A former World Savings executive, and current president of mid-Atlantic real estate company The Long & Fosters Companies, is expected to be selected today to run the FHA.
Though the Obama administration has yet to make the announcement, the Washington Post said the man in question, David H. Stevens, is already undergoing required background checks. Let’s do our own.
Stevens began his career as a “loan originator” back in 1983 at World Savings Bank, before progressing to Group Senior Vice President, National Sales Manager for the mortgage division.
He then made his way over to Freddie Mac, where he served as Senior Vice President of the Single family business, responsible for all sales, marketing, business strategy, affordable lending, and product development for the firm.
Later, he ran the wholesale lending business nationally for Wells Fargo, before eventually making his way over to Long & Foster.
By the way, World Savings killed Wachovia, Freddie Mac is in conservatorship, and Wells Fargo’s wholesale presence is limited at best; do you believe in trends?
Now it’s unclear if Stevens was involved with any of those toxic option arms World Savings spewed out, or if his advising in affordability products led to the decline of Freddie Mac, but let’s hope he gets things right at the FHA.
In recent months, the FHA has taken on a huge role in the mortgage industry, accounting for a staggering 21.13 percent of market share as of September 2008, and more recently a lot more.
The good news is the FHA seems to be taking some risk mitigating actions, such as limiting cash-out refinances to 85 percent and stamping out seller-paid down payment assistance loans.
All important things, considering 2009 FHA loan volume is projected to be as high as $400 billion; so he’ll be plenty busy, especially with defaults rising above 6.5 percent.
The nomination of FHA commissioner David H. Stevens was held up yesterday thanks to a lawsuit involving his current employer Long & Foster.
The Washington D.C.-based real estate brokerage where Stevens has been president for seven months was accused of violating federal anti-kickback laws through its affiliated lending arm Prosperity Mortgage.
Though Stevens is not named in the lawsuit, concerns forced the Senate Banking Committee to postpone its vote pending more information.
The lawsuit contends that Long & Foster real estate agents were pushed to use Prosperity Mortgage, a joint venture between Long & Foster and Wells Fargo, for the financing of mortgage loans in exchange for kickbacks.
The affidavit cites a Washington Post story from November 2007 in which Long & Foster chairman P. Wesley Foster Jr. chastises his agents via e-mail for using mortgage lenders other than Prosperity to obtain financing, though the memo was apparently written by Stevens.
A statement released by Long & Foster claims the memo was written by Stevens and complies with federal law, noting that there’s nothing wrong with asking agents to utilize a partnership so long as they don’t require them to do so or pay them in return.
The Department of Housing and Urban Development also reviewed the memo and determined it hadn’t violated federal laws.
Stevens has certainly had an interesting past, serving major roles at World Savings, where he was the National Sales Manager, and at Freddie Mac, where he was in charge of product development.
World Savings eventually went on to kill Wachovia thanks to its stable of option arms and Freddie Mac is now in conservatorship, partially because of bad business bets.
A multiple listing service settled a lawsuit challenging Realtor commission rules for $3 million, a possible harbinger for several ongoing actions by home sellers alleging listing requirements are anticompetitive.
The case, Nosalek v. MLS Property Information Network, had class action status and was filed in the U.S. District Court for Massachusetts. Only the MLS agreed to a settlement, according to a June 30 legal filing. Other defendants in the case, both franchisors and brokerages, were not part of the agreement.
Sellers, along with the Department of Justice, are pushing for a major change to the real estate industry’s compensation structure that both its proponents and opponents agree will affect every party involved in home buying.
“Life after all of this is gonna be quite different,” Dennis Norman, a real estate broker and owner of More, Realtors, said. “And I don’t know if NAR survives because we’re talking about massive, massive amounts of money.”
Rules by the National Association of Realtors and associated multiple listing services, which are databases real estate brokers use to list and search for properties, are at the crux of all three major lawsuits — Nosalek v. MLS PIN, Sitzer v. NAR and Moehrl v. NAR. All three cases cite the Sherman Antitrust Act.
The Nosalek plaintiffs didn’t sue NAR, although they did go after realty companies like Century 21, HomeServices of America and Keller Williams. Their initial complaint, filed in December 2020, cites MLS PIN rules on Realtor commissions that say listing brokers must include a fee for the buyer’s representation on each property.
This is because of a coupled compensation structure: most home sellers pay for both the buy-side and sell-side broker fees.
Sellers who don’t offer a fee on the MLS PIN can’t list their home on the service. The lawsuit says this complicates the selling process because buyer agents use the MLS to search for their clients and popular websites like Zillow also use it for their home listings.
Another complaint in the lawsuit says if sellers offer a lower-than-normal fee, buyer agents can see this on the MLS and will likely steer their clients away from the listing.
