Happy Thanksgiving Everybody

Just got the turkey out of the oven, they're starting to set out the treats, veggies, chips, dips etc. and company will begin arriving shortly, so I had a second to write.

Now that I have moved my blog here to Google's blogspot and away from our own server and Wordpress, I am hopeful I can put up my Christmas lights inside this software as well - may be a challenge or maybe easy and no problem ... we'll see this week end ... since this is when we put up our tree in the family room.

One more thing I am thankful for this year again, is my blog audience. Thank You All and have a Happy Day with your Family & Friends

banco de america

Have you been wondering what's up with this bank, like so many of us have been? Major LO's leaving, cutting mortgage broker channel, closing down their correspondent division, squeezing warehouse customers ... well, you'e right ... "it walks like a duck!" In a news piece I saw 10 minutes ago, I discovered these tidbits:

"(1). the company could face a public enforcement action if banking regulators aren't satisfied with recent steps taken to strengthen the bank
(2). it is in the process of reviewing its warehouse lending accounts and plans to shift over some of those relationships to its Merrill Lynch division.
(3). B of A has been operating under a memorandum of understanding since May 2009, following repeated disputes with regulators over the purchase of securities firm Merrill Lynch 
(4). finally -->> and a downgrade of the company's confidential supervisory rating."

Past Due Mortgages = 6,298,000

"There were 6,298,000 mortgages going unpaid in the United States as of the end of October, according to Lender Processing Services (LPS). It's a daunting number, but the data show that it's actually been on a fairly steady decline for nearly two years now. At the start of 2011, the total number of non-current mortgages in the U.S. stood at 6,870,000. In January 2010, it was 8,118,000. LPS' report indicates mortgage delinquencies are declining while the nation's foreclosure inventory is growing."

Wow! Talk about deceptive media spin, you’ve got to be kidding me. On the surface this sounds like a sizable improvement - since the lead is delinquencies are better!?

When a mortgage is ‘past due’ the industry calls it ‘delinquent’ – put a different way, it means the owner of the mortgage is not receiving their expected interest income at the same rate as promised to them.  A way to keep track of potential principal losses on the way when added to income losses right now. So let’s all remember lower delinquency means people are paying more promptly OR (in this case) the pool of REO’s has dramatically increased and they are no longer labeled as 'delinquent.'

So this could just as easily say … “Hey folks! There’s been a steady increase of foreclosures for nearly two years now – in fact, since January 2010 foreclosed homes have increased by some 2 Million!”

 

The Legacy Brains

The late comedian, George Carlin, was always one of my favorites; perhaps the best wordsmith in the genre. The residential mortgage lending industry's delicate term "legacy issues" as it relates to industry problems seems to me a bit Carlinesque; I think he might chuckle at the phrase.

Let's analyze what they mean by legacy issues. Typically that means everybody is subject one way or the other, to loan buy-back demands from upstream investors. Therefore what's smarter... tying your wagon to an established or a start-up operation? Mortgage brokers face buy-back demands from their wholesale lender. Those wholesale lenders face repurchase demands from the sorts of Bank of America, Wells Fargo, or Chase who potentially holds their loans. Even those mega banks are up against it facing down Fannie and Freddie. And lately everybody is getting a target painted on their backs by the MBS investor lawyers. So... yep you know what flows down-hill!

Why do I bring up this topic? Well, for several months (20) recently I tried to obtain funding for a vertically integrated 'start-up' company that included a residential mortgage banking operation. More than once, a potential equity partner/Investor has queried as to whether buying an existing mortgage operation might not be a wiser and less expensive way to proceed. My explanation is always the same. EVERY mortgage lender that is already in business is subject to a largely unknown quantity of risk, including the potential risk of enormously expensive buy-backs. The longer they've operated and the more successful they've been; the higher the risk exposure.

But what about those news articles and press releases lately announcing 'so and so' former exec has come out from hiding and is now about to start becoming involved with a new venture. You remember, they were the ones who were former 'big shots' at Countrywide, Option One, Encore, New Century, Saxon, Countrywide and others who significantly contriburted to the mess we're in today!

