Whether you are a mortgage broker or mortgage banker, it is critical to understand if your mortgage lending policies and procedures are both current and compliant!

Having mortgage lending policies and procedures that are both current and compliant is a critical step towards establishing the compliance foundation needed to be successful in our current high risk regulatory environment.

In today’s short video, I will review the importance of having compliant policies and procedures as well as provide an overview of the many regulations that govern the mortgage lending process.

Now, if you have not yet done so, remember to take advantage of our complimentary 30-minute initial strategy call where we analyze your situation and discuss whether a banker transition process is right for you!

During this call, we will provide practical expertise and understanding of the process from mortgage licensing, investor approval and relations, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, compliance, and more!

Click below to schedule today!

As the industry continues to shift, compliance is front and center with the recent spree of mortgage loan repurchase requests showcasing the need for mortgage lenders to bring their “A” game in that regard.

Additionally, the CFPB states in part the following under § 1007.104 Policies and procedures:

“A covered financial institution that employs one or more mortgage loan originators must adopt and follow written policies and procedures designed to assure compliance with this part. These policies and procedures must be appropriate to the nature, size, complexity, and scope of the mortgage lending activities of the covered financial institution, and apply only to those employees acting within the scope of their employment at the covered financial institution.”

With that being said, it is unfortunate that many brokers and bankers are utilizing severely outdated policies and procedures with some being from years and years ago. For those that do have updated policies and procedures in place, you also need to ask if they are sufficient to cover the vast array of regulations that govern mortgage lending?

Relying on outdated procedures can cause harm to both the consumer and the organization itself, along with concerns when dealing with regulators, state auditors, warehouse banks, and investors.

Additionally, a lack of compliance can lead to fines, penalties, loss of reputation, and consumer trust. Being proactive through robust policy and procedures is another way to help preserve an organization’s reputation and profitability because in today’s market, every basis point counts!

Policy and Procedures

As a quick overview, policies are defined by rules and regulatory requirements such as those found under RESPA, HMDA, ECOA, and TRID. Additionally, organizational policies will provide an outline for how to manage a company’s day-to day operations and define its long-term goals.

On the other hand, procedures describe how the organization will fulfill the policy requirements and will contain the specific tasks and steps needed to carry out the policy implementation.

Federal Policies and Procedures

Examples of federal policies you should have include, but are in no way limited to the following:

• Appraiser Independence Policy (AIR)
• Compensation and Anti-Steering
• Compliance Management Plan
• Disaster Recovery Plan
• E-Disclosure and E-Signature Policy
• Equal Credit Opportunity Act (ECOA)
• FACTA
• Fair Credit Reporting Act Policy
• Fair Housing Act
• Fair Lending Plan
• Mortgage Disclosure Improvement Act
• Real Estate Settlement Procedures Act Policy
• Record Retention Policy
• Unfair Deceptive Abusive Acts and Practices (UDAAP)
• USA Patriot Act Policy
• Vendor Management / Counter Party Risk
• Business Continuity / Disaster Recovery

Please note that this is not a comprehensive list of the federal policies to be aware of and that you will need to be prepared for multiple other policies to have procedures built around.

State Specific Policies and Procedures

Additionally, understand that some states may have additional required policies such as in California where you would need to be prepared for interim servicing, servicing, and subservicing policies as well as a per diem policy, accounting, and California privacy requirements.

When it comes to mortgage lending compliance, the requirements can be downright overwhelming! However, remember that Rome was not built in a day, so a good staring point can be to break down the components one by one to see what your organization requires.

Do you need help?

If you need additional assistance with climbing the mortgage banker ladder that is where we step in to help!

With our practical expertise and understanding of the process from mortgage licensing, investor approval, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, compliance, consulting, and more!

You can simply use our online scheduler to select a convenient consultation time and let us show you the Path to Prosperity!

Sean A. Stephens, Esq., CMB^®
Broker to Banker Consulting, LLC
SeanS@BrokerToBankerConsulting.com
Call/Text: (714) 844-7146
Toll Free: (866) 989-0564 

P.S. If you have not yet done so, remember to download our Broker to Banker Blueprint for Success with the link below. This free guide is designed to walk you the the banker transition process and is a great educational resource for mortgage brokers and bankers alike.

Sean A. Stephens, Esq., CMB® 

Legal Disclaimer: The information provided on this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. No representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or availability to this information. Use of, and access to, this Blog or any of the links or resources contained within the site do not create an attorney-client relationship. Broker to Banker Consulting, LLC is not a law firm and does not provide legal services.

Angel Oak Mortgage Inc. (NYSE: AOMR) delivered a second consecutive quarterly loss. Like others in the business, Angel Oak Mortgage, Inc cites a “challenging economic environment” as a leading cause for the company’s repeated quarterly losses, Like other real estate finance companies, the company is contending with elevated inflationary pressures that have triggered extreme and continued volatility. Interest rate spreads widened following the Federal Reserve interest rate hike leading to significant losses in the company’s performance.

