Almost anyone who has searched for a house recently knows there are not enough houses for sale.

One simple number defines the problem:

In October 2017, the nation had a 3.9-month supply of existing homes for resale. That means, at the pace seen then, it would have taken 3.9 months to sell all the homes on the market. A supply under six months puts home buyers at a disadvantage.

“Inventory is tighter than it appears. It’s much lower for entry-level buyers,” said Sam Khater, deputy chief economist for CoreLogic, a data provider for the real estate industry. He spoke at the Urban Institute’s annual housing finance symposium on Nov. 1.

Why don’t millennial, first-time buyers and Generation X move-up buyers have more to choose from? Who is responsible for the shortage of homes for sale and why? We’ve identified some suspects.

1. Boomers won’t move

More than three-quarters of baby boomers own their homes. For millennials to buy their first homes, and for homeowning Gen Xers to move up to their second home, boomers have to sell. But boomers are staying put.

Realtor.com conducted a survey this year that found that 85% of boomer homeowners planned to stay put over the next 12 months. “The reasons for that could be that they’re living longer, they’re living healthier and so staying in place is more possible for them,” says Danielle Hale, chief economist for Realtor.com.

“[Baby boomers] have been slower than previous generations to sell the family home, thus exacerbating the shortage of houses for sale,” concluded a Freddie Mac research report.

Also, thanks to rising home prices, would-be downsizers can’t find smaller homes that cost much less than their current homes, says Dennis Cisterna, chief executive officer of Investability Solutions, a real-estate investor marketplace. So they stay put. “There’s no urgency to sell right now unless you have to,” he says.

2. Landlords won’t sell

Millions of single-family homes were converted to rentals after the foreclosure crisis, Cisterna says. “Those investors have no incentive to sell,” he says. When a house goes up for sale, “now you’re competing not only with your neighbor who wants to buy that house, you’re also competing with investors.”

Renters made up 36% of households in the third quarter of 2017, up from 31% in 2005, according to the Census Bureau.

With greater demand for homes, but less supply, home values rise. Meanwhile, rents are rising faster than home prices. “Both of those factors would tend to encourage landlords to hold onto those homes and rent them out,” Hale says.

3. Owners are hooked on low mortgage rates

Over the last three years, the interest rate on outstanding mortgages averaged just 3.8%, according to the Department of Commerce. People savor their low mortgage rates and don’t want to give them up.

So as mortgage rates rise, homeowners tend to keep their homes a little longer, said Frank Nothaft, chief economist for CoreLogic, at the Urban Institute symposium.

“That means the inventory of homes for sale, which is already very low, is likely to remain that way if we see higher interest rates,” Nothaft said.

4. Builders ignore entry-level buyers

Through the first nine months of 2017, about 473,000 newly constructed houses were sold, according to the Census Bureau. Fifty-five percent of those homes cost $300,000 or more. “Of the new homes that we are building, the vast majority are move-up products,” Cisterna says. “They’re not for the entry-level buyer anymore.”

Builders counter that they pay $45,000 for a typical buildable lot nationally and around three times that in New England. And they say they face a shortage of skilled construction labor because experienced workers dropped out of the construction trades during the Great Recession, younger people aren’t replacing them, many job applicants can’t pass drug tests, and immigration enforcement is scaring some laborers away.

5. Regulations add costs

Homebuilders say regulations — including environmental protection, infrastructure fees and rules that specify minimum lot sizes — add tens of thousands of dollars to the cost of every home. Regulations account for about one-quarter of the cost of each home, said Michael Neal, assistant vice president for forecasting and analysis for the National Association of Home Builders.

A Freddie Mac report concurred. “Land-use regulations have become more burdensome” in the last 30 years, making it costlier to build, it said. Freddie Mac found that it takes just 3.5 months to get a building permit in lenient New Orleans, whereas it takes 17 months to get a building permit in restrictive Honolulu. A longer permitting process costs money as developers carry the investments on their books while awaiting permission to build.

6. Owners want to restrict supply

Local zoning and land-use regulations aren’t bestowed by a hidden hand. They’re enacted by officials who were elected by the people. When planning and zoning officials limit the number of houses that can be built in a neighborhood, or when they set minimum square footage for houses, they’re limiting the supply of homes and making them more expensive. They’re responding to constituents.

“There are regulations that are more about the neighbors’ sensibilities than they are about the safety of the people living in the houses,” says Miriam Axel-Lute, associate director of the National Housing Institute, a nonprofit that examines how social issues affect housing.

“It’s neighbors who want their property values to go up, in most cases, who are insistent upon some excess safety design standards or minimum lot sizes or other things,” she says. “They either want their property values to go up or they don’t want, quote, ‘the wrong sort of people’ in their neighborhoods. This is the pressure behind a lot of the most damaging regulations out there.”

How can home buyers respond?

Clearly, it will take time and concerted effort to fix the problem of not enough houses for sale. Meantime, there are things home buyers can do:

Be realistic about how long it will take to find and buy a home. Real-estate agents can provide an estimate, based on market conditions.

