Alterra Puts Advocacy to Work in D.C.

WASHINGTON–With hundreds of Mortgage Bankers Association members here this week in the nation’s capital for the MBA National Advocacy Conference, it seems fitting to write about an MBA member company that made the most of its recent trip to D.C.

Alterra Home Loans, Las Vegas, recently brought a dozen executives and loan originators to Washington for an “Advocacy Day” of its own making. The “CEO Cabinet” trip took Alterra staff to MBA headquarters, as well as visits to the Consumer Financial Protection Bureau and Fannie Mae.

Alterra CEO Jason Madiedo has been a member of MBA for more than eight years and is also active with the National Association of Hispanic Real Estate Professionals (NAHREP). He said the two-day CEO Cabinet trip was an “excellent example of effective advocacy through personal contact with policymakers.”

“We’re also in a time in the industry where we need more advocacy,” Madiedo said. “I wanted to take our top producers to Washington and show them another side of the industry that they don’t normally see. The opportunity to sit down with the CFPB about how their regulations affect us; to meet with Fannie Mae about key issues; and talk with MBA about its advocacy and how it is working to help the industry continue and improve is something they rarely get to see.”

Just as importantly, Madiedo noted, “We wanted the officials we visited with to hear from our ‘boots on the ground’–from our highly productive people and the daily challenges they face.”

Alterra came to Washington to discuss loan originator compensation and down payment assistance programs.

LO compensation has MBA’s attention as well. Last October, MBA and 226 member organizations (including Alterra) sent a letter to the CFPB, urging the Bureau to amend its 2013 LO Comp rule to allow for variations in compensation that benefit both consumers and lenders. These changes include: 1) allowing LOs to voluntarily lower their compensation in response to competition; 2) allowing lenders to reduce an LO’s compensation when the LO makes an error; and 3) allowing lenders to alter loan compensation for loans made under state and local housing finance agency programs.

“The LO Comp rule, while well-intentioned, is causing serious problems for industry and consumers due to its overly strict prohibitions on adjusting compensation and the amorphous definition of what constitutes a ‘proxy’ for a loan’s terms or conditions,” the letter said. “These harms are felt when borrowers are unable to obtain lower interest rates from their lender of choice when shopping for a mortgage, or when lenders are unable to hold loan officers accountable for errors in the origination process. Consumers are also harmed when lenders limit their participation in special programs designed to serve first-time and low-to-moderate-income borrowers.”

LO compensation, Madiedo said, is critical to Alterra’s business. “It’s a competitive issue,” he said. “The market has become highly competitive and we are handcuffed as an industry–and LOs are as well–from being more competitive in the market for consumers, who benefit. Being able to also allow the LO to contribute from their compensation when a borrower is scraping all their nickels together to get a home is important to our business and our customers.”

Madiedo noted nearly 80 percent of loans Alterra closes are to minority families; 60 percent are to first-time home buyers.

“This is who our LOs work with,” he said. “They don’t have a lot for a down payment. In the competitive marketplace–and right now, there isn’t a lot of inventory out there–an LO sometimes wants to contribute to help the borrower close the transaction. Because they can’t, the company is then forced to reduce its revenue, which threatens its bottom line. Since we can’t operate at a deficit, the only options we have is to raise our fees across the board.”

Similarly, down payment assistance programs represent nearly 10 percent of Alterra’s business. “Those loans lose money for the company,” Madiedo said. “If a loan officer wants to help out, he or she is dis-incentivized from doing so, because it’s a money-losing proposition. The LO gets paid the same but it’s adjusted for all their business if they do it too much.”

For example, Madiedo said, “Let’s say a LO is making 150 basis points–$3,000–on a transaction. And the borrower is short to close due to various reasons, or there is an error in estimation of expenses, such as a miscalculation of an appraisal fee. They might not have cash to cover it. It’s not necessarily viewed as an unforeseen expense. I can either force them to pay or eat the fee, but, if the LO wants to contribute, under the current CFPB rules, they can’t.”

The CFPB meeting in Washington was fruitful for both Bureau staff and Alterra, Madiedo said. “Our LOs spoke about their challenges and issues,” he said. “They emphasized that Bureau needs to make changes to the LO comp rule.”

Madiedo said Bureau staff were receptive to the Alterra visit. “They understand LO comp is a complex issue,” he said. “The Bureau recently completed a five-year ‘look-back’ to see what, if any, changes need to be made to the rule. They’re looking at DTI and possible adjustments to the QM ‘patch.’ But they are also focused on compensation and belief the issues needs more comment and feedback.”

Similarly, Madiedo said the team’s meeting with Fannie Mae was enlightening. “The sense we got is that Fannie Mae wants to be cutting-edge; it wants to stay in the forefront of mortgage credit and the industry,” he said. “It was very refreshing. We met with their DU and technology folks about digitizing the mortgage experience. We also met with their affordable lending folks about how to improve that space and balance it with traditional lending and making it sustainable. Overall, a great meeting, and great to see Fannie Mae pushing itself into the forefront of lending.”

The Alterra team met with MBA staff at the association’s headquarters. “We discussed the regulatory environment and how it is affecting our business,” Madiedo said. “MBA is pushing for a competitiveness component to LO comp, even though the Bureau said it was a steep, uphill battle.”

The team also met with MBA Education, which Madiedo said was an important element to the trip. “For us, it was getting our top producers involved with MBA Education programs. We want them to be involved with the [MBA] Future Leaders program. Our LOs need to be well-versed in the industry.”

As a result, several Alterra staff applied for, and were accepted into, the Future Leaders program and enrolled in the MBA Education School of Mortgage Banking. “And they can take advantage of the MBA Diversity & Inclusion Scholarship program,” Madiedo said.

Madiedo described the Washington visit as an unqualified success. “To have our top producers here in Washington–who are viewed by our other LOs as influential–in which we are asking key policymakers direct questions and getting answers is very valuable,” he said. “It allows those top producers to come back to our people and share the Washington perspective.”