It’s going to be a wild ride
Jillayne Schlicke on 08 4, 2007
I just finished reading about the Novastar announcement at Morgan’s Blown Mortgage and the 7,000 workers who lost their jobs. This wasn’t too difficult to predict as Novastar just settled a class action lawsuit (link opens PDF) here in the Seattle area over talking mortgage brokers into playing a game of “let’s pretend you have a correspondent line of credit so we can hide your yield spread premium from the consumer.” Novastar lost the game when Bergman and Frockt, a law firm here in Seattle that specializes in suing mortgage brokers, got ahold of the case. Novastar was also facing shareholder lawsuits. Bergman and Frocht now have a perfect record against mortgage brokers; I’m impressed.
We will always remember 2007.
And 2008, 2009, 2010, and 2011.
[photopress:subprimelolcat.jpg,thumb,alignleft]I am seriously concerned that this is all going to end up in our local mortgage broker’s laps. Will these wholesale lenders enact the buyback provisions in the broker-lender contracts? Next, will we be reading about local retail mortgage brokers folding and laying off thousands more?
When the bloodbath is over, who will be left to remember what 2007 was like, so we don’t ever re-create this god-awful mess?
Politicians, institutional investors, investment bankers and wholesale lenders don’t care about retail loan originators.
Remember that.
It’s up to those left to lead us out of this hell.
Who will you follow? Another corporate leader promissing a six figure income with no training? A wholesale lender rep pushing a product-of-the-moment paying sweet yields on the back end, even though the product isn’t good for the consumer sitting in front of you?
WHEN will the industry decide that corporations have made enough profits off of recruiting know-nothing sales people and calling them loan originators? When will the existing, stellar, loan originators decide to increase the barrier to entry for retail mortgage salespeople, require mandatory pre-licensing education, a tough competency exam, and mandatory fiduciary duties owed to consumers? When will retail loan originators decide to become professionals? Rhonda Porter likes to call retail mortgage sales people “Mortgage Professionals” but just saying it over and over again does not make it so. Loan originators I admire, like Rhonda Porter, Brian Brady, Morgan, Susan Romei, and David Young, ALREADY ACT AS IF they did hold professional status.
There is a VAST difference between these five mortgage career veterans, and the three students in my class last week. One works part time at the local blood bank and also originates loans. Another use to work at a lamp store and now originates loans. A third is a stay-at-home dad and also, you guessed it, originates loans. All entered the field for one reason: Because they were recruited believing they could make six figures with no experience. These people are not professionals. To call every LO out there a “mortgage professional” brings every Rhonda, Brian, Morgan, Susan, and David down to the level of the lowest common denominator in the field. The consumer (who has never met you) evaluates the entire group based on the lowest common denominator. The folks who have the hardest time understanding this reality are the stellar loan originators.
If we don’t increase standards ourselves, the government is going to step in and do it for us. Remember the widely admired and well loved federal laws that came out of the 1970s like RESPA and Truth in Lending? Do you LIKE those federal laws? Oh yeah, these are real gems. If you like these, lenders ought to get ready for more, because if the industry does nothing to formally elevate the minimum standards for all retail mortgage salespeople, then government is going to do it for you. We’re headed for an election year and neither party has really taken on the subprime meltdown as a topic of conversation…..yet. They’re probably all waiting to see how bad it’s going to get. Don’t kid yourselves: Both sides are certainly taking advice on how to play this in their favor. It doesn’t matter who wins next November, I predict a mortgage broker government smackdown. Mortgage brokers and their loan originators ought to prepare for the passage of at least three new federal laws that will attempt to radically change the way you originate loans. Oh, and watch for increased consumer litigation. The next four years are going to be a wild ride! But then I always love sitting in the front car of a high speed roller coaster.
http://www.youtube.com/watch?v=HzS-OdWVpHo
About the Author: Jillayne Schlicke
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Jillayne, just to clear something up, I don’t call everyone LO a Mortgage Professional. And not every LO is a Mortgage Retail Salesperson. I do think that consumers need to seek out a professional vs. a salesperson.
Between lenders closing, licensing requirements (for LOs who work for brokers), and subprime/alt-a programs pulling back; I think the pool of LOs we currently have will evaporate significantly. Only the strong will survive and our industry NEEDS that.
BTW…I’m honored to be on your short list!
Just to give some context, I am wondering if any of these problems in the mortgage finance industry causing any repercussions locally, in the Puget Sound? Or are most of the purchasers in the Puget Sound able to still buy homes, just using different loan originators and products?
Jillayne:
You make some great points. Everyone shares the blame in this mess, but doo-doo rolls down hill so at the end of the day it will be the mortgage brokers with catchers mit in hand to catch it. We simply don’t have the spin machine in place to deflect criticism.
However, the bigger question is how do you propose we fix this? If Jillayne was Queen of all residential finance, what exactly would you do to fix the industry?
I think a lot of us know how to fix the industry, but the political reality makes it difficult to do what is necessary.
I’m not going to disagree with you, Jillayne. It rolls downhill and we are shouldering the brunt of the heavy lifting right now.
This is a VERY good time for professional loan originators and a VERY difficult time, also. Negative amortization loans are bring whacked in pricing and that’s a bummer. Wall Street “risk-adjusted” the pricing this past week. What about the borrowers for whom this product is perfect? They get lumped in with all the bad loans and are penalized for using that product judiciously.
I have more comments but breakfast is ready. I think this post could be the defining conversation piece this week.
The real blame is ” Easy Al ” He dropped rates to a level that created this huge distortion in real estate. The piper is coming to call. Back in March I made a comment we were headed for a credit crunch and it is unfolding. Hopefully, the Fed WILL NOT lower rates so the excesses can be expunged. The longer they continue the silly game the longer the chairs are simply moved around the titanic. The dollar is looking to break the 80 mark and rates are headed up. More resets in Oct should continue to be a drag on the system. This too shall pass but its going to be a wild ride. Fortunately our area is pretty strong, I have clients in Florida, California and Az and they are not fairing so well.
Greenspan wasn’t to blame. The easy money policy was a combination of two very important events: the Y2K worry (which never happened) and more importantly, to inspire markets after our country was attacked in Sep, 2001. And, he was right to do both things.
The explanation for this debacle is simple; greed. Wall Street, striving for yield in a low yield environment, moved down the credit curve and offered A paper rates to B and C paper borrowers. Neglecting prudent underwriting will always get you into trouble. The answer will be rate reductions, regardless of the weakening dollar. I think the weak dollar is actually helping our predatory trade partners see the benefit of trading fairly with the USA.
Jillayne, the buyback provisions won’t work; Brokers don’t have the necessary capital to buyback the loan and the lenders need more product to get out of the mess. Extremely sleazy shops will get whacked with buybacks and go out of business. The good shops with the bad apple originator will get a free pass (if they expunge the originator). The lenders need good mortgage brokers now, more than ever.
We’re going to have to originate our way out of this mess. Lenders have enacted a “tax” for their bad lending behavior in the form of this most recent risk-adjustment. That “tax”, while unfair to the new borrowers, will essentially be the premium collected to temper the losses from poor lending decisions of the past. Is that unfair? Yep, it is. The customer is always the one to get screwed.
