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Why are millionaire home buyers being lumped in with sub-prime borrowers?

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In a democracy on the scale of America’s, there will always be times where one-size-fits-all solutions fall short. There’s just too much diversity for even great ideas to succeed in all cases. The mortgage space is no different: At times certain rules or definitions make their way into the industry that fail to take into consideration the unique needs of certain borrowers. When borrowers are underserviced, a lot of money can be left behind.

In the case of extended prime borrowers, we’re talking billions.

According to John R. Lynch, CEO and founder of PCMA Private Client Lending, extended prime clientele, despite being some of the wealthiest and most credit-worthy borrowers in the country, have been pushed to the margins of the housing market by being lumped-in, in an instance of perfect irony, with sub-prime borrowers.

As Lynch explains it, when non-QM first materialized circa 2006, most of the loans being originated in the space were agency fallouts that were credit repair in nature, which skewed its perception across the industry.

“It had a little bit more of a hard money or sub-prime feel to it,” Lynch says. “Non-QM immediately, in the psychology of our industry, got labelled as sub-prime,” even though the category included wealthy expanded prime borrowers.

Prior to the invention of non-QM, expanded prime borrowers were able to use stated monthly income to help make their cases to lenders. But after the 2008 meltdown, when stated income loans received no small share of the blame for the country’s grisly housing crash, a new set of ATR requirements were imposed that Lynch blames for the current limbo in which expanded prime borrowers find themselves floating.

“When they created that [safe harbour] overlay into the market, it pushed a whole subset of borrowers out of it,” he says. “From 2008 to 2016, the penalty for not meeting the ATR requirements on a loan were so punitive that people just stopped originating loans for that borrower. Banks could no longer hold it on their portfolios.”

It’s a situation that has resulted in a colossal loss of business for the industry. Rather than originating and servicing loans for these powerfully wealthy individuals, mortgage professionals have had to stand by and watch as these lost clients are forced to pay cash for properties. The most anyone can do at this point is help extended prime clients with their refi’s.

“We’re refinancing those loans all day long,” says Lynch. The average loan PCMA refinances involves a 60-year old borrower with an LTV of 60 percent, a 740 FICO score and a loan that is 12.5 years old. It’s no coincidence that these loans are close to the same age as the rules that stopped expanded prime customers from borrowing: That’s how long these people have been trapped.

Lynch says PCMA’s analysts have determined that the non-QM space – the actual, fully considered non-QM space, not just the credit-repair side of the equation – is potentially a trillion-dollar market. Cracking it could open the industry to billions in additional revenue.

A policy change from Washington would provide the easiest fix, but that’s not something Lynch is prepared to wait for. 

“The one thing I’ve learned about Washington is that once they get their teeth into you, they don’t get their teeth out of you,” he says. “So am I going to try to get the legislators to pull back legislation? Good luck with that.”

Instead, PCMA has created its own apparatus for originating loans for extended prime customers at scale, for what Lynch calls “a homogenized securitization of only this borrower type.” The next step is securing a buy-in from Wall Street and the country’s mortgage insurers, many of whom still cringe at the mention of “non-safe harbour” – even when the discussion is about lending to millionaires with impeccable credit histories.

For Lynch, part of the issue in raising awareness (and funding) is clearing the air around what non-QM even means any more.

“Now that LTVs have been pulled back and FICO scores have been pushed up, the non-QM business as everybody believes it to be is not even the non-QM business anymore.,” he says. “The non-QM business has evolved to an expanded prime category,” he says.

Until that awareness morphs into action, originators will continue to miss out on working with some of the richest, most loyal repeat customers in the country.

“If I was an independent mortgage advisor, I would focus one hundred percent on rich people, just like the Million Dollar Listing guys do,” says Lynch. “They have fewer clients and more volume because they become experts in their space.”

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California’s vague new financial regulation law

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California Capitol. Photo by Anne Wernikoff for CalMatters

In summary

California has a new financial regulation law but its reach is vague and awaits more definition.

Assembly Bill 1864 didn’t get much media or public attention as it zipped through both houses of the Legislature on the last day of the 2020 session.

Superficially, it appeared merely to reconfigure the state’s financial regulatory agencies into a new entity called the Department of Financial Protection and Innovation.

However, those in California’s vast financial industry were paying lots of attention because the bill creates an entirely new regulatory regime with broad powers, including fines of up to $1 million a day, to police financial players that hitherto have had little oversight.

The official rationale for the legislation is that President Donald Trump’s administration neutered the federal Dodd-Frank Wall Street Consumer Financial Protection Act of 2010, so the state must step in with an equivalent to guard against predatory financial practices that harm consumers.

The new California Consumer Financial Protection Law gives the reconstituted agency authority to go after “abusive practices” whose definition in the law is fairly vague. Thus, the agency itself will define the term as it also decides which businesses will face its scrutiny.

It appears that the new law will affect firms involved in debt settlement, credit repair, check cashing, rent-to-own contracts, payday lending, student loan servicing and financing for retail sales. However, its primary target seems to be financial services offered by non-banks, particularly what are called “fintech companies” that offer bank-like services via the Internet without maintaining physical offices.

Fintechs, many of them based in the San Francisco Bay Area, have blossomed in recent years as part of the digital economy, competing with traditional brick-and-mortar banks. Their disruptive nature is not unlike the challenge that technology-based ride services such as Uber and Lyft pose to taxicabs and buses.

Late-blooming changes in AB 1864 exempted traditional financial firms that are already regulated, such as banks and credit unions, from the new consumer protection law, leading some analysts to conclude that its unstated aim is to help them stave off competition from new kids on the financial block.

