LET'S CHAT ABOUT REGULATION

  I don't know about you but I don't much like rules - especially rules that seem to have no purpose such as being required to stand behind some arbitrary line at the bureau of motor vehicles when there is no one else there.

  You could starve to death waiting.  In any event, while I have trouble with rules, living without them can become problematic.  Such as what happened with mortgage lending in the years prior to 2008.  We hear a lot about deregulation and letting private industry live or die based upon competition and that it is a good thing.  The years directly preceding October 2008 were a brilliant example of industry deregulation -  in this case mortgage banking and the real estate industry and we all saw how that turned out.

  In response to the Wild West atmosphere that pervaded lending at that time the Federal Government via the Dodd-Frank Financial Reform Act has changed the way mortgages are originated, processed, closed and sold.  Following in close succession were the Consumer Financial Protection Act as well as the establishment of the Consumer Financial Protections Bureau (CFPB) that have changed the lending industry from a very under regulated industry to one of the most highly regulated industries around. I sometimes think the nuclear industry doesn't have to navigate the maze that both consumers and lenders are required to follow to reach the promised land of a closed mortgage loan.

  In order to prepare you for your mortgage process let me lead you through some of the new regulations as they relate to what we as mortgage professionals can and cannot do.

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 This is the situation with regard to our relationship to appraisers.  Our relationship to appraisers is that we order the appraisal and that is it. We don't choose the appraiser either. The reforms have required the formation of Appraisal Management Companies (AMCs) to which appraisers can affiliate. Each lender has one or two AMCs that are used for the appraisal process.  So when we order an appraisal we order it from the AMC that is affiliated with whichever lender we are using for the mortgage. That is the extent of our involvement in the process. We aren't necessarily told (though some notify us) when the appointment is made. When the appraisal is complete we are sent a copy. If the appraisal is low, there is an appeal process however, in the instances I have been involved with no changes have been made. The lender does have the latitude to accept the appraisal  or ask for more complete information if the underwriter doesn't feel the report supports the value. Typically I see this happen when the underwriter thinks the value may be too high with regard to the information given-not the other way around.

 The upshot of this is that when a low appraisal comes back to us we cannot call the appraiser to question them on the report. Sometimes one of the real estate agents involved can obtain some answers but as far as the legalities go-the lender has no input in the matter and in fact, it is illegal for us to speak directly with the appraiser.

 

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  How many times in your life have you been upset with the service you were getting, a mistake has been made or some situation that began well ended badly and when you complained to management you were offered a discount, a gift card, a free meal or some financial inducement aimed at alleviating your irritation?  Probably more than once. (I had a two week stretch of particularly bad service, errors, etc. that as a result of my whining resulted in $100 in gift cards to placate me and get me to come back and do business.)  However, all the complaining, foot stamping, name calling, and threats will not get you a discount or help with the fees on your mortgage loan.  Why? Well, because it is just   that's all.

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  And because paying any part of  a borrower's lending fees is not approved of by the Federal Government we don't want to get sidewise with the G-men because the penalties are severe.   That would be large fines as well as the J word.

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  Yup-we have the potential to become jail birds and I can tell you with no hesitation that orange jail jammies do not look good on me. The orange clashes with my eyes.  Many people don't believe me when I say that, including some real estate professionals but it is a violation of the Real Estate Settlement and Procedures Act.  (Google that one up if you have trouble sleeping tonight.)

  Also illegal is collecting fees when I take a loan application with the exception of the credit report fee.

  And yet another illegal act is money crossing the palm for referral fees. So let's say I have a former client who knows a lot of people. And he wants to refer those people to me or my company but he wants me to pay him a portion of the commission for the names of those people.  We can't do that. We can't do that for our real estate partners and we can't do that for another lender, say if Bank XYZ refers someone and wants a piece of the action for that referral.  We can't own a portion of a credit reporting bureau that we use, or an insurance company. All of these things were allowed before the regulation that came after the 2008 real estate crash.

  The upshot is that sometimes the new rules make obtaining a mortgage loan take longer, require a higher standard of proof of ability to repay on the part of the borrower, or cost more, but that is the lay of the land these days and it is unlikely that it is going to change anytime soon.

  Remember these new laws were put into place to rein in a complex industry that is difficult for most consumers to understand. In reality the recognition by the Federal Government is that borrowers are dependent on their lenders to deal from the top of the deck.  So while these new laws do complicate things for consumers, the reason they are in place is to protect consumers.  And that, it is a good thing.

 

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