Archive for July, 2009

Yay! New Regulatory Crap!

NOW we’ll fix the housing mess!  No, my friends, no.

Regulations that go into effect August 1 make quick closings impossible and will do nothing whatever to stop future foreclosures.  They involve waiting 3 days from the initial disclosure to order the appraisal, followed by a mandatory 3 day waiting period from final disclosure to the close.  This adds at least 6 business days to the loan process and will make only one thing happen: more fraud.  That’s it.  It won’t help the borrowers, and it won’t help the sellers, and it won’t help any of the other people involved, myself least of all.  This raft of foreclosures is supposed to make it so people understand better what they’re doing at the closing table, so they don’t default on their loans as often.

Cue maniacal laughter here.

I’m telling you that less than 1% of foreclosures are because the people getting the loans didn’t know what they were doing.  Effectively all the foreclosures in the US are because of the following, in descending order of virulence:

  1. The house is upside down and it makes financial sense for the borrower to walk
  2. The borrower lost his job
  3. The borrower got overleveraged in multiple properties, which he now cannot sell
  4. The loan adjusted and the new payment is out of reach

Those are the reasons people are being foreclosed on.  The only possible group that might have been unaware of what they were doing is the last one, and I can tell you from front-line experience, these people DID know what they were doing, they just miscalculated the risks and got bit.  There’s not one thing – not ONE – in this entire piece of legislation (HERA, for those interested, named for the Greek goddess of jealousy and micromanagement) that makes consumers safer or better off.

Let me emphasize something here: I already did all the stuff that HERA tells me to do.  My clients are all told the first time we sign disclosures that if we have agreed on a deal, whatever we agreed to at the beginning will be what we get at the end.  I urge all my clients to bring their original Good Faith Estimates to the table when they close, and if they don’t, I do.  I go through the whole thing line by line.  None of this new legislation makes me a better loan officer, it just makes me slower at it.

Sigh.

Land of the Free, Home of the Brave?

When things get bad, there are two things that have saved Americans for generations.  One, we are free.  Two, we are brave.  Oh, how I hope this is still the case.

It matters tremendously.  If we are free, then when one way of supporting ourselves disappears, we find another.  If we are free, it’s very easy to do this.  According to the outstanding Hernando DeSoto, it takes 17 years to legitimately start a business in a place like Haiti.  That makes the entire effective economy illegal, underground, or stalled anytime conditions change even a little.  In America, at least until very recently, if you wanted to grow corn, you grew corn.  If it occurred that cotton grew better or made a better profit, then you stopped growing corn and grew cotton instead.

Freedom means you can move from selling insurance to selling toys in no time at all, as the opportunities present themselves.  But we are less and less free.  If you want to sell used, recycled toys, you’re out of luck unless you can afford expensive testing for lead.  If you want to sell insurance, there is a huge regulatory morass to navigate.  New regulations on my own industry have increased the cost of a mortgage loan by hundreds of dollars and made the process at least 1 week longer than it was this time last year.  This is not freedom, and the less free we are, the harder it is for us to change, to adapt, and to take advantage of new opportunities where they exist.  This is bad for both producers and consumers.

A side note: one of the reasons the internet is such a huge deal these days is that it is the home of the maximum freedom there is on earth at the moment.  Today your website is hawking accounting services, tomorrow you’re a social media guru.  You can change at the drop of a hat.  Drop one thing, pick up another.  Away you go.  The harder it is to do this in the physical world, the more of that commerce will move to the web.  Taxing authorities, you listening?  This means you.

And we used to be the home of the brave.  Nothing fazed us.  When things were tough, we went and got another job.  If there weren’t jobs, we found things to sell.  If there wasn’t anything to sell, we swept sidewalks, because working was better than not.  I think there’s still a lot of this spirit out there, but I wonder.  I hear stories of people that think they’re looking for work, when all they’re doing is sending out resumes.  Many of the people I know are out of work – far more than national statistics would indicate was likely – and many of them are out working, even though they’re doing things that don’t carry a paychek all the time.  My accountant became my accountant in exactly that way, by doing something for me for nothing until I couldn’t let her go.

But some are not.  Some are collecting unemployment and waiting for a job to open up.  These people are, almost universally, the most afraid.  I feel very sorry for them.  I also won’t hire them when one of the four companies I’m part of gets traction and needs people.  No, I’ll hire one of those guys that was mucking in without getting paid.  Those guys are not afraid.  Fearful people won’t take the risks to make small businesses work, and it will be small businesses, make no mistake, that lead this economy back.  Brave people will be the ones that carry the rest.

