Origination News Feature Story

CA Brokers: Here to Help

By Brad Finkelstein

The board of the California Association of Mortgage Brokers (Ed Smith Jr., president; Ken Jones, vice president; John Holmgren, chairman, public relations committee; Mary Harman, chairwoman, community services committee; Ed Craine, treasurer; and Fred Arnold, immediate past president) weighed in on how to help homeowners in trouble, the legislative landscape in their state and the Home Valuation Code of Conduct in a roundtable discussion with Origination News at their annual conference.

BRAD: At your convention two years ago, you announced plans to give assistance to homeowners in trouble. How is that coming along?

MARY: We're still helping consumers a lot. We have been instrumental in stopping several evictions and reversing a trustee sale. (Past president) Jack (Williams) and Smitty (Ed Smith), in fact, were instrumental in the first. They camped out in front of the people's house waiting for the marshal to show up and because they fought that hard to stop the eviction. This was a couple Jack had been working on for over six months ... they turned that trustee sale around and put the house back in the consumer's name and got them a modification.

ED S.: What was ironic about that is that individual was in a wheelchair. He was legally disabled and one of the things that was so amazing is that this guy literally was being readied to be rolled out on the street. We sat out there for hours in anticipation of the marshal to come and we were prepared to do what ever we needed to do to stop the eviction, to keep that guy in his house.

MARY: The trustee sale had already happened. He no longer owned the home. What CAMB did is we stopped him from being evicted from his house and we got the lender to put the house back in his name and provide a modification with affordability. We're still fighting the fight, it's hard because we still have that scarlet letter of being mortgage brokers. We get referrals from elected officials, from HUD and from nonprofits because they can't do them and our success rate is much greater. But we don't have the funds.

BRAD: Standing in front of someone's house to stop an eviction sounds more like something Acorn would do.

MARY: Acorn wasn't there, nobody else was there, just CAMB. Jack was successful in getting the lender in stopping the foreclosure, but the attorney that was representing the lender ... we could not get him to return calls. So we went there to make sure the eviction didn't happen. (The borrower and his wife had sold a lot of personal property, and raised $8,000 to try and get current, but needed to raise $10,000 for the modification and the servicer would only take $10,000). That is how he ended up coming to us, when we were doing our telethon on Channel 10. It was fate. We were in the right place at the right time.

BRAD: We heard at the conference that there are 81 bills under consideration in the state Legislature that could affect the mortgage industry.

KEN: That is really a moving target. At any given day it can be a number that is greater than that. We find quite often there is a little bit of a disconnect between some of the bases of the bills and what we think the ultimate impact will be. So we spend a lot of going back to the authors or the sponsors and we try to discuss the underlying premises and what's going to be accomplished. We spend a great deal of our time educating legislators on these bills. Retrospectively, over the last year, the bills that have become law for the most part have been on the positive said and we have been able to reach pragmatic legislators. Once educated, it seems people make what we think are more consumer-centric decisions.

BRAD: One of the more infamous bills from 2008, AB 1830, which was vetoed by the governor, has been resurrected.

KEN: The bill started out as an extensive predatory lending bill. When it was originally written, it was one of the bills which in CAMB's opinion was a little bit draconian. The intentions were positive, but they tried to sweep up too much too quickly. That bill went through seven iterations, but when the final bill came out, there were still some issues on it. At this point, I was on a conference call (back in July) with Acorn and a person from (assemblyman) Ted Lieu's office and in my opinion they see there are shortcomings. I had a great dialogue with Acorn on some of the issues on the bill. But it doesn't seem like Mr. Lieu will be too flexible at this point. And if that's the case, the same bill was vetoed last year.

BRAD: A bill under consideration would realign the regulatory structure and make a differentiation between mortgage brokers and real estate brokers. Would you like to see this change?

