I guess since we have standards again, folks are experiencing real mortgage underwriting - perhaps for the first time. That's good but it sure is generating questions. I've had numerous e-mails over the past few weeks and decided to post answer to a few questions here.

In my pre-title life, I was a mortgage underwriter - FHA direct endorsement, VA automatic approval and FNMA/FHLMC. I had the pleasure of managing a couple of high volume retail/wholesale underwriting departments, so when you ask what happens in mortgage underwriting? I'll use my experience to answer that question. I say that because the automated pre-underwriting takes place earlier in the transaction and so when your file "goes to underwriting" it's going to a human being.

The biggest question on everyone's mind is how long will it take?

The actual file review will take about an hour if your case if fairly straight forward and the underwriter has the experience to make decisions on the risks identified in your circumstance.

Most of the time lost "in underwriting" is waiting for your turn at the decision table. When I managed underwriting departments our goal was always to get a file in and out inside of 24 hours. In high volume situations we shot for 48 hours, but the reality is that sometimes the flow of files due to rate fluctuations can be overwhelming and the wait can be days.

Why? Well, human underwriters are highly trained individuals and there aren't many of them, especially these days. Mortgage lenders are recreating and retraining underwriting teams.

So, are there any tips on how to make the process work for you - maybe make your file go through a bit faster? Your job as a borrower is to first have patience. Secondly, provide as much clear concise documentation as you can to demonstrate you have assets, stable income and a credit profile that demonstrates a willingness to repay the debt.

If you fight with your loan officer and complain about having to provide information, your loan offier might be forced to send your file into underwriting without sufficient data to convince the underwriter that you are a good risk or that your circumstances meet the guidelines of the program. So, your file will wait it's turn only to go into suspense or worst yet, be rejected. If that happens, you end up having to provide the data then go back into a waiting line again.

So, be your own best friend, realize that the mortgage underwriting guidelines - while they may seem onerous - are there for a reason - one that you may not understand, however, if you need a mortgage, you've got to play the game. Be honest but be thorough. Help your mortgage lender find in your financial profile a willing and able borrower.

If you can't do that honestly, then wait until you can. Fudging the data is fraud and criminal. If you cannot yet demonstrate stability of income or a willingness to repay debt, then start now and create your new financial future by being a more conservative manager of your money. After a year or two of a new financial profile, you should be able to get through the underwriting process successfully.

Hope that helps and good luck. ;)

While sitting in the borough meeting the other night I noted that the fire departments are getting laptops with software that will give them a heck of alot of information about the structure they are saving, including pictures, floor plans, and I don't remember it all because I was stunned.

It's all part of the overall loss of privacy and liberty in exchange for safety or risk abatement.

How will they glean this information and just how much detail is there?

I am frightfully aware of the data silos compiled by the big title insurance companies who in their vendor management of appraisals, credit reports and title operations glean and compile excruciating detail and store it for sale to government and private marketing enterprise. Lots of this data is compiled off shore in facilities located in India and elsewhere. I've questioned where our rights to privacy start and stop when companies move the data off shore.

It all seems so innocent but shouldn't we have a choice? Borough council chatted about requiring floor plans or drawings anytime someone wants a building permit. The purpose of the requirement would be to add this data to their files for the fire department.

Shouldn't we have a choice?

Hey, folks who support abortion rights do so under the supposed federal right of privacy. If a young girl can choose to have an abortion and not tell her parents because she has a right to privacy, shouldn't we have a right to not give our floor plans to government?

I don't know but it seems to me that there's a whole lot of stuff being forced down our throats in the name of safety and I don't like it.

I don't like it one bit.

and you'd think by now title agents would STOP enabling or colluding to defraud lenders.

You know, younger, inexperienced, or stupid title agents might make the argument that they didn't understand that having two settlement statements was mortgage fraud. Though they'd still be held accountable by authorities, someone might have believed them a year or two ago.

Now, anyone in this business who doesn't know that sending a lender a HUD-1 that does not match up with disbursements is mortgage fraud is an absolute criminal or ignoramus and deserves to at least lose their license.

