Jun
25
A good blog would lead you up to the main point but tease you along the way. I have so much to say that I am probably going to have to get straight to the point and then write additional blogs.Lendingtree.com! That was the beginning of the end for mortgage brokers, as we know them. That one site, and then subsequent sites of similar character singlehandedly took us around the bend. It turned the mortgage broker from personal advisor to commodity.People hired brokers to get the best rate and program, but computers can do that now. In fact, computers have been able to do that for a long time. Eloan.com was one of the first sites that I know of that had a pricing engine back when I started my mortgage company in 1997. I believe I may have been the second. Lioninc. also had a nifty pricing engine for brokers. So why did mortgage brokers last longer than their technological obsolensence?Because the lenders needed them.The first reason was that mortgage brokers held a very large share of originations in America (somewhere around 85% market share). Lenders did not want to step on anyone’s toes and why should they? They always got the business in the end, they just had to share a very minute portion of the wealth.The second reason is a bit more shady and I should say now, purely a concoction of my own warped mind. I have no evidence (that I’d like to share) to support my argument, but you can be the judge. I believe that lenders kept brokers around to get people into loans, who had no business being in those loans. Brokers shared culpability, if not took it all to themselves. When we hear, these days, about massive mortgage fraud, it was mainly at the origination level. Yes, there is fraud being found elsewhere, but those stated income loans where usually “stated” (lied) by the mortgage broker in some fashion or another What, you didn’t realize that he probably wasn’t earning $50,000 per month and still living at his mom’s house? I don’t mean to upset any mortgage brokers out there, but I think I am right. Brokers bent rules and cajoled underwriters to get loans for their clients. I do not believe that most brokers took advantage of their clients. If anything, I believe that brokers thought they were taking advantage of the lenders on their clients’ behalfAfter seeing more of the big picture now, I believe that while the brokers thought they were getting the best of the lenders, it was really the other way around. If you ask me, it was pure genius. Back to my point. Lendingtree.com and others like it have turned mortgage brokers into a commodity. Lenders no longer want or will allow brokers to cajole underwriters. In fact the days of the exception or compensating circumstance are gone. These days, from what I hear, guidelines are strict and rarely bendable. I see this business going the way of car insurance agents. What happened to them? Now that pricing engines can get the best rate and program and no one wants the broker to finagle the loan in anymore, what use is there for the mortgage broker? Think Geico.com.I am going to save that answer for my next blog, but in the meantime, check out fairclosingcosts.com. Here we go again.
Jun
18
In the old days (only a few years ago) it took eighteen months for federal economic policy to materialize in the markets. It is a big world out there and nothing works overnight. Rate increases or drops take time to move through markets and influence economies. This same incubation period, if you will, works with private market influences as well. Housing markets do not rise and fall by the month but by the year. The influence a down housing market has on an economy takes even longer.
I used to joke that the jewler feels it first when the mortgage brokers aren’t buying Rolexs anymore. Then the pool contractor feels it when the jeweler has to cancel his plans to add on a pool 
becaue he isn’t selling as many Rolexs. The contractor then cancels his trip to Hawaii 
and so on, you get the picture.
That all takes time. Many will argue that we are in a new economic era when things just move faster (with the internet and all…). That may be a valid argument too, I really don’t know. People used to argue that the dynamics of markets had changed back during the dotcom boom. They argued that profits didn’t matter anymore and real value was found in forecasts. They were wrong. Well, at least most of them were.
This recession or even depression hasn’t even started yet and I am hearing that we are in recovery. As a mortgage banker/broker I saw the signs of this sowdown in 2004. I was closing less loans and my employees weren’t as excited as they had been. I knew early on that we had plateaued in 2003. I just didn’t know how bad it would get and how long the downturn would last. I still don’t.
