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Notes about medical collections’ impact on credit, CFPB & community banks, and the eWorld we’re heading toward in lending

Mon, 08/31/2015

After the announcement of Tammy Butler as the editor of Mortgage Women Magazine came this tongue-in-cheek note from a fellow over in California. “It’s my opinion that men are underrepresented in the mortgage industry because we are overrepresented. Unless I’ve been missing out, I don’t believe we have the man version of specialized events (i.e., Lemon Drops), lectures (i.e. empowering women) and now apparently publications (e.g., Mortgage Women Magazine). What’s a guy supposed to do when he’s new to the industry? We only have our departmental boss to point to true north, but depending on who’s sitting in the VP chair that could point in a number of directions.

“There should really be a publication on stuff like, ‘The Top 10 Bourbon Cocktails to Order at an Investor Dinner’, ‘Acceptable Cars in Which to Drive to Client Visits’ (nobody wants to be picked up in a Chevy Volt or minivan), a ‘How to’ guide for the interns to tie a proper Windsor knot, acceptable Fantasy Football names and how to use ‘negative convexity’ in a sentence at work. You obviously don’t have this issue but even discussions on how to handle concerns at home like, ‘how to explain your job to your wife.’ I’ve run this by several AEs (disclaimer, we might have been heavily drinking) already and I’ve tried to pitch the idea for the MAN MBA (MMBA). Several suggestions have also included a golf day, skeet shooting and rush week for the MMBA fraternity.”

On to the usual topics…

Through the wonders of modern communication Aaron Ninness weighed in oncredit & low credit scores. “In reading your section on FHA loans down to 580, the broker who commented is incorrect on stating that ‘collections’ represent a higher credit risk. This generalizes collections when we should not be lumping medical collections into that category. We have all seen a medical collection as low as $18 drop someone’s score by 100 points. Regularly I work with veterans who have stacks of medical collections against them. They have paid all other bills on time, but because they have the collections they have a low FICO score. You are probably saying to yourself, ‘Why isn’t VA paying those bills?’ Because VA is so backed up that it could take well over a year for a disabled veteran to be approved for their claim all the while they still need help. This can be seen in many other issues such as sick children, major accidents with uninsured motorists, etc.  So in the end, we really need to have a much more refocused discussion about medical collections and their effect on credit scores. And big banks need to have clear guidelines as to help people who have good credit history minus the fact they have monstrous medical collections.”

“Rob, I have a client that is a residential escrow company and has a question regarding the TRID changes. As a result of the new TRID Rule (which goes into effect Oct 3, 2015) my client has been asked by a lender it is closing a purchase/loan for to sign an acknowledgment in the lender’s closing instructions that says holds the escrow company liable for lender’s losses resulting from escrow company’s failure to follow the lender’s closing instructions and that escrow co will indemnify lender for losses caused by, among other things, escrow company’s negligence. Is this typical of what lenders are requiring escrow companies to sign now in light of the TRID Rule?”

Andrew Liput with Secure Insight responded, “This is one direction lenders are taking to manage compliance risk under TRID, yes. The CFPB has made it clear that lenders will be held liable for negligent oversight in the event the settlement agent fails to properly complete, deliver and disburse in accordance with the new Closing Disclosure. Lenders are taking steps to minimize risk, which includes managing the document prep and delivery, requiring proof of disbursements, more vigorous vendor management as well as agreements for indemnification. These agreements will not of course prevent issues but will allow them to transfer all or some of any potential loss or fine to the agent, based upon the circumstances.”

Mike Munson, an underwriter with Oklahoma’s Bank2, writes, “If you’re like me you noticed that when the CFPB published it’s guidelines on what is now termed TRID, they were substantially different in a very important way: specificity. These guidelines are so specific, in fact, that lenders must not only now disclose the LE in rounded amounts and the CD in actual figures but must also re-disclose the LE on the same day the loan is locked. If you’re on your A-game TRID wise, then you know that one of the two things I just said isn’t true. After revision after revision of the proposed rules were released, commented on, re-released, re-commented on, etc., it’s no wonder that people are confused and often surprised when they realize their understanding of the guidelines is wrong. You swear you remember reading something about that…but maybe you read that in the second revision and you don’t remember seeing anything about it in the third…wait, how many revisions were there again? Have you read the most recent? Now you can’t remember which versions say what – what they do and what they don’t cover.

“Lenders, as of the writing of this article, are not required to re-disclose the same day a loan is locked and familiar RESPA standards requiring re-disclosure within 3 days of lock will go unchanged. Did you know which of the two things I said about TRID was untrue? How confident in your answer were you?

“The consequences of not following the rules in the mortgage arena are coming from a whole new playing field these days. Not only must a lender concern itself with regulatory oversight and the repercussions of a bad exam. Lenders must now consider every customer as a potential future foe. Did you send early disclosures out on day 4 instead of day 3? Sorry, but you owe the borrower some money now…some restitution…some punitive penalties.