What's wrong with these guys? Well, exactly their problem is they have "Legacy Brains" - they still incorrectly believe a 'strong commissioned sales culture' is the way to go in the lender business. That was never a good idea. For my money you want those old-fashioned consumer finance types, they know commissions are big mistake, and the general sales culture notion should never be the smart way to operate. I must say I'm a trifle perplexed as to why I had trouble (especially with the exec team I had at hand)acquiring funding when folks with a production-first/ loan quality second, huge sales commissions mindset are being funded.

So, when someone talks about THOSE guys and says 'They're Back!' you shouldn't think 'Hooray!' instead ...  scream in terror and Run for the Hills! I would think that those old-fashioned consumer finance types, like me and my team, who realize that the tail should never wag the dog, would be a wiser choice for an equity partner/Investor. Am I missing something?

FHA Market Share Falling

"When financial markets seized up in late 2008, loans insured by the Federal Housing Administration accounted for 24 percent of residential originations. By last year, FHA market share fell to around 20 percent. Full-year 2011 FHA market share is on track to come in at around 16 percent."

This is an interesting news factoid along the lines of my mid-October comments about FHA, and why it needs to get out if the spotlight with high profile production. Other news pieces this week are talking about Fannie and Freddie moving along towards getting closed down! All is great news for the future for our industry.

As they move out, that should push the private securitization market into getting back to it - which is badly needed since it provides the diversification in products America needs!

What's Your Job Position Worth?

With so many of you considering new employment, or who have recently accepted a new position somewhere - this seemed like a good topic to cover ... What's your job position worth (as others read your resume they surely do have an opinion, what about your opinion?) - what do you contribute to the overall process of turning a stranger into a funded residential mortgage loan transaction? OK, so let's run through one, start to finish:

Customer visits Google and searches the term ... mortgage refi, bill consolidation, mortgage broker, mortgage banker, home loan, etc. and up comes 'Millions' of results, they close their eyes, point & click the link to where you happen to work, and study the website (which should contain the answers to 99% of their questions, concerns, etc.). During that review they're able to determine your firm does the type of loan which they're looking for (rate & term refi w/cash out), so they complete your on-line application and away we go!

Their first voice contact with anybody is probably a Loan Officer, who learns the customer is a regular ordinary average one; not somebody that wants an Exotic kind of loan, but a simple full doc 30/30 cash-out refi. The credit report gets pulled and they discuss its contents, customer receives a 'quote' (an important customer service/help-desk function) - and the customer submitted application & credit report is handled off to the processor, who will process/verify etc. and guide the package through the pipeline.

Over the next several days, (independent of the LO) she will order an independent field appraisal of the subject property, collect the additional necessary paperwork directly from the customer, open escrow (in a non-lawyer State, or via an attorney in those backward - early 20th Century East coast 'lawyer States' - all along verifying everything is genuine, as well as confirming the developing package will meet the standards of the lender/underwriter program (extremely vital job duties).

The escrow company personnel (or attorney if necessary) open up the title order, requesting a preliminary title report from the title insurance company and they send off for known mortgage lien 'pay-off' beneficiary statement(s), request and collect a loss payable endorsement on existing property hazard insurance, and otherwise get prepared to schedule a closing/signing of the customer documents (fast paced and detailed activities oversights are not permitted).

After preliminary title report, demand pay-off's' of mortgage lien(s) or others, real property appraisal, and all the final pieces of paper needed from the customer are received and everything is verified and analyzed by the processor (inside a presser cooker environment with an egg-timer on her now) - the transaction is presented to the lender/underwriter for approval. Processor continues to maintain close contact with applicant throughout the process, sort of like 'hand holding.'

Once received by the wholesale lender funding source, the underwriting department (account mgr/processors) re-confirms that all the pieces of paper are genuine and 'what they purport to be', that they are sufficient, and then makes the determination if the transaction exceeds the minimum standards of acceptability, approve the transaction by advising the mortgage broker company, and get the signing documents prepared for delivery to escrow for signing/closing (all highly stressful duties - errors are not acceptable - easy to lose your job).

