Correspondent, Fraud Reporting, Compliance, Default Servicing Products; Fairway Responds to CFPB/DOJ’s Action

An attorney will tell you, “Never miss a good chance to shut up.” Today I head to the Portland/Vancouver area for a few days with Banner Bank. Oregon has 12,000 licensed attorneys, Washington 27,000; number of regulators and administrators unknown. (Hear Mark Calabria interviewed tomorrow.) Banking Law 360 reported that, “At a tough-talking appearance in Utah on Friday, Consumer Financial Protection Bureau Director Rohit Chopra said he doesn’t sweat potential legal challenges to his agency’s rules and suggested some industry-side attorneys can be ‘leeches’ who relish compliance uncertainty if it boosts their billable hours.” Some will counter with, “Make the regulations clearer and there won’t be any uncertainty.” Still others will tell you that the CFPB, fearing a change in presidential administration, will be ramping up enforcement actions and fines. The CFPB is rumored to be cutting deals on settlements now, because regulators are worried they will all be undercut if Trump wins. Yesterday the CFPB announced that it and the Department of Justice took action against Fairway Independent Mortgage Corporation. More below. (Today’s podcast can be found here, and this week’s is sponsored by Aidium. Aidium’s CRM and Business Intelligence platform is the go-to system for lenders and enterprises serious about embracing technology to drive progress. Aidium boasts hundreds of integrations, a simple-to-use automation builder, reporting suite, and true AI for lead prioritization. Hear an interview with Aidium’s Spencer Dusebout on how technology is helping lenders increase margins, improve operational efficiency, and better serve clients.)

Lender and Broker Software, Services, and Products

Now more than ever, mortgage lenders are investing in technology to drive efficiencies across their business and deliver experiences that create customers for life. In this episode of the Fintech Hunting podcast, technology and industry experts dive into what you should be prioritizing in your product and pricing strategies. Tune in now to discover best practices for selecting the right PPE solution, tips for a successful implementation, and how ICE is leveraging automation to help clients scale effectively.

Changing markets. Changing leaves. Unchanging service. Use wemlo®, a third-party mortgage loan processing company, for the steady processing support needed to navigate shifting market conditions. At wemlo, we’re all about providing scalable processing support that adapts to your evolving needs. Mortgage brokers can count on wemlo processors to be available when business ramps up and easily be paused when the market slows down. Best of all, there is no subscription fee or minimum loan requirement to work with wemlo. Want adaptable assistance tailored to your changing needs? Book a 1:1 wemlo demo today.

ICYMI: Optimal Blue launched two new podcasts to help optimize your advantage and maximize your understanding of the mortgage industry. Optimal Insights, a weekly LinkedIn video series and audio podcast, provides timely market analysis that impacts loan originators and capital markets professionals. Hosted by Optimal Blue experts, this podcast discusses the latest trends, real-time data, and best practices to keep you ahead in the dynamic mortgage landscape. Market Advantage, released monthly, complements the popular Market Advantage mortgage data report with additional commentary and guest interviews, offering deeper data insights and discussions with industry experts. The first episode, released on Oct. 8, featured Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association discussing MBA’s Application Survey Index and September’s rate lock activity. Both Optimal Insights and Market Advantage podcasts are available on all major podcast platforms. Visit the Optimal Blue Podcasts page for more information.

Costs for income & employment verifications have skyrocketed, ranging from $49 to $123 per request. And if there are two borrowers on the application, that price can easily hit $492. Just a few years ago, verifications were around $20, so the increase is being felt across the industry. But there’s good news! Josh Byrom, SVP Technology & Innovation, Prosperity Home Mortgage, shares his experience working with Truv, a vendor partner that has helped reduce verification costs by as high as 90%. Hear Josh share his experience working with Truv here.

Speaking of Truv, happening today is a webinar, “Unlock seamless mortgage lending with the Truv x Byte Software integration!” Truv’s cutting-edge verification technology, now integrated with Byte’s enterprise-class LOS platform, delivers mortgage lenders instant access to real-time income and employment data straight from the source. Enjoy real-time data for faster decisions, enhanced automation efficiency, significant cost savings, and an exceptional borrower experience. Ready to see the power of this integration? Join the live webinar for an exclusive demo and Q&A with the experts! Register now.

Offerings to Look For at the MBA Annual

PlainsCapital Bank National Warehouse Lending, a subsidiary of Hilltop Holdings (NYSE: HTH), is committed to providing mortgage lenders with a sustainable funding source in an uncertain market. With over 30 years’ experience, a well-capitalized, diversified financial holding company, PlainsCapital Bank National Warehouse Lending provides confidence to meet our mortgage lending partners funding needs. With exceptional operational performance, and a focus on relationship-driven business geared towards long-term success, we do not dwell on unnecessary fees. With PlainsCapital Bank National Warehouse Lending there are NO non-usage fees, NO application or renewal fees, NO third party due diligence fees and NO interest charged on the day your loan funds. If you attending the MBA Annual Conference in Denver and interested in learning more about PlainsCapital Bank National Warehouse Lending please contact Deric Barnett or John White.

