The 2015 Regulatory Compliance Conference Heads to Washington, DC

A mortgage professional of more than two decades, Phillip (Phil) LaTessa launched The Funding Source in 1996. Throughout his career, Phil LaTessa has been involved with the Internal Independent Auditors Association and the Mortgage Bankers Association.

On September 20, 2015, the Mortgage Bankers Association hosts its annual Regulatory Compliance Conference at the Grand Hyatt Washington in Washington, DC. Attendees will join for three days of networking and learning. Conference coordinators have arranged an extensive agenda discussing new laws, the effects of the TILA RESPA Integrated Disclosure Rule, and fair lending. Further, vendor management and the future of examination are on the docket.

Registration is currently open with options for both association members and non-members. Those registering prior to August 10 receive discounted fees. Regular pricing begins at $1,245. Late registration can also be obtained if signing up within two days of the event. Learn more about the conference by visiting http://www.mba.org.

Cost of Regulations

According to the MBA,  higher costs and concerns about buybacks are driving the decline in mortgages for home purchases. It will slow to $635 billion this year, a 13 percent drop from 2013.

Banks have constrained home lending to many borrowers deemed creditworthy by mortgage finance companies Fannie Mae (FNMA) and Freddie Mac. Applicants approved for mortgages to purchase homes had an average FICO credit score of 755 in August, according to Ellie Mae, a company that makes software used to process mortgage applications. In contrast, Fannie Mae and Freddie Mac guidelines allow for credit scores as low as 620 for fixed-rate mortgages in some cases.

Lenders reported a 30 percent median increase in compliance costs this year from 2013, according to a survey by Fannie Mae released this month. And 72 percent of lenders surveyed said they spent more on compliance this year compared with last year.

Fha flipping changes

In an effort to stimulate repairs and sales in neighborhoods hard hit by the mortgage crisis and recession, the FHA waived its standard prohibition against financing short-term house flips. Before the policy change, if you were an investor or property rehab specialist, you had to own a house for at least 90 days before reselling — flipping it — to a new buyer at a higher price using FHA financing. Under the waiver of the rule, you could buy a house, fix it up and resell it as quickly as possible to a buyer using an FHA mortgage — provided that you followed guidelines designed to protect consumers from being ripped off with hyper-inflated prices and shoddy construction.

Access to credit

Removing barriers to getting a mortgage

HUD has been talking to their counterparts in the government about the reduction in FHA loans.

Jamie Dimon from JP Morgan stated in a conference call that perhaps its’ time to re-think doing FHA loans.

Mortgage Bankers are looking at alternatives to Fannie Mae and Freddie Mac loans.

Why is all this going on?

Lenders are tired of being sued for lending. That one-sentence probably best sums it up. The days of subprime mortgages and bad lenders were cleansed when the market crashed and rinsed and washed a second time with some valuable Frank-Dodd reforms.

However, the US government continues to sue lenders and announce large settlements, regulators continue to overzealously enforce provisions that even they do not fully understand and banks and bankers seek to settle because the cost of litigating is high, but to litigate your regulator is toxic.

What choices do lenders have? Lend without using Fannie, Freddie or FHA. Tighten lending standards above and beyond what CFPB requires and deny credit to anyone who would have gotten a loan as recently as 2011. And, lenders now over underwrite and over request documentation while over disclosing and demanding proof from the borrower that they received the disclosures to ensure they are in compliance.

So, HUD and Fannie have taken a step back. HUD is in the process of re-writing their FHA lending requirements and Fannie and Freddie are looking at providing a more concise lending matrix that is very clear about how lenders can protect themselves from claims over bad loans.

The claims over bad loans are a big issue to lenders. Fannie, Freddie and HUD all look to kick a loan back to the lender for the smallest of things when that loan is, typically, found to be 30 or 60 days late.   The late payment status of a particular loan triggers a complete review of the loan. Any “t” not crossed or “I” not dotted triggers buy back demands. This then triggers lenders to demand buy backs from other lenders and the game of “Hot Potato” with Mr. and Mrs. Smith’s mortgage begins. As the game heightens and the loan gets sent from lender to lender back down the chain, the borrowers find themselves getting notices that their loan payment is not due to lender X, it’s due to lender Y now and maybe in 3-months it may be due to lender Z.   This hurts everyone and typically is caused by Mr. Smith forgetting to make the mortgage payment and everyone from Fannie to the small mortgage banker that originally originated the loan getting involved in who has what exposure.

