Mortgage Grapevine

Table funding

What is the advantage of table funding?

Portions of Regulation X (24 CFR 3500.2):

"For loans originated by a mortgage broker that closes a federally related mortgage loan in its own name in a table funding transaction, the lender is the person to whom the obligation is initially assigned at or after settlement."

"Table funding means a settlement at which a loan is funded by a contemporaneous advance of loan funds and an assignment of the loan to the person advancing the funds. A table-funded transaction is not a secondary market transaction (see Sec. 3500.5(b)(7)).

http://squid.law.cornell.edu/cgi-bin/get-cfr.cgi?TITLE=24&PART=3500&SECTION=2&TYPE=TEXT

by Greg Fisher, creditscoring.com January 30, 2001 12:00 AM


"... the MBA has convened a blue ribbon panel of mortgage company executives to examine the appropriate limits of secondary market activity and develop a workable definition." - MBA, October 13, 2000

http://www.mbaa.org/library/isp/2000_3/02_04.html

by Greg Fisher, creditscoring.com January 30, 2001 12:00 AM


Greg: Why oh why do you do this?

"... the MBA has convened a blue ribbon panel of mortgage company executives to examine the appropriate limits of secondary market activity and develop a workable definition." - MBA, October 13, 2000

http://www.mbaa.org/library/isp/2000_3/02_04.html

by Greg Fisher, creditscoring.com January 30, 2001

Exactly what does this have to do with table funding? Nothing. You're showing you ignorance and lack of knowledge. The panel you are referencing is in response to Rep. Baker's bill for stronger federal oversight of the GSEs (Fannie Mae and Freddie Mac).
by hdbear January 30, 2001 12:00 AM


The MBA can kiss my burro. These are the same folks who stood by idly when the definition of "Secondary Market Transaction" was manipulated in favor of the banking/warehouse community in 1992. They, of course had no problem with the creation of a two-level playing field in terms of disclosure. Especially since they were placed on the superior level by the changes.
Coming to a news service near you soon......look for the "Packaged Services" mantra to be raised by the MBA by early summer. This may become a very dangerous hammer when directed against the brokerage community.
Greg.....That is only part of the definition of a "Secondary Market Transaction". The other determiner is whether a broker is ever "at risk" for anything during the course of the transaction.
Why do I prefer table funding? One word...recourse... I do not trust the levels of execution existing within most lenders' infrastructure to sell them paper with full recourse for a silly amount of time into the future. Because of reasons similar to what Q outlined above, I am not willing to expose my throat and trust a lender to hold the knife. To me, the extra 1-1.5 points is simply not worth the additional risk and infrastructure that is necessary to operate efficiently in the present economic environment.
We can easily sell over the disclosure inequity. I cannot sell over a potential buyback that was due to absolutely no fault of my office.
by DarthMae January 30, 2001 12:00 AM


"Maybe I'm too old, but my definition of table funding did make Greg happy. I foolishly attempted to call him in order to discuss it and share with him the different levels of table funding based upon whether the purchaser was attempting to make the funding a 'secondary market transaction.'" - hdbear, January 20, 2001 in the thread "Greg Fisher is a strange person!"

1) How is it possible to "make the funding a 'secondary market transaction'" when Regulation X, in its definition, states that a table-funded transaction is not a secondary market transaction?

2) You asked, "Exactly what does this have to do with table funding?" It has to do with you bringing up the secondary market as you tried to explain table funding.

by Greg Fisher, creditscoring.com January 30, 2001 12:00 AM


Table funding is simply putting the loan in the brokers name and the broker never has control of the loan funds. Escrow is give the note, deed of trust or mortgage AND an assignment of the Deed of Trust or mortgage at the same time. Presuming everything else is in order, the documents record and the funds are released. You can generally make an educated guess at table funded loans when the deed of trust or mortgage has a recording number and the very next number is the assignment of the security.

Table funding has no advantage to the broker. First the Reg Z must be given since the broker is listed as the lender and that is just another document that if it goes wrong the lender makes you buy it back in addition to rhe right of rescission which causes the lender to give back everything including title, credit and appraisal fees even though the lender did not get the fees to begin with and every lender knows this and gives it back (IF ASKED).

The practice is specifically outlawed by the Department of Corporations and Department of Real Estate in Calfornia by statute in the Financial Code and the Business and Professions Code. As stated: for an extra one half point it is not worth the risk.
by thorlaw January 30, 2001 12:00 AM


I believe thorlaw refers to the practice of a broker brokering a loan, and closing in the name of a lender, not the broker (not table funding). They contend that there is an extra 1/2 point paid to the table-funding broker (over the simply brokering broker). thorlaw, is that correct?