I had an interesting chat with a real estate agent in New York yesterday. Seems she represented a seller in a transaction which included a seller assist. All went well until the closing. The seller did not attend. The real estate agent also did not attend because the seller was represented by an attorney who said he would attend. Turns out he did not. For some reason no one on the seller side reviewed or approved the HUD-1 prior to closing.

Who signed the HUD-1 for the seller? Get this. The title agent signed for the seller and did so without authority.

The real problem is that the mortgage lender capped the seller assist and rather than contacting all parties to renegotiate the contract, this title agent created and signed a HUD-1 matching the mortgage lender instructions, THEN disbursed funds based on the contract.

WHAT? Yes, the HUD-1 was a total fabrication meant to satisfy the mortgage lender.

THAT, FOLKS IS MORTGAGE FRAUD.

The real estate agent, once she discovered what had happened has been demanding that the title agent either undo the transaction or remit the balance owed to the seller so that funds do match up with the HUD-1.

I suggested that she report the facts to the Attorney General, the FBI, the state insurance department, the mortgage lender and the title underwriting company, oh, and also the Dept. of HUD.

We need to clean our business of title agents who are unable or unwilling to walk the straight and narrow line of fidelity. We need to have ZERO tolerance for bad guys or we won't get this situation in the mortgage market under control.

MORAL OF THE STORY FOR CONSUMERS: Control your transaction. Review the HUD-1 before you close and make certain that the movement of money is correctly shown. There is no such thing as "off HUD" disbursements. Anything paid outside of closing must be disclosed on the HUD-1 as POC so that there is a money trail. Do NOT allow a professional in the transaction to convince you otherwise. To do so is to collude to defraud a mortgage lender. I have no idea if the buyer in this transaction or their real estate agent knew what happened, but even if they did not, they can be held accountable for mortgage fraud.

Dear Mr. Romberger:

I am writing concerning the proposed changes to the TIRBOP rate structure. I do hope my comments will be considered as I did not learn of the rate filing until last week, having received no notice from my title underwriters or PLTA.

I am a licensed title insurance agent. I have over 30 years of experience in the fields of real estate, mortgage lending and title insurance. Prior to starting a title insurance agency in 1991, I had worked for 13 years in mortgage lending including as a FHA direct endorsement underwriter and VA approved underwriter. I managed retail and wholesale lending departments for two large Pittsburgh based savings institutions. I was also responsible for regulatory compliance and assisted in the creation of quality control audit programs. Having to train personnel, manage the ever changing underwriting guidelines and regulatory compliance issues gave me a unique perspective when I entered the title insurance field. My first observations were that title insurance agents don't read guidelines, have no clue, handle lots of money and nobody is watching. Frankly, I was astounded.

I have since realized that state insurance regulators rely mainly on title companies, underwriters, to self police their agents. This would seem logical and probably did work for many years, as a company responsible for the acts of its agents, you would think, would be motivated to maintain quality. I have learned, however, through repeated observations that title companies work hard at maintaining the APPEARANCE of quality in its written procedure manuals and the TIRBOP manual while in reality the day to day business of title insurance largely ignores these standards.

Title companies, it seems to me, took a calculated risk that increased revenues generated by creating more agencies, mostly through affiliated businesses with real estate brokers and mortgage lenders, and generally tossing credible training and underwriting out the window to close and insure more transactions would make up for increases in claims. It was a bad bet. Judgment day has arrived.

I know from first hand experience that the TIRBOP manual is rarely covered in continuing education. The fact that title agents have trouble getting the premium correct and have left title companies exposed to class action law suits and regulatory penalties is NOT because the rules are too hard to understand but rather that title companies do not teach agents or monitor compliance in any way that would be effective.

I sit in continuing education sessions in which I am one of very few paying attention to the instructors. Most people in the room are reading newspapers, novels, working on their computers, texting or talking on their cell phones. It seems to me that CE credits should be worth more than simply showing up. I'm certain you agree, however, know that the instructors in charge of most of these sessions are title company attorneys. They are salesmen for their title company and afraid of enforcing discipline because the people in these classes are their CUSTOMERS or perspective customers.

The solution, if you want to make training meaningful, I think would be to have a moderator charged with enforcing discipline who is in the room. Sounds ridiculous, I know. I've never seen anything like it.

