My Perspective

I started my employment in the consumer residential real estate mortgage lending industry forty-five years ago; I’ve been an eye witness to four (4) serious housing/mortgage lending ‘corrections’ during this time period. Industry historians and those veterans, who have been around for a similar period, all know what happens next … and it’s good! Our business is cyclical – up and down in an approximate 10 year cycle.

The correction in the fall of 1998 all but wiped out the ‘subprime’ lending sector and brought Fannie & Freddie and their ‘conforming’ products to their knees; only their ambiguous Government backing saved them at that time.

Today the media touts the fact that something like 150 Banks have failed recently, which is nothing like the several thousand which collapsed resulting in the entire secondary market (it was mostly thrifts and banks at that time with FNMA and FHLMC picking up no more than a small market share) being severely hammered in the late 1980’s and early ‘90’s.

The pounding in the late ‘70’s when we had double digit rates was the mildest of the four, as I recall.

Today’s situation is different in that the Federal Government has engaged a strategy to take over the entire mortgage lending business (among other industries as well), and operate them – which suggests they think they know how; clearly they don’t as I detail below. We’ve now got tiny, nearly insolvent, undermanned, with dangerously outdated technology, in way over-their-head FHA at 40% of the market (instead of the tiny slice they’re accustomed to) with delinquency of at least 90 days increasing (up 20 basis points in just the past two months) even as their portfolio increases, Fannie Mae & Freddie Mac controlling the rest, and no secondary/securitization market to speak of (which would propel us out of this mess in a matter of a couple of months once the Government stops stifling its revival). Utilizing the TARP funds as designed would have fixed that in a heartbeat. Today nearly 5% of Fannie Mae Single-Family Loans are 90+ days late and this serious delinquency rate is rising. The government-sponsored enterprise has $2.8 trillion in conventional loans. Prime real-estate-owned filings shot up 15 percent from the second quarter. Plus this serious delinquency rate does not even include loans in private-label securities held by Fannie! Congress is at this time debating re-regulation to EXCLUDE Fannie and Freddie – what a colossal mistake. By providing them with unlimited capital support over the next three years, not fixing them, and on top of that the CEO pay, 10 additional executives at the two companies are eligible collectively for $30.1 million in compensation for this year. And some people say let the Government take care of us! Baloney!!

Every single person in the consumer residential real estate mortgage lending community knows a new regulator and/or re-regulation, more statutes, etc. are far from necessary. The current Government administration in Washington DC has somehow still not yet realized aggressive enforcement and harsh punishment is what’s required, and has been for some time. They’ve been severely negligent for sure. They continue to pursue this major Consumer Protection Czar type legislation, when they should get out of the way, and let the mortgage industry rebound and take off like gang-busters as it has always done – the longer they’re in the way – the more delayed the turn-around will be. 2010 could be a tremendous year, time for the pendulum to swing back

If you’ve followed my blog for a while, than you’ll remember I was very harsh on Treasury Secretary Hank Paulson and how he implemented TARP. The concept of having a Troubled Asset Relief Program and removing those ‘troubled’ assets from the books of financial institutions was a smart idea! Hank had the vision to see that, had they actually done what TARP was intended to do, it would have been a huge deal for all his sinking-like-a-stone Wall Street pals and the securitization of residential real estate mortgage loans would have been able to take off again! Wall Street probably wouldn’t had even miss a step, onward and upward back to business as usual.

Instead, the Government has taken over the industry (an unfortunately so much more this past year) with Fannie & Freddie operating way over their heads (but like their predecessors – the senior execs there still know how to suck out enormous payrolls), and (historically) tiny insignificant FHA, today’s a behemoth – ready to explode and make our Government a bubble that may burst! YOU and I both know you can’t name anything the Government has ever run, that was low cost, efficient, and ever went well. They’re totally and simply clueless and screwing up our industry, which should have recovered by now.

With their over-committed involvement, and their continued short-sighted plan to stifle the securitization market (so they can control home financing options), they’ve managed to delay the recovery of residential mortgage lending. Even those pioneers who could have charged ahead with Private Placements, have become hesitant to act. It’s driving me nuts!

I have a Great one, which I’m sure you all with agree with: Lets get people into Governemt who are not as greedy, corrupt, obviously stupid and totally clueless about their job duties. It continues to shock me at the things our Government keeps doing day after day – with little regard to any logic whatsoever and no matter what the public thinks and says. Like, take this example below …

This news piece about Fannie Mae & Freddie Mac I saw a few minutes ago, is what made me wriote this blog post: “Pay at the mortgage-finance companies, which were seized by the U.S. in September 2008, added to debate over salaries for executives at companies dependent on government bailouts. Compensation must be sufficiently high to “attract and retain” top talent, their regulator, the Federal Housing Finance Agency, said in a statement. BULL, I can do that job and for far less salary too!

In addition to the CEO pay, 10 additional executives at the two companies are eligible collectively for $30.1 million in compensation for this year. Overall, pay for top executives of the mortgage-finance companies is down 40 percent from before they were seized, the regulator said.” <- and all that means is the thugs who were there before were seriously greedy (and corrupt as you may recall)!

PS: Its the next morning: last night on abc world news with Diana Sawyer, she said the chief execs at Fannie & Freddie will be earning 15 time more money than President Obama and 30 times more money than the Fed Chairman and the Treasurty Secretary!

So tell me this, what screwball thinks those earnings for Fannie & Freddie chief executives make any sense?

