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Over the last couple of years, we all have seen good people leave the business. I have witnessed much harder workers, smarter workers, and more networked workers leave. It has saddened me deeply. With each one of their departures, I have questioned my own dedication to this industry. I have asked myself if I was good enough to stay and if I had what it took to persevere.

I answer my self everytime (I really don’t have full conversations with myself, only little ones) with the same answer: what doesn’t kill you makes you stronger.

I know that I want to do business with people who are going to be there for me. I don’t want to do business with someone who may not be around next year. When I buy a car, I like to buy the same brand of car every year. I even more prefer that I can buy form the same salesperson too. It makes life easier for me. They know me and my gruff ways. They know what I like and don’t like and it makes the whole process so much more efficient for both of us. People typically go to the same restaurants over and over again,  unless they stinck and then they go out of business.

The same principle holds true for real estate agents and mortgage brokers. Most people tend to go to the same person if the service is right. Most savvy buyers and sellers prefer, too, to work with the same agent. If you were to chose an agent, who would you chose if all other characteristics remained equal? The person who just got into the business and who might not know yet weather they will stay or the seasoned pro who you know has made this industry their home. Remember, they are both the same in every other way, knowledge, personality, professionalism, cost, even looks. I think 99.99% of you would chose the lifer. Well there are lot less of us now and that makes us better.

It is not the only thing but it helps. I went to a seminar the other day and the speaker said he had been in the business for 6 years. I thought that was cute (as in less time than me) but then I realized that he was an old timer these days. Maybe not really an old timer, but he has weathered (so far) the storm. Props to him and to all of you who have stuck with it and recommitted to this industry. I do believe that your loyalty shall be rewarded someday.

When it gets tough, just remember what the marines say, “Pain is weakness leaving the body”.

I keep talking about the state of our market. Almost every blog I write has something to do with the economy and specifically, it’s impact on our industry. I am new to AR and so I still don’t understand how it all works, but what I do notice is that my blogs get very little notice and blogs titled like, “Save Big on Airfare!” or ” Sale at Target This Week” get many hits.

Sometimes, I feel like I am wasting my time. I am constantly dumbfounded by what gets people’s attention and what doesn’t. I am dumbfounded because what I think should get people’s attention doesn’t. I know my writing is not nearly as good as most people that blog. My titles are not grabbing and I don’t add enough cool graphics or links. I just write what’s n my mind and try hard to keep it short (mostly unsuccessfully).

The apathy that I see in AR mirrors the apathy that I see everywhere. I don’t mean to offend you, in fact if anyone has read this far in this article, they ae probably not the ones of whom I speak, so I shouldn’t worry about offending anyone.

The economy is tanking and this is unprecedented. The dollar is weak (although rising now); inflation is really out of control, when you factor in the two things that Uncle Sam doesn’t, food and energy;house values are still tumbling (no matter what you hear), credit is drying up faster than the North Pole; and consumer borrowing is at an all time high (almost every month). Our national debt is too high too count and our government wants to borrow more to save homeowners, who can’t be saved. On a side note, I recently heard that for every one dollar of service government delivers, it costs us taxpayers nine dollars. I’d rather not have that service thank you. I’ll buy my own.

Back to my point. We are an incredible people, us Americans. We have overcome so much and yet I wonder , in amazement, how? When I look around and see what blogs get hundreds of comments and what blogs get next to none, I wonder how we are going to get out of this mess. America’s appetite for too much food and too much entertainment has far overshadowed our appetite for knowledge, truth, justice and real (not borrowed) financial success. What happened?

I don’t know if we will get out of this mess in the same shape we came into it. In fact, I know we won’t. The sacrifices that we will have to make to get out of it will be costly. They don’t have to be, just like the government can deliver one dollar of service for less than nine dollars of cost,  but they will. That is the cost of our brethren’s apathy, and we will all pay.

For those of you who have read this to the end, thanks, and for those of you who didn’t, blah,blah, blah…

That is the million dollar question, right? I hear so many different answers to that question everyday. From, “…we have hit bottom…”, to “…we have at least 2 more years to go…”. I don’t claim to know the answer but I do know that no one else can either and that is the real travesty, because allot of people are claiming to. That can only make things worse.

It was the general consensus only a couple of years ago that real estate only goes up. We were wrong, but that didn’t stop that myth from influencing thousands of buyers to buy over-priced properties, knowingly. Now, many of those same buyers (now homeowners) are rightfully questioning the whole myth of real estate’s valuation. In fact, they are realizing that they bought a home, not an investment. Even the buyers that bought early in the boom around 2002-2003 have seen all their gains evaporate. It is as if those years never happenned.

It is interesting because here in San Diego the rapid drive up in home prices was justified by people claiming that we were just making up for lost time from the real estate recession of the arly 1990’s. The argument was that real estate was stagnant for about 4 to 6 years here so we were just making up for those years with larger than normal price increases. If that is true and we have now wiped out all those increases than values should be in line with 1990’s levels. I haven’t seen that yet.

When people now claim to know when this will all end, they are committing the same fraud that they did when they said that this could never happen. Maybe we should all just wait and see.

For what it’s worth I still see a large percentage drop coming. I look at incomes and I rationalize that prices have to stay somewhat in line with incomes. It only makes sense. Excepting the all cash buyers and the $10 million homes, most homes are bought by working stiffs like you and me. We rely on our income to pay the mortgage and so it doesn’t matter if home values have significantly dropped if they are still so far out of line with incomes. Incomes are not rising these days, in fact many are going away completely, so until incomes stabilize I don’t think home values will. But I will say that I am just theorizing. I really just don’t know and I’m alright with that.