With their reference to the additional 1 to 1 1/2 points, I believe DarthMae refers to a broker using a warehouse line-- which is not table funding. In that case, when the loan is taken out of the broker's warehouse line and sold to the big servicer, is it a "secondary market transaction"? Also, is the party we're calling a "broker" actually a lender?

It also begs the question: In table funding, how can it be that the Note calls the broker the "Lender," when Regulation X specifically states that "the lender is the person to whom the obligation is initially assigned at or after settlement"?

Q aptly describes the various types of transactions in a thread titled "Greg: Two questions you might could help on." Q, would you mind cutting and pasting those here?

by Greg Fisher, creditscoring.com January 31, 2001 12:00 AM


The major advantage to table funding was taken away when the feds decided it wasn't a secondary market transaction. DarthMae is correct. The small mortgage lenders, ...brokers if you prefer... were sold down the river by the biggies and the trade associations. If it weren't for the totally unfair and arbitrary decision to exclude table funding from the secondary market exemption, there wouldn't have been all the clamor about servicing released premiums and yield spread premiums. Just one of the ways the rules were changed to put the small lender and broker at a competative disadvantage.

Did anyone notice that co-brokering was redefined to exclude mortgage brokers? It is only good for realestate agents!!!


by garu January 31, 2001 12:00 AM


I've said it before...you can't legally (AND within the wholesaler guidelines) co-broker. Since RESPA prohibits referral fees I must be paying for the actual value of the work someone else did. The wholesalers' contracts all prohibit 3rd party origination so I have to re-do the work the initial broker did, hence their work has no value to me. It's a catch-22, I would either violate RESPA or the origination contract with my wholesalers if I paid a co-broker fee. BTW, to be legal it would have to be on the HUD-1 so the investor would have to know about it and approve it. When I get a lead in a state I can't lend or broker in my fellow grapeviners there can have it for the low price of a simple "thank you".
by Jimbo36 January 31, 2001 12:00 AM


The point with co-brokering is that under RESPA real estate brokers are allowed to co-broker. In essence pay naked referral fees to anyone who has a real estate brokers license. How is that different from me being licensed in NJ and referring a customer that needs a mortgage in Ohio to a licensed mortgage broker in Ohio and splitting the fees. Even with disclosure on the HUD I we can't; but a real estate broker can. I'm not even sure if they have to show the split.
by garu January 31, 2001 12:00 AM


You can co-broker a loan through a division of labor contract which is totally acceptable to RESPA. I had the one we use for our clients approved back in 1993 and it was again "plagerized" to the IBAA in 1994. I kept both letters and the contract we have for our brokers and they are totally legal by RESPA guidelines. However, FHA does not allow this because FHA rules do not allow third-prty origination under any circumstances except one and it is so limited it is not worth discussing.
by thorlaw February 1, 2001 12:00 AM


Gregfisher: Reg Z is not the definition you gave. See 12 CFR Section 226.2(a)(17)(fn3)
by thorlaw February 1, 2001 12:00 AM


[posted by Q in another thread:]

... I WOULD like to know what the correct term to apply to the following situations is from whoever can answer it:

I. Broker does the origination and processing but the note, mortgage and disclosures are in the name of the Lender which actually funds the loan.

II. LO works for a company which does the processing and origination and funds the loan. However, company for which LO works ALWAYS turns around and SELLS the loan within six months of loan funding.

III. Broker does the origination and processing AND the note, mortgage and disclosures are in the name of the BROKER BUT THE LENDER actually FUNDS the loan. In this circumstance the Broker executes an assignment AT OR SHORTLY FOLLOWING the time of close.

IV. LO does the orgination and processing AND funds the loan. Furthermore, the company for which he works not only FUNDS the loan but seldom if ever SELLS the loan.

I would characterize these transactions with these descriptions:

I. Broker transaction utilizing a wholesale lending channel. This is a pure brokered transaction.

II. This is a BANKING transaction utilizing a correspondent lending funding channel.

III. This is a transaction utilizing a wholesale lending channel. It is a brokered transaction but because the documents are in the broker's name his liability in the event of default may be higher. It is a table funded, brokered transaction.