What choice does today’s borrower have? We need Wall Street for the ability to provide liquidity so we must keep them happy. Brokers won’t work for free. The consumer demand is there (now, more than ever).
In a nutshell, you, the stated income borrower of 2008, will be subsidizing your neighbor’s low rate stated income rate of 2004. The whole “tax” will be gone in a year or two and we’ll be back to more normalcy. If you need money in the next two years and can’t prove that you can pay it back, you’re going to pay dearly.
That is a bummer but that is what it is. The alternative is more catastrophic.
“It’s up to those left to lead us out of this hell.”
A powerful but poignant statement which says in 12 words what took me three paragraphs.
Hi Rhonda,
Every LO is a retail mortgage salesperson. The relationship between an LO and a consumer is a retail relationship: An LO does not owe any higher duty to the consumer than what’s prescribed by law. It’s a retail, contractual relationship only.
LOs can call themselves whatever they want: Mortgage Planners, Mortgage Professionals, Mortgage Consultants, Account Executives. This doesn’t change the legal nature of the LO-Consumer relationship.
We’re currently experiencing an emergence of some professional associations where members pledge higher ETHICAL duties than the current top trade organizations. For example, Certified Mortgage Planners or members of the Ethical Lending Foundation (which I own and operate) have a much stronger code of ethics when compared to, say, the Nat’l Assoc of Mortgage Brokers.
We direct consumers to seek out a mortgage professional, yet LOs get to call themselves anything they want. A brand new LO with no experience could call himself or herself a Mortgage Professional, which ought to insult you.
easy money policies lead to the speculation, stupidity and greed in my opinion. There is absolutely no doubt interest rates were held too low for too long even if you take into account 911, which I agree the Fed was correct in preventing a deflationary spiral.
Hi sniglet,
I’m going to answer your questions one at a time. To give you some context, I consult and train within the industry, so I interact with real estate agents, Realtors, loan originators, mortgage brokers, and attorneys.
sniglet asks “if any of these problems in the mortgage finance industry (are) causing any repercussions locally, in the Puget Sound”
Yes. Realtors are reporting to me in the classroom, that some Puget Sound area markets are fine, and some markets are slow, meaning, it is taking a lot longer for listings to sell. There are fewer buyers and there are Realtors who are struggling financially and picking up part time or full time jobs. In mortgage lending, the companies that ONLY relied on direct-mail marketing and purchasing leads in order to feed those leads to inexperienced LOs, are also having a hard time because 1) their retail mortgage sales staff has never been trained how to sell, 2) the direct mail campaigns featured pay option, interest-only, negative am payment and rate quotes that are no longer available for subprime credit score borrowers and there is way too much competition for PRIME borrowers, and 3) they never bothered or intended to build a relationship with their clients. How can an LO build any kind of trust relationship with a client when the LO is putting them into a mortgage product that will maximize the LO’s fee instead of what’s best for the client?
sniglet asks “are most of the purchasers in the Puget Sound able to still buy homes, just using different loan originators and products?”
Prime borrowers aren’t having problems meeting their home purchase goals. Just about all LOs have access to the same products. Many mortgage brokers are not approved to do FHA lending, so they may not know (or want) to refer low credit score clients to an FHA-approved lender, which might help in some of the outerlying areas that aren’t so expensive as Seattle/Bellevue.
Should have also added that Greenspan also told everyone ARMS were a good thing. I advised my clients to go with fixed rates and dont get sucked into the 2/28’s. 5 or 7 year resets were about as risky as I told my clients to be.At this point it does not matter who is to blame as plenty of blame can be passed around. The bad news is joe sixpack gets it the most.
“Prime borrowers aren’t having problems meeting their home purchase goals.” Jillayne, I’m afraid they will have problems. Check out Morgan’s recent post at Blown Mortgage: http://blownmortgage.com/2007/08/03/a-quick-recap-the-day-the-credit-died/
I didn’t watch the Cramer video because frankly, I’m sick of him right now (I guess I didn’t care for him before, either).
When I was pricing out the rates on Friday, I usually use a couple lenders to determine what rate to quote. On Wells Fargos conforming rate sheet, they have priced themselves out of the market on all ARMs. They also did this on their JUMBO products. I did not check all 80 lenders that we work with.
I’m not sure what we’ll find on Monday with rates.
Russ asks: “If Jillayne was Queen of all residential finance, what exactly would you do to fix the industry?”
Hi Russ,
I would do two things. Without addressing these two important components, when the money spigets open up once again a few years down the road, I predict we will be right back in the same place we are now.
1) We absolutely must define predatory lending behavior, and regulate it. Years ago, we use to call intentional acts of deception MORTGAGE FRAUD. Then we changed the name to something that sounded less scary and un-definable so we could make as much money as possible off of the unwary. We need national, anti-predatory lending legislation that is the same for all 50 states. Along with that, we need the industry to pay for regulatory oversight. There is no good reason to make you and I and every other taxpayer pay for this. There are many good reasons to make the industry that made so much money off of predatory lending pay for its own problem. Without federal law, the industry will be left with states trying to do the job, and we’ll end up with legislators trying to regulate loan PRODUCTS instead of the real source of the problem: the behavior of a loan originator.
Let’s stop blaming everyone else but ourselves. Wall Street greed? Give me a break. Did Wall Street FORCE LOs to collect 5 points on the front end and 5 points on the back end off that idiot consumer who didn’t know any better?
2) Without addressing the relationship between the loan originator and the consumer, we will be right back where we are now.
Currently, this is a retail, contractual relationship. The industry has prospered plenty from the consumer’s (misguided) assumption that an LO has his or her best interests at heart. Mortgage brokers and LOs work for themselves, not for the consumer. Last year’s president of NAMB confirmed this in front of a congressional subcommittee when shown a deceptive marketing flyer from a mortgage broker that said “We work for you!”
It is time to move away from a retail relationship and towards a relationship that would prescribe fiduciary duties owed to consumers. We know way more than the average, random consumer about mortgage lending. We have the capacity to do great harm; we also have the capacity to maximize good consequences for a consumer.
Solution number two: Mandatory fiduciary duties, nationwide, owed by originators of mortgage loans no matter where they work: banker, broker, credit union, consumer finance company, correspondent lender, savings and loan, and so forth.
Jillayne, re: “A brand new LO with no experience could call himself or herself a Mortgage Professional, which ought to insult you.”
Thanks!
But I’m so used to LOs calling themselves what ever they want. My first day in the mortgage biz, the receptionist asked me if I wanted have “Sr. LO” on my card and I replied, “Shouldn’t I have “Jr. LO”? I did not add Sr. And to her credit, my old biz cards she was going off of did have Sr. Account Manager/Branch Manager on them.
This is why I elected to earn my CMPS designation. The brand new LO cannot legally call herself a CMPS without passing their exam. I did feel the need to do somthing to distinguish myself from other Mortgage Planner Consultant Specialist Sales Originator.
