In 2014, WJB became one of the first companies to enter the non-agency market when it introduced its WJB-ONE portfolio of mortgage programs. The product offered high cost loans for condominium projects that had been found to be non-warrantable and was aimed to appeal to borrowers who might be found ineligible for more traditional lending programs. Last month, just two years later, an announcement was posted on the website of W.J. Bradley Mortgage Capital (“WJB”) stating that it and all related companies had approved “an orderly wind-down of the Company.” What lead to the downfall of WJB? It was the inability to keep up with the cost of compliance set forth by the CFPB for its high cost loans.
The WJB-ONE program was revolutionary when it was launched in 2014. A WJB representative explained that the program was meant to contrast with the actions of the regulators in instituting Qualified Mortgages (“QM”), which required that lenders ensure their borrower’s ability to repay (“ATR”) before approving them for loans. The company had additional WJB-ONE programs in the works, including one which would loan large amounts of money for investment real estate, another for those customers with high-net-worth and liquid assets, and yet another aimed towards second-home owners looking to pull cash out of a refinance.
Qualified mortgages had been a massive regulatory consideration for WJB, one that had required a substantial amount of time and effort. WJB’s strategy was to gain mastery of compliance rather than become a “victim” of it. The program would be introduced incrementally, to fulfill the company’s obligations to its borrowers and lenders. Despite this optimistic outlook two years ago, WJB became too comfortable with approving applicants that would not qualify under QM, even if that required the company to put “some skin into the game.”
WJB’s ultimate downfall resulted from the regulatory confusion and high costs it faced when it came to making such risky loans. WJB’s advisors determined that the winding down of the company was in the best interests of “the Company, its creditors and other stakeholders.” Messages were sent to employees reminding them of the company’s privacy policy, as well as their responsibility to ensure that both the sensitive information of their customers and the company were to be kept in the strictest confidence. WJB was sure to remind its employees that the company was still subject to the regulations of the Consumer Financial Protection Bureau, even during the wind-down period, and as such, employees were obligated to continue to comply with applicable regulations in the same fashion as they would if the wind-down were not occurring. The notice sent to employees also stated if they conduct any additional business which might result in the accrual of a charge to W.J. Bradley, that they must contact an officer of the company for prior approval, which is a clear indication of the company’s dire financial situation.
Lenders in the high cost loan market should definitely make sure that they are in compliance with the federal regulations. Failing to comply with the regulations can lead to fines, lawsuits, and in WJB’s case, a complete shutdown of business. Lenders are flustered by the new and confusing TRID rules, causing them to err on the side of caution and not take on loans that have even minor correctable errors. The good news is that there is light at the end of the tunnel as CFPB is now aware of these issues and how they could be affecting the market. The CFPB has begun to issue letters and assurances regarding the confusion surrounding the new regulations. The only thing that lenders can do is be patient in this time of regulatory confusion and be sure to check everything twice.
