But in mortgage disclosures, the industry has been slow to change. Silanis Technology in Montreal, Quebec, recently targeted the mortgage industry for its e-signature technology. Two years ago, before the Gartner Group touted Silanis as the leading producer of electronic signatures for internal e-business, Silanis started moving into the mortgage industry. Throughout its 11-year old history, the company has found niches in automobile finance and general commercial industries, as well as in government agencies.

“Auto finance is moving very quickly,” said Michael Laurie, vice president and co-founder of Silanis Technology. “It has a real direct impact on the bottom line for [auto dealers].”

But the auto finance industry is moving much faster than the mortgage industry, and the mortgage process is “by far and away” the most complex and difficult process to automate when it comes to the signing process, Laurie noted.

“There is no question about that,” Laurie said. “There have been other vendors who we’ve seen who have focused 100 percent of their efforts on the mortgage business and unfortunately have either killed themselves in the process or are in the process of killing themselves.”

Mortgage origination disclosures could be signed online by borrowers who can enter an ID and password into a box, click “OK” and enter a Web site. The borrower could then click a mouse on “I agree” buttons after viewing authentic disclosure documents based on investor regulations by using Silanis.

At the closing table, Silanis uses a digital signature pad for borrowers, so that the actual signature is on the documents. With a notary, a digital certificate creates stronger authentication for the borrower signature. A borrower uses a token as a “key” to lock in the e-signature and a notary has a similar key-like token to correlate with the token that the borrower has used to sign the documents.

The Silanis technology integrates into the client’s Web portal application so that borrowers can select the documents, review them, click through for the signing and receive the signed documents “after the fact,” Laurie said.

“We don’t sell our software on a hosted basis,” he said. “We sell the technology so our customers will buy it from us, and they’ll install it on their own service behind their own firewall.”

But lenders have recently been given the ability to license the Silanis-branded U-SIGN service on a transactional basis. Silanis recently formed an agreement with eLynx to provide this service.

“[Clients] really have two completely different choices of how they can obtain this technology,” Laurie said.

Silanis focuses on highly regulated industries that require detailed attention to regulations and the presentation of documents. When the E-SIGN Act became law, Silanis noticed that banks and other lenders had interest in using electronic signatures as a means for financial transactions.

At GMAC Commercial Mortgage, Horsham, Pa., Silanis provided an enterprise license for its electronic signature software—not for closings, but for the company’s internal processes to sign off on documents relating to the mortgage approval process.

Silanis has also spoken with banks on using e-signatures for internal use on commercial mortgages. Laurie said that there is an increasing urgency for electronic signatures in the automobile industry since an e-closing for auto financing could lead to funding for the auto dealer on the same day rather than waiting for seven days or more.

“Many lenders that specialize in [auto financing], especially the subprime lenders, usually have to warehouse the loans for some period of time until they are ready to securitize them.”

About one-third of business for Silanis Technology is financial services with less than half of that amount brought in from the mortgage industry. More than 40 percent of business, however, includes federal, state and county government (including the Department of Defense) with the rest targeting general commercial trades, such as healthcare and pharmaceutical industries, telecom and defense contractors.

As for the mortgage business, Silanis continues to follow the regulations and requirements in mortgage technology, update the software as necessary and monitor the industry as it continues to adopt the process.

“Financial services has grown as a segment significantly for us in the past year and a half,” Laurie said. “It really grew about 100 percent last year in revenue growth for us. That was significant and it’s a major area, but we don’t have all of our eggs in the mortgage basket.”
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GHR Systems also plans to offer the services for its web-based entelligent Processor system scheduled for delivery at the end of 2003.

“The alliance [with ValuAmerica] gives GHR’s lenders the ability to utilize a ‘one-stop shopping’ capability for the procurement of all the settlement services needed to process and close a loan,” said Cy Brinn, president of GHR Systems Inc. .

HUD’s pending changes to the Real Estate Settlement Procedures Act (RESPA) also factor into the automation of settlement services. GHR officials said their lender-clients could gain access to the on-line settlement services through GHR’s origination solutions, including wholesale, retail, consumer-direct, call center.

“Being out ahead of the curve like this means our customers can access settlement services from point-of-sale into the fulfillment process,” Brinn said.

As a result of ValuAmerica’s work with lenders to set-up and manage captive settlement services companies, GHR officials said they expect their clients to realize “substantial economic gains” by creating their own settlement services operations.