Hi Rhonda,
Oh boy; more fun. Question: What about prime borrowers who want to purchase or refi using an old-fashioned, plain jane, 30 year or 15 year fixed mortgage?
Hi Don,
The industry has a hard time throwing Greenspan under the bus since the players in mortgage lending, real estate, title, escrow, and every other ancillary business related to low rates, made trillions of dollars thanks to Greenspan.
So did real estate agents, much like Don. However, I agree completely with Brian. Greenspan had little choic other than to lower rates after 9-11.
http://bigpicture.typepad.com/comments/2006/06/call_to_arms.html
In the grand scheme of things it really does not matter. I agree he had to support the economy at the time of 911 but the combination of him keeping rates artificially low for too long and embracing arms makes him dog poo in my book. That link is a good breakdown of easy AL’S WORK.
Hi Brian,
Two questions and comments for you. First, do you believe, as I do, that the consumers, who are going to feel the brunt of all this, will complain to the politicians and we’ll see this whole mess turn into mass election year promises?
Do you believe, as I do, that a wide range of brokers are going to get hit with buyback provisions?
I also believe the consumer loses in all this, but I also believe the honorable loan originators lose. They lose consumer respect.
Hi Rhonda,
Maybe someday loan originators will not be able to call themselves anything they want. Perhaps this might help the consumer.
An example is the difference between a paralegal and an attorney. Or the difference between an attorney and an attorney with a J.D. or LL.M. A baby lawyer fresh out of law school still gets to call himself or herself an attorney, but this person has the ability to offer services at a much higher level than, say, a real estate agent.
This is not intended as a mean comment and might be taken as such. Advance apologies in response to
“There are fewer buyers and there are Realtors who are struggling financially and picking up part time or full time jobs”.
Response is good…. we need about a third less in the industry. The business should be left to the hardcore pros not the weekend warriors. Hopefully the industry will arise a tad more professional.Of course that won’t happen until our licensing department makes entry more difficult. Real Estate entry should require a minimum of a two year degree in real estate…. but I can only dream and this will not occur in my lifetime. Off topic and sorry have a good weekend off to sell another house!
Hi Don,
Change is inevitable, but it doesn’t happen if we just dream about it.
The people who hold power positions now like things the way they are; they can make more money leaving the system as is.
Collectively, seasoned veteran agents could create a powerful political force.
Now back to mortgage lending. I watched the Cramer video where he had a major meltdown on CNBC yesterday. Oh my! What on earth is he going to do when Bernanke raises rates?
Here’s some dark humor for you from the American Home Mortgage demise:
“You don’t think you’re in the slaughterhouse, and then suddenly something hits you on the back of the head and
you find yourself rolling down the conveyer belt”
- Frank Caltabellotta, 42, of West Islip, an appraisal specialist who was laid off by American Home Mortgage
http://housingpanic.blogspot.com/2007/08/on-way-out-door-of-mortgage-lender-with.html
[...] Jillayne Schlicke It’s going to be a wild ride. [...]
http://www.youtube.com/watch?v=kUldGc06S3U
Another fun roller coaster!
This was indeed caused by Alan Greenspan and the Fed. We were already entering recession before Bush II took office and Easy Al started dropping rates; obviously he went overboard.
Recessions are important to our economy in the same way that we must have fires to sustain our forests. Trying to prevent them just makes it much, much worse down the road.
Jillayne,
I assure you that I praise Alan Greenspan for the continuation of the legacy left by Paul Volcker. His easy money policy costs me hundreds of thousands of dollars these past six years. I made less money in 2003 than I did in YTD 2007 because every schmo celling cell phones at a kiosk at the mall jumped into the biz and slapped his drinking buddies into 6 investment properties. They clogged up the lenders underwriting, and broke locks with lenders while rates plummeted. I was stuck playing by the rules in 2003.
I don’t believe the lenders CAN initiate the buyback clauses to MOST brokerages; they need us to pull them out of the mess. They will hammer them home on the brokerages they suspect are bad shops. The good shops, spoled by te errant originator, won’t be affected. The credit decision was made by the lender and as such, they have no recourse (except for fraud). Even in the case of the errant originator committing fraud, I think the ethical, producing brokerages will get a pass.
The consumers won’t complain; they need the money.
These responses both sound very “Good Ol Boy”; I assure you that they’re not. This “tax” being levied on the new borrowers is crap, however, I am a pragmatist. You just saw the “recovery plan” enacted on Friday
Guys and Gals,
Mr. Magoo (Alan Greenspan) didn’t cut rates to bail out 9/11/01. He cut rates to bail out the massive bubble that was created by his stupifying irresponsibility in the late 90s.
Look at when the rate cuts were starting – January 3, 2001. By 10/02/01, he was on his 9th rate cut. Read that again. HIS 9TH CUT!
The al-Q terrorist attacks gave the FED cover for the recession that was already underway. We never had to confront the real reason we were in recession – the stock bubble, caused by easy money, had finally succumbed to the fate that awaits ALL bubbles – exhaustion.
Rather than look in the mirror and say, “WOW! All that stock speculation really sucked. We should never do that again,” we said, “If it wasn’t for those damned terr-ists, I wouldn’t be worrying about the risk in my financial affairs. I need to start speculating in something else…Hmmm…here is some cheap money. I think I’ll start speculating in residential real estate.”
Do you see my point? It’s not to drive home the point that 9/11 was irrelevant, but that the underlying problem is mindless speculation and the misallocation of productive capital.
Magoo was the most irresponsible central banker in world history. I’ll say that again for those that can’t get their mind around that.
Al.com was the worst and most irresponsible central banker in world history.
We haven’t had an economy that was geared to production in over a decade. We all jumped on the stock speculation craze, and then promptly ignored those lessons and went double-or-nothing on the housing bubble.
When all this shakes out, those assets will be priced lower than the beginning of that twin bubble.
Home prices will be priced in early/mid 90s prices (not adjusted for inflation).
Yes, you heard that correctly. 20 cents on the dollar by 2010 – even in Seattle – especially in Seattle.
You heard it here first.
In your heart you think I’m crazy, but in your mind you know I’m right.
“In your heart you think I’m crazy, but in your mind you know I’m right”
Actually, I think you’re sensationalistic…BUT..you make good copy. Did you forget that we changed from a production-based economy to an information-based economy some 20 years ago?
Your argument sounds like the farmers of 1850…the buggy whip retailers of 1905, and the vinyl record manufacturers in 1988.
But, I digress
Dear RCG Readers,
If you are reading this, I am sorry to tell you that you are now awake. And no, I didn’t give you a pill, you awoke on your own…
(Jillayne, were you passing out any pills I didn’t know about?)
I’m seeing more and more people waking up, recognizing the reality and gravity of this situation, and it’s inevitable consequences.
Increasingly people are no longer be able to take comfort in the drream world where the laws of economics did not apply.
Unfortunately, reality is now imposing it’s ugly truth on everyone – the innocent, the ignorant, the ambitious, the greedy, and the fraudulent. Once you wake up, there’s no going back to sleep, even if you want to.
