Useful Tidbits From Mortgage School
In late September I went back to school … mortgage school.
Since 2008 all mortgage loan originators like myself have to become licensed. That license required completing 20 hours of education and passing the test. To retain our license we are required to take 10 hours of continuing education each calendar year. This consists of three hours of federal law and regulations; two hours of ethics covering fraud, consumer protection, and fair lending practice; two hours on nontraditional mortgage products; one hour on general topics; and the remaining two hours is devoted to Colorado law.
What I generally learn are useful tidbits like what current sensible practices will be forbidden in the future and what new horrors and procedures will be put in place … and of course the huge fines and penalties that come along with any transgressions.
With undisguised glee our instructor told the cautionary tales of the 16 companies were fined nearly $200 million during the first three fiscal quarters of 2014. There seemed little doubt, in his opinion, a fate in store for many of the students in the room.
Much of what I learned this year comes under the “hmmm that’s interesting” category such as: Loan Servicers can no longer take your payment and sit on it for a couple of days and earn the interest prior to them crediting it against your loan. They also must accept and credit a payment, even if it does not include any penalty or late fees they are charging.
Loan Services must notify a consumer who is late on their payments within 45 days of the delinquency regarding loss mitigation. That is offering terms to work things out. Applications for mitigation options must be evaluated within 30 days.
Others are good to be aware of:
Income must be reasonably projected to continue for three years after closing. Examples include annuity income and child support. What a loan officer hates to hear is someone planning to retire in two years. Generally speaking income should have been received for the previous two years. Schooling counts, as does previous employment. Child support needs to have been received for 12 months to be counted.
Big Brother is watching. Money laundering is taken very seriously. On a consumer bank account the following transactions will be recorded and included in a suspicious activity report. That includes making cash deposits totaling more than $5,000 per week, $10,000 per month and $18,000 per quarter. Also any cash deposit that has a mildew smell or aroma that could be drug related.
Another item of interest was that there are new rules coming in August 2015. The biggest change is the new loan settlement forms. Believe it or not they will be easy to understand and effectively breakdown the costs and distribution of funds for any mortgage loan you might do.
If you have done a mortgage in the last 20 years you know a little about how confusing and complicated the current loan disclosures can be.
Without going into too much detail, a settlement statement is provided at every loan closing, breaking down all of the fees and credits and providing a bottom line number of how much money the borrower has to either bring to closing or will receive. This document is the official and final account of the transaction, and is called the HUD Settlement Statement. After loan ‘consummation’ (which is the official legalese employed now in the mortgage universe) this paper assumes the status of Holy Writ as proof to any and all that the transaction took place.
Well, everyone waits upon this document with bated breath since, in the case of a purchase, the borrower needs to know ahead of time how much to have their cashier’s check made out for. Borrowers are also strangely curious about what the final closing costs turn out to be.
There is traditionally great emotion and stress surrounding the creation of the document, and some unwritten law dictates the necessity of everything being done at the last minute with the maximum of changes, e-mails and phone calls.
Other obligatory traditions and procedures must be observed. A critical cog in the machinery must malfunction or at least balk at a critical moment. Computers and ‘systems’ crash, key players vanish, leave on vacations or contract a deadly illness. On the day of your closing there must be at least eight other closings scheduled back to back.
Often the final numbers were faxed in as people were waiting around the table with stony silences, gritted teeth and hostile glares warming the proceedings. But ulcer inducing and flawed as the system was it did allow for a lot of flexibility in dealing with errors and last minute changes in order to make things work.
Under the new rules, we will be spared that discomfort on the day of closing. Since these documents will now be required three business days in advance, we will now do the dance four days earlier. Once prepared, there can be no changes to the numbers. Having said that, since this is after all the alternate universe of the mortgage world, “no changes’ means there are four exceptions. However, if a change is made then a new three-day waiting period must begin. Of this resetting of the waiting period there are no exceptions.
This new process will invariably lengthen the loan closing process and subsequently increase the time it will take to close real estate sales. We’ll have to see if the benefits of a tranquil closing outweigh the loss of flexibility.
Aristotle said that “the roots of education are bitter but the fruits are sweet.” We have 11 months for them to ripen.
Neil Funsch has been a mortgage broker for 18 years, the last four in Park Hill. He can be reached at 303-229-2684 or neil.funsch@gmail.com.