax and still originate today and still help people and not get out of the business.”
VELEZ: It is all in the presentation, how you present it. If you present it an “oh my God, what I am going to do” voice, then that is going to be the way it comes across. But if you present it as “well this is the change, this is what we’re seeing, this is how it could affect us,” and you are calm with the presentation and how you deliver it, I think at the end of the day, it would make it easier and more accepting to everybody.
FINKELSTEIN: Any final comments?
KREGER: We always discuss advocacy issues. I brought this up (at the opening session)—we have 35,000 members of CAMP. They are separated into two categories—the ones that are paid and the ones that are not. We’re in this industry; we need to operate in an environment that allows to fulfill our own dreams of our own homeownership, raising our families. (He cited a book by William Buckley.) At the end of the day, every originator needs to step back and say, “I am thankful for being in this industry, I need to give back to it.” I have a decade in this industry and a decade with this organization and I have that onus of I need to give back. If anything, we would tell originators in California you need to be thankful, you need to be thankful for the industry that has given to you in order for you to succeed in life. You need to give back.