As to the SALE versus NON-SALE rate change, I don't care because other than the PHFA borrowers losing their discount, making the system easier because title agents are ignorant and title companies refuse to teach and monitor, I guess it's sort of revenue neutral and not a big deal.

I do STRONGLY object to the increase of the cost of the Closing Services Letter to $75. Losses covered under the CSL, defalcations and failure of an agent to follow lender instructions, can and should be reduced by legislative changes that introduce quality oversight where none exists.

Defalcations are largely self created losses by title companies who have failed to police and monitor their agents. Once again, because agents are perceived to be referral sources and, hence, customers of title companies, there is an inherent conflict of interest that I believe cannot be surmounted by title companies. I RECOMMEND LEGISLATIVE changes to create rules for the management of title agent escrow accounts including independent annual audits by a CPA. This way you prevent mismanagement of funds and likely defalcations and you do it without the reliance of the title companies and without increased cost to the consumer.

Failure to follow lender instructions - well you might be interested to know that in many cases, the title agent isn't the one receiving or signing the instructions. Many title agents in PA use independent, unlicensed contract closers who received these instructions and make the delivery to the mortgage lender. I am appalled that this system has evolved and RECOMMEND LEGISLATIVE changes to bring the performance of the closing, the actual signing and delivery of documents to the lender, under the umbrella of licensing by creating the requirement that the closer is an employee of the title company or agent.

I do not object to the extension to the consumer of the CSL coverage, however, charging $40 per insured transaction to me is highway robbery unless steps are taken to solve the REAL problems causing these claims.

I read with interest the Attorney General's press release and comments concerning title insurance premiums in PA. I, too, would love to see public hearings and would welcome an opportunity to testify.

Consumers in PA are not well served by the system. I follow the underwriting guidelines and earn the portion of the title insurance premium I retain. I have a full search performed by an expert abstractor. I do my own professional title examination and prepare the title insurance commitment myself. Closings are performed by trained employees. We spend much of our time searching and identifying potential title problems and resolving them prior to the issuance of the title policy. Even after the issuance of the policy, we work hard to resolve title problems that surface before they turn into formal claims, those that show up in the title company reports. We, as a TRADITIONAL title agent, earn every penny in our split of the all inclusive rate.

NON-traditional title agents, on the other hand, are nothing more than referral sources for the title company and, in my opinion, are not performing core services of title agency. These non-traditional agents take a title order and transmit it to the title company who then obtains the abstract and electronically delivers to the agent a fully examined and prepared title insurance commitment. Most of these non-traditional title agents don't even perform the closing or delivery to the mortgage lender, they contract that job out to independent closers, often hired again, by the title company.

If we were to compare only value added to the transaction TRADITIONAL versus NON-traditional title agents, we could argue that consumers are paying for services they are not receiving from NON-traditional agents even if we looked only at promulgated rates, however, if you look at the HUD-1 forms you will find that consumers are being robbed in the OPTIONAL fee category as well.

Take a close look at closing fees and settlement fees and you will find NON-traditional title agents who give the consumer no choice but to use a mobile notary, contract closer and that consumers are paying big bucks for these closers. If the all-inclusive rate would purport to include the services of closing and preparation/copying and stacking of documents to the lender, then how do you view situations in which the consumer has no choice but to use an out of office closer? Are consumers in PA well served by remote title agents who NEVER have the option of closing without paying the extra fees?

If you are looking for a way to give consumers a better deal in PA, I would eliminate or cap optional fees. We can argue over a $40 average increase to the consumer in this rate filing but it seem ludicrous when consumers are routinely charged hundred of dollars over the promulgated rates in optional fees. Title companies don't keep this money and so they aren't talking about it, but it's a major source of income to many title agents and one that flies under the radar. You can fix it.

I welcome an opportunity to discuss title insurance at any time.

Sincerely,
Diane Cipa
General Manager

THE CLOSING SPECIALISTS
204 West Main Street, Ligonier, PA 15658
888-680-5177 x104
724-238-7830 fax

in this article offered for free by RESPAnews.com.

 

I post it here because we need to pass the word.