In-the-booth: Dara by Sagent experience, only at the MBA Annual. You read that right. Sagent is sharing a peek at Dara, its unified servicing platform, exclusively for MBA Annual ‘24 attendees who request to see it at booth #401. Dara’s end-to-end default servicing capabilities include a loss mitigation solution that leverages AI to make the hardship application painless for homeowners, then gives them real-time updates and visibility into their status on the path to resolution. Delivering greater transparency and opportunities for personalized service, Dara turns hardships and the loss mitigation response into opportunities to strengthen relationships with homeowners. And in addition to the Dara experience, booth-goers can snag Sagent’s latest socks + local treats! For more information on what else Sagent will be up to at MBA Annual, click here.

“Heading to Denver for MBA Annual at the end of the month? Schedule some time to meet with the Covius team and learn more about why we are trusted by 8 of the top 10 lenders and servicers, 14 of the top 20 banks and thousands of settlement agents and attorneys. Covius’ solutions are designed to help servicers control risks and assure compliance. They include default title, loss mitigation, title curative, REO & auction, document prep, compliance solutions and more. Click here to schedule a meeting and discover how our innovative solutions can streamline your mortgage operations.”

FundingShield, the market leader in wire & title fraud prevention, released its Q3-2024 report showing nearly half (46%) of transactions had deficiencies. During Q3-2024, a record high 45.1% of transactions had CPL issues and 8.1% had wire/bank account related risks. The heightened risk illuminates the need for real-time source data-based verifications leveraging trusted data. “Data accuracy and a process to validate data is paramount in the mortgage and real estate finance industry. Automation, collaboration, and process improvement can yield better customer experience and pricing. However, without accurate data sets and real time data verification leveraging live repositories, these goals will not be realized. Our verified data allows lenders to make better real time decisions that reduce wire fraud risk and drive process improvements (with cost savings), which is the epicenter of responsible and efficient automation and AI initiatives.,” Shared, Ike Suri CEO. Contact Sales@fundingshield.com for demos and free trials, Meet us at the MBA Annual in Denver to learn more about our solutions.

“The annual MBA Convention is just around the corner and the Citi Correspondent Lending Team can’t wait to meet with existing and prospective clients, especially those with a shared passion for supporting underserved markets. Citi remains focused on responsible growth and the expansion of our Community Lending platform. In fact, we recently introduced our newest addition-our Special Purpose Credit Program. The SPCP is designed to support home financing needs of borrowers with subject properties in designated Majority-Minority census tracts within select markets. With four loan plan options (including our proprietary HomeRun product) and features that include closing cost assistance and premium pricing for qualified loans, this new program can help create a more affordable path to homeownership for your borrowers. Schedule some time to talk with us at the MBA or complete our Prospective Client Questionnaire to learn more about all the opportunities Citi has to offer.”

CFPB and DOJ vs Fairway Independent

Before we dive into the latest news, here’s a quote from an industry vet about CFPB settlements in general. “The Bureau twists the truth for its own gain (both from a political and money standpoint). Settlements are more about the practical reality of fighting the Bureau than anything else: what is the cost versus what is achieved by a quick end. The CFPB should be rooting out the discrimination that we all know exists. That is not what the CFPB usually does. What the Bureau often does is a mockery of the reason for its very existence.”

The Consumer Financial Protection Bureau (CFPB) and the Justice Department (DOJ) took action to “end Fairway Independent Mortgage Corporation’s illegal mortgage lending discrimination against majority-Black neighborhoods in the greater Birmingham, Alabama area. The CFPB and DOJ allege that Fairway illegally redlined Black neighborhoods, including through its marketing and sales actions. Fairway’s actions discouraged people from applying for mortgage loans in the Birmingham metropolitan area’s Black neighborhoods. If entered by the court, the settlement announced today would require Fairway to pay a $1.9 million civil penalty to the CFPB’s victims relief fund. Fairway would also be required to provide $7 million for a loan subsidy program to offer affordable home purchase, refinance, and home improvement loans in majority-Black neighborhoods… The CFPB and DOJ allege that Fairway violated the Equal Credit Opportunity Act, the Consumer Financial Protection Act, and the Fair Housing Act.

Forget the millions that Fairway has recently given to charities. Fairway Independent responded. “Fairway Independent Mortgage Corporation, named #1 for customer satisfaction among mortgage origination companies in the J.D. Power 2023 U.S. Mortgage Origination Satisfaction Study, responded to an announcement released by the CFPB and Justice Department.

