PERSON OF THE WEEK: New rules from the Consumer Financial Protection Bureau (CFPB) require that all mortgage lenders maintain compliance management systems (CMS) – which is not, as some people think, software but rather a set of practices and policies that ensure a lender is meeting regulatory compliance in all areas of federal consumer financial law.

Essentially, a CMS is a plan for how a lender will meet compliance. The plan’s structure is relative to the lender’s business model. And the plan must change as regulations change, are reinterpreted, or as the lender’s business model changes.

Continuity’s software platform is used to automate as many parts of a lender’s CMS as possible – or, put another way, as many parts as the lender wishes – but its purpose is to do so holistically. Among its key features and capabilities is its ability to house hundreds of pre-built procedures spanning dozens of program areas.

It includes procedures for examination areas including consumer compliance, BSA/AML, lending operations, deposit operations, and Community Reinvestment Act and Fair Lending compliance, and also contains a large collection of risk assessments including BSA, Fair Lending, electronic banking, identify theft, and more.

Such tools have become critical in order for lenders to effectively meet compliance because they aid greatly when to comes time for a compliance audit. Because a majority of the tasks associated with compliance are automated and tracked by the platform, it provides a powerful tool for delivering compliance data to examiners.

Such tools also have also enabled lenders to take a much more holistic approach to compliance. So much so, they have led to the development of what Continuity calls the “Unified Compliance Management System” (UCMS) model.

To learn more about this new model, MortgageOrb recently interviewed Pam Perdue, chief regulatory officer and executive vice president for Continuity.

Q: What is this “holistic” approach to regulatory compliance we are starting to hear about?

Perdue: The holistic approach relies on adopting the UCMS model, which allows lenders to quickly adapt to and implement any type of regulatory change. Whether those changes come from the outside, such as the recent HMDA implementation deadline, or are internal adjustments, like the addition of an office or a shift in key personnel, applying the UCMS model ensures nothing falls through the cracks.

An effective CMS includes the preventive, detective and corrective controls a lender needs to have in place. It’s “unified” because everything is in one place, and thought about as part of a process and an integrated framework, rather than scattered on disparate systems with various owners and vague accountability.

The UCMS model starts when a change occurs. First comes an understanding of the risk that a new regulation poses to the organization, then adapting its policies to comply. After re-evaluating organizational policies, building new or updating existing procedures is critical. Implementing technology upgrades and providing training for employees impacted by the regulation comes next. Finally, ensuring that monitoring and audit programs have incorporated the new or revised standards completes the change cycle.

Executing this step-by-step process not just helpful when a new regulation is issued, it promotes efficiency throughout the compliance function. Even if no changes to the rule occur, lenders need to preserve evidence that they have done their best to ensure compliance, in case they encounter future regulatory or legal challenges about their performance. A solid CMS is essential to a lender’s ability to defend itself against allegations or accusations of wrongdoing, whether the source is a single angry consumer, a regulator on the warpath or a group of hungry class-action plaintiffs.

In addition, being able to work backward through the cycle when something goes wrong, is helpful at ensuring thorough remediation. Doing so exposes lapses in monitoring or training that may have occurred, or places where system upgrades may have been to blame. Inspecting procedures and policies to see where they may have contributed to weaknesses in execution ensures the root causes for deficiencies are properly identified and addressed. Again – nothing falls through the cracks using the UCMS Model.

Q: What are some of the common mistakes in lenders’ approaches to regulatory compliance?

Perdue: Common mistakes we see over and over again fall into three categories: over-reliance on one or a few staff; failure to embed compliance into business processes; and lack of standardized compliance processes.

Many lenders exhibit a very disjointed, almost haphazard, approach to managing compliance. These lenders often rely on one or a few mid-level executives to answer for the organization’s compliance program, instead of involving all of upper management to help to build a culture of compliance. Furthermore, placing the entire burden of regulatory interpretation and application in the hands of a select few increases the risk that something will be overlooked or misinterpreted along the way.

A second common mistake is thinking of compliance as an added step. Viewing compliance as a “necessary evil” relegates it to always being an afterthought. The most effective organizations embed the compliance work steps into their processes for originating, funding and servicing loans, so that it is just another step in doing business. Not only does this combination tend to streamline the workflow, it also promotes better compliance outcomes.

Third is standardization. Many lenders have built their compliance programs around the misconception that merely checking the right boxes for individual regulations is enough. Lenders following this reactionary approach to each new regulation tend to have costly and time-intensive practices, since compliance is treated differently each time, and is often not integrated seamlessly throughout the organization. This type of “reactionary” approach relies on time-consuming manual processes that, even if they are accurate, may deliver compliance at too high of a cost.

