200 Club Webinar

Dr. Lesli McCollum Gooch, Potomac Partners DC

Fred Kreger, CMC - CAMP Vice-President of Government Affairs

2

The New Policy Environment 112th Congress

Congress

House of Representatives (242R, 193D)

• Financial Services Committee

• Chairman Spencer Bachus (R-AL)

• Ranking Member Barney Frank (D-MA)

Senate (51D, 47R, 2I)

• Banking Committee

• Chairman Tim Johnson (D-SD)

• Ranking Member Richard Shelby (R-AL)

3

112th Congress Opportunities to Make a Difference

New Policy Environment = New Congressional Agenda

Dodd-Frank Act

• Corrections bill

• Oversight of Implementation

• Appraisal Independence

• RESPA/TILA Form Merger

• Creation of CFPB

GSE Reform

Oversight and Review of Foreclosure Mitigation Programs

FHA Reform

Mortgage Interest Deduction

4

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Goal - Do Not Price-Fix Origination Fees

• Problem: The Dodd-Frank Act prohibits mortgage

originator compensation that varies based on the terms of the loan (other than the amount of the principal).

• Solution: Amend the Dodd-Frank Act to ensure regulations do not require fixed loan origination prices.

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points – Do Not Price Fix Origination Fees

• We are concerned that the language will be interpreted by regulators as requiring a standard fee for all loans, where a mortgage originator would be required to determine either a “flat fee” or a fixed percentage that would be both the maximum and minimum the law would allow him or her to earn for their efforts.

• A flat fee would lead to consequences that would hurt the most vulnerable in our housing system: those buying entry level homes and requesting small loans.

• A fixed percentage would result in those receiving higher loan amounts paying an excessive premium.

• Mortgage originators must have enough flexibility to be responsive to the uniqueness of each transaction.

5

6

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Goal - Preserve Consumer Options for Payment of Origination Fees

•Problem: The Federal Reserve rule on loan originator compensation and the Dodd-Frank Act each prohibit the financing of loan originator compensation if loan originators concurrently receive origination fees from the borrower.

•Solution: Include language in the Dodd-Frank Act “corrections” legislation to allow the payment of origination fees up front and through the interest rate as long as all such fees were fully and clearly disclosed and agreed to by the consumer earlier in the application process as defined in TILA and do not increase based on changes in the terms of the individual loan or the consumer‟s decision about whether to finance such fees or charges.

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points – Preserve Consumer Options for Payment of Origination Fees

• The Fed Rule and the Dodd-Frank Act will create situations where borrowers will have severely limited financing options to meet their needs.

• Language needs to ensure that a borrower has the ability to finance closing costs as they deem appropriate for their individual circumstances (i.e. cash available at closing, length of time planning to remain in home, refinance, etc.)

• Congress should preserve the borrowers‟ ability to choose low-cost and zero-point financing for their homes by financing fees and/or costs into the rate or loan amount, while protecting consumers from hidden charges or abuse.

7

8

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Goal - Ability to Repay and Safe Harbor Provisions Must Protect Borrower Options

•Problem: The Dodd-Frank Act‟s “ability to repay” language is intended to ensure creditors follow certain underwriting guidelines when making mortgage loans. The language offers a safe harbor which, when conditions are met, grants a presumption to the creditor that these guidelines have been met. Among the conditions are maximum fee bars; if the total fees (as defined by Section 103(aa)(4) of TILA) collected exceed the bar of 3%, the presumption will not be offered.

•Solution: Within the Dodd-Frank Act “corrections” legislation, remove or increase the fee cap language or change what is included in the points and fees calculation to protect small loan amounts and consumers seeking non-government financing.

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points – Ability to Repay and Safe Harbor Provisions Must Protect Borrower Options

• The fee cap will harm consumers by promoting higher rate steering, reduce competition between delivery channels, and have a negative impact on lower loan amounts.

