REMINDER: I am on vacation, and my access to e-mail is
sporadic and not timely. In my place are daily commentaries from a series of
very knowledgeable mortgage industry people with different backgrounds, and
they have been given very little direction about what to write about. The
first is below. Our views may or may not coincide, but I thank them for
their time in volunteering and helping out.
Today's contribution comes from:
Steve Emory
Sr. Mortgage Banker
Chairman Ethics Committee '99-'03, Oregon Association of Mortgage Professionals
Distinguished Service Award '02, Presidents Choice Award '99
Mortgage Loans Since 1989
Northwest Mortgage Group, Inc.
Portland, OR 97223
(503)-452-0001
semory@nwmortgagegroup.com
I ask those of you in the
mortgage industry with me to help broadcast the truth, the reality that has become the new mortgage
industry. Speak out in every format. We
won't truly fix the mortgage industry until the general public is able to look past what transpired in the mid-2000s and focus on the future.
We can respond to newspaper articles in our
local area or blog comments, explaining unintended consequences in layman's
terms. We can comment on all the Federal proposals and new rules with reality and stand
up for what's right. Share any comments you make with your database of customer
and referral sources with links. Yes, you will get negative responses,
sometimes personally. Some
comments might even upset your referral sources. Still it needs to be done. Not just
for your personal career/income or the mortgage industry itself, but for the country's
economic well-being. If those of us who understand the real issues at hand and the nuances involved in them, don't
speak out for what's right, who will? Don't wait for MBA or other trade groups
to publish their responses. Respond personally, now & often.
We have fundamental problems at hand and more coming. Issues that will harm society in a much greater way than the
financial crisis has to date. The average person doesn't even know it yet.
Worse, the media and conventional wisdom is causing the negative feedback to spiral on
itself which is feeding myths and misconceptions. We're
racing to see who can pass more regulation to "fix" the mortgage
industry before new reforms even take effect. How can we comment on the effectiveness of new regulations when new regulations are coming out before the last round of new regulations are even in action? No one knows
the consequences! It's a perfect storm and I don't want to sink.
Below I put forth some of my opinions on the
problems today. You may agree with some of what I write, or all, either way, get the
message out in your personal way. Share your own perspectives. I realize few in media or
government want to listen to mortgage industry's warnings as the "they
caused this mess in the first place" attitude is widespread, but we can
succeed by sharing our thoughts with everyone we know who wants to listen....
Jobs, Housing Values, Mortgages, and the Financial
System overall, are all deeply connected. All lending has tightened, not just mortgages.
The public perception on how mortgage loans are done needs to be changed
though. Today we are not losing products that the media would label "bad loans", like stated income, 100% LTV, bad credit 80/20 ARMs. We are losing loans most would
consider vanilla. Sub-Prime has been gone for four
years, it's time to quit blaming it for newly created problems. Jobs won't come back until the financial
crisis is perceived to be over. The crisis won't be over housing bottoms. Housing won't bottom until jobs come back. It's a scary vortex...
The tightening of FNMA/Freddie/HUD underwriting regs over the past four years has led housing values to drop as fewer borrowers qualify for loans. We may call them "guidelines" but who has
seen underwriters granting exceptions lately? Appraisals and comparables are a nightmare
these days too. How about needing an excel spreadsheet to track all the
different MI restrictions for score, DTI, LTV, etc. Investor overlays, need I
say more. Throw in seller flips, continuity of obligation, new reserve
requirements...perhaps excessive regulation and abundance of uncertainty has led to an overtightening of lending regs? Which is blocking out even more borrowers and further slowing the housing recovery and overall economic recovery.
Securitization with FNMA was the reform and
savior of the 1930's in mortgage lending. Before FNMA, money would dry up in an
area and housing values would collapse and then the banks that made the
mortgage loans locally went next. FNMA was created to fix this by stabilizing
the availability of funds nationally. Getting rid of FNMA that operated for 70+
years because of a problem in their behavior '03-'07 is bizarre. Just don't let
politicians push home ownership by letting FNMA buy Sub-Prime loans again like
they did from New Century and others during this period. If FNMA hadn't funded
these loans, they wouldn't have been originated. The taxpayer wouldn't be on
the hook for FNMA's losses. Also the fact FNMA bought these Sub-Prime
"MBS" let others think they must be safe and the spigot opened wide on
Wall Street with a multiplying effect. FNMA should only buy qualified loans
that meet traditional FNMA conventional guidelines.
