The homeowner isn’t responsible because they didn’t know they were supposed to read paperwork and were a little fuzzy on that whole fraud thing. “I totally trusted the guy… and frankly, when the settlement agent pointed out fees and terms… I stopped him and said “shhhhh, I like surprises!” Then the broker told me I could call it my primary residence, and it was totally cool to say I make $10K per month selling Amway.”
The broker isn’t at fault because even though they sold the product, how were they supposed to know if people couldn’t afford it. “I didn’t make the crack, I didn’t fund the crack… I just dealt it.”
Think only mortgage and homebuilding industries are affected by the current mortgage market situation? Think again. The effects just keep spreading.
For example, students in Massachusetts are being denied college loans due to the current market. As BlownMortgage reports:
“The Massachusetts Educational Financing Authority is unable to grant loans to college students this year as it is unable to secure financing due to the condition of the capital markets. More than 40,000 college students will be locked out of financing for their college education due to the beating taken on Wall Street.
This is where it gets really unfortunate folks. Taxpayers bear the burden of a Fannie and Freddie bail out while the companies can still pay out dividends, bear the burden of a Bear Stearns bail out, bail out irresponsible policy and practice and then be shut out of opportunity. Can you imagine explaining to the parents of those kids that your child won’t get an opportunity at college because of the mortgage mess and their taxes will go towards bailing out those very same people who took away that opportunity?”
A big gripe with consumer groups and regulators of our industry are the subjectivity and arbitrary nature of fee structures, which leaves the system open to discrimination and abuse. On June 12th, Portfolio.com outed Senators Dodd and Conrad for receiving “FOA” loans from Countrywide Financial. Following a vehement denial from Conrad in the Washington Post, one can’t help but feel like you just towel dried with a side of bacon.You may ask… FOA? Fallacious Option Arm? Oh no… nothing so pedestrian… FOA is the internal CWF designation for “Friends of Angelo.” According to Portfolio.com :
“the V.I.P.’s received better deals than those available to ordinary borrowers. Home-loan customers can reduce their interest rates by paying “points”—one point equals 1 percent of the loan’s value.For V.I.P.’s, Countrywide often waived at least half a point and eliminated fees amounting to hundreds of dollars for underwriting, processing and document preparation. If interest rates fell while a V.I.P. loan was pending, Countrywide provided a free “float-down” to the lower rate, eschewing its usual charge of half a point. Some V.I.P.’s who bought or refinanced investment properties were often given the lower interest rate associated with primary residences.”
This is a great article discussing the effects that tinkering with the CPI and economic indicators in order to give a positive economic outlook have on markets over the long term:
“In 1983 the Bureau of Labor Statistics was faced with an awkward dilemma. If it continued to include the cost of housing in the Consumer Price Index, the CPI would reflect an inflation rate of 15 percent, thereby making the country’s economy look like a banana republic. Worse, since investors and bond traders have historically demanded a 2 percent real return after inflation, that would mean that bond and money market yields could climb as high as 17 percent.
The BLS solution was as simple as it was shocking: Exclude the cost of housing as a component in the CPI, and substitute a so-called “Owner Equivalent Rent” component based on what a homeowner might rent his house for.”
I will be exploring the changes to the CPI and how they have falsely depressed interest rates which helped lead to the crisis over the next several weeks. Stay tuned!
“…I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. It would essentially make FHA the largest scratch and dent lender in the market.”
I will say it again.
This story from the Wall Street Journal reinforces how much our industry is interconnected with both the US economy and the global economy. Our industry needs to be educated about global economics and understand just how extensive the effects of our actions are. These types of reports also demonstrate how critical a return to quality in lending and a renewed focus on quality control are to the total recovery and future viability of the mortgage market and our industry:
A new report from Standard & Poor’s indicates that a government bailout of Fannie Mae and Freddie Mac would cost upwards of 10 percent of gross domestic product (GDP) and jeopardize the United States’ AAA rating. According to the credit rater, “Even though . . . credit damage from GSEs is unlikely, the greater risk to the U.S. lies with them than with broker-dealers.” The report notes that a bailout of broker-dealers would cost the government less than 3 percent of GDP, with the bailout of Bear Stearns by the Federal Reserve pegged below 1 percent of GDP.
Titan Lenders Corp was featured in this great Mortgage Technology article highlighting vendors that are utilizing innovative Internet marketing and communications to reach out to the mortgage industry and other markets:
“Not unlike other industries, mortgage businesses are increasingly reliant upon the Internet to find, analyze and gain consensus on resource selection and management, such as the search for lending technology solutions. Lenders and the vendors serving them are increasingly discovering the benefits of online “window shopping” for technology and service solutions as these habits become more natural in their personal lives. As this trend progresses, successful vendors are challenged to communicate effectively with lender prospects via the Internet channel; and to present the “storefront” and product lines that most closely match their target prospects’ desired solution. “
Frankly while not the most conservative amongst my friends in the mortgage world, I could not help but cringe when I saw the proposed legislation for FHA to purchase and refinance “underwater” mortgage loans. This legislation would essentially make FHA the largest scratch and dent lender in the market.
Articles I have been reading note that lenders would have to mark down the principal balance to a 90% CLTV under this program. Writing down this loss is actually considerably better than most can get in scratch and dent market at 40-60 cents on the dollar. What a deal!
This kind of news demonstrates the symbiotic relationship between the mortgage industry and the real estate industry - what affects one affects both - and strongly suggests if not demands that our two industries collaborate more closely on everything from supply/demand forecasting, collateral valuation methodologies and signals of fraud.
“March 24 (Bloomberg) — Sales of existing houses in the U.S. probably fell in February to the lowest level in at least nine years, economists said ahead of a private report today. Purchases dropped 0.8 percent to an annual rate of 4.85 million, according to the median of 63 forecasts in a Bloomberg News survey. That would be the fewest since the National Association of Realtors began keeping records in 1999. The real estate slump will persist as a glut of houses on the market depresses property values and lenders toughen mortgage requirements to stem credit losses. The Federal Reserve last week said the outlook had worsened and pledged to do whatever was needed to keep the economy growing.
“We expect both purchasing activity and pricing to fall for the remainder of the year,” said Joseph Brusuelas, chief U.S. economist at IDEAglobal Inc. in New York.
The National Association of Realtors is scheduled to issue its report at 10 a.m. in Washington. Estimates in the Bloomberg News survey showed sales rates ranging from 4.69 million to 4.9 million.”
Offshoring, Outsourcing Poised for Growth
NEW ORLEANS–The outsourcing and offshoring sectors, in both captive and vendor models, appear ready for even more business as it matures beyond its primary existence in India. Despite inherent operational challenges, it may be the best time for the mortgage industry to consider its adoption.
I agree with the outsourcing. Numerous stories have reported lately that lenders aren’t able to maintain back office fulfillment and operations in house due to reduced originations and the continued need to cut operating costs. However, offshore outsourcing in an industry that is inherently complex, indigenous to the US economy and is currently undergoing nearly unprecedented regulatory investigation and changes is not the answer. Even if the industry weren’t in its current state of flux and licking the wounds that resulted from the recent bust of inflated appraisals, adjustable rates and reduced lending quality, any outsourcing of sensitive personal and financial data offshore just isn’t smart, even in a stable industry.
I have outlined my argument in support of domestic outsourcing - outsourcing these sensitive and crucial back office operations to experienced, onshore mortgage industry professionals - several times, including here and on my business web site here.
I believe, if the mortgage industry new what was good for it and was really as concerned with quality in lending as they should be, the headlines should start reading “Onshoring, Outsourcing Poised for Growth.”