We used to be the land of the free because we were the home of the brave.  We didn’t want to be taken care of, we wanted to be left alone, to make our own way as best we could, to make things and to produce what people wanted to buy, without a lot of forms to fill out and regulations to abide.  I long for that to be the case now, for the nation I love and the world I live in to become, once again, a land of the free and a home for the brave.

I still believe we can.

Warning: Soccer post

Note: this post is about soccer.  I realize that I am a mortgage guy and should be writing about new home sales for mortgage shoppers right now, but I’m not, so you can avoid this if all you care about is business.  Meanwhile, I qualify as a solid observer of soccer on two continents, but I never played the game.  So take this for what it’s worth.

Yesterday the US “Men’s” National Team lost to Mexico 5-0.  In New York.

But honestly, today I feel pretty good about it.  Halfway through the second half, with the score still 0-0, I turned to my son Nicholas and said “at this point, I don’t really care who wins this match.  We’ve done all we came to this tournament to do.”  Five goals later, I’m sticking to that.

First, let’s start with the Confederations Cup last month.  The US got slaughtered in the first two matches, was almost unwatchably bad, then Bob Bradley decided to play Charlie Davies up front and his speed changed the US from a slow, nontechnical team that couldn’t find any space to move the ball forward to a fast, dynamic, hardworking squad that all of a sudden could manufacture goals.  Davies made a gigantic difference to that team, and the US by the end of the tournament was much improved.  Improved enough that I start to think there’s still a chance we could win CONCACAF.  That was the best team the US had to put on the field, and it was not a bad team.  Competitive.

Second, because the US miraculously made it to the finals of the Confed Cup, there was absolutely no break between the Confed Cup and the Gold Cup.  No training time.  No time for the top players to get any rest, or at least visit their club teams to say hello.  In consequence, Bradley left almost all of them home.  He took only seven or eight players from the Confed Cup to the Gold Cup, and those players saw very little time before bolting altogether (with the exception of Brian Ching, about whom more later).  So this Gold Cup team started as the US B Team, with only one player on the roster that would start for the full national squad (and that player, Davies, was an afterthought on the MNT before the Confed Cup).

Third, as the Gold Cup progressed, even those players – again, except Ching – that were backups on the MNT (Davies, Feilhaber, Adu, etc.) left for their club teams.  What you had on the field against Mexico was a team of 11 guys, only one of which is likely to make the World Cup team, and only one other one (Stuart Holden) that is even a strong possibility.  NONE of these guys is going to start even in their wildest dreams.  Still, this group got all the way to the finals.

Fourth, even THIS team, down to really the C team now, was hurt and tired.  Jimmy Conrad got knocked out on a header two games before this, which deprived the back line of any rest in the last three matches.  They were gassed, and it showed.  There really wasn’t anyone else to bring in (Brian Namoff having been inexplicably left off the roster).  They gave what they had, and that was all there was.

So the result in the final, against a Mexico team that really had to win and played the best people they had available (call it their B team, since only 5 or 6 of those guys will start next month against the US in the World Cup Qualifier), was still in doubt for 60+ minutes.  I feel pretty good about that.  If the US has one player, just ONE, to swap out with the spectacularly useless David Arnaud, then the US wins the match yesterday going away.  Swap Davies in for Arnaud, and the US wins.  Period.  So I refuse to get all upset about the JV team losing.

And the match wasn’t a debacle.  The US game plan was to let Mexico putter around in the midfield as long as they liked, then clamp them down when they started trying to move the ball through the center into the attacking third.  Result?  Mexico wasn’t even particularly dangerous until the late stages of the game.  The US counter was excellent, producing numerous chances, which were squandered about equally by Rogers, Beckerman, Arnaud, and Ching.  Mexico got a questionably penalty, in which the fouled player hit the fouling player in the head with an elbow, and that meant that the US strategy was no longer going to work.  The midfielders had to push higher, depriving the backs of cover, and Mexico is fast enough to cut that apart.  Which they did, to their credit.

What did I learn?  I learned several things.  Brian Ching is a hard worker without any real skill on the ball, especially when he can’t use his head.  David Arnaud is a hard worker that should never get a MNT jersey on his back again.  Neither of these strikers is good enough to play for the US in a match that matters.

