The expected deluge of regulation from the Consumer Financial Protection Bureau has arrived, and at least the mortgage industry now knows what it is dealing with, if not how regulators will be enforcing them.
While there are many other issues that the profession has to deal with which were discussed in this roundtable held at the Regional Conference of Mortgage Bankers Associations in Atlantic City, N.J., such as the future of the secondary and the return of private money, as well as private mortgage insurance versus Federal Housing Administration execution. Still, the hot topic of the day was the new rules of the road coming out of Washington.
In this excerpt from the roundtable, National Mortgage News editor Mark Fogarty and associate editor Brad Finkelstein spoke with Robert J. Angelucci, president and chief executive of Cardinal Financial Co., Warminster, Pa.; W. Thomas Kelly, president, Investors Home Mortgage, Millburn, N.J.; E. Robert Levy, executive director of the Mortgage Bankers Association of New Jersey; Peter R. Norden, CEO, Real Estate Mortgage Network Inc., Edison, N.J.; William Raftery, chairman, Aurora Financial Group Inc., Marlton, N.J.; and Ralph Vitiello, CEO, Maverick Funding Corp., Parsippany, N.J.
Fogarty started by noting “Mortgage bankers are getting pinched by regulations, both on the originations and the servicing side. I was just wondering which rules would be the hardest to comply with and which will cause the most pain in your shops?”
Levy replied, “From what I hear from our members, I would say one of the most difficult ones to comply with has been the loan officer compensation rule for the reason that it is somewhat ambiguous and while we’re getting more guidance, and the guidance is getting better than it was, it’s still somewhat difficult. The affiliate rule—part of the qualified mortgage rule—is going to cause some big problems for companies that have affiliated title (agencies), affiliated appraisal management companies (and the like) because all the fees paid even though they wouldn’t normally go into the three point points and fees limit will be included if they are paid to an affiliate. I don’t know if there is a whole lot of logic to that, frankly, and I’m not sure exactly what the motivation was, other than to say because the fees are going the same company’s pocket. But by the same token, it is the same fee that you would pay to a nonaffiliated company. Why would one be included in the three point limit and the other not? It would put you in a position where you are not going to do QM loans. Also, if you just want to do QM loans because they’re the ones with a safe harbor—there is also a QM that has a (rebuttable) presumption—the next question is if that’s all you do, are you going to be accused of a fair lending violation because of disparate impact. Whether CFPB is going to rethink that, we will have to see. Right now they don’t be inclined to do so.
NORDEN: I will comment (on the servicing rules). In the state of New Jersey it’s not as big an issue because there aren’t that many servicers. However, the rules themselves are so difficult to abide by that the potential liability for servicers going forward is extreme to say the least. I think going forward you are going to see a lot of people being afraid to get involved as far as actually building out platforms. Most are going to subservice and allow the big subservicers to take on that potential liability, although that liability does go through to the actual servicer of record with the agencies. But the rules are so onerous and so difficult, if you make the slightest error, you could in fact end up forgiving a mortgage.
FOGARTY: When CFPB started up, it said specifically it was going to target servicers for rules and regulations because of the robo-signing problem. Do you think that is fair? Do you think servicers need to be targeted that way?
NORDEN: The targeting right now is a little excessive. But I also believe over time—we tend to go through regulatory cycles where regulations might be extremely weak for a period of time, which they were. I’m not going to say they weren’t. Then we tend to go all the way to the other extreme, which is where we’re going now. At some point in time we will come back into the middle and I would anticipate that probably happening over the next couple of years.
FOGARTY: How are the local origination markets in this region? (Editor’s note: The conference takes in the mid-Atlantic States and several New England states as well.)
KELLY: We’re seeing a lot of activity in purchase business and we’re hearing that there is a lack of inventory. Yet, I had lunch the other day with a leading foreclosure attorney and she tells me that any day now, they are going to hit. The courts are ready to open the gates. But right now, as we sit in this market in New Jersey, there is a lack of inventory and in some markets people are bidding for houses.
FOGARTY: New Jersey is a judicial state? (Several panelists respond in the affirmative.) How long has it been taking to clear a foreclosure?
NORDEN: Generally three to four years.
FOGARTY: We just did a story on the Phoenix market, which has been one of the absolute disasters during the bust, and our correspondent who went there said all of the for sale signs are down, there is no inventory there. Investors have been purchasing the real estate owned. Are you saying New Jersey is in kind of the same boat?
KELLY: At the moment.
VITIELLO: At Maverick Funding, we just opened a purchase money division. We believe there is going to be an inflow of housing coming on the market over the next six to 12 months and we’re trying to position ourselves to obtain some of that business.
RAFTERY: At Aurora Financial, we primarily do business in the south Jersey-eastern Pennsylvania market. I would echo what’s been said and I would say there’s a shortage of quality listings. There is certain not a shortage of things which are not quality. We think the market is active on the first-time or entry level buyer level. What we’re experiencing is prices which are in excess of $500,000 are still, with the exception of quality listings, are languishing on the market a little bit.
FOGARTY: So there is a lot of FHA business?
RAFTERY: Not necessarily FHA, there is a lot of entry level conventional business. Rural housing in our area, and FHA, I guess.
FINKELSTEIN: Is there a true jumbo market coming back in terms of financing?
RAFTERY: I would say in New Jersey, that market has been there in large part because of local investors such as Investors Savings Bank.
FINKELSTEIN: So it is being supported by portfolio lenders?
KELLY: Once you get out of portfolio, there are very few people buying the loans.
ANGELUCCI: There are some lenders starting to come into the jumbo market now, more than in the past couple of years.
FOGARTY: The jumbo market has been for the last five or six years an absolute desert. So what is the market opening up for? There have been very few securitizations. Is it banks buying them for portfolio?
NORDEN: I think you are seeing a combination of the large regional banks or the super-regionals in the New York metropolitan area that are heavily coming in and buying paper. You are also seeing some of the big investment houses and real estate trusts coming in, buying large amounts of paper, Blackrock as an example. They are looking to put together securities in the future but they are portfolioing the loans temporarily. And most of the REITS are the same way. Redwood Trust has done a number of issues. Those issues have been fairly successful for them, but not so much for the people originating for them. There is very little margin for the originator, but at least (Redwood) is trying to get it going. Whether that will change long-term or not is really another question? As to your question about the markets, if you at the Manhattan market right now, any apartment that is decent in the city of New York is gone within three to four hours in a bidding war. Florida is sort of the same way right now. But down there are no mortgages being had; it is all cash.