- The Rutledge Report

Jerry Rutledge DREI, CREI, President of Alliance Academy

Jerry Rutledge has been involved with real estate, finance, development and education for more than 35 years.  He is a Real Estate Broker licensed with the Texas Real Estate Commission and a Mortgage Broker licensed by the Texas Department of Savings and Mortgage Lending.  Jerry has been awarded the Texas Real Estate Teachers Association “Certified Real Estate Instructor” (CREI) designation and the International Real Estate Educators Association “Distinguished Real Estate Instructor” (DREI) designation.  He served as director of Education for the North Texas Commercial Association of Realtors, and is owner/operator of Alliance Academy, a TREC, TSML, State Bar of Texas, and State Board of Accountancy Approved Provider School.

Friday, May 2, 2008 - RESPA Rewrite 2008

The Real Estate Settlement Procedures Act, enacted in 1974, has had only a few amendments since then.  HUD is responsible for enforcement and oversight of RESPA.  RESPA pertains to all settlement service providers which include Real Estate and Mortgage practitioners, title insurance companies, appraisers, etc.

You may recall an attempt to rewrite RESPA in 2002 by Mel Martinez, the Secretary of HUD at that time.  The rewrite did not successfully pass after Martinez resigned, returned to Florida, ran for office, and is now US Senator Mel Martinez.  HUD was then headed by Alphonso Jackson, the former Director of the Dallas Housing Authority.  Jackson resigned recently under pressure put to the Whitehouse by Democrats who felt that allegations of Jackson’s behavior stood in the way of FHA programs needed immediately to rescue people facing foreclosures.

The latest RESPA rewrite has made its way to the Federal Registry for public and industry comment and will expire on May 13, 2008.  HUD says the revised RESPA rule will improve and standardize the Good Faith Estimate (GFE) form.  HUD believes the new GFE will help a consumer to do price shopping and understand how yield spread premiums (YSP) can affect their closing costs.

The proposed new GFE will be four pages and the new HUD-1 settlement statement will be three pages.  The amended HUD-1 includes a “closing script” that the closing agent will have to read to the borrowers at closing.  The dialogue includes how the GFE and the HUD 1 compare to each other.  It remains to be seen how a 4 page GFE and a 3 page HUD-1 settlement statement will simplify the process for the consumer which is one of the goals of this RESPA rewrite!

HUD believes that the new GFE will encourage consumer price shopping and the increase in competition will lead to large reduction of closing costs.  Clearly, it is the intent and spirit of the federal consumer protection statutes, such as RESPA and TILA, the Truth in Lending Act, to encourage consumers to do price shopping when presented their GFE and APR disclosure for that matter. 

The new RESPA rule sets a standard that the final HUD-1 Settlement Statement, the sum of actual expenses at closing, cannot be more than 10% greater than the Good Faith Estimate given to the borrower within 3 days of their completed mortgage loan application, barring any unforeseen circumstances.  HUD maintains that those mortgage lending entities that would suffer revenue losses under the new rule are those that overcharged uninformed borrowers and benefited from the system’s limitation on competition.

HUD also is proposing that the HUD-1 Settlement Statement of actual costs is provided at least 2 days prior to closing.  This appears to be a requirement rather than the current language in RESPA which says 1 day before closing, “if requested”.  Home Equity legislation in Texas “requires” that it be provided one day before the closing for home equity related loans.

Formal comment surely will include the National Association of Realtors, NAR, the National Association of Mortgage Brokers, NAMB as well as other related settlement service providers.  NAMB is poised to attack any provisions in the RESPA rewrite which discriminate against small businesses and that which doesn’t provide a level playing field among settlement service providers.  Small business drives our economy, providing 80% of our country’s employment.

It is generally known that there is some strong real estate industry opposition to a few of the provisions and that there is not enough time for the new RESPA rewrite to be enacted in 2008. 

More to follow.

Monday, April 28, 2008 - Where in the world is Jerry Rutledge?

Jerry Rutledge, DREI, CREI, President of Alliance Academy, has been a featured speaker all over the country.  He has recently presented his topic, “Mortgage Market, Compliance, and Fraud” for the Mississippi Association of Realtors, the Real Estate Educators Association (REEA), South Central
Educators Group (SCEG), the Dallas Association of Mortgage Brokers (DAMB), and most recently at the Texas Real Estate Teachers Association (TRETA).