Challenging Business Environment

The Federal Reserve’s aggressive monetary tightening policy triggered extreme volatility in the real estate sector, which drove unrealized losses on the company’s portfolio of target assets. The volatility has markedly impacted interest-rate spreads, which have widened, and additional pressures in nominal interest rates.

Angel Oak Mortgage, Inc is one of the mortgage companies that has felt the full brunt of the volatility in the real estate industry. Elevated inflation levels have seen many investors shun the industry in favor of safe havens. Additionally, climbing interest rates have led mortgages to skyrocket from lows at the height of the pandemic, making it extremely difficult for people to refinance their mortgages.

However, the stock has started bottoming out after coming under immense pressure in the year’s first half, going down by more than 20%. While the stock has bounced back, recouping some of the losses since the start of the year’s second half. A disappointing second-quarter report with management raising doubts about the macro environment could take a toll on the company’s sentiments in the market.

Second-Consecutive Quarterly Loss

The real estate finance company plunged into a net loss of $52.1 million or $2.13 per diluted share in the second quarter of this year, owing to the challenging business environment. This reported loss comes on the heels of a net loss of $43.5 million or $1.77 per diluted share delivered in the first quarter. GAAP book value declined to $14.73 a share at the end of the quarter, down from $16.80 at the end of the first quarter and $19.47 in the fourth and final quarter of the previous year.

Despite its core business being hurt by the twice in a row 75 basis point rate hike by the Federal Reserve, Angel Oak Mortgage generated distributable earnings of $0.90 a share. The income affirmed the portfolio’s income-generating capabilities.

Company Investments and Second Quarter Assets

In the second quarter, Angel Oak Mortgage purchased $257 million worth of non-QM residential mortgage loans. This reflects a 62% decline from the company’s reported $676 million purchases in the first quarter. It also sold $7 million in commercial loans, a move reportedly executed for the purposes of increasing its liquidity to direct toward residential loan purchases. As previously discussed (FGMC fallout post), the  non-QM markets have been under significant pressure recently and this appears to be a continuance of that trend.

In addition, Angel Oak Mortgage added a new warehouse facility with $340 million in additional financing capacity during the second quarter. The company exited the quarter with $1.64 billion across seven financing lines. Since then, the company has further added warehouse facility and is seeing an aggregate capacity of $1.9 billion.

As of the end of the second quarter, Angel Oak Mortgage, Inc’s balance sheets reports $3.2 billion in target assets, as well as residential mortgage loans totaling a $1.3 billion in fair market value. The company’s target assets reportedly totaled an estimated $160, while the company’s recourse debt to equity ratio came in at 3.4X.

By the end of the second quarter, Angel Oak Mortgage, Inc reported a $0.45 dividend per share, which will be payable on August 31, 2022 to common stockholders of record as of August 22, 2022.

As 2022 continues so does the turmoil throughout the mortgage industry………

California-based mortgage lender Loandepot Inc. (NYSE: LDI) is embarking on a significant reorganization of its business model. To focus on what it does best, the lender plans to shut down its wholesale lending division. The announcement comes on the heels of the company reporting a second consecutive quarterly loss of $223.8 million or 66 cents per diluted share compared to a loss of $91.32 million reported in the previous quarter.

Wholesale Lending Business Exit

The wider-than-expected loss came as the lender experienced a decline in loan origination volume and sale margin. Loan origination volume in the second quarter fell 26% from the first quarter and 54% year over year, totaling $16 billion. In the second quarter, the gain on sale margin was 1.96%, down from first quarter figures of 2.98%.

According to the President and Chief Executive Officer, Frank Martell, a move to exit the wholesale lending business is a strategic decision. By focusing on retail mortgage loans, LoanDepot should be able to focus on their alternative solutions with direct customers.

It is consistent with a plan to become a more purpose-driven organization with a direct customer process focus during the lending process. The exit should also allow the lender to focus resources on aligned origination channels, bolster margins and trimming operational complexities.

Sunsetting the Wholesale Pipeline

Even as LoanDepot moves to exit the wholesale lending business, it plans to fund the remaining wholesale pipeline, which totals approximately $1 billion. The company hopes to have finalize the pipeline by October.

The company has already sent emails to its wholesale lending partners to formally outline company plans to exit the channel. The email cites a company exit date taking effect on October 31, 2022.

August 9 was the last day brokers were allowed to originate new loans via the company portal. October 31, 2022 will be the last day to fund any loan in the company’s wholesale pipeline. Users of the company’s broker portal will have access through the end of the year.

