Today's podcast is brought to you by nCino, makers of the nCino Mortgage Suite for the modern mortgage lender. nCino Mortgage Suite's three core products -- nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics -- unite the people, systems, and stages of the mortgage process. See how nCino can support a homeownership journey that your borrowers and your team will love at nCino.com.
Originators: Want to add value for your potential current or previous clients who are veterans? Send them a link to Veteran’s Day discounts and free meals. LOs and brokers are good at staying in touch with potential clients and continue to prospect and talk to previous clients. (In fact, the current STRATMOR blog is titled, “Listening to Real Estate Agents Can Pay Off for Originators”.) A good reason to talk to previous clients is about their credit card balances. As noted in the Commentary recently, Americans' credit card debt hit a record $1.08 trillion in Q3, with delinquencies led by Millennials, according to the Federal Reserve Bank of New York. So LOs, this means your previous clients are potentially paying 20-30 percent in non-tax-deductible interest on their outstanding credit card debt… A good reason to touch base. (Today’s podcast can be found here, and this week is sponsored by nCino makers of the nCino Mortgage Suite. With three products tailored to the needs of the modern mortgage lender, nCino Mortgage, nCino Incentive Compensation, and nCino Mortgage Analytics unite the people, systems, and stages of the mortgage process. Hear an interview with Polunsky Beitel Green’s Marty Green on the Fed’s no-hike decision last week and how the central bank is weighing financial conditions moving forward.)
“PrimeLending is currently seeking a dynamic SVP, HR Director to become an integral member of our leadership team at our Dallas headquarters. We're looking for a proven HR professional who has experience working closely with senior leaders, managing a team of seasoned HR Business Partners, and supporting a sales-driven organization. As a people-first company, we’re seeking someone who can champion our award-winning culture and play a pivotal role in influencing the very heartbeat of our organization. If this sounds like you or someone you know, don't miss this exciting opportunity to become a part of the PrimeLending and Hilltop Holdings family. For more information, reach out to us. Join PrimeLending today, and let's shape the future of homeownership together!”
“Peoples Mortgage embodies a profound commitment to people, as exemplified by individuals like Mary Lee, who recently joined our ranks. Her own words encapsulate our philosophy: ‘It is all about the people you work with.’ We’re honored to be a recipient of the Top Workplace in Arizona for the third consecutive year. This achievement underscores our unwavering dedication to nurturing a workplace culture that prioritizes its people. At Peoples Mortgage, our culture thrives on the pillars of teamwork, trust, and a collective passion for realizing homeownership dreams. We take immense pride in crafting tailor-made mortgage solutions and equipping our sales team with the tools they need to thrive in any market. Together, we can shape the future of this industry, making a profound impact and changing lives, one loan at a time. Take your first step through that door by contacting our managing partner, Shawn Morris today!
Lender and broker software, products, and services
In the South, a forecast of snow will clear essential items from grocery store shelves in a matter of minutes. In the mortgage industry, winter has come, and lenders who will survive are stocking up on essentials that will help them identify and win over borrowers. Lenders determined to weather the chill are turning to TrustEngine BIP, a data-driven borrower intelligence platform (BIP) that ignites deals by matching the right loans with the right borrowers at the right time. What’s more, by equipping mortgage advisers with consultative advice, TrustEngine fuels interactions that earn consumer trust, referrals and repeat business. Don’t find yourself staring at empty shelves. Contact TrustEngine to fuel your #LendingSuccessEngine today.
“CWDL is excited to announce our expanded Fractional CFO Oversight services with the addition of industry veteran Paul Hubbard. Paul has managed the financial initiatives for some of the market’s leading mortgage banks, and now as part of the CWDL team, lenders can benefit from his depth of both mortgage industry and financial knowledge. Our Fractional CFO Oversight services are widely customizable, from forecasting and planning to a range of project-based consulting, such as M&A deal analysis, hedge and fair value considerations, accounting team coaching, and more. Retaining executive-level leadership in this market can be costly, but having an expert on your team to guide your financial strategy is critical to your profitability. Contact Kasey English or 619.302.0010 to schedule a discovery call.”
LoanCare’s all-star lineup just got a little more stacked! Joining the team with over 17 years of scoring hits in the financial services industry is Eric Seabrook, VP, Business Development. He joins Kevin Cooke, Jr., Head of Strategy & Business Development, to identify new growth opportunities for LoanCare and its clients. Seabrook’s deep industry knowledge and relationships, along with his expertise in servicing operations, and track record of delivering innovative solutions for improving loan performance will help our industry partners knock their goals out of the park. Reach out to Eric today to learn more about LoanCare’s custom playbook for client success.
TPO products for brokers & correspondents
“This Veterans Day and every day, we at Newrez Wholesale are thankful for the service and sacrifice of our Veterans and active service members, as well as their families. Our mission is to help make the homeowner journey of our brave military families as easy as we can through broker support and education on VA lending. That’s why Newrez offers free webinars on VA lending topics to all brokers, not just Newrez Wholesale brokers. Our next VA webinar on December 20 will focus on what you need to know about income for a successful VA transaction. Simply click here to register, and we’ll see you December 20.”