 

UPDATE:  When I posted this link, the article WAS free, however, it looks like it's only accessible now with a paid subscription.

I just received a memorandum from one of our title underwriters. It’s important info if you are involved in purchase transactions in PA with an assignment of interest or contract. The PA Dept. of Revenue issued an amended rule on transfer tax regulations last December. The effect of that change is just now being fully digested - probably because someone was audited post closing. Yes, our Dept. of Revenue routinely audits transfer tax remittances. We process a few every year.

First, let me say that title insurance does not cover transfer tax so mistakes aren’t a claim issue. I think mortgage originators and title agents all agree, however, that we want happy consumers and that means we want parties to avoid unpleasant post closing audits with payment demands. This is really a big deal because transfer taxes are typically split in PA and post closing, who wants to try to get money from the seller?

Secondly, transfer tax in PA is high. The state charges 1% of the sale price as do most municipalities. Some, like the City of Pittsburgh charge more. In the Burgh, the tax is 3%. So if you have a $200,000 transfer in the City of Pittsburgh, total transfer tax is $8,000.

Now, back to the memo. Let me quote it directly:

“The application of these changes affects transactions where:

1. a relocation company, as the original contract purchaser, assigns its rights to an ultimate purchase but never acquires record title to the property;
2. an individual contract purchaser who assigns his or her rights to an entity, whether or not that entity is owned in whole or in part by the individual.”

So, even though there is only ONE deed being recorded, the Department’s position is that TWO taxable transfers have taken place.

Pass the word, because I expect this to be a hot audit stream and those caught - whether they knowingly avoided the tax or not, will have to pay.

Title agents don’t give tax advice but we have a duty to assist consumers and make certain they pay the appropriate tax or if they choose NOT to, that they understand they do so at their own risk.

First, let's set aside prepayment penalties because they are rare and also because they are unique. If you have a Note that includes a pre-payment penalty, read those terms carefully for any impact on partial pre-payments. Okay, now for your query.

Fixed Rate Mortgages: These mortgages have a level mortgage payment going towards principal and interest. The total remains the same every month, BUT the amount going towards principal versus interest changes as the principal balance is reduced. Here's an example for comparison:

Let's take a $100,000.00 mortgage at 6% for 30 years - $599.55 is the P & I total monthly payment.

You calculate the amount of the payment going to interest by taking the unpaid principal balance times the interest rate and divide that figure by twelve. So, your very first monthly payment will work out like this:

100,000.00 multiplied by .06 divided by 12 = 500.00, so 99.55 is going to principal, see?

So, the next month, if you don't make an extra payment, the new unpaid principal balance is 99,900.45, so let's do the math again.

99,900.45 multiplied by .06 divided by 12 = 499.50, so how do you know how much is going to principal? Take the total P & I payment of $599.55 and subtract $499.50 which leaves $100.05 going to principal. This is how the lender's computer will recalculate your balance every month.

Now, what happens when you add an extra payment towards principal? Let's say you decide to send in an extra $100 in the third month. So, we know the principal balance going into the third month is 99,900.45 less 100.05 = 99,800.40, right?

So, you send in a total monthly payment of $699.55 which includes your normal P & I payment of $599.55 and the extra principal payment of $100.00. Let's figure out how much is owing for interest.

99,800.40 multiplied by .06 divided by 12 = 499.00

$699.55 less $499.00 = $200.55 With this pre-payment you will reduce the principal balance to $99599.85. Are you with me?

Now let's calculate the interest for the next month by taking 99,599.85 multiplied by .06 divided by 12 = 497.99 - that's not a super reduction by this type of reduction builds over time and before you know it, you're really chopping down that principal. If you paid an extra $100 towards principal on this mortgage every month, you'd reduce the remaining number of required payments from 357 to 250. Compare that:

357 multiplied by 599.95 = 214,182.15 versus

250 multiplied by 699.95 = 174,987.50

That's a savings of 39,194.65 and a much earlier mortgage payoff. Anything extra you pay in towards principal will impact the monthly interest cost and create a synergistic savings and early mortgage payoff. I say paying extra towards the principal is money well spent and the eventuality of NOT having a mortgage - or any debt, if possible, is REAL freedom. Yeah, I know that lots of financial analysts will disagree. I'm not about financial analysis. I'm about personal freedom and less butterflies in the belly and sleeping well at night and all that good stuff.

