With so much going on in the lending, banking, and real estate business, let's take a look at some thoughts from readers across the nation "in the trenches."

Regarding the recent FHA Mortgagee Letters, Bill Parker from Arizona writes, "Your readers should know that with the FHA's new program, qualifying borrowers have to be back to work and 'fully recovered' (good credit for a year) before getting approval. No such concept as 'Stated Income' is involved."

Borrower pricing, and being able to justify negotiating a price without steering a borrower, continues to be a concern.  A while back from Florida Joe A. commented, "Rob I listened to your CFPB webcast and the section on the CFPB's exams of how a borrower who was able to negotiate an 1/8^th better deal struck a nerve. (Where, if a lender had to make a price concession to get a deal, might have to put a copy of the competitor's rate sheet in the file as proof. That is, IF that lender even sent out paper rate sheets.) From my understanding it appeared a lender was being examined and the CFPB wanted to see all the rate locks. In reviewing them they stumbled upon a borrower who perhaps stated Wells Fargo was giving him an 1/8^th better and so a concession to meet the rate was made by the competing lender. The following explanation of how the lender being examined would have to show the competitor's rate sheet and so on to the examiners and if it happened back in 2009, the cost of finding the info was outrageous. This in addition to all the other costs when they come a knocking is a major concern.

"Recognizing that we all want to compete and we all know there is room to move when pushed, I question the CFPB's thought process. Doesn't the industry counter with the consideration of how in any other line of sales such as, auto, boats, TVs, phones, even buying a stove allows for this type of concession without any scrutiny. I was in HHGREGG (an appliance store in Sarasota) and I took a card from the sales person which states right on it, 'We will beat anyone's price.'

"While I embrace some of the goals by the CFPB, I am finding they don't seem to want us or the consumer to work in a free market. The same can be said for buying a car. Just because Tony pays $3k more for his Toyota then Sam who never shopped, does that imply that the auto dealer somehow cheated one buyer and not the other? Isn't 'getting the best deal' the fun of buying a home, a car, a stove etc.? Sorry, but that little tidbit got me thinking long and hard as to how illogical some of the rules have become."

Regarding the plethora of state-level mortgage law changes, a broker from the Atlantic Seaboard opined, "What I am seeing today at the state level is exactly why SAFE is useless. 20% of the states are constantly changing their rules, coupled with the CFPB stuff. Without taking any state classes, how does a 'newbie' know what every state is doing? I doubt that even the larger banks have the ability to educate every telephone LO about every state regulation. One could speak to 30 attorneys about MLO Comp, and the 3% QM fee cap, and probably received 31 different interpretations. So how does a telephone LO handling 30 states know all the rules?"

What is an Affiliated Business Arrangement under RESPA and what is required when an originator and a settlement service provider have an affiliated business arrangement? Lenders Compliance quotes the regs.: "An Affiliated Business Arrangement is defined in Section 8 of the Real Estate Settlement Procedures Act (RESPA) and Section 3500.14 of Regulation X, its implementing regulation, as an arrangement in which: (1) a person who is in a position to refer business incident to or a part of a real estate settlement service involving a federally related mortgage loan, or an associate of such person has either an affiliate relationship with or a direct or beneficial ownership interest of more than 1 percent in a provider of the settlement service; and (2) either of such persons directly or indirectly refers such business to that provider or affirmatively influences the selection of that provider."

On a lender renting space in a Realtor's office, Al M. notes, "Related to the section today on space or desk rentals...while I am not an attorney I do have considerable years of experience in this space so I just wanted to point out that to the best of my knowledge there is no requirement for a consumer disclosure of these. Disclosure is only required if the relationship is as an affiliated business relationship (ABA).They are not considered an ABA because there is no ownership by the Realtor."

Frequent contributor attorney Brian Levy wrote, "I would like to follow up on your readers' comments to the effect that desk rental agreements and marketing agreements tend to increase costs for consumers.  In fact, I don't think that it can proven that legal marketing agreements or desk rentals raise costs any more than any other kind of marketing strategies.  Everyone knows that RESPA (Section 8 (a) to be precise) prohibits payments for referrals, but it also expressly permits payments for "services rendered".  Lenders (like all settlement service providers) need a way to reach potential customers and a place to park their employees.  Some lenders advertise in the newspapers or on radio.  Some use big call centers and direct mail or purchase internet banner ads to find their customers.  Others try to get business by locating near loan referral sources and marketing to potential customers on site.  Regardless of how a lender gets the customer, those costs along with occupancy expense (and all other expenses) must get passed on to consumers if the company is going to make a profit. 

