DISQUS

Interesting post. I was just thinking about this the other day - companies always want to create shareholder value and grow, but we do have to ask ourselves if growth all that good? At some point, a company just becomes too big and instead of being operationally efficient, they become cumbersome and disconnected - kind of like the big mortgage banks! Almost like a government entity instead of a company.

I personally have been trying my best to give my money to small mom & pop businesses now. I am a capitalist through and through, but every industry seems to be turning into a monopoly or oligopoly and consumers definitely aren't winning in the long term. Maybe some short term savings, but long term we are definitely losing out.

Chad:

I don't disagree that you shouldn't put all your eggs in one basket. However, I have found circumventing agents to be a better use of my time and marketing dollars. Again, this is not to say that I don't work with agents as I primarily do purchase deals. I rather develop relationships with corporations, schools, and other sources of actual buyers as opposed to depending on agents for referrals. Once a deal is in place, THEN I start working to develop a relationship with the buying and listing agent as they can actually see and experience what seperates me from Joe Loan Officer. I find this more effective than the routine BS rate sheets and donuts routine.

I have a number of agents I work with on a regular basis, but everyone of them came to me through those other means, not visiting offices and tap dancing. In addition, because I am getting buyers often times BEFORE they have selected an agent, this puts me in a position of power because I now can refer real business instead of the other way around. Agents rather have LOs who send them business rather than LOs who send rate sheets IMHO.

I just cut out the middle man and go to the borrower directly. 95% of realtors probably only close 2 or three deals a year. I spend all my efforts marketing to borrowers directly. The only agent marketing I do is going to the closing and talking with them throughout the transaction. That is usually all you need to do because at that point they have seen you perform and the referrals will come.

Interesting that they are shutting down retail and not wholesale. I know you believe wholesale is on a death watch, but I believe getting rid of retail and having more effective wholesale is the way for these companies to go. There is no way retail can originate as effectively and efficiently as the broker channel with the appropriate safeguards in place (like actually underwriting the loans or vetting potential brokerages). Maybe they figured this out?

Stop giving all the secrets away! lol...

Gina:

Notice how YSP is characterized in the article.. "pay brokers for steering homeowners into higher priced loans." For the life of me, I wish someone would just ask these numbnuts if they know the difference between wholesale and retail? I really want to know when consumers "qualified" for par rates?

Yet another product going away because of two bit originators and mortgage companies pushing this product on the unwashed masses. I wonder if they will do a loan modification for an elderly lady that called me unaware that her loan balance is growing and she can't afford the minimum payment on her fixed income? She should have never been put in the loan.

These same kind of attitudes are what killed stated income loans. Instead of using them for what they are intended for, it was an excuse to get any fry cook a $500k home.

Unfortunately, like stated income, rental agreements will probably go the way of the dinosaur and then people who are legitimately renting their property will no longer be able to get financing.

There will always be people looking to exploit loopholes. It is unfortunate because the professionals in the business are the ones who ultimately pay the price.

A lot of this could be prevented if becoming an LO were harder and individual LOs were required to be insured like medical malpractice on doctors in order to take responsibility for the loans we originate.

Gina:

The politicians are not interested in facts. Just votes. The story that gets the votes is evil lenders foreclosing, not borrowers just being SOL for a variety of reasons. I believe the increase in foreclosures is driven by lack of financing. I have a theory that the foreclosure rate has been artificially low over the past couple of years because we had subprime mortgages. Subprime was centered around refinancing. People were able to refinance themselves out of trouble. Now with those loans gone, they can no longer refinance their woes away hence the rise in foreclosures.

Cliff:
Just because a borrower is in an adjustable rate mortgage does not mean that is the cause of the foreclosure. What I typically see is borrowers who are put in 2/28s because that was the only financing available to them. They are counseled to get their credit scores up by making on time payments, so we can get them into a conventional mortgage. Unfortunately, many do not for whatever reason and they wind up stuck with a higher payment after the loan adjusts. However, when you dig into some of the other stats available, most of the 2/28s are actually defaulting BEFORE the rate even adjusts.