As part of the settlement, MLS PIN agreed to change its rules on the topic, eliminating the compensation listing requirement. They will also require brokers to inform buyers that they can negotiate the buyer-broker fee and inform sellers that they can elect not to pay it.
HomeServices of America and its affiliates recently filed for summary judgment on the case, arguing there’s no evidence the company conspired with the MLS PIN to inflate commissions.
Both the Sitzer and Moehrl cases contain similar complaints, but are focusing on the NAR as well because of its strong influence on listing service rules: 97% of regional MLSs are affiliated with the NAR and follow its code of ethics, according to by T3 Sixty, a real estate consultant firm.
If the Sitzer and Moehrl lawsuits compel NAR to uncouple with MLSs as some industry voices like Norman are expecting, on top of large damages, the organization and its local chapters would lose their major draw: member-only access.
“I think that’s almost the last bullet for the associations,” Norman said. “MLSs are gonna have their challenges too… but they still have what everybody wants and they’re good for the consumer.”
How Realtors get paid Coupled commissions have been around for a long time. With this system, home sellers pay their listing broker 5% to 6% of the final sale price after closing. That commission is then divvied up evenly between sell-side and buy-side agents, who interact with the customers, and their broker agencies. The majority of each half goes to the agent.
For example, after selling a $300,000 house, a seller pays $15,000 in Realtor fees. Agents receive $6,000 each and their brokers $1,500 each for the sale. The buyer doesn’t pay any fees.
“The whole compensation system doesn’t make a lot of sense,” Steve Brobeck, a senior fellow at the Consumer Federation of America and a self-described public interest advocate, said.
Why are Realtors compensated this way? It evolved from the original system used in 1908 when the first iteration of NAR, the National Association of Real Estate Exchanges, was founded, according to a report by T3 Sixty.
Back then, the industry relied on an exclusive representation system: sellers hired a single listing broker for a fee. Buying brokers were sub-agents of listing brokers, and both sides had a fiduciary duty to sellers. When property sold, listing agents gave their sub-agents a portion of the commission fee.
Eventually, the industry moved away from the subagency model to properly align fiduciary duties, but it didn’t move away from coupled compensations.
“It’s a weird system,” Ann Schnare, a former Freddie Mac executive who ran a study on the compensation structure, said. “Admittedly, it wouldn’t be the first to come to mind, but the fact is that’s what exists… changing it, I think, would be unnecessarily disruptive.”
The NAR has a similar outlook: it resists the lawsuits’ efforts to outlaw shared commissions because they say it’s optional and the rate is negotiable.
Critics of the system like Brobeck point to uniform commission rates despite this negotiability. Brobeck found that in 24 cities across the country, 88% or more of home sales had buy-side commission rates between 2.5% and 3% in a CFA report.
Source: Consumer Federation of America
“This rate uniformity is striking evidence of the lack of price competition in the residential real estate industry,” Brobeck said in the report.
Other antitrust lawsuits Legal action over commission fees began in 2018, when a 10-year settlement between the DOJ and the NAR expired. Before crafting a new agreement, the DOJ and Federal Trade Commission held a joint workshop about competition in the real estate industry.
In 2020, the DOJ filed a new lawsuit against the NAR under the Sherman Antitrust Act and simultaneously settled with the association. The settlement required several changes to NAR’s code of ethics to provide “greater transparency to consumers about broker fees.”
The settlement banned buyer brokers from advertising their services as free unless they receive zero compensation from any source. It also prohibited these brokers from searching MLSs by filtering out properties with low commission fees and pushed for greater transparency on those sites.
Because of the settlement, many MLSs began to publicly post commission fees for each property. Redfin and Zillow followed suit. For the first time, homebuyers saw how much their agent would earn from each listing.
But then, the DOJ pulled out of the settlement in 2021 because it prevented them from investigating the association’s rules further.
The Moehrl and Sitzer lawsuits popped up around the same time as the DOJ’s initial workshop.
On March 6, 2019, Christopher Moehrl sued Realtor companies “for conspiring to require home sellers to pay the broker representing the buyer of their homes, and to pay at an inflated amount, in violation of federal antitrust law.”
Then, in April 2019, Joshua Sitzer and Amy Winger, Scott and Rhonda Burnett and Ryan Hendrickson filed a similar lawsuit in Missouri.
Both plaintiffs sued the NAR along with large national broker franchisors: Realogy (now Anywhere Real Estate), HomeServices of America, RE/MAX Holdings, and Keller Williams Realty, as well as HomeServices affiliates BHH Affiliates, HSF Affiliates and The Long & Foster Companies.