Challenging Market Environment

Like other mortgage lenders, LoanDepot has faced a challenging market environment affected by soaring inflation. In addition, the Federal Reserve hiking interest rates to stem runaway inflation has also had a significant impact on the industry, depicted by declining mortgage volumes owing to increased rates and borrowing costs.

LoanDepot was one of the mortgage companies that feasted on refinancing at the height of the COVID-19 pandemic that saw interest rates trimmed to record lows. The cuts triggered a flurry of borrowing sending mortgage volumes to all-time highs. Unfortunately, much of the refinance activity has dried up with the FED hiking interest rates.

Staff Layoffs Continue

In addition to exiting the wholesale lending business, LoanDepot has also made sweeping staffing decisions. While it is the nation’s second largest lender, reported losses have led to staff cuts. The lender has already reduced its staffing levels from highs of 11,300 as of the end of 2021 to 8,500 at the end of June this year and 7,400 at the start of August.

A reduction of 3,900 people has already transpired, but the layoffs are not over. The company is projected to reduce headcount even more by the end of the third quarter, with plans underway to trim to a headcount below 6,500.

Future Strategic Direction

The layoffs are part of the company’s Vision 2025 plan designed to address fluctuating and emergent mortgage market conditions. The cuts are also geared towards positioning the company for millions in savings as well as sustainable long-term value creation. The proposed plan is expected to generate about $375 million to $400 million in annualized savings by the end of the year. In a recent conference call, Martell reportedly stated that the company is on track to reach these savings by the end of 2022.

The company’s Vision 2025 plan includes a reported emphasis on the company strategy to differentiate itself, innovating with digital solutions and best-in class services operations. Others portions of the plan outline the company’s intention to swiftly downsize based on market conditions, while seeking to serve increasingly diverse communities nationwide.

How many warehouse lines does a mortgage banker need?

What questions should a mortgage lender ask their warehouse bank?

As a quick recap, In Part 1 of our warehouse bank series, we discussed key questions to ask which involved warehouse bank associated costs, principal curtailments, net worth, and other qualifying requirements. Last week, in Part 2, I then provided additional considerations for you to be aware of at time of initial application or upon renewal.

Now, if you have not yet done so, remember to take advantage of our complimentary 30-minute initial strategy call where we analyze your situation and discuss whether a banker transition process is right for you!

During this call, we will provide practical expertise and understanding of the process from mortgage licensing, investor approval and relations, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, and more!

Call/Text: (714) 844-7146

What questions should a mortgage lender be asking their warehouse bank?

1. How many warehouse lines should have you have?

This is one of the most common questions I receive. As you can imagine, there is not a one size fits all type of answer. First off, you have to review your own internal production metrics.

For example, are you producing in a high-cost area where loan amounts are significantly larger or in a region where loan amounts are smaller and you are focused on units? Will the warehouse line cover just your personal production or do you have multiple branches and MLOs to consider? Once you are able to determine the volume metrics, then you can back into how much warehouse capacity you need.

However, even if one warehouse line could fulfill your volume requirements, like lenders, warehouse lenders have overlays as well. For example, as recently discussed, the exit of Sprout and FGMC created havoc in the Non-QM space which also includes warehouse line providers. If you are funding Non-QM loans or any type of specialty product, it is good practice to have multiple warehouse lines in order to absorb any overlays that may be put into place by one vs. another.

Another example of this occurred at the onset of Covid-19 in 2020 where warehouse lines were placing arbitrary minimum credit score cutoffs. One warehouse line could have had 650 while another may have 640 or yet another may have had no minimum overlays at all. Having alternative options is always a top priority!

2. What warehouse lending system will be utilized?

Make sure to find out what type of system your warehouse bank is utilizing on the bank end. Ask to see if they can provide you with a demonstration of the reporting features? Are there any built-in efficiencies that will help your day-to-day workflows? For example, will it provide 1098 year-end reporting options?

For example, if you need to create reports for loan benchmarking or financials (both audited and unaudited) how easy is it to navigate?

3. How will the mortgage banker get paid once a loan has been purchased?

First off, prepare to have a separate bank account through the warehouse line. This could be termed an operating account or a pledge account. It may require that maintain a certain account balance or no minimum balance – make sure to check on these types of details!

Once a loan has been purchased, the warehouse bank will deposit proceeds into the account. However, if you are utilizing a separate operating account for your banking (i.e., one outside of your warehouse bank), make sure to find out in the beginning how you will be able to move the funds from the warehouse bank established bank account to your company’s main operating account. Will they allow for wires, transfers, ACH, etc.?

Also, will the warehouse line bank account allow you to link to any online accounting software? This provides the mortgage banker with that added efficiency to delegate the financial and account aspects to a third party by providing them authorized accounts to access the accounting software real time.

Moreover, you can then take the next step and use these connections to automate and build out your loan benchmarking models which are critical tools to help maximize revenue by understanding your true costs per loan.