IV. This is a BANKING trasaction by a PORTFOLIO lender.

These are not meaningless distinctions I talked to a rep last week who said that Indiana might change it's regulartory structure such that only condition IV. lenders would be exempt from current broker education requirements. Currently conditions II. and IV. are regulated under the Dept. of Financial Institutions and NOT under the Secretary of State's office which regulates brokers.

Where am I wrong, and more importently WHAT ARE THE CORRECT DIFINITIONS FROM A REGULATORY PERSPECTIVE, for these various transaction situations?
by Q January 27, 2001

by Greg Fisher, creditscoring.com February 1, 2001 12:00 AM


thorlaw:

Regulation Z: TRUTH IN LENDING
http://www.access.gpo.gov/nara/cfr/waisidx_99/12cfr226_99.html

-----

Regulation X: REAL ESTATE SETTLEMENT PROCEDURES ACT

24CFR3500.1:

"PART 3500--REAL ESTATE SETTLEMENT PROCEDURES ACT... This part may be referred to as Regulation X."

http://squid.law.cornell.edu/cgi-bin/get-cfr.cgi?TITLE=24&PART=3500&SECTION=1&TYPE=TEXT

http://frwebgate.access.gpo.gov/cgi-bin/get-cfr.cgi?TITLE=24&PART=3500&SECTION=1&YEAR=1999&TYPE=TEXT

HUD RESPA Real Estate Settlement Procedures Act Homepage
http://www.hud.gov:80/fha/sfh/res/respa_hm.html

Would you rephrase your comment as a question?

by Greg Fisher, creditscoring.com February 1, 2001 12:00 AM


Two questions Greg,

Are you trying to pick a fight with Thorlaw? I hope not I would hate to see you chase him off the Vine like you have so many other useful contributors?

Secondly, do you actually know how to type? It is obvious you have the cut and paste function down.
by The_Shadow_Knows February 1, 2001 12:00 AM


The_Shadow_Knows:

thorlaw said, "Gregfisher: Reg Z is not the definition you gave. See 12 CFR Section 226.2(a)(17)(fn3)"

I've made quite a few comments, so I'm not sure of definition to which they're referring. Please post it in your response.

Feel free to waste your time retyping it, but don't misquote me.

by Greg Fisher, creditscoring.com February 1, 2001 12:00 AM


Sorry Greg, I was not quoting you, I was openly criticizing you. Your posts make no sense so why would I want to waste time quoting you? I don't want to make my self look like a fool.
by The_Shadow_Knows February 1, 2001 12:00 AM


Let me spell it out for you The_Shadow_Knows:

You said, "Two questions Greg... "

I can count, but there are three question marks.

"Are you trying to pick a fight with Thorlaw?"

No. I politely asked for clarification of the statement of mine to which they are referring. Your question is the same vein as: How long have you beaten your wife?/When did you get out of prison?/What about your illegitimate children?, etc. Please, leave it out of the discussion.

"I hope not I would hate to see you chase him off the Vine like you have so many other useful contributors?"

Is that a question? See my previous answer regarding statements couched as questions. But, let me try to interpret:

"I hope not." Fine, but I don't pick fights. If you would like to discuss that further, there are several open thread with my name in the title. Pick one, and go there.

"I would hate to see you chase him off the Vine like you have so many other useful contributors?"

Interpretation: Will you attempt to chase-off them and their useful contributions?

No. But, see the previous treatise on questions that are-- in, and of themselves-- implied accusations.

"Secondly, do you actually know how to type?"

Yes. Touch. If you, yourself, would like to retype someone else's words (or, indeed, a law)-- and risk misquoting them-- you may. I prefer the CNTRL-c, CNTRL-v method to avoid that.

"It is obvious you have the cut and paste function down."

Then you shouldn't have to say it. Don't say it.

"Sorry Greg, I was not quoting you, I was openly criticizing you."

I don't believe that is a sincere apology. I didn't say you were quoting me, I was implying that you should use cutting-and-pasting to avoid misquoting me. It was a response to your comment about my cutting an pasting. See the previous treatise on why I use cutting (I' can't believe I'm doing this)-and-pasting.

"Your posts make no sense so why would I want to waste time
quoting you?"

My posts make perfect sense, and I thank those giving the intelligent, learned responses to them, above-- including thorlaw. The premise of the question is that my posts make no sense-- but since that is an incorrect premise, the second part is moot. But, you may spend your time however you wish and you do not need reason to do so from me.

I don't want to make my self look like a fool.