I sincerely hope that we learn from this experience and keep this from happening again. Hopefully we can minimize the pain to innocent bystanders. However, it would be a collosal mistake to bail out the greedy, the reckless, and the fraudulent. You cannot reward reckless speculation and greed or rampant misallocation of capital and expect for capitalism and free enterprise to work and raise the standard of living of our citizens.
Most importantly, it is our current system that has actively PROMOTED the moral hazard which has facilitated this crisis. Refrom is needed or we are doomed to repeat this scenario over and over again. If our Fed continues to manipulate interest rates and intervene, it MUST do so in a BALANCED way. Easing in crisis and not hiking during exuberance is one of the root causes of this problem. If the Fed is to continue to act irresponsibly, one could argue we would in fact be far better off WITHOUTa Fed at all. At least that would be balanced and eliminate our current moral hazard.
Although there are many contributory factors, including lack of oversight or regulation of lending standards of newly innovated business models and/or lending products (not to mention traditional existing lending institutions), the gross distortions which too root and evolved into a financial cancer would not have occurred if liquidity and moral hazard were not out of control.
It’s going to be very, very, very hard to reboot the Matrix this time around – it could take a good decade to get everything going again.
Best wishes to everyone,
Morpheus
Good Morning Morpheus,
I simply offer red pill reading material for discussion.
For those unfamiliar with the red pill/blue pill choice, Dave Droar offers a well written philosophical explanation here:
http://www.arrod.co.uk/essays/matrix.php
Hi Eleua,
Thanks for stopping by and gracing us. If you were in charge of the central bank, at this moment in time (and I’m assuming you have watched the Jim Cramer video) would you elect to raise rates, lower them, or keep them as is?
I love lolcats. Excellent use of Limecat. =)
Jillayne, even though you asked your question of Eleua about how Bernanke should manage rates, I felt compelled to weigh in on this timely question.
First, I want you to understand that Ben has inherited a very difficult problem, a problem not of his own making. As I’m sure you are aware, this situation was created by his predecessor who’s gigantic ego deluded him into thinking he could play God and control the markets as if he was conducting an orchestra. That’s why the called him the Maestro. How ironic. In fact, he was a deluded maniac playing with fire, and we’re all being burned by his hubris.
The current situation is very stressful to Ben, which is why I’ve been seeing him three times a week (in fact, daily for the last few weeks). I’ve had to put him on heavy medication recently, yes, things are that bad. Last night, he told me he dreamed he was inside a box which was getting smaller and smaller as he watched in horror. He was getting squeezed from all sides, was really upset about it, and didn’t know what to do. He did his best not to panic even though he had the urge to do so. Did I mention he’s claustrophobic?
Ben is a very smart man. He understands fully what position we as a nation are in and why and how powerless he is to fix it. This is why he’s so stressed out. He’s like a deer caught in the headlights, frozen with fear. You see, if he lowers rates to try to save the financial and real estate markets and avoid a major recession he will be acknowedging how serious the situation is, potentially creating a panic, since according to fundamentals he should be raising rates. He would also exaccerbate moral hazard and almost certainly tank the dollar which would be highly inflationary, clearly against his mandate. On the other hand, if he hikes rates to control inflation, support the dollar, and to continue to entice foreign investors to buy our debt (which they increasingly are avoiding), he will ensure a recession. Although that is probably the best thing to do in the long term, it’s politically incorrect in the short term. So, after dsicussing the options with him, given his fragile state of mind, here’s what we’ve come up with: STALL by leaving rates unchanged and HOPE things unwind in an orderly way rather than in a disorderly panic.
You see, as financial cancer of massive liquidity, leverage, and financial alchemy is recognized as a worldwide rather than a strictly US phenomenon, asset prices in those countries will be effected just as they are being effected here at home. The “miracle” of foreign growth is an illusion, no different than the illusion of US prosperity created by massive Fed liquidity and Wall Street alchemy. This mirage, like our own, will unwind in due time. When that occurs, foreign countries will be compelled to lower their own rates to support their own faltering economies. In that environment, Ben will finally have the perfect cover to lower rates here without tanking the dollar. How ironic, the illusion of a synchronous global boom created by easy money, leverage, an explosion of derivatives without adequate oversight set the stage for the exact opposite – an eventual global recession. Persnaolly, I’m hoping that this doen’t happen, but it looks like it’s already baked in the cake.
Well, I’ve got to get back to work. Ben needs an extra session today in preparation for next weeks meeting. I’ve got to taper him off drugs for a few days and then we’ve got to work on building up his confidence enough to face the markets. We won’t have time to discuss his deep seated anger towards Al or his marital problems until things settle out. I’ve also got an emergency session with Cramer – apparently he stopped taking his medications and had a fit on TV last Friday. He’s a handful (I’d tell you more, but that would be violating physician-patient confidentiality.
Best Regards,
Bernanke’s Shrink
ps – let’s keep this little discussion between ourselves, I’ve already told you much more than I should have, let’s not add to Ben’s stress or insecurity, please.
Thanks, LHR.
I can’t remember how I stumbled upon lolcats; they’re a guilty pleasure like the random Chuck Norris fact generator.
http://www.chucknorrisfacts.com/
I kept searching for a cat picture of a solemn, let’s-get-down-to-business expression and ended up with limecat.
Jillayne, I just noticed I didn’t see 15. Answer: shouldn’t be a problem. See the post I wrote on Wedensday: http://www.raincityguide.com/2007/08/01/so-you-think-you-might-need-a-mortgage/
Chairman E would hike rates 100bp inter-meeting and 100bp at the next meeting.
The economy would tank and those that are the most indebted would hurt the most. Those that saved would be rewarded.
I would drag the US through a huge recession to wring out all the bad debt, stupid risk, and antiquated businesses.
I would also be on the lookout for the next bubble. As soon as people began using money to speculate, I would drop a 100bp turd into the punchbowl.
Can you eat information? Can you wear it? Live in it?
We are “so” above production. That’s for other people. They live to service us.
“The economy would tank and those that are the most indebted would hurt the most. Those that saved would be rewarded.”
Maybe we’re not that different, E. That certainly would separate the men from the boys. I wouldn’t be too upset.
“We are “so” above production. That’s for other people. They live to service us”
Nope, that’s not what I said. I am just calling it for what it is, without prejudice or passion. The agrarians felt the same way about the industrialists in the last century.
Nonetheless, I like Fed Chairman E. Chairman E shouldn’t lobby Congress for tax credits for manufacturers but he’s certainly reward those of us who didn’t leverage everything for a shiny new Hummer.
Eleua,
Have you ever been told that you possess a certain kind of sadistic, ironic edge?
I believe we’re all destined to go through this again in a couple of decades. I believe we can all learn from what’s happening right now and use what’s happening to make the system better, so in 20 years, when the whole damn thing happens again, we’ll have better systems in place. For example, take the way the thousands of production workers are currently being treated.
I wish no ill will upon anyone in this mess. I don’t judge a person because he or she decided to purchase a Hummer on credit; I could care less. I DO care about how production workers are being let go with no warning and no severance.
I hope the thousands of production workers will be able to find comparable employment in lending or another industry.
