ATLANTIC CITY, NJ—Even though mortgage brokering is a very local business, if one thing could be taken away from the Northeast Conference of Mortgage Brokers here is that now more than ever, no matter what state they are licensed in, originators are facing similar issues.
This is in no small way due to the passage of the SAFE Act, which in turn created a national set of standards for states to model their mortgage laws upon.
Even though this conference was a collaborative effort of the New Jersey Association of Mortgage Brokers and the Pennsylvania Association of Mortgage Brokers, originators and regulators from the neighboring states of New York and Maryland were there as well.
Joseph F. Heisler Jr., president of the New Jersey Association of Mortgage Brokers, Rose Stancato, immediate past president of the Pennsylvania Association of Mortgage Brokers, and E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey, NJAMB and the Mortgage Bankers Association of Pennsylvania met with Origination News editorial director Mark Fogarty and managing editor Brad Finkelstein.
Earlier portions of the conversation, published in National Mortgage News dealt with Dodd-Frank and changes to the Federal Housing Administration program. This portion picks up with how FHA changes are impacting mortgage brokers.
FINKELSTEIN: What has the effect been of the changes in the FHA correspondent approval rules? Are you seeing more brokers becoming active of originators of this product?
HEISLER: That is something that is very fluid right now, because the brokers who did not have their mini-Eagle or their FHA approval before, who were anticipating being able to do FHA loans, don’t if they are going to able to get approved by the investors or the wholesalers. They are all taking, from what I’ve seen so far, different tacks on who they are going to approve and who they are not. So I don’t know how many more brokers are going to be able to get into the program then were able to before. Some (wholesalers) are requiring training, which I think is an excellent idea, others are requiring that the company had to have a mini-Eagle before.
STANCATO: So, are you getting that many more people into it? I know that some of the lenders I’ve talked to, even though it is not required, they want to see a net worth from the broker. So are new people that don’t have any experience, that don’t have any connections, going to be able to do FHA loans? It is hard to say.
LEVY: And they are looking at compare ratios...
HEISLER: ...which they can only see if you have done FHA before...
LEVY: ...so that is another factor that is going to be weighed. They are going to be careful if your compare ratio is too high and I don’t know what that is going to mean in terms of what ratios are considered too high, but they are going to have to set some standards and guidelines.
FOGARTY: So you think the net effect of regulations will be lessen originations next year, overall?
LEVY: That is an interesting question. Somehow, someway, I think we generally accommodate the marketplace, if there is demand out there. However, I think it’s always hard to predict, but because of the cautious nature of the industry based on these new requirements and the fear of potential litigation, in the initial phases, you are going to have to be more cautious about who you are making loans to. Therefore, I think you will see a reduction to those folks in underserved areas and people who are considered more risky credits. Weighed against that is how many people who are there who are looking to borrow next year depending on the circumstances, depending on housing values, depending on jobs. So you could have people coming back into the market that will offset that, so in effect you won’t see any change or maybe even an increase. But there will be a segment of the population that will be hurt as a result.
STANCATO: I think you will see a reduction in originations, based on interest rates. They are not going to stay this low forever. I think you are going to see more fallout as we still continue to tighten lending requirements.
FOGARTY: It will be interesting to see the HMDA numbers. I know those were down considerably last year. It will be interesting to see how those go.
HEISLER: I think the numbers will be down for all of those reasons, between FHA making the underwriting criteria and the costs more for mortgage insurance, higher credit scores, lenders being more risk adverse. I don’t see how they can be greater than they were this year, unless people get put back to work.
FOGARTY: How do you think the new federal regulations will mesh with state regulations? Will it be smooth?
HEISLER: I think it is going to be smooth. I am hopeful it is going to be smooth. We’ve been working with the New Jersey Department of Banking on some of the inconsistencies between the federal regulations and the new good-faith estimate and what is in New Jersey’s law, specifically regarding origination fees. We have a good working relationship with the state and they understand the differences and the problems that are going to be caused. They are working to address that. Some of them need to done legislatively, so they can’t simply come out and make those changes on a regulatory basis.
FOGARTY: The speaker from the New Jersey Department of Banking indicated an openness to business in the state. Do you see a positive effect from the change in administrations on the broker community?
LEVY: We’ve already seen a positive effect. With the current administration, we’ve already accomplished a number of things. No. 1, the fees and charges in New Jersey are listed in our licensing act now. One of the fees is discount points, which unfortunately is the only fee that allows for the charging of points. So discount points in New Jersey have always been interpreted not only as the points that discount the interest rate but the points that compensate the broker. So there has been a lot of confusion, there are some investors that don’t want to buy loans that have discount points that don’t discount the interest rate because they don’t understand the interpretation in New Jersey. So, what we were able to do, under the current administration, we had them review a proposal that we had to allow for the lender to charge an origination fee and the broker to charge a broker fee. Instead of calling it discount points, they would now be entitled to use the terms origination fee and broker fee. That is a big step forward. Then (at the show) there is going to be an announcement about surety bonds. We have been talking about our concern about the surety bond amounts. We have long felt those amounts are too high. The statute gives the commissioner the authority to set the rates and we have been talking about in those amounts. In the interim, what the department has agreed to, under the new administration, is to provide for a waiver process, where a lender or broker can come in, seek a waiver for the bond amount and reduce it down to a (lower) level. We’re very enthusiastic the department is very willing to provide for these waivers on a case-by-case basis.
FINKELSTEIN: Are you seeing a lot of the brokers in New Jersey and Pennsylvania complying with the education and testing requirements of the SAFE Act?
STANCATO: In Pennsylvania, we were fast tracked, so we’ve been in compliance since the end of December. You had to take the education by the end of December, but you didn’t have to finish taking the test until the end of April. So we are done with the transition. All we have now is continuing education.
HEISLER: We are still in transition (in New Jersey). We had a deadline of July 31, but there has been an extension until Oct. 31 for anyone who has initiated the process through the NMLS. That was really for the department to be able to facilitate all of the licenses in transition because there are literally thousands of them. The number of licenses will obviously be lower going forward than they were in the past, in part because of the SAFE Act, in part just because of the business environment that we are in. The transition has gone pretty smoothly considering the volume of licenses that had to be transitioned.
STANCATO: And we did a drastic reduction (in Pennsylvania) for the same reasons. There were people out there that really shouldn’t have been in the industry that couldn’t pass the test. We have seen a drastic decrease in the number of licensees. There is an increase in loan officers because they never had to be licensed in Pennsylvania before, but a decrease in the actually number of shops and company licenses since the implementation of the SAFE Act. Now in this in business environment, we’ve seen people move from one avenue of doing business to another avenue of doing business, surrendering their licenses to go with banks or getting out of the business altogether, just as a result of the economy.
HEISLER: There are a certain percentage of people going to banks just because their requirements aren’t as stringent. One of the things we have discussed as an association, all of these changes that have taken place, whether it is the new good-faith estimate or the SAFE Act, none of these changes have been allowed to take effect and see what influence they have had on the entire mortgage process for consumers, yet more and more regulation keeps being put in place.
STANCATO: As a result of the demise in the market, we’ve self-corrected but as Roy (DeLoach, NAMB CEO), said at the show government officials are reacting to things that occurred four years ago, without seeing what the industry has done to correct itself.