• A 3% cap will harm consumers by reducing competition between brokers and creditors, since brokers are required to include all origination paid to the company in the 3% cap while creditors are only required to include compensation paid to their loan originator.

• On smaller loans, brokers would exceed the 3%, while creditors could use the invisible “gain on sale” to retain the safe harbor.

9

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points cont. – Ability to Repay and Safe Harbor Provisions Must Protect Borrower Options

• If creditors choose to refuse to lend without the presumption, brokers will be left with a major void in their ability to compete.

• Consumers seeking conventional financing with loan amounts below $200,000 could easily be shut out of the marketplace, unable to obtain financing.

• A better consumer result would be achieved by focusing on more appropriate ways to prove ability to repay than the fee caps. The more thorough underwriting standards required by this legislation are key. Ability to repay is better reflected by actual borrower documentation than fee caps.

10

11

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Goal - Ensure the Dodd-Frank Act’s Liability Provisions Are Fair and Do Not Invite Abuse

•Problem: The liability provisions for mortgage originators in the Dodd-Frank Act are overly broad, making mortgage originators liable for acts they have no control over.

•Solution: Clarify the language in Section 1404 to ensure fairness to mortgage originators and to prevent frivolous lawsuits.

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points – Ensure the Dodd-Frank Act’s Liability Provisions Are Fair and Do Not Invite Abuse

Attorney‟s Fees

• The Dodd-Frank Act only allows attorney fees to be paid to prevailing consumer plaintiffs but not to prevailing mortgage originator defendants.

• To ensure the legitimate foundation of lawsuits brought under this clause, attorney‟s fees should be available to both parties should they prevail.

12

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points cont. – Ensure the Dodd-Frank Act’s Liability Provisions Are Fair and Do Not Invite

Abuse

Damages

• The Dodd-Frank Act makes a loan originator liable for every act performed by a creditor that is regulated by Section 129B of Truth in Lending.

• The mortgage broker, who by contract is not an agent of the lender, and who has no underwriting authority or rights, including the authority to decline on behalf of the lender, would become responsible for the lender‟s credit decisions.

• Making a mortgage originator liable for underwriting decisions that must be made by another party or a different company (as is the case with a mortgage broker) is patently unfair.

13

14

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Goal – Allow Mortgage Professionals to Order Appraisals

•Problem: The Dodd-Frank Act includes language directing the Federal Reserve Board to prescribe interim final regulations on appraisal independence to replace the Home Valuation Code of Conduct (HVCC). The Interim Final Regulations, released on October 18, 2010, define acts or practices that violate appraisal independence for all individuals involved in the mortgage process.

•While the Fed‟s Rule allows mortgage professionals to order appraisals, Fannie Mae and Freddie Mac‟s guidelines still prohibit mortgage professionals from ordering appraisals.

•Solution: Require Fannie Mae and Freddie Mac to follow the Fed‟s appraisal independence Rule and allow mortgage professionals to order appraisals.

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points – Allow Mortgage Professionals

to Order Appraisals

• The Dodd-Frank Act repealed the HVCC and directed the Federal Reserve Board to prohibit improper influence on appraisers and ensure appraisal independence through regulation.

• In its Interim Final Rule, the Fed equally applied appraisal standards to all involved in the real estate transaction without favoring one origination channel over another.

• Fannie Mae and Freddie Mac should follow the Fed‟s appraisal standard and allow mortgage professionals to order appraisals.

15

16

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Goal – Allow for Appraisal Portability

•Problem: The Dodd-Frank Act includes language directing the regulators to come up with standards regarding appraisal portability. Such appraisal portability standards have not yet been promulgated.

•Solution: Pursuant to the Dodd-Frank Act, the Federal Reserve should move forward with regulations allowing for the portability of appraisal reports.

Dodd-Frank Act Corrections – Opportunity to Weigh-In

Key Points – Allow for Appraisal Portability

• Regulators should allow for the portability of appraisal reports.

• Appraisal portability allows an appraisal to be used across lenders, so homebuyers can shop for the best loan without paying for additional appraisals.

