Justice Is Served To Unethical Mortgage Lenders

Consumer Financial Protection Bureau v. Castle & Cooke Mortgage, LLC (U.S. District Court – District of Utah, Central Division Case No. 2:13CV684DAK)

Loan originator compensation rules prohibit any person from paying a loan originator based on any terms of a loan. 

A Utah-based mortgage company, Castle & Cooke Mortgage LLC (Castle & Cooke) began offering and providing mortgage loan products to consumers in 2005.  In 2013, at the time of the complaint, Castle & Cooke employed 330 individuals in around 45 branches. It practiced in 22 states in the nation, and originated approximately $1.3 billion in loans in 2012.

Among its employees are loan originators who interact directly with borrowers. Castle & Cooke pay the loan originators to assist borrowers in obtaining mortgage credit.

Prior to April 2011, when the loan compensation rules went into effect, Castle & Cooke paid its loan originators commissions based on the interest rates of the loans originated. The higher the rate, the higher the commission.

To avoid this blatant violation of the loan compensation rules, Castle & Cooke devised a scheme to pay quarterly bonuses to loan originators. These bonuses varied depending on the interest rates of loans originated during the quarter. Again, the higher the interest rates of the loans originated, the higher the bonus. This policy was not written in any of the company’s policies. The policy of paying bonuses based on higher interest rates continued past the April 2011 deadline for implementation of the loan originator compensation rules.

The CFPB determined that, since the implementation date, Castle & Cooke had paid out more than 500 quarterly bonuses. Each of these bonuses was a discrete violation of the loan originator compensation rule.

Further, Castle & Cooke’s failure to document their calculation of, or even the existence of the bonus structure violated the requirement to keep records of the compensation provided to loan originators.
The CFPB’s complaint sought to:

• prohibit Castle & Cooke from incentivizing its loan originators to upcharge borrowers based on interest rates of the loans originated;
• compel Castle & Cooke to pay restitution to borrowers harmed by their conduct;
• impose civil penalties against Castle & Cooke for their violations; and
• order Castle & Cooke to pay the CFPB’s costs in the action, and any other damages deemed appropriate by the court.

This complaint was filed in 2013, and has yet to be resolved by the CFPB and Castle & Cooke.  However, recall the minimum civil penalty collectible is $5,000 per violation. As each of the 500 bonuses paid is considered a separate violation, the penalties alone will amount in over $2.5 million dollars.

Although the complaint did not address the individual loan originators’ roles in the alleged transgressions, recall that the loan originator compensation rules forbid both any party from paying bonuses in violation of the rules, and the loan originators from accepting payment in violation of the rules. Thus, each loan originator may be held separately liable for accepting a bonus based on a violation of the loan originator compensation rules.

Nice! Try recovering from that one. :0)

FICO Informed By Michael Hansen

What Affects Your FICO Score and How To Get Your Free Report

The feds allow you to obtain a copy of your full report from all three credit agencies for free once a year at https://www.annualcreditreport.com

We highly recommend MyFico.com to help you understand what affects your credit score and how to increase it.   

A Regulation That Cost You More Than It Saves You

The three day right of rescission. This regulation was put into place (supposedly) to give borrowers the opportunity to let their attorney or trusted confidants to review the signed documents before funding the loan to ensure it’s in the borrowers’ best interest. First of all the regulation also requires the borrower to sign a disclosure confirming they are aware of this regulation and any time you add a required disclosure to a closing package, you are creating another opportunity for something to go wrong. Not only can just having to sign the form create problems,(i.e. when a borrower mistakenly dates is incorrectly it could cause the entire package to have to be resigned if not caught by escrow in time.) but the amount of time that is spent while everyone waits for your loan to fund is wasteful to say the least. 

First, why is it only required on refinance and not purchase? Wouldn't it make more sense for someone to have time to look over documents committing them to a home they have never lived in before as opposed to documents committing them to a more favorable payment on a home they have lived in for years possibly their entire lives? Plain and simple, there is a HUD at closing that compares the closing disclosures with the opening disclosures you received at the start and if the fees are more than 10% higher, the loan cannot fund. Not to mention the borrower does not have to sign the disclosures if they do not like them. No matter what! So what is really the point of this? 

Perhaps some politician wanted to get attention, perhaps a lawyer needed to get recognition? Possible, however I have a feeling it’s much bigger than that. Since I have watched this right of rescission cost consumers thousands of dollars. Since I have never seen a single client, out of over 9,600 loans that closed around me, utilize the right of rescission. I have to suspect there is another reason for this costly time consuming disclosure and requirement. 

It's the Banks! Lending money to homeowners for primary residence on 1-4 unit buildings that conform to Fannie, Freddie or Genie Mae, is the safest way to invest your money. Coincidentally the only loans that require a 3 day right of rescission are loans that are exactly like the ones I just described. Interesting. Perhaps the real reason is the investors who invest through these types of loans are looking for one more loop hole to get out of delivering a loan on time. I truly feel this is the only logical explanation, I have seen nothing but pain endured by both the originator, and the borrower and never once seen or heard of any good coming from it. Not to worry, I will tell you what you should know in order to protect yourself.

