Complaints Surging, Modifications Decreasing As Loan Servicers Snap Up Mortgages From Banks – Consumerist

 

(RAWRS)

(RAWRS)

It’s been a rough few years for homeowners. Since the collapse of a housing bubble in 2008, mortgage-holders have been yanked around every which way by the banks that own their loans. Mega-banks like Wells Fargo and Bank of America have earned their reputations for being impenetrable, hostile bureaucracies to their customers. The industry has done everything from issuing loans that borrowers had no chance of repaying, to “losing” paperwork that distressed borrowers endlessly resend, to foreclosing on borrowers who have actually paid, and even discriminating based on race and gender.

But it’s not just the banks making life harder for homeowners anymore. Loan servicers are buying up more mortgages every day, and borrowers are plagued with just as many problems from these third-party companies as they have been from the big banks.

 

As the New York Times reports, loan servicing companies now own about 17% of the mortgages in the country. While that may not sound like a huge number, these servicing companies held only 3% of mortgages in 2010. That’s an enormous change in a very few years.

 

It’s also a change that’s proving difficult for consumers that need help. It’s hard enough for a borrower to request and receive a loan modification from a big bank; getting one from a servicer, when your loan keeps being handed off among them, can be even harder. By the time you finally have someone agreeing you’ve sent the right paperwork, you might have to do it all over again with yet another company.

 

Borrowers with two huge servicing companies, Ocwen and Nationstar, have particularly low chances of seeing a modification approved for their mortgages. While Bank of America has approved roughly 44% of modifications since 2009, the NYT says, Ocwen has approved just 23% and Nationstar, 22%.

 

Meanwhile, complaints against the servicing companies have been increasing. One couple who won a modification from BoA told the Times that it vanished into thin air when Nationstar took over managing their mortgage a few months later. Another homeowner described to the NYT her experience being bounced among three servicers in less than two years: “I either get conflicting answers or no answer at all.”

 

In January, the Consumer Financial Protection Bureau announced new rules requiring mortgage servicers to provide actual service to customers in need. The deputy director of the CFPB, Steve Antonakes, said at a conference on Wednesday that he was “deeply disappointed by the lack of progress the mortgage servicing industry has made” in helping consumers.

 

“There will be no more shell games where the first servicer says the transfer ended all of its responsibility to consumers and the second servicer says it got a data dump missing critical documents,” Antonakes added, saying that situations where servicers refused to honor loan modifications “would not be tolerated,” and that loan handoffs should be “seamless” for consumers.

 

Rep. Maxine Waters (D-CA), the top Democrat on the House Financial Services Committee, has also urged regulators to extend greater oversight over mortgage servicers.

 

Loan Complaints By Homeowners Rise Once More [New York Times]
Official ‘Deeply Disappointed’ by Mortgage Servicing Problems [Wall Street Journal]

 

How QM Harms Homeowners -House Committee Hearing

Jan 14 2014, 4:14PM

The House Financial Services Committee heard testimony from five persons, almost all representing mortgage lenders, at a hearing today entitled How Prospective and Current Homeowners Will Be Harmed by the CFPB’s Qualified Mortgage Rule.  Given the title of the hearing it is not surprising that four of the five spoke out against the regulations.

Jack Hartings, President and CEO of The Peoples Bank Company and Vice Chairman of the Independent Community Bankers of America told the committee that reform of QM is a key plank of ICBA’s Regulatory Relief Agenda.

Mortgage lending by community banks represents approximately 20 percent of the national mortgage market and is often the only source of mortgage lending in the small communities they serve, he said.  The 20 percent actually understates the significance of their mortgage lending as they make a larger share of their home purchase loans to low-or moderate-income borrowers or borrowers in low- or moderate-income neighborhoods and make a larger share of home purchase loans than loans for other purposes such as refinancing or home improvement.

Hartings said there is question that the QM rule will adversely affect his own bank’s mortgage lending even though it qualifies as a small creditor making fewer than 500 mortgage loans annually and having less than $2 billion in assets.  “Even though my asset size is well below the $2 billion, in 2012 I made 493 mortgage loans.  We believe this threshold is far too low and is not consistent with the asset threshold.”   He later pointed out that such low thresholds could prevent his bank from expanding its lending as the economy recovers.

Non-QM loans will be subject to significant legal risk under the Ability to Repay (ATR) rule and the liability for violations is draconian, he said.   Non-compliance with ATR could also serve as a defense to foreclosure if the loan is deemed not to be a QM loan and small community banks do not have the legal resources to manage this degree of risk. Thus these banks, he said, will not continue to make some of the loans they have made in the past such as low dollar amount loans, balloon payment mortgages, and higher priced mortgage loans.

The full impact of ATR goes beyond QM compliance as banks must still analyze each loan for ATR compliance, a costly and time consumer procedure.  It is necessary to expect that regulators will want to see documentation of the eight ATR underwriting factors and if they are not sufficient the asset could be downgraded and subject to high capital requirements.

