[Alice] Dave Kittle isn’t with us today. He is on a plane, so we miss you today, Dave. I’m gonna jump right in with my legislative update. First of all, one of the things as you heard on the MBA news link that they did bring up about the extension Of the appraisal, the uniform appraisal data set, the 2.6 report. So for those of you who aren’t familiar with what is going on, we are getting a very major revision to our appraisal data set and the appraisal forms, and that was due to go into effect here very soon. There’s now been given an extension for this. Now, consumers won’t feel this on the front end at all. This is purely a back-end process. It doesn’t change how homes are appraised. It just changes the form and the data set, the way that’s going to be delivered to the lenders, and then the lenders have to have all this technology in place to make sure they’re running it through the automated systems correctly and, of course, then delivering it to the agencies. Now, some lenders are ready but those who are not need to actually go in let Fannie Mae know that they’re not ready, let Fannie and Freddie know where they are in their process. Actually tell them how you’re going to commit to getting to final implementation with this new process. So it’s really just an extension till February 28th. Matt was mentioning the extension up till May, but February 28th is the drop dead date for getting rep and warrant relief on those runs out of the collateral underwriting systems. And then at that point then, lenders have an, a couple more months from there. You won’t get the rep and warrant relief if you’re still using the old version but at least you can continue to use it. Maybe you’re at least running parallel by then so that you can turn around and be fully operational by the May 19th May 20th date then at this point. So please make sure you reach out to your reps and get that going. It’s a very big technology lift for lenders behind the scenes. Allen, did you wanna add anything about the appraisal UAD implementation for our listeners?
[Allen] Yeah, I had it in my notes today. You really covered it Alice. The, the biggest thing right now really is just that you still have to be ready. I think a lot of people were saying, “Oh, they’re gonna extend it. Don’t worry about it.” But the, reality is, yeah, they extended it but like you said, y- you must make a request and the exception has to be documented and there has to be an implementation plan connected to the request for the exception. I think a lot of people are ready just to piggyback on top of what you said, Alice, you gotta have a plan, and that’s what they’re saying, is tell us why and tell us what the plan is to get around it. And there’s no documentation or anything saying they’re gonna give you the full length of the exception period. I don’t know what they’re gonna do. They may say, “Oh, you only need six months.” I’m just guessing, folks. I’m not suggesting that’s what they’re gonna say. But be ready, put the plan together. And we talk about this all the time- If you don’t have staff that can do this, or you’ve hired people that don’t know what to do, there’s a lot of people that can help you, including the agency. So make the phone call. Don’t be afraid to pick up the phone
[Allen] I love that. That’s great tip. Thanks, Alan. All right, the other thing I wanted to bring up in my segment was home equity investment products. This has made a little bit more of the news lately. And, for those of us who like to talk about the ’80s more often than maybe people wanna hear about, but I remember GEM mortgages. Remember growing equity mortgages? It was a product we never thought would ever come back. Now we have a product that’s playing a little similar game these home equity investment products because they’re not using the word loan, they don’t use the word borrowers. These products have been around now for a couple of years, where a homeowner who is approached to be able to take out a large lump sum of equity from their home. And from that large sum of equity, they are not required to pay interest. It’s a balloon payment, essentially, at an agreed-upon term, pro- about 10, 15 years. There is some out there that may be longer, but, usually about 10 years. And then upfront, the homeowner is agreeing to share a portion of the equity with this entity. Some percentages that I’ve seen are quite substantial could be in the teens and in the 20% range of your equity, or… the products are complex, and there have been some suits out there, I’m not gonna name company names, but suits out there where consumers are crying foul similar to what we saw back in the days of subprime mortgages where they really didn’t understand the complexity and the amount that would be due, and then of course going into foreclosure. The risks are so much greater at that point. And so you’ll see comparisons out there about this product to reverse mortgages for someone who wants to take out their equity. And I think the product to me represents a lot of risk. It is a shared equity mortgage essentially, and I’m a believer in that these really should be following the same rules, and people should be getting disclosures, and this industry does need some regulation. It does sound like they’re looking for it. They wanna be able to follow in their lane with some regulations, but this really needs some attention. So it’s really a heads-up to folks out there that this product is– seems to be getting some steam has some more litigation around it, and we wanna make sure that consumers are aware of it, that you’ve gotta read the fine print. And always talk to a first mortgage lender to see if that math actually works out better for you. So I’m gonna ask Marc Helm for his thoughts on this, and I’ll– then I’ll come to you, Bill. Marc, we talked about this a little bit before the show. Do you have a couple minutes to share your thoughts on this with our listeners?