“Discover new ways to grow home loan volume with the Planet Home Lending Correspondent Team. We make it easy to offer profitable niche products, including renovation, home equity, manufactured housing, buydown, and USDA loans. Call to discover how Planet’s product expertise can strengthen your product lineup to hit CRA/affordable housing goals and boost profits. A 30-minute meeting with SVP, Correspondent Sales Jim Loving (414-270-0027) can elevate your home lending volume all year.”
1099 versus W-2: don’t flip a coin
As we wrap up every year and think about taxes that will be paid, the tax burden for most LOs and senior management will be less than in previous years. And it brings up the topic of how lenders pay their mortgage loan originators (MLOs, or LOs) W-2 or 1099: is one or the other “against the law”? Is a payroll method a recruiting tactic? What happens when DRE Brokers hire independent contractor mortgage loan originators? Do state laws differ from federal laws, and do those differ from Agency rules (HUD, for example), and where does the SAFE Act fit in? Let me say this up front: an informal, non-scientific poll conducted by yours truly shows that W-2 dominates and has for years.
Of course MLOs should remember that their compensation should not result in the steering of borrowers toward one program or another. Some do not know the difference legally between an MLO, a mortgage brokerage, and a net branch. An MLO is not a mortgage broker. Those in the business should know that the issue of W-2 vs. 1099 depends on the facts and circumstances of the job, not what license you hold. An MLO license from DBO, or a real estate license with an MLO endorsement from DRE, it still depends on the job. Recall back some years when the industry looked to the CFPB for payroll guidance. The CFPB MLO comp rule squelched 1099 and focused on W-2. (And state laws do not supersede a Federal MLO Comp law.)
Some believe that the CFPB rule writers were anti small business, and this was exemplified in the MLO comp rule. They point to lenders still running some form of net branch operation, which most regulators agree is illegal, and the individual branches are being 1099’d. Why? Because they are free to charge 4+ points and regulators don’t want to lose companies? Possibly.
The W2 vs. 1099 question involves CFPB and HUD rules regarding loan officers, state and federal labor laws, definitions of broker versus banker versus loan officer, SAFE Act/state licensing laws, etc. As I understand it, the reason Realtors can still be paid on a 1099 is because their strong support in numbers when they went to lobby for an exception. Employees (and employers) are all subject to federal and state wage hour rules. The CFPB refers to Mortgagee Letter 2006-30 and affirms it will follow HUD’s rule, which is to say that Mortgage Brokers and Mortgage lenders must pay their loan officers W-2 and that 1099 is illegal under HUD/CFPB Guidelines.
From California Melissa Richards, CMB, a former Partner of Financial Services Regulation & Enforcement with Mayer Brown, had thoughts on the topic a while back of DRE Brokers hiring independent contractor mortgage loan originators, taken largely from Section I of the draft letter she prepared for the California MBA to the California Department of Real Estate. Below are Ms. Richards’s notes.
The federal SAFE Act and its implementing Regulation H (12 CFR Part 1008) requires states to impose state licensing on individual loan officers referred to as “mortgage loan originators” or “MLOs.” [12 CFR §1008.103.] The SAFE Act further directs states to require individual loan officers to meet minimum eligibility criteria for MLO licensure that includes a requirement for the loan officer to be employed by a single sponsoring employer that holds state mortgage lender and/or mortgage broker licensing. Alternatively, if the individual is self-employed, they must hold both MLO licensure and state mortgage lender/broker licensure. [12 CFR §1008.103, supplemented by NMLS Resource Center including “Creating Relationships and Sponsorships” resource page.] In fact, the only reference made in Regulation H to allowed independent contractors is in the context of loan underwriters and loan processors in Section 1008.103(d).] Of note, there is no distinction in MLO license eligibility criteria presented in the federal SAFE Act and its Regulation H between MLOs working for mortgage lenders vs mortgage brokers.
(Some will say that) the SAFE Act, and its regulations, does not give definition to the term “employee.” That statement is taken directly from CFPB’s SAFE Act 2012 Examination Manual in reference to the other SAFE Act Regulation G for financial institution MLO registrants. The SAFE Act’s Regulation H for state licensed MLO’s does give definition to the term “employee:” an individual (i) whose manner and means of performance of work are subject to the right of control of, or are controlled by, a person, and (ii) whose compensation for Federal income tax purposes is reported or required to be reported, on a W-2 form issued by the controlling person. [12 CFR §1008.23.]
Applying this SAFE Act defining rule to DRE licensing of MLOs means that licensed real estate brokers and salespersons having MLO endorsement must be W-2 employed by a sponsoring DRE licensed real estate broker engaging in residential mortgage business, or be self-employed and operating under the authority of a DRE real estate broker license to conduct residential mortgage business. Due to the SAFE Act’s single sponsor restriction, the individual cannot serve in both roles simultaneously and conduct residential mortgage business in California.