Save plenty of money for a down payment and reserves.

Improve your credit score to get a good mortgage deal.

Be ready to make a competitive offer when a suitable home comes on the market.

That advice works for any real-estate market, whether it favors sellers or buyers. But these tips are especially appropriate when inventory is low.

Source:  https://www.nerdwallet.com/blog/mortgages/6-reasons-there-arent-enough-homes-for-sale/

With strict new federal mortgage regulations on banks coming in January, more borrowers – and investors – will be looking at alternative financing. Investing in alternative mortgage lending is already a fast-growing, multi-billion dollar industry.

Two key avenues for investors are Mortgage Investment Corporations (MICs) and syndicated mortgages. They both lend money to higher-risk borrowers, but  investors must understand the pros and cons of each, and what makes them so different.

Mortgage Investment Corporation (MIC)

An MIC is a pool of capital that is raised through shareholders and is collectively lent to a diversified pool of residential and commercial mortgages. You are buying shares in a corporation that invests on your behalf.

Pros:

Since you are investing in a pool of mortgages you can mitigate a great deal of the typical risk associated with direct private or syndicated mortgages.

An MIC has a team of professional mortgage underwriters who review mortgage loans every day and can determine the risk on your behalf.

It creates regular monthly cash flow that can be tax f ree savings account (TFSA) or registered retirement savings plan  (RRSP) eligible.

If a mortgage goes into default, it is only one of many, so the MIC can begin the foreclosure procedure without having to disrupt monthly cash distributions to the investor.

Targeted returns are typically from 7 per cent to 8 per cent, annually.

The monthly payment is a “flow-through” from the pool of monthly mortgage payments back to the shareholders. There is no term; it is continuous.

A MIC will have an offering memorandum that clearly outlines the parameters and lending restrictions, including: maximum loan to value and percentage allowable for commercial real estate, raw land or development.

Cons:

An MIC has higher overhead and, as such, charges a management fee. The gains are net after fees. Thus net returns are often closer to 7 per cent rather than the 10 per cent targeted by privates or syndicates.

Caution is required that the MIC does not do the following: allocate an excessive amount of loans to farmland, raw land or developments, since these are hard to foreclose on, and it can be difficult to recuperate the loan in the event of a forced sale; or loans lent to personal friends or management partners.

Check that the MIC you invest with has a third-party independent advisory board that oversees the nature of the loans and ensures that they are consistent with their operating memorandum.

Syndicated mortgages

This is the scenario in which two or more individuals lend their money to a specific project and borrower. The money could be lent on anything from a single-family house to a developer with a large project.

Pros:

A syndicated loan is a direct loan to an individual with no fees to a middleman, so the return can be higher – typically above 10 per cent.

The syndicated group can be on title.

A mortgage broker who tends to “de-risk” the investment typically sources syndicated mortgages.

You know exactly whom you are lending to and what you are lending on.

It provides monthly cash flow.

Cons:

The biggest downside is that you are lending directly to a single individual or developer.

Any individual can encounter problems beyond his or her control, which could cause a default on the mortgage, even foreclosure.

In the event of such trouble, the syndicated partners may not have the experience and/or willingness to foreclose, a process that can take months.

If you have to foreclose, your money, cash flow and return can be held in limbo for months. If you lent to a development that was half complete when foreclosed on, the syndicate could lose a large portion of its investment.

A syndicated loan can be re-paid early (depending on terms) and it may take time to find the next “deal” or person to lend to. The return on syndicated loans looks attractive but your money is not always at work for 365 days a year. Your real annualized returns over a five-year period may be closer to 8 per cent.

Not all syndicated mortgages are TFSA or RRSP eligible.

Summary

Investing through a syndicated mortgage will generate higher returns than an MIC, but in doing so you take on more risk.

There is always a risk that some people will default on their mortgage – remember, there is a reason they did not qualify at the bank. The single biggest difference between an MIC and a syndicated mortgage is that with an MIC, you bought shares in a fund that invests in a pool of mortgages, so if up to 5 per cent go into default, 95 per cent are still paying monthly. With a syndicated mortgage, if the person you lent to defaults, your income stops and your money is at risk.

Syndicated mortgages are more appropriate for the sophisticated investor who understands the risks associated and expects a higher return.

MICs are more suitable for the less-experienced investor who is willing to accept a slightly lower return in exchange for increased security.

Source: http://www.westerninvestor.com/news/finance/investing-in-alternative-mortgage-lending-risks-and-rewards-1.23105791

Mortgage lender Guaranteed Rate alleges that while still employed at the company, one of its “most highly compensated executives” planned and participated in an exodus of more than 20 employees to a newly formed rival, according to a lawsuit filed by the Chicago-based company.

Joseph Caltabiano, the former senior vice president of mortgage lending at Guaranteed Rate who is named in the lawsuit, disputes those claims. “I deny the allegations that I did anything inappropriately,” he said.