“The venue of punishment for violations both real and imagined has shifted from board rooms to court rooms. With the advent of “default chasers” going after lenders for non-compliance with regulatory guidelines on behalf of the borrowers, compliance is becoming an ever increasingly risky environment. The question is – what do we do when our luck runs out?

Mike wrapped up with, “Smaller community banks will bear the brunt of the risk. With smaller compliance departments and legal counsel that is very rarely employed directly with the bank, how will these institutions cope with the requirement to do things perfectly on every loan, every time? In the event a mistake is made, how will they protect themselves from litigation? What will you do when you find yourself in front of a judge being asked to explain why you weren’t able to generate a simple LE & CD with accurate information? Compliance is changing. Are you ready?”

The conversation about eNotes, eSignatures, eFood, eCommentaries, eWhatever, continues. Tom Anderson with DocMagic writes, “Back in 2001 Fannie Mae announced a promotion of something called ‘a SMARTDoc eNote’. Part of the reason eSign has taken so long to get adopted in this industry is the promulgation of miss-information and opinions by people who are just not well educated or informed on what a ‘legal’.

“To that end I am compelled to correct the false statements and want to educate people on how the benefits of implementing a truly compliant eProcess address those issues:

“Robo-signing (anyone can sign or notarize) – eSign (if properly implemented) virtually ensures the verification and validation of all parties into the transaction using a multitude of user authentication tools and methods. From the simple issuance of a unique pass code and sign-on number to multifactor questions that only the borrower would know or to ensure even greater security and control issuing secure digital certificates, (certs) to enable notaries to eNotarize documents in the eSign world is significantly more secure to prevent unauthorized signature of documents by invalided parties than the paper would where a fake ID is enough to sign legal documents. In the case of multiple parties signing documents we can even ensure they sign in the right place on ALL documents or the loan cannot be closed.

“Lost notes – If everyone eClosed loans they’re would be no lost notes. Simple as that. Once the final signature goes onto the closing package the system automatically wraps the entire closing doc set in a secure, “tamper evident seal” (that includes all documents, source data and electronic audit trail) and immediately eDelivers it and registers it on the MERS eRegistry system and auto delivers it to where it needs to go, (investor, servicer, etc.) after that.  An electronic record of ownership (loans bought, sold, servicing transferred, paid-off, etc.) is maintained through the life of that loan.  This is so much more secure and efficient than the physical paper world where paper gets lost, mutilated, flood, fire or misplaced all the time. Not to mention the ongoing costs to store, maintain and ship it.

“Do not have to read the documents – Yes if you allow the ‘sign once apply many’ signature process but most eSign systems enforce/require the borrower to click on each page before they can advance to the next page and apply a signature and with each “click” a date and time stamp audit trail is logged providing electronic evidence (electronic proof) that they indeed did have to go thru each document before signatures were applied.  Again in the paper world there is no such method to show or prove compliance.

“Deed of Trust & Note must be ink signed – This is a bit miss-leading as well. We can produce SMARTDoc eNotes for every state and MERS can eRegister them. What I believe he is referring to is that some jurisdictions still require that any document that needs to be notarized needs to be papered out and ink, “wet” signed. The fact is that now over 1,324 counties allow eRecording representing close to 72% of total activity (population) and with only three exceptions (IL, NY & WA) all other states have adopted some version of UETA (individual State) or ESIGN (Federal) to support legal eSigning and notarization of documents.  It’s just that some attorney’s do not want to pursue eNotary until they see an actual state statute that says it’s legal. I feel this is a bit overkill and redundant since if no law or statue exists on the books that specifically precludes it, then the federal ESIGN and most state’s UETA’s have you covered. Again, I believe this is more of an educational issue than an actual legal one.

“I hope you will post this to educate people on just some of the benefits of implementing a compliant eSign process and I guarantee you the proof of delivery requirements around TRID and the ability to proof consent, receipt and intent is expediting the need not to mention the record retention requirement.”

(This week I am fortunate to be accompanying more than 100 folks from Utah-based Academy Mortgage on their public work project in the village of Amaru, Peru. Academy’s staff is helping villagers build an irrigation system and a production center where the villagers will make their local handicrafts, guiding the village school children with craft projects, bringing a doctor and nurse to provide much-needed healthcare services, and helping to paint a local church. I am sure the villagers are unconcerned about TRID, enforcement actions, or the price of a Fannie 3.50% security in October. I will do my best to respond to e-mails, but please excuse any delays in responding this week, and any potential delays in the daily commentary itself.)

At St. Peter’s Catholic Church, they have weekly husbands’ marriage seminars.

At the session last week, the priest asked Giuseppe, who said he was approaching his 50th wedding anniversary, to take a few minutes and share some insight into how he had managed to stay married to the same woman all these years.

Giuseppe replied to the assembled husbands, ‘Wella, I’va tried to treat her nicea, spenda da money on her, but besta of all is, I tooka her to Italy for the 25th anniversary!’

The priest responded, ‘Giuseppe, you are an amazing inspiration to all the husbands here! Please tell us what you are planning for your wife for your 50th anniversary?

Giuseppe proudly replied, “I gonna go picka her up.”


As featured by Daily Mortgage News, September 2015