“In 2021, the first full day after the Biden Administration took office, the CFPB (‘Bureau’) began an investigation into Fairway Independent Mortgage Corporation (‘Fairway’ or the ‘Company’) to determine whether the Company’s mortgage lending activities in the Birmingham-Hoover, AL Metropolitan Statistical Area (“Birmingham MSA”) were being conducted in compliance with the Equal Credit Opportunity Act (‘ECOA’).

“The government agencies’ allegations in the complaint, filed days before the impending Presidential election, were provided to Fairway for the first time only after settlement was reached. The complaint significantly mischaracterizes the matter at issue and appears to be intentionally inflammatory in nature. For one, the complaint characterizes Fairway’s actions as willful and reckless, a claim that was mutually rejected by the parties prior to settlement. In addition, the complaint characterizes Fairway’s actions as willful and intentional, despite the government agencies’ failure to identify any evidence to support such a claim. Fairway is disappointed by these statements in the complaint, which suggest bad faith by the part of the government agencies.

“In bringing the investigation, the Bureau had reviewed the loan application data that Fairway had previously reported under the Home Mortgage Disclosure Act and performed an analysis that compared the ratio of Fairway’s lending in majority-White versus majority-Black census tracts to the White/Black ratio of other lenders. This analysis focused on quotas of White/Black census tract lending rather than actual volume of applications and originations in majority-Black census tracts.

“Despite a multi-year investigation, which included a referral to the U.S. Department of Justice (DOJ), the government agencies did not identify any evidence of redlining or other discrimination by Fairway. Rather, the government agencies relied on a quota analysis to allege that Fairway was not meeting the needs of residents of majority-Black census tracts, in contravention of the U.S. Supreme Court’s 2023 decisions regarding affirmative action.

“The government agencies refused to consider the fact that Fairway took more loan applications and made more loans, in terms of number of loan units, in majority-Black census tracts than any other non-bank lender with a physical presence in the Birmingham MSA. The government agencies also refused to consider Fairway’s lending performance among residents of majority-Black census tracts who may have chosen properties outside of their neighborhoods and elsewhere in the Birmingham MSA, which indicates the government’s preference for furthering racial segregation.

“Fairway vigorously defended itself against the government agencies’ allegations and continues to deny that the Company engaged in any discriminatory behavior. Fairway also maintains strong disagreement with the government agencies’ legal and statistical approach to identifying potential discrimination. However, to resolve the matter and curb the further expenditure of resources, Fairway determined that a settlement with the Bureau and the DOJ would be the most appropriate solution.

“In part, the settlement allows Fairway the opportunity to redirect financial resources to majority-Black neighborhoods via loan subsidies, consumer financial education, and community development. Fairway hopes that these efforts will further increase lending opportunities for those seeking to purchase properties in majority-Black census tracts of the Birmingham MSA. However, the settlement does not authorize the agreed-upon loan subsidy to be offered to residents of majority-Black census tracts unless they remain in a property located in such tracts.”

Capital Markets

What investor wants to pay 103 if the loan is going to refinance or pay off in 4 months? The preliminary prepayment outlook for October shows that speeds are expected to jump 12 percent to 13 percent on average from September with the largest increases in higher coupons. More than offsetting weakening seasonals are a 4.8 percent increase in the number of collection days and an average 28 percent month-over-month surge in refinances.

We learned this morning that mortgage applications decreased 17.0 percent from one week earlier, according to data from the Mortgage Bankers Association’s (MBA) Weekly Applications Survey. So much for that refinance wave. Comparing the current refinance index levels to their trailing decade averages, while the headline and conventional indexes are 35 percent and 49 percent lower, respectively, the government index is 23 percent higher. That is where both the most prepayment risk and business opportunity lie.

Net mortgage issuance through the end of August totals $124.7 billion for the year, and with an expected run rate of $166 billion through the end of December, which puts it very far from the $235 billion net seen in 2023. A continued lack of home building and scarcity of overall purchase-sourced mortgage bonds being created should keep supply muted. One silver lining is that Agency MBS gross issuance in September came in at $100.6 billion, the second month in a row with over $100 billion in gross issuance (August saw $109.8 billion.) This has not happened since late summer 2022. Ginnie Mae aggregate issuance hit $43.3 billion, highest since June 2022 and up 8.9 percent compared to August. Conventional aggregate issuance dropped 18.2 percent from August to $57.3 billion, with Fannie Mae down 26.1 percent and Freddie down 10.5 percent, respectively.

Today has an uneventful calendar that includes bank earnings, but did kick off already with import and export prices for September which rarely move rates. The only other point of note today is a Treasury buyback in 3- to 5-year coupons for up to $4 billion. We begin the day with Agency MBS prices better about .125 and the 10-year is yielding 4.01 after closing yesterday at 4.04 percent; the 2-year is at 3.92.