The employees who left Guaranteed Rate allegedly joined the staff of Bemortgage, a recently launched mortgage lender that operates as a division of Bridgeview Bank Group, according to the lawsuit, filed Wednesday in Cook County Circuit Court. Caltabiano joined Bemortgage’s ranks as senior vice president of mortgage banking about two weeks ago, he said Friday.

Guaranteed Rate paid Caltabiano about $1.75 million this year through Nov. 15, according to the lawsuit. He was one of the three highest producing loan originators employed by the company, and remains the ninth largest shareholder, the complaint states.

The company “terminated” Caltabiano on Nov. 16, according to the suit. Court documents say Caltabiano allegedly coordinated the transition of Guaranteed Rate’s Chicago-area team to Bemortgage with senior executives at Bridgeview, some of who had also previously been employed at Guaranteed Rate.

Those team members’ transition allegedly had been planned while Caltabiano was still employed at Guaranteed Rate, according to the complaint. The lawsuit alleges that Caltabiano breached his fiduciary duties to Guaranteed Rate by soliciting its employees to leave and join Bemortgage and by competing with it on behalf of Bemortgage.

“Mr. Caltabiano was terminated for misconduct, as described in our lawsuit,” Guaranteed Rate said in a statement Friday.

Caltabiano denied those allegations and said he disagrees that Guaranteed Rate terminated him. He said he worked there for 15 years and that it was a good place to work, but the time had come to explore more opportunities.

“I have a staff that works with me that voluntarily decided to pursue other opportunities as well,” he said. “You’ve got a lot of new opportunities in the mortgage banking space that weren’t here five years ago.”

Also named in the suit is Bridgeview Bancorp, holding company of Bridgeview Bank, which has about 15 locations throughout the Chicago area. The lawsuit also alleges Bridgeview and Caltabiano conspired to breach their fiduciary duties. Peter Haleas, chairman of Bridgeview’s board, said the bank did nothing wrong.

“I know that Bridgeview conducted itself in the full spirit of the law and business ethics, and we have no culpability,” he said.

In May, Guaranteed Rate filed an unrelated lawsuit alleging an employee and two former employees solicited other workers to join competitor Cross Country Mortgage and planned to open competing branches while still employed by Guaranteed Rate. The case was dismissed in September, according to court documents.

Source: http://www.chicagotribune.com/business/ct-biz-guaranteed-rate-lawsuit-20171201-story.html

Regulation N – Mortgage Acts and Practices – Advertising was issued by the Consumer Financial Protection Bureau (CFPB) to implement requirements of the Credit Card Accountability and Responsibility and Disclosure Act of 2009 (CARD Act) and Dodd-Frank Wall Street Reform and Consumer Financial Protection Act of 2010 (Dodd-Frank Act). The Federal Trade Commission oversees compliance with Regulation N for entities over which it exercises jurisdiction.

Regulation N defines mortgage credit product as any form of credit that is secured by real property or a dwelling and that is offered or extended to a consumer primarily for personal, family, or household purposes. For a mortgage credit product, the regulation prohibits certain material representations in any commercial communication about any term of a mortgage credit product, including:

The interest charged for the product – amount of interest in the monthly payment, loan amount, or total amount due;

The annual percentage rate, simple annual rate, periodic rate, or any other rate;

Information about the existence, nature, or amount of fees or costs to the consumer for the mortgage credit product;

Information about the existence, nature, or amount of fees or costs to the consumer for any additional product that may be sold in conjunction with the mortgage credit product;

The terms, amounts, payments, or other requirements relating to taxes or insurance associated with the mortgage credit product;

Any prepayment penalty associated with the mortgage credit product;

Any comparison between a rate or payment that will be available for a period less than the full length of the mortgage credit product and an actual or hypothetical rate or payment;

The type of mortgage credit product;

The amount of the obligation and the nature of cash or credit components of the obligation;

The existence, number, amount, or timing of any minimum or required payments;

The potential for default under the mortgage credit product and circumstances of default;

The effectiveness of the mortgage credit product in helping the consumer resolve difficulties in paying debts;

The association of the provider of the mortgage credit product with any other person or program;

The source of any commercial communication about the mortgage credit product;

The right of the consumer to reside in the dwelling that is the subject of the mortgage credit product;

The consumer’s ability or likelihood to obtain any mortgage credit product or term;

The consumer’s ability or likelihood to obtain a refinancing or modification of any mortgage credit product or term; and

The availability, nature, or substance of counseling services or any other expert advice offered to the consumer regarding any mortgage credit product or term..

Source: http://www.mortgagecompliancemagazine.com/compliance/alphabet-soup/mortgage-acts-practices-advertising-rule-2/

In October, new regulations went into effect regarding reverse mortgages. The reason for the changes was that the federal Department of Housing and Urban Development was facing large losses associated with their guarantees to reverse mortgage borrowers and lenders.

One of the things borrowers like about reverse mortgages is that the lender can never recover more than the fair market value of the home, regardless of the amount of money owed on the mortgage.

