More consolidation and reduction from Countrywide Wholesale. It makes perfect sense as the company has greatly reduced volume on strict underwriting guidelines from Bank of America and lesser demand. Bank of America earlier in the year outlined their strategy to all but eliminate wholesale lending from their lending plans; but whether that has changed or not, the reduction can’t be expected.
Less volume, fewer programs, overlapping resources, and tighter lending restrictions all equal less need for a massive wholesale lending channel.
From Countrywide:
Dear Valued Business Partner:
Thank you for your business and continued support of Countrywide®, America’s Wholesale Lender®. As we diligently continue our integration process with Bank of America, we remain committed to you and your business.
Just over a year ago, we initiated efforts to optimize our business model relative to the market opportunity. Earlier today, we further modified our loan fulfillment operations to align our model as follows:
Effective immediately, six Wholesale loan fulfillment locations will be consolidated into our remaining fulfillment network. The consolidated network will be comprised of nine Wholesale Loan Centers - including those that specialize in government lending.
Our account executives will remain in the impacted markets to sustain our commitment to serving you and our mutual borrowers.
Dedicated fulfillment teams have been formed at our remaining fulfillment center locations to provide immediate and continuing support for our business partners and account executives in the impacted markets.
Many of our business partners will not be directly impacted by these changes. If you are affected by this move, you will receive a separate communication shortly with detailed information on your new loan fulfillment location and team members. You may also log on to cwbc.com to view a list of the impacted loan fulfillment sites along with the corresponding new fulfillment locations and contacts.
If you are currently served by one of our consolidating fulfillment locations, I assure you that measures are in place to quickly and carefully migrate in-progress loan files to your new loan fulfillment team. Your account executive and your new loan fulfillment team are standing by, ready to assist you with both existing and new loan submissions.
I am confident that this aspect of our optimization effort has been planned with the utmost care to minimize any disruption to your business. Again, thank you for choosing Countrywide, and I look forward to our continued and mutual commitment to success.
Todd A. Dal Porto
Senior Managing Director and President
Countrywide, America’s Wholesale Lender
I’m beginning to wonder. I’ve always put the clients best interest first…it’s just something I naturally have to do in order to be able to sleep at night. There has been a time or two when a real estate agent has told me that my job is solely to provide mortgages and not worry if the mortgage made sense or if someone is capable of making the payment in my opinion. This is one reason why I’m glad that I (and others designated as mortgage brokers) will have official fiduciary duties to their clients. Here’s a scenario for you to chew on that has me wondering if Real Estate Agents will be as accepting of this new responsibility…
Susie and Sammy want to buy a home. They know their credit is lousy and Susie actually giggles about it. However, their friends were able to buy homes over the last few years and so they should be able to as well. Susie and Sammy were referred to me from an agent I’ve worked with for many years. And if it weren’t for bad credit, they’d have none at all. Susie has no credit scores and more collections than you can shake a stick at. Sammy is a fluke of the credit scoring system and has managed a mid-score of 621 although the last time he used credit was three years ago…no one will issue him any new credit due to his proven track record of not paying for any account he opens. Sammy, if the scoring system were perfect and 100% accurate, would be credit scoreless as well. To top it off, they have no savings and would like a zero down loan.
As a “Mortgage Professional”, I review this information with them and I let Sammy & Susie know that they do not currently qualify for a mortgage (because they don’t). If they want to work on their credit and develop a plan, such as practicing making a mortgage payment by paying the difference between the mortgage and their rent into a savings account, perhaps we can develop a long term strategy. In no way is this couple ready for a mortgage. I’m not sure that I could (or would) have provided them a subprime mortgage had they met with me this time last year. As someone who is looking out for their clients best interest, I believe I did the right thing. In fact, even with “subprime” clients of yesteryear, I would let them know of their options: you currently qualify for a subprime mortgage with a rate of X; or you can wait a few months and work on your [what ever is causing you to be subprime] situation and then qualify for a better rate with FHA/VA or conventional. Why encourage people buy “right now” if their finances are a wreck? The choice on what borrowers do with their finances is really their own. Really, it’s not for me as a Loan Originator to determine whether or not they are worthy: we have underwriting and guideline criteria for that. With Sammy and Susie, they really have no options but to work on re-establishing credit and change their spending habits…and they seemed eager to do so. I set them up with a company to help them work on repairing their credit (because it was beyond what I could do) and they were happy (they never followed through with the credit repair).