“Subprime delinquency of at least 60 days fell 141 basis points between September and October, according to data reported by HOPE NOW. But prime delinquency was 25 BPS higher during the same period. Completed foreclosure sales on subprime loans were down 15 percent from September. But prime reposessions were up nearly a quarter.”

Well, how about that!

If you agree we need the Government Sponsored Enterprises – now no longer merely ‘sponsored’ but outright wholely owned … why not CLOSE DOWN one of them, they no longer need a competitor to keep them from becoming a monopoly (which I remember is why Freddie Mac was created in the first place) … this news piece today, brought that genius idea to my mind … might save us $100 trillion!

“FHFA May Ask Treasury for More Money for GSEs?
The Federal Housing Finance Agency may ask the U.S Treasury before the end of the year for an increase in the $400 billion lifeline provided to Fannie Mae and Freddie Mac, according to Bloomberg. The news agency quoted people familiar with the talks between Treasury and FHFA. A spokeswoman for the GSE regulator would not comment (as he continued to suck a high-six figure salary).”

As I was reading about the AmTrust Bank closure earlier this week, it struck me how frequently we read about the FDIC taking action, so far this year they’ve closed 130 banks, and yet how biased the media has been about not telling the full story – well here’s a little more:

What do I mean? Simple. Most of the losses were due to delinquent commercial real estate loans. Commercial real estate vacancy rates at the end of 2Q09 had risen to 13.3% from 12.3% at the end of 1Q09, so more’s coming. But remember, it’s not been about how poorly they’ve been managed generally, or reckless residential real estate mortgage loans or otherwise - it’s all about their commercial loan attitude: 1). Bigger sized loans, means less internal work; 2). large loan portfolio gains from a small handful of transactions (big bonus for execs), and 3). egregious costs and fees associated with the non-regulared ‘commercial’ transactions (vs. overwhelming smuthering regs on ‘consumer’ transactions).

Keep this in mind as you read about what FDIC does and says … it’s all about COMMERCIAL lending.

Broker Market Share Hits Another New Low: 12.9%
“The residential loan broker share of the origination market hit yet another new low in the third quarter, 12.9%, according to exclusive survey figures compiled by National Mortgage News. “Right now it’s hard for me to see much support anywhere for loan brokers,” said researcher David Olson. NMN found that all originators funded $443 billion in the third quarter with retail lenders capturing 48.3% of the market and correspondent accounting for 38.8%. Since the second quarter of 2007, the broker share has steadily evaporated from a high of 28.2%. (Only loans that are table funded through a wholesaler are included in this category.) A year ago Mr. Olson changed the name of his Columbia, Md.-based firm to Access Research, removing the word “Wholesale.” The veteran researcher said all the new regulations being heaped on brokers are making it “impossible” for them to continue. He believes many may convert into correspondent retail shops (if they can) or join net branches.”

Noticed this news piece this morning. Dave & I were among the very first pioneered who ‘subprime’ and were frequently quoted in the National Thrift News (now NMN), the New York Times and the Wall Street Journal (back in those early days); I’ve know him 4 decades. As some of you know, he went on to be a big-shot researcher, and … well I didn’t.

His view that mortgage brokers are walking vombies and nearly extinct (‘impossible for them to continue’) is dead wrong.

If you ever speak with him, remind him the end of days for mortgage brokers has been predicted by a great many in the residential real estate mortgage industry and media personnel as well, several times during his long career. So I know he knows better, maybe he recently fell and bumped his head or something.

Brokers and others with no history in their brain to fall back on and remember, I’m sure that’s the way it looks to most of them these days as well – HOWEVER shortly those Banks that have expanded their retail presence will shortly again want the less expensive broker channel’s production and constrict their huge retail overhead (history’s seen that happen 3 times as I recall personally).

If you’re a mortgage broker, don’t sweat it

Anymore I feel almost like I’m living in a ‘Bazarro World’ or something nutty like that! This is part of a news piece I saw earlier this morning:

HUD to Lift Fee Cap on FHA Loans
The Department of Housing and Urban Development plans to lift the 1% cap on origination fees for Federal Housing Administration-insured loans, according to sources close to the agency. The change is expected to be unveiled within the next few weeks. HUD argues that competition will prevent fees from rising too much once a regulation overhauling up-front disclosures takes effect Jan 1. (FHA is the fastest growing niche in the market.) If borrowers think they are being overcharged, the thinking goes, they can shop around for a better price and potentially take their business elsewhere. “HUD feels the marketplace will drive origination fees down once the 1% cap is removed,”

Given the fact that FHA has been operating at NFL levels of originations recently (with only the skills and background of little league players), with its tiny nationwide staff and a computer system decades old – all of their reckless behavior the last couple of years means to me they gotta be morons – I just can not think of another answer as I see the things they do. Can you explain their ways?

I saw this news piece a few minutes ago:

“Wells Fargo Wholesale Lending is cutting the maximum loan-to-value on several loan programs, according to a bulletin. The updates, which apply to all registrations received on or after Dec. 14, were the result of changes made by mortgage insurance companies. Wells is imposing document requirements on income from bonuses, dividends-interest and military as well as from public assistance, foster care and seasonal employment.”

So silly me says – OMG, why in the hell would they have been doing loans without such income verifications these last couple of years (or anytime for that matter), after this industry wide mess all started – are they terminally stupid, or what?