I just am guessing though that based on that old eighteen month rule, that the worst is yet to come. I hope I am wrong, but those silly old economic fundamentals keep proving themselves to be more relevant than old. The real problem is that with the rapidity with which information travels we have already lived through a recession. We have all seen enough of it on the news and in blogs. I am already tired of hearing about it. The danger here is that we all think it may be over soon when some of the bedrock indicators are telling us we haven’t even seen the beginning yet. I know that perception is everything these days, but is it really everything? Don’t the numbers matter a little?
This is all really just food for thought. 
I do not have just one point to make. Maybe we just need to slow down and smell the roses. If the real recession is yet to come we are all going to be too tired of it to deal with it. I already am. I am going to nap now.
Jun
5
Housing Recovery?
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The problem is not housing anymore. Sure, prices may need to come down a few more percentage points, but prices don’t really move like that. Indexes do. Some prices rise while others fall. Home values don’t all rise and fall in concert with one another, but I digress. The problem is not house values moving down, the problem is the lack of credit. There will be no recovery until the credit market sorts itself out.
I have seen the statistics that say that 1 in 3 renters is wanting to buy a home, but is on the fence. Let me tell you, they are not on the fence about prices. They are on the fence about getting a loan and the ones who think that they are on the fence about home pricing still will have a problem getting a loan. The bottom line is that the credit mechanisms that existed before that allowed this bubble to rise are no longer here and may never be again. Lenders are only very tepidly lending and it may take years before they really start lending again to anyone who is not Ozzie and Harriett with 800 FICOS.
Let’s stop looking at the housing market to predict a recovery. The answer lies 100% in the credit market.
Jun
2
Escrow Law Needs to Change
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The State of California has a very strict and detailed escrow law that governs escrow companies. This law is strict, detailed, expensive, restrictive, and very well enforced. The Department of Corporations administrates it and they do a thorough job of it as many “DOC” escrow company owners and managers know. They have to, as escrow companies are entrusted with other people’s money, and lots of it. The only problem is that there are too many exemptions to this licenseing law and this is a bigger issue than you might think.
In order to get licensed, I had to go through a thorough backround check, along with all my employees. I had to get bonded and insured and I had to have a minimum net worth (audited every year for compliance). I had to have a minumum number of years of provable experience. In addition, the DOC will audit me themselves at least once every four years, and maybe more. It isn’t easy being me. The problem is that Realtors, mortgage brokers, lawyers, title companies, banks & trusts, and S&L’s are exempt from these rules.
They are all exempt for one reason or another. Many of them were licesned because there weren’t escrow companies in rural areas where real estate agents were. To make it easier for consumers in these rural areas (before cars) the state allowed others to perform escrow services. The problem is twofold. First, none of them are nearly as well regulated as DOC companies, sometimes called independent escrows because, unlike them, we can do almost any escrow for almost anybody. They still compete with DOC companies but do not have to jump through half of the hoops that we do. Do I sound a little jealous, I am. They still compete with us and when they do bad, we are blamed with them. The escrow industry lumps us all together and most consumers do too. In fact, most realtors don’t even know the difference. The DOC regulates us so much that it sometimes can render us less competetive . Our fees are not regulated, but our compliance costs are significantly higher. I enjoy the prestige of being DOC licesnsed as we are considered the cream of the crop by those in the know. I don’t enjoy having to compete with giant title companies and loosely controlled real estate brokerage owned escrows. I don’t enjoy being lumped in with them when they are sued for millions of dollars for wrongdoing. I don’t enjoy the idea that the Dept. of Insurance (they regulate the title companies) talks about decades of overcharging, collusion, and basic cheating consumers by title insurers (and their escrow companies) and we get blamed with them.
For years there have been cries to unite all escrow companies under one government entity; under one single rulebook. To date, little has been done to effect this. The various lobbyists for the other companies are too powerful. Maybe it will take a public outcry to make this happen. The real benefactor will be the consumer. It is funny to me that the most regulated group, independent escrow companies, is the weakest in Sacramento. Something about that doesn’t make sense to me.