Now, Fannie, Freddie and HUD realize that the mortgage market has gone too far in tightening credit. They don’t cite the reasons, but the reasons are clearly outlined above – they and the government went too far and became too punitive following the market crash of 2008 and 2009.

To ease the situation Fannie, Freddie and HUD know they have two issues to attack. One is the reduction in credit to individuals that is pushing potential homeowners into the rental market and slowing the home buying market. The second is being clear to lenders that if they lend in good faith and follow the rules, they will not be held accountable if a loan becomes non-performing.

Recently, Fannie and Freddie announced that they were working to clarify what constitutes a buy back. In 2013 they stated that no buy back would be demanded if the borrower did not miss any payments for three years. In May they announced that the borrowers could miss two nonconsecutive payments within three-years without triggering a buy back demand.

The agencies are now working on other issues including small mistakes (minor clerical errors or missing paperwork that does not alter the soundness of the underwriting decision made while processing and approving the loan).   That’s a big concern for lenders because many banks and agencies will look for a missing pay stub or a missing disclosure to trigger a buy back on a loan that they just want to find a reason to demand it be purchased because they simply do not want that loan.

Also, fraud is coming into view in the horizon. They are finally looking at what constitutes fraud and the definition of that.   This is an important point because lenders have met and exceeded due diligence in making a mortgage to a borrower only later to find out that the borrower was slick in providing false and misleading information to the lender to induce the lender to provide a mortgage. This has led many lenders to close, others to be wrongfully accused of fraud and yet still others to lose a lot of money on fraudulent loans. And, this problem, comes from consumers and individuals outside the mortgage industry. The general public has been sold the story by the US Government that the bad guys are the mortgage professionals and they do not know the story of the bad person who may be living next door to them that pulled off a sophisticated mortgage fraud scheme to acquire their home (which, is the equivalent of stealing hundreds of thousands of dollars from a bank but since it was not done with a stick up they are not, in many cases, being prosecuted. Instead, the lenders is being scrutinized by investigators from three, four and five federal agencies looking for anything to indict a company or staff of a felony; when in fact they were a victim. Most people don’t view lenders as victims following the outrage of the crisis and the shrill voice of uniformed politicians throwing red meat to the angry voter)

So, how does the government provide lenders with the protections that they need so that they can make solid, good loan decisions based on information provided to them and received by them using third party tools to verify said information without fear of being second-guessed later on?

How does the government reduce angst by lenders so that they loosen up credit?

And, how does the government address the fraud question and determine who is culpable (and this is a sticky one because, in the defense of the government, anyone could have committed the crime since there’s gain to be had for everyone in the process from the lender to the loan officer to the borrower to the attorney to the realtor and so on).

Well, that process has begun.

Fannie & Freddie are coming out with new “road rules” that address buy backs and addresses expanding credit to borrowers with lower down payments. And, they’ve begun to attack the buy back issue along with the fraud issue.

HUD also has begun that process

So, it may be a new day in the mortgage industry where saner heads prevail and the adults take control of the room from the crazy kids who ran rampant.

Perhaps returning to vanilla products that were available before Clinton pushed for expanded home ownership is a sound decision. Perhaps throwing in a few more products like one or two expanded ratio products geared specifically to LMI borrowers as defined by HUD medium incomes, issued by Fannie/Freddie is wise. Sticking to basic DTI’s and sticking to basic credit requirements is key.

In 1995 the mortgage market began to see the lugs that held the wheels to their cars loosen when first the government announced that certain minorities lacked access to traditional credit and an underwriter could use alterative credit sources – and such began the process of tiered credit (Tier I, Tier II and Tier III credit) that could be used instead of traditional credit reports.

That lead to tossing the basics out of underwriting and off loaded tax returns, eliminated proving income, went off only credit if the borrower put “enough down” and lent to borrowers at higher and higher DTI’s to get the coveted CRA’s from the government.

That was insanity. And, that led to the subprime market. And, that is a story the government does not want told – its’ to arcane a story to tell and the public would prefer to dumb down what happened and blame the lenders. This works for the likes of Barney Frank who pushed for the very rules he railed against in hearings in 2008 and 2009.

Maybe now we realize that too far left and too far right is simply too far. Perhaps we now get that lending soundly means lending rules should be clear, concise and across the board. The basic underwriting tools used from the 1990s were sound,: they should be used universally.

Borrowers who don’t meet the criteria of vanilla conforming or vanilla govy loans or even vanilla expanded credit loans (lower LTV) should be viewed as tomorrow’s borrower. Not today’s reject or the need for some politician to interject about unfair and discriminatory lending demanding new lending laws.