Consistently applying the unified CMS model reduces the time, energy and expense – as well as the hassle and worry – over addressing and implementing regulatory or other types of change. A poorly executed compliance program can expose the lenders to penalties and the loss of borrowers’ trust.

Q: Since passage of the Dodd-Frank Act, lenders and servicers have had to ramp up staff hiring to keep up with regulatory compliance. Has that helped or has it created a new set of issues?

Perdue: Hiring more people seems like an easy and obvious solution to capacity challenges. However, a peek beneath the surface reveals that adding new staff creates its own series of challenges and constraints.

Of course, there are the obvious distractions of recruitment: finding qualified, competent people in a highly competitive marketplace and given any applicable geographic constraints. But beyond this – and especially during busy periods – training new hires distracts key staff from their own work.

Even though more people may lessen the overall burden over time, these human resources are expensive financially and psychologically up-front, because they consume others’ time. I have observed that combining the right technology and key staff yields a more effective compliance management system than just staff alone. When lenders embrace the idea – however wrong it is – that the only solution to a capacity problem is to add staff, then they have effectively ensured the problem will persist in perpetuity.

Why? Because they have not actually made processes more efficient or outcomes more accurate. Adding technology forces the standardization of consistent and repeatable approaches, which can really ramp up operations in a lean and effective way.

There are about 75 million people in the baby-boomer generation and about 3 million of them will reach retirement age each year for the next two decades. Many may eventually end up in a senior-housing facility, such as an assisted-living, memory-care or skilled-nursing home.

A commercial mortgage broker advising the owner of a senior-housing facility about financing should know the industry is strong in terms of profitability and that the broker can play a key role in assuring excellent financing terms. The U.S. Department of Housing and Urban Development (HUD) 232 loan program, for example, offers what many believe to be one of the best health care financing vehicles for both refinances and new-construction loans.

The HUD 232 223(f) program is for refinance and acquisition loans, but is most readily used on a refinance. The lending constraints on 223(f) refinancing include the greater of 80 percent loan-to-value (LTV) or 100 percent of the total cost of refinancing the existing debt, and a minimum 1.45 debt-service coverage ratio (DCSR), which is usually based on a 35-year term.

With HUD — more aptly the Federal Housing Administration (FHA) under HUD — insuring a loan for up to 35 years, value is created based on a cash-on-cash equation and an internal-rate-of-return model, and ultimately the amount of net cash flow an owner can take home. In fact, it may be wise to explore two amortization schedules, one using a 30-year loan term and one using a 35-year term.

New rules

The amount of upfront savings using a 35-year term loan are staggering. Throw in the fact that rates on HUD/FHA loans are often 75 to 100 basis points lower than other conventional financing, and you’ve added substantial value with additional dollars your clients can put toward the bottom line, just by advising them on the correct program.

The HUD 232 loan term and amortization are based on a property-condition report. A rule of thumb is that the term of the loan can be up to 75 percent of the remaining useful life of the property. Therefore, the loan term can be up to 35 years so long as the remaining useful life of the property is 47 years. With capital improvements, the useful life of the property also can be extended.

In order to maintain credibility and add value to the process, mortgage brokers should understand what condition their client’s property is in for its vintage, and what is needed to extend the asset’s useful life. Oftentimes, these improvements can bolster the marketability and performance of the property, raising its value.

Additionally, within the past year, HUD revamped the health care financing rules for 223(f). It’s now possible to take out equity from a property without carrying debt for a full two years. To be clear, HUD still does not directly provide cash-out loans, but it will allow less-seasoned debt refinances, and refinances of intermediate bridge loans.

Essentially, the new rules state that 60 percent LTV refinances will be allowed with less than two years of seasoned debt when less than 50 percent of the mortgage proceeds are used for the benefit of the project and repayment of seasoned debt. A 70 percent LTV refinance will be allowed with less than two years of seasoned debt when more than 50 percent of the mortgage proceeds are used for the benefit of the project and repayment of seasoned debt.

To receive a full 80 percent LTV loan, debt on the facility must be seasoned for a full two years and other 223(f) criteria must be met. Experienced owner-operators with multiple facilities are typically sitting on a portfolio that has a large amount of equity tied up in the assets, which can be recouped through HUD refinancing, if processed correctly and managed appropriately with the right lender.

Construction loans

The HUD 232 New Construction and Substantial Rehabilitation program also is an attractive financing option for health care property developers and owners with the requisite amount of experience and financial wherewithal. The HUD program allows for a new-construction loan for a profit-motivated entity that includes the following limits based on a maximum 40-year amortization period: up to 90 percent of replacement cost; 75 percent LTV for an assisted-living building and 80 percent for a skilled-nursing facility; and a 1.45 DSCR.