Without “small creditor” status, he said, his loans will be subject to a 43 percent debt-to-income limitation, a lower price trigger for “high cost” QM status which carries higher liability risk, and restrictions on balloon loans.  ICBA is urging Congress to raise the loan volume threshold. The problem could be easily addressed by disregarding loans sold into the secondary market in applying the threshold,” Hartings said.

Daniel Weickenand CEO, Orion Federal Credit Union testifying on behalf of The National Association of Federal Credit Unions said that credit unions have always been some of the most highly regulated of all financial institutions, facing restrictions on who they can serve and their ability to raise capital and the Federal Credit Union Act has strict consumer protection rules.  Despite the fact that they were not the cause of the financial crisis, they are still firmly within the regulatory reach of rules promulgated by CFPB.

The impact of this growing compliance burden is evident as the number of credit unions continues to decline, he said, dropping by more than 900 institutions since 2009.  One cause of this decline is the increasing cost and complexity of complying with the ever-increasing onslaught of regulations.  “We remain concerned about the QM standard and that this rule will potentially reduce access to credit and hamper the ability of credit unions to continue to meet their member’s needs,” he said.

A number of mortgage products sought by credit union members and offered by credit unions are non-QM loans and may disappear from the market.  He said a forty-year mortgage loan, a product sought by credit union members in high costs areas, exceeds the maximum loan term for QMs, and because of a problematic definition, a number of credit unions make mortgage loans with points and fees greater than 3% because they can leverage relationships with affiliates to get the best deal for their members.

Because a credit union will not receive any presumption of compliance with the ability-to-repay requirements for a non-QM loan, the least risk to credit unions would be to originate only QM loans.  His own credit union, Weickenand said, has decided to go that route and a recent NAFCU survey revealed that a majority of credit unions will cease or greatly reduce their offerings of non-QMs.

Weickenand said that NAFCU strongly supports bipartisan pieces of legislation in the House (H.R. 1077/ H.R. 3211) to alter the definition of “points and fees” prescribed by the QM standard and an exemption from the QM cap on points and fees: (1) affiliated title charges, (2) double counting of loan officer compensation, (3) escrow charges for taxes and insurance, (4) lender-paid compensation to a correspondent bank, credit union or mortgage brokerage firm, and (5) loan level price adjustments which is an upfront fee that the Enterprises charge to offset loan-specific risk factors such as a borrower’s credit score and the loan-to-value ratio.

Like Hartings, he supports an increase in the exemption’s asset size and 500 mortgage thresholds.  He said many credit unions are approaching one or both thresholds which will render the small lender exemption moot for them.

The Association also believes that all mortgages held in portfolio should be exempt from the QM rule not just small credit unions and would like to be able to continue to offer mortgages of 40 years or less duration as QMs.  NAFCU also supports Congress directing the CFPB to revise aspects of the ‘ability-to-repay’ rule that dictates a consumer have a total debt-to-income (DTI) ratio of 43 percent or less which will prevent otherwise healthy borrowers from obtaining mortgage loans and will have a particularly serious  impact in rural and underserved  areas where consumers  have  a limited number of options.

Bill Emerson, CEO of Quicken Loans and Vice Chairman of the Mortgage Bankers Association spoke on behalf of the trade group, starting his testimony by saying, “I can tell you categorically that Quicken Loans, like the overwhelming majority of lenders, will not lend outside the boundaries of QM. In fact, even if we wanted to, we wouldn’t be able to make non-QM loans because there is no discernible secondary market for them. The only place these loans can be kept is on a bank’s balance sheet.”

“Beyond that, the liability for originating non-QM is simply too great. Claimants can sue for actual and statutory damages, as well as a refund of their finance charges and attorney’s fees, and there is no statute of limitations in foreclosure claims. By MBA’s calculations, protracted litigation for an average loan can exceed the cost of the loan itself.

Given this uncertainty, at least for the foreseeable future he said non-QM lending is likely to be limited to three categories; loans where there are unintended mistakes, higher balance and non-traditional loans to wealthier borrowers, and loans made by a few lenders to riskier borrowers, but at significantly higher rates. He said the rate sheets he had seen suggest borrowers could pay an interest rate of 9-10 percent for non-QM loans.

Emerson said it remains very important to make adjustments to the QM rule. “The CFPB (Consumer Financial Protection Bureau) deserves enormous credit for working with all stakeholders, lenders and consumer groups alike, and fashioning a rule we think is a substantial improvement over Dodd-Frank. We are also grateful the Bureau is open to making additional revisions in the near future.”

There is a major problem with the 3 percent cap on points and fees for QM eligibility.  Because so many origination costs are fixed, a lot of smaller loans, particularly in the $100,000 to $150,000 range, will trip the 3 percent cap and fall outside the QM definition, pricing consumers, especially first-time homebuyers and families living in rural and underserved areas, out of the market.

