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

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."