Lenders and agencies need clear rules of the road that dictate when a loan does not conform to agencies guidelines or regulations that then does trigger a buy back.

And, regulators and the government need to let people know that they will prosecute Joe Blow for lying on his mortgage application and getting a mortgage in addition to prosecuting rings of thieves who do so and rings of those in the industry who do so.   Breaking lending laws is not just the provence of those inside the lending industry.

Housing, Europe and Ebola.

As stocks continue the trend from last week – the gains seen in the stock market are being eroded. What is driving this is the concern that Japan and Europe are slowing down. And, on top of this, as oil prices drop stocks go with them. Lastly, consumer spending came in below expectations. All of this drives traders to drive stocks downward.

On the bright side, this should help long term interest rates (mortgage rates) to either go down or hold steady based on previous trends. Some lenders clearly are holding rates steady and booking profits on the increased gains. However, others may lower rates to pick up desperately needed volume in new mortgage loans.

Meanwhile we should be keeping an eye on the Ebola crisis, that clearly has clearly entered the United States. US cases include the two initial Atlanta cases that then grew to a 3rd person who entered without symptoms and died in Dallas. Then we heard of another case of a journalist in the Midwest who has Ebola. Now, two health care workers in Dallas have been infected. If we strip this down we have to realize that there most likely will be more cases – which means Ebola has arrived in the United States and is no longer a West African problem.

So, we are closing out the 3rd quarter with many pressures. For those of us in the mortgage industry – sales will probably remain weak despite lower rates. Those who had higher rates have mostly re-financed and the remaining can’t with the tougher lender standards. That leaves lenders looking at the purchase market that has been stagnant as that is tied to consumer confidence levels.

With Europe and Japan having economic issues, rising US dollar – we are facing a possible slow down in the US economy which will most likely bring lower rates but fewer new home and existing home prices.

Editorial on M&T and CFPB

What’s the takeaway on the recent action by the Consumer Financial Protection Bureau’s actions against M&T Bank based out of Buffalo (NYSE: MTB)?

The action can be found here:  http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-mt-bank-for-deceptively-advertising-free-checking/

And M&T’s signed Consent can be found here:  http://files.consumerfinance.gov/f/201410_cfpb_consent-order_m-t.pdf

Basically, the CFPB found that M&T Bank had run deceptive ads luring customers into what they thought would be free accounts.  Where M&T went wrong was that M&T did not, according to the CFPB, tell their customers that to keep those accounts they had to meet certain thresholds (number of deposits, withdrawals, et al).   And, if they did not meet those, then they would automatically be transferred to a fee based account.  And, this would occur without the customer’s consent, nor knowledge, according to the CPFB.

This resulted in millions of dollars in fee based income to M&T Bank from their clients who did not know that they would be subject to a fee based account when signing up for the free account, per the CFPB.

If one was to take a stab at what really happened it probably was an oversight by an employee who approve the ads for the free accounts.   Maybe he or she did not know or forgot to check that the ad had a disclaimer stating that the customer had to hae a certain amount of transactions.

And, maybe, the computer at M&T bank just was set up to automatically sweep a person’s free account to a fee based one when certain thresholds were not met and it was not tied to send out an emailed or snail mail disclosure to the customer.

Let’s say that’s all true.

But, M&T Bank’s response was basically that the laws are changing and they are adjusting their practices to comply with the laws.  It is true that regulatory laws are changing.  It is also true that bankers are working hard to keep up with the regulatory changes.   If you dig deep enough in their response you’d almost read that they state that the CFPB did not even exist when this practice was occurring.  True.

But, misleading ads were never legal.  Not in 2014.  Not in 2000.  Not in 1995.  Not in 1990.  Not even in the 1960’s.

Banks and Bankers and everyone in the financial world had staff approving advertisements about financial products long before the CFPB because there were other regulators who monitored and demanded ads be truthful and transparent about the financial products offered.

M&T Bank failed in this.  If it was simply the ad, it could be chalked up to clerical.  But, having the accounts sweep to fee based leads one to think it may have been more than a failed review of an advertisement.

And, stating that laws are changing and M&T and this particular instance of migrating accounts to fee based stopped two-years ago is misleading and politically muddying the waters.