Adjustable Rate Mortgages do work differently with partial prepayments. You will still have the same type of calculations of interest, however, because an ARM readjusts the payment periodically, the payment will not stay level. The payment will reduce and adjust to the original maturity date, so with an ARM, you should still work to pre-pay and pay as much as you can extra, just realize that since the payments are not level, you'll have to re-work figures each time the payment recalculates to make certain you are on track with your planned payoff.

Whether you are planning for retirement or simply craving personal freedom, I highly recommend reducing all debt as quickly as you can. That doesn't mean you should never borrow. It really means that you should use borrowed money or any money, frankly, as a tool but don't let the tool enslave you. Get it?

May 19, 2008

Regulations Division
Office of General Counsel
Department of Housing and Urban Development
451 Seventh St., SW., Room 10276
Washington, D.C. 20410-0001


Re: Real Estate Settlement Procedures Act (RESPA):
Proposed Rule to Simplify and Improve the Process of Obtaining Mortgages and Reduce Consumer Settlement Costs, 08-01015 [FR-5180-P-01; RIN2502-AI61]

To Our Friends at HUD:

I know that sounds cheesy, but I want to express in the strongest possible terms how very much I appreciate the obvious hard work that went into this proposal. I appreciate the lengths to which you tried to balance the impact on our collective industry with the overriding need to create new regulatory consumer protection.

GENERAL COMMENT

A fully informed consumer, having in hand reliable data in user-friendly form, is empowered to make choices that serve his own self-interest and general welfare. I trust the ability of a fully informed consumer to make his own choice. I trust the mechanics of a fair and free marketplace, which is the likely outcome of such full disclosure. To this end, I support the jewel of this proposal; the Uniform Good Faith Estimate tied to HUD-1 enhanced by the addition of the Closing Script.

CLOSING SCRIPT

I have experimented with the forms using real life transactions and found them easy to use and explain. I’ve had members of my staff use the first part of the Closing Script in real closings. [We did not think it fair to use the GFE/HUD comparison, as those rules are not in effect.] Without exception consumers said they found the information easy to understand and helpful. That part of the script took no more than two minutes to read verbatim. We created Word documents and so the completion was quick. Our software includes the flexibility to use merge fields with Word and so if we had desired, even without programmer assistance, we could have made the job even easier.

The script was prepared at the same time as the HUD-1 form. The closers said the script simply replaced similar verbiage they might have used when reviewing the Note and so it added no time to the closing itself. The hardest part seemed to be really reading it verbatim. I insisted that no one ad lib and so we practiced by reading it to one another a couple of times so that it wasn’t awkward at the closing table.

As a manager, I like the script as a training tool and as a safe procedure. I know that the correct words are being used to describe the mortgage terms.

There are some who object to the Closing Script as somehow crossing the line into the unauthorized practice of law. I just don’t see it. The script is meant to be prepared by the Settlement Agent with information provided by the Lender. This is no different than the HUD-1 form that is prepared by the Settlement Agent with information provided by the Lender. The script is designed to be read verbatim which means the reader is not advising or offering an opinion. The script is part of the HUD-1 and unless reading the HUD-1 could be construed as the unauthorized practice of law, I just don’t buy that argument.

There are many who would like the public to believe that notaries who are not employees of the Settlement Agent do not explain documents at a signing. Though there are some who religiously limit their role to obtaining signatures, most offer some explanation. Consumers deserve an explanation that is correct and easy to understand. Frankly, they deserve at least a small explanation and in those cases in which a notary is not saying anything, reading a mandatory script containing reliable information is preferable. So, acknowledging that customs do vary from state to state and region to region, I cannot see any problem having the person who is obtaining the signatures and is sitting in front of the borrower read the script.

Infact, the Mortgage Bankers Association has been working hard with the American Land Title Association to create Uniform Closing Instructions [UCI]. The UCI contain a definition for the party who obtains the signatures and creates certain duties for that individual including the monitoring and reporting of mortgage fraud. The person in the current draft is known as the Closing Employee.