Again,foreclosures are driven by lack of income whether from job loss or medical issues. In fact, when you look at some of the stats, national foreclosure numbers aredriven by CA, AZ, FL and Nevada - speculator central. The other states with high foreclosures are Ohio, MI, Indiana... basically the armpit of the midwest with failing local economies tied to manufacturing. None of this points to evil lenders... just get rich folks getting caught holding the bag and borrowers down on their luck. Sucks, but the reality is there is nothing anyone can do about it.

Cliff,actually these stats show that nearly are are in your third category. Very few incidences of people being slammed into loans they didn\'t understand. I am not saying this does not occur, but I believe that the incidents are grossly overstated.

I couldn't find the actual CW presentation, but I found an article on it with the stats. Not surprisingly the MSM, discounted it as it doesn't fit with the evil lenders and mortgage brokers preying on the little old ladies theme.

http://latimesblogs.latimes.com/laland/2007/09/...

Bottomline, people go into foreclosure because they lose their income source in most cases. You probably see higher incidences of people with less stable jobs or careers in conjunction with low down payments. However, down payments are just one part of the equation and I don't think by itself it would really indicate whether a loan is more at risk of foreclosure.

I found an investor conference call presentation from Countrywide a couple of month's ago as I was looking for some hard stats myself. Just like you, I suspected that the foreclosures aren't little old ladies, but mostly investors. In the CW presentation less than 2% of the foreclosures were due to an ARM adjusting, the vast majority of foreclosures were for job loss, divorce, or medical reasons. In addition, I found some data from the MBA that said about 30% or so of foreclosures were investors which in my mind really put the number greater than 50% due to occupancy fraud which was so common during the boom.

I am going to see if I can find the link again.

This is something that has bugged me for years. Mortgage lending has gotten so statistics driven that no one really looks at the underlying causes of why mortgages go bad or actually underwrites loans anymore. Stats 101 teaches us that a correlation is not causation.

I suspect FHA loans with DPA fail because a large number of FHA buyers are already credit challenged. Think about it... if a typical FHA Loan is $200k or less and you can't scrape up a measily $6k, the odds are you are not a good credit risk.

Until banks get back to actually sitting down with each individual borrower and making RATIONAL lending decisions in the context of the scenario at hand, we will continue to have these problems. Right now, approving loans is about coloring between the lines. Ironically, we got into this mess because even when coloring between the lines per guidelines, some of the loans didn't make sense. But hey, it meets guidelines.

This leads to situations where verifiable multi-millionaires who want to go stated and can't get a loan with 50% down payments, but a 55% DTI 650 FICO score, with barely 2 mos reserves and a 5% down payment gets a approved all day long without batting an eye.

My problem with this is that quality of work is going to suffer. These companies are like deaing with the DMV or some other government beauracracy because there is no competition. Need an appraisal updated by end of day? Good luck dealing with the appraisal management companies.

I almost had a $1.2 million dollar deal blow up over a crappy appraisal from a second mortgage lender that wanted to use their own appraiser instead of my guy who did it for the first mortgage. I wouldn't have cared had they not sent some hick from west po'dunk to appraise a $1.2 million multi family investment property in the middle of downtown Chicago 50 miles away! His value came in too low because he picked the wrong comps. Only after threatening the blow up all their bank branches and pointing out the how bad the appraisal was done was I able to get it fixed and the deal closed.

All these new laws and regulations are doing nothing to protect consumers. If banks would simply start evaluating each file on its merits and go back to common sense underwriting instead of trying to automate and outsource everything to India and fit every loan into a rigidly defined box based on a nebulous FICO score, they wouldn't be in this situation now.

Banks have gotten so efficient that they are inefficient.

Ironically, this was born out of appraisal fraud at Wachovia. In other words, a federally chartered bank gets caught with their pants down, so they pass restrictions on small mortgage brokers. You have to love having a strong lobby to protect you...