Origination News Feature Story

NAMB's Take on HVCC, Other Challenges

By Lew Sichelman

Participants are the new executive board of the National Association of Mortgage Brokers: Jim Pair, president; Bill Howe, president-elect; Mike D’Alonzo, vice president; Don Frommeyer, treasurer; Penny Fagen, secretary; Marc Savitt, immediate past president; Roy DeLoach, chief executive officer

LEW: Let's talk about the hottest issue of the day, the Home Valuation Code of Conduct. I know NAMB is having a lot of problems with it. Is it because you cannot order appraisals? Or is there more to it? Do you really care who orders the appraisal as long as it is done in a timely manner and as inexpensively as possible?

MARC: Everybody in this room, as well as everybody in this industry, wants to see fraud prevented in every way that we can. This code will do absolutely nothing to prevent fraud. What it does do is causes harm to the consumer and causes harm to the industry. There are other ways to prevent fraud. Taking mortgage brokers out of the equation is really the catalyst of what has created the problem with the implementation of this code. There is a problem with portability, and the (New York) attorney general's office and Fannie and Freddie don't know how to fix the problem of the lack of portability. We've had numerous meetings with the attorney general's office and Fannie and Freddie and we've told them the way to fix this is to allow mortgage brokers back into the ordering process because then you don't have a problem with this. Mortgage brokers, since they've been in this industry, we have been ordering appraisals, the process has worked. There have been instances of influencing of appraisers, but most of the examples they have given have been banks and lenders that have been involved with influencing appraisers.

LEW: Would you care if brokers could not order appraisals?

MARC: We definitely would care about that. First of all, it is destroying our relationship with our customers. It puts us at a competitive disadvantage. It makes us look like we were more expensive. And what happens is you are going to find more people going over to banks or people who are not prohibited from ordering appraisals and what that is going to do, it is going to eliminate competition. When you eliminate competition, prices are going to go up even more.

JIM: One other thing to add on whether we should be involved or not be involved. Most of the AMCs, it seems like, are using appraisers that are not located in the community where the appraisals have been done. You may have an appraiser from out-of-states and he's not using the current comps and he doesn't have access to the current comps. This really affects the valuation of the property, which really hurts the consumer. The broker would like to stay involved so that we can use the local appraisers that know the market.

MIKE: The portability issue is huge. It really takes away from the service to the consumer, because if a lender I order an appraisal through can't do that loan and I want to take it to another lender, most of the time I can't take that appraisal to the other lender and try and get an approval. Therefore the consumer has to pay for another appraisal. It basically raises the cost to consumer tremendously. I think Marc has a figure on what it...

MARC: $2.8 billion and that is not even with the portability issue.

ROY: One thing that we keep skipping over here is the root cause of the problem and a better solution would have been to find the appraisers that committed appraisal fraud and find those that were influenced by Washington Mutual and ban those individuals from ever selling their appraisal products to the GSEs. If you want to change behavior that is the best solution because the root cause of the problem was appraisers committing appraisal fraud. That should have been on the table as a better solution instead of the one that was invented by New York attorney general (Andrew) Cuomo.

BILL: The way I used to do business before HVCC came into effect is I would get approved for a loan, order the appraisal and the people that I was accustomed to working with would get thing scheduled right away because they knew I would guarantee payment on the appraisal. I will give you an example from this week. We found a lender that we do not normally deal with that will do a loan for us under a 620 credit score because it is a VA loan. We order the appraisal on Tuesday. I didn't sign up with this lender and get trained on HVCC the way they want it to operate. So the appraiser said, "As soon as we hang up, I will send you the credit card order form." That was Tuesday. Friday, at 1:00, when I flew out of Phoenix, we still didn't have it. So the service I was able to provide to my customers is gone. It is dependent upon a third party that I have absolutely no control over.

LEW: The Realtors are starting to make a lot of noise in D.C., that their members are complaining that appraisers are taking too long and they are getting too costly. They are petitioning the Hill to enact a moratorium. What do you think the prospects are?

BILL: Nobody's happy in this process except Cuomo.

ROY: What has really been robbed from the consumer by Andrew Cuomo's rule was the ability to get into a home or refinance a home at historic low rates. If you do the math on rates moving from 4.5% to 5.5%, and you take 1% on a house, what that really did was cost tens of thousands of consumers, I don't know what that number is but I bet it is around $60,000, a 1% difference in your rate over the life of an average loan at $250,000. The math of this is coming to bear and that is what is going to break this, the harm to the consumer.

MARC: I want to expand on one thing Roy said before. You take any other profession - mortgage brokers, lenders, real estate agents, anybody else - if they are involved in a fraudulent practice, they'd lose their license. There would be some type of regulatory action. Why is it different for appraisers? They scream and holler they are being influenced and they get a pass. No one should get a pass. If you commit fraud, regardless of what the reason is, you should permanently lose your license.

LEW: Speaking of licenses, how are things under the National Mortgage Licensing System? If we go back to the archives, that was originally your idea.

JIM: Yes it was our idea and we had pushed for it for a number of years. The states are going through the process of enacting legislation that will allow them to comply with the SAFE Act. It will come into play in piecemeal fashion. For all the states to get onboard, it is going to be another year or so.

LEW: Are you pleased with what's out there now?

JIM: Most of it yes. There are some things about the SAFE Act that we would like to have had changed but it is something we can probably live with. We felt like you've been in the industry, you've been licensed, you've gone through the education, you should be grandfathered in. Most of the states have grandfathered in education, those states that had education requirements. Testing, most of states I have heard of have not grandfathered testing, even though the state may have had testing.