That said, desk rental arrangements and marketing agreements between lenders and their referral sources can lead to the concern that payments are really disguised referral fees if the payments do not reflect the fair market value of the goods or services rendered.  That is a legitimate concern and one that can result in illegal arrangements identified by regulators.  Accordingly, to comply with RESPA and regulatory interpretations, parties to such agreements need to be extremely careful in how these agreements are structured, documented and implemented.  Most of all, it is critical that any payments made be based on market value and not based on the value of referrals to be obtained (just as a newspaper ad has a fixed price based on circulation, size and placement without regard to the success of the ad).  Again, remember that a RESPA referral fee violation is illegal for both the giver and the recipient of the illegal referral fee, so both sides of the transaction should worry about compliance.

For example, in any arrangement where a realtor or builder allows a lender to rent space, rent must be based on the market value for such space, not based on the value of any referrals that might be generated. HUD, the prior regulator in charge of RESPA before CFPB, was crystal clear in a policy statement on that topic. Thus, if the going rate for office space in your area is $15/sq. ft./yr., then that's all that should be paid for the space and the parties should document their research on the market values as evidence of their diligence. Similarly, any marketing agreement that fails to identify and value the specific marketing services to be provided by the "marketer", risks challenge as a disguised referral fee arrangement. I am aware of one company (MLinc Mortgage Solutions), however, that regularly performs valuation analyses of marketing services for lenders and others. MLinc's valuation models provide a market based value for any identified marketing services that is entirely decoupled from the value of referrals to be obtained.  Likewise, documenting delivery of the actual services could be critical to justifying payments made (you wouldn't pay a radio station for an ad that never aired).  Although CFPB has not yet offered much guidance on marketing agreements, parties to these agreements should be aware that they are looking at them and have, at least in one recent case, issued penalties to the recipient of marketing fees they determined were for referrals." (Brian can be reached at blevy@kattentemple .com.)

And this note from Michael Simmons, SVP with Axis Appraisal Management, on HVCC, AIR, and appraisers: "With respect to the question about any 'new rules' following the sunsetting of HVCC, it should be pointed out that while AIR (Appraisal Independence Requirements) basically replaced the Home Valuation Code of Conduct, there was no appreciable difference or change to those rules. Fannie Mae and Freddie Mac are still drive the lending universe when it comes to an acceptable compliant process regarding appraisal ordering. One of the best places to get at perspective on what's allowed is via Fannie's Appraisal FAQ's. Here's the link. I think one of the more misunderstood rules is found in the following question: 'Q.31 May a lender order an appraisal by directing a broker to select an AMC from among a group of specifically authorized AMCs, one of which would receive information from the broker about the loan application and begin the appraisal process? No. Such a process would give the broker an element of responsibility for selecting or retaining the appraiser, and therefore would not be compliant.'"

Mike's note continues, "We find this broker selection of an AMC from a lenders' list of AMCs to be a not uncommon occurrence.  As for the issue of 'hand-picked panels', the Code actually permitted this when the evidence showed it was not selected by the lender's production side, and we can find nothing in AIR that changes that. I do believe that with the GSE's ability to track all the participants in all transactions, that captive panels bring the potential of a heightened risk to lenders and more and more investors will be sensitive to this strategy. Ultimately, better collateral review analytic systems and appraisers who have clear geographical competency and experience will ultimately be recognized for delivering higher caliber lower risk appraisals.  As with all elements of the lending process today, understanding the rules and making a commitment to follow them will be everyone's baseline. (If you'd like to reach Mike, e-mail him at michael@axis-amc .com or visit http://www.axis-amc .com.)

D.S. ponders, "It would be interesting to have a discussion regarding Rapid Rescoring, the process whereby credit trade lines are updated or corrected within a couple days rather than cycling through the normal cycle or through the cumbersome dispute process. Rapid Rescores can quickly add up to hundreds of dollars as each trade line with each credit repository is charged for. My last two company policies say that a borrower cannot pay for a rapid rescore because they can do the correction/update for free (although...not as rapidly). Credco specifically states on their order form that in ordering a rapid rescore that the consumer will not be charged. Credco cites Page 49-50, section 11 of the Fair Credit Reporting Act that says 'disputed information must be processed free of charge to the consumer' I wonder what the CFPB would rule?  If not allowed to be paid for by the consumer, can a broker (who is legally a mortgage originator and should be paid their comp plan) pay? All I know is there is discrepancy in the industry on this topic. The 300 rapid rescore fee on a recent loan was not allowed at my company, but a similar competitor allowed the borrower to pay in a similar transaction."