Borrowers may stay in their home as long as they maintain the property and pay the required real estate taxes and homeowner’s insurance. If they fail to do any of these things, or if they voluntarily leave the home (or vacate the property for 12 months, for health reasons or for any other reason), the lender takes possession and may sell the home.

One of the things lenders like about reverse mortgages is that if the outstanding loan exceeds the fair market value of the property, the lender does not incur a loss on the transaction. HUD bears the loss.

HUD has been facing larger losses recently, so it has made the following changes:

• Previously, HUD charged an upfront insurance premium of 0.5 percent for borrowers who took less than 60 percent of the maximum loan amount, and 2.5 percent of for those who took more than 60 percent. It now takes 2 percent for all loans.
• Previously, HUD imposed an annual mortgage insurance premium (MIP) of 1.25 percent of the loan outstanding. Now, new borrowers pay an annual insurance fee of 0.5 percent.
• The maximum loan amount has also been reduced. Previously, a borrower could borrow 60 or 70 percent of the property value; now that maximum is based on the applicant’s age, the mortgage rate and the property value. It is estimated that the amount that can be borrowed now is approximately 5 percent less than what was available before the new regulations.

One strategy for using a reverse mortgage is to take advantage of the growth of the available line of credit. (Some call this taking a “standby” reverse mortgage.) The credit line grows based on the loan rate plus the annual insurance premium. Since the annual insurance premium has been reduced, the line of credit will now grow at a slower pace.

In summary, borrowers will now find that they can borrow less under the new regulations, and the line of credit will grow more slowly.

On the other hand, the reduction in the annual MIP to 0.5 percent means that the homeowner’s loan balance will increase much more slowly, and accordingly the equity in the home will be retained.

The changed regulations are not a “game-changer” regarding the benefits of obtaining a reverse mortgage. However, they are factors to take into consideration. If you are obtaining a reverse mortgage in order to take advantage of the flexibility of the line of credit, you should understand how the line of credit is computed and how large it will be based on how long you expect to reside in the home.

For those borrowers planning to get cash up front, reverse mortgages may still be advantageous. Front-end costs and interest rates vary between lenders, so you have to comparison shop. In addition, do not base your decision solely on the mandated review/approval of a certified HUD adviser. You should have the proposal or contract reviewed by your own financial adviser or attorney. Any decision should be consistent with your long-term financial plan.

Source: http://host.madison.com/wsj/business/new-rules-change-costs-associated-with-reverse-mortgages/article_b47b184f-c19c-5b0c-9d7d-4ae68537e368.html

Dreaming of an oceanfront condo in Southern California or a cabin escape on the slopes in Aspen? Or perhaps you’re moving to a new town and are looking at apartments? No matter what type of place you’re searching for, chances are you’ve used Zillow.

Launched in 2006, the Seattle-based real estate giant is a free platform that provides consumers with “data, inspiration and knowledge.” So, how did this free, consumer-dedicated platform find itself in the crosshairs of the Consumer Financial Protection Bureau?

Simple: government oversight run amok.

Originally proposed by Elizabeth Warren in 2007 and established in 2011, the CFPB was intended to prevent financing companies from treating consumers unfairly. But the bureau has a history of overstepping that mandate, with its aggressive tactics hurting both consumers and businesses alike.

Over the past several years, the CFPB has used anti-kickback laws in the Real Estate Settlement Procedures Act (RESPA) to slap companies with multi-million dollar fines for engaging in historically-common business practices. The CFPB regularly sues mortgage lenders and real estate agencies that have simply partnered in routine marketing service agreements (MSAs), whereby a realtor advertises or recommends a lender or broker.

Two years ago, the CFPB trained its sights on Zillow and began investigating the online platform for allowing advertising by real estate agents and mortgage lenders with MSAs.

To provide free services to consumers, Zillow sells ad space to realtors, rental companies, builders, lenders, and others in the home industry. Zillow simply provides a neutral platform for businesses to reach customers interested in real estate to advertise.

Monthly advertising accounts for around 70 percent of Zillow’s revenue, nearly $190 million in the second quarter of 2017 alone.

The CFPB is now demanding that the real estate giant settle to the tune of millions of dollars or face legal action for allowing realtors and lenders with MSAs to advertise on its site.

Zillow, baffled by the allegations, reached out to the CFPB to discuss the matter, but has not received a formal response. The agency also declined to comment on news stories related to its vague charges.

In a recent article about the case in GeekWire, a Zillow spokesperson said the CFPB has “failed to give concrete feedback, and we’re aware of no evidence of consumer harm or any actual consumer complaints…this is a clear overreach, and one of main examples of the CFPB legislating by fiat.”

Additionally, the agency’s logic in going after Zillow is questionable.

If the CFPB’s priority is to protect consumers—as one would assume given the bureau’s name—going after a website such as Zillow is puzzling. Zillow and similar websites provide valuable tools to consumers at no cost. They help would-be homebuyers or sellers access important information critical to negotiating the terms of a real estate sale or purchase. And it would be a stretch to argue that Zillow somehow restricts consumers’ access to other real estate agents or lenders simply by allowing businesses to purchase advertising space.

