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| Insights, Opinions & Commentary
| | Banks, Thrifts & Mortgage Lenders Expect HEL Surge | Banks and thrifts are expecting to see a big jump in Home Equity Lending (HEL) this year, according to an annual real estate lending survey by America's Community Bankers. The survey found 56% of the respondents expect loan production to decline this year as the re-fi boom slows; by a larger margin they anticipate consumers will turn more to HEL's. As interest rates rise, "people will use home equity loans to tap into the equity in their homes," an ACB executive said. A similar announcement was issued in January by the Mortgage Bankers Association as well ... at this point in the interest rate cycles, we always see these comments – No Big revelation.
Escrow companies (called Closing Agents in some states), love this turn of events since their workload becomes easier for their fee! Normally for their usual full escrow/closing fee they: 1). order a preliminary title & tax report, 2). issue escrow instruction to both Buyer & Seller, along with the added fun of issuing multiple amendments and changes, plus the joy of dealing with all the phone calls from both parties - and a set of Realtors too, 3). they'll order demand payoff statements from existing property lien holders, and the need to follow up with them until they arrive, 4). make themselves available to have everyone sign the final escrow and loan paperwork, 5). prepare closing HUD-1 & checks and distribute to two sets of people.
As you'll now be hiring them to do your increasing volume of HEL's, numbers 2 and 3 above, along with a large part of 4 and five (all very time consuming activities for them), they don't have to do for HEL's! But you can bet, they'll still try and charge you their full 'standard' fees anyway. As you can see, what's left for them to do on a HEL is hardly anything - important yes - but surely not worth a full fee to your borrowers.
As you face Section 32 worksheets and see how 'tight' many HEL's need to be to qualify under the Section 32 restrictions, it might be good to know you can and should negotiate what escrow/closing agents try and charge you on HEL's. You'll get more loans to qualify if their fees are closer in line with their workload and risk.
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| | | Q&A - Outsourcing Mortgage Processing | What does it mean to outsource loans? Outsourcing is one of the fastest growing trends in the business world because it transfers non-core functions to specialized service providers, thereby allowing a company to focus on its own core strengths. For loan originators it means sending loans to specialized processing companies instead of using in-house services.
Why outsource? Some of the top reasons for outsourcing include: reduce and control operating costs, improve client satisfaction by streamlining the loan process, improve focus on getting loans instead of baby-sitting them, and gain access to a specialized service.
Many have turned to outsource processing because of on-going costs that may include rent, equipment, salaries, benefits, and insurance; as well as added expenses and frustrations associated with hiring, firing, and training new employees.
Today's technological advances mean that loans can be serviced quickly anywhere through the use of encrypted e-mail, fax, overnight delivery, electronic signature, and various software systems that give loan originators instant access to loan status information.
How does it work? Outsourcing companies strive for speed and accuracy while processing loans. First the broker or loan originator will be asked to fill out a basic working contract or agreement. Most outsourcing companies are independent contractors, and the agreement is usually on a case-by-case basis, and is not for a stipulated length of time or number of files.
Each processing company has different expectations for their loan originators, but you can expect that they will require the following items to be furnished when the file is first submitted: a completed 1003, GFE, TIL, credit report, all company disclosures and signed borrower's authorization. A processing company should be clear regarding the loan originator's role in the process, and will include a file checklist to ensure they get what is needed to process the loan.
Communication between the processor on a file and the loan officer is very important for efficient processing. Therefore outsource companies have systems in place that will allow loan officers to track their loans as they go through. Processors are only permitted to contact borrowers regarding needed items or paperwork required to work on the loan. Everything else rightfully falls under the auspices of the loan originator.
Processing fees usually range from $400 to $500 per file, depending upon loan type or complexity. These costs can either be passed on to the borrower by inclusion on the HUD, or can be paid for by the broker at the close of the loan. And many outsourcing processing companies don't charge if the loan doesn't close. However, processing fees often do not include overnight shipping charges, credit reports, etc.
What about security? The GLB Act has brought the issues of security and confidentiality into the limelight. Concerns about compliance with the Act have many looking at ways to safeguard client information. These security laws extend to all groups associated with the mortgage industry, including processing companies. Before working with a new company, check to make sure that they are aware of the laws and have appropriate security safeguards in place.
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Looking For a Few Good Writers
If you know someone who might like to author a short industry relevant article (approximately 500 words) for this monthly newsletter; please contact us. We're looking to broaden our appeal and expand this publication to include one or more additional frequent contributors. It could possibly even develop into a regular monthly or bi-monthly column for them!
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