Archive for June, 2009

RateWatch – All Eyes on the Fed

Market: Flat. We’re down 16 bps, which doesn’t signify.  It’s been this way since Monday.  Rates holding 5.25%-5.5%, depending on about 84 things.

Analysis: The Fed is meeting, and should release something in about an hour.  The fun part is predicting a) what they will say and b) what will happen to the markets when they do.  Consensus is that nobody knows anything.  The Fed will almost certainly do nothing with rates, but if they did, they would have to raise.  Would that be good or bad?  Nobody knows.

One thing to bear in mind is the huge number of Alt-A mortgage resets coming in the next 24 months from Option ARM and other exotic mortgages.  Right now, those resets are not all that bad, just as most subprime resets weren’t that bad – despite what you hear on the news – because everything is indexed to the Fed and LIBOR rates, and those rates are lower than a 3-year-old with a lump of coal at Christmas.  If the Fed raises, which many are urging, to protect the value of the dollar, that may help curb inflation, which we’re not seeing any of yet, but it will also make those resets hurt more, which will crush what’s left of the banking system.

Don’t you wish you were Ben Bernanke?  Gee, I do.


Chris Jones
City 1st Mortgage Services, Utah’s Lender of Choice (and most everywhere else, too)

What to Do When You Get Fired

I have a lot of good friends that have lost their jobs recently.  Most of these guys are good workers, not at the bottom of the food chain, respectable guys with families and mortgages.  They are middle managers, sales managers, warehouse managers, and they weren’t the only ones that went down with the ship – all the people under them lost their jobs as well – but now they’re in varying amounts of trouble and jobs are very, very hard to come by.

Additionally, I know a goodly number of people in my industry that are underemployed now, with the real estate market in disarray.  Mortgage guys, title guys, Realtors, lots of us find ourselves with stretches of time and nothing in particular to do with them.

I have a suggestion.  You lost your job.  But you haven’t lost your ability.  You can still work.  Right now, there’s a lot of work out there.  Why not do some of it?

First, let’s split jobs from work, so that this will make sense.  A job I’ll define as something someone pays you to do.  Obviously, we need to eat and we have mortgages to pay, so jobs are definitely attractive.  I’m not disputing that.  Work is anything you do that is productive, whether it pays or not.  It therefore includes things like gardening and playing with children.

Second, let’s think about this a bit.  We have no job.  Nobody is going to pay us today to do anything.  We’re going to apply for some jobs, send out our resumes, make some calls to our networks, try to find an open position.  Guess what?  There aren’t any.  If there were open positions, we wouldn’t have had ours get eliminated (simplistic, obviously, but in general terms, when large chunks of the economy are firing, there aren’t going to be any open positions by definition).  So resume fairs and will only be so effective.  It’s unlikely that we’ll find anything immediately, and even less likely that we’ll immediately find a job we want.

But we can still work.  The economy is shrinking.  Why is this?  Do people need less food than they once did?  Fewer cars?  They only wear clothes half the time now?  No, of course not.  But there are two ways to stimulate the economy.  One is to have people out there with money, looking to buy things.  That’s where we once were, but the debt fairy has come for payment now, and the days of lots of free cash are over.  The other is to supply things to the market that people will decide to re-task their money to buy.  This is called supply-side economics, and it works a bit differently than we’re used to.  But it still works.

Look, nobody stood around trying to figure out if there was something like a Rubik’s Cube to buy.  Erno Rubik produced it, and people said “hey, that’s cool” and bought them up.  What I’m suggesting is something like that.  You want a job.  There are no jobs.  But if businesses were doing better, there would be jobs.  So what you need is for businesses to be doing better.

How do businesses do better?  They sell more things, produce more things.  To do that, they need more workers, more ideas.  They’re cutting costs to try to stay in business, but what they desperately need is a reason to hire people.  They need work done, and they can’t pay for it until they get some money.

So make them some money.

