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Jun. 22, 2011: Communication in mortgage banking; FAMC weighs in on MI underwriting
Rob Chrisman
[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.]
I would ask that
those of you with me in the mortgage industry, to help to get
the truth and real situation in the mortgage industry today, out
to the public as best we can. Speak out in every format. We
won’t truly fix the mortgage industry until the general public
perceives a crisis to them and that its way beyond a problem
just for people that shouldn’t have got a loan in the first
place or Big Banks/Wall Street. Normal people and society are
being harmed.
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 Federal proposals or 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. Sometimes
they will easily find you directly. Some comments could upset
your referral sources that could perceive you as being negative
though not the true professionals. Still it needs to be done.
Not just for your personal career/income or the mortgage
industry, but for the country’s economic wellbeing. If we who
understand the real issues and the nuances don’t speak out for
what’s right, who can? Don’t wait for MBA or other trade groups
to put out their responses, respond personally now & often.
We have fundamental
problems now (and coming) that are going to harm normal people.
Harm society much greater than the financial crisis has to date,
and the average person doesn’t know it yet. Worse, the media and
conventional wisdom is causing the harm to spiral on itself by
feeding myths about fixes. The continuing mortgage industry woes
with new negative media releases about foreclosures and MERS,
doesn’t help. Consumer Group’s wish hit lists to change mortgage
regulation that they’ve tried to get passed for decades, are
getting passed and more. The Congress and States are racing to
see who can pass more regulation to “fix” the mortgage industry
before the items passed a year earlier even take effect. No one
knows the consequences of this “risk layering” of new
regulations at this pace. Frank-Dodd Act & the Consumer
Financial Protection Bureau are the opposite of helping
consumers, and we know it. Financial regulation is in the
details and very hard for legislators to understand or get close
to seeing unintended consequences coming. It is 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, but get the message out in your
way with your perceptions. 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. We
can succeed getting the message out by getting it directly to
the public ourselves.
Jobs, Housing Values,
Mortgages, Financial System overall, are deeply connected. Jobs
won’t come back until the financial crisis is perceived to be
over. 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 the media labeled “bad loans” of
stated income, 100% LTV, bad credit 80/20 ARMs, we are losing
loans most would consider easy to get loans for normal people.
Sub-Prime has been gone for four years so it’s time to quit
blaming it for today’s problems. We know how the difficulty of
even getting the above average consumer a mortgage today has
accelerated the last few years.
The tightening of
FNMA/Freddie/HUD the last two years has caused the housing value
drops the last two years. Look how tight investor loans have
got. We may call them “guidelines” but who has seen many
underwriters do any exception lately? Appraisals are a nightmare
these days. How about needing an excel spreadsheet to try and
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 and right or
wrong, credit has tightened on “normal” loans substantially just
the last two years.
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
opposite to reality perspective. “9 million will be helped”,
not. They still push for principal reductions with playing the
public with the myth “Banks got a bailout, pass it down.”
without seeing the huge moral hazard this creates. And the press
wonders why the 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. House 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.”
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
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.”
If you’re interested,
visit my twice-a-month blog at the STRATMOR Group web site
located at www.stratmorgroup.com . The current blog
takes a look at near-term news for non-agency securities, such
as jumbo residential loans. If you have both the time and
inclination make a comment on what I have written, or on other
comments so that folks can learn what’s going on out there from
the other readers.
Rob
(Check out http://www.mortgagenewsdaily.com/channels/pipelinepress/default.aspx or www.TheBasisPoint.com/category/daily-basis. For archived
commentaries, go to www.robchrisman.com.
Copyright 2011 Rob Chrisman. All rights reserved. Occasional
paid notices do appear. This report or any portion hereof may
not be reprinted, sold or redistributed without the written
consent of Rob Chrisman.)
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