The mortgage origination business continues to be in flux as industry participants continue to adopt to both new rules and regulations and volatile market conditions.
They have had to deal with new education requirements and licensing rules on one hand and changes in loan programs and customer needs on the other.
During the California Association of Mortgage Professional's annual convention in August in San Jose, Origination News spoke with members of the organization's board, who come from different parts of the state. While some of the conditions are common across the board, others are seeing a rebounding housing market.
Participating in the discussion are CAMP president Ed Craine, chief executive of Smith-Craine Real Estate Financing, San Francisco; president-elect Fred Kreger, vice president of operations, American Family Funding, Stevenson Ranch; vice president/treasurer Cathy Warshawsky, president of Bay Area Loan Inc., San Jose; vice president/secretary Ken Jones, president, Blue Oak Mortgage Corp., Santa Rosa; vice president Chris Perez, vice president of California Mortgage Advisors Inc., San Rafael; vice president Belinda Austin, a loan officer and processing manager with Ranch & Coast Mortgage Group in Solana Beach; and immediate past president Dale Di Gennaro, president of Custom Lending Group in Napa. The moderator is Brad Finkelstein, managing editor of Origination News.
FINKELSTEIN: Is it a good idea to have mandated continuing education requirements for members of the mortgage industry?
AUSTIN: Our members expect it from as a trade association to educate them.
CRAINE: For years, we would tell anybody who would listen that we thought it was a good idea to have background checks, education requirements, testing, continuing education—all the things the Nationwide Mortgage Licensing System and Registry has done. Our position has been that we are mortgage professionals. We should be trained properly. We should be educated, we should be up-to-date, and this is a great way to facilitate that.
DI GENNARO: The association had a bill, I think it was in 2002 or 2003 on the state level, to provide an endorsement for mortgage licensees under the Department of Real Estate and also the Department of Corporations, the same thing that has happened with the (start of) NMLS. (Editor's note: prior to the SAFE Act, mortgage brokers in California had the same licensing rules as real estate brokers.) That died, unfortunately, due to the Realtors' association, they didn't want to have that additional education requirement. We've been at it for a while and so we think it is a good thing.
KREGER: It sets the bar higher. Back then they said they didn't want to have any barriers to entry because they were concerned about jobs. Today, all of us who sit in this room, holding the license, there is a certain bar that has been raised and a certain expectation.
AUSTIN: Also knowing who's who, especially with the NMLS call reports being factored into the whole equation. It is going to be telling in the years to come.
The business rises and falls, and we'll have another boom and we'll have another bust, but now we have tracking in place to see actually who's doing what.
DI GENNARO: And across state lines, too.
CRAINE: We saw what happens when the barrier to entry is low and it wasn't very pretty. So we're in favor of minimum professional standards.
WARSHAWSKY: It is kind of like having a college degree. Once you get out of a college, the degree is a passport; it is a ticket to move onto someplace else. This is the same thing; with the NMLS and a DRE license, it gives you opportunities, it opens things up. Not only giving you credibility, but also simply having something that says I accomplished it and can move onto a higher level.
FINKELSTEIN: Last year, CAMP was concerned regarding a predatory lending bill reintroduced in the State Assembly by then-assemblyman Ted Leiu (who has since moved on to the State Senate). What is happening on that front?
JONES: What happened was that the entire focus shifted from state to federal. We saw a lot of the state legislation related to mortgages and predatory lending just kind of fall back and become much less of an issue in Sacramento. Where we've seen it being picked up is by the administrative bodies of the federal government.
KREGER: California has been relatively quiet. We actually testified in the springtime at a hearing of the Senate and the Assembly Banking Committees on the effects on Dodd-Frank in the state of California. What they looked at is what else do we need to do as a state in order to enforce or enact on top of what Dodd-Frank already has. Obviously our comments were “please don't!” There are 2,500 pages of rules and regulations that are coming out from Dodd-Frank. With the whole spectrum of these changes, if you affect one, you affect them all. We basically threw caution to them and said “be very careful about some of the new laws that you are going to pass because what is going to end up happening is that you will effect negatively changes in the state of California.” We have had some good, open dialogue with state Legislature and also with some of the regulators as well. I think this is the first couple of years that legislators on the state level and the federal are now looking to us and saying “how can you help us?” instead of saying “we don't want to hear from you, you guys are the bad guys,” it has now turned around. Before we were always on the defense. Now we can become on the offense and speaking up about things.
AUSTIN: Now there is dialogue.
CRAINE: That was a very interesting day with the state. Thankfully they have done anything. They got the message, and it wasn't just from us. I remember one of the small banks, they said they stopped doing residential lending. They looked at their profit for a year in residential lending and the cost of new compliance was greater than their profit. At the federal level, we have representatives and senators who understand we have a crisis now that is very different. It is not the bad mortgage brokers anymore. It is what can we do to get home values up, what can we do to get people qualified.
JONES: What is really important going forward is as these new ideas like the QRM and the QM roll out, and the CFPB takes root, we really have to make sure that we keep the dialogue open and ensure we are accomplishing the goals we want to accomplish as far as rebuilding the housing industry, as opposed to constricting it. Fred's done a tremendous job, something we have now that we didn't have last year and the year before is we've created a lot of relationships in D.C. We spent a lot of time working on that. We have people's ears. They understand the positions and they are hearing us. It is a good dialogue.
FINKELSTEIN: In your individual markets, how are home sales doing? Are they improving? Or are they worse than last year?
WARSHAWSKY: Here in the Bay Area, I am definitely way better. I am light years better this year than I was last year. Normally, 25% of my business is purchases; this year it is closer to 60% purchases.
AUSTIN: I am having the opposite experience in San Diego. It literally seems that the moment the tax credit was removed, our purchases slowed; that was the consensus among the Realtors. And what we're seeing in my brokerage is people having a hard time getting into escrow and then staying in escrow. Values have been challenging as well. I will say that 12 months ago, it was much easier for us in San Diego than it's been in 2011.
KREGER: I'm in Los Angeles County, where we have the entire spectrum. As we say, “the closer you are to the beach, the more stable the home prices are.” You mentioned escrow, this is my own statistic, 90% of the purchases I do right now are some sort of short sale or foreclosure/REO, of which my purchasers are the second or third person that is in escrow on that property. There are a lot them that are going into escrow that are just flat out falling out because of some of the other credit issues.
PEREZ: In my area, I am in Marin County, home values haven't been too much of a problem. My office does more inland counties and it is not as consistent. It is all short sale; all the purchase is short sale. It seems like every purchase comes in the door is a fire drill and has to close. Every file is the most important file for everybody, but the ones that kill me are the ones that get hung up for $500. The second (lien holder) doesn't want to do a short sale, they want $500 more.
WARSHAWSKY: I'm going to stay where I am because I have people buying second homes and those are a lot easier to do.
CRAINE: I'm in San Francisco. Most of San Francisco is a pretty robust market right now, and in many cases, we are getting multiple offers. But some of the lower socio-economic neighborhoods are suffering. Those in the lower socio-economic areas are the ones likely to go into default in the first place. They're the ones at the lower end of the pay scale and have lower seniority. So they get laid off first or their salaries cut back. We haven't had enough job creation. That is the bottom line.
DI GENNARO: The servicers and the banks have to get a lot better at short sales. They've come a long way but they still got a ways to go.