If you’ve read anything that I have written in the past, you’ll know that I haven’t been a mortgage broker for over two years now. My old friends are telling me that none of the lenders are lending anymore. WAMU, Bof A, Wachovia (which bought World Savings), Indymac, etc… When I was a mortgage broker, these were the big guys. The ones that were always there.

There were smaller mortgage banks that had more niche products but the big guys were always there and always gonna be there and now they’re not.

Just where I live there are three new condo towers. One is completed and the other two are almost finished. How will anyone buy them? Unless they are paying cash (and I know that some are), there is no financing to get. Where is a crafty mortgage broke to go to get a loan for their client. If all the giants have left the building who is left?

The credit crunch and the housing crisis are inexorably tied to one another. They have always had a symbiotic relationship. Well, as I have said before, we cannot exit this recession (possible depression) until the banks are ready to lend again.

This new housing legislation will do little to ease the pain. It really only applies to people who can go “full doc” and those typically aren’t the people that are losing their homes (yet). It is the people who bought without having to prove their income that are in trouble. They are the ones who need help and they won’t get it. I actually agree that they should not. Why should the responsible people who didn’t buy a house because they could not afford it bail out those who did (via taxes)?

So back to the fate of the mortgage broker. My earlier blogs, PART’s I & II, illustrated how mortgage brokers were being made obsolete by technology and fierce competition. Now, I see their end because they are losing the very product that they broker. If  the big lenders are no longer selling loans through mortgage brokers, what are mortgage brokers going to sell? That really spells doom for that industry. It may be one of the shortest lived industries in history.

In PART I, I discussed how I  believe that Lendingtree.com and pricing engine sites like it have begun the demise of the mortgage broker. Now I want to discuss how new sites in our industry are changing the whole landscape of the business.Fairclosingcosts.com  is a new site that does for all the ancillary real estate businesses what Lendingtree did for the mortgage business. Borrowers, buyers, and sellers can now go online and compare title companies, escrow companies, termite companies, etc… on price. They can enter the specifics of their transaction (usually just the price and location matter) and the site will spit up a list of vendors and what they charge. This site is a bit different than Lendingtree in that it does not sell leads. Vendors pay a minimal annual fee and get to be listed alongside their competition.This seems much more fair and even to me than some other sites I know of (for vendors and consumers).When I was a kid back in the seventies and eighties (I’m that old) I do not remember any pharmaceutical ads on TV. Now, that’s all I see. Soon, title companies and escrow companies will have to appeal directly to the consumer too. Gone, I believe, are the days when the agents and brokers get to pick. I hope that I am wrong on this one but that seems to be the direction things are moving in. I prefer to work with the same clients. It streamlines the process. I know how my clients (agents and brokers) work and what they like and I so do that.The new model will have the consumers picking whom you get to work with. They will most likely pick based on price, not on skill. Agents and brokers may have to now sell their favorite escrow officer or title agent to the client or they may get stuck working with the lowest bidder (and we all know that the lowest bidder is usually the worst choice).It looks like I may be made a commoditity once again. Viagra or Levitra? Zocor or Lipitor? CF Escrow or XYZ Escrow.In order to adapt, I too, must start to market to the public. I still will count on my agent and broker network because they all know the level of service that I offer, but I am going to have to shift my marketing focus away from them and towards the public, just like Pfizer did. In the end, it all works out. The consumer gets the benefit of lower prices as competition seems to do that and the agents and brokers get to meet new people and that’s always fun. Change usually scares me, as I think it does most people, especially when it affects their jobs. In this rapidly changing industry  I am just learning to roll with the punches and move on. My only fear is that the government will start to overregulate the industry again. Usually added government regulation equals added cost to the consumer but I’ll save that discussion for PART III.

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. 

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.

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.

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.  

I see new sales and loan data daily. I have seen that prices have dropped by as much as 52% in some areas. I have even seen that home prices went up 40% from last year in another area. I have seen and heard that there is more pressure on the sub $500k market than there is above it. I have seen and heard alot.

 I guess that is the point. The more we see and hear the more numb to it we will all become. I am in the industry so I pay attention to everything. I have an insatiable appetite for facts, figures, opinions, and forecasts. I love it, but for those of us who are not in this industry the data must be jaw dropping. We’re up, we’re down, it’s getting better, it will get worse, no inflation, Wow! look at gas prices and food soar! If one were to just take the pulse of the housing market, I think one could come to the conclusion that we are all just getting sick of it. I don’t want to hear how bad things are anymore. I don’t want to think how much worse they can get.

 I think that the news is getting and going to get better. Not because it is better or getting better, but because that is where the tide is flowing. We have truly arrived in the information age and I think one of the biggest victims of the information age is going to be information. You really can overload on it and it can be manipulated in so many ways to make so many talking points that it no longer is valid anymore. It used to be that an economy, a market, a company rose and fell based on fundamentals. We could argue the merits of the cycles, but as businesspeople and economists we could not argue the numbers. Now, all those things rise and fall based on the common sentiment and that can be changed with the numbers which should be influencing the common snetiment. I am confised just writing about it. Numb sounds pretty good right now.

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