Kyle Beckerman is good, and he might grow into a fairly good reserve defensive midfielder.  Good work rate, but not much pace.  Robbie Rogers needs another move.  Stuart Holden is the most accurate crosser of the ball and the most dangerous set-piece taker on the US roster at any level.  I really think he needs to be on the field in Mexico, this time with Davies and Altidore and Donovan and Onyewu to hit the ball to, and Cherundolo or Hejduk or Bocanegra to overlap with.  He is infinitely better than Beasley and – I think – more reliable with the ball than Dempsey.  He certainly works harder.  Nobody else from this team should even be on the US roster in South Africa.

All in all, a great month of soccer, with some encouraging signs.  Forget about yesterday.  Nobody that was on the field is even going to be playing next month in Mexico City.  Only one guy is likely to even be invited on the trip, let alone onto the field.  So relax.

RateWatch – We Control the Market

Market: We got hammered today because…well, because.  We’re down 59bps at the moment, and you can thank us here at the Chris Jones Branch of City 1st that it isn’t worse.  It was worse, but we fixed it.  I will tell you how below.  This translates to a rise in rates of .25% over the past two days.

Analysis: Employment numbers came in right in line this morning, followed by home sales numbers that are so anemic they’d be confined to bed in any other market.  The stock market euphorically rose to over 9000 on this news.  Whatever.  Who can analyze this stuff?

But I know how to control it.  This has been tested so many times now that it’s as good as proved.  We know here at the office that when we lock a loan, we reverse the market (this only works when the market is tanking).  In the last two weeks we’ve done it several times.  The market starts to fall, so we call up one of our loans and lock it.  The second we do, the rally begins.  Happens 100% of the time.

Why didn’t we do something about the terrible crash of Black Wednesday two months ago?  Funny you should ask.  We TRIED.  Lenders stopped accepting locks, so we couldn’t get one down.  We sent in the request, and it was eventually honored – at the open of the market the next day, which sparked the largest up day for bonds in several years.  I’m telling you, it’s a curse having this much responsibility.

But I promise you I will use it with discretion and wisdom.  I also promise that your personal loan will not be the one we sacrifice on the altar of the gods of mortgage rates.  We’ll get someone else.

Cj

P.S. Thought I’d again thank all of you for following me, and let you know that it matters a great deal to me.  Today I picked up a gig writing for the Scotsman Guide, somewhat because of RateWatch.  You are all very important to me, and you do get service that’s not available to just anyone.  Thank you again, and welcome to our new signups.  Hope you like it here.

Don’t Blame the HVCC, People.

Note: this is a long post.  It is fairly involved.  But the issues addressed are complex and critical to understand.  If you take the time to read all the way, you’ll be glad you did. Appraisers, loan officers, and Realtors, this especially applies.

On May 1, 2009, Fannie Mae and Freddie Mac agreed to abide by the Home Valuation Code of Conduct (HVCC), which regulated how appraisals could be ordered and performed.  Without going into a detailed analysis of the HVCC and how it spawned (that’s here, if you really want it), let’s just say that the results have been fairly negative for the ground troops in the mortgage/real-estate market.  This is hardly surprising, as there has never been a government regulation that I can think of that has made things better, but still.  Annoying.  Worse than annoying.

Appraisers have hated it, because it’s nearly universal that they are being asked to do more work for less money now.  Realtors hate it, because their purchases don’t fly when appraisals come in lower than the sale price.  Mortgage guys hate that, and also hate that low appraisals kill their refinance deals.  Borrowers hate it because their loans cost more and take longer.  So the experiment has not been a resounding success, has it?

The reaction, being as negative as it is, has caused Congress to act, putting a bill together to impose an 18-month moratorium on HVCC.  Unfortunately for the howling pack, this bill was sponsored by two of the most anonymous members of Congress, and has garnered only 19 co-sponsors (remember, there are 435 Congresspeople).  It is not being supported by the Appraisal Institute.  It has small to zero chance of passage.  The Federal Housing Finance Administration (FHFA) says everything is hunky-dory (no, really, see here).  And I have information out of Washington that the FHA is considering imposing its own version of HVCC, which would effectively make HVCC the national appraisal code for all mortgages.  Depressed yet?

Don’t be.  The HVCC may not be going anywhere, but the good news is that the HVCC is not the problem, at least, it isn’t the problem all by itself.  There are two things that are worse than the HVCC, one of which will fix itself, one of which has to be fixed in the HVCC, neither of which requires an act of Congress.