The HUD construction loan can take some time to close. It’s a construction loan with an interest-only period of typically 18 to 22 months that rolls into an amortizing loan upon cost certification.

As banks continue to get direction from regulators to reduce risk, they have reacted accordingly by limiting new-construction loans and/or leverage levels. This is making the HUD 232 construction-loan program more attractive every day, even with the challenge of time to close. It would be prudent to get together with a solid HUD 232 lender to understand the benefits and drawbacks of this program compared with traditional bank products.

•  •  •

Commercial mortgage brokers seeking to add value for their clients should contact a HUD expert to better understand the financing terms available for its various products, and help advise their clients on how to maximize the value of their properties in order to achieve the best financing execution.

Following the financial meltdown that rocked the U.S. economy a decade ago, Congress enacted a variety of regulations in the sweeping Dodd-Frank Act of 2010 to better protect consumers from risky mortgages. Loans that were little understood or that ended up being unaffordable contributed to millions of homeowners losing their homes to foreclosure.

One of the things implemented by Dodd-Frank was the creation of a “qualified mortgage.” Basically, if lenders meet a variety of strict guidelines — such as ensuring a borrower’s loan is no more than 43 percent of their income — they get legal protection if a consumer later makes a claim that they were sold an inappropriate mortgage.

The Senate bill now under consideration (S. 2155) would let those smaller banks and credit unions still qualify for those legal protections without meeting all of the requirements that typically go with underwriting qualified mortgages.

However, the bill would still require them to assess the borrower’s financial resources and debt as part of the underwriting process.

The loan also could not be interest-only or one whose balance could grow over time (so-called negative amortization). Those types of loans proliferated leading up to the mortgage crisis and contributed to homeowners’ inability to keep up with their payments.

Source: https://www.cnbc.com/amp/2018/03/09/senate-banking-bill-could-make-mortgages-easier-to-get-from-your-local-bank.html

Nestled inside the Consumer Financial Protection Bureau is an office that goes after financial companies whenever they discriminate against Americans.

That office just lost its teeth.

Mick Mulvaney, who was appointed by President Trump as the agency’s interim director two months ago, is moving a powerful division of the bureau, the Office of Fair Lending and Equal Opportunity, under his own direct oversight and stripping the office of its enforcement authority.

That means the office won’t be able to go after lenders that charge higher interest rates to minorities than to whites or otherwise discriminate. Instead, staff will now focus on “advocacy, coordination and education,” according to a memo emailed to employees Tuesday.

Related: Trump official: Regulators don’t have a ‘blank check’

Those responsibilities — while not completely wiped out at the agency — will be part of a broader division that oversees financial companies. The change was reported earlier by The Wall Street Journal.

Alan Kaplinsky, a co-leader of the consumer financial services practice at the law firm Ballard Spahr, said the move is the latest illustration that Mulvaney is keeping his word that the agency will not overreach its powers.

“They won’t be ‘pushing the envelope’ in the fair lending area to go after companies where they are not on very solid ground,” Kaplinksy said. “Those days are over now.”

Under former Director Richard Cordray, an appointee of President Barack Obama, the office aggressively pursued discriminatory practices by auto dealers even though automakers fell outside the CFPB’s jurisdiction.

Consumer advocates argue the restructuring will weaken the office’s ability to pursue lawsuits.

Related: Trump consumer protection chief requests $0 in funding

Mulvaney’s changes “send a troubling message about the enforcement of civil rights laws and will harm people — especially in communities of color — who are wronged by payday lenders, debt collectors, or auto dealers, among others,” Vanita Gupta, president and CEO of The Leadership Conference on Civil and Human Rights and former acting head of the Civil Rights Division at the Justice Department, said in a statement.

A spokesman for the agency disputed those claims, arguing Mulvaney’s goal was to increase efficiency and combine efforts under one roof.

“It never made sense to have two separate and duplicative supervision and enforcement functions within the same agency — one for all cases except fair lending, and the other only for fair lending cases,” said John Czwartacki, a CFPB spokesman.

But progressive Democratic Senator Elizabeth Warren of Massachusetts said Mulvaney has long opposed the agency’s efforts to fight discrimination — and the latest step was a way to undermine those efforts.

Related: CFPB says it will reconsider its rule on payday lending

“Mulvaney is putting the Office of Fair Lending under his control so that he can weaken it — leaving neighborhoods and consumers across the country more vulnerable to bias,” Warren saidin a statement to CNNMoney.

