November already? Thanksgiving is approaching, and in honor of that I shot my first turkey yesterday. Scared everyone in the frozen food's section - it was awesome!

Typically I would wait until Saturday to publish recent letters, but I received enough after Saturday's post about pre-quals and pre-approvals, and using Facebook friends to determine someone's ability to repay a loan, that I felt "the faster the better".

James wrote, "Why would a rational individual, especially people in mortgage banking with knowledge of monetization, freely give away a put option to Facebook and Linkedin? I realize, after being admonished by my wife, sister, cousins, and others, that I'm a statistical outlier with respect to social media (aka, building a personal shrine to yourself) but one should be concerned with how they're using personal information today, and be scared to death with how they're going to be using your information in the future. THEY don't even know what they're going to do with it in the future."

Michael F. sent, "Just the thought of using social media for credit risk assessment freaks me out. Discrimination lawsuits for years to come. The new redlining."

Mike Cagney contributed, "If Facebook tried to use that algorithm, the CFPB would be all over them. First, they are very clear you can only use information for underwriting where you can show there is an empirical impact on performance.  How do you show someone's social network impacts performance? Second, they would get hit with a disparate impact case. It would be easy to argue certain protected classes aren't on Facebook (or at least, fairly represented on Facebook). Consequently, requiring Facebook as an input to underwriting would be problematic."

Regarding documentation, prequalifying a borrower, or pre-approving them - and they are different - under new RESPA-TILA guidelines, be sure to ask your compliance attorney or staff. But here is more input from Saturday's post.

From Maryland Doug J. scribed, "I don't see why you can't ask for supporting documentation prior to the prospect becoming an applicant, which would only be after a property is identified as the 6th piece of information required. Get the documentation prior to the application and you can issue a 'pre-qualification' but not for a specific property address. Then once the property is under contract, the prospect becomes an applicant and you can't ask for any additional information until after the LE is issued. Realtors may balk because it is not a 'pre-approval' but they have a larger association than we have, so let them take it up with the CFPB!"

Craig B. observed, "Unless I'm reading this wrong, isn't the OPPOSITE true here? IF you come into possession of the six magic pieces of information, it's at THAT point you are required to issue a Loan Estimate."

And from Tennessee this note from someone in the compliance ranks. "I've seen a lot of chatter about prequals and preapprovals with TRID and need to through my two cents in for consideration. Many complaints are based on how the rule prohibits the borrower from providing documentation to support the information being provided regarding their income, assets, credit, etc., but this is all assuming you have a property address. If working with a borrower while they are looking for a property, the property address would still be TBD therefore you wouldn't have an application per TRID rule. This leads me to believe that the lack of trust really is between the realtor and the borrower, not the loan officer and the borrower. Further, the realtor's trust in the loan officer's preliminary review of the borrower's credit worthiness is questioned by demanding pre-approval letters over prequalification.

Prequalification and Preapproval seem to be used interchangeably in a lot of articles however there are differences that are often overlooked. Realtors and loan officers, for the most part, know there is a difference in a preapproval and a prequalification. I completely agree that pre approvals would be nearly impossible to continue without change to previous practices. If the borrower provides all information with the exception of a property address, the loan officer is generally able to determine if the borrower is going to qualify for a loan prior to having the elements of an application. Where in the rule does it prohibit the loan officer from providing a prequalification letter based on information provided without documentation or a property address? This, however, is not being accepted from realtors. They do not want prequalification letters; they are demanding pre approval letters which could not be provided without:

1. A written preapproval program by the lender as required per Reg C

2. The borrower to provide the loan officer with all documentation needed to qualify not specific to identification of a property

3. Documentation reviewed by a credit decision maker, usually an underwriter, to conditionally approve subject to conditions related to identifying a property

"The feedback I often hear is that realtors don't want to spend their time working with borrowers who they do not know are qualified. This has several implications. To name a few: it places a burden on the lender to allocate additional resources beyond an experienced loan officer to reassure the realtor that the buyer is credit worthy once a property is identified, it puts the loan officer and the borrower in a delicate timeline to disclose actual terms based on fictitious factors, and it lengthens underwriting turn times for complete files that are prepared to move forward currently."

The note wraps up with, "I value realtors time as much as anyone however if they had more trust in the borrower to provide the loan officer with accurate information and the loan officers ability to prequalify, this would not be nearly as widely discussed topic."

And Bill Kidwell with IMMAAG writes "I feel it is really necessary to clarify what appears to me to be a widely misunderstood aspect of TRID and 'pre-qualifications'/preapprovals, namely, 'TRID prohibits a lender or broker from requiring documentation of the six magic application components until a Loan Estimate is issued and accepted by the applicant.' From much of what I have read, this seems to be the understanding that is permeating the industry. However, the fact is that until all six 'magic' components are received, an MLO may request verification of anything necessary to prepare for a pre-qualification or preapproval. Because of the apparent misunderstanding of this condition, on 10/18/2015 I submitted an inquiry to the CFPB. The inquiry posed the question, 'If a broker is requested by a consumer to provide a pre-qualification or preapproval and does not have the six elements required by 1026.19(e) to constitute an application, is the broker or creditor permitted to require the consumer to provide verifying information to substantiate the declared information?'