BILL: I have been one of the people selected to rewrite the mortgage broker exam for the state. Two of us were selected to participate in a question review for the SAFE Act. I was also selected to participate in the review for the Arizona questions. So I have been through the entire exam I have to take. What are they going to test me on? Why is there no grandfathering? If you start looking at the numbers, it ends up being fee income to CSBS. I think it's a good thing. I think it is going to finally get the bad actors out of the industry.

PENNY: The one thing the originators in Alabama have approached me about is the cost to become licensed. With our industry being as lean as it was last year, a lot of them can't afford it. So what are they going do? Get out of the industry and go work for a bank? They don't want to do that. They're used to being a self-employed originator, setting their hours, dressing the way they want to, originating out of the office or their car or at Burger King. Now they can't do that because they don't have the income required to get that 20 hours education.

LEW: How is business at this time?

PENNY: Better this year than it was last year.

MIKE: Right now we are in a refi boom; rates are up a little bit. The purchase market is still very soft and if the refi market wasn't there, we wouldn't be as happy. I feel that things are turning around a little bit.

JIM: In Texas we're a little better off than in a lot of the other states. I know in our shop, 60% to 70% of our business is still purchase business. We do very few refis. The economy in Texas is a lot better than Arizona and Florida, and knock on wood, we hope it continues that way.

LEW: Is it survival mode for most of your membership?

JIM: Yes, it is.

BILL: I think one of the positive aspects of the SAFE Act, in relation to the question you just asked, is we had a one-day convention in Arizona two weeks ago and we offered an ethics class in conjunction with that. And 140 people attended that class and we picked up 70 new members that day.

DON: Indiana has always been a fairly stable state. There were some brokers that had problems getting licensed and we probably lost 35% of our brokers in the state because of the licensing requirements. But it seems most of the companies doing FHA were not in a survival mode. They were "business was good, not a bad problem." Now to get back to the HVCC, we've always been a 90% FHA and we were starting to get some conventional business and they were taking 30 and 40 days. We are starting to take everything back FHA and forgetting the conventional business. This month we are 98% FHA. We made one conventional loan.

LEW: You lost one state affiliate, Florida, and that was a big state with a lot of members. I understand you have a new chapter?

MARC: We have a new chapter, but we still have all of those individuals that were, I guess in some cases some members of the Florida Association of Mortgage Brokers are still of members of the National Association and it is our understanding that next year when their membership runs out that they will be joining the new association. They have told us that they still want to be members of NAMB regardless of who they're affiliated with state-wise.

LEW: Brokers have taken the brunt of the blame for the mortgage market meltdown and I know you don't think it is deserved at all. You believe that while some mortgage brokers were culpable, there was blame to go up and down the line. Can you speak to that?

MARC: There was a GAO study that was conducted towards the end of 2007 and that study concluded that mortgage brokers were not to blame for the mortgage meltdown. It didn't say that we weren't culpable in some way. What it said was from top to bottom, everybody was culpable for what happened in the housing industry and the mortgage market. Mortgage brokers are originators, mortgage brokers do not develop products, we do not set the guidelines for those products, we don't have a say in the approval of loans for consumers. We're not making the decisions.

LEW: But you have been blamed, at least in part, for guiding people into loans they should not have been in?

MARC: Well, you have to understand, if somebody is qualified ... if there is a loan - especially if it is sanctioned by Fannie or Freddie - and somebody is qualified for that loan, they meet the guidelines of that loan, the consumer wants that loan, you have to originate that loan for that consumer. Otherwise you face other issues, with fair lending laws, possibly discrimination as well. I think we have to go back to the root of the problem. If a program was bad, you have to go back to those that developed the program. They're the ones putting it in the market. I think it is unfair to blame the individual whose selling the product when they didn't develop it.

JIM: Yes, we had some mortgage brokers who steered people into loans they couldn't afford. I think the real blame on that comes from those that were in states that did not have strict licensing laws. Now with the SAFE Act and NMLS, I don't think we will have that sort of problem again.

ROY: The consumer keeps asking, "Is there anything where the mortgage payments are less each month?" The job of the broker is to present those products in front of the consumer, especially if they ask for them. The question really goes back to what Marc was saying. Is it the job of the mortgage broker to hide that program from the consumer? You get on a slippery slope or some thin ice about hiding programs or deciding as the mortgage broker which program you think the consumer shouldn't have. But when the consumer asks the question "are there any other products out there that are cheaper each month?" you kind of have a duty to tell them and let them choose.

LEW: It's harder to get people approved these days. Talk about that for a minute.

BILL: Arizona happens to be one of the five declining markets and I turn down more loans every day that I cannot do than I write. The reason is values are upside down. In some cases when people bought at the absolute top of the market, they're upside down over $200,000.

LEW: What about someone who can afford the house, afford the payment, but doesn't measure on the credit score? Have they tightened down too much? Has the pendulum swung too far the wrong way?

BILL: Yes it has. We got a flier from the Texas FHA office - 640 is now required.

MIKE: With conventional financing, you have pricing bumps now. There are six tiers where it never was that way before. A 740 is a beautiful score, but if you are a 739, you won't get the best rate. If you're a 720 it is going to be that much worse. And if you're a 680, it's going to be an OK rate, but there will be several bumps to it.

DON: I've been doing FHA loans for 30 years and one of the things that FHA always prided itself on was to get somebody in a home. That is one of the reasons they never had credit scores. FHA in the Atlanta division doesn't require a credit score, but you can't get it done with a lender unless they have a 660 or a 680. Somebody might have a 619 credit score and a five-year job but you can't do anything with them.