Delivery of the TIL disclosures and the notice of right of rescission happens at closing. Once you sign the loan documents with the disclosure, (provided you did not accidentally date the form incorrectly and make a correction) the three-business-day period must follow both the disclosure and the rescission notices, as well as the signing of the loan documents, called consummation of the loan, and this begins the next business day as day 1 of 3.

Midnight is considered the beginning of the first rescission day. Therefor making you wait an additional day on top of the three days. Consider a borrower who signs loan documents and signed all material disclosures on Monday, June 1 at 8:00AM. The actual timeline would go like this:

Monday, June 1 - Day of disclosure/signing. Rescission begins running on the day after this day.

Tuesday, June 2 -  First day of three-day rescission period.

Wednesday, June 3 - Second day of the three-day rescission period.

Thursday, June 4 -Third day of the three-day rescission period. The loan cannot close until all of 
Thursday has passed, and it is midnight.

Friday, June 5 – Loan can now fund, however even if the loan funds in the morning, the lender being paid off will not receive the funds until the next business day, Monday. Now you will have to pay interest to the new lender starting on Friday. You will also pay interest to the existing lender until Monday. Paying double interest for two days.

Sign your loan documents on Wed - Sunday. 

Brokers Have Always Been Complacent And Lazy

Mortgage Professional America: Are brokers really lazy? Here's what an industry giant says

One of the biggest names in the mortgage industry has sounded off on a comment made on the MPA forums.

On Tuesday, MPA forum poster Michael responded to a story about broker involvement by saying that “brokers have always been and always will be complacent and LAZY!!! They just will NOT get involved, they want someone else to do it for them. This has been their history during the 30 years I have been in this business.”

The comment ignited a firestorm on the forum; even NAMB President John Councilman chiming in to defend brokers. “My take is that people are so busy disclosing, re-disclosing, processing and reprocessing, that they can't spend a lot of time on anything else,” Councilman wrote.

And the head of one of the country’s largest wholesale lenders reached out to MPA to chip in his two cents.

“I disagree strongly,” said United Wholesale Mortgage President Mat Ishbia. “Brokers aren't lazy. They’re hard-working small business people who are the very fabric of our country. … We have brokers who are harder workers than anyone else I know. They’re out there on the street, working in their communities. Without them, we’re not going to be successful – not only (UWM) as a company, but all of us as an industry.”

For supposedly “lazy” people, Ishbia said, brokers do quite a lot that other mortgage professionals don’t have to.

“They’re the most educated mortgage professionals, especially now. They have to go through all the licensing, all the testing,” he said. “Banks don’t have to have their loans go through all that testing. They don’t have that scrutiny. The ones that are around today, especially – who’ve been through QM and all the regulatory rules – are some of the best mortgage professionals around.”

Ishbia said he believed strongly in the broker model – not only professionally, but personally.

“The best place for a borrower to get a mortgage is at a broker. Brokers have more options than any mortgage bank. Mortgage brokers have all different lenders they can try,” he said. “When I have a friend who needs a loan, I always refer him to a broker, because that’s going to be where he gets the best deal. Consumers want the best deal for them, and mortgage brokers are the best way to go.”

-- Matt Ishbia

President of UWM

Why Is The Anti-Steering Disclosure Your Best Friend

There are many people claiming to have the lowest rates for the lowest cost. There are many ways to hide the cost and make it appear as though you are getting a fair deal. There is only one way to be sure, ask for the Anti-Steering Disclosure up front. You do not need to let them run your credit to get a simple one page Anti-Steering disclosure. As soon as they quote you, request a copy of the Anti-Steering disclosure right away.

The GFE is a federally regulated form required to show you all cost inside and out, but only for the option you are being quoted, plus it’s confusing even to an experienced loan officer. The TIL is a federally regulated required disclosure that shows how much the rate is going to cost you, but is also only for the rate being quoted, plus it’s confusing even to an experienced loan officer. Both of these forms are the common quote disclosures and loan originators are required to run your credit before supplying you with one. By the time you run your credit, it’s unlikely you are going to do another application with another lender just to see their disclosures.

The Anti-Steering form on the other hand does not require you to complete and application or run credit. It does force the loan originator to show you three options and they are always the same: The lowest rate, period, simply the lowest rate available from that lender no matter what the risk and show the cost to get it. The lowest rate without risky features and the cost to get it. The lowest rate without risky features and the lowest total cost. (Like free)

Why is this so important you ask? Because many originators, especially Direct Lenders, do not have the ability to even offer no cost mortgages. Some still claim they do not even exist. Therefor they are going to tell you that fees is the way to go, because if they did not, they would be out of business. When you work with an originator that offers no cost loans, you can weigh your options and see that 9 times out of 10 its wiser to go with the no cost option.

Lastly, now you can finally shop without having to give up your time, risk your FICO score and provide sensitive data to several strangers just to find out who really has an interest in seeing you retain equity in your home.