I am encouraged that both the UCI and this RESPA reform proposal create a duty for the closer to the consumer and to the mortgage lender. Afterall, the closer is typically an extension of the title insurance transaction and in that role, with the proposed insured interests being both that of the mortgage lender and the consumer, it makes sense that there exists some sort of fiduciary duties.

The proposed rule is weak in its guidance as to what the parties should do if there is a problem with the terms when the script is read. Do we close or not? Is the consumer given the choice and if they choose to close, what, if any, are the remedies? It seems to me that the burden is on the lender to comply and that it is in their power to review all terms and make corrections prior to the closing. In this case, then the reading of the script is merely the final safety net and NOT the preferred time for lenders to talk with their borrowers. With that in mind, the objections of some, that the burden of the script should rest on the shoulders of the lender and not the closer seems to ignore the reality that mortgage lenders today already carefully monitor the APR and high cost loan calculations and make last minute adjustments to avoid closing a loan that is out of compliance. Why? Because they fear the remedies.

GOOD FAITH ESTIMATE

I have suggestions for improving the Good Faith Estimate [GFE] but first I must say that I applaud the manner in which you have handled the discount versus yield spread and the impact on rate from the perspective of the consumer. I believe consumers will understand the seesaw effect on the rate and make their choices easily. I am pleased that you underplay the matter in the loan origination fee section and focus the attention of the consumer on the bottom line.

I do suggest that you add a summary section for cash to close. This final summary is missing and unless you define its form, the uniformity you hope to give the consumer will be lost. A summary would encapsulate what we might normally see on page one of the HUD-1. Something like sale price less mortgage less hand money less seller assist, etc. equals cash to close.

On the issue of seller assists, if it’s within HUD’s power to instruct, I would suggest that mortgage lenders use a flat credit for a seller assist rather than move buyer fees to the seller side of the HUD-1. I think having buyer fees on the seller side of the HUD-1 under this new system would be too confusing.

I would strongly prefer that the settlement costs in the shopping chart be adjusted so that they do not include estimated escrows, hazard insurance, transfer taxes and recording fees. These items are unique to the property and the date of closing and not the loan originator. It has been my experience that unscrupulous loan originators will lowball escrows to make a GFE more attractive. Perhaps you could call those costs “comparable costs” or something like that.

Finally, on the GFE, recording fees are a moving target that most settlement agents have a hard time figuring even with documents in hand. Setting any kind of tolerance is simply creating a predictable failure on virtually every GFE. There may be some places in this great country wherein a loan originator easily predicts the recording costs but they have to be few and far between.




VOLUME DISCOUNT AND AVERAGE COST PRICING

I will limit my comments on this subject by saying that I laud your intentions as I believe you are hoping for some cost savings for consumers, however, these provisions of the rule are ripe with multiple configurations of unintended consequences. It’s just too obscure. Too much can be read into these parameters and the possibility for harm far outweighs any conceivable benefit for the consuming public. With as much intensity as I can express within this format, I implore you to just strike the ideas, please.

CONCLUSION

As a final note, I must say that should you successfully implement refined versions of the proposed GFE and HUD-1 enhanced by the Closing Script, honest professionals can and will adapt and eventually find them ordinary and comfortable. Predators and those who depend upon obscure and unreliable disclosure to make their credit kill, will be forced to shape up or ship out and you will therefore, whether you planned to or not, help us restore the public trust.

Sincerely,

Diane Cipa
General Manager
The Closing Specialists
204 West Main Street
Ligonier, PA 15658

While RESPRO knocks itself out trying to delay and hoping to kill reform, we have an opportunity, a golden opportunity to separate the good guys from the bad guys in a meaningful and very public demonstration.

Trust me. There's nothing in this reform proposal that good guys can't live with.

Trust me. There's one helluva lot of stuff in this reform proposal that will kill the business of bad guys.

There's a line in the sand and it's called RESPA reform. Choose your side. Support or whine. In this way your true colors will be shown to all.

We're watching.

Can anyone point to an active discussion here?  I've been searching to no avail.  Thanks!