Scotsman Guide - December 2010 Residential Edition

QA &

MANAGING DIREC TOR THE COMMUNIT Y MORTGAGE BANKING PROJEC T Glen Corso

BY DARRICK MENEKEN

The Community Mortgage Banking Project (CMBP), founded in August 2009, represents independent community-based mortgage-banking companies, many of which originate loans through mortgage brokers, according to managing director Glen Corso. He talked to us about regulatory and legislative changes, broker compensation, and the future of wholesale lending.

How would you describe the climate for mortgage brokers in the past few years?

The climate has been pretty hostile. There are a number of people in Washington, D.C., who wouldn’t be sorry to see mortgage brokers go away completely. One of the reasons we founded this group was because mortgage brokers and nonbank-affiliated mortgage companies were being blamed for everything associated with the mortgage meltdown.

Mortgage professionals are used to change, but nothing in our experience prepared originators and others along the value chain for 2010, particularly from the appraisal perspective.

Many brokers feel targeted by the Federal Reserve Board’s final rule regarding loan-
originator compensation. How do you foresee broker compensation playing out?

I think you’ll find mortgage-banking companies dealing with brokers on a one-by-one basis. Some might negotiate a compensation structure they will pay to a specific broker that in turn will affect the pricing they offer for the loans that broker places with them. Lenders have a great deal of flexibility in setting different compensation rates among different originators.

First, the Home Valuation Code of Conduct (HVCC) shook the industry like few new regulations in our history have, with far-reaching impacts for originators and others at the point of sale. Valuation quality and turnaround times suffered, and if nothing else, the industry realized the importance of highly accurate and professionally executed appraisals.

Does the Fed’s rule allow lenders to pay net-branch managers for the loans they
originate and also pay them based on their branch’s profits, presuming they ex-
clude the manager’s origination from the profit calculation?

The Fed has yet to give a definitive answer on that. That’s going to affect how net branches get treated. If the Fed says you can’t do it that way, then managers of net branches won’t be able to originate their own loans.

The resurgence of Federal Housing Administration (FHA) lending required the U.S. Department of Housing and Urban Development to come up with its own set of appraisal rules. The similarity to the HVCC disappointed many, but the FHA’s appraiser-independence rules ultimately benefited report quality with provisions for reasonable and customary fees and prohibitions on importing appraisers from far outside subject-property areas because they would work for less money.

Once established, the Consumer Financial Protection Bureau (CFPB) also may
release compensation rules. Will President Obama’s delay in appointing a CFPB
director stifle the bureau’s creation?

Right now, it’s definitely not causing any problems. But the Obama administration will certainly face an issue during the first or second quarter of 2011, when it will have to nominate a director and get that person confirmed before the official transfer date for the start of the agency. When the CFPB comes into existence — likely by July 21 — it needs to have a director in place.

Fannie Mae’s Loan Quality Initiative also took effect this year. Among other policy changes, it led the government-sponsored enterprises (GSEs) to bar lenders from arbitrarily cutting values to reduce risk. This means originators have one less deal-killing threat to contend with, and if a second appraisal is deemed necessary, the lender has to pay for it.

What else should brokers keep their eyes on entering 2011?

Brokers may find that lenders start making demands on them for their compensation plans and for how they comply with anti-steering provisions. Some brokers may feel that’s very intrusive, but I think that may become a reality.

Will lenders continue to do business with brokers?

Of the lenders that I talk to that have wholesale as a line of business or exclusively focus on wholesale, all of them are still very positive about dealing with brokers. They have high confidence in the quality of the loans that brokers place with them.

The GSEs’ Uniform Collateral Data Portal (UCDP) is another example of how investors are placing new importance on the appraisal as a linchpin document. Starting in 2011, lenders must deliver appraisals digitally before the loan purchase. This allows the GSEs to review valuations before loans are bought, helping avoid buybacks.

Darrick Meneken is an associate editor at Scotsman Guide. Reach him at (800) 297-6061 or darrickm@scotsmanguide.com.

The most likely impact on originators is more nitpick-ing than normal on loan documentation earlier in the process, but because the appraisal is the critical document for the UCDP, most of the pressure will be on the appraiser. Starting Jan. 1, each GSE appraisal must comply with the Uniform Appraisal Dataset, which standardizes all key data points required for a complete appraisal.

5 YEARS AGO

SCOTSMAN GUIDE The Leading Resource for Mortgage Originators residential edition

From December 2005’s
Scotsman Guide

“The reality is that mortgage brokers are at the center of the perceived problems that lead to lending abuses, and they will face increased supervision and accountability. To survive, brokers must prepare immediately.”

WHOLESALE CHAMPS

Finally, the Dodd-Frank Wall Street Reform and Consumer Protection Act promises sweeping changes for the mortgage industry, and the appraisal sector is no exception. We know that all appraisers will receive “reasonable and customary” compensation, must be geographically competent and will see their work treated with the professional regard it deserves. Originators should expect some price increases, but careful shopping of appraisal-management companies will offer opportunities to minimize these.

As Dodd-Frank interpretation takes shape and its countless implications become clearer, there will no doubt be additional changes in store for the valuation scene.

— JOHN A. LONG, “HEED THE ALARM”

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Griff Straw is president of Solidifi U.S., a leading technology-enabled appraisal-management company and provider of col-lateral-risk-management and data-analytic services. He writes a monthly column on valuation issues for Scotsman Guide. Straw is a 30-year mortgage banker, a former Freddie Mac technology executive and a Mortgage Bankers Association Master Faculty member. Reach him at gstraw@solidifi.com or (703) 496-7579.