GHR clients could also establish their specific workflow rules to automatically trigger the ordering of specific services when specific loan application conditions are detected. A lender, for example, might establish workflow rules that automatically order a drive-by appraisal, when LTV is 75 percent or less, but order a full appraisal when LTV is 80 percent or higher.

Brinn said that lenders generating 500 loans per month could generate pre-tax profit of almost three million dollars per year by capturing a piece of each settlement services transaction. Last year, GHR’s lender-clients originated 694,000 loans using GHR’s origination technology and transaction platform, he added.

“In doing so, these lenders eliminated hundreds of dollars of origination costs per transaction,” Brinn said.
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The loan carries an 18-month term with interest-only payments priced at 3.25 percent over the one-month LIBOR. The financing will go toward the acquisition and some “light rehabilitation” of the property, a Collateral loan officer said.

“The property had fallen into a state of disrepair under former ownership and occupancy suffered as a result,” the loan officer said. “The borrower will invest approximately $800,000 to improve the property’s marketability.”

Courtyard Village Apartments has 35 three-story buildings that total nearly 358,800 square feet in rentable area. In an overall attempt to reposition the property, the borrower has hired a local professional management company to restore occupancy and rents to market levels, the loan officer said.

Collateral officials pointed out that once the rehabilitation is completed and the property is stabilized, Collateral would provide permanent financing for the property.
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MBA (3/31/03) MBA Staff

Get your creative juices flowing and enter the CampusMBA Poster Contest for your chance to win a registration to attend the June 26-27 session of Detecting and Avoiding Mortgage Fraud in New York City.

Several weeks ago, the most current School of Mortgage Banking (SOMB) and Detecting and Avoiding Mortgage Fraud brochure posters were distributed by mail. Creatively display either poster in your office and have your picture taken with the poster. Submit the photo and entry form to CampusMBA by May 23 for a chance to win the complimentary registration.

MBA's Fraud Awareness Seminar, Detecting and Avoiding Mortgage Fraud Seminar, is a hands-on training seminar designed to walk you through the key elements of detecting and preventing loan fraud. This program will also identify your alternatives/options when fraud is discovered. It is the most comprehensive fraud training program available and one of CampusMBA's most popular classroom programs.
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MBA (3/31/03) Sorohan, Mike
The U.S. Department of Labor today proposed rules clarifying who is required to receive overtime compensation under the Fair Labor Standards Act—a proposal that would modernize the act’s 50-year-old wage and hour exemption rules.

The department’s proposed rules [pdf] , appearing in today’s Federal Register, would raise the salary threshold of which workers would automatically qualify for overtime from the current $155 a week—a figure established in 1975—to $425 per week. The Labor Department estimated that the increase would bring nearly 1.3 million more U.S. workers under the FLSA umbrella. The rules would also exempt an additional 640,000 executives, administrative and professionals from overtime.

For the lending industry, the proposed rules provide language that enables businesses to further define who engages in “primary duties” that would make a particular employee exempt from overtime. Of interest to employers paying employees on commission, the proposed rule calls for a new “highly compensated individual” test in connection with the so-called “white collar” exemptions. This new test would exempt from the overtime rules people making more than $65,000, either through salary or commission, if they perform any of the newly defined white collar exemption “primary” duties.

The proposed rule would also retain the current “short test” reliance on an employee’s primary duty, but would eliminate the long-inactive “long test” rule restricting exempt employees from devoting more than 20 percent of time in a workweek performing non-exempt duties.

Kurt Pfotenhauer, senior vice president of government affairs with the Mortgage Bankers Association of America, said that MBA would welcome changes to the FLSA that provide greater clarity for lenders. Under the proposed rules, lenders would have clear guidelines as to the requirements of the FLSA and whether loan officer are exempt from overtime.

“We’ve been saying for some time that loan officers should be exempt,” Pfotenhauer said. “It’s our hope that these proposed rules add clarity to what has been a complex and confusing regulation for our members.”

In recent years, plaintiffs’ attorneys have broadly interpreted the current FLSA regulations and targeted several lenders. Several suits against lenders alleging violations of the FLSA involve loan officers who have had six-figure incomes.

MBA has established a litigation task force to examine the proposed rule and to provide information on behalf of its members. “We are working closely with the Labor Department to help them understand what loan officers do, so that these proposed rules achieve the right outcome,” Pfotenhauer said.