A few weeks later, I get a voice mail from the agent. He’s upset and wants me to know that Susie and Sammy have found another lender who has referred them to another agent and they’re buying a home. I’ve been checking the county records and Susie and Sammy’s real names are not showing up–I’ll really be surprised if they qualified for anything except the hardest money loan available with a double digit interest rate or seller financing. Regardless, the agent is obviously not very happy with me since I did not “approve” them for a loan and someone else says they did (at who knows what terms). My subprime shoe-horn is gone and I would not have used it here anyhow…this couple is not ready for a mortgage.
Fiduciary duties for Washington State loan originators who don’t work for a bank-mortgage company will be here this summer (effective June 12, 2008). Are you ready? How will you feel if a loan originator with fiduciary duties believes that a home buyer should take six months to a year to improve their credit and have at least 3-6 months of reserves? When this legislation first came out and Jillayne wrote about it. I thought it was an advantage for brokers. Yes, once again it’s more legislation on brokers (excluding mortgage bankers) for the sins of ALL loan originators regardless of institution. Wouldn’t everyone want to work with a loan originator who has a legal responsibility to look out for their best interest (mortgage broker) verses one who has no legal responsibility (mortgage bank)? Perhaps some agents would rather their clients not work with someone who has fiduciary responsibilities. Consumers…you may want to ask your loan originator whether or not they owe you any fiduciary duties.
I have two residential loans that have been referred to me, one from a mortgage broker in Colorado and another from a credit union. Both LOs have already taken the loan application, gathered all the supporting documents, and sent the loans through the lender’s automated underwriting system. The credit union is unable to make the loan because the dollar amount is too large for their institution. The mortgage broker in Colorado is not licensed to do business in WA State. Both of these LOs would like their client taken care of but because of the amount of work they’ve done already, they would like to get paid on these files. Of course I would disclose all fees to the consumer, but is this even possible to do?
John.
Dear John,
Because of the subprime and now prime mortgage market meltdown, we are going to see some incredible changes taking place in state and federal law during the next decade. One of the main problems with the mortgage lending laws today is that mortgage brokers can only earn a fee if a loan is made. This sets up an external motivator for an LO to make lots of loans, whether or not the consumer needs a loan. This should and will change. Someday you will be able to earn a fee for, let’s say, giving a borrower valuable financial advice relating to their mortgage loan, similar to how you might hire a CPA to advise you on matters within their scope of knowledge.
Let’s first take the example of if YOU were in the position of referring a loan to another broker. Let’s say you didn’t have FHA approval, your cousin Vinnie over at XYZ brokerage did, and you wanted to earn a fee of X for sending the loan to Vinnie. This is not allowable under many state laws governing mortgage lending (and for WA state, see the MBPA.) You can only earn a fee when a loan is made and the loan originator as presented to the lender on this transaction was Vinnie. If Vinnie hands you some cash outside of escrow, this is called an “unearned fee.”
RESPA directs us not give or receive an item of value in exchange for a referral of a federally related loan.
So now, back to your situation, if you GIVE another LO a referral fee outside of escrow, you’d be in violation of the provisions of Section 8 of RESPA. HUD would call this an unearned fee.
Now that we have the basic tenants of RESPA out of the way, let’s get right to the heart of your question. Let’s say you want to fully inform the lender of this fee and quote it on the GFE and the HUD I. What would you call that? A referral fee? No. Your lenders aren’t going to allow that due to the provisions of RESPA. An “administration” fee? Again, you’re hiding a referral fee. This is deceptive and subject to challenge by the borrower and by your wholesale lenders, federal and state regulators and any attorney.
