Home Loan Focus

Archive for the ‘Mortgage Industry’ Category

Seven states have started the initial phase of tracking mortgage brokers.  The Sub Prime mortgage crisis revealed that there were many mortgage brokers out there that engaged in mortgage fraud or induced unwitting mortgage applicants to commit mortgage fraud.  All states will eventually get on this band wagon, but the first phase is essentially just a database that will track brokers registrations with the state.

Idaho, Iowa, Kentucky, Massachusetts, Nebraska, New York and Rhode Island are the initial states participating. In total, 42 state agencies – including those in Washington, D.C., and Puerto Rico – have committed to joining by the end of 2009, 7 States Launch Mortgage-Broker Tracker

Future, phases could include a number of aspects of licensing from testing, continuing education, oversight and penalties, but today the tracker is just that a tool to monitor mortgage brokers.  Its got about as much teeth as licensing laws for construction contractors.  Eventually, however technology may enable the states to share their database knowledge and monitor the activities of bad brokers that move from one state to the next to set up shop.  Then eventually regulators might be able to gather up the evidence they need to go after bad brokers that move or even convince the legislatures to put some laws on the books with teeth until then the brokers still have a lot of freedom to do what they will with no need to seek travel insurance from the feds.

There was an anemic improvement in the housing market in November.  Home sales increased from 4.98 million to 5 million homes.  This happened at the same time that 30 year mortgage rates dropped from 6.38 to 6.21% in November.

There were other small but positive signs in the housing market as well.  The number of homes available for sale dropped to 4.27 million homes, about a 10.5 monht supply.  This indicates about a 3.6% drop in a bloated housing market that never heard of ephedra diet pills.

There was some bad news, the median home price dropped from $217,300 in November of 2006 to $210,000 in November 2007.

Among other things it should be noted that a pick up occurred in the presence of two historically significant factors, lowering house prices and lowering mortgage rates.

Existing-Home Sales Edged Up In November, but Remain Weak – WSJ.com

There is some irony in a recent editorial by the Chicago Tribune.  The article talks about how Democrats are looking to fleece borrowers as a solution to the melt down in the mortgage industry, partially fueled by sub prime loan foreclosures, even though the editorial notes that sub prime is only a small part of the problem.

From listening to the critics, you’d never guess that. Sen. Barack Obama (D-Ill.) denounces “predatory lenders” for “driving low-income families into financial ruin.” Barney Frank (D-Mass.), who chairs the House Financial Services Committee, blames everything on an epidemic of “abusive lending.”
But lenders who made bad decisions are already paying the price. Many mortgage firms have gone bankrupt. And if these loans are so unconscionable, the question is not why the foreclosure rate is so high but why it’s so low.  Democrats may commit the real mortgage fraud — chicagotribune.com

While the State of Illinois begins to investigate the largest mortgage lender in the country, ironically named Countrywide, the Chicago Tribune would pretend that lenders are not guilty of the melt down in the markets.

Maybe the Tribune did not pay attention when banks stood up in 2005 to lobby Congress for bankruptcy laws that would elevate credit card debt over mortgage debt, forcing borrowers into foreclosure 2 years later, while they continue to pay 28% interest on the credit cards.

Maybe the Tribune did not notice the predatory lending practices that the mortgage industry engaged in as they suddenly flipped a switch and over night stopped engaging in red lining one day, and started offering up billions of dollars in credit to the people they had formerly blacklisted.

Maybe the Chicago Tribune did not notice that when the people that finally received this credit, had to honor their contracts there were thousands of examples where the mortgage brokers lied about the paper work, the loan documents, even the terms of the mortgage itself all so that they could earn a higher commission from people that were lumped into the sub prime bucket.

Maybe the Chicago tribune also did not notice that mortgage lenders were shifting people that had good credit into mortgage agreements that were sub prime days before the home closing, just so that the broker could again receive a higher commission.

So I find it a little shallow that the Chicago Tribune would snipe at Democratic politicians for wanting to do something about all of these predatory lending practices.  Even Republican politicians recognize that there is a problem.  Even if you want to look at this from the perspective of the very wealthy, these mortgage houses at best are guilty of mis-managing the funds of their clients by utilizing unsavory business practices that induced a high level of risk into the US financial system so that the managers could benefit in the short term. 

Maybe the Tribune needs to go back to commenting on local news and selling advertising hand outs for the latest sales on electronics and maternity clothing, they obviously seem to be disconnected from the reality of finance and national politics.

