Regulators don’t like the unregulated, and in what some would term, “the CFPB inviting more into its boat to be bashed with oars,” it announced it is accepting complaints from consumers encountering problems with loans from online marketplace lenders. “The Bureau is also releasing a consumer bulletin that provides an overview of marketplace lending and outlines tips for consumers who are considering taking out loans from these types of lenders. 

“Millions of consumers take out personal loans online. Marketplace lending-often referred to as ‘peer-to-peer‘ or ‘platform’ lending-is a relatively new kind of online lending. A marketplace lender uses an online interface to connect consumers or businesses seeking to borrow money with investors willing to buy or invest in the loan. Generally, the marketplace lending platform handles all underwriting and customer service interactions with the borrower. Once a loan is originated, the company generally makes arrangements to transfer ownership to the investors while it continues to service the loan.”

The CFPB’s bulletin offered information for consumers who are considering a loan from a marketplace lender, including reminding borrowers that marketplace lenders are required to follow federal and state consumer financial protection laws, a reminder to be careful about refinancing certain types of debt, and tips about applying for loans in general.

And what is lending, or life in general for that matter, without complaints? The CFPB began accepting complaints about consumer financial products as soon as it opened its doors nearly five years ago in July 2011. “Because marketplace lenders offer several types of consumer loans, a consumer submitting a complaint should select among the different complaint categories for products and services that best apply to their situation. For example, a consumer can select products such as ‘mortgage,’ ‘consumer loan,’ or ‘student loan.’ The CFPB forwards complaints to the marketplace lender and works to get a response – generally within 15 days. Consumers are given a tracking number after submitting a complaint and can check the status of their complaint by logging on to the CFPB website. The CFPB expects companies to close all but the most complicated complaints within 60 days.”

Observers were quick to point out that the CFPB’s objectives in taking these actions are questionable since consumers already could complain about marketplace loans using the CFPB’s existing loan categories. A Ballard Spahr publication notes that, “Rather than seeking to provide additional protection to consumers, perhaps the CFPB’s primary objective is to warn marketplace lenders that they are clearly on the CFPB’s radar screen. Indeed, the CFPB’s advice to consumers appears to signal the type of scrutiny marketplace lenders can expect from the CFPB. The CFPB tells consumers to ‘keep in mind that marketplace lending is a young industry and does not have the same history of government supervision and oversight as banks or credit unions. However, marketplace lenders are required to follow the same state and federal laws as other lenders.’  (While the CFPB is not currently taking complaints about business loans, including business loans made by marketplace lenders, it recently indicated that, subject to an assessment of feasibility, it plans to build an infrastructure to intake and analyze small business lending complaints.)”

TRID implementation is still a challenge for some lenders and many LOS systems are not supporting lender expectations. Additionally, some systems are ceasing to make any additional upgrades, no longer supporting self-hosted options, or construction loans, and the list goes on. For these reasons more lenders are looking to make changes to their loan origination software than ever before. This taxing and overwhelming process is time consuming and stressful for any institution; the biggest fear is jumping out of the frying pan and into the fire.

I recently spoke with Lionel Urban, CEO of PCLender and he stated that after confirming that the Loan Origination Software you are considering does in fact meet all of your needs to comply with TRID, there are six questions that every lender should pose during the LOS/Technology due diligence process:  1. Can I test drive the system in a Lender Lab?  2. What does the implementation, pilot and training program consist of?  Does it include setting up required work flow and vendor integrations?  3. What customer, training and ongoing configuration support is included and what are the costs?  4. What responsibility does the vendor have to reduce operating and maintenance costs?  5. Are the above clearly identified in the licensing agreement?  6. Does the vendor have a product road map and do they collaborate with you to ensure it will meet your future needs?

David Tandy, CEO of Gracy Title in Austin, sees some improvement and writes, “I recently spoke to a closer who noted that ‘I’m getting loan docs at least 48 hours in advance on most files, the CD is easier for us (the title company) to work up (as a draft for the lender to get their fees right), the final CD I get from the lender is correct most of the time, buyers are coming to the closing having already studied the CD and do not have as many questions about the CD as they would have about the HUD. The CD is easier to explain to them. The closings are going more smoothly.’

“This type of advance delivery of loan docs and instructions rarely happened in the past. Those lenders that do not step up to have as smooth of process as their competitors will no longer get referrals from Realtors. Realtors are beginning to track the lenders that have put good processes in place. Realtors do not want to write a 45 day contract. They want to write 30 day contracts or less. Particularly in a Hot market like Austin where there are multiple offers and the best offer (shorter closing date with fewer contingencies) wins.” (More from David Saturday!)

We all know that banks are more than happy to sit on their jumbo loans. Why pay someone to securitize them if they’re flush with assets? And why put loans through more TRID scrutiny? But this news from Brandon Ivey caught the eye of several readers. “Two Harbors Investment Invest Corp. plans to issue a $331.95 million jumbo mortgage-backed security, So far this year, just two jumbo deals have been issued, both priced in January. Agate Bay Mortgage Trust 2016-2…Some 37 lenders contributed to the MBS, led by New York Community Bank with a 13.0 percent share and Parkside Lending with a 10.7 percent share. The slowdown in jumbo MBS issuance has been blamed on broad economic factors and the TRID disclosure rule. Execution for the deal remains to be seen, but the jumbo MBS appears to be the first to include mortgages subject to TRID. Fitch Ratings said 43 mortgages in the deal, accounting for 9 percent of the loan count, were subject to TRID. Clayton Services completed due diligence on the loans and found initial compliance exceptions involving TRID on 32 of the mortgages.” So we have a residential MBS where 32 of 43 mortgages reviewed had TRID errors? That’s 75%.