We have incredible expertise.  If you’ve been in management anywhere, you know how to do things, how to sell, how to buy, how to get people working together.  Lots of the guys I know that are out of work are salesmen and marketers.  They have huge amounts of experience, probably a lot more than most businesses could afford to pay them for.

So we don’t have jobs.  We can still do work.

I work with a small group of people called the Main Street Gang, for want of a better name.  What we do is go from business to business, mostly on Main Street in Lehi Utah, meeting the proprietors, looking for ways we can help.  Sometimes we write reviews of their businesses and post them around on local sites, doing some web marketing.  Sometimes the help we offer is more substantive.  With the local bookstore, we had an idea that has now grown into a large enterprise, and has, it appears, some real potential.  It should be very good for the struggling bookstore, and for several other related businesses.

There’s a local organic market.  They need help.  There’s a barbershop.  It needs help.  An appraisal management company.  An insurance agency.  My mortgage branch.  A sign company.  A restaurant.  All these businesses could profit tremendously from the expertise that we can bring to the table.  We can organize campaigns, consult, see areas where things could be improved.  We come in as a consulting company and we do what we can to help.  And we do it for free, because someone needs to do it, and the people that need it the most can afford it the least.

It doesn’t pay.  It is, however, productive work.  It makes us better.  It keeps us sharp.  It brings us into contact with dozens of small businessmen and women, the very people that are most likely to feel the returning surge of power in the economy and look to hire someone to help them to exploit it.  Who are they most likely to look at first?  Some of us have gotten jobs in the meantime, and still return to help out once in a while.  When a job comes open where one of us is working, who are we most likely to recommend to the HR people?  Right – someone we’ve worked with before, that we know and trust, and that has already demonstrated his willingness to work even when the payoff was pretty obscure.

We supply work and expertise and energy.  We still have those things.  We try to push the flywheel of the economy a bit faster on every turn.  And we find that we’re happier.  We’re having fun.  We’re stopping a few people from joining us in the ranks of the un- and under-employed.  So if you’re out there, having trouble finding a job, how about joining us?  We could use you.

Now that you don’t have a job, why not do the work you always wanted to do?  It just might be the best career move you ever made.

Authenticity vs. Transparency – If I’m real, will anyone like me?

This is a poor man’s attempt to deal with a weighty subject that has been put through the wringer in great discussions at Amber Naslund’s excellent blog as well as, today, by David Spinks.  Among, doubtless, many others.

Those of you that read regularly know that I get criticized here.  You probably suspect, if you follow the comments section, that I allow pretty much any comment, no matter how critical.  And you would be right.  I have gotten heat for it from “professionals” that have told me that my blog should be relentlessly positive and cheerful if it’s to be a good marketing vehicle, and for all I know, they’re right.  But I can’t be that way.  I am a positive person, and I have faith that things are going to be okay.  But when I’m sad, I’m sad.  When I screw up, and someone calls me on it, I put that out there with everything else.

Maybe this makes me some sort of hero.  I doubt it.  That’s certainly not the intent.

I tend to be motivated by connection and community, and I believe that those connections cannot come about except in the presence of authenticity.  If I am not willing to be who I really am, then my connections will be false.  This is as true on Twitter as it is at the corner bookstore.  I don’t want people to think that I am perfect.  But, no, that’s not quite right.

I don’t want to present a false image of myself in order to get people to think I am one thing or another.  That’s better.  What they do think of me I want to be their decision based on real things, not my attempt to appear to be something.  This holds, I believe, for my company as well as myself.

In order to do this correctly, there are things I cannot present.  I have strong views on Coke.  I have opinions on the Red Wings.  I occasionally get red-faced discussing Hungarian domestic policy.  Some of those things are not good things to display to the general public, for a number of reasons, but mostly, I think, because that’s not a level of transparency I grant to everyone.  I restrict some things.  We all do.  This can be just fine – depending.

Depends on why.

If you restrict the fact that you’ve had an affair with your married staffer, John Ensign, because it harms your position as a vocal proponent of marital fidelity, then that is pretty much lying.  That’s inauthentic.  You are pretending to be something you’re not.  If you restrict the fact that you think abortion is murder, for another example, but you do so because you know that this is a debate that cannot be had without a level of trust among the debaters, this is not inauthenticity, it is opacity.  Opacity is not necessarily inauthentic.

