NAMB's Valerie Saunders on trigger leads, storms and refis

October 2, 2024 6:00 AM

National Association of Mortgage Brokers President Valerie Saunders can project calm amid chaos, a trait that's served her well as she's worked to help the industry navigate tumultuous housing-market business cycles and operate businesses in a hurricane-prone state.

Valerie Saunders NAMB.jpg — Valerie Saunders

In an interview from Florida shortly before a storm, Saunders weighed in on how she and NAMB are contending with disaster risk, new government-sponsored enterprise restrictions on a rebounding refinance market and trade association policy positions in a polarized election year.

Excerpts of an Sept. 27 interview with Saunders covering these topics and others, edited for clarity and length, follow.

How are mortgage brokers affected when there are severe storms?

Once the storm gets in what they call the box, which is a certain mile radius around the state, insurers are not allowed to issue homeowners coverage, so loans will stop closing. The governor usually will declare a disaster or an emergency area before the storm, so that if you do get flood damage, you're able to claim it. But usually insurers will require an inspection before closing. So there are some additional fees that the borrowers incur. There may be a delay because the appraisers have to go back out and see how the storm affected the property. Those are the biggest issues that we have.

Federal flood insurance just got reauthorized. What’s your view on that?

They, once again, just kicked the can down the road. I think all of that is fine for now. They did redo some of the flood maps and that has created some problems in South Florida. They have a lot of condos that previously had not been in flood zones. Now some of them are in flood zones and, depending on the number of units, that can mean a couple hundreds of thousand of dollars or more of an annual premium that buildings didn't prepare for and may not have the reserves for. It's caused some delays in closings. I've heard of some condo associations that had to have special assessments. It's an unexpected expense for the association which is passed on to the condo owners.

Usually, the condo associations pay for the income coverage for floods and the exterior part of the building. The only thing that condo homeowners are directly responsible for is for the walls in. That is something that they purchase on their own. What lenders are going to want to see is flood insurance coverage from the complexes, and not all of the complexes are purchasing coverage that meets the industry standards that have been set. They're trying to purchase something cheaper. That can affect sellers, buyers and owners.

Do you find yourself discussing condo insurance with borrowers more often?

Yes. Condo insurance is really affecting people. We're in this sort of stagnant real estate environment, where people who are retiring would normally sell their house and maybe move into a condo or a townhome because they don't want the extra expenses or hassle of landscaping, mowing your grass, etc. With these increased condo costs, it might be cheaper to stay in your house, depending on where you want to live. This further exacerbates an already big problem. Our branch manager in South Florida, he calls himself the "condo king," and he deals with this all the time.

More broadly, we've all been sitting around waiting for rates to drop to make more people be able to qualify to purchase a home. But if the rate drops, and your insurance premiums increase, you may still be stuck back in the same boat because that makes it hard to qualify. It can be like a Catch-22.

How has the Fed lowering rates changed the outlook?

From the perspective of my own business, we are seeing more people who are looking to potentially refinance existing mortgages. One of the issues, though, is that under Fannie Mae and Freddie Mac underwriting guidelines, a homeowner is not eligible to cash-out refinance their property for 12 months after their last first-lien loan was originated or refinanced unless certain circumstances apply. So you could have people that purchased in February or March at 7.5%, and now rates are dropping and their property values are increasing, but they're not able to reach they're not able to take advantage of it because of the restriction.

People have the highest amount of equity they've ever had, credit card debt has significantly increased and a lot of people want to take advantage of the equity that they have in their homes to pay it off, or maybe pay off or pay down student loans. But now they may not be able to do it if it hasn't been 12 months or more since you obtained your last loan. Because of this, somebody may have had to use nontraditional financing to acquire their property, and they're not able to take advantage of the lower rate they might be able to get from Fannie or Freddie now that their finances have improved because of this requirement.

One of the exceptions is if it's a special-purpose cashout refi, where the owner of a property uses the proceeds to buy out the equity of a co-owner, like in a divorce. Others are if the first lien that they're paying off is a home equity line of credit, the cashout refi is for a construction conversion or renovation mortgage, or if the purpose of the cashout is to convert the manufactured home to being legally classified as real property. A first-lien HELOC is like a needle in a haystack to find.

Has NAMB taken a formal position on this?

I would presume that it's something that we're going to talk about, and may have a position on in the future. It's just coming to light when you don't have refinances walking through the door, you know, this type of an underwriting guideline doesn't create a problem. The refinance market previously was so minuscule, it wasn't even worth discussing.

What’s your thought on title insurance alternatives?

As the owner of a title company, I am not a fan of attorney opinion letters. I don't think that the value of title insurance coverage was taken into consideration by FHFA. If you're only looking at closing insurance costs, that's one thing, but you have to look at the broader picture of what title insurance coverage provides. When a property gets foreclosed on, any defect comes back to the underwriter and the insured to fix on behalf of the lender.