The vagueness of the new law was encapsulated in what Gov. Gavin Newsom said during a signing ceremony. The new law and the new department, he said, will “create conditions for innovation to flourish in a way where we can steward that and we can just work against its excesses. So we support risk-taking, not recklessness.”

Newsom also signed two other financial protection measures, one that requires debt collectors to be licensed beginning in 2022 and the other creating a Student Loan Borrower Bill of Rights.

Although the new state law is said to mirror the Dodd-Frank law, it contains at least one significant difference. When federal regulators levy fines for what they consider to be bad conduct, the money goes into the federal treasury. When state regulators impose their fines of up to $1 million a day, the money will be retained by the new agency to finance more activity.

Will that give the new agency a financial incentive to skip over minor consumer issues and go after big companies? It’s a question that only time will answer.

Significantly too, the new investigative and regulatory mechanism contained in AB 1864 specifically does not usurp the authority of the attorney general to also target companies under the state’s equally vague “unfair competition” law.

From its inception a decade ago, Dodd-Frank has attracted criticism from business executives for regulatory overkill. Will California’s new version be less controversial? We won’t know until the new agency puts some definitional meat on its bones.



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California’s vague new financial regulation law – Whittier Daily News

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Assembly Bill 1864 didn’t get much media or public attention as it zipped through both houses of the Legislature on the last day of the 2020 session.

Superficially, it appeared merely to reconfigure the state’s financial regulatory agencies into a new entity called the Department of Financial Protection and Innovation.

However, those in California’s vast financial industry were paying lots of attention because the bill creates an entirely new regulatory regime with broad powers, including fines of up to $1 million a day, to police financial players that hitherto have had little oversight.

The official rationale for the legislation is that President Donald Trump’s administration neutered the federal Dodd-Frank Wall Street Consumer Financial Protection Act of 2010, so the state must step in with an equivalent to guard against predatory financial practices that harm consumers.

The new California Consumer Financial Protection Law gives the reconstituted agency authority to go after “abusive practices” whose definition in the law is fairly vague. Thus, the agency itself will define the term as it also decides which businesses will face its scrutiny.

It appears that the new law will affect firms involved in debt settlement, credit repair, check cashing, rent-to-own contracts, payday lending, student loan servicing and financing for retail sales. However, its primary target seems to be financial services offered by non-banks, particularly what are called “fintech companies” that offer bank-like services via the Internet without maintaining physical offices.

Fintechs, many of them based in the San Francisco Bay Area, have blossomed in recent years as part of the digital economy, competing with traditional brick-and-mortar banks. Their disruptive nature is not unlike the challenge that technology-based ride services such as Uber and Lyft pose to taxicabs and buses.

Late-blooming changes in AB 1864 exempted traditional financial firms that are already regulated, such as banks and credit unions, from the new consumer protection law, leading some analysts to conclude that its unstated aim is to help them stave off competition from new kids on the financial block.

The vagueness of the new law was encapsulated in what Gov. Gavin Newsom said during a signing ceremony. The new law and the new department, he said, will “create conditions for innovation to flourish in a way where we can steward that and we can just work against its excesses. So we support risk-taking, not recklessness.”

Newsom also signed two other financial protection measures, one that requires debt collectors to be licensed beginning in 2022 and the other creating a Student Loan Borrower Bill of Rights.

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397 people register to vote on deadline day at Duval Supervisor of Elections – 104.5 WOKV

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JACKSONVILLE, Fla. — Monday, Oct. 5 at midnight, is the deadline to register to vote in Duval County.

But the Supervisor of Elections helped hundreds of people get registered today.

Robert Phillips, the chief elections officer of the Duval Supervisor of Elections, told Action News Jax’s Courtney Cole that 397 people came down to the Supervisor of Elections in downtown Jacksonville to get registered.

Supervisor of Elections staff assembled tents outside to allow people to register to vote without having to go through the COVID-19 prescreening necessary to enter the building.

“Again, 2020 has thrown us some challenges,” Phillips said.

There was even a little rain thrown into the mix today, but it didn’t stop folks from coming out.

“Out here, we have a lot of activity. We’ve been going since first thing this morning,” Phillips told Action News Jax.

There were people of all ages from all walks of life — some even registered for the very first time like Lemark Jamison.

Monday, Oct. 5, is a day he will always remember.

“It feels awesome, you know? It feels awesome,” Jamison told Cole.

Today, Jamison had the opportunity to register to vote for the first time in Florida.

“I’ve worked for voter registration companies. I’ve done advocating for Amendment 4, but I was never able to vote because of my prior background. But now I can,” Jamison said.

Jamison, the owner of a tax and credit repair business, told Cole his prior felony conviction held him back in the past.

In November 2018, more than 60% of Floridians voted to restore voting rights to more than 1 million people who completed their sentences.

But several months later, legislation was passed that required them to pay all financial penalties, which means thousands lost the right as quickly as they gained it.

“I’ve been contributing to society. I’ve been able to have several businesses. And I pay taxes. But I haven’t been able to, when it comes to voting, whether in a local level or any type of legislature — I haven’t been able to vote,” Jamison said.

The 35-year-old told Cole even though his wife helped him fill out his voter registration form — to which he exclaimed, “Thank God for wives, right?” — he told Cole it was pretty easy.

Now, he has this advice to share with other people who may be in his shoes:

“Get out and vote. Take advantage of this opportunity, regardless of who you plan on voting for.”

Here’s a breakdown from the Supervisor of Elections of how the 397 people registered today:

-56% registered as Democrats.

-21% registered as Republicans.

-22% registered as nonparty affiliates.



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