Independent Mortgage Brokers….Not Dead!

The Report of my Death was an Exaggeration - Mark Twain, 1897.  A couple of years ago, I had the opportunity to attend a Wells Fargo regional sales meeting.  A thunderous roar erupted from the audience when the keynote speaker announced that “the mortgage broker model is dead”.   I wonder how many mortgage sales people in that audience  have been let go for not meeting their “loan quota” or the thousands of reverse mortgage representatives who will receive a pink slip as a result of last weeks announcement. 

The past 3 years have been a very challenging time for the independent mortgage broker.  They have been blamed for the current housing crisis, shunned by many banks and singled out for special regulation by the U.S. Government.  Yet, despite this and lets add not getting any taxpayer-funded bailout to weather this crisis, they are thriving.

If you are looking for a mortgage today, it is in your best interest to speak with one.  Why? Unlike their counterparts at your local bank they are licensed and must pass a national and state examination, subject themselves to a rigorous background check by the FBI and state officials.  In addition, they must demonstrate their continued proficiency with continued education. That is just the beginning.

Your local mortgage company is that small business you hear the government constantly speak about in glowing terms, yet does it’s best to stifle with taxes and ever more regulation.  They offer professional advice, more loan options and better rates because they work with several banks and are able to pass along the savings to the consumer.  Their survival depends on efficiency, repeat business and referrals from happy clients so customer service is paramount.      

Many consumers have been lured into the notion that their bank is the best source for a mortgage.  My reccomendation, call a bank and get a loan rate quote along with a Good Faith Estimate and then compare it with one from your local mortgage broker.

Homeowner Forecloses on Bank of America

Yes, the same bank which received over $25 Billion in tax-payer funded bail outs. 
 Here is the link
http://news.yahoo.com/s/time/20110606/us_time/httpmoneylandtimecom20110606homeownerforeclosesonbankofamericayesyouheardthatrightxidrssfullnationyahoo

Why this Housing Crisis is Different

Over the past 75 years this country has weathered many housing cycles.  However this current crisis is much different and the fallout will be felt for many years to come.  Here is why.

First:  Homeownership was once a privilege, but over the past 20 years it was turned into a right like free speech.  The government through its incessant tinkering has perverted the entire housing industry.  Today, millions of homes are in various stages of foreclosure and it will be years until they are worked through the system.  In the meantime, this shadow inventory of homes will continue to be a cloud over home values.

During the housing bust of the late 1980’s, if you could not make your mortgage payment, your house was foreclosed and the Resolution Trust Corporation was set up to dispose of the asset.  The market found the bottom and the housing market eventually recovered.  However, it took almost 10 years.  No so with today’s crisis as we have endless taxpayer-funded help programs and mortgage modifications.  In the banking world they are commonly referred to as “Pretend and Extend” and will only prolong the misery for everyone.    We need to let the free market cure this crisis.

Second:  The Baby Boomers are retiring and downsizing their large homes. These are sitting longer on the market because there is no one behind them who can afford them or wants to take on the responsibility.  Those homes in high personal and property tax locales will face additional price pressure.  Baby Boomers viewed homeownership differently.  Your home was not only a place to hang your hat, but a reflection on you as a person.  It was a visible sign of your success and status in a community.   

Fourth: The economy is different.  We have become a service economy and in many cases service economy jobs cannot support homeownership.  Our government leaders need to understand what is takes to create quality jobs and end their war on capitalism with higher taxes and regulations.  For housing to fully recover unemployment needs to get under 5% and those with jobs need to feel secure in their employment? 

Fifth: Housing needs new blood.  The generation coming out of college today is saddled with huge college debt and limited job prospects that will prevent them from getting a mortgage for many years.   In addition, most will be changing jobs more frequently, and renting makes better sense. 

Sixth: The Government Sponsored Enterprises (GSE) Fannie Me and Freddie Mac an important part of the mortgage industry, have wandered from the mission of their original charters.  They provided the fuel for this current crisis via their quest to expand homeownership with little or no down payment and lower credit scores.   This coupled with the implied loan guarantee gave investors a false sense of security.  Today only the FHA is permitting down payments as low as 3.5%.  In many ways the FHA has become the lender of last resort, a mission it was never intended to take on. 

In addition, our political leaders have enacted several so-called reforms including Frank-Dodd and the new CFPB.  These new regulations were written by the same individuals who were responsible for safeguarding the mortgage agencies when they imploded costing taxpayers billions of dollars. 

Lastly, blame needs to be placed on the irresponsible homeowner who purchased more home then they could afford or thought that values only went one way, up   A mortgage is a contract, an obligation to repay.  The bank makes a commitment to you and you need to honor your end of the deal

The United States has a wonderful housing industry and nowhere else in the world can you put down 20% and a lender will loan 80% at a low interest rate for the next 30 years.    Unless we change course this current crisis may put this in jeopardy for future generations.

The proper name... Real Estate Fraud

The June 2011 edition of Secondary Marketing Executive cover story “Mortgage Fraud is Alive and Well” was definitely an eye catcher.  However after reading the article by Kevin Coop, the headline should have read “Real Estate Fraud is Alive and Well”.

Mr. Coop’s comments on fraud have more to do with naïve home owners and unscrupulous individuals.   Let’s not forget the real estate agents who actively seek short sale properties.  To stop real estate fraud we have seen many new laws enacted.  Unfortunately Dodd-Frank and so far the new CFPB do not address the underlying problems.  In addition, real estate agents have been given a pass. They do not have any restrictions on their income and they can still conduct blind bidding on homes.  This coupled with the government’s desire to help home owners through mortgage modifications has created this illegal cottage industry.  The mortgage industry is tired of being the whipping boy for current housing problem

As a loan originator, even the most simple mortgage transaction turns into the Great Paper Chase.  Every document is checked and rechecked at origination and again at the investor level.  Today a loan file at closing resembles the Manhattan telephone directory.          

The major fraud in this housing crisis is being perpetrated on the American taxpayer. They are paying for the bail outs and modifications.  In the end they will have fewer mortgage options and will be paying more for a residential mortgage

Madness!

The closing scene in the film, The Bridge on the River Kwai,  Major Clipton , the British POW sits on a bluff and watches helplessly as the bridge he had help build is destroyed and several of his comrades killed by his own forces who were sent to help the POW’s .  His frustration is uttered in one comment, “Madness”!

In many ways this is the same comment that many consumers have when they are seeking a residential mortgage.  Today the mortgage process has become winding with little clarity and many good borrowers are getting hurt.  In many ways, the government by trying to fix the past problems has only succeeded in making a mortgage more difficult and expensive to obtain.

The purpose of this Blog is to offer professional mortgage advice to consumers and to answer their questions.  I welcome other professionals in the housing industry to comment as well.

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