With that said, ANYONE who works in mortgage lending (or the parallel businesses that support mortgage lending) today at ANY position would be foolish to believe management when they say employee jobs are secure.
Hi Rhonda,
Thanks for your reply. So it sounds like old-fashioned 30 year fixed, fully amortized loans with some money down are still avail for people with good credit.
Brian Brady mentioned something back in comment number 6: “If you need money in the next two years and can’t prove that you can pay it back, you’re going to pay dearly.”
Why were we ever loaning money to people who could not prove they could pay it back? Oh, that’s right, because we charged them high rates and fees on the front end.
I would dearly hope that the people who can prove they CAN pay the money back by being able to (shock and awe!) actually VERIFY their income, would not have to pay higher rates and fees.
I wonder if the homebuyers and refinancing homeowners will care that the cost is being passed on to them, and if yes, what they’ll think about our industry.
Hi Doctor from comment number 33,
Your insights into the state of dear Ben are poignant. I wonder if there isn’t some deep seated unconscious desire for him to want to return to the womb during times like these, perhaps leading to the dream you describe.
I’ll be looking for a Jungian shadow side come out now as he faces what will be a high pressure week. With having to hide his true motivations behind global interest rate reductions, I’m sure there will be much shame and guilt to work through in sessions during the coming years.
May I recommend the empty chair exercise? Ben can pretend Al is seated in an empty chair while Ben expresses all that repressed anger. You may need to do this for several sessions. Expect an emotional catharsis and don’t try this too close to the end of the session; he’ll need about 9 to 11 minutes to come down. If you need to continue your case consult with us, please visit RCG anytime.
Yes – many times over. Enlightened cynicism / bombastic sarcasm…
I find it gets the point across without putting too many people out on a personal level.
——
I am with you on how horrible it is to see those in the industry lose thier jobs. Unfortunately, it is going to get much worse. The finance industry is just a faith game. When the faith is gone, there is nothing left. That’s the problem with a finance and service economy.
Brian,
I think if you look at the US economy from 7/82 to now, you would not tell of the “info age,” but what happens when interest rates are marched down from historic highs to historic lows. Add in a central bank that encourages and foments speculative bubbles, and you have the exact picture of what has happened over the past 25 years.
Yes, we have the computer. It’s a tool. You can’t eat it, wear it, or live in it.
It is financial engineering that has taken an increasing load of US earning power. Given that we are now shuffling money and running the world’s largest bingo parlor, we drove productive capital overseas.
Finance, Insurance, Real Estate…that’s what we do.
Thanks for letting me post here. I’m not coming over to do endzone dancing. I just find that the current events have caused people to focus on topics that I think are important.
Nobody wants to talk about the hole in the roof when it’s a bright summer afternoon. Once the storm clouds arrive and it rains, guess what people find important?
BTW, I did watch the Cramer video.
WOW!
He’s flipped his lid. Granted, I think about 1/3 of that was schtick, 1/3 of it was a pathetic way to remain important as the stock picker of the Lumpeninvestoriat, and 1/3 of it was genuine fear.
You know that Erin B. was keeping a sharp eye on all the sharp implements and wondering when the next commercial break was coming.
Bellevue has a different meaning in NYC than it does here. He was ready for it.
Brian,
As a hypothetical FED chairman, I would lobby Congress for the following:
– Scrap the income tax and substitute a consumption tax. People should be rewarded for saving and producing. Our current system has the opposite effect.
- End free trade with slave (communist) nations and nations that, ummm…let me see how I can put this…have a peculiar culture of political corruption, extremely low living conditions, low expectations, massive poverty, low education, and hideous working conditions. The dictionary definition would be “peasant,” but I don’t want the PC gods to rain hell-fire down on me for using that word.
This would allow American laborers to compete against peer laborers around the world, rather than getting whipsawed into low wages here in the West. I know this is controversial.
- Require mortgage loans to be made off a lender’s own book. This would end the zany and fraudulant loans that have been written over the past 5 years. The market is already doing this for the government.
- Require federally insured lending institutions issue loans under a strict set of guidelines and borrower vetting. 30% down payments, 25% front end, 35% back end debt ratios, verified income, employment stability, and overall creditworthiness. This will help avoid a banking crisis like the one we are about to endure. Not everyone needs to own a house. Not everyone is responsible enough to handle a loan.
- Dissolve Fannie, Freddie, and Sally. Allow the scarcity of money to assert itself in the marketplace thus moving capital to its best use.
Eleua,
Sadly, a fed chairman with your ideas would never get appointed under any administration because our political systems are funded by corporate dollars. But you already know this.
I do agree with you on several points, the biggest being “not everyone needs to own a house.”
I would restate that as, “not every person is entitled to be a homeowner.” I do believe every person ought to have a safe place to live.
In terms of our global economy, what I’m reading about now is Americans moving to these countries where the cost of living is much lower and social services are much better than here.
I spent two weeks in Costa Rica last year. It was…beautiful. I saw great wealth, and I also saw great poverty. I could live in a mansion down there, however, the compound would have walls, barbed wire on top of the walls, and a 24 hour guard due to the overwhelming poverty and crime. No thanks.
Your idea of dissolving fannie and freddie are intriguing.
From a political point of view, I would advocate a Constitutional Amendment that prohibits any member of Congress from serving more than one term in each house of Congress. This would be a lifetime limit.
It is my opinion that better than 80% of the trouble we have with government comes from Congressmen attempting to get reelected.
Lobbyists love incumbents because they have been bribing them for years. Stir up the pot, and lobbying becomes very, very labor and capital intensive.
Tenure begets huge egos.
Jillayne, re: 40…conforming fixed rates (loan amounts under $417,000). Jumbo loans are impacted too for a while. Investment banks are not buying non-conforming mortgages at this time.
Geez, E…now you defintiely have my endorsement (no sarcasm).
The portfolio lending is not entirely necessary (bankers do dumb things also under the protection of the FDIC insurance to depositors).
I love the ideas of a consumption tax and ending free trade with slave nations
“I wish no ill will upon anyone in this mess. I don’t judge a person because he or she decided to purchase a Hummer on credit; I could care less.”
Ah, here’s the run, Jillayne. You MUST judge if you are to act as a fiduciary. You see, that is the very tenet of what we do if we are acting as fiduciaries; judge. Clients pay us for our financial expertise. When a client leverages an appreciating asset to buy a depreciating asset, it is a prelude to other bad decisions.
If we are REALLY going to affect change in a positive way, like I believe you want, we MUST ask these hard questions and give the unpopular opinions.
Asking originators to act in a client’s best interest and tying their hands is an exercise in futility.
Cutting federal funds rate won’t, as Cramer suggests, bail us out of this. a good article
http://maverecon.blogspot.com/
“A credit crunch is a liquidity crisis that can, if things get badly out of hand, lead to disorderly markets – indeed to markets seizing up and ceasing to trade altogether – and to unnecessary and socially costly defaults. I assume everyone is agreed on that. Why would the right response to that be a cut in the short (default-) risk-free nominal interest rate? We don’t have a credit crunch because the short risk-free nominal interest rate is too high. We have a credit crunch because private agents have lost confidence in their counterparties ability to meet their obligations on the agreed terms. What is required, from the policy point of view is an injection of confidence, that is, of liquidity, not a reduction in the short nominal risk-free interest rate”
“Your argument sounds like the farmers of 1850…the buggy whip retailers of 1905, and the vinyl record manufacturers in 1988.”