MERS is a good thing for consumers but it is
branded because of the foreclosure crisis. It continues the negative perception
of the industry and the need to continue to "fix it". Many in society
think stopping foreclosures with technical legal maneuvers is a great victory
over the villainous mortgage lenders, society will find it is a pyrrhic one.
Now mortgage lenders not only have to worry about business risk of their
borrower paying back the loan, but also political risk with courts/legislators
not allowing them to foreclose on borrowers 1.75+ years behind on their
payments. Yes, the mortgage lenders should have done the paperwork a little
more carefully when they foreclose, but does that justify letting borrowers
stay in their homes for free more than two years? Or declare the mortgage paid?
I think the majority of society, especially those still paying their mortgages
even with reduced family income in these times, would think it immoral to not
foreclose these borrowers almost 2 years behind in payments. In Oregon,
mortgage lenders can foreclose in 120 days. Giving someone almost two
years should be enough time to try modifying or working out something with the
lender. When is enough, enough? If the Judges starting to rule against MERS
nationally are right in society's eyes, then we have a huge moral hazard again
and a potential financial system collapse just from this one issue.
Even the administration has seen what a mess
HAMP has been, but from an opposing perspective of reality. "9 million
will be helped", not. They still push for principal reductions while playing the public with the myth "Banks got a bailout, pass it down."
All without seeing the huge moral hazard this creates. And the press wonders why financial institutions are holding on to cash? Get real. If banks have to
give principal reductions en masse, there isn't enough dollars in the banking
system to cover the losses as they accelerate and everyone goes all in. Home
values will plummet.
Senator Merkley added in the pay cuts to loan
officers to the Frank-Dodd Act. Of course they didn't actually "cut"
or "limit" loan officers pay, they just did as government always does
and write the law in such a way so that was the desired effect. In restricts
lending further as well. What is this but revenge or punishment from
legislator's perceptions? How is it not un-Constitutional with a 5th
Amendment violation of ". . . nor be deprived of life, liberty, or
property, without due process of law; . . ."? Who's next that isn't
screaming on our behalf?
These are not all the issues, nor all the
details. Many benefited from the bad loans made 03-07 and many are in great
pain from foreclosures to lost jobs/indictments to closed companies. There is
plenty of blame to go around to all parties from borrowers to Realtors to Loan
Officers to Lenders to Wall Street to Rating Agencies to Congress to the last
three Presidents. We need to fix it but let's not let the "fix"
destroy the system.
Please spread the word every chance you can.
Two quotes:
James Madison: "In another point of view, great injury results from an unstable
government. The want of confidence in the public councils damps every useful
undertaking, the success and profit of which may depend on a continuance of
existing arrangements. What prudent merchant will hazard his fortunes in any
new branch of commerce when he knows not but that his plans may be rendered unlawful
before they can be executed? What farmer or manufacturer will lay himself out
for the encouragement given to any particular cultivation or establishment,
when he can have no assurance that his preparatory labors and advances will not
render him a victim to an inconstant government? In a word, no great
improvement or laudable enterprise can go forward which requires the auspices
of a steady system of national policy."
Ronald Reagan:
"There are no easy answers' but there are simple answers. We must have the
courage to do what we know is morally right."
Editor's note:
Two weeks ago Wells Fargo's correspondent channel, after
a look at how the conflicting S.A.F.E. Act & Dodd Frank regulations apply
to MI, took that stance that starting July 5, "Wells Fargo will no longer
purchase mortgage Loans that have been credit underwritten by a mortgage
insurance company contract underwriter on Wells Fargo's behalf, or on behalf of
a Correspondent's delegated underwriting authority."
Earlier this week Franklin American
(FAMC) told clients that "is discontinuing acceptance of contract
underwriting decisions by the mortgage insurance companies. Closed loans with
underwriting approvals provided by these MI contract underwriters must be
received by FAMC no later than July 15, 2011 and must be purchased by FAMC no
later than July 22, 2011. Please note that conventional loans may be submitted
to FAMC for underwriting."