As we move into the home stretch, the signing docs are shipped out to escrow (or attorney), the customer is scheduled to visit the escrow office for document execution (or if necessary a mobile closer/notary meets them at Starbucks, Denny's, or sets up a signing on the hood of their pick-up truck somewhere out in the countryside). Docs arrive at escrow (the clock's ticking), who now puts these pieces of paper all in order, get's everything signed and notarized properly, and returns back to the wholesaler/lender (except for the mortgage or deed of trust), awaiting a 'fed wire' of the loan amount (all has to happen same day). Once received, they get the deed or mortgage recorded with the proper County Recorder in the same County where the subject property is located, close their file with the HUD-1 balancing, and distribute the funds as directed by the wholesaler/lender.

Of course this fairy tale closing isn't what really happens, there are always multiple crises that happen along the way because too many people have to touch the transaction, and they make mistakes all the time. As you can see there's plenty of room for multiple train-wrecks with each closing; and there normally are!

Now as to cost/worth value (excluding all the possible problems that could have come up - this article would be 25,000+ words longer if I detailed all of them too): First, making the website credible and marketing it on the internet and elsewhere to attract customers, cost (in time & money) at least $X,000 per loan, the LO spent about 20 minutes of his/her time (LO and owner/operator have predetermined what that's worth and is paid after closing) the processor probably spent 60/90 minutes or so (typically the customer paid fee at closing is $450 for processing), credit report $15 (whether closes or cancels), appraisal fee $300 (several hours work/travel time non-refundable if loan doesn't close) and both must be uncompromisingly reliable. Two-way doc courier fee $50, escrow fee (180+ minutes spent at warp-speed) usually $650 (only if loan closes), in attorney State - attorney fee $500+ (non-refundable if doesn't close), preliminary title report (if loan cancels no charge unless done by a lawyer in an attorney State), mobile notary/signer/closer $125 (easily one or two hours works/travel time), lender/wholesale funding source (90+ minutes) is paid out of future customer paid interest and only after closing ... so ... are you overpaid or underpaid?

Are Our Industry Generals Fighting the Last War?

I was speaking with my lawyer the other day about my extreme degree of frustration in having been unsuccessful at raising $2.5 Million for a consumer residential real estate mortgage lending financial services family of companies, from a potential equity partner/investor after almost 1 1/2 years trying. I was telling him I had aggressively gone after investment bankers, private equity funds, angel investors, and mortgage banker lawyers and hedge funds - as possibilities of folks who could aim me in the right direction to acquire these funds so I can re-start my old firm and do (for the fifth time in my career) a non-bank holding company with several related wholly - owned industry subsidiaries who's synergy and cross quality control works perfectly together. It's been a home run for me and a handful of my clients in the past. I even reminded him (even though we've known each other for 25+ years) about the vast network of industry big-shots I have come to know and the numerous connections I still have within the ranks of the executive offices here in America, and yet I haven't yet come up with one! But, everybody 'knows a guy' .... BULL

He's a real sharp guy, he listen carefully to me, then he told me a story about Charles deGaulle... years before he was a General, back when as a young officer, he developed the concept of armored warfare just after the First World War, as a means to break the stalemate of trench warfare. Everyone else was still looking backwards trying to figure out how to improve trenches. He was fairly ridiculed at the time. A few years later, when everybody was still working on how to build better more effective trenches, the Germans had read about the papers deGaulle had written and said '... hey that's it - TANKS! that's a great idea'... the German Blitz creed was born!

De Gaulle was famous for 'fighting the next war' and not the last one, the mistake so many old Generals tend to do (looking the wrong way), and that's the core advice he gave me. To get out of this mess and invest in our industry's future - you've got to have forward looking vision. He said, "... Peter it's all about timing, maybe next week you come across a half dozen of them, the changing landscape needs to get one of those forward looking Generals to think and then Bingo!"

We need more Generals who are looking to fight the next war and not the last one for our industry to turn around.