[Marc] I sure do, Alice. And I wanna point out one thing here. I’ve turned into a consumer advocate in my elderly days, and it played right into this today when Alice brought this up before the call because I’ve been getting numerous calls myself on my phone about loans. And I don’t have a mortgage on any of my homes, but I keep getting these calls, and I’ve been ignoring them. And all of a sudden, I said, I’m gonna figure out what’s going on here,” because I’m getting, four or five of these things every day. And so I got on the phone and found out, and there’s two different products out there. One kind of mirrors what Alice just talked about, and this equity participation type product. And the other one is just a boondoggle to get as much of your information as they can. They already have your name and your phone number and go down the road. So I’m gonna advise everybody right now, be real careful who you talk to on the phone and what you give them information on. But I think this product that we’re talking about, we did have that growing equity mortgage, that GEM they used to call it. And it, never hit off like it should. Most of the lenders at that time were money organizers and insurance companies that were loaning those products back then ’cause they had a bunch of money, and they were looking into the long-term haul. Now, I think it’s with the term being so quick a term on it and what I’m hearing, the 10 years, et cetera, it looks like somebody’s get– trying to hit a home run there. But what people don’t realize is it’s still a mortgage on your home. They can still execute against your home. And if they go after people that they can get real easy by doing a records check of which houses have mortgages and all that don’t have a mortgage, they can end up in a first position on those things. So it’s a fairly lucrative thing for them to do. And if somebody doesn’t pay them within the 10 years, woe is them because they’re gonna lose their house. So potentially lose their house. So I think we gotta be very careful on that. But I think it was built from what Alice has said. They built it to use the words the right way so they don’t fall under standard mortgage lending regulations, and they can do things outside the box. And regulations were built for a reason. Sometimes I feel like we’re over-regulated, but there are many good regulations out there to protect the consumer, and that’s what we’re all about, particularly those of us on this phone call that have dedicated our life to mortgage banking and providing homeownership for people. I would just say that we’ll give you an update on this. We’ll get some more information because there’s some litigation that Alice mentioned going on, class action and other, all over the country about the product. if you get that kind of call and you’re getting your borrowers get the call, and if your loan officers are making solicitations to people for loans on refis and all, it might not be a bad idea for them to put a, blurb to let customers be aware. If you get a call from somebody saying this and this, you better be aware of it because you might be getting into something you really don’t understand, and you don’t have the traditional protections that are available to you under the law because of the way they are structured the product. So I hope that helps a little bit.
[Alice] It helps a lot, and I think you bring up a great point, that the loan officers out there who are working with first mortgages could use this to their advantage to get people to look at you don’t want a product that essentially forces you out at the end of its term, right? The balloon can be substantial. You may not have the equity. If you agreed to a certain equity position, they still get their money regardless of whether your home actually appreciated to that level or not. And so at that point, you could actually owe more possibly than your home is worth, or a substantial amount more than you actually quote borrowed or were agreed to. I think that also puts in an added layer of risk that consumers may not be aware of.
[Marc] Can I add one more thing to that before I close me out? Absolutely. Because I’m gonna, I’m gonna have to jump here in a minute, and I think this is important. There is a place for a loan like that, and I’ve seen it happen in numerous times, and most of the time it was banks that did it and they were regulated. And that is when you got a borrower who’s 88 years old, and their family, they got money, but it’s all tied up in their house, and their family wants them to have the dignity to stay in their house until they die, which means they a lot of, have to have a lot of money to pay for, maybe don’t have a mortgage on their home, and they gotta have a lot of money to pay for their healthcare in their home, et cetera. And a 10-year term on that might be okay, and that might be the best thing. So there is a place for a product like that if it’s legit, but I still think it needs to be regulated so people are not taken advantage of. Because just because you’re in a hard shape and need that money, don’t need, think you need to have a property appreciation take care of paying an amount that would be egregious as far as interest rates. So I just advise everybody to be real careful what they’re getting into. I think there’ll be more people trying to play this in different angles unless some regulation happens on it real soon. I’m sorry I jumped in there, Bill. I’ll turn it over to you now.