Real Estate Exchange, a real estate brokerage, also filed an antitrust lawsuit in 2021 against the NAR, Zillow and Trulia. The lawsuit alleges that Zillow’s search features prevent “transparent access to home inventory.”
Will cash-constrained homebuyers suffer? NAR argues in press releases about the lawsuits that the coupled compensation system fosters market competition because it frees up cash for buyers, allowing them to make a larger down payment.
A study funded by HomeServices of America, a defendant in all three suits, supports the claim. It declares that unless lending changes come in tandem with revisions to this commission structure, it would hurt “minorities, lower income households, and first-time home buyers” the most.
Consumer advocates argue that agent fees won’t hurt buyers because their cost is currently built into home prices. If sellers no longer pay both agent commissions, home prices will fall, and buyers will have the same net cost.
Schnare, one of the study’s authors, said because most finance their home with a mortgage, that’s not true.
“If everything was cash, it wouldn’t make a difference,” Schnare said. “What seems like a small adjustment can make a big adjustment on what they can afford to pay and, you know, potentially hurt the lower end of the market, but with ripple effects upwards.”
Brobeck says this concern is exaggerated, and that lenders will adapt accordingly: “the only reason that argument has any force at all is because the industry supports buyers not being able to finance their commission on the mortgage.”
But Schnare’s study found it’s not that simple.
In order to avoid hurting cash-constrained buyers, lenders would need to change underwriting standards, specifically the loan to value ratio, which represents the borrower’s equity position in the property. This is the most powerful measure of default, the study says, and including an “extraneous factor” like buyer agent fees in the ratio could decrease its predictive accuracy. Schnare says government-sponsored enterprises, the Federal Housing Administration and the Department of Veterans Affairs are unlikely to approve of this change.
Even if they did, it would “require regulatory approval and coordination across multiple parties along the mortgage supply chain,” so Schnare expects it to be a lengthy, expensive process. In the meantime, first time homebuyers would struggle to pay broker fees out of pocket.
“We have what we have, we’re not starting from scratch,” she said. “That’s a big ask for something where the benefits are not entirely certain.”
But the CFA and REX both dismissed the study, citing its funding and accusing it of a faulty premise.
Either way, the industry might be forced to change — both the Sitzer and Moehrl lawsuits are going to trial and many expect the plaintiffs to win. The Sitzer trial is scheduled for Oct. 16, and the Moehrl trial will likely begin early 2024.
“I would not be surprised if there was a settlement before them in both cases,” Brobeck said. “And then the question is, will this settlement really lead to effective price competition?”
Prosperity Home Mortgage based out of Chantilly, Virginia originally got started in the Carolinas back in 2006.
While that was probably the last good year for the mortgage industry before the Great Recession, the independent mortgage banker was able to weather the storm and come out bigger and stronger.
Today, they are one of the largest mortgage lenders in the United States, having originated roughly $6 billion in home loans in 2019.
They operate exclusively via the retail direct-to-consumer channel in 44 states (and D.C.) with 700 branch locations nationwide.
Interestingly, they are a wholly owned subsidiary of The Long & Foster Companies, which is a part of HomeServices of America, a Berkshire Hathaway affiliate, so they appear to have a strong connection to the real estate industry.
Let’s learn more about why Prosperity Home Mortgage could be a good choice for your next mortgage.
Prosperity Home Mortgage Quick Facts
Formed in 2006 in the Carolinas, currently based out of Chantilly, Virginia
More than 700 brick-and-mortar branch locations nationwide and 350+ loan consultants
11 regional offices that process, underwrite, and close loans
Closed roughly $6 billion in home loans during 2019 via retail channel
Also operate a family of local brands including Edina Realty Mortgage, FM Lending Services, DFW Texas Mortgage, and Long Mortgage Part of the HomeServices family of mortgage companies, a Berkshire Hathaway Affiliate
As noted, Prosperity Home Mortgage is a relatively young mortgage company, having been formed in 2006.
However, they’ve already managed to fund more than $6 billion in home loans in a single calendar year, which makes them one of the largest mortgage lenders in the nation.
A good portion of that volume came from lending in their home state of Virginia, which accounted for roughly 20% of that total.
They also did quite a bit of mortgage lending in nearby Maryland and North Carolina, as well as Minnesota.
PHM has several smaller, local mortgage brands, including Edina Realty Mortgage, which serves home buyers in Minnesota and Wisconsin, FM Lending Services, a mortgage banker located in North Carolina, DFW Texas Mortgage, and Long Mortgage based out of Tucson, Arizona.
Overall, their area of focus seems to be the Mid-Atlantic, Northeast and Midwest, though there’s a good chance they’ll expand further west as time goes on.
