I'm as guilty of participating in the blame game as anybody, but I want to evolve beyond it. It accomplishes nothing for our industry and has hardened the hearts of a lot of the players. So I hope the following fictional narrative sparks some conversation towards a more unified housing finance industry, and in the future, i hope it turns out to be less fictional, both for myself, and for you.
It has been another great week in the mortgage business.
Monday I had a great closing with a first time homebuyer. The look of relief on her face as she reviewed the Affordability Analysis we had agreed to before she started looking at houses (as her kids argued over who would get the bigger room) was worth the effort it had taken to convince her to wait an extra month to buy this house until her new raise kicked in. She would have an extra $200/month towards the unpredictable, and with two rambunctious boys, the unpredictable was all but a certainty. Even better, our plan to lock her rate in, and watch the MBS market, which she actually had begun to check every once in a while on her own, had resulted in an extra .25% float down to her 30 year rate a week before closing. It gets even better though. She works at an accounting firm, and the senior partner wants to meet me about the MBS analysis I provide as part of a new financial planning education workshop he is offering to all of his clients.
As I was leaving the office, I ran into my mortgage banking buddy. He thanked me for referring him a credit challenged borrower that he was closing down the hallway. I laughed and thanked him for keeping his net worth above a million so he could get those kinds of loans closed. I also thanked him for the referral of a high net worth borrower with a really high FICO who wanted a rate that only one of my wholesale lenders offered. This particular wholesaler is a pain in the butt to work with, and my mortgage banking buddy just doesn’t need the hassle with all the ‘skin in the game’ business he now enjoys with A- products and common sense stated income programs he can offer.
On Tuesday I had several refinance presentations outlining the new “cost/benefit” disclosure to my client base. I laugh thinking of the old 3 page RESPA form with all of its lump sum fees, and then the TILA form with the mysterious APR calculation. Ever since our industry had pitched the easy to read “cost/benefit” form that we sign along with the borrower at application, predatory refinance lending had all but disappeared. Any loan officer who didn’t want to sign his name to the benefit of the refinance along with calculating the cost breakeven at application, and then sign it again at closing to deliver that benefit had long since left the business.
Wednesday was the appraisal institute meeting with other mortgage and realtor professionals. We looked at graphs of how values were shaping up based on the relocation of a major defense contractor in the area that would be providing some higher paying jobs. The 5% year over year increase in values, although a little higher than what the historical graphs showed, was still justified by the higher incomes being paid to relocating employees and local citizens who were also enjoying increasing income. We decided not to sound the “bubble alarm” until we saw how the next quarter rolled out.
At the meeting, we did get wind of a potential appraisal inflation scheme from a title company that had noticed several sales between LLCs in a short time period driving up values in some zip codes just outside of where the new defense contractor was going to be located. The appraisal institute and realtors agreed we should keep an eye on these sales to see if the AVM values started going up, as none of the sales had required financing nor had they been reported through the local MLS.
Thursday was our realtor meeting and we began the referral process for our preapproved borrowers. Although it had been a challenge to implement, the homebuyer education courses we take our clients to through the local nonprofits have resulted in far less fall out from uncommitted and/or unqualified buyers. The money management courses some of those borrowers end up taking actually result in even more qualified buyers as the nonprofits help them build budgets and repair credit issues before they ever even think about looking for a house. Realtors report that DFTs are almost nonexistent.
Friday my mortgage banking buddy and I met with the retail banks about the community reinvestment efforts. We brought some of our buy/keep investors to the meetings to discuss the new neighborhood building program. The investors, many of which have been managing properties for a decade or more but have been boxed out of lending because of the “more than 10 financed property” rule are more than happy to put down 25% for a rate that is only about 1% above the best investor rate. They aren’t even complaining about the 5-4-3-2-1 prepayment penalty, as they have been so used to balloon financing and multi-unit graduated prepayment penalty financing, that just to be able to buy, rehab, get max occupancy and max market rents again means a return to the old style long term investment strategies they have always embraced before the boom and bust buy flip craziness took hold. The first six months of the program have been an amazing success—clearing out hundreds of units of foreclosed inventory. These neighborhoods have never looked better.
At lunch we talk about how well the new “modification option” products are working as well. In fact, I just got off the phone with a client who had chosen to pay an extra premium for a “modification” option built into his note. Much like the old “conversion” options we used to sell with ARMs, my client had exercised his modification option when his employer laid him off while they were restructuring their corporation for a new product line.
My mortgage buddy and I briefly reminisce about the days when we acted like arch enemies, and laugh thinking how much time we spent working against each other, when the truth is our businesses are much more successful now serving the clients we each have the business model to cater to the best. And to think that it has only been a year since that fateful April 1st deadline, when we all thought mortgage lending as we knew it was over.
Instead, the unified vision of a sustainable housing platform we pitched to Congress, designed by and with the support of brokers, bankers, MBS analysts, underwriters, realtors, title companies, appraisers, non profits, government housing agencies and retail banks and credit unions across the country resulted in the housing utopia we now enjoy every day.