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Confessions of a Contract Processor: HERA leaving you Dazed and Confused?

July 29, 2009 by · 3 Comments 

Mary’s True Confessions:

This morning I woke up with the sole intention of wrapping my mind around the new HERA/RegZ requirements that go into effect this Thursday, July 30th (better late than never right!).  I dedicated time to absorb multiple lenders interpretations and their plans for implementation of this process by reading their powerpoint presentations, bulletins and tutorials… all which left me a bit Dazed And Confused!

It appears that each lender has a different interpretation of the law which seems par for the course.  The most daunting part of the process is determining how each lender will view the law when determining a file can go to underwriting; when an appraisal can be ordered and how many days a file has to sit if the loan amount, rate or APR are modified.  Seriously, trying to understand each lenders “take” on these rules would have given Albert Einstein a migrane!  And yes, this law is supposed to result in a better informed borrower and help curb deceptive lending practices by not allowing borrowers to be charged an up front fee including an appraisal fee prior to a waiting period.  Will this end up helping any borrower or will it just add even more days and perhaps a couple extra weeks to the loan closing process? 

Maybe these regulations will not be that big of a deal and perhaps what has my head spinning is a cummulative effect of all of 2009’s set-backs.  Seriously, is this what the industry needs?  Potentially longer turn-times?  

For the purpose of this weeks column I will try to screw my head back on tight and cover just the basics of this new facet of our industry!

Mary Eyler

This Weeks Topic: HERA/REG Z

Industry Grapevine:

Ok- here are the basics of the new HERA rules for your review.  Keep in mind that each lender will have their specific interpretation and guidelines to adhere/add to:

  • Loan Submissions Requirements: Required on all purchases and refinances of primary residences and second homes.  Investment properties not included.


  • Fee Payment and Collection: No fees other than a reasonable credit report fee can be collected upfront until the borrower has received thte Initial Truth In Lending Disclosure.


  • Ordering Appraisals: The appraisal cannot be paid for by borrower until the 4th business day after initial disclosures have been sent.  No Post Dated Checks allowed!  Appraisal can technically be ordered, but no fee can be collected up front.


  • AP Changes: An increase in APR of more than .125% will require re-disclosure of the TIL and GFE at least 3 business days before closing.


  • Waiting Periods for Loan Closings: Initial TIL must be provided at least 7 days before loan can close.  Borrower has 3 days to review appraisal before they can close (some lenders will allow borrower to waive that right). Redisclosure of TIL with any changes adds 3 addl days to closing.

Processor Clue of the Week:

Due to the new rules, the processor and LO need to be partners more than ever before.  They need to be speaking the same language and presenting a united front to the borrower, real estate agent, etc. with regard to timeframes and manage those expectations accordingly.  This means a marked increase in communication between loan officers and processors as well as all parties involved in transaction-especially during the next 30 days.  Setting proper expectation with the customer upfront will save LOTS of time and headaches! For real estate agent partners- a heads up to make sure they are writing contracts with realistic closing dates will be invaluable and possible save future relationships!

 A.E. Lowdown:

With the new HERA requirements, Anne Davis with Walker Jackson, emphasizes that it is important to get your borrowers email addresses to expedite the disclosure process.  According to her company’s interpretation of the law, if you are closing in your name (lender status), an email receipt will serve as proof of disclosure receipt by client.   This means you can order and collect fee from borrower on appraisal the same day email is sent. 

If you are a broker closing in Walker Jackson’s name, they must receive the package first, but can immediately email the disclosures to the borrower if that information is provided.  Otherwise, they must mail the package which kicks in the 3 day wait period.

Oh, and by the way, post dated checks are a “NO NO!”

So to expedite the turntime, it would behoove you to get accurate email addresses on all of your borrowers!  Thanks for the tip Ann!


Penny For Your Thoughts: (Send us your questions and we’ll give you our two cents!):

Mike A. writes: “What is the deadline for me to comply with Red Flag Rules and what all is involved?” 

The deadline for training and implementation is August 1, 2009-this Saturday!  Must have employees trained on fraud detection, written program to detect and respond to potential ID theft and annual updates and review of program.  Let us know if you need help with identifying a provider to help with this service.

Still looking for your Success Stories to Share with our Readers…….I know there is Positive News out there-So Send Them Our Way!

Transparent Brokerage Fees Are An Elephant Slayer

June 7, 2009 by · Leave a Comment 

Transparency in mortgage brokerage is a concept that is well underway.  Mortgage brokers have always been required to disclose both borrower-paid and lender-paid compensation, on the good-faith-estimate and HUD-1 settlement statement, but rarely used disclosure as a selling feature to customers.  Regulators are going to require a negotiated flat-fee agreement and wholesale lenders are proactively implementing that practice today.  Mortgage brokers can beat both to the punch.

There is nothing to fear.

Jack Guttentag pioneered this concept, years back, when he formed the Upfront Mortgage Brokerage Association.  Guttentag, a well-known industry author and former Wharton professor, extended the transparency concept to lenders, as well.  Professor Guttentag’s credibillity was questioned when he proposed a government regulated price-fixing scheme for mortgage brokers (on InmanNews) and his influence waned with the industry.

Jeff Corbett, a self-described radical consumer advocate, demonstrated how his prior-fee negotiation thrived when he owned a mortgage brokerage.  While Jeff ruffled industry feathers, he taught many mortgage brokers that our superior selling proposition to direct lenders is that we don’t hide the origination profit in a loan.  Jeff showed me how mortgage brokers are uniquely suited to become natural “mortgage fiduciaries” to customers.

The issue, as I see it, is that customers never really find out EXACTLY how much a mortgage brokerage makes until the final HUD-1 Settlement Statement is issued.  That post-facto discovery then plants a nagging question, in the back of the consumer’s mind, and becomes an elephant in the room for their next mortgage originator.

Shoot that elephant in the room dead before he breaks all the furniture.

Discuss the difference between wholesale rates and retail rates.  Explain how mortgage brokers get money at wholesale and “mark it up” so that the retail offering is consistent with direct lenders’ offerings.

Explain that ONLY a mortgage broker can act as a “true fiduciary”.  Mortgage brokers negotiate with the “secretive” banks, on behalf of the customer, to secure terms more favorable than the banks would offer that customer directly.  This is actually quite simple if you live near a Bank of America branch.  Take a picture of its lobby sign, displaying the retail mortgage rates, and compare it alongside the Bank of America wholesale rate sheet.  Folks that have a Bank of America checking account actually gasp aloud when they see this variance.

Dollarize your value proposition and explain that it can be paid in points or yield spread premium; offer two or three rate/closing cost schemes. I use Loan Magic’s report for this presentation.

Select the rate/closing cost proposition and lock the rate for the customer, letting him or her see 2-3 wholesale lender rate sheets.  Have the customer sign the rate agreement and the mortgage brokerage fee agreement.   I use my Advisor’s Insight desktop-sharing portal for this and have the customer fax the signed rate lock and brokerage fee agreements on the same day.

The customer knows what your compensation is, understands that it doesn’t add any extra costs to him or her, and (most importantly) is a witness to the process.  That transparency diffuses any future problems that might arise with lock extensions or newly discovered loan level pricing adjustments, in underwriting.  More importantly, your mortgage brokerage fee is never questioned by the customer if the terms are changed in underwriting.

Mortgage brokers should ALWAYS position themselves as customer advocates.  Mortgage bankers continue to lose credibility in the customers’ eyes; let’s use that lost trust against them when we compete.  If we always sit on the same side as the table as the customer, who can be against us?

Well…maybe the banks but that’s a whole different article.