Jerry was also a featured speaker at the Texas Real Estate Commission’s (TREC) annual Enforcement Division conference.  He was the only outside speaker invited to participate in the conference.

Mortgage Market, Compliance and Fraud is a hot topic and includes the legislative changes in the industry, which is Jerry's area of expertise.  Jerry has again been requested as the guest speaker to several other state's annual conferences.

Friday, June 23, 2006 - Jerry Rutledge - Featured Speaker at REEA

Saturday, May 6, 2006 - Anti-Predatory Lending Legislation

Montgomery County, Maryland – Oops!

March 3, 2006

Montgomery County Council approved Bill 36-04 for all loans secured by residential properties to become effective March 8, 2006.  The ordinance limits lenders from charging more than 1.5% for all fees and points including discount, YSP, origination and junk fees.  The ordinance further authorizes the fine for discriminatory lending to be up to $500,000 per violation up from $5,000. What?

March 7, 2006

The day before the March 8, effective date, more than three dozen mortgage lenders and securitizers  vow to completely halt business activity in Montgomery County, Md. No residential loans in Montgomery County.

March 8, 2006

Circuit Court Judge Michael Mason issued an injunction that delays implementation of the anti-discriminatory lending ordinance for four months which was supposed to be instituted today. The temporary injunction was issued pursuant to a lawsuit filed by several mortgage brokers and the American Financial Services Association.

March 14, 2006

The same Montgomery County Council introduced a bill that would repeal the recently enacted portions of the anti-discriminatory lending law. Cant’ sell a house, can’t buy a house, can’t close a loan in the County.  Hmm, I think we better rethink this one.

April 25, 2006

MCC public hearing

Federal Law Update

A Federal predatory lending bill has been the works for several years.  House Financial Services Consumer Credit Subcommittee Chairman Spencer Bachus, R-Ala plans to introduce a national predatory lending bill similar to the anti-predatory lending bill passed by North Carolina in 1999.  It was chosen as a model because compliance has not forced lenders to stop serving subprime borrowers but will probably go further to address liability, arbitration and how to restrict interest rates and fees.

The National bill will include a “Federal Preemption provision” which would be a problem for Montgomery County, Maryland.

Tuesday, April 11, 2006 - $25,000 Net Worth vs $50,000 Surety Bond

What does “exempt assets” refer to?  It means exempt in bankruptcy.  In Texas, if you elect to take the State bankruptcy exemptions, these items are exempt meaning you won’t lose them. It wouldn’t be right to take away a guy’s horse or mule just cause he’s down on his luck.

So what is left to qualify for the $25,000 net worth requirement?  Certainly cash, stocks and bonds, unlisted securities or investments and other real estate owned.

Short of those qualifying assets, many renewing and pre-license Mortgage Brokers are going after the $50,000 security bond instead.

The surety bond is secured at time of your Mortgage Broker application or renewal and must remain in effect during your two year license period. In other words, you don’t just get it and then drop it.

Not all companies offer surety bonds nor are they familiar with state licensing requirements. At Alliance Academy we don’t endorse any company’s product or service nor do we allow anyone pitching their company in our classes.

The exception to that rule is when we have testimonials from reliable sources who used that company and it was reported to be a good experience for them. 

It has been verified to us by reliable sources that two surety companies do a good job at reasonable costs.  One is Scott Insurance, Joanna Carson or Darlene Evans at 1-800-365-0101 and the other is Surety Solutions, Corban Evans at 1-503-488-5990.  Both companies are knowledgeable about state licensing requirements.    

Friday, August 6, 2004 - Appraisals and Consumers Rights

Many of you who have taken our Alliance Academy mortgage courses have probably heard me say in class that real estate licensees should be required to take mortgage courses to understand what happens to their customers when they hand them off to their favorite mortgage broker or loan officer.  Real estate licensees rarely, if ever, handle a cash deal.  If they knew what we do, there would be fewer phone calls to us asking what happens next. Did you get the appraisal?  Is he approved?  Etc.

