Mortgage brokers are hoping the Consumer Financial Protection Bureau keeps the wholesale channel's operational needs in mind as it draws up proposed clarifications to the TILA-RESPA integrated disclosure rules.
"Some of the regulations within TRID are extremely helpful, while some do need to be revisited and modified. Thankfully, the CFPB has recognized this," said Irene Amato, president-elect of the New York Association of Mortgage Brokers.
Specifically, Amato would like to see changes made to help low- and moderate-income borrowers, as well as first-time buyers.
"What we have found is that some of these regulations have assisted the consumer in a positive way, but some are actually harming the consumers, slowing down transactions, leaving very little room for human error and potentially restricting some from homeownership," she said at the group's recent annual wholesale meeting.
While implementing "Know Before You Owe" was not as impossible as some feared, and has helped inform borrowers, brokers believe their interactions with wholesalers and other parties could be improved if they were more efficient and clearly defined.
In particular, brokers would like more direction in situations where their lenders allow them to deliver the Loan Estimate that gives borrowers an initial take on what their closing costs will be.
Some brokers have found it helpful for the lender to handle the disclosure, but having the option to deliver the Loan Estimate themselves provides more flexibility, said Lou Borsellino, past president of the NYAMB.
"When the lender does the LE, that means that the loan is going directly to that company. Whereas when we, the brokers, do the LE, we have the opportunity to say where we want to place the loan," he said.
Wholesalers at the outset were largely unwilling to give brokers the option to get involved in the distribution of the disclosures, but they have gotten more comfortable with the idea. "In the beginning, the lender totally controlled it from the start to the finish, it almost seemed," said NYAMB President Marty Pfeiffenberger.
Brokers also are finding they need to help consumers interpret the Closing Disclosure in particular and would like to see it made more comprehensible.
"The way the CD is organized and put together, there is still a lot of confusion that goes on right now. So there's still a lot of work left that has to be done with this," said Pfeiffenberger.
While the TRID process might not be perfect, some wholesalers say they have begun to get comfortable with the disclosure rules.
"Given the time-bound nature of TRID, the process has forced us to be much more disciplined in file movement and speed, which helped us to shave well over seven days off of our average speed to close. Certainly this was an unanticipated but welcome outcome," said Rey Maninang, senior vice president and national sales director of Carrington Mortgage's wholesale division.
The following Q&A with Amato, Borsellino, Maninang and Pfeiffenberger has been edited for length and clarity.
SINNOCK: What has your experience with TRID been like relative to your expectations of how the wholesalers handle the creation and distribution of documents?
PFEIFFENBERGER: In the beginning, the lender totally controlled it from the start to the finish. In January, a lot of them started to switch so we can go either way; we can generate it ourselves or they can generate it.
It's definitely been very cumbersome and actually very confusing to the consumer, especially the CD part. We have a lot of pushback from consumers who say the way the CD is organized and put together is confusing.
AMATO: I'm finding that the TRID process wasn't as horrifying as everybody thought it would be. It does definitely bring something to the table that the borrowers can view their closing figures three days prior to the closing.
In the beginning the Loan Estimates were not going out accurately and as the brokers we were not disclosing them. The figures that were on the estimates that were getting delivered to our borrowers from the lender were inaccurate and that left us confused about whether we were liable for that. We talked to Rholda Ricketts (deputy superintendent of the New York State Department of Financial Services) and we're not. But we did correspond with the lenders to let them know where the errors were happening and that part has gotten much better.
BORSELLINO: The issue that I'm running into is that the lender is taking 48 hours to come back with the LE, and if they don't come through in a certain time period you have to start the whole process over again.
Now in terms of the CD, the problem is that although we're all educated, there are still some attorneys that are not. So you're sitting there, you're trying to get closing numbers from the seller's attorney who is not cooperating with anybody and saying, "Well, I want to see the HUD-1," and the HUD-1 doesn't exist anymore. The lack of knowledge with attorneys in these transactions not really understanding that everybody has to work together collectively is the biggest challenge I'm seeing.
MANINANG: When we as an industry first realized that TRID was going to be implemented, there were a couple of choices that lenders had. The choice that we made was that, as opposed to trying to fight it and find ways to skirt around that program or that policy, we threw a lot of energy and resources toward how are we going to maneuver based on these new laws.
We put a team together that was just solely focused on interpretation of the laws. We had a team that was focused on training, not just our account executives and our operations folks, but our brokers as well.
SINNOCK: So this is something that you've been able to adapt to and it hasn't changed your view of the future for broker-wholesale channel?
MANINANG: In fact, I think in some ways it will strengthen the wholesale channel, and the reason why I say that is there is more clarity now for the borrowers on the type of product that they are getting into and the costs, especially today when we are getting the questions about whether we are going into non-QM and whether we'll be offering products in the lower FICO bands and taking higher risks.
SINNOCK: One concern for brokers was how the new TRID timelines would affect their ability to match borrowers with loans that fit their needs. How has that issue played out?
BORSELLINO: It's pretty much a mixed bag of nuts. The issue is when you get to the point where this is a credit decision, you have to lock in the loan. If you have a situation where the seller doesn't want to leave at the time that you have to close, it creates an issue where you have to extend the rate and redisclose.
AMATO: There are things about this that are good for the consumer, but there are obstacles for the mortgage professionals that are out of our control. There's no room for error in these transactions, so you really need a dream team. And you need to create that dream team before you even begin looking for a house.
All these advertisements for mortgages focus on rate. In my opinion that's the last thing that you need to worry about. If you are with a professional that is going to take you through the process and you have your dream team, rate is secondary.