Then you might want to review the usage of "my self."

The topic is table funding, and I'm trying to get others' perceptions, and the definition. Please stay on the topic.

-------------

If anybody would like make a complaint about The_Shadow_Knows' disruption of the conversation-- which violates the Rules of Conduct, you may email it to grapevine@mortgagestats.com.

The Rules of Conduct state:

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Please use the title: complaint, The_Shadow_Knows, disruption

Paste this into the body of the message:

Please count my complaint about the poster The_Shadow_Knows. They disrupted the thread "Table funding" on February 1.

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by Greg Fisher, creditscoring.com February 1, 2001 12:00 AM


Thorlaw, please ignore Greg@me.me when you respond to any question or comment, regarding 'table funding' or anything else.

I am sure your time, unlike Greg@me.mes' time, is valuable and your comments are very welcome here on the Grapevine and mortgage professionals can quickly comprehend, without the consistant badgering and nit picking some of the slower individual posters may require.

Please don't waste your time responding to cut and paste knee jerk reactions.

I thank you for your professionalism and your contributions to this forum.
by JM February 1, 2001 12:00 AM


I always consider the source and ignore it accordingly.
by thorlaw February 1, 2001 12:00 AM


I always consider the source and ignore it accordingly.
by thorlaw February 1, 2001 12:00 AM


The *source* is the Code of Federal Regulations. But itís irrelevant to hdbear and JMÖ I didnít realize anarchy was so hot again. Try to avoid laughing too hard because you might fall out of your chair, but see their act in "2 good articles...just so you know!" and "Greg Fisher is a strange person!"

http://www.nationalmortgagenews.com/cgi-bin/grapevine/subject_search.pl

Hereís some background on the idea of table funding not being what it used to be.

"Late in 1992, HUD codified a previous legal opinion that mortgage brokers must disclose to borrowers direct and indirect fees that brokers received at settlement (November 2, 1992; 57 FR 49600). In 1995, as a result of concerns that this requirement placed mortgage brokers on an unequal footing with other mortgage loan providers and that information on indirect fees was confusing to borrowers, HUD issued a proposed rule (September 13, 1995; 60 FR 47650)
to obtain the public's views on the disclosures of broker fees and on the legality of certain indirect fees to brokers from lenders (which were referred to in that rule as íwholesale lendersí and are referred to simply as lenders in this proposed rule)."

http://www.hud.gov/fha/sfh/res/mrgbrkrl.html

http://www.hud.gov/fha/sfh/res/mrgbrkrl.html
http://www.lotsteinbuckman.com/library/MB__199902.HTML

So, the table-funding broker has to make a disclosure where he didnít before, but the suit with the haircut called "banker" doesnít. Same loan. Supposedly, the consumer is going to look at a fee paid to a broker and say, "Hey! Thatís too much!" With a banker with the same terms, the consumer says, "Uh, OK."

Supposedly, all the lawyers, discussions, public comment periods, and posturing are to come to a resolution that protects consumers. But The Big Question is: If the stalwart, solid-as-a rock number that everybody calculates exactly the same, (ta-da) ***THE APR*** (ta-dum, ta-da) has been used for 25 years and is the ultimate tool for shopping, why do consumers need another number? But, we probably donít have time for that subject. This is only a 10-year discussion.

by Greg Fisher, creditscoring.com February 2, 2001 12:00 AM


Greg,
O.K., I'm going to dust off my ancient history volumes to deal with this, so please excuse me if I am a tad off center on some of this stuff.
Your final 2 paragraphs seem to imply that the powers that be even cared about the consumer when this stew was thrown in the oven. The following is simply my understanding distillation of the events (living history if you will) as we encountered them at the time.
There were a confluence of circumstances that collided to bring about the changes occurring in the fourth quarter of 1992.

First, then Vice President Dan Quayle was the chair of the "Council on Competitive Issues". This was a group of "Business Leaders" that included bankers, corporate fat cats, and, I believe, a prominent representative from the real estate industry whose name escapes me.

Next, there was this senior attorney at HUD who seemed to have open disdain for the mortgage brokerage community as a whole. He felt that, for what little work it took to close a loan, anything more than $500.00 for our efforts was entirely unjustifiable. Greg, I believe he is the author of the legal opinion you site. It is my feeling that he is the person that is ultimately responsible for stripping brokers of the secondary market transaction exemption. He floated the idea that a transaction without risk is not a true transaction. Further, since a broker did not use their own funds to close the loan, they had nothing at "risk" in the deal. Thus, the twisted logic of this bureaucrat concluded.....it was not a "true" transaction, and hence forth, should not carry with it the exemption. To which, the MBA, realizing the potential boon ......diligently sat on their hands.

