Learning to Run Uphill

By Stacey Harding, CML,  CMPS
Chairman of the Board

Abraham Lincoln is credited with saying that “You can’t strengthen the weak by weakening the strong.” That quote summarizes very well the basis for opposition CMLA has offered over the past 51-years to legislation seeking to regulate some mortgage providers. Time after time, CMLA representatives have explained how the preemption of federally chartered or insured financial institutions would exempt loan originators from state regulation. Time after time, CMLA representatives explained why state regulation cannot create a level playing field for loan originators and how state regulation could only make the playing field less level.

Over the years, small-to-mid-size, privately held mortgage providers, whether mortgage brokers or mortgage bankers, grew to originate two-thirds or more of all residential mortgage loans. Mortgage Lenders and Brokers are still the strong, not the weak. Many loan originators bought into the idea that “licensing” would put “bad” originators out of the business and offer a heightened sense of credibility to those who were regulated… without realizing the competitive disadvantages that would result due to federal preemption. Now that Colorado has implemented regulation of some loan originators, more people are making the observation that the current regulatory model isn’t “fair” because the requirements of “mortgage brokers” don’t apply to all loan originators. Many who previously enjoyed the strength of being unregulated are realizing that the burden of state regulation can apply only to some and never to all. Today, those originators who are defined as “mortgage brokers” are learning to run uphill. The strong are finally starting to realize that they have been weakened while the playing field has become less level.

It has been interesting over the past several months to receive questions and input from loan originators, sales managers, and business owners as to the perceived faults of the new Colorado regulatory environment. One of the more common questions I’ve received is why did CMLA support the legislation that created the new, less level playing field. It’s dumbfounding to be asked that question because CMLA was the only organization that opposed the 2006 registration bill and one or more of the four “mortgage bills.” We’re the one organization that took criticism for opposing inequitable regulation.

The Great Conspiracy that Wasn’t

Some have suggested that preempted entities have somehow manipulated the regulation of “mortgage brokers,’ both here in Colorado and in Washington, DC. While associations representing banks and credit unions generally supported the Colorado “mortgage bills,” there was no need for them to work in some secret manipulative way. The fact is that state and national associations that represent mortgage brokers have led efforts to regulate mortgage brokers. As a result, there has been little, if any need for preempted entities or their trade associations to work in secret in order to pass such legislation.

My point is not to place blame but rather to encourage those who are affected by the new Colorado regulation to not waste time finger pointing. Those who took time to listen and think through the affect of federal preemption could easily recognize that state regulation would result in a playing field that was less level. If you are just now coming to that realization, I would encourage you to move on and to avoid blaming those who are exempt. Moving forward, please take time to listen to CMLA’s perspective and remind yourself constantly that CMLA advocates for a level playing field, not for one segment of the industry over another. We will continue to work hard to keep you informed of the issues and of the hard work the CMLA is doing to help preserve this great industry in Colorado.

Legislature Not Likely to “Fix” Things

Another frustrating question that is often presented to me is whether the Colorado legislature will run a bill in 2008 to “fix” the problems that existed in the 2007 “mortgage bills,” now our current regulatory model. The answer is, probably not. The reason is that most legislators who supported the 2007 legislation adamantly believe that they got it right.

One example of a “fix” that is often proposed is to eliminate the bonding requirement now that errors and omissions insurance is also required of each licensed person who is a “mortgage broker.” More mortgage brokers are expressing frustration, even outrage that Colorado seems to be the only state that requires both a bond and insurance of each individual person who is a mortgage broker. Those who offer that perspective are often working under the assumption that legislators or even CMLA is unaware of that fact. Nothing could be further from the truth. In fact, CMLA has based veto requests on that very point. When registration passed in 2006, the Department of Regulatory Agencies (“DORA”) testified and documented that some 37 states required mortgage brokers to be bonded. CMLA pointed out the fact that in 35 of those 37 states, the term “mortgage broker” referred to an entity (a company), not to an individual person. In 35 of those 37 states, the mortgage brokerage company was required to have one bond, not a separate bond for each loan originator. CMLA provided documentation from all 37 of those states to Governor Owens as part of our appeal to veto the registration bill (HB06-1161), which was denied and the bill was signed into law. While the consequences may have been unintended, the bill was the direct result of an application filed by the Colorado Association of Mortgage Brokers, which had requested regulation in the form of registration. During the 2007 general session, CMLA advocated against the added requirement of errors and omissions insurance, which does not cover fraud or other criminal activity, and which adds unreasonable cost for each individual person who is a mortgage broker. We believe that Colorado is the only state to maintain this requirement for individual persons. However, the legislature, Governor Ritter, and the Division of Real Estate have expressed support for both requirements. Meanwhile, many mortgage brokers are advocating for a “fix” that was adamantly denied during the 2007 general session.