If you look at the number of claims that are brought against title insurance underwriters on a yearly basis, I highly doubt that all of those are only based off of owner's policy coverage. Plus, on top of that, a lot of what a title company provides a lender is the closing aspect for the insured, the the proper disbursement of funds and execution of documents. So there's a lot more to it than just the issuance of a policy. An attorney opinion letter isn't going to make those fees go away. I presume a lender is still going to want somebody responsible to make sure that their closing instructions are followed, that their monies are disbursed properly, and that somebody is going to cure issues if they arise.

That's just what me, myself, and I as a 30 year owner and escrow agent think. I'm all in favor of making closing costs more reasonable for homeowners and future homeowners. However, I think that we can be short sighted in seeing what decreased coverage really does.

What’s on NAMB’s agenda right now?

We do have a current call to action out to the mortgage industry to urge their senators to support the trigger lead amendment that was recently done by Sen. Jack Reed into the National Defense Authorization Act. We know that the house already passed their version of the NDAA and would have to go in and discuss and adopt and you know, this amendment onto the House side. So we're hopeful. NAMB has been fighting trigger leads since the mid-2000s right? If for some reason, the NDAA doesn't go through, we'll continue the fight. Otherwise trigger leads are just going to become more of a nuisance as rates do decrease and more people have the ability to purchase or take advantage of refinancing. As more credit reports are pulled, more trigger leads will happen.

How does election affect the housing policy agenda?

We are, just like everybody else, looking to find out, are we going to have a Republican president or a Democratic president? Because, of course, it does affect things. Both parties look at housing policy differently, and so we're kind of weighing all of our options, knowing what our priorities are going to be regardless of who get elected.

We haven't established a lot policy positions recently, because we don't know who the leader of our country is going to be. We don't know if which party is going to control the House and the Senate. Regardless of who the new president is, we could have leadership changes in all of the regulatory agencies that govern our industry.

There are a lot of unknowns right now. We know what some of our potential priorities are going to be, but we're not in a place where we can say things like, "These are our legislative priorities for this next congressional session," because we don't know what's going to happen.

Is this election different from past ones?

It feels different, I guess because depending on who's elected, the pendulum is going to swing so extremely far one way or another.

Are trigger leads a bipartisan issue?

Yes. If trigger leads don't pass this legislative session, they will definitely be an issue that will be at the top of our list of priorities for the next one. It would be wonderful if a legislation does pass, and we can focus on other things. If it doesn't pass, though, we're prepared to continue to fight.

What other items are on the NAMB agenda at this point?

We continue to look at the Gold Star spouse legislation that we have supported over the last couple years. We are also looking at some potential reforms on the VA side. So we do have some you know issues that we have in the hopper, but at this moment, we can't publicly come out and say these are our items you know, until we know who the next president is going to be. We've had consistently some issues for at least the last 10 years, though, that will continue. Besides the Gold Star spouse legislation. We've pushed for amending the Qualified Mortgage definition so that lender-paid compensation is no longer part of the points that are capped, or so small mortgage broker and mortgage lender companies be have a similar carveout as small community banks.

As the industry deals with rules and regulations that are put into place, there are always unintended consequences. For example, the issue with the 3% lender points and fees cap under QM. What it allows a broker to be paid on a QM loan well above below the administrative expenses that you're going to incur.

Sen. Brown, he just recently filed legislation that does have amendments to it involving low to moderate income borrower loans. It's so late in the legislative session that it's almost like filing it, knowing that it's probably going to be a focus for the next congressional session. We'll look at that legislation and see maybe where we can incorporate some of some of our QM issues maybe can be resolved in his bill.

On top of that, your LO comp agreement with your loan originator is based off of the loan amount, and they have to be paid regardless of whether the mortgage is profitable.

A non QM loan doesn't have a cap but does have higher fees and higher interest rates. Then you would be putting a borrower into a higher payment because of a cap that was created by a federal rule and regulation that didn't take into consideration smaller loan amounts.

We continue to provide professional certification and partnerships. Our newest ones are the certified FHA mortgage professional that's sponsored by Freedom mortgage and one for reverse mortgage specialists that's sponsored by Liberty reverse. We have our veteran lending specialist and our credit specialist certifications. NAMB is also an NMLS course provider. We are currently, just like every other education provider, actively offering the eight hours of continuing education to our members. Our members actually get their continuing education for only $12. Those things continue on. We are looking at some other educational opportunities in the way of certification.

We also have done a large number of webinars this year, including a monthly series with Freddie Mac that has been focused on a variety of underwriting guidelines and topics. We have a lot of industry partners and sponsors that offer webinars to our members in the industry on a variety of topics, including marketing niche products. There was one on renovation loans we did with Plaza Home Mortgage, and another on appraisals. We we really tried to look at the education that we provide, whether that is sort of certification or continuing education, in terms of whether it is going to provide value, resources and tools to anybody that attends.

What do you expect to be a hot topic at NAMB annual next month?

We are doing a panel on loan originators, 1099 contractors and employees. You have two camps there. We're holding a panel with compliance experts. So that'll be interesting as will the other topics we talked about today.