Given these facts, why would the CFPB push so hard to settle this case with such scant evidence?

It appears CFPB’s battle against Zillow is more about politics and less about consumer protections.

Late last year, mortgage company PHH Corp. successfully defended a $109 million fine imposed against them by the CFPB. The court lambasted the CFPB’s actions as a clear overreach.

After such a ruling, the CFPB should have pumped the brakes on the anti-kickback witch-hunt, but CFPB Director Richard Cordray sees it differently.

Cordray, who has dramatically expanded the intended scope of the CFPB during his tenure, is rumored to be plotting a run for governor in Ohio next year. A “win” against Zillow provides another campaign talking point to brand himself as a top consumer watchdog.

No matter the purpose of the CFPB’s new hunt for RESPA violations, the vague anti-kickback statute confuses and harms the real estate industry and consumers.

Baseless allegations against Zillow and others invalidate the bureau’s claims of consumer protection. The CFPB is unconstitutional and its unaccountable overreach has no place in our government.

Cameron DeSanti is a student at George Washington University and a former policy intern at Americans for Prosperity.

If you would like to write an op-ed for the Washington Examiner, please read our

source: http://www.washingtonexaminer.com/zillow-falls-victim-to-cfpbs-latest-witch-hunt/article/2636954

You want the good news or the bad news on HMDA? Let’s go with the good news: After collecting expanded data on borrowers under the Home Mortgage Disclosure Act rule changes, lenders are going to have greater insight than ever before on their lending practices. The bad news? So is everyone else.

“Your lending practices are about to become a wide-open book,” said Mitchel Kider, chairman and managing partner, Weiner Brodsky Kider PC.

“When there is more information available to the public and to regulators, there will be a lot more scrutiny and potential liability.”

Kider was one of the experts who spoke Monday about HMDA rule implementation at the Mortgage Bankers Association’s 2017 Annual Conference and Expo. The panel’s unofficial theme, as outlined by John Haring, director of compliance enablement at Ellie Mae, was “we scare because we care,” due to the anxiety some lenders feel about what the HMDA changes mean for them.

Updated HMDA requirements involve a significant expansion of data collection, including 25 new fields that have to be reported. These changes are the latest attempts by federal regulators to ensure fair lending by identifying possible discriminatory patterns.

In the past, Kider said, regulators looked at HMDA data as part of their fair lending review, but the data wasn’t comprehensive enough by itself to determine discrimination. With the HMDA changes, the data will provide a complete picture for regulators, and lending pattern outliers will trigger an investigation.

“Now, all that data is available in a consistent electronic format and it will be very easy for others to compare you to peers, to drill down to specific information that was more difficult to obtain before,” Kider said.

That new data includes pricing information, origination charges, discount points, lender credits, interest rates, combined LTV ratio, credit score and DTI ratio.

“Fair lending will receive greater visibility when federal agencies and private litigants have additional data under HMDA to support their analysis,” Kider said.

In addition, poor data quality by itself can be the basis for action against lenders.

“Substance is important, but the accuracy of HMDA data is independently important as well,” Kider said. “Does this [poor data quality] mean you have to resubmit? No, this means civil money penalties as well. It is a reflection of having a poor compliance management system in all other areas.”

Maurice Jourdain-Earl, managing director at ComplianceTech, compared the HMDA implementation to an iceberg, with the expanded data points making up an unseen, bulky mass under the water line.

“Things are about to get very real,” Jourdain-Earl said. “We’ve been tiptoeing with HMDA data and a lot of lenders go through the process of collecting and submitting, but many don’t do what they need to in order to understand what it says. That need is about to become paramount. The new HMDA rules will be a game changer. We are going to experience a major paradigm shift, and HMDA can be either friend or foe.”

All of the HMDA panelists, which also included Richard Andreano Jr., practice group leader, mortgage banking group at Ballard Spahr, saw the HMDA changes as an opportunity for lenders to see, understand and hopefully improve, their lending practices.

“The responsible thing for lenders to do, is understand what their data is saying. How can you use your data to establish a process of benchmarking where you compare your business process and performance metrics to industry norms and best practices,” Jourdain-Earl said.

Part of the new data collected includes the unique identifier for the loan officer, which means regulators will have transparency into the lending practices of not just companies or branches or managers, but all the way down to the level of loan officer.

“With new HMDA data, regulators will be able to more scientifically identify a peer, and a peer with a similar business model. Are their outcomes the same or different than yours?” Jourdain-Earl asked.

In addition to the challenges of the HMDA reporting, Haring pointed out the difficulties of getting ready for implementing the HMDA changes while the CFPB is still adjusting requirements, including changes to the filing instruction guides.

The bureau is still developing the platform that lenders will use to submit HMDA data starting on March 1, 2018, but has not provided a specific date when it will be completed.

“Lenders want to test against that platform today,” Haring said.

Source: https://www.housingwire.com/articles/41641-what-hmda-changes-mean-for-lenders

The House of Representatives could soon consider a bill that would bring several changes to the Consumer Financial Protection Bureau’s “Know Before You Owe mortgage disclosure rule”, also known as the TILA-RESPA Integrated Disclosure rule or TRID.