Another “fix” that is often proposed is that a Board be established to oversee the regulation of “mortgage brokers.” Once again, it is a good idea that has already been denied. CMLA advocated for a board or commission, as exist for appraisers and real estate agents. However, the legislature, Governor Ritter, and the Division of Real Estate all took the view that such boards and commissions are expensive and tend to slow down the regulatory process. As the legislature was not interested in raising the cost of regulation and fully intended for regulation to be implemented as quickly as possible, there was virtually no support for a board or commission to oversee the regulation of mortgage brokers. In fact, there is some concern among appraisers and real estate agents that their respective board and commission could be eliminated. While I am unaware of any formal plans to do so, I would suggest that such an outcome is more likely than an additional board or commission being created for mortgage brokers.

What is our Regulator doing?

Erin Toll, who is the Director of the Colorado Division of Real Estate, is a competent regulator and knows exactly what she is charged with doing. It is unfortunate that some who are affected by the new Colorado regulatory model would presume to think that Director Toll is operating by her own book. If you have made such an assumption, I would encourage you to re-read the four “mortgage bills” and develop a better understanding of the requirements set forth in law by the legislature as to how the Division of Real Estate must regulate “mortgage brokers.” Director Toll must stay within the law when adopting rules and creating disclosures forms for “mortgage brokers.” Friends, if you have harbored any resentment toward Director Toll or her office, I would encourage you to let it go, your frustration would be more appropriately directed at the “mortgage bills” she is working to enforce.

The World Needs Mortgage Brokers

Colorado and our nation need mortgage brokers. The rural nature of Colorado requires small business operators in outlying communities where limited production cannot support a mortgage banking operation. Consumers deserve aggressive competition for their business and the choice to do business with a small business entrepreneur or a large national corporation. The world needs mortgage providers of all types, which is who CMLA represents.

Since you’ve read this far, let me offer my thanks for your time and consideration. Believe me, I understand that you need to get that next loan closed. However, if you aren’t willing to take time to understand the legislative and regulatory future for our industry, then you’re making the decision to remain a target. Please don’t allow that to happen. Consumers need you and, whether you realize it or not, you need CMLA.

What can I do to stay informed and make a difference?

If you received an email from CMLA announcing the publication of this newsletter, then your email address is already part of our distribution list. If you did not receive an email from CMLA about this e-newsletter and you’d like to add your email address to our distribution list, then send an email to pres@cmla.com and we’ll add your email address to our list. You don’t have to work for a CMLA member firm to subscribe to our broadcast email service.

Next, visit the CMLA web site and review our membership list to determine whether your company is a member firm. Mortgage brokers, mortgage bankers, banks, savings & loan associations, government sponsored enterprises, warehouse lenders, etc are listed under the Lender Directory, while industry service providers and non-industry vendors are listed under the Affiliate Directory. If your company is a member firm, then THANK YOU for supporting CMLA. If not, please take time to download the CMLA membership application, which includes instructions and a schedule of membership categories and corresponding rates. Membership dues range from $200 to $1,950 per year, based on the number of people in Colorado who affiliate with the company name. Once a company becomes a member, CMLA considers all persons who affiliate with that company name to be members of the association.

Finally, get to know your State Senator and State Representative. If you live in Colorado, then you have one of each based on your home address. Contact those people and schedule a coffee meeting with them in your neighborhood. Get to know them as people and remember that they work for you and the people who live in your community. Ask each of them to name one or more real estate agents who live in their district and they’ll probably be able to do it. Ask them to name another mortgage professional who lives in their district and most won’t be able to think of one name. That’s our problem and I need your help to change it.