It wasn’t until I read in a large number of emails from Real Estate Educators who are members of the National Real Estate Educators Association, REEA, of which I am President of our 5 state Chapter, that there is a “nationwide” void of mortgage knowledge.  For instance, they didn’t know nor could they teach correctly in their classes the rules concerning the consumer’s right to a copy of the appraisal as provided in the Federal Consumer Protection Statute, the Equal Credit Opportunity Act, ECOA. 

The Federal Statute, the Equal Credit Opportunity Act, Section 202.14, Rules on Providing Appraisal Reports, says;

(a) Providing appraisals. A creditor shall provide a copy of an appraisal report used in connection with an application for credit that is to be secured by a lien on a dwelling.  A creditor shall comply with either paragraph (a)(1) or (a)(2) of this section.

(1) Routine delivery.  A creditor may routinely provide a copy of an appraisal report to an applicant (whether credit is granted or denied or the application is withdrawn).

(2) Upon request.  A creditor that does not routinely provide appraisal reports shall provide a copy upon the applicant's written request.

    (i) Notice.  A creditor that provides appraisal reports only upon request shall notify an applicant in writing of the right to receive a copy of an appraisal report.

The notice may be given at any time during the application process......  The notice shall specify that the applicant's request must be in writing, give the creditor's mailing address, and state the time for making the request as provided in paragraph (a)(2)(ii) of this section.

    (ii)  Delivery. A creditor shall mail or deliver a copy of the appraisal report promptly, generally within 30 days, after the creditor receives the appraisal request, receives the report, or receives reimbursement from the applicant for the report, whichever is last to occur.  The creditor need not provide a copy when applicant's request is received more than 90 days after the creditor has provided notice of action taken on the application.

By the way, the ECOA is the only Federal statute which prohibits discrimination based on "age".  So if an 85 yr old buyer applies for a 30 year mortgage, they can't be turned down because they are too old.

Friday, June 18, 2004 - TSLD Mortgage Exam Update; One Class is Not Enough

In a recent conversation with Sandy Weller, current Director of Licensing at the TSLD, concerning the new state exam, Sandy said “If the test taker has no experience in the mortgage industry, it might take more than one course to pass the Exam”.

Our unique and popular 15 hr compliance course Keeping Current with Texas Mortgage Compliance covers the Federal Statutes i.e. RESPA, ECOA and TILA which is 50% of the exam.  It also covers the State Rules and Regs and the MBLA which is 20% of the exam.  We also discuss Home Equity loans, the DTPA and some general knowledge which is the remaining 30% of the exam. 

You can see therefore that our compliance course covers more than 75% of the exam but the real problem is preparing for the “general knowledge” portion of the exam, which is a vast potential of possible questions.  Sandy’s point is that people with mortgage lending experience most likely have learned general knowledge on-the-job and coupled with our compliance course have a better chance to pass the exam.

But how do you accumulate “general knowledge” on-the-job without a mortgage license?  You don’t need a mortgage license to be a loan processor but to be a good loan processor you need considerable general knowledge.

Those of us who also have a real estate license know that TREC requires each applicant to take required 30 hr core courses each of which has a written exam.  The exam prep course to take the real estate exam is merely a review of what you already learned in those required core courses.  The TSLD so far has not required any pre license core courses as TREC does in order to take their exam.  So it is up to mortgage pre licensees with no practical mortgage experience to seek out courses and other sources of information, which will prepare them for the exam.

The solution?  In addition to our compliance course, take a second course such as one of our loan processing courses.  Our 15 hr processing courses are charged with a great deal of mortgage “general knowledge”.

As Sandy says, “it might take more than one course to pass the exam”.

Monday, March 8, 2004 - New Financing Addendum Can be a Problem

Those Mortgage Brokers and Loan Officers who get a good share of their business from Real Estate agents, will see attached to the 1-4 Family Sales Contract, a Financing Addendum promulgated by the Texas Real Estate Commission for mandatory use by Real Estate Licensees, effective April 1, 2004. Contracts and their addendums have been prepared by the Broker/Lawyer Committee of TREC which are then submitted to the Commission for their approval. Once approved by Commissioners, the contract or form becomes for mandatory use by their licensees.

That new Financing Addendum, as well as other items in the body of the Sales Contract, are our marching orders. The Financing Addendum recites the type of loan and loan terms sought by the buyer aka your borrower.

The Financing Addendum was revised to correct some problems or vagueness on the sale side of the transaction.  But it could present a potential problem on the mortgage side of the transaction.  Consider this. 