Matt Scully with Bloomberg did a fine job of digging in deeper. “Several compliance discrepancies were found in the prime jumbo mortgage pool backing this week’s Agate Bay

Mortgage Trust RMBS from Two Harbors Investment Corp, including issues of TRID compliance, though rating agencies say the risks have been remedied or are now ‘remote,’ according to a preliminary offering memorandum and presale reports.” [and we can all trust the rating agencies, right? I am sure they will stand by lenders in a class action lawsuit 4 years from now.]

Matt went on. “In 24 cases, representing 4.86% of the mortgage loans by cut-off date aggregate balance, compliance discrepancies were found as a result of a review of the mortgage loans…Compliance with TILA-RESPA Integrated Disclosure Rule (TRID) was an issue in several cases. Examples of issues relating to compliance with TRID include formatting issues with respect to closing disclosure form, inaccurate disclosures in this form, and a form provided via e-mail where there was no prior e-sign consent in originator’s loan files.

There are 43 loans (9% of mortgage pool) that are subject to TRID, Fitch said. “Despite a high initial compliance exception rate for the 43 loans reviewed, Fitch feels the TRID noncompliance risk to investors for this transaction is immaterial due to the low percentage of loans subject to the rule, the low limit on statutory damages and the good-faith efforts to resolve the issues identified.”

“Fitch assumes RMBS investors will only be exposed to statutory damages of $4,000 plus attorney’s fees for claims arising in defense of foreclosure in judicial states when a borrower is already working with an attorney…Borrowers will be unlikely to proactively hire attorneys to seek damages under the rule; thus, the risk of defensive claims in nonjudicial states or affirmative claims in any state is viewed by Fitch as remote…Fitch does not consider actual damages as a potential risk as actual damages are “difficult to prove…Class action lawsuits, due to a relatively low limit on rewards, are also viewed as unlikely.”

Wait! Moody’s weighed in. “We are comfortable with the loans which contained (TRID) exceptions as we did not find them to be material.”

The offering memo noted that, “Clayton determined that the TRID rule compliance issues were cured in accordance with the TRID rule prior to the time the sponsor purchased the mortgage loan. All of these mortgage loans were included in the mortgage pool…non-TRID compliance

Discrepancies included: * Using an H8 form in lieu of an H9 rescission form, missing Maryland counseling notice, exceeding fee tolerance threshold on the HUD-1, finance charges on the final Truth in Lending (TIL) form understated by more than $100 or not providing settlement charge estimates for 10 business days, missing initial TIL form by lender, and Good Faith Estimate summary of terms determined to be inaccurate.” Great job Matt listing these out.

As if capital markets people didn’t have enough to worry about analyzing this new security, rates have continued their volatility. Treasuries rallied sharply Tuesday following the lead from Japanese government bonds, which soared to record highs overnight although agency MBS prices lagged. The buying continued all morning with most coupon securities at one point recovering all of their losses from Friday’s post-February nonfarm payroll report sell-off. Few cared about the poor demand for the $24 billion 3-year Treasury auction.

This morning we’ve already had the MBA’s application numbers from last week. They barely moved, coming in +.2% and 20% higher than a year ago; refis dropped and purchases rose. Coming up are the January figures for Wholesale Inventories – hardly a market mover, and a $20 billion 10-year T-note auction. We closed Tuesday with the 10-year yielding 1.83% and in the early going today we’re at 1.88% with agency MBS prices worse about .125.

Thanks to Adrienne R. for these!

I used to think the brain was the most important organ. Then I thought, look what’s telling me that.

Why can’t you hear a pterodactyl go to the bathroom? Because the “P” is silent.

What time is it when you have to go to the dentist? Tooth-hurtie.

What’s the best part about living in Switzerland? Not sure, but the flag is a big plus.

Atheism is a non-prophet organization

Just went to an emotional wedding. Even the cake was in tiers.

I wrote a song about a tortilla. Well actually, it’s more of a wrap.

I started a band called 999 Megabytes – we haven’t gotten a gig yet.

Jobs and Announcements

For those who are sticking around, Universal American Mortgage Company (UAMC) is seeking an Underwriting Manager for the Pacific Processing Center (covers AZ, NV, CO, CA, OR, and WA) located in Tempe.  The minimum requirements are 10 years in the mortgage industry with at least 5 years of hands on underwriting, 5 years of supervisory experience in the mortgage and lending industry, and both DE and LAPP/SAR Designations.  Please send qualified resumes to Arlene Polifroni. In addition, UAMC would also like to announce the promotion of Laura Escobar to Executive Vice President – congrats! UMAC is a full service mortgage company that has assisted over 300,000 families with their mortgage financing needs.  Part of the Lennar family, UAMC is fully integrated in the home buying process and works closely with Lennar to make closing on a new home seamless.  Lennar is one of the nation’s leading homebuilders since 1954 and currently builds in 19 states and over 40 markets across the country.

Independent mortgage banks appear optimistic about their ability to increase production in 2016. Several are adding new branches in new markets. Among them is Assurance Financial, which is expanding throughout the Southeast and Southwest. Assurance has immediate openings for branch managers and loan officers in Colorado, Arizona, New Mexico, Louisiana, Texas, Mississippi, Alabama, Tennessee, Ohio, Florida, Georgia, Arkansas, North Carolina and South Carolina. To find out more, contact Paul Peters, CMB at 225-239-7948 or visit Assurance Careers.

Lastly a quick congratulations to Mark Daly who has been promoted to Senior Vice President of National Accounts at National MI. Mark has over 30 years of mortgage banking and mortgage insurance experience and has been appointed to lead the national accounts sales team.