In order to identify your state legislators, you’ll first need your nine digit “Zip + 4” zip code. To obtain that information, go to: http://zip4.usps.com/zip4/welcome.jsp and enter your home address. Make note of your Zip+4 zip code for use at the next web site. From there, go to Project Vote Smart at: http://votesmart.org/index.htm from there, look for the box labeled “Enter Your 9-Digit ZIP Code:” and then click “GO”. The system will generate a page that lists your elected officials from President of the United States down to local offices, and including your Colorado State Representative and State Senator. Write down the names of those two people and then access the following directory of State legislators to obtain their home and office phone numbers: http://www.cmla.com/Legislator_Contactlist.pdf

If you meet with one or both of your State legislators, be brief and polite when explaining your views. Ask them how you can be of help in affecting positive change for our industry and the State of Colorado. If they disagree with you, respect their position and move on. Whether you sway their opinion or not, we need for more people in our industry to know their state legislators and for those elected officials to know us.

Thank you for your time, consideration, and support. Please let me know your thoughts by sending me an email to chairman@cmla.com.

David Balmer named CMLA's “Legislator of the Year”

The Colorado Mortgage Lenders Association has named State Representative David Balmer as “Legislator of the Year”. Balmer, a Republican from Centennial, represents the people of State House District 39, located in southeast Arapahoe County and which includes the cities of Centennial and Foxfield.

Since his election to the Colorado House of Representatives in 2004, Representative Balmer has been a tenacious advocate for free enterprise and personal accountability. He has opposed intrusive and discriminatory government regulation of small business people. After his re-election in 2006, his House Republican colleagues elected him to as Assistant Minority Leader.

In presenting the award, Mr. Lewis offered thanks to Representative Balmer for his standing against bad legislation and for ethical, law-abiding business people. Despite criticism from legislators and press, Representative Balmer stuck to his principles and opposed misguided and biased legislation to unfairly regulate mortgage brokers in Colorado. Rather, Representative Balmer worked to protect access to mortgage credit, promote competition, and called for aggressive enforcement against those who commit unethical or illegal actions.

Larry Castle Receives Lifetime Achievement Award

Established in 1998, the E. Michael Rosser Award is presented annually by the Colorado Mortgage Lenders Association to a member who has made focused and dedicated lifetime contributions to the mortgage lending industry. And in doing so, has personified the highest principals and professional values of this association.

The award is named for Mike Rosser, CMB, and CML, who served as chairman of this association from 1985 to 1986. The Rosser Award represents both lifetime achievement and recognition of our appreciation for the recipient’s superior contributions to the association and our industry.

This year, we recognize the lifetime achievements of Mr. Lawrence E. “Larry” Castle, manager of the firm Castle, Meinhold & Stawiarski, LLC. Mr. Castle and his firm represent many of the largest national servicers and have the tough and thankless job of resolving foreclosures for those entities.

Prior to the establishment of his present firm, Mr. Castle was an associate and later a partner of the Denver law firm of Hopper, Kanouff, Smith, Peryam and Terry from 1984 until 1990. Mr. Castle is responsible for non-routine foreclosure matters, title problems and claims, commercial loan foreclosures and deeds-in-lieu of foreclosure as well as general real estate law issues.

Larry received his Bachelor of Arts degree, Phi Beta Kappa, from Colorado State University in 1976 and his Juris Doctor degree, cum laude, from Southwestern University School of Law, Los Angeles, California in 1980. In 1981, Mr. Castle received his Masters of Law degree in taxation from New York University.

Mr. Castle is a member of the American Bar Association, the Real Estate Law and Title, Business Law, and Tax Law sections of the Colorado Bar Association, and the Tax Law sections of the California and New Jersey Bar Associations. Larry practices primarily in the areas of commercial real estate and lending, tax, franchise, partnership, corporate, securities, and commercial law. Mr. Castle was also a member of the counsel of the Taxation Section of the Colorado Bar Association from 1985 to 1988.

Over the past three years, State Representative Michael Garcia (D) of Aurora has sponsored two bills to streamline and simplify the foreclosure process in Colorado. Throughout that process, CMLA has relied on the expertise and wise counsel provided by Mr. Castle. During those years, we have achieved victories together and avoided other battles by standing our ground. Working with Mr. Castle, CMLA was able to secure the “RESPA exemption” for mortgage providers to legislation that affects Foreclosure Consultants and Equity Purchasers, and we have defeated repeated efforts by Homeowner Associations to force lenders to pay additional HOA dues in foreclosure proceedings.