Which makes one question M&T’s ethics on top of the actions cited by the CFPB

CFPB Takes Action Against M&T Bank for Deceptively Advertising Free Checking

http://www.consumerfinance.gov/newsroom/cfpb-takes-action-against-mt-bank-for-deceptively-advertising-free-checking/

CFPB Takes Action Against M&T Bank for Deceptively Advertising Free Checking

M&T to Refund $2.9 Million to Approximately 59,000 Account Holders Who Paid Fees for Free Checking

WASHINGTON, D.C. – Today the Consumer Financial Protection Bureau (CFPB) took action against M&T Bank for deceptively advertising free checking accounts. The CFPB found that M&T lured in consumers with promises of “no strings attached” free checking, without disclosing key eligibility requirements. When consumers failed to meet the requirements, M&T automatically switched them to checking accounts with fees. M&T will provide $2.9 million in refunds to the approximately 59,000 consumers deceived into paying fees and it will pay a $200,000 penalty for the violations.

“Although M&T promised people free checking, tens of thousands of consumers ended up paying for a product they had thought was free,” said CFPB Director Richard Cordray. “This is an important reminder to all banks and credit unions that they cannot misstate to consumers whether a financial product or service is free. Today we are putting $2.9 million back in the pockets of consumers as a result.”

The M&T consent order can be found at:http://files.consumerfinance.gov/f/201410_cfpb_consent-order_m-t.pdf

M&T Bank, headquartered in Buffalo, N.Y., is a retail bank that offers various deposit account products and has hundreds of branches in the northeastern U.S. During a routine CFPB supervision exam, the CFPB found that M&T was advertising a “Free Checking” account, then converting many consumers into a fee-based “M&T First” account. Banks and credit unions are prohibited from deceptively advertising deposit accounts. If an account is described as free or no cost, it cannot, for example, have any maintenance or activity fees, or any fees to deposit, withdraw, or transfer money.

The CFPB found that M&T:

• Deceptively advertised checking accounts with no strings attached:M&T’s free checking account advertisements included such ads as, “Untangle yourself from monthly service fees. Get a free checking account at M&T. No strings attached.” But M&T did not disclose in such ads that the free checking account customers had to maintain a minimum level of account activity with deposits and withdrawals to maintain the free account. These kinds of ads for free checking ran in various geographic regions through mediums including television, print, and radio. M&T also marketed the free checking accounts to its customers on their account statements and on ATM screens and receipts.

• Automatically converted many free checking accounts into accounts with fees: If there was no account activity for 90 days, M&T automatically converted the “Free Checking” accounts to “M&T First” checking accounts. Consumers with “M&T First” accounts who failed to maintain an average or combined monthly balance of $1,500 were charged fees of $5 to $14 per month.

• Did not adequately alert consumers to the account conversions: The only indication customers received that their “Free Checking” account had been converted to an “M&T First” account due to account inactivity was that “M&T First” would appear on account documents, such as paper statements.

During the period covered in today’s order, M&T converted approximately 80,000 “Free Checking” accounts to “M&T First” accounts. Of those, about 59,000 were charged account fees because they did not meet the $1,500 threshold required in the “M&T First” accounts. M&T assessed approximately $2.9 million in monthly maintenance fees from these consumers.

Enforcement Action

Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, the CFPB has the authority to take action against institutions violating consumer financial laws, including engaging in unfair, deceptive, or abusive acts or practices. Today’s order covers from Jan. 1, 2009 to Sept. 25, 2012, when M&T stopped the conversions. Among the things the CFPB’s order requires of M&T:

• Refund $2.9 million to consumers: M&T must refund each of the approximately 59,000 affected consumers the sum of all monthly maintenance fees they paid under the “M&T First” accounts. If the consumers have a current checking, savings, or money market account with the bank, they will receive a credit to their account. For closed or inactive accounts, M&T will send a check to the affected consumers or reduce charged-off balances by the amount they were charged in fees.

• Update credit reports: In the cases where M&T closed an account due to a negative balance, M&T will provide updated information to each credit reporting agency to which M&T had previously furnished information.

• End all deceptive advertising: M&T cannot misrepresent, or assist in misrepresenting, that a checking account is free when the terms and conditions of the account impose account activity requirements or when the account will convert to an account with monthly maintenance fees if the account activity requirements are not met.

• Pay a $200,000 fine: M&T will make a $200,000 penalty payment to the CFPB’s Civil Penalty Fund.

Mortgage Banker Compliance – can you afford not to?

Mortgage Banking Regulatory Compliance – you can’t afford not to!

 

Mortgage Banking has evolved, as life seems to, and change demands change.  There was a time when Mortgage Bankers served a vital link between borrower and access to credit that large banks did not serve and Mortgage Brokers could not provide.