Roughly two-thirds of 2019 origination volume was conventional loans, and about 93% was 30-year fixed product.
The HomeServices family of mortgage companies includes Prosperity, HomeServices Lending, and Trident Mortgage Company, which collectively funded $10.2 billion in 2019
How to Get a Home Loan with Prosperity Home Mortgage
You can apply directly via their website’s digital mortgage application powered by Ellie Mae
Or download their smartphone app and apply from the palm of your hands
Also have 700 locations nationwide if you want to work with someone nearby
Currently not available in Alaska, Idaho, Iowa, Nevada, New Mexico, and New York
If you want to apply with Prosperity Home Mortgage, they’ve got an Ellie Mae-powered digital mortgage application located right on their website.
Simply hit the big “Apply Now” button and you can get started right away without any assistance from a loan officer.
Alternatively, you can use the branch locator on their website to find a brick-and-mortar location near you if you want to visit an office or speak to a human being.
The locator also lists the employees that work in a given branch, which allows you to go to their own personal website and apply.
So if you’ve been referred to someone, or know who you want to work with, this can be a handy tool.
Once you apply, you’ll be able to upload documents and link financial accounts for a faster and more accurate loan experience.
The company also has a free smartphone app that lets you apply, contact a loan consultant, use calculators, and upload key documents once approved.
You can also track your loan progress via the app as it advances through the process.
At last glance, they are licensed in 44 states and the District of Columbia, with the exceptions being Alaska, Idaho, Iowa, Nevada, New Mexico, and New York.
Prosperity Home Mortgage Loan Options
Home purchase loans, refinance loans, cash out refinancing
Conventional loans (those backed by Fannie Mae or Freddie Mac)
Government loans (FHA, USDA, VA)
Jumbo loans up to $3 million loan amounts
Interest-only loans
Fixed-rate and adjustable-rate options available
They are a full-service mortgage banker that specializes in both home purchase loans, thanks to their strong link to real estate agents, and mortgage refinance loans.
You can get financing on a single-family home, condo, townhouse, or multi-unit property. It can be a primary residence, vacation home, or investment property.
As mentioned, about two-thirds of their production was conventional loan lending. But they also did about 10% of volume each in FHA loans, VA loans, and jumbo loans.
So beyond stuff backed by Fannie Mae and Freddie Mac, including the 3% down HomeReady loan program, you can also get a government-backed home loan, a jumbo loan, or even a USDA loan if you live in a rural area.
Their more unique offerings include an interest-only jumbo loan – they offer loan amounts as high as $3 million, which should cover the majority of borrowers out there.
Most of the loans they close are 30-year fixed mortgages, though they also offer 15-year fixed mortgages and adjustable-rate mortgages.
You can get a 5/1, 7/1, or 10/1 ARM if you don’t plan to keep your property/home loan for that long and want to save some money.
Prosperity Home Mortgage Rates
At the moment, they don’t appear to advertise their mortgage rates on their website or elsewhere. So you’ll need to contact them to get pricing while comparison shopping.
The same goes for lender fees, which are not disclosed upfront on their website.
Be sure to inquire with a loan officer while mortgage rate shopping and get the APR, which factors in the both the fees and the interest rate.
It’s unclear what lender fees they charge, such as loan origination, underwriting, and processing.
As such, it’s impossible to know how competitive they are until comparing their rates and fees to other mortgage lenders.
Remember, the more quotes you receive, the better deal you’ll get, which is proven by real studies from Freddie Mac.
Prosperity Home Mortgage Reviews
They tout their 4.88 out of 5-star rating with SocialSurvey, which is based on a whopping 36,000+ customer reviews.
Clearly a large sample size there to have near-perfection, so they must be doing something right.
Similarly, they have a 4.97 out of 5-star rating on Zillow, which again is pretty much as good as it gets.
On Zillow, you can see individual loan officer reviews as well if you want to know how a specific individual has performed.
Most of the Zillow reviews highlight the fact that both the mortgage rate and closing costs were lower than originally expected.
Prosperity Home Mortgage has been an accredited business with the Better Business Bureau for many years and currently has an A+ rating.
Prosperity Home Mortgage Pros and Cons
The Good
Can apply directly online via digital application Lots of branch locations to choose from if you prefer a human touch Excellent customer reviews Plenty of different loan programs to choose from Free mortgage calculators and tutorials on their website Free smartphone app with ability to track loan progress
The Potential Not-so-Good
Not licensed in all 50 states Do not advertise their mortgage rates Do not disclose their lender fees on website
Virginia-based mortgage bank Prosperity Home Mortgage, LLC has acquired the assets of Arizona-based JFQ Lending, LLC to explore the direct-to-consumer channel.