2007 CMLA Holiday Party benefits Childrens Hospital

Each Year, the CMLA Community Outreach Committee organizes a generous and fun-filled evening of festivities – know as the CMLA Holiday Gathering and Gift Auction. This year was no different on December 6 over 150 guest attended this festive gala to help a wonderful cause.

CMLA’s community outreach efforts have always focused on issues relating to housing. Over the years, we have supported groups such as The Colorado Foreclosure Help Line, Habitat for Humanity, Colorado Housing Assistance Corporation, Denver Rescue Mission, and Atlantis – an organization that renovates homes to fit the needs of recently disabled persons.

This year, we selected Children’s Hospital as our beneficiary because, for children who are confronted with life-threatening illness, Children’s Hospital often becomes their home. For some, Children’s Hospital isn’t just a place where they go to see the doctor or get treatment, it’s where they live in order to remain alive.

With everyone generosity we made a wonderful gift-fill Christmas for the children of Children’s Hospital. On December 12 CMLA delivered over 50 gifts to the hospital to distribute to all the wonderful boys and girls.

Special thanks to all our sponsors

AIG United Guaranty Residential Insurance
Air Academy Federal Credit Union
American Sterling Bank
Bellco Credit Union
Bloom Murr & Accomazzo, P.C.
Castle, Meinhold & Stawiarski, LLC
Cherry Creek Mortgage Co., Inc.
Citi Home Equity
Clarion Mortgage Capital, Inc.
Colorado Housing and Finance Authority
Cornerstone Mortgage Company
CTX Mortgage Company
Eagle Home Mortgage
Ent Federal Credit Union
First National Bank Mortgage
Franke, Greenhouse, List & Lippitt, LLP
Franklin American Mortgage Company
Green Mountain Mortgage Corp.
Land Title Guarantee
Peoples Mortgage Corporation
PMI Mortgage Insurance Company
Pulte Mortgage LLC
Radian Guaranty Inc.
SunTrust Mortgage Inc.
Timberline Home Mortgage, Inc.
TR Mortgage Inc.
Weatherman Insurance Agency
Wells Fargo Home Mortgage

Holiday Wisdom: It’s not just about pumpkin pie

This holiday season; don’t just worry about expanding your waistline but also expanding your credit waistline! There are several traps it is easy to fall into during this spending season. But there are some tips you can follow that will help you avoid these pitfalls and keep your credit rating in good shape all year long!

Pay with cash! It is easy to go into credit card debt this time of year that can then haunt you for years to come. Did you know that if you run up $5000 in credit card debt and only make the minimum payment, based on the interest rate it could take you 46 years to pay off that debt? And you will have paid over $18000! If you do have to use credit cards, be sure you have the cash available to pay it off at the end of the month or at least be able to pay a good portion of it off.

“If you apply for our credit card today we’ll give you 15% off of your purchases.” Sounds like a great offer, right? Wrong. We’ve all been there. Go into any department store and some person carrying a clipboard follows us around and speaks those exact words. Why is this a bad idea? First, it will create a revolving inquiry on the consumers credit report. If a consumer already has several credit cards, a new credit card inquiry could have a negative impact on a credit score. Second, it will show as a new revolving account. Any time a new account appears on a credit report, it will, at the onset, have somewhat of a negative affect because there is no history on it. Third, it will most likely be maxed out because all the Christmas shopping was done with it. Optimally the bureaus don’t want to see any revolving debt with a balance over 30% of the high credit. Once a consumer goes over that amount it starts to hurt and the higher the balance the more it hurts.

So once all the shopping is done, the stockings are hung and the presents are wrapped the next best thing to do is to pay the bills on time. One 30-day late payment can have a very negative impact on a credit score. Many consumers believe if they pay their mortgage, auto, and student loans on time, that is enough. It is equally important to pay all credit card payments on time, including store cards. One late on even a small department store card can lower a credit score up to 100 points or more!

In reality it takes very little to create and maintain a good credit score. The perfect portfolio for a good score would be:

• 2 installment loans with balances
• 3-4 revolving accounts with balances less then 30% of the high credit
• 3-4 revolving accounts with long histories and no balance
• No collections, late payments, or public records

This holiday season let’s remember: everything in moderation – not only for our waistlines but for our credit waistlines as well! Happy Holidays!