The new bill is called the “TRID Improvement Act of 2017,” and has yet to be officially introduced into the House, but the bill was discussed on Capitol Hill on Thursday during a meeting of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.

The bill is sponsored by Rep. French Hill, R-Arkansas.

According to the Republican arm of the House Financial Services Committee, the TRID Improvement Act of 2017 would amend the Real Estate Settlement Procedures Act and the Truth in Lending Act to expand the time period granted to a creditor to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days.

The bill would also amend RESPA to “allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.”

Additional details about the bill can be seen in a discussion draft of the bill that was posted Thursday to the House Financial Services Committee’s website. Click here to read the discussion draft in full.

The bill’s proposed changes come just over a month before the CFPB’s finalized updates to TRID rule officially take effect on Oct. 10, 2017.

The Federal Register published the rule last month, marking the 60-day period until the amendments take effect.

The bureau released the updates back in July, answering industry calls asked for greater clarity and certainty on the controversial rule.

For much more on the history of TRID, click here.

During the hearing, the Financial Institutions and Consumer Credit Subcommittee also discussed a number of other bills, including the “Community Institution Mortgage Relief Act of 2017.”

That bill, which is set to be formally introduced by Rep. Claudia Tenney, R-New York, would amends the Truth in Lending Act to direct the Consumer Financial Protection Bureau to “exempt from certain escrow or impound requirements a loan secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less.”

The bill would also require the CFPB to provide certain exemptions to the mortgage loan servicing and escrow account administration requirements of the Real Estate Settlement Procedures Act for servicers of 30,000 or fewer mortgages.

“The legislation discussed in the Subcommittee today will better allow financial companies to serve their customers,” Subcommittee Chairman Rep. Blaine Luetkemeyer, R-Missouri. “From banks and credit unions to attorneys, we’ve seen an impeded ability for businesses across the nation to offer financial services and guidance. In order to preserve consumer choice and financial independence, Congress must tackle regulatory reform and simplify rules. The policies outlined in today’s legislation start to break down those barriers.”

Source : https://www.housingwire.com/articles/41253-house-to-consider-bill-to-change-trid-rules

The House of Representatives could soon consider a bill that would bring several changes to the Consumer Financial Protection Bureau’s “Know Before You Owe mortgage disclosure rule”, also known as the TILA-RESPA Integrated Disclosure rule or TRID.

The new bill is called the “TRID Improvement Act of 2017,” and has yet to be officially introduced into the House, but the bill was discussed on Capitol Hill on Thursday during a meeting of the Financial Institutions and Consumer Credit Subcommittee of the House Financial Services Committee.

The bill is sponsored by Rep. French Hill, R-Arkansas.

According to the Republican arm of the House Financial Services Committee, the TRID Improvement Act of 2017 would amend the Real Estate Settlement Procedures Act and the Truth in Lending Act to expand the time period granted to a creditor to cure a good-faith violation on a loan estimate or closing disclosure from 60 to 210 days.

The bill would also amend RESPA to “allow for the calculation of a simultaneous issue discount when disclosing title insurance premiums.”

Additional details about the bill can be seen in a discussion draft of the bill that was posted Thursday to the House Financial Services Committee’s website. Click here to read the discussion draft in full.

The bill’s proposed changes come just over a month before the CFPB’s finalized updates to TRID rule officially take effect on Oct. 10, 2017.

The Federal Register published the rule last month, marking the 60-day period until the amendments take effect.

The bureau released the updates back in July, answering industry calls asked for greater clarity and certainty on the controversial rule.

For much more on the history of TRID, click here.

During the hearing, the Financial Institutions and Consumer Credit Subcommittee also discussed a number of other bills, including the “Community Institution Mortgage Relief Act of 2017.”

That bill, which is set to be formally introduced by Rep. Claudia Tenney, R-New York, would amends the Truth in Lending Act to direct the Consumer Financial Protection Bureau to “exempt from certain escrow or impound requirements a loan secured by a first lien on a consumer’s principal dwelling if the loan is held by a creditor with assets of $50 billion or less.”

The bill would also require the CFPB to provide certain exemptions to the mortgage loan servicing and escrow account administration requirements of the Real Estate Settlement Procedures Act for servicers of 30,000 or fewer mortgages.

“The legislation discussed in the Subcommittee today will better allow financial companies to serve their customers,” Subcommittee Chairman Rep. Blaine Luetkemeyer, R-Missouri. “From banks and credit unions to attorneys, we’ve seen an impeded ability for businesses across the nation to offer financial services and guidance. In order to preserve consumer choice and financial independence, Congress must tackle regulatory reform and simplify rules. The policies outlined in today’s legislation start to break down those barriers.”