One of the questions that seems to be coming up over and over again as we advance through the mortgage crisis, is the concept that the industry is leading consumers into and possibly out of the crisis.  Similar arguments were made in regards to the credit card mini crisis a few years ago when bankruptcy legislation was the popular topic on the hill.

Its a question of personal responsibility vs the power of marketing.  Can home owners and buyers stop themselves from paying attention to the marketing campaigns that come out of Madison avenue and other marketing hubs around the world?  Can we say no to the latest 0% interest credit car offer?  Can we say no to an interest only mortgage offer?  Can we say no to the deal that puts us into a McMansion for a monthly price equivalent to the rent that we paid in college on a run down hovel?

I can not answer those questions.  At a personal level there have been times when I personally have been able to say no and there are many times when I was unable to say no and took those deals knowing that they were too good to be true.  As a consumer educated in finance and home buying if I can’t say no then how can someone without the benefits of my education, understanding and experience say no to these fantastic mortgage deals?

One company through better information has some of the means to guide the industry through its current self destructive run.  The company is Red Clay Media.  They provide essentially marketing intelligence driven products from unsexy things like direct marketing mailing lists to products that provide mortgage brokers with mortgage leads.

The Mortgage Marketing Rub

Here’s the issue, their tools are just that tools.  They are a technology that can be used for good or bad, just like any form of intelligence or information.  They are to their credit trying to guide the industry to use their products and services in a way that does not cause the self destruction of their own market base of customers.

That’s the thing, the mortgage industry has the creative power to create financial products that anyone can buy up front but no one can afford on the back end.  Furthermore, the mortgage industry has the marketing connections to also create marketing campaigns that are about as irresistible as crack is to a crack addict.  The issue for the industry is that when they provide these products that harm their own customers, they are essentially wiping out their own future market and possibly harming the economy in which they do business themselves.

The Opportunity

Now, I come from a background that lends me to believe that if given enough knowledge, people will more often than not use that knowledge to do something good rather than bad.  By definition almost, that makes me an idealist and I recognize the pitfall in that perspective, but that is my cross to bear and not yours.

The point is that I believe that the mortgage industry can also utilize these same products and services provided by marketing intelligence companies to help identify customers that are ready, able, willing and capable of using the right mortgage product at the right time.  Mortgage brokers and realtors do not have to hook their customers on a Cadillac at Kia price point.  They need instead to focus on finding the right package all around for their customers.  The house that fits, snugly and the mortgage that fits not only this year but over the next 30 years.  They need to avoid teaser rates that pull people in and sucker them into problematic financial products that they have to flip out of in 2 years time as they progress in a downwards spiral toward financial destruction.

The mortgage industry has the power to avoid running the country into ruin.  I am hopeful that they will act to save their own industry from calamity.  I expect them to act out of their own self interest and desire for success or at a minimum self preservation.  One thing that the mortgage scandal has taught us is that many of the companies that chose to be extra greedy ended up going out of business or getting consumed by larger smarter, and safer rivals.  This industry has to realize that opting for a quarterly profit number as opposed to long term financial viability for themselves and their customers is a zero sum game.

This is the window dressing version of what is going on.  There are a lot of lines between the lines to read into the real Sub Prime mortgage mess.

First American Corp, one of the nation’s largest sellers of home title insurance said it would eliminate 1,300 full-time jobs and cut some executive perks to trim costs during the ongoing housing slump.  At the end of Wednesday, shares dropped $1.15, or 2.7 percent, to $40.25.  The job cuts planned for the third quarter amount to 3 percent of the 40,000 employees at the Santa Ana-based company, which eliminated 600 jobs in the second quarter.

First American Corp expected to eliminate a total of 1400 jobs.  This set of job cuts is expected to save the company $108 million annually.

Capital One Financial Corp. said Monday that it will eliminates 1,900 jobs and closes its wholesale mortgage banking business, a move that comes as lenders continue to struggle in the nation’s housing and credit markets.

Capital One announced that it will shut 31 GreenPoint Mortgage in 19 states and “cease residential mortgage origination” effective immediately.  Capital One also stated that it will honor commitments to customers with locked rates who have loans already in the pipeline.

The U.S. sub-prime mortgage mess has rise into a full-blown global financial catastrophe Thursday – making credit harder to get from Paris to San Francisco.

Early Thursday, France’s largest bank blocked clients from taking money out of several of its funds exposed to U.S . sub-prime loans. The European Central Bank and the U.S. Federal Reserve immediately intervened by flooding their banking systems with cash to keep interest rates from rising as many global lenders slammed shut their loan windows.