“Additionally, the final rule picks winners and losers between affiliated and unaffiliated settlement service providers, even though their fees are subject to identical regulation. At Quicken Loans, we have chosen to affiliate with title and other service providers to ensure our customers have the best loan experience and that there are no surprises at the closing table.”  His company, he said, has won awards because its affiliated arrangements have led to a smooth closing process.

Emerson said the MBA urges the House to promptly pass H.R. 3211, the Mortgage Choice Act.

Michael D. Calhoun, President of the Center for Responsible Lending was the only one of the five presenting testimony in favor of the CFPB’s rules.  Calhoun said those rules strike the right balance of providing borrower protections while also ensuring access to credit.

The QM rule covers 95 percent of current originations according to Moody Analytics he said that this broad coverage is because CFPB established four different pathways for a mortgage to gain QM status. The first uses a 43 percent back-end debt-to-income ratio. A second is based on eligibility for purchase by Fannie Mae and Freddie Mac and a third is specifically crafted for small creditors holding loans in portfolio. Lastly, there is a pathway for balloon loans as well. This multi-faceted approach will maintain access to affordable credit for borrowers.

“This broad definition is key for borrowers, including borrowers of color who represent 70% of the net household growth through 2023.  The broad definition means that borrowers will not be boxed out of getting a home loan and will also benefit from the protections that come with a Qualified Mortgage.  In addition, several lenders have said they will originate mortgages that do not meet QM requirements, holding them in their own portfolios.  Calhoun said he expects this will only grow over time.

As a whole, these rules continue the CFPB’s approach of expanding access to credit while ensuring that loans are sustainable for the borrower, the lender and the overall economy, Calhoun said.

Also testifying was Frank Spencer, President and CEP of Habitat for Humanity’s Charlotte, North Carolina Chapter.  Spencer was primarily asking for relief from QM and ATR requirements for his organization which currently services approximately 780 mortgages.  Spencer said that despite the fact that the mortgages are non-interest bearing and that most of the chapters that originate them fall far below the thresholds of QM, some of the charity’s operations trigger the requirements and present significant liability for its officers and community partners.

Fannie Mae: Technology has Role to Fill in Mortgage Shopping Experience

Fannie Mae: Technology has Role to Fill in Mortgage Shopping Experience

Jan 2 2014, 12:20PM

A recent study by Fannie Mae found some distinct differences in the ways higher income earners look for a mortgage compared to lower income earners.  Steve Deggendorf, Fannie Mae’s Director of Business Strategy looked at the shopping behaviors of the two groups through the company’s regular National Housing Survey during the second quarter of 2013.

Deggendorf not only found distinct differences in the shopping behaviors of higher and lower income mortgage borrowers but also found opportunities for online tools that could improve the ability of all borrowers to shop for a mortgage.  Careful shopping, he says, “could help mortgage borrowers obtain better outcomes, including lower costs, fewer surprises at the loan closing table, and higher long-term satisfaction with their choices.”

The study defined the two income groups as those with family incomes below $50,000 and those above $100,000 and found that in general the higher income borrowers were more likely to rely on their own mortgage calculations and use of tools to assess how and how much to borrow.  They were also more likely to pick a lender based on its competitiveness.  The lower income group was more likely to rely on real estate agents, mortgage lenders, family, and friends for advice and recommendations.  In addition the higher income group more often said that a better ability to compare multiple loan offers would make shopping easier while the lower income respondents wanted earlier to understand loan terms and costs.

The higher income group tended to use online shopping about twice as much as the lower income group however all groups would like to increase their usage indicating that the Internet will likely play a growing role for all borrowers and that there is a need for shopping enhancements.

 

 

The study found that those who have obtained a mortgage in the last three years were more likely to have used technology in their mortgage shopping than borrowers from an earlier period.  Deggendorf said this could be partially explained by the growing use of on-line tools in general but also by recent borrowers having higher income and education levels than earlier ones.

 

 

Despite a general increase in the use of mobile technology (tablets and smart phones) respondents said they tended to rely on their personal computers when shopping for financial products and were also likely to continue to do so.   Respondents also indicated that social media would probably continue to play a small role in mortgage shopping as is currently the case.

Deggendorf says many researchers have observed that the use of online research and mobile tools enable consumers to obtain product reviews and compare prices both at home in in stores.  He says that only time will tell what inroads enhanced technology tools allow us to make in improving outcomes for more complex activities such as mortgage shopping.  They could, for example, offer real-time information and education where and when needed such as when house-hunting or sitting face-to-face with a lender.  “Enhanced online tools, especially given the aspiration to use them much more often in the future, could help consumers of all incomes to become better mortgage shoppers and achieve better outcomes by addressing the issues they think will make the process easier, such as enhancing their understanding of mortgage terms and costs and their ability to make simultaneous comparisons of loan terms from multiple lenders.”