PFEIFFENBERGER: On top of that, and being the professionals that we are, licensed, continuing ed, etc., we're very good at explaining everything in the process to the consumer up front so that you actually have a very good idea of everything in the process.
One of the things we do personally is when that borrower goes to the closing table there are no surprises. Everything that we've discussed is there at the table and they know what's going to happen that day and it's done.
SINNOCK: With some wholesalers giving brokers the option to decide which entity will provide the TRID documents to the borrower, what are the pros and cons to each of those scenarios?
BORSELLINO: It's simple, the pros of having a lender do the LE is obviously that they're doing the LE and you give them the numbers and they're going to issue it and ensure that it's done. However, when the lender does the LE, that means that the loan is going directly to that company. Whereas if the brokers do an LE, we have the opportunity to say where we want to place the loan.
AMATO: Brokers are very heavily regulated, so we need more guidance to know what exactly we're responsible for when we're delivering the LE. And until we get that guidance, because of what we've been through the past five years, we're kind of taking a sideline, most brokers, and saying let the lenders do it.
You have to understand, mortgage brokers are small businesses. If the large lenders didn't know how to handle it and they hired teams to figure it out and they still don't have it right, how are we, as brokers, going to take on that responsibility?
PFEIFFENBERGER: The lenders definitely have first owned it and then opened it up, because there are some brokers that like to issue the disclosures; they really want to control the fact that they're issuing the LE.
BORSELLINO: The elephant in the room here is real simple. If you have to hire teams of compliance individuals, who pays for that? The consumer is getting the information, however, it's at a cost, because eventually you have to hire all these people to do this and where is that cost going to be placed?
AMATO: I'm not anti-TRID, but what it has done to brokers — and I don't necessarily know that it's TRID or just the lenders not understanding what is written in TRID — but it has handicapped brokers and it's very hard to deliver a file to different banks. We have our consumers re-signing documentation if we need to send it to a different bank for a different program.
SINNOCK: What is the outlook for the broker-wholesale segment right now?
AMATO: Brokers are the No. 1 channel that consumers should be going through. We have access to multiple programs and we don't charge them directly. We receive wholesale rates from the lenders, so our rates are just as competitive if not more competitive than a lender, but they're receiving the one-on-one service, the availability to walk into an office and talk to somebody in person, not an online person that's in a different place. Plus, we're the liaison. We're the one that is guiding them through like I said, the dream team.
I don't think that there's enough voices out there to tell the consumers the most important part of shopping for a mortgage. They're just hearing rates, rates. These big lenders have all these advertisements and you go on any of these sites and the advertisements for rates are very enticing. You're a first-time buyer and if the media is saying shop rates, that's what you're going to do.
BORSELLINO: The difference between going to a broker and going to a major bank is we are more educated. We have to take 20 hours' worth of education, pass a test that's relatively hard, and then continue education, whereas the big institutions are under the umbrella of their company. So I believe we educate the consumer more.
The other part of the equation is that every scenario is different, it's not boilerplate. So when you go to one institution and they may have just one product, we don't. Case in point, a major lender may only deal with Fannie Mae, whereas we deal with Fannie Mae and Freddie Mac and there's a huge difference in some of what we can offer, some products we can offer.
Education is very important. You don't want to sit there and text and email somebody what they need to do on a mortgage and how to get the deal done. You need to explain to them either on the phone or in person and take the time to do that. It is a very tedious task, but one that involves a lot of hard work and not just saying, "look, here, come to my big bank, here's my rate, I'm going to take your information, send it out to Michigan and have them work on it and make it look like I'm doing all the work."
AMATO: Keep in mind that as broker firms, we have an average of maybe five to 10 loan originators working in a single broker shop. And our broker shops are regularly examined and audited.
We have examinations approximately every three years from the New York State Department of Financial Services. When they're doing that, at a capacity of five to 10 loan originators, that's a thorough examination.
So you should want to shop for a company that is consistently being watched and checked. But some of these lenders have hundreds upon thousands of loan originators that are working there. And let's say one of the larger institutions gets audited, can the regulator be as thorough as they are with a smaller shop?
When we get audited, we have two people coming into our shops for 10 to 12 days to review just five to 10 loan originators, so you're getting a much higher-ranked service and professional.
SINNOCK: What do you think the trend has been in the past year in the number of people working in the broker business? What about the number of shops? Likewise, on the wholesale side, how are the headcounts and number of companies changing?
PFEIFFENBERGER: The wholesale lending side has definitely exploded in the last five years. Five or six years ago, we were down to one lender, now we have 50. That's an exaggeration because we don't deal with 50, but you could easily sign up with 50 lenders, whereas seven or eight years ago there weren't many at all.
In the broker numbers themselves, the barriers to entry are great. But after the explosion of the market in 2007 to 2009, it's probably been fairly stagnant in the rural areas, but in the big market areas the broker world has definitely increased. The share has gone up probably 40%. We used to be around 9%, it's 13% or something now.
BORSELLINO: It's up close to 20% now.
PFEIFFENBERGER: Is it close to 20%? I haven't seen anything in a couple of months. So the number has definitely increased.
What we need to do now is get the education out about the brokers. The really good Realtors know they need to find good originators. And the majority, say, of the better-educated originators would be on the broker side. So the Realtors are going to push a lot of people, they want to go to a person that knows how to get it done and can get it done in a timely manner.
You're starting to see the metamorphosis coming back to the broker side. The downside is we get vetted more. We have to pass background checks and credit checks every year. So if something happens to a broker, you've got to go back to the retail side because they don't go through the same checks that we have to go through as brokers.