Enter stage left, the NAR (National Association of Realtors) who had been steadily lobbying legislators, and the executive branch, to "widen the competative landscape" in the mortgage industry by allowing realtors to openly originate mortgages from prospective homebuyers and receive compensation for those originations. The birthplace of the CBA concept.

Finally, there was the spectre of a presidential election in its final stages. The encumbent party was trailing in the polls, and they were looking for a political "Hail Mary" of sorts. In my humble opinion, someone whispered in the ear of "Dan Wonder" , and brought to his attention, the potential bloc of votes that could be swayed with swift regulatory changes that would make it possible for Real Estate offices to add income to their bottom line almost immediately.
The disclosure change actually was an afterthought that was couched as a handy "consumer freindly" move to show that the President was in fact in touch with the concerns of the American people.
The announcement of these changes just days before the election was no coincidence. It was cold, calculated, political strategy.
Also, I really don't believe that either Bush I or Quayle, ever intended for the disclosure changes to see the light of day. I think they intended to offer it up as an idea, and then kill it after the anticipated firestorm of industry opposition was noted......after they won. Well, unfortunately for us low life, broker vermin, the plan didn't work. Slick Willy won, and the boulder had already been started down the hill. Henry Cisneros and the revitalized staff of HUD was only too willing to give it a further shove.
The rest, as they say Greg, is history.








by DarthMae February 8, 2001 12:00 AM


That's quite a story, DarthMae; thank you. Having watched another issue similarly unfold in Washington, I have no reason to doubt your veracity. It seems similar to the on-again, off-again credit scoring disclosure requirement-- it went back and forth until Congress stepped in and changed the law, taking away the FTC's power to dictate disclosure requirements.

With the APR, the disclosure of premiums paid to the "broker" is, technically, redundant and moot. That is, if APR is reliable, and consumers get several quotes, then the lowest APR, supposedly, is the best deal. That isn't my premise, but the premise of the APR. I think the APR is about as irrelevant a number as any in the file (an effective rate based on the assumption the borrower will retain that loan for 30 years is not reflective of reality).

Had those in the discussion done their homework, they would have seen a big difference between the broker table funding a conforming loan and brokering non-conforming loan that closes in the name of a lender rather than the broker.

I presume that, had the brokers had a stronger unified voice at the time, this might not have happened.

Were brokered loans (closed in the lender's name, not the broker's) required to disclose back points prior to 1992?

Was the exemption just an exemption to disclose the back points? Was there anything more to it than that? Anything like legal ramifications regarding recourse, or money lost or gained? In other words, was it just a cosmetic change?

And, what do you think of the dichotomy of the broker being called "Lender" in black an white on the note and mortgage, but Reg X calling "the person to whom the obligation is initially assigned at or after settlement" "the lender." It seems ridiculous to have such a conflict in basic documents. If a consumer asks a table funding broker: "Are you a broker?", it seems that the broker can say, "No. When you sign the documents at the closing, my company is denoted as 'The Lender' on the note and mortgage." But the law says "the lender" is someone else (and further, to my knowledge, does not define "broker"). That's amusing to me, and further proof that there needn't be five banking regulatory agencies.

If the broker's (the original lender) name, reputation, and money is on the line (the potential of having to buy back the loan if the broker commits fraud), they should have every advantage in calling themself "Lender"-- particularly if the loan documents say that's who they are.

by Greg Fisher, creditscoring.com February 9, 2001 12:00 AM


Well said Greg and Darthmae!
Excellent exapmles and points. Thanks!
by JM February 9, 2001 12:00 AM


Wow Greg, mark this down, so far we agree almost entirely. You are correct, we as mortgage professionals, are serving a monster with one body but five heads. Unfortunately, under the Clinton administration, it was growing a sixth in the form of the Justice Department.
The loss of the secondary market exemption is more than cosmetic though. I am convinced that since the mid nineties, HUD realized that they could not tame the mortgage broker "beast" alone. So, they basically deputized a national army of trial attorneys to keep us in check through the court system. Thus, HOEPA and the YSP suits. I believe that, without a republican Congress, HUD would have been content to let the YSP battles continue to rage in the courts.
by DarthMae February 9, 2001 12:00 AM


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