[Bill] Thank you, Marc. I think, there’s another piece of this, and the timing kind of makes sense. So even if somebody understood what they were getting into in 2015, 2016, I’m not making payments, but I’m gonna give up X amount of the equity appreciation, Then the rampant appreciation takes place, 2020 to 2023 And they’re not really paying attention, and then all of a sudden life happens and they have to get out of the house, and maybe folks going back and looking at the paperwork for the first time saying, “Oh, wait a minute, I just gave up a whole lot more in equity than I was thinking. I never agreed to this.” I’m sure that factors in with some of the significant appreciation and going, “Wow even if it was totally above board, this went from an okay deal to, boy, we, left a lot more money on the table than anybody imagined.”
[Alice] And all would depend on how it was presented to the consumer in the first place, right? What kind of appreciation scenarios were given to them. Marc, anything you wanna throw in before we go to Bill?
[Marc] Yeah. We got a parallel at, from our past. So much criticism came out on reverse mortgages because… And it was not from the borrowers. It was the families of borrowers who didn’t really understand them and didn’t realize what would happen down the road, and that equity was being ate up by interest accrual and all that, and their inheritance went away. The reverse mortgage industry went through a real phase of changing its disclosures and doing a better job on it because of that stuff. But we’re getting sued all over the country by family members’ children who saw their inheritance go away and they weren’t even part of the original transaction. So it was kinda crazy. So I think we just need to be careful with this and make sure we cross all our T’s and dot our I’s. I really do.
[Alice] Yeah. And I agree. There is a place for transactions like this, just like there was a place for option ARMs, but it was a smaller piece of individuals who had the savvy, who understood all the, upsides and the downsides of the product and the risks that they were taking. Some of the stuff I was reading on this is it seemed like all the risk was with the consumer, and as the not the lender, but the contract holder as they, would prefer to be held, carried none of the risk. So I think that’s a challenge. There really should be some balanced risk in there. Thank you, Marc. Bill, anything you want to add on before we move over to Allen?
[Bill] Yeah. So I want to go back to the opening segment and talking about changes. So we talked about the appraisal changes, but the credit changes that are taking place. So there’s a lot going on in there, and my kinda overarching comment that I don’t think getting nearly enough attention is the announcements by FHFA could have been summed up , in two sentences, The good news for the mortgage industry is FHFA, Bill Pahlty, came up with a way to double application volume in 2027. The asterisk on that by especially making the pricing the same between Vantage and FICO, and then now with the bi-merge versus tri-merge Over the next year, because the implementation of Vantage versus FICO is gonna, timeline’s gonna vary dramatically by lender, it almost forces customer to double and triple app. They’re not, as many flaws as there are in the, the system today, your credit gets pulled by one lender, gets pulled by another lender the same day. It’s gonna look basically the same. Now you’ve introduced- Everything gonna affect your score. You’ve got lender by lender, If they’re using Vantage versus FICO, you’re gonna get a different score, which means you’re gonna get different pricing, right? Now I’m having conversations with lenders that are trying to figure out, can they shave 25, 30, 50 basis points off of their pricing to get through, this kinda nuclear winter. And you’ve got 25 basis points in price difference just based on which credit bureau, which score you’re gonna use. I don’t see how this is gonna help the lender side with their overall cost to originate, because again, to me, it’s gonna drive customers to double and triple app.
[Alice] Yeah, if they feel that there isn’t they’re not getting the full representation of all the scores, or if a lender says something like we exclusively use FICO,” as an example. Yeah. I agree. So we’ll have double or triple the applications, but still the same number of closings is what you’re getting at. Same number of close outs. — The key differentiator right there. Yeah, it’s all in the wording. Great insight, Bill. Thank you so much for that. I’m glad you circled back to that, so thank you.
Alice Alvey, Master CMB
She handles development of their World Class Training program designed to support UHM partners and organizational effectiveness.
Prior to UHM, Alice served as Senior Vice President at Indecomm leading the Indecomm-Mortgage U division, Internal QA and Compliance and SaaS technologies. Indecomm acquired Mortgage U in 2013, where Alice was President/Co-founder, providing training and consulting since 1996. Prior to MU she served as SVP of Operations at a national bank overseeing operations for wholesale, retail and correspondent from underwriting through servicing, and compliance.
She has been in the trenches of mortgage lending operations from application through servicing for over 30 years. Her authoring work in training content, policies and procedures and the FHA/VA Practical guides illustrates her ability to bridge regulatory requirements with day-to-day operations.
Alice has been a weekly contributor to the Lykken on Lending show since its beginning in April 2009 and has made her weekly contributions to 450+ episodes!