On 10/22/2015, I received a call from CFPB attorney Pegro D'Olivera, who was the CFPB representative that discussed pre-qualifications and preapprovals during the CFPB's 5th TRID webinar on 5/26/2015. During the 10/22/2015 phone conversation and under the standard disclaimer that the CFPB does not provide written guidance, Mr. D'Olivera was clear that in his opinion until all six elements are present there is no rule-based prohibition on requesting verifying information. From my perspective the problem is that the articles addressing the subject of document verification are worded in ways that imply no verification can be required until the Loan Estimate is issued.

(Watch for Bill's complete, detailed note this upcoming Saturday.)

Turning to the markets, can you sense that the economic numbers are losing some steam here in the United States? If that is the case it certainly pushes the Fed into 2016 for a rate increase! On Friday Personal Income grew 0.1% in September after climbing an upwardly-revised 0.4% in August - below estimates. Personal Consumption rose 0.1% in September after jumping 0.4% in August - below estimates. Inflation rates were subdued in September: PCE prices declined 0.1% in August and are up only 0.2% year-to-year. In fact stripping out food and energy, core PCE prices were up only 1.3% year over year - well below the Fed's 2.0% target level. The Employment Cost Index grew 0.6% q/q in Q3 after rising only 0.2% in Q2. The Chicago PMI increased to 56.2 in October from 48.7 in September. And the University of Michigan Consumer Sentiment Index was revised down to 90.0 in the final October reading from 92.1 in the preliminary report.

We have a new week of numbers - some of which may move interest rates. Today will be the October ISM Index and September Construction Spending. Tomorrow is September Factory Orders. Wednesday will be the MBA's application numbers, October ADP Employment Change, September Trade Balance, and October ISM Services. Also of note will be Fed Chair Yellen's testimony before the House Financial Services Committee on Fed action and plans for bank regulation and supervision. On Thursday we'll see October Challenger Job Cuts, Initial Jobless Claims, and Q3 Productivity and Unit Labor Costs. Friday we'll have the October employment numbers.

For those quantitatively-inclined, and trying to figure out where mortgage rates might be, we closed the 10-year Friday at a yield of 2.15% and in the very early going we're at 2.17% and agency MBS prices are worse less than .125.

Jobs and Announcements

Liberty Home Mortgage out of Independence, Ohio is hiring self-generating Loan Originators. "We specialize in self-sufficient LOs that prefer working for a purchase-oriented lender. I spoke to Ian Shirey, Liberty's Operations Manager, and the company will lend down to a 550 score on FHA purchases and do not have any overlays to Agency guidelines. They are really aggressive on compensation schedules also! They are paying originators 300 basis points plus $1,000 per loan. You also earn money off of originators you bring to the organization."

"Network Funding announces that it closed and funded its first TRID mortgage on October 23, just twenty days into TRID. Network Funding Co-Chairman Buzz Baker said, "At the end of the day, it's about getting the job done on time. That's why we took TRID preparedness so seriously. Our goal was simply to make sure we had the systems and staff in place to continue to take care of our borrowers. The preparation for TRID has paid off and is just another way that Network Funding has demonstrated its commitment to reliability for its clients. If your company is struggling with TRID and can't get your loans closed on time, it's time for you to consider joining The Network. Contact Executive VP Brett Snortland for branch opportunity details."

Collierville, TN Triumph Mortgage President Travis Chapman announces the recent addition of Skip Willcox to Triumph's wholesale and correspondent division. Skip will be covering GA, NC, and SC for the organization as it continues to grow steadily.

In business model news, San Francisco-based Bay Equity Home Loans has decided to concentrate solely on its retail lending and as a result is closing its wholesale division over the next 45 days. In the past several years Bay Equity has expanded from being primarily a west coast retail/wholesale lender to opening numerous new retail branches in its current footprint of 31 states. Bay Equity has clearly defined retail lending as its core strength and business funding approximately 90% of its volume on the retail side. The company will fund north of $3 billion in loan volume this year. CEO Brett McGovern said, "We have great respect for the wholesale space and its importance to the mortgage industry, but clearly our growth and success is on the retail side. We've built a very strong retail platform based on providing our originators exceptional operations, outstanding technology, first class marketing and the mentorship of top Loan Officers. I am excited to watch its continued growth & success as Bay Equity gives 100% focus to our Retail channel." For a confidential conversation about Bay Equity's retail growth and opportunities contact Sean Wilson (415-622-5768).