The first problem is that the market stinks.  Look, there is a huge overabundance of housing stock.  If no houses were built and no more went up for sale than what we have now, it would take nearly a year for us to sell all the ones that are on the market now.  Think that depresses prices?  Estimates are that up to HALF of the mortgages in the US are at risk of default.  Foreclosures are breaking records – one out of 84 houses in the US received a foreclosure notice in the first half of 2009.  More are on the way.  That’s causing huge pressure on the market, and not in a good direction.  When house prices fall like this, it blows up a lot of deals.  A good appraisal just tells you where things are, it doesn’t guarantee you’re going to like the feng shui.  This is NOT the fault of the HVCC.  And there’s nothing you can do about it.  But it will, eventually, go away as the market stabilizes.

The second problem, bad appraisals, long lead time, appraisers being shorted money, all these problems are also being blamed on HVCC.  But these are also not the fault of the HVCC, at least not directly.  How do I know this?  I know it because although like everyone else I am subject to HVCC regulation, I don’t have any of these problems.

It’s a miracle!  It’s like winning the lottery!  Nah.  It’s like any other part of this business.  My title companies do remote closes, even closes more than an hour’s drive away, for no extra charge.  Why?  Because they want my business, and that’s what it takes to get it.  Similarly, my appraisal management company (AMC) gets my orders done fast, and well, and pays their appraisers full fees, because that’s what it takes to get my business.  See, with title companies, I have a choice, so I get what I want.  The same is true with my AMC.

But here’s where the HVCC is screwing things up.  To show you how, let’s go back six months.  Were you happy with your appraiser six months ago?  Why is that?  Probably because he was honest, fast, and knowledgeable.  Did he like you?  Very probably.  Why?  Because you didn’t hassle him and he got paid on time.  The two of you were able to come to this amicable arrangement because each of you were free to choose to go somewhere else if you weren’t happy.  It was, in fact, a violation of the law for a lender to dictate the use of a particular appraiser on a transaction.  Choice and competition always lead to efficiency and improved performance.

Fast forward to the present, and what do you have?  Well, it depends.  If you’re a lender, you probably have an AMC that is a subsidiary of your company, and which you have to use.  If you’re a broker, each of your lenders has an AMC that it requires you use.  These AMCs are contractually bound to the lenders they serve, and their bread is buttered by the lender.  They do what the lender wants.  You, as a loan officer, have no choice but to use them.  If they stink – and ladies and gentlemen, the stench is overwhelming much of the time – it doesn’t matter.  They don’t care and they don’t have to, because you have no choice.  You have to use them.

It’s even worse for the appraisers, who get offered a pittance – 40% less than normal – for the same work.  If they don’t take it, they don’t get more work.  They have no choice, either.  What this means is that the good appraisers just quit.  They’re worth more than they’re being offered, and they know it.  To be true to their standards, they refuse the work.  So new and/or desperate appraisers take the jobs, and they take as many as they can, because they have to do more to make the same money.  Besides, the lender benefits directly when an appraisal is low – it reduces their risk.  Voila!  Lower appraisals, lower quality, longer lead times.  Sound familiar?

One group proves that this isn’t how things have to be – correspondent lenders.  Free to use whichever AMC does the best job, correspondents (my brokerage is one) are free to select AMCs that meet the best standards and do the best work.  Magically, most of the HVCC problems evaporate.  I can testify to this first hand.  In fact, I use my AMC even for FHA loans, even though I don’t have to, because they make my life better.

So while I believe that HVCC is here to stay, and I think that all attempts to get it overturned are doomed to failure, there is a change to the status quo I think is not only necessary but relatively simple to get implemented.  What is needed is a return to the situation that existed before the HVCC went into force, when it was black-letter illegal for a lender to require the use of a specific appraiser.  No lender can demand a specific title company, so why a specific AMC?  Is that not an obvious conflict of interest?  ESPECIALLY when the AMC is owned by the lender itself?!?

All it takes is a regulation that no lender can mandate the use of a specific AMC.  Instantly, we have competition and choice.  My AMC, 1st Choice AMS, which plays fair and does mind-blowing customer service, can take on the First Americans of the world and beat them.  You, loan officer, your problems go away (except for the market, sorry, can’t fix everything).  You, appraiser, can get paid to be good again.  The AMC streamlines the process for everyone.  And presto, the HVCC stops being an obstacle to good business.

The small change proposed above can be handled by administrative rule, not congressional action, can be implemented in a weekend, preserves the integrity of the appraisal process and solves the market problems the current system exacerbates.  Instead of