ED S.: We've always pushed for separate licensing. We asked for that because we wanted a higher standard of originator. We see fraud, we see bad actors, but we also see mistakes and those mistakes typically turn into consumer complaints. There is a big difference between when you make an error or an omission vs. when you make a commission (of fraud). If we have a more educated originator, it would raise the level of professionalism. The SAFE Act will level the playing field.

ED C.: For years, we pushed for higher standards, criminal background checks and pretesting before you get a license. I think all of us in this room feel as if what we went through the last few years, while it is bad it still would not been as nearly as bad if we had a higher level of education. So we basically welcome the SAFE Act, we just want to make sure it is implemented in a way where it doesn't take small originators out of the market.

BRAD: Has the Home Valuation Code of Conduct made it difficult for you as brokers to serve your clients?

ED S.: Absolutely. HVCC, in concept, is to restore the faith and integrity in the appraisal process, but the methodology by which they went to do it is so far overreaching it is impediment to business. In California, there is a department that handles appraiser intimidation, the whole nine yards is already illegal. So basically what they are saying is "we don't trust the regulators in all these states to regulate the appraisal industry, so we are going to create HVCC" and (have) the AMCs, which are totally unregulated to regulate the licensed people. I've tried to ask, is there something good about an AMC? Any here hear of a success story?

JOHN: I have to say some of the AMCs seem to be adjusting to give them a little bit of credit. Early on, we had horrible instances where the appraiser came from Fresno to Oakland to appraise a home. I can tell you some stories that aren't bad.

MARY: The ones that aren't bad, you still have the consumer paying twice as much for an appraisal that isn't any better than the one (the broker could) order.

JOHN: You have to order the appraisal the first thing, which means we have to pick our lender the first day. One of the values we add as a broker is we are shopping among lenders. If you have a 60-day close of escrow, we have 30 to 40 days to do that shopping process for the consumer. If you have to order the appraisal the first day to get that process going, in a large shop you have 40 lenders to choose from, you just eliminated 39 of them.

FRED: The two biggest challenges I have had has been the cost to the consumer, it is another $150 to $250 (for an appraisal) and the portability. That is the most unfortunate part of this. In the past when somebody ordered an appraisal and then they wanted to come to me, all I did is pay the appraiser another $100 to have it put in my name, it was legal, and if the appraisal needed to be reviewed again, it could be reviewed. Now, if a customer were to walk in the doors of ABC Mortgage or ABC Bank, then after three weeks and don't get what they need and decide to go to another mortgage company, they have to order a whole new appraisal. Those appraisals are not portable, for several reasons. The main reason being, some lenders are saying, "I won't take that, that might be a tainted appraisal." We used to be assign appraisals all the time. That is one of most unfortunate aspects of this: the consumer loses the complete ability once he orders the appraisal, to switch lenders. I have only lost one deal for value. The other thing, we put tens of thousands of very good, independent appraisers out of business. We eliminated that knowledge pool.

ED S.: The nonportability issue takes away from the very core of being a mortgage broker, which is the ability to shop and for us to act in their best interests. That is what they pay for. We're professional shoppers for mortgage product.

FRED: Forget the brokers, let's just mention the consumer only.

ED C.: The consumer is getting in the shorts at every turn. There is the shopping issue, the portability and the one thing I have noticed in my business is that it adds at least another seven days to the process, and that is optimistic. It is more like 10 or 12, maybe even 15. So now, I have to say to my client, "You have an option here, you can spend an extra half a point or pay a higher rate to get a long enough lock to close this deal or do you want to take the interest rate risk for 15 days? Which would you prefer?"

JOHN: Particularly, since the system, in my opinion, had self-corrected as a result of the elimination of the least responsible lenders in the marketplace. So my feeling is that it is understandable the regulators want to correct a problem. Quite often, the marketplace corrects it before the regulators get around to arriving at a solution, and they develop a solution that is very onerous.

ED S.: The unintended consequence of the concept, is that the consumer is the one that is not benefiting.

MARY: As mortgage brokers, we're tough old birds, we adjust, we figure out how to make it work. The consumer is getting the worse end of it.