Or the real estate agents of 2005.
Regulations can be good — they are designed to protect the consumer, which should be a concern of all real estate and mortgage professionals. And I agree that Loan Officers should need to be something more than salespeople.
Hi Flotown
The current talk is that the Fed will leave rates as they are. We’ll know more soon!
Hi Brian,
Regarding comment number 49, when we start moving away from generalities and into the particulars, we need way more facts. There are many “what ifs” that would justify a Hummer purchase. Large net worth, favorable LTV ratio, high credit score, and so forth.
Raising standards to fiduciary would mean an LO would be required to probe much deeper into the client’s ability to repay the mortgage loan (I’m assuming the cash back refi is being used to purchase a hummer in your example? Pls correct me if I’m wrong. Thanks) instead of just blindly helping them commit financial suicide by selling them a pay option, interest only, negative am loan so their “monthly payment” can be decreased by thousands in order to afford that hummer payment.
The farthest an LO is REQUIRED to go right now, is to hand the consumer a set of government disclosure forms.
Let’s change this.
Hi Staci,
Thanks for stopping by raincityguide. Regulations can be well-intentional, however, if worded as to be horribly vague and ambiguous, with hundreds of different possible interpretations, and if no government resources are set aside for oversight, then end up with more federal laws such as RESPA.
Last time I checked, HUD had been working on reforming RESPA for many years now…..with nothing to show for it
Jillayne,
RE: comment 54- but we’re not talking about high net worth individuals, we’re talking about people who can’t make their mortgage payments.
This is why I’ve been ambivalent in responding to your request for fiduciary duty to originators. It’s an easy word to bandy about; fiduciary. Barney Frank thinks that identifying an ability to repay the loan fulfills that duty; that is nowhere NEAR enough. You have gone on record as saying it is fully explaining the loan programs and disclosure docs; that’s not NEARLY enough.
A true mortgage professional understands that a mortgage is an integral part of a financial strategy. She is schooled in financial planning techniques. She asks where the money is going because she will not lend a middle-class family money against an appreciating asset to buy a depreciating asset.
That fiduciary has the courage to offer critical advice. She educated, views the mortgage as a cash flow management tool and follows up with the client on a regular basis to insure that the plan she has created is implemented. She “captains” a wealth management team of financial advisers, insurance agents, attorneys, and CPAs.
She performs annual reviews to insure that their loan is best suited to the volatile financial markets (which would mean she has been explaining the benefits of ARMs these past six months instead of recommending what is “convenient”).
She is natural financial planner, uniquely positioned to help thousands of families get “set” early on in life because she is the first encounter they’ll ever have with a financial adviser.
Critics will argue against these responsibilities as a fiduciary duty, claiming that mortgage originators have neither the training nor capacity to handle such responsibility. This is why I vehemently argue against Mr. Frank’s legislation; it doesn’t go far enough.
Yes, Jillayne…let’s change this.
“It’s up to those left to lead us out of this hell.”
I had to copy and comment again because it is SO prolific.
Brian, 56 could be a post on her own. WOW. You make me proud to be a fellow Mortgage Professional!
If the definition of fiduciary was Rhonda Porter, there would be 6 licensees in Washington.
Let’s change this.
Hi Brian,
Comment number 56 sounds like the definition of a certified mortgage planner. Last time I checked, a CMP need only take a 3 day class and pass an exam to earn that desgination.
http://www.cmpsinstitute.org/professional/how_to_cmps
I believe a CMP “annual mortgage review” could easily be misused as a cover to engage in refi churning.
Fiduciary duty means to put the client’s interests ahead of one’s own interests. Fully explaining all the loan disclosure documents in great detail and probing into a client’s financial needs is more like obtaining informed consent.
However, I am on record as saying that I very much like the CMP code of ethics.
Barney Frank’s ideas are coming our way whether we like them or not. Let’s IMPROVE on his ideas and talk about how we could elevate education and training so that LOs COULD handle this.
What do think about minimum, mandatory pre-licensing education? In Washington state, LOs need not take any pre-education. They simply need to pass a competency test. Some other states require a week-long, mandatory class.
I would like to see this required for ALL LOs, no matter where they work (banker, broker, credit union, consumer finance company)
Brian and Rhonda,
I’ve had the good fortune of meeting many LOs who already act as if they held fiduciary duties. They didn’t know the fancy name for “putting the client’s interests ahead of their own.” They just have always tried to conduct their business in that way.
There’s nothing stopping LOs from taking on the role of a fiduciary on a voluntary basis.
“Barney Frank’s ideas are coming our way whether we like them or not. Let’s IMPROVE on his ideas and talk about how we could elevate education and training so that LOs COULD handle this.”
I’ll go beyond the 3-day training and perfunctory examination. Let’s do it right.
How about a NASD style study (6 weeks) and examination (6 hours) ? We’ll lose a substantial portion of the 250,000 originators. I’m game.
“There’s nothing stopping LOs from taking on the role of a fiduciary on a voluntary basis”
Amen.
“I believe a CMP “annual mortgage review” could easily be misused as a cover to engage in refi churning”
Jillayne, you aren’t understanding an annual client review. I love what you do but if we really want to effect positive change, we must make an effort for REAL expertise in financial advisory.
Brian,
What do you think about a tiered system where new, first tier LOs would be able to originate conventional, prime, conforming loan products. Second tier LOs would be able to originate FHA/VA. Third tier, subprime. Fourth tier, commercial/investment properties.
Each licensing tier would require a block of education, competency exams, and continuing ed.
Something like this. I’m not attached to this idea; just playing around with it.
Maybe we could take 100K of the 250K and give them what they should have received before we gave them a phone and a lead sheet.
“I believe a CMP “annual mortgage review” could easily be misused as a cover to engage in refi churning”
I probably talk more people out of refinancing than loans I originate.
I’d be against a tiered system, Jillayne. I’m not asking for much. I’m talking about a six week education and a six hour test. If we’re going to do this, let’s do it right so we can truly say…”they’re certified”
I don’t think you need to license commercial loans. The consumers are usually much better educated than the lenders so little damage can be done there.
“Maybe we could take 100K of the 250K and give them what they should have received before we gave them a phone and a lead sheet.”
Here’s where we differ in “thought”. We don’t “owe” anyone anything other than the consumer. I spent my waking hours studying this craft when I started. I went to the library and borrowed “The Century 21 Guide to Mortgages” as a primer. Was it basic? Sure, but it worked!
This isn’t about “some poor kid” who didn’t get training, it’s about “professional curiosity”. That is something the industry lacks.
Take this farther, Jillayne. Incorporate financial planning training into your licensing consulting practice and you’ll champion the cause for our industry and save the consumer a tremendous amount of money over their lifetime.
Brian – I like your Utopian vision, but it will only ever exist in Lake Wobegon. The simple fact is there will always be a broad range of quality among originators.