Mindy Leisure and Jim Kaiser
Advantage Credit Inc. of Colorado www.advcredit.com
mindy@advcredit.com
jim@advcredit.com

Affordable housing, what is it?

By Anne Lovett
Citywide Banks

Affordable housing is defined as housing for low to moderate income households that allows them to spend no more than 30% of their income on housing. One in five Colorado homeowners and two out of five renters are considered cost-burdened and in need of affordable housing by Federal standards. According to the Joint Center for Housing Studies at Harvard University, more than 50% of Colorado low-income households have severe housing cost burdens. This has resulted in a range of issues, including larger homes with more debt burden, less ability to pay other bills such as health care and energy and painful foreclosures.

Affordable housing, why does our state need it?

Affordable housing is an investment into Colorado’s future. According to the National Governors Association housing costs are a primary factor in determining whether a state can effectively attract and retain employees such as teachers, firefighters, policemen, retail workers, and businesses, as well. For example an employee earning $30,000 per year or $2500 a month should spend no more than $825 on a home or rent. What makes this calculation more difficult for the Colorado family is that median Colorado home prices have soared 66% in 6 years compared to only 18% median wage increases during the same period.

How are we currently trying to address our shortage of affordable housing?

Well, on the homeownership side we have many wonderful downpayment assistant programs such as those provided by CHAC, or Colorado Housing Assistance Corp or HOAP, the Aurora homeownership program. There are also assistance programs through Arapahoe County and Commerce City. These downpayment assistance programs are typically income restricted to help low-to-moderate income households and can be used with loan programs such as FHA or the Community loans through Fannie Mae and Freddie Mac.

Another good source for an affordable loan product is through CHFA or Colorado Housing Finance Authority that provides downpayment assistance as well as a first mortgage for first time homebuyers. These programs require Borrowers attend first time Homebuyer programs which are informative. The various homeownership assistance programs’ websites can be found through CMLA.

Most counties in Colorado have a housing authority that deal with assistance for both homeownership and rentals. On the rental side they will provide Section 8 housing, which is housing that is subsidized by the Federal government. There are also tax credit programs that allow non-profit, for-profit and public housing authority developers to build affordable housing at a lower cost. Many localities have introduced land use incentives such as inclusionary zoning laws that require projects over a certain size to include some affordable housing units. Other land-use/zoning policies have encouraged housing be planned near employment center to reduce traffic, reduces pollution, and strengthens neighborhoods. It creates economic growth for our state by supporting current businesses with workers, and attracting new businesses to our state.

Even with federal public finance incentives, there are not enough tax credits allocated, the Federal government has cut back on Section 8 housing and there are long wait lists right now. Even with the monies for downpayment assistance it is still hard to qualify low-to-moderate income borrowers because home prices are still high.

What are some of the recent development in affordable housing and what does the future hold?

Some more recent trends in affordable housing include land trusts where the borrower buys the home and leases that land underneath, making the cost of the home less and the loan amount. There is currently a land trust at Lowry in Denver, and another in Boulder known as the Thistle community. We also have builders trying to build smaller more cost effective homes, but still these prices are difficult for the first time homebuyer to afford. We have more private-public partnerships building mixed-use higher density affordable housing or transit oriented developments where public dollars are used to fund part of a development. Colorado is currently working on a statewide housing investment fund that could be used for affordable housing, by funding downpayment assistance programs, helping developers borrow to build more affordable homes and rental units. This would help our workforce and our economy.

Legislative & Regulatory Update - December 19th, 2007

State Issues

Visit the Colorado Division of Real Estate for information about rules and disclosure requirements for those persons who meet the definition of “mortgage broker” in Colorado: http://www.dora.state.co.us/real-estate/mortgagebrokerregistration.htm

Federal Issues

Mortgage Reform Legislation

H.R.3915 “Mortgage Reform and Anti-Predatory Lending Act of 2007”

The bill passed the US House on November 15, 2007 by a vote of 291 to 127.

Legislative Process Note: CMLA would encourage members and friends to recognize that the US Senate will take up its own version of the bill, that being S. 2452. Should the Senate pass its own version, a conference committee of House and Senate leadership would meet with merge the House and Senate versions. From there, the merged version of the bill would go back to each chamber for concurrence. If passed by both chambers, the final bill would then be sent to the President for signature or veto. H.R. 3915 is not law; it has simply passed through the US House of Representatives.