 

Mortgage Bankers set up a Sales Department to reach out to borrowers, a Risk Management Department to set interest rates and sell the loans to secondary, an Accounting Department to settle out the financial transactions, a Processing and Underwriting Department to process, underwrite and approve the loans, and of course a Closing Department to work with title companies to close and fund the loans.

 

In 2008, as the sub prime market imploded there was a tremendous shift to mainstream mortgage bankers from sub prime lenders who no longer could access credit on Wall Street.  This intense volume that was also under pressure by borrowers seeking to refinance at lower interest rates, as those begin to tumble downward.

 

In 2009, main stream mortgage bankers and Banks began to realize that the unsavory types had crept into the mortgage world previously occupied by the professional lenders.  All the Tom, Dick’s and Sally’s who put a shingle out and were fleecing borrowers with 120% LTV loans, Neg Amort loans and other predatory types of loans – came running to Bankers and Banks because they could not deal with “change” as they found their mortgage brokers closing in response to Wall Street’s inability to purchase those previously hot loans that came with great rates for investors.

 

As a result of that and the economy, which saw unemployment well above 8% and people were losing jobs everywhere, mortgages began to default left and right.   All of a sudden a lender with a .80% 2-year default or a 1.02% default were seeing defaults rise to 3% and higher.  This caused panic in the mainstream lending environment.

 

No one knew if it was fraud or the economy, but no one cared either way.  They wanted the defaults to stop because big banks who sold loans at a great profit to one another began litigating over whether a loan was improperly underwritten which could then trigger a buy back.  It became an intense case of a hot potato – who had the loan and who was trying to get whom to buy the loan back because it was 30 or 60 days late.

 

In came the US government.  First they put in rules to license and professionalize those individuals in the mortgage world; to weed out the unsavory individuals who had come from the brokers that were doing subprime loans – and many of whom were thieves working with straw borrowers and stealing money by lying on mortgages unknown to banks, bankers and other parties who were severely hurt financially and who’s reputation were negatively hurt by such acts.

 

Then came the many, many underwriting changes that tightened credit access to borrowers.

 

And, in the interim, HUD (who had taken control of Fannie and Freddie) and the new Federal oversight – the Consumer Protection Financial Bureau (CPFB) began to enact laws and regulations that dictated lending.  Those laws and regulations impacted everything from mundane disclosures, timing of said disclosures to what constituted “predatory lending” including “high cost loans” and what was a proper loan – i.e. not lending to those who could not afford a loan, also called the “Ability to Repay” loans under the Qualified Mortgage “QM” theory.

 

These seem rationale and in fact, they are.  However, to comply with these things required an army.  Lenders were scrambling to A. Figure out the new law.  B.  Figure out how it affected them.  C. Figure out how to implement it. C. Figure out who was responsible in the company to make sure that these things were happening.

 

All of a sudden, Mortgage Bankers saw that instead of the five (5) departments outlined in the beginning paragraph, they needed a sixth (6th) department.  An Internal Auditing Department also known as a “Compliance Department” that reviews all the forms and systems and audits select files to insure compliance with hundreds of federal, state, agency, investor and internal credit overlay regulations and guidelines.

 

If this department did not exist a lender faced serious consequences that include:  1.) Buy back of loans from banks who find the loan does not conform to lending requirements and 2).  Serious regulatory retaliation for flouting the rules and regulations of state and federal Regulators.

 

One buy back, one regulatory fine could and does wipe out profits and could result in a company facing serious financial challenges and stresses.  Just ask Bank of America, JP Morgan and others who have paid billions and now have openly questioned the wisdom of lending FHA loans in a move to defend themselves from government regulators.

 

This sixth (6th) department is costly, however.  Typically, it needs to be headed by an attorney who can interpret legal regulations so that those can be implemented by management and the Compliance Department that oversees compliance and internal auditing.

 

Any company putting out a product has someone on board reviewing the quality of the product that is put out to accomplish basically two goals:  1. To get repeat business because the product is of excellent quality.  2. To defend against lawsuits brought against sloppy products or dangerous products that harm a consumer on some level.

 

This is a new concept to Mortgage Bankers who never had to deal with this before.  They view this as a cost of doing business that can’t be passed onto the consumer (pricing doesn’t price in this cost as it has remained flat).  But, regulators require that lenders eliminate mistakes in mortgages and that loans are perfected at point of origination.   In addition, there are reports to managers and internal reviews that must be done and must be produced to an outside audit to show the company is actually doing these things and is on the look out to make sure their products conform to the laws.