Regulating out the sharks by instituting fiduciary responsibility, adequately funding and staffing regulatory agencies and improving education requirement is probably the most you can hope for.
I agree, Bili. That’s why I oppose licensing. We’ve already got that in California and it’s a money-mill for the State
Hi Rhonda,
Meet with my loan originator once a year? I’d rather get a pap smear once a year than do this.
Regarding comment number 65, “I probably talk more people out of refinancing than loans I originate,” widen the angle of the lense, beyond what Rhonda does, and look at the potential for misuse from the minds and perspectives of many, many, many LOs.
Why meet with clients once a year for “mortgage checkup?” What’s the motivation? To NOT write a new loan? I don’t think so. I believe the motivation for the mortgage checkup, from the perspective of MANY LOs who pursue the CMP designation, is to use that meeting in order to write a loan.
Why plan a meeting with a client if it’s not to engage in dialogue that will eventually lead to a new mortgage loan being written and a fee being earned? Even if not today, then perhaps soon, and often.
If a CMP-designated LO is so good, then wouldn’t the client seek out their LO when he or she is needed?
Personally, I would not choose to meet with my loan originator every year. It seems intrusive; I have a million other things to do with my time. Perhaps my loan originator would like to come over and fold some laundry or drive my kids to the mall, water the garden or take my cat to the vet next week.
If I need a financial check up, I will find a financial planner, tax attorney, estate attorney, or CPA. I would not call an LO.
A better angle would be to BECOME a financial planner who also originates mortgage loans. I know some attorneys who also originate mortgage loans. They serve a niche market.
I believe that the standards for becoming a financial planner are much higher than for becoming an LO. Now that would make a good selling point.
Hi Brian,
regarding comment number 66, before we teach loan originators about financial planning, we should prioritize learning the absolute basics of state and federal laws governing the practice of mortgage lending.
Learning how to fill out forms in lending software is about all the training some folks ever received over the past ten years.
I believe the industry would do far better if we decided we ALL OWE EACH OTHER the duty to raise standards. We are always better off when we cooperate with each other. The entire group benefits.
Sure, you and I might have been one of many who had the internal motivation and drive to seek out education even when it wasn’t mandatory. Not every comes into the industry with a strong, internalized drive to learn. It’s like this: I’m taking the ironic position.
We start with external motivtion (mandatory education) but then win them over by creating internal motivation to learn once they’re in the classroom.
NOW, we could ALSO get into a serious conversation about the quality of education. Everything is tied together.
No system is perfect; there will always be flaws to fix. I believe we agree that now is the time for change (oh shit, I sound like a politician. LOL. Stop me.) Okay, to wrap up this comment, the current mortgage market problems leave the industry with an opportunity to make changes. The real question is:
Does the industry want the federal (or state) government to try and fix the problems or does the industry want to try and do it themselves? Or maybe there are more than just two options.
biliruben and Brian,
There never has been, nor will there ever be enough government resources to regulate every single loan written by every single loan originator out there. Government was never intended to work this way.
The missing link is industry self-regulation of ethical conduct. The largest mortgage broker industry trade organization, NAMB, directs consumers back to the state regulators when a consumer has an inquiry as to the professional conduct of one of its members.
Check out this link. Scroll down halfway and look for “Have a complaint? Check out what you should do” Then click on their solution: Homebuyers should call their state’s regulator.
http://www.namb.org/namb/Home_Buyers_Home.asp?SnID=1948775106
I don’t want to throw NAMB under the bus here. They do a very good job of collecting membership dollars to spend lobbying congress on behalf of their members. As a trade group, they do their job well (no sarcasm here.)
Add in any licensing and education requirement you want, the missing link is still industry self-regulation.
[...] – More on rates’ volatility and the transition of the lending market as a whole – (there is a real opportunity for a Charlottesville lender to establish themselves in the Charlottesville blogosphere; I’m willing to help. Just let me know.) [...]
“Regarding comment number 65, “I probably talk more people out of refinancing than loans I originate,” widen the angle of the lense, beyond what Rhonda does, and look at the potential for misuse from the minds and perspectives of many, many, many LOs.”
Amen to that. Reading this thread is amusing in that some of you (including Rhonda herself) can’t stop praising Rhonda long enough to actually talk about the problems.
Hi Joel,
Thanks for your observations. I admire and respect Rhonda. I also disagree with her on occasion. If we agreed on everything, our blog would be pretty boring and simply a bunch of high-fives. I respect her so much, that I am willing to take a risk in pushing her outside her comfort zone in her thought process, so that she can become an even better LO. That’s what I do for a living.
What I have found being out there interacting with loan originators year after year, is that the best loan originators have the hardest time looking outside their own office door and into real world of their competitors, let alone trying to understand how the minds of their competitors work.
Perhaps my life experiences have made it easier for me to see the dark side of human nature.
“What I have found being out there interacting with loan originators year after year, is that the best loan originators have the hardest time looking outside their own office door and into real world of their competitors, let alone trying to understand how the minds of their competitors work”
Jillayne, seven years ago, before I entered the mortgage profession, I was in the title and escrow industry for 14 years. During that time, I called on hundreds of lenders, escrow companies and real estate agents. I developed a strong idea of what I liked and dispised about Loan Originators. I could probaby count the local LOs I respect on one hand (maybe two).
You’re insuating that somehow your life experiences have made you a better person, or more capable to judge people than I.
Joel is missing the point. The point is to be careful about the LO you select to work with as your mortgage professional. You mentioned me in the post as one you respect and apparently a few other people do too. These days, I’ll take a few positive strokes.
Hi Rhonda,
“You’re insuating that somehow your life experiences have made you a better person, or more capable to judge people than I.”
Oh no, this isn’t what I was insinuating. I’m glad you commented so I could have the chance to clarify.
In the example we were referring to, the “certified mortgage planner,” I was trying to convey that there are many LOs who could easily see a way to use the “annual mortgage checkup” as a path to selling another refinance, whether or not the client needed another loan.
Some people’s minds just go right there: How can I use the system to deliver maximum profits to better my own self interest? What are the rules of this game? What are the possible benefit$ if I break the rules and what are the chances I’m likely to get caught? If caught, what are the consequences? How severe are the consequences?
Not that all CMPs would do this, but that some LOs would see the CMP as a way to take advantage of a consumer’s trust.
From my vantage point, the LOs I meet who have the hardest time understanding how some competitor’s minds work are the terrific LOs.
I spend a lot of time with LOs listening very carefully to the way they think about complex moral dilemmas, and helping them grow. The majority of LOs I meet want to learn how to “do the right thing.” They just don’t know what the right thing is because currently, it’s a free for all and everybody gets to answer that question for himself or herself.
Yet the consumer (not me) judges the entire industry based on the lowest common denominator, not the highest. The fantastic LOs I meet often hold the view that as long as they’re not the one’s doing anything wrong, then we can all get back to work.
If it were that easy, then we should just shut down this blog.
I think it’s sad that you haven’t met many LOs you respect here in the Seattle area. I have met hundreds of fantastic LOs.
Jillayne, your clarification was great. Thanks.