For me, it’s like this – if you’re trying to be as real as possible within the bounds of what discussion you’re having, then you’re fine.  If you’re covering things up because they undermine your position, then you’re not fine.  In one binary check: is it about you, or about the community?

Authentic is about the community.  In fact, community can only exist among those that are authentic with one another.  A certain level of transparency is required as well, of course, and the more transparent the members of a community are, the deeper and more powerful will be the connections in that community.  But true transparency isn’t required for community formation.  If it were, we would all live in glass houses.  That part of the house that is glass, though, needs to be pretty clean, or the distorted view will eventually break the community apart.

P.S. This means you, buttkissers.  Authenticity doesn’t mean constant sunshine.  It does mean a willingness to tell the truth even when that truth will be hard for someone you care about to hear it.  You can be eccentric, even abrasive, and still be a part of a vibrant community as long as the eccentricity and abrasiveness is authentic – really a part of you – rather than just an attempt to get attention.  We’re not stupid.  We’ll be able to tell.

HVCC and AMCs: Three huge problems. One simple solution.

Technical mortgage warning: this post is intended to mortgage industry professionals, and believe it or not, we’re interested in what it says.  You probably won’t be, and no one will blame you for clicking here and going to somewhere more fun.

The Home Valuation Code of Conduct (HVCC) is causing a firestorm of controversy and a growing wave of disgust across all parts of the mortgage industry.  I’ve already said before that I think it’s not going anywhere, and why, so I won’t rehash that, but as I was thinking about it the other day, I realized why I wasn’t as upset about the HVCC as others are.  And I realized that I had a solution to the frustration out there.

There’s nothing seriously wrong with the HVCC.  There is, however, something seriously wrong with the appraisal management companies (AMCs) that administer it.  The problem is this: almost all of them suck.

What used to happen, in brief, was that the loan officer would order the appraisal directly from the appraiser, who passed the completed appraisal back to the LO, and ordinarily this resulted in fairly quick service, or the LO would simply use a different appraiser next time.  Now, though, the LO has to order the appraisal from an AMC, which then orders the appraisal from the appraiser.  When completed, the appraiser transfers it to the AMC, which sends it to the LO.  Sounds simple, though not as simple as it used to be.

There are 3 problems with this:

1. The AMC takes a large cut of the appraisal fee for doing piddly.

2. The AMC slows down the process because it’s incompetent.

3. The AMC, as an intermediary, reduces the feedback between the business end of the loan (the LO) and the appraiser, which results in slower service and worse appraisals.

Let’s look at each of these three more closely.

1. The AMC takes a large cut of the appraisal fee for doing piddly. Well, yes, but not always.  Where there is competition in the marketplace, where LOs are free to select any AMC they like, this happens less often.  Where the problem comes in is where the AMC is the subsidiary of the lender, so that the LO has no choice but to use the AMC the lender dictates.  This used to be illegal.  No lender could dictate to an LO a particular appraiser he had to use.  But now, effectively, they can do this.  The AMC has a sweetheart deal with the lender, and screws exorbitant fees out of the borrower, while paying the appraiser less than standard wage.

It doesn’t have to be this way.  Appraisers can and should fight back by refusing to perform appraisals for AMCs that pay less than full fees.  LOs should ask for a fee sheet from the AMC, and the AMCs should be required to provide one.  If the AMC fee adds more than $100 to the cost of the appraisal, the LO should choose a different AMC, if at all possible.

Personally, I refuse to do business with an AMC that shorts appraisers money.  I went to my broker (at City 1st we have the advantage of being correspondent) and fought for the right to use an AMC that made my appraisers happy by paying them what they were worth.  LOs have much much more power with their brokers than with the State of New York.  Time to use some of that power on behalf of the many great appraisers that are being hurt by the HVCC – hurt because we haven’t cared enough to protect them.