The consumer bureau has already begun rethinking Obama-era rules since Mulvaney took over. Last month, it said would reconsider rules to protect consumers from payday-lending traps. It also launched a formal review of how the agency investigates and enforces rules on big banks and predatory lenders.

And most recently the agency said mortgage lenders would not need to comply with new rules that would have forced them to provide detailed information about consumers, like their credit score or age. Regulators use that information to ensure that lenders are not discriminating against minorities.

Source: http://money.cnn.com/2018/02/01/news/economy/cfpb-mulvaney-enforcement-office/index.html

We’ve heard of scams that often cost victims hundreds or thousands of dollars, which is bad enough.

But a mortgage title scam that almost victimized an Akron-area man could have cost him what could have been a life savings for many — tens of thousands of dollars, in the high five figures.

Luckily, he and his credit union mortgage specialist realized what was happening before the money was wired.

This scam apparently has been around for a few years, but may just be hitting the Akron area.

The Akron man is no stranger to buying houses. He’s bought two other houses in his lifetime.

He asked for anonymity and didn’t want to publicize the exact amount he could have lost since he felt violated by the potential scam.

Nationally, the scam has victimized others, including a couple who lost $1.5 million, according to an August Associated Press story.

Here’s what happened to our local homebuyer, and it’s very similar to the national scam:

He was going to close on an Akron-area house on a recent Monday. On the Friday before, he went into Towpath Credit Union to meet with Amanda Sibera, his mortgage specialist, to go over paperwork.

He needed to wire money to a bank in California. Federal rules require any payments over $10,000 to be wired.

As the homebuyer was sitting with Sibera on that Friday morning a few weeks ago, the two were reviewing the wiring instructions that Sibera had from previous transactions. All they needed was to confirm the loan number and bank routing numbers.

“It’s good to have another set of eyes on this. This is a lot of money,” the homebuyer told me. “We literally touched each letter and number with a pen.”

Here’s where it gets weird and scary.

They were on the phone with the title company representative. She said she would email the wire instructions within two minutes.

When the buyer opened his email, he already had a message that appeared to be from the title company representative. He did not immediately notice that the email had actually come a few hours earlier.

“This had the correct dollar amount to the loan to the penny. Even though I had opened it, Gmail had flagged it as suspicious,” he said.

Sibera said the email also instructed the homebuyer to wire the money on Friday “to not cause a delay in the closing. That was the trigger word. It was Friday. He wasn’t closing until Monday. The title company didn’t technically need the funds until Monday.”

When the homebuyer and Sibera phoned the title agent back, they asked if she had sent her email. She said no, she was working on it.

When they looked more closely, they noticed though the email appeared to come from the title agent, the reply message was to a random Gmail account. The listed bank also was in a different state than the actual bank he was using.

The homebuyer “was obviously very afraid of what was happening. He felt like his whole life could have just been gone,” Sibera said.

According to other news reports and warnings from the Federal Trade Commission and the National Association of Realtors, the scammers are likely hacking into email systems of those associated with home closings and consumers’ emails in order to see in real time names and exact amounts of down payments in order to send what looks like a legitimate email.

The American Land Title Association, the national association for title companies, has been trying for two years to educate its members and consumers about the fraud, association spokesman Jeremy Yohe said.

“These hackers interject themselves at the moment when it seems legit. As the buyer, the person just wants to get the keys to their house,” Yohe told me. “We are hoping consumers become aware that this hacking is possible and could steal the funds for their home.”

The title company used in the local homebuyer’s case, First American Title, referred questions to its corporate headquarters. The corporate headquarters, in turn, referred me to Yohe’s organization.

“Our members — attorneys and title companies — have taken many steps to try to combat this problem … but these criminals are smart and are constantly altering their tactics to steal the money,” Yohe said. “Fortunately in this case, [the homebuyers] didn’t lose the money.”

First American Title has a fact sheet on its website warning its agents of the growing wire fraud scam at closing. It suggests agents use a safe phone number to contact the homebuyer, not to rely solely on emails. In some cases, agents have begun requiring an in-person meeting to finish the wiring instructions.

Additionally, the national organization said to be wary when wiring information changes at the last minute.

The homebuyer continued to get emails from the would-be scammer.

“I did get two other follow-up emails on late Saturday or Friday asking “Did you send it? You’re in danger of jeopardizing your closing,’ ” the homebuyer said.

In the end, he successfully closed on the house and wired the money to the right bank by the deadline.

He and the folks at Towpath Credit Union hope by sharing his story, it will prevent anyone else in our area from losing tens of thousands of dollars in this scam.

Said Sibera: “I hope this is the only time. [Closing is] never a fun process.… This should be one of the best days of their lives, not one of the worst.”