Key Issues:

• Requires registration for all originators and minimum standards for state-licensed originators
• Establishes new anti-steering provisions that limit Yield Spread Premium and equivalent compensation for mortgages that are “not qualified mortgages.”
• Requires that a lender determine in good faith that a consumer has the ability to repay their mortgage and that refinance loans provide a net tangible benefit. Note: “”Qualified mortgages” and “qualified safe harbor mortgages” would be presumed to meet these requirements; the presumption is rebuttable against lenders for “qualified safe harbor mortgages”.
• Prohibits prepayment penalties for “not qualified mortgages”.
• Would expand the coverage of HOEPA and its restrictions governing high-cost mortgages Includes numerous other provisions including facilitating and funding counseling programs and requiring counseling for some borrowers, establishing new escrow and appraisal requirements including requiring escrow accounts and appraisals for certain borrowers, and establishing new disclosure requirements for all loans.

S. 2452 “Home Owners Preservation and Protection Act”

This is the companion bill or Senate version of H.R. 3915. As of this date S.2452 has not been published. The following key issues have been described in press comments about the pending bill:

• Highlights per Mortgage Action Alliance
• Establish federal standards for offering mortgage products
• Prohibit steering
• Create an ability to repay standard for sub-prime and nontraditional mortgages
• Require escrow for taxes & insurance for sub-prime and nontraditional mortgages
• Require servicers to attempt loss mitigation before filing for foreclosure
• Attach liability to any person who purchases, holds, or is otherwise assigned a sub-prime or nontraditional mortgage

HR.3837 “Escrow, Appraisal and Mortgage Servicing Act of 2007”

Now a key amendment to HR.3915

Bankruptcy Reform

HR.3609 – Emergency Homeownership and Mortgage Equity Protection Act of 2007

Passed House Judiciary Committee on 12-12-2007 by a vote of 17 to 15

• Authorize a BK judge in a Chapter 13 to modify the terms of a mortgage loan to extend the repayment period, adjust the interest rate, and forgive a portion of the borrower’s debt.

HR.3996 – Temporary Tax Relief Act of 2007

Passed the House on 11-9-2007 on a vote of 216 to 193

• To amend the Internal Revenue Code of 1986 to extend certain expiring provisions and for other purposes
• Mortgage charge-offs would no longer count as income
• MI deduction through 2014

HR.3648 Mortgage Forgiveness Debt Relief Act of 2007

Has become a part of HR.3996

HR.3778 “Home Owner’s Mortgage & Equity Savings Act (HOMES Act”

Latest Action – Referred to House Committee on the Judiciary – 10-9-2007

• Allows modification of a mortgage initiated before 9-26-2007 on a principal residence
• Allows principal amount of mortgage to be lowered to the FMV
• Permits waiver of early repayment or prepayment penalties
• Permits, also prohibits, delay in, or voiding any rate adjustments
• Permits (Ch. 13) the BK court to consider certain fees (interest, late fees…) to be a voidable transfer if the court finds there was a substantial failure to disclose material terms of the mortgage
• Authorizes delay of the prerequisite that a debtor obtain credit counseling before filing the petition for BK, if a foreclosure has been initiated.
• Directs the Comptroller General to study and report to Congress on the impact of allowing BK judges to restructure principal residence mortgage on the secondary market for mortgages.

HR.2136 “Helping Families Save Their Homes in Bankruptcy Act of 2007”

Latest Action – Committee on the Judiciary – Hearings held – 12-5-2007

• Permits a BK plan to modify a loan secured by the principal residence of a chapter 13
• Also provides for payment at a fixed annual percentage rate over a period of 30 years
• Exempts a chapter 13 debtor from required credit counseling if the residence has been scheduled for a foreclosure sale.
• Permits BK plan to provide for waive or any prepayment penalty
• Conditions any feed, costs, or charges that may be added to the mortgage if the court is notified within a specified time. If court is not notified on time, allows waiver of such fees.
• Exempts from the estate in BK up to $75K of the debtor’s aggregate interest in real property used as debtor’s principal residence if the debtor is age 55 or older.