2. The AMC slows down the process because it’s incompetent. AMCs are made up of people.  Generally, these aren’t the world’s most competent people.  Their customer service sucks, they’re slow, they charge too much, they’re unresponsive, or they burst into tears when they get criticized (this is not a made-up deal, ask @mortgagereports).  In short, they’re small, understaffed businesses.  But be fair.  Are these guys worse than your local contractor?  Your DMV?  Are they a lot worse than most appraisers?  No.  They aren’t.  But this is no compliment – the aforementioned “service” personnel are among the most proverbially terrible for customer relations.

The fix for this in the contracting world is that there are hundreds of contractors, and the good ones do well, and the idiots die off as word gets around.  Good plumbers and good mechanics and good appraisers float to the top.  You can find them, because the market makes it possible to find them.  What would happen if a contractor had a monopoly, got to build all the houses in a particular zip code?  That’s the DMV, and that’s what happens when you don’t allow competition.  But that, again, is what the HVCC allows that it should not – AMCs to be owned by, and exclusively provide appraisals for, particular lenders.  The good AMCs – and they are out there, I use one myself – are actually faster than my old process.  They’re easier to use, and I get better service than I ever did.  But I shopped.  I was lucky – I could.  If you can, you should, too, and let the incompetent companies die.

3. The AMC, as an intermediary, reduces the feedback between the business end of the loan (the LO) and the appraiser, which results in slower service and worse appraisals. Tough to argue this one.  Intermediaries are rarely a good solution to any problem – except where getting the relevant parties together directly (in this case the LO and the appraiser) could result in conflict or undue influence.  And that, ladies and gentlemen, is what the HVCC was supposed to prevent.  AMCs are supposed to solve this problem, but most of them simply create a new and larger one.

Does it have to be this way?  Absolutely not.  A good AMC could function better than a large appraisal company, taking orders in and efficiently passing them to the appraisers, while helping maintain a degree of autonomy for the appraisers.  The appraisers should be happy that they are not getting heat about their values, and that they no longer have to perform collections.  LOs should be happy that they don’t have to worry about overloading their appraisers in heavy times, causing slowdowns in performance, and they should be thrilled to be relieved of the task of selecting and vetting new appraisers all the time.  HVCC ought to make everyone better off.

But it doesn’t.  And it doesn’t, again, not because of what the HVCC contains, but what it doesn’t contain.  It doesn’t contain the one sentence that would make all of the above go away:

“No lender may mandate the use of any specific AMC for the performance of appraisal services.”

That’s it.  Instantaneously, AMCs like the one I use would get huge influxes of business, because they’re excellent at their job, they treat appraisers like professionals, and their customer service is outstanding.  The bad AMCs, and those are everywhere, would dry up and blow away, or they’d improve in a hurry.  Just like everywhere else in the economy.  Just like LOs, like lenders, like appraisers.

All of this frustration, all this lost business, all the howling and letter-writing and distractions from us simply doing our jobs, all of it, would go away.  We don’t need to force the State of New York and the FHFA, two gigantic bureaucracies, to completely toss out the results of two years of lawsuit.  All we need is one sentence.

Probably, it’s too much to ask.  But I’m asking, all the same.

RateWatch GREEN Alert!

This is one of the reasons that I don’t just slavishly follow the recommendations from the marketwatchers I subscribe to – nor should you slavishly follow mine.

Earlier today the bond market opened down 41 bps, then reversed to even, then lost 16 more bps and we got all sorts of “alert to lock” warnings.  Currently, the market is up 53 bps and the afternoon rally is well and truly under way.  I can’t say I expected this, but I’m glad of it.  And very glad we ignored the warnings this morning.

Inflation was tame this morning (and more than tame – we had deflationary pressure) and that is helping a lot.

For now, rates are moving the right direction, and slowly, slowly, we are climbing back out of the hole of two weeks ago.  Keep your fingers crossed, and for Heaven’s sake, make sure I have enough information on your loan that I can lock if we hit the rate you want.  Do not get caught short on this.