• Regulators should direct lenders to accept appraisals that meet industry standards, even if ordered by another lender.

17

18

Dodd-Frank Act – Implementation Mortgage Disclosure

Opportunity to Weigh In

with Dept. of Treasury and Elizabeth Warren

Provide Views About How Merged Form Should Look:

• Level Playing Field for All Originators

• Reduce Current Consumer Confusion

• Improve Clarity So Consumers Can Make Informed Decisions

• Consumer Testing to Avoid Unintended Consequences

• Opportunity for Corrections

• Ensure Forms Do Not Add Costs for Consumers

• Ensure Forms Do Not Slow the Process

Opportunity to Weigh In

with Fed on Appraisal Rule

Comments about Fed Interim Rule:

• Allow mortgage brokers to order appraisals.

• Add NMLS numbers and ‘Certification by Originator’ to the appraisal.

• Only allow consumers to be charged bona fide appraisal fees that can be substantiated. Require disclosure of such fees.

• Prohibit anyone from profiting from the appraisal process outside of the appraiser, including commissions for ordering appraisals.

• Allow for appraisal portability.

19

Dodd-Frank Act – Implementation HVCC Repeal

Opportunity to Weigh In

with Fed on Appraisal Rule

Comment Deadline: December 27, 2010.

Include Docket Number R-1394and RIN No. AD-7100-56 in the subject line of message.

• Email: regs.comments@federalreserve.gov

• eRulemaking Portal: www.regulations.gov

• Agency Website: www.federalreserve.gov

• Fax (202) 452-3819 or (202) 452-3102

20

Dodd-Frank Act – Implementation HVCC Repeal

21

Final Rule released on August 16, 2010 Implementation Date: April 1, 2011 Requirements: • Pre-Agreement Between Loan Originator and Party Who Pays

Them

• Agreement Must Contain a Compensation Formula

• Does Not Apply When Consumer Pays Compensation to Brokers only.

• Cannot Receive Compensation from Consumer and Any Other Source

Fed Rule on Loan Originator Compensation

• Three Prohibitions

• Prohibits payments to the loan originator that are based on the loan’s interest rate or other loan terms or conditions.

• Prohibits a mortgage broker or loan officer from receiving payments directly from a consumer while also receiving compensation from the creditor or another person. However, YSP may be used to pay 3rd party fees.

• Prohibits a mortgage broker or loan officer from “steering” a consumer to a creditor offering less favorable terms in order to increase the broker’s or loan officer’s compensation. However, there is a safe harbor disclosure.

Fed Rule on Loan Originator Compensation

• Who is the Loan Originator

• A person who for compensation or other monetary gain arranges, negotiates or otherwise obtains an extension of consumer credit

• Includes the creditor only if the creditor does not provide the funds for the transaction at consummation out of the creditor’s own resources, including drawing on a bona fide warehouse line of credit, or out of deposits held by the creditor.

• Includes both loan officer and entity for broker transaction.

• Does not Include entity for retail or mini correspondent transaction.

Fed Rule on Loan Originator Compensation

24

A Loan Originator May Not Steer a Consumer to Fund a Loan Governed by a Compensation Pre-Agreement That Would Generate

Greater Compensation Than Other Available Options

-UNLESS-

Such Loan Is In The Consumer’s Interest

Documents to Prove Compliance or a Presumption of Compliance (Safe Harbor) Must be Maintained for 2 Years

Anti-Steering Provision

• Compensation based on a fixed percentage of the loan amount, with or without a fixed minimum or maximum dollar amount

• Salary or hourly wage paid by the loan originator’s employer that is not tied to a specific loan, even if the loan originator also receives direct compensation from the consumer

• Compensation based on overall loan volume the loan originator delivers to the creditor in a given time period (i.e., total dollar amount of loans or total number of loans originated)

• Compensation based on long term performance of the Loan Originator’s loans.