 

The bottom line is that these departments are a cost of doing business for a mortgage banker and these departments will bring with them significant costs that Regulators in their “high cost” calculations have pretty much made sure lenders can not “price in” these costs to the consumer to offset them to a net zero effect.

 

In other words, expect to spend a lot of money in this department.

 

Looking at the business it is clear that small and mid-size Mortgage Bankers simply can not afford these departments and simply can not afford not to have these departments.  Many are holding out hoping to remain under the radar of regulators while issues about buy backs get sorted out (can a lender force a loan back because, in reality, it just is not performing and they scoured the file to find one, tiny, small mistake and they called out as “we gotcha, you have to buy this bad loan back now or we will sue you”.   And, do not think for one minute that banks do not do that to Mortgage Bankers.

 

This is not going away.  Lenders need these departments.  This requires lender to either bite the bullet and open, fund and get behind this department – or they need to A. Close  B. Merge or C. Sell to another lender.  Period.

 

According to industry experts, any lender not closing 25 million a MONTH is just not going to be able to afford to comply and in the end – be it in the next few months or the next one to two years, will be forced into A, B or C listed above.

 

Let’s look why lenders under a 20 to 25 monthly million in loans won’t make it:

 

Say you’re lender is closing 12 million a month.  And, it has three to four investors.  In this environment, they already are pressured to give more to one lender to get preferred pricing but fear doing that to alienate lenders 2, 3 and 4 who they need in case lender 1 makes a negative business move.  So, that puts their gov pricing at say 300 to 250 basis points and their conforming say at 250 basis points.

 

Say they are doing 50/50 in business.  So, they are grossing on average 275 basis points.   And their average loan size is around 180,000 dollars, which outside of any growing market in the US is pretty much on target.

 

They are grossing 330,000.00 a month.  LO’s will take $100,000.00 in commissions and costs (base salaries, volume bonus, company FUTA/SUTA/UI costs, benefits, et al)    The remaining 220K now goes to support staff salaries.   If you have 12M a month @ 180K average loan; you’re kicking 67 files out a month.  That requires a minimum of 2 underwriters and 2 processors.  That’s 25K in salaries, bene’s and other employee costs right there.  Now you’re left with 195K to pay for the salaries of the people in accounting, closing, pricing/secondary.   That’s another 40K a month spread out over those people – which is on the low end.  That 195K is now 155K.

 

You need to put 10% of your gross in reserves for buy backs – so that 10% of the original 330K.  So, your 195K is now reduced to 160K.

 

Then there’s rent, leases, phones, copiers, and all the other fixed costs which will run the gamut depending on how many offices and if you’re in a high rent or low rent district.  Most lenders pay out about 50K a month for these services if doing this amount of loans.

 

All of a sudden you’re left with 110K and you still have to pay the receptionists, the owners and you have to save for the annual audits and the attorneys.  Financial audits alone will cost over 50K and attorney retainers run around 70K a year.  That’s 120K a year – or 10K a month.

 

Now you’re at 100K left.  If you’ve invested millions into a business, you expect to make a tad more than the average salaried person as you need to return the investment.  Most owners earn over 180K a month in this area and that reduces the available cash to 85K which seems like a lot – but there are a million things not listed including E&O insurance, general liability, sexual harassment insurance, employee training, previous unpaid costs, and, of course, the costs to appraisers, title companies, Fannie/Freddie, DU/LP, credit reports et al that were not caught or borrowers refused to pay – and do not forget that one mistake on a Good Faith must be paid by the lender.

 

That 85K quickly drops to 10K or less.

 

Which means, there is no cash left to bring on a department at will cost about 120,000.00 USD a years.

 

So, either you up your volume (and increase your costs) or you close, merge or sell – because you can not afford to ignore compliance and adherence to compliance.  And, at this volume, you can not afford to pay for it.

 

Which means that in the next few months and years there will be a migration and Mortgage Bankers who are local or regional will begin merging with bigger players leaving large Mortgage Bankers licensed in 30, 40 or all 50 states and Banks and Credit Unions providing access to credit to borrowers.

 

Just as the days of Mortgage Brokers has come and gone, the days of small and mid sized mortgage bankers are about to end as well faced with the regulatory changes imposed upon bankers as a result of greedy people on wall street selling sub prime loans, greedy loan officers hawking them and con artists who took on roles of loan officers, realtors, attorneys, appraisers and even the average Joe on the street – who stole from lenders; requiring these changes to defend the financial market from a repeat.