My experience with LOs in title and escrow was limited to my territory and what escrow transactions we would receive. You learn a lot about a LO by how they treat escrow people.
If I attended more LO industry events, I would probably know more people I would consider “Mortgage Professionals”. I’m sure they’re out there too. I do think that the unexperienced and unethical out number the good.
Jillayne – When I originated, I was one of the top originators in the country (432 closed first mortgages my last year of production). Most recently, I was a national product manager and Vice President for the largest retail mortgage banker (over 12,000 LO’s) in the country and thus had close contact to some of the best of the best LO’s nationwide. In my humble opinion, I have found they have a VERY good understanding of human nature and understand full well what is going on with their competitors. I respectfully disagree with your point in 74.
Additionally, I would not put Rhonda Porter in the “precious moments” category of LO’s. I have had numerous discussions with Rhonda and while she IS a positive person, she does in fact have a very good understanding of human nature and the darker side of our industry. While her point may differ from yours time to time, it does not make it any less valid.
I always enjoy reading your posts and often agree with many points you make, however today I felt you hit below the belt and where a bit condescending towards Rhonda in 74.
Just my take.
Hi Rhonda,
In terms of mortgage experience, some of the new/newer LOs that I have met have been the most morally developed people in the classroom.
I don’t think the unethical outnumber the ethical.
There will always be a small percentage of people out there who have every intention of breaking the law. These are the folks that we need our regulators to go after.
Then there’s another small segment of people who are ethically gifted. Somehow, they always know what to do. I’ve met a few LOs that fall into this catagory. I don’t fall into this category; I am far from perfect.
I believe the majority of LOs are in the middle. They want to do the right thing, but they just don’t know what the right thing is.
This is where self-regulation can really help an emerging profession: By reaching the majority in the middle of the bell curve.
If the majority only rely on their own personal moral code, then that’s arguing in favor of subjectivism which dissolves into moral chaos, which pretty much describes the state of loan origination at this moment in history.
One person’s opinion of predatory lending is another person’s opinion of capitalism.
Hi Tony,
Thanks for stopping by raincityguide. From your background in coaching, mentoring, and sales training, I imagine you understand the concept of helping people grow by pushing them outside their comfort zone. I call this being a teacher. On a widely-read blog like RCG, readers learn from watching what’s happening, even if they’re not entering the debate via comments. It’s called the fish-bowl method of facilitation.
When I hear LOs talk about the industy problems and offer statements like “well, I’M not doing any of that,” it’s really important to help LOs understand that even though he or she might do a great job, consumers judge the group as a whole, by the lowest common denominator. Everyone in the group is better off raising the lowest common denominator standards to a higher level.
Gee, I thought my response was quite tame. So, what would an “above the belt” response looked like?
Tony, I’m concerned for local retail mortgage brokers/LOs. I’m concerned about buyback provisions and more job losses. Am I nuts? What do you think’s going to happen?
Sorry I’m so late in commenting…not that many care really
…but…here’s my two cents.
We all in the industry are to blame. It’s entirely our responsibility, and the ones who take the responsibility will be the ones who hold the keys to the lending industry in the next generation of lending.
Yes, it will be a hard time for us all. However, times of famine follow times of feasting, so hopefully we’ve saved up. The ones that haven’t simply will diminish away because they did not prepare.
Kindly,
“Joel is missing the point. The point is to be careful about the LO you select to work with as your mortgage professional. You mentioned me in the post as one you respect and apparently a few other people do too. These days, I’ll take a few positive strokes.”
What in my post makes you think I missed that point? It really sounds like -you- are the one missing the point. The point is that people are trying to talk about the problem with LO’s in general at this point in time while you just keep saying “Well I don’t do that.” The point is not that -you- are a terrible LO, it’s that the industry has attracted a lot of greedy, uneducated people looking to make a quick buck by screwing over their clients. And if -you- and other “good” LO’s don’t do something about it, then it’ll make all of you look like scum.
Joel and David, I would say this greedy industry has not only attracted terrible LOs, but also greedy agents and greedy buyers willing to commit fraud. For example, yesterday I had a “potential borrower” contact me saying that he would need a “creative appraiser” who could push the values of his home higher. BONK–wrong! I told this person, sorry…can’t help you. That would be fraud.
Yes, I know there are unsavory loan originators. I also know there are people who try to finance investment properties as owner occupied and who overstate their income so they can buy homes they cannot afford. If a LO does this knowingly then they are commiting fraud too.
This mess should not be pinned 100% on LOs.
Woops…I don’t want to forget greedy Wall Street from this comment!
I’m hoping that what we’re going thru will correct the industry (as much as it can). I think we should see a lot of “scum LOs” be flushed down the crapper. (1) they probably existed mostly on subprime and stated income type loans which are not as available (2) it’s not quite so easy to make a buck these days (3) broker scum now needs to be licensed in the state of WA (unlike banker scum does not go through testing, finger printing and FBI background checks).
With the tightening of underwriting, less programs and less buyers, the greedy gobblers will dry up and go away.
and what will happen when the good times return?
Maybe we should just rebuild the levy and pretend like our mortgage lending system isn’t built below sea level in a hurricane zone.
It is possible that the greedy gobblers might not be greedy gobblers. Maybe no one ever took the time to help them learn how to make money in this industry any other way.
Pointing fingers in every direction will get us nowhere. We covered this ground when I compared the Space Shuttle Challenger investigation to the supbrime meltdown in this post:
http://www.raincityguide.com/2007/04/13/this-just-in-zero-interest-loans-at-a-cost-of-zero-with-a-monthly-payment-of-zero-apr-0/
Here is what I fear will happen: Just like with MILA, we will see the mortgage brokers that mainly originated only subprime, scramble to shift into the Alt-A and prime origination market. But there’s too much competition for those loans now and not enough business to go around. MILA couldn’t make the transition fast enough and ran out of money. I am hoping that we don’t see huge layoffs on the retail side. I really feel for people when this happens.
Jillayne, the Alt A is drying up too. I don’t think you need to worry about that. I think you will see huge layoffs. There has been. There’s no need for mortgage people if can’t do loans (or not as many as before). Most LOs won’t be laid off as long as they earn enough $$ to pay for their insurance.
The LOs who made their living on subprime were also probably use to charging more per loan. They won’t cut it in a prime market.
It’s a cleansing that our industry needs.
From this morning’s Inman newswire:
“Metrocities Mortgage LLC says it’s paid an undisclosed sum to satisfy “known and unknown” repurchase claims on its past loans.
The move to retire past and future buybacks is one aspect of a roughly $125 million investment in Metrocities Mortgage by Sterling Partners, said Paul Wylie, Metrocities founder and chief executive officer.
“The fact that we have the foresight to settle up with investors means we don’t have to look over our shoulders as other lenders do as loans continue to go bad, probably over the next six quarters,” Wylie told Inman News. ”
http://www.inman.com/hstory.aspx?ID=64702
[...] I predict the cream of the crop will survive. The key will be how well capitalized they are against lender buyback provisions, and if they control and maintain their own database of existing clients. Mortgage brokers who have [...]