Fed Rule on Loan Originator Compensation What is Permissible Compensation

• Loan originator compensation may not be based on loan terms or conditions- for example, the interest rate, the annual percentage rate, loan to-value ratio, or the existence of a prepayment penalty.

• A loan originator may not be paid a varying percentage based

on different levels or tiers of loan amounts.

• Loan originator compensation may not be based on a factor that serves as a proxy for a loan term or condition (i.e)

• the consumer’s credit score

• debt-to-income ratio

Fed Rule on Loan Originator Compensation What is NOT Permissible Compensation

27

A Loan Originator is Deemed to Comply with the Anti-Steering Prohibition IF The Consumer is Presented With At Least

Three Loan Options that Provide:

1. Lowest Interest Rate for which the consumer qualifies

2. Lowest Total Dollar Amount for Origination Points, Fees, and Discount Points

3. No Risky Features (Such As a Prepayment Penalty or Negative Amortization or a Balloon Payment in the First Seven Years)

Safe Harbor Definition

28

Safe Harbor Definition

What is the Lowest Rate?

1. For a loan with an initial fixed rate for at least the first five years, use the initial rate in effect at consummation

2. For an adjustable rate loan whose initial rate is not fixed for at least the first five years and whose rate varies based on changes to an index, use the fully-indexed rate in effect at consummation without regard to any initial discount or premium

• Encourage Specific Pre-Agreements: Wholesale lending partners should work out specific agreements for compensation on a broker by broker basis, as different brokers have different business models and expenses.

• Use Base Rate Sheets: If our wholesale partners choose to continue to publish rate sheets, we encourage them to use a standard base rate sheet (similar to what is done currently) and let the individual brokers apply their pre-agreements for compensation from yield spread premium to those base rate and fee scenarios.

Fed Rule on Loan Originator Compensation

Best Practices for Wholesale Lender and Broker Agreements (Under the FRB Loan Officer Compensation regulation)

• Brokers Charging Borrowers: When the borrower pays the Broker’s

origination fees directly though cash, equity or seller credit, allow Brokers to operate independent of any pre-agreements for compensation with their wholesale lending partners.

• Yield Spread Premiums: Additional YSP should be allowed to offset any and all 3rd party fees, whether the Broker is charging origination fees or receiving YSP per their individual pre-agreements for compensation.

• CAMP Safe Harbor Disclosure: All Brokers and Wholesale Lending partners should encourage the use and inclusion in all files the CAMP/Ready Price Safe Harbor disclosure to mitigate any steering litigation.

Fed Rule on Loan Originator Compensation

Best Practices for Wholesale Lender and Broker Agreements (Under the FRB Loan Officer Compensation regulation)

31

We Can Have an Impact!

• “I want to turn it around. I want us to stop getting beat up. The best defense is a good

offense.”

• “Last year was a year of accomplishment as we created and implemented strategies to keep the

broker channel viable. The challenge now is maintaining the energy and funding to do it all

over again.”

-Fred Kreger, CMC

Leave Behind

Will be available later today or tomorrow

• www.thecampsite.org

• www.go2comply.com

32

33

Join the ‘200 Club’

• Exclusive group of individual mortgage professionals from around the country.

• Sole purpose is to educate and advocate to Federal legislators and regulators the true value that mortgage professionals and brokers bring to the table for consumers.

• The 200 Club keeps you informed and provides strategic plans to save our industry!

Together, We CAN Make a Difference! -Get Involved-

34

Policymakers Need to Know How You are Impacted by Their Decisions

Unified Voice through Calls to Action. •Respond to Calls to Action •Urge Colleagues to Respond to the Calls to Action.

Get to know your Congressional Representatives (and their aides) •Make district office visits. •Participate in coordinated industry „Lobby Days.‟ •Attend Member events.

Work with the 200 Club Team •Follow 200 Club Updates to stay informed •Let us know your thoughts: ga@ca-amp.org •Contact Fred Kreger

Together, We CAN Make a Difference! -Get Involved-