SCO update

Now for some housekeeping items. In Friday’s business section, I wrote a short story saying Dominion Energy Ohio’s annual auction to determine the formula for the monthly Standard Choice Offer (SCO), which I continue to recommend, came in at a low rate. It wasn’t as low as the previous year, which was 0 cents, but the new “adder” price to determine the monthly rate came in at 7 cents per thousand cubic feet (mcf). That translates to a $7 yearly increase since the average homeowner uses 100 mcf a year, and is much better than some years, when that adder was several dollars. You can read more about it at http://www.ohio.com/betty.

Also, I have been getting questions about a letter from the NOPEC aggregation that many residents have received. I wrote a column two weeks ago about that aggregation. You can read it in the Jan. 27 newspaper or online.

Beacon Journal consumer columnist and medical reporter Betty Lin-Fisher can be reached at 330-996-3724 or blinfisher@thebeaconjournal.com. Follow her @blinfisherABJ on Twitter or http://www.facebook.com/BettyLinFisherABJ and see all her stories at http://www.ohio.com/betty.

Source :https://www.ohio.com/akron/business/taking-action/mortgage-title-scam-almost-costs-homebuyer-tens-of-thousands-of-dollars

WASHINGTON — The U.S. government sent notices to nine lenders this week, warning them that they would be penalized for pressuring veterans into costly home loan refinancing.

The lenders were told they will be kicked out of Ginnie Mae’s mortgage program unless they prove they can correct their actions.

The notices are part of an effort between Ginnie Mae, formally known as the Government National Mortgage Association, and the Department of Veterans Affairs to stop predatory lenders from targeting veterans who use the VA home loan guarantee program.

The occurrence of rapidly and unnecessarily refinancing loans, known as “loan churning,” creates costly fees for veterans, lengthens their debt repayment and threatens the overall VA program, said Ginnie Mae Executive Vice President Michael Bright.

“We need to take these lenders who appear to be operating in a way that doesn’t make sense and put them into this penalty box,” he said.

Ginnie Mae amended its guidelines at the end of January, stating it would be investigating lenders whose actions appear to be out-of-step with other lenders without a logical reason. Regulators said the bad actors accounted for only a handful of outliers.

Removing those outliers is likely to have the effect of lowering borrowing rates for veterans and others who use Ginnie Mae-backed securities by as much as .5 percent, according to Ginnie Mae.

Ginnie Mae did not name the targeted lenders. Bloomberg Politics, citing a source familiar with the matter, reported NewDay Financial, Nations Lending Corp., Freedom Mortgage Corp., LoanDepot.com LLC and Flagstar Bank were among those notified.

“We expect issuers receiving these notices to respond quickly, produce a corrective action plan and come into compliance with our program,” Bright said.

Because of loan-churning, companies that provide capital for the VA program are increasingly weary of lenders taking advantage of veterans who use it, Bright said. Penalizing lenders for churning is likely to improve their confidence.

“People who are backing this program are mad at how these loans are performing,” Bright said. “When we actually do this, my hope is those people who were skeptical see that Ginnie Mae really means it, and that they come back to the program.”

The action could be just the first step in removing predatory lenders that target the VA program, which offers veterans a low-cost mortgage option.

Jeffrey London, director of the VA loan guaranty service, told lawmakers last month that the VA will soon propose rule changes to the program. The regulations could include a requirement for a lender’s refinancing proposal to meet a certain tangible net benefit for veterans, as the Federal Housing Administration already compels lenders to prove before refinancing loans that it insures.

But the process to implement new regulations could be lengthy. The VA must adhere to the federal rulemaking process, which includes a public comment period. London didn’t tell lawmakers an expected timeline and said only the VA would propose new regulations sometime in 2018.

Sens. Elizabeth Warren, D-Mass., and Thom Tillis, R-N.C., introduced legislation in January requiring lenders to demonstrate a benefit to veterans when refinancing their mortgage.

While reviewing VA data in recent months, Ginnie Mae found a fixed-rate refinance of a VA home loan cost veterans an average $6,000 in fees. Their average savings were $90 each month, meaning it would take veterans more than five years to break even on refinancing.

“The American Legion stands with Ginnie Mae and Senators Warren and Tillis as they work to protect veterans from predatory home lending and ensure veterans have an affordable pathway to home ownership,” Denise Rohan, national commander of the American Legion, said in a written statement. “Our veterans didn’t serve their country around the globe in order to be taken advantage of by unscrupulous lenders at home.”

Source: https://www.stripes.com/news/ginnie-mae-penalizes-9-lenders-for-targeting-veterans-1.510746