Now, wouldn’t it be nice if there was a blueprint available that would walk you through the steps on how to climb the mortgage banker ladder!

Well, that is where we step in to help with our practical expertise and understanding of the process from mortgage licensing, investor approval, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, and more!

You can simply use our online scheduler to select a convenient consultation time and let us show you the Path to Prosperity!

Sean A. Stephens, Esq., CMB^®
Broker to Banker Consulting, LLC
SeanS@BrokerToBankerConsulting.com
Call/Text: (714) 844-7146
Toll Free: (866) 989-0564 Ext. 419

Sean A. Stephens, Esq., CMB® 

Legal Disclaimer: The information provided on this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. No representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or availability to this information. Use of, and access to, this Blog or any of the links or resources contained within the site do not create an attorney-client relationship. Broker to Banker Consulting, LLC is not a law firm and does not provide legal services.

What warehouse line is best for your mortgage business? What questions should a mortgage lender ask their warehouse bank?

In Part 1 of our warehouse bank series, we discussed key questions to ask which involved warehouse bank associated costs, principal curtailments, net worth, and other qualifying requirements. This week we will continue our deep dive into the warehouse bank selection process by reviewing additional considerations for you to be aware of at time of initial application or upon renewal.

Now, if you have not yet done so, remember to take advantage of our complimentary 30-minute initial strategy call where we analyze your situation and discuss whether a banker transition process is right for you!

During this call, we will provide practical expertise and understanding of the process from mortgage licensing, investor approval and relations, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, and more!

Call/Text: (714) 844-7146

Part 2 – What questions should a mortgage lender be asking their warehouse bank?

1. Is your warehouse bank established?

 How have they dealt with industry changing events that have happened over the past 15 years such as the 2008 financial crisis, COVID, and now the recent collapse of various Non-QM lenders? It is important to understand their history, track record, and the experience of the team that you will be working with.

2. Does your warehouse bank offer flexibility with the type of products you offer?

In today’s environment, lenders are looking into every opportunity to expand their business into various markets. Maybe you specialize in manufactured homes, prime jumbo, USDA Rural Housing, FHA 203k, delegated underwriting, repair and renovation loans, or construction to permanent financing.

Take time to understand what appetite your warehouse bank has for the products you originate and if they have any overlays. Just like lenders, warehouse banks have their own internal requirements as well. The last thing you want to do is spend the time to get approved and then find out you are unable to fund a certain loan type.

3. Are you able to scale from non-delegated to delegated underwriting?

As you climb the banker ladder, your level of volume or specialization in a certain loan program may open up the opportunity of delegated underwriting.

As a quick refresher, a non-delegated correspondent is responsible for funding and delivery of the loan package to the approving lender, but they are not responsible for underwriting and approving the loan since that is handled upfront by the investor who purchases the loan from you. Because of this, warehouse banks understand the safeguards built into the non-delegated channel which are geared to help an emerging banker.

In contrast, while delegated correspondents are also responsible for funding and delivery of the loan to the end investor, they take on the increased risk of underwriting and approval pursuant to agency guidelines and any investor overlays. Although this provides the correspondent with improved margins and control, warehouse bank providers also realize that there can be a heightened risk associated with the delegated channel.

If you are planning to grow from non-delegated to delegated delivery, ask upfront what the warehouse provider’s policies are for this type of transition and if there are any increased net worth requirements to be aware of.

As mentioned previously, whether you are a delegated or non-delegated lender, it is always best practice to optimize your investor set so that you have multiple outlets for each loan product being funded with your warehouse line. This will allow you to mitigate risk and help protect your business from the unforeseeable.

Please tune in next time where we will continue to expand into more details during part three of our series on what questions a mortgage lender should be asking their warehouse bank.

Now, wouldn’t it be nice if there was a blueprint available that would walk you through the steps on how to climb the mortgage banker ladder!

Well, that is where we step in to help with our practical expertise and understanding of the process from mortgage licensing, investor approval, warehouse bank selection, third party fulfilment providers, E&O and Surety bond companies, origination strategies, coaching, consulting, and more!

You can simply use our online scheduler to select a convenient consultation time and let us show you the Path to Prosperity!

Sean A. Stephens, Esq., CMB^®
Broker to Banker Consulting, LLC
SeanS@BrokerToBankerConsulting.com
Call/Text: (714) 844-7146
Toll Free: (866) 989-0564 Ext. 419

Sean A. Stephens, Esq., CMB® 

Legal Disclaimer: The information provided on this blog does not, and is not intended to, constitute legal advice; instead, all information, content, and materials available on this site are for general informational purposes only. No representations or warranties of any kind, express or implied, about the completeness, accuracy, reliability, or availability to this information. Use of, and access to, this Blog or any of the links or resources contained within the site do not create an attorney-client relationship. Broker to Banker Consulting, LLC is not a law firm and does not provide legal services.