Source: https://www.housingwire.com/articles/41253-house-to-consider-bill-to-change-trid-rules

By Rachael Sokolowski

In the satirical 1980s film Risky Business, a Chicago teen’s parents leave him home alone while they go on vacation. The result is a series of unintended mishaps, involving prostitution and a pop-up brothel, high speed chases and a waterlogged Porsche, stolen furniture and a crack in his mother’s prized Steuben glass egg. Joel, the teenager, manages to restore the house to order, including the Steuben egg on the mantle, just as his parents walk in. Although Joel’s mother notices a crack in the glass egg, she does not ask how the crack happened or why there is a crack. She only asks how Joel could have let the crack happened and simply expresses her disappointment.

With its humorous depiction of how one simple decision can set off a series of catastrophic events, the movie Risky Business may have some bearing in the mortgage industry in the way electronic mortgage documents and data are handled. All may appear to be fine at the end of the process, but there could be a series of unintended issues along the way which may contribute to a less than perfect conclusion. For starters, there is a disconnect between the representation of the data in the document and the electronic data used by mortgage technology systems. Throughout the life of the loan, from origination, closing, servicing, and securitization, the document and the data from the document operate in parallel universes, much like Joel and his parents.

In today’s mortgage processing of paper documents, there is a reliance on humans, instead of technology, to determine inconsistencies. With paper, the only way to automate the processing of the information on the documents is to extract the data and this is typically performed after closing. The extraction may be done in one of two ways. In one method, a person manually keys the information on a document into a system. To reduce the error rate and to improve accuracy, two or three different people enter the data and the inputs are cross-checked against each other for inconsistencies. The accuracy rate varies between 98 and 99 percent for this type of manual keying.

A second approach is to automatically recognize text and numbers on the paper document. Automatic recognition involves utilizing technology, such as optical character recognition (OCR) and business rules about the document, to determine the letters and numbers. OCR systems, just as counterpart systems for voice recognition, make mistakes and are not 100 percent accurate. To have confidence in the quality of the data, regardless of whether it is input by hand or by technology, a certain amount of human intervention is required to audit inconsistencies, to perform exception processing and to control data quality.

Regardless of the method, after extraction, there must be a check for inconsistencies. If the data representing the loan amount was extracted incorrectly, this will have major consequences for the downstream systems processing the loan. Eyes must compare the two sets of information to assure a match. This process is commonly referred to in the industry as “stare-and-compare.” A person stares at the paper document or an image of the paper document and compares it with the data in the system. There is always a human involved in the final stage of the extraction process for a quality review of the data. But, it is not fiscally feasible to have a person to perform this check on every document in every mortgage loan. This creates the possibility for inconsistency in those loans that are not subjected to a compliance check.

This whole process from data extraction to stare-and-compare may happen more than once. It may occur in the loan origination system (LOS) and/or the lender’s system and/or the servicing system and/or the loan delivery system for the investor and/or whatever technology touches the mortgage. Each time data is re-entered into a system, there is a risk of error and inconsistencies. Paper will never be eliminated in the mortgage process or at least not in our lifetimes. But where in the process should these parallel universes be checked to determine that they are in sync? Before closing or after closing? And which entity in the entire loan process should be responsible for the verification of the data on the document and the data used by mortgage systems?

It is time to ask why this disconnect exists and whether this is causing operational and compliance issues for the industry. There are operational and technological solutions to reduce the risks. There is no need for these parallel universes.

The only way to eliminate the need to stare-and-compare is to capture the loan information once, and to minimize the reliance on paper documentation. Processing documents in this way is the premise of an electronic Mortgage, or eMortgage, and is often referred to as “lights-out” processing. In the early 2000s, the Mortgage Industry Standards Maintenance Organization (MISMO) with support from the Government-Sponsored Enterprises (GSEs), developed a standard representation for eMortgage documents called the SMART document. The MISMO specification carries the data of the document in a standardized format with a direct link to the visual presentation in a single, self-contained electronic document. It is possible to automatically verify that the data provided for machine consumption matches the information presented to humans. The SMART document is currently in use today for the electronic promissory note document and only for that one document.

A SMART document eNote eliminates the need for stare-and-compare. So, why not use this electronic specification for all loan documents? In the case of the promissory note document, there are special considerations since the document is a negotiable instrument. The promissory note is as good as cash and there needs to be an assurance that the document has not been tampered with—such as the loan amount changing after the document was signed. It is also important to know who is the holder or possessor of the electronic document. Since it is easy to make copies of and/or change an electronic document, the industry agreed to designate a registry to identify the “authoritative copy” or the electronic equivalent of the paper original and to ensure the electronic document had not changed in any way after the last borrower signed the document. Since 2004, the Mortgage Electronic Registration Systems “eRegistry” provides this information. The GSEs have defined delivery requirements for accepting electronic promissory notes and MISMO defines the eMortgage as “A mortgage loan where the closing documents—through an eClosing process that includes, at a minimum, the Promissory Note—are created, accessed, presented, executed, transferred, and stored electronically.”

This definition narrows what can be described as an eMortgage. Only loans with an electronic promissory note document qualify. And despite this legal and technical infrastructure for electronic mortgages, the number of eMortgages remains static at around one percent of all mortgages. Why is this?