In the version before revision, the addendum said as follows, “If financing approval is not obtained within (fill in number) days after the effective date, this contract will terminate and the earnest money will be refunded to Buyer.”  What does that mean?  We would argue that all approvals are conditional approvals and the loan isn’t fully approved until our lender funds the loan. They can always come up with a reason not to fund like pulling a credit report the day before closing and discovers our buyer/borrower just financed a $60,000 Mercedes and now their income to debt ratios are out of whack.  For that matter our borrower could talk to his momma who tells him “I don’t approve of you borrowing that much money”  He didn’t get approved, did he?

In an attempt to clarify and tighten up the responsibilities in this paragraph, the new mandatory addendum now reads, “If Buyer cannot obtain financing approval, Buyer must give written notice to the seller with (fill in number) days after the effective date of this contract and this contract will terminate and the earnest money will be refunded to Buyer.  If Buyer does not give such notice within the time allowed, this contract will no longer be subject to Buyer being approved for the financing described below.”

Now let’s say the number of days is 30 days.  Well within 30 days, your favorite real estate agent calls and asks if the Buyer is approved.  You might say “yes” the Buyer is approved.  The real estate agent communicates to the Seller that the Buyer is approved.  

The Seller is elated to know that the money will be there to fund the sales price.  Then before 30 days elapses, the Seller gets another TREC promulgated form, a notice from the Buyer that says “...Buyer notifies Seller that Buyer cannot obtain financing approval”  with no explanation. 

Potentially the Seller gets into a heated argument with the Buyer, perhaps a law suit, and you get drawn into this suit because you were the one who said the Buyer was approved.

This is a potential liability that we don’t want any part of.

My advice is not to tell anyone, including your friendly Real Estate Agent, that the loan is “approved” except the Buyer/Borrower.  Let the Buyer communicate with their Real Estate Agent. And remember all approvals are “conditional” approvals.

Tuesday, January 20, 2004 - TSLD Exam is Ready for 2004

The initial exam is complete and will be first offered Feb 2, 2004. The state has selected Promissor to provide the exam at 18 locations in Texas.  Promissor is charging $42.00 to take and grade the exam for the TSLD and $17.50 for digital fingerprinting if desired. Provisional licenses expire May 31, 2004 and are required to pass the exam by that date.  There is no limit to the number of times it takes to pass the exam but they must pay $42.00 each time the exam is taken.

The exam will consist of  75 questions of which 50% pertain to Federal Statutes, RESPA, TILA and ECOA. 30% is the MBLA and TSLD Rules and Regs  and 20% generic questions and math.  The person taking the exam will randomly draw 75 questions from a database of 250 multiple-choice questions. A testing computer is provided.  A passing grade has not been determined but a Mortgage Broker is expected to score higher than a Loan Officer.

Alliance Academy is providing an Exam Prep Course,  Keeping Current with Texas Mortgage Lending, a 15 hr Compliance course, either on-line or live class which  specifically covers these Federal statutes and Texas rules and regs. This course is also approved by the TSLD for prelicensing and renewals. Ray Casas, former Director of Licensing at the TSLD, teaches our live version in Dallas, Houston, Austin and San Antonio.

Wednesday, January 14, 2004 - Promissor/TSLD Exam Update

Promissor/TSLD Exam Update 1/14/04

1. Beginning Jan 21, Call 800.275.8246 to schedule exam.
2. Need 2 Weeks Advance Notice.
3. Facilities Hours are 7am to 10pm.
4. Provide ID.
5. Request Exam Location.
6. Select Exam ie. Mortgage Broker or Loan Officer
7. Select Language-Exam Available in English or Spanish.
8. Any Special Needs.
9. Prepay $42 for Exam. Digital Fingerprinting Available for $17.50.

(or)  Register at www.promissor.com    (or)  Try Walk-in 30 Minutes in Advance

Promissor will have 18 Locations in Texas.

Need Government issued Photo ID.

Delayed Scoring Process

• New Test-No Passing Grade Established Yet.
• 75 Multiple Choice Questions-Mortgage Brokers Score Higher.
• Those scoring 80% or more will receive a passing grade.
• Those scoring 40% or less will receive a failing grade.
• Those scoring between 40% and 80%, will wait for their pass/fail grade.