The proposed rules further define “executive duties,” “administrative duties” and “professional duties” as follows:

• Executive Duties: The proposed executive duties test has three requirements: managing the enterprise; directing the work of two or more employees; and having authority to hire or fire (or such recommendations are given particular weight).
• Administrative Duties: The proposal would replace the “discretion and independent judgment” test, which has been the subject of confusion and litigation, with a new test that employees must hold a “position of responsibility.”
• Professional Duties: The proposal recognizes as exempt “learned professionals” certain employees who gain equivalent knowledge and skills through a combination of job experience, military training, attending a technical school or attending community college.

“Updating these regulations is long overdue – the types of jobs people do and the skills they need have changed, but the regulations have not,” said the Labor Department’s Wage and Hour Administrator Tammy McCutchen. “By recognizing the professional status of skilled employees, the proposed regulation will provide them a guaranteed salary and flexible hours.”

The proposed rules will have a 90-day comment period, ending June 3
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H.R. 1443, the “Access to Affordable Mortgages Act,” introduced by Reps. Ken Calvert, R-Calif., Steve Israel, D-N.Y. Tom Feeney, R-Fla., and Artur Davis, D-Ala., would amend section 251 of the National Housing Act to enable homebuyers to make use of HUD’s authority to insure hybrid adjustable rate mortgages.

Hybrid ARMs are mortgages that have an initial fixed interest rate for a period of three, five, seven, or ten years and then the interest rate adjusts annually thereafter. These are commonly referred to as 3/1, 5/1, 7/1 and 10/1 hybrid ARMs. Although these products are already available in the conventional market, historically, FHA was only authorized to offer a one-year ARM and no hybrid ARMs until fiscal 2002, when it was signed into law as part of HUD’s budget appropriations.

The bill would give HUD the flexibility to change the current first interest rate adjustment cap for 5/1 loans from the current 1 percent. Currently, other adjustable rate mortgages such as 7/1 and 10/1 hybrid ARMs have a cap of 2 percent for the first interest rate adjustment and 6 percent for the life of the loan.

The Mortgage Bankers Association had long advocated such a change, asserting that the 1 percent cap did not provide FHA borrowers with a full range of hybrid ARM loans with starting interest rates lower than those on 30-year fixed-rate mortgages.

“A maximum 1 percent increase in the interest rate at the time of the first rate adjustment for a 5/1 hybrid ARM does not offer sufficient interest rate flexibility for a lender to offer this type of hybrid ARM,” MBA said in an issue paper.

HUD estimated that hybrid ARMs could account for an additional 40,000 loans per year. But MBA said that without the adjustment proposed in H.R. 1443, that number would likely be much smaller.

The maximum interest rate adjustment for the 3/1 hybrid ARM product would remain at 1 percent.

HUD’s proposed fiscal 2004 budget did not include a provision to amend the hybrid ARM program.
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MBA (3/31/03) Sorohan, Mike
MBA’s National Secondary Market Conference goes to the Big Apple next week. Keynote speakers include “In Search of Excellence” author Tom Peters. For more information, go to the conference Web site.

The House Financial Services Housing Subcommittee, chaired by Rep. Bob Ney, R-Ohio, will hold a hearing April 1 to examine the nation’s flood insurance program and discuss reform proposals. The hearing is scheduled for 2 p.m. in room 2128 of the Rayburn House Office Building.

On April 2, the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises will hold a hearing on “Rating the Rating Agencies: the State of Transparency and Competition.” Representatives from the three major ratings agencies—Standard & Poor’s, Moody’s Investors Service and Fitch Ratings—are expected to testify. The hearing takes place at 10 a.m. in room 2128 Rayburn.

Upcoming Reports/Events:

• April 1: Construction Spending, U.S. Department of Commerce
• April 1: MBA Weekly Mortgage Application Survey
• April 4: Employment, Bureau of Labor Statistics
• April 6-9: MBA National Secondary Market Conference, New York City
• April 11: Producer Price Index, Bureau of Labor Statistics
• April 15: Housing Marketing Index, National Association of Home Builders
• April 16: Consumer Price Index, Bureau of Labor Statistics
• April 16: Housing Starts and Building Permits, Bureau of the Census
• April 24: New Residential Sales, Commerce Department
• April 25: Existing Home Sales, National Association of Realtors
• April 26: Gross Domestic Product, Commerce Department