I further note that while the SAFE Act’s Regulation H does grant limited exemption from state MLO licensing for individuals who perform real estate brokerage activities, that exemption does not extend to CA DRE licensed real estate brokers and their loan officers engaging in residential mortgage business. Regulation H’s exemption from state licensing is removed once “the individual is compensated directly or indirectly by a lender, mortgage broker, or other loan originator or by an agent of such lender, mortgage broker or other loan originator.” [12 CFR §1008.103(e)(1).]
The Knowledge Coop’s President/Founder Ken Perry opined, “This 1099 question continues to persist. I am not an attorney, but I can tell you there is no way in the world I would ever pay, or be paid, 1099 as a loan originator. Go check out the wage and hour laws in addition to HUD’s requirements, federal and state licensing laws. I cannot find one area that allows for this. It is true that the Realtor lobby carved out a sweet exemption for them but there isn’t one for mortgage originators. It just isn’t safe.”
The FDIC tells us that “Employee” is not defined in the SAFE Act or SAFE Act regulation. However, the original regulation’s preamble explains that the meaning of “employee” under the SAFE Act regulation is consistent with the common law right-to-control test. For example, the results of this test generally determine whether an institution files an Internal Revenue Service Form W-2 or Form 1099 for an individual.
There are state level issues. For example, in California, California MBA CEO Susan Milazzo suggests that this issue will only be resolved if/when anyone who originates a loan is moved over to the DFPI for licensing and regulation. The California DRE simply doesn’t have the infrastructure nor the regulatory guidance to monitor this activity. In California there is a new law defining independent contractors that applies to everyone in the state, including mortgage brokers (realtors have a special exemption).
Running the risk of potential conflict with Federal rules, or agreeing with those rules, states also address the issue. For example, in Georgia, “The only way to be paid on a 1099 is for a licensed company to get paid on a 1099 in the company’s name, or an individual licensed as a broker or lender to get paid on a 1099 in the individual’s name. All other work as an “independent contractor” is prohibited from being compensated via 1099.”
Every lender should consult a lawyer on anything centering on independent contractor issues. But as noted above, it would seem the vast majority of lenders pay using a W-2, and if any don’t, well, they should be aware of the risks at the federal and state levels of that policy.
Capital markets: the Fed keeps telling us the same thing
The size and duration of this year’s MBS market deterioration, and the associated run up in rates, is unique in recent decades and continues to surprise watchers with its durability. But is there an answer from the past that can help guide the industry through these turbulent waters? For answers and current market analysis, join MCT for an industry webinar on The Great Inflation vs. 2024: Analysis & New Tools for the Current Market. In this webinar, Phil Rasori and Andrew Rhodes will share analysis on the current market, comparison to relevant historical precedent, and new MCT software functionality to equip lenders in this challenging market.
In interest rate news, have you heard the good word? Mortgage rates dropped by 25 basis points last week to 7.6 percent. The dip was driven by Treasury issuance, the Fed’s stance on rates, and the lighter than expected jobs report.
Before we get too excited, keep in mind the longer-term trend in lending rates is higher and a drop of this magnitude over the same timeframe has happened no fewer than seven times over the past year, after which mortgage rates began to move back up again. Fed Chairman Powell spoke at a Fed conference, urging Fed economists to be flexible on forecast methods, but did not discuss monetary policy. Today, he takes part in a panel discussion so there is still potential for market-moving commentary.
Today’s economic calendar kicked off with weekly jobless claims: 217k, as expected, down 3k from 220k the previous week. 1.834 million continuing claims. Later today brings Treasury auctions including one for $24 billion of 30-year bonds, Freddie Mac’s latest Primary Mortgage Market Survey, and heavy “Fedspeak” including the aforementioned Chair Powell, Atlanta President Bostic, Richmond President Barkin, and St. Louis Interim President Paese. We begin the day with Agency MBS prices roughly unchanged from Wednesday, which were roughly unchanged from Tuesday, and the 10-year yielding 4.54 after closing yesterday at a six-week low of 4.52 percent.
Years ago, my Mother-in-law began reading, "The Exorcist".
She said it was the most evil book she had ever read. So evil in fact, she couldn't finish it, took it to the ocean and threw it off the pier.
I went out, bought another copy, ran it under the faucet, and left it beside her bed.
I’m going to hell.
Visit www.robchrisman.com for more information on our industry partners, access archived commentaries, or to subscribe to the Daily Mortgage News and Commentary. If you’re interested, visit my periodic blog at the STRATMOR Group web site. STRATMOR’s current blog is titled, “Listening to Real Estate Agents Can Pay Off for Originators”. The Commentary’s podcast is live and at any place you obtain your podcasts (like Apple or Spotify).