Your question is very common, and a good question.
Many, many, many mortgage brokers and LOs go ahead and do it anyways, considering their chances of being caught by HUD are relatively low. That may be true. However, the chances of getting caught by the state regulators are much higher.
Once a loan originator goes down that path, you get a reputation for a guy who is willing to do it and you’re name gets tossed around as the go-to guy. Kind of like the girl in high school who gets a bad reputation for you know what. You become the mortgage whore. Now the problem with becoming the m-whore is that your reputation eventually works its way to the state, potentially triggering an audit. Imagine refunding all those fees.
I’m not trying to use fear to motivate you, because personally, I hate being motivated that way. Instead, think about the long-term consequences, and about the business person you wish to become.
Instead of a referral fee, how about promising these folks that you will treat their referral clients with the utmost respect and honesty, and you will give your mutual clients a fair loan at a fair price.
Now I know times are economically tough for many in our industry. Long term success in mortgage lending means having to think about all the possible consequences of our actions.
Unless, of course, you’re a corporate CEO. But until that time, I wish you good will in your quest for the right decision.
While some of the biggest retail mortgage lenders shutting down their wholesale lending departments claim it’s a sound strategy for reducing loan fraud, I have to question their motives. B of A, WaMu, IndyMac, and others may accomplish a couple of less-than-altruistic goals — first, deflecting the blame for the mortgage mayhem and the brunt of resulting legislation onto brokers, and second, reducing competition at a time when approvable mortgage applications are down. Pretty neat trick.
Yes, I believe that broker-originated mortgages are more likely to end up in default than their retail counterparts (B of A analysts found 4 to 5 times more likely, in fact) but encouraging legislators to paint all brokers with the same brush is bad for honest businesspeople and the consumer as well. I understand that brokers don’t face the same consequences of a default as the lender that holds the loan in its portfolio, but neither do lenders who sell their mortgages on the secondary market. And yet brokers have much higher burdens to meet in terms of disclosure and even marketing. For example, in Nevada brokers cannot engage in joint marketing efforts with real estate agents but banks can.
Lenders shutting brokers out altogether and legislators making brokerage too burdensome to be viable effectively reduce competition — borrowers may have fewer products to choose from and may pay more for them. Trigger-happy legislators should look more closely into the industry and find a real solution — for example, brokers could be required to post bonds or carry sufficient insurance to make up losses to the wholesalers. Those with good track records would be rewarded with lower premiums while the others would pay more or be forced to leave the business. A national code of conduct, education, and licensing requirement could re-instill confidence in brokerage as a reputable channel for mortgage sales.
And don’t let lenders who offload their risk by repackaging mortgages and selling them on the secondary market off the hook either. Those who have the most control over the transaction need to assume the bulk of the risk as well — again, either through bonding or insurance — and the good guys should get rewarded with lower costs of doing business.
Wholesalers should take a look at their underwriting practices for in-house vs. broker-originated loans. Is someone verifying income and assets or just taking the applicant’s word for it? Applicants can fake a bank statement, W-2 and pay stub easily enough — it doesn’t matter who the loan comes from — verification used to be standard practice regardless. “Make sense” guidelines should still apply to stated income loans — were the broker-originated ones any less plausible than the in-house applications? If so, they shouldn’t have been approved.
And finally, those screaming suck-ups hell-bent on protecting the innocent consumers (yes I mean politicians and pseudo-advocates) should take a look at the FBI web site. According to that the greatest perpetrators of loan fraud by far are those “innocent” consumers, not the lenders.
And we thought the only thing “shady” loan officers and brokers needed to worry about were more regulations and finding a job. Now, it looks like some disgruntled clients may be looking for a pay back and it’s not just money they are looking for, it may mean murder.
Read more…
The mortgage and real estate industry has resembled a battlefield marred with carnage and destruction with what appears to have no end in sight. 210 imploded lenders and thousands of mortgage, real estate professionals and anything related to these professions in one way, shape or form, litter the path of no jobs and no hope.
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