The issue is the age of the SMART document specification that the GSEs require for delivery. This version was developed in the early 2000s. The industry has been slow to upgrade the SMART document specification to accommodate all loan documents, including the eNote, by using the updated MISMO Version 3 SMART document specification. With this version, there is a single reference model for all data about a loan throughout its lifecycle as well as all the data necessary for mortgage documents. The reference model also includes metadata information (such as the type of document), audit trails, and the ability to add information about document signers and signatures. Version 3 holds much promise for the industry to be widely used for all mortgage documents in the future as any mortgage document can be represented in the MISMO standard. However, there is a risk that the industry is mimicking the paper processes and will still rely on stare-and-compare for detecting inconsistencies. Why is this when a technology solution exists that does not require human intervention?

The MISMO eMortgage workgroup has developed different types of electronic documents to meet varying requirements. Four types of SMART documents are defined: Basic, Retrievable, Tamper Evident and Verifiable and these are known as document profiles. The profiles build on each other and become more extensive, from Basic to Verifiable much like a set of nesting Russian Matryoshka dolls. The most rudimentary one is the Basic profile. It contains the minimal amount of information wrapped up in a SMART Doc structure that includes the view (most typically a PDF), the document’s type (e.g., promissory note, closing disclosure, loan estimate, etc.), and, if the document is signed, information related to signatures. The intent of this profile is for electronic documents where the data is not used in the loan processing. An example would be the mortgage servicing disclosure. The Retrievable profile adds MISMO standard data to what is defined in the Basic profile and uses PDF/A for the view of the electronic document. PDF is an open International Standard Organization (ISO) standard and PDF/A guarantees future presentation of the electronic document despite technology changes and provides a mechanism to prevent changes to the document. The retrievable profile is used when the document data’s needs to be carried with the PDF image. There is no linkage between the data and the PDF for automatic processing to verify that the data matches the viewable representation of the document.

The GSEs have defined an industry dataset and electronic document format to support the closing disclosure forms, called the Uniform Closing Dataset (UCD). It uses the data and requirements for MISMO Version 3 SMART documents in the Retrievable profile. By requiring the use of the SMART document, the closing disclosure’s data is delivered along with electronic representation of the document. But one problem remains since there is no way to systematically check that the data in the UCD dataset matches what the borrower viewed before signing at the closing table. This disconnect introduces the potential for inconsistencies and furthers the reliance on stare-and-compare. This risk increases when the data comes from different sources which is very common for the closing disclosure.

And now, what is next for the eNote? The eNote needs a higher level of security that the electronic document has not been altered. The MISMO SMART document Tamper Evident profile requires an audit trail of events and a final digital signature for evidence of tampering. This digital signature is used for identification on the MERS eRegistry. This is necessary for the eNote. There must be confidence that the document and its data, such as the loan amount, have not changed since the borrower signed at the closing table. Is the Tamper Evident profile sufficient for the eNote? At present the GSEs believe so. But just like the closing disclosure, the possibility exists that the data does not match the PDF and, again, furthers the reliance on stare-and-compare after closing.

A solution for this situation exists in the Verifiable Profile. It includes all the features of the Tamper Evident profile plus links between the MISMO data and the information presented in the viewable image of the document. This provides a systematic and automated way to validate that the two match. The Verifiable Profile matches what is in place today for eNotes. The GSEs are currently not requiring this profile. For the eNote, the possibility exists that the data does not match the PDF. There is a risk here.

At some point in the process, a check that the data matches the document needs to occur. But where? And how? There are currently two different approaches: automated or manual. With an automated approach, the validation is pushed to the beginning of the loan process. The check that the data matches the document is an automated validation that can occur at any point in the loan process including before closing, during closing and after closing. Manually checking the data and documents is performed by humans after closing has occurred and only on a random set of documents. But is this operationally the right point for this check? Would it not make more sense to perform this check before closing? Or include technological solutions that do not require human intervention for inconsistencies such as those that were implemented years ago for the eNote?

Right now, it is unclear when the validation should occur and who should do it. The assurance that the data matches the document is performed in redundant and costly systems and processes that do not always have a technological mechanism to communicate with each other. There are impacts to staff and costs. What happens in the future when the technology provider of the eNote is no longer in business and there are errors in the data used to service and securitize the loan? Which entity will be responsible?

Technology should be used to remove mundane and labor intensive tasks. Technology should be leveraged to overcome the operational difficulties that arise when data is generated from different sources. But that is not the case for the closing disclosure or for eNotes as a MISMO Version 3 SMART document. Instead, the industry is relying on decades old processes for verification of information from paper documents. This is risk-e business, with a potential crack in the system.

Rachael Sokolowski, president of Magnolia Technologies LLC, is a recognized leader and technology evangelist in the mortgage banking industry. She can be reached at RSokolowski@MagnoliaTech.com.

Source: http://www.mortgagecompliancemagazine.com/technology/risk-e-business-undetected-compliance-risk-data-electronic-documents/