It’s no secret that compliance and public perception are top of mind for lenders and MLOs. Recently, major plea deals and prison sentences were handed down for real estate-related misdeeds and First American released data showing an increase in defects, fraud and misrepresentation in the information submitted in mortgage loan applications.
The acts that led to a 150-month prison sentence for conspiracy to commit bank fraud in New York and 23 guilty pleas from investors for housing-related bid-rigging in Georgia are extreme and date back to before the Consumer Finance Protection Bureau (CFPB). Data from First American Financial Corporation's February 2017 Loan Application Defect Index hits a little closer to home for most companies. The defect index numbers don't necessarily indicate that lenders are sliding back into pre-CFPB business practices, but experts like First American Chief Economist Mark Fleming are pointing to the market and human nature.
Fleming explains it this way:
"Rising mortgage rates continue to increase the share of higher risk purchase loan applications, but they are also incenting more borrowers to apply for ARMs [Adjustable Rate Mortgages]. The savings for the consumer can be significant, but ARM loan applications have historically had higher defect, misrepresentation and fraud risk. The increasing popularity of adjustable rate mortgages is something to keep an eye on as the spring home buying season warms up."
Fleming's take on growing consumer interest in ARMs should further push lenders and MLOs to ensure compliance in everything from rate and program flyers at an open house, all the way through application and close. MLOs and their Realtor partners shouldn't be afraid to feature an ARM program, but simply be aware that if industry think tanks and pundits are watching the relationship between increases in loan defects and ARM applications, regulators probably are too.
Not only do you want your record-keeping in order, but also the professionalism and consistency of your marketing can help bolster your image and public trust. It's a good time to offer Realtors the opportunity to co-market using tools that address these important factors.
Loan defect figures can actually open doors to building business. The ARMs of today differ greatly from the interest-only products of the past, but regulators, media and consumers are understandably nervous if they hear anything related to mortgage with the words "fraudulence" and "misrepresentation" attached. Use these latest figures to set meetings and discuss the growing interest in ARMs with your Realtor partners and work together to educate clients about getting pre-approved and examining all loan options available to them.
Highlights from the February 2017 Loan Application Defect Index Data
DEFECT INDEX - PURCHASE LOANS
- Up 2.4% January to February 2017
- Up 2.4% year-over-year February 2017
DEFECT INDEX - REFINANCES + PURCHASES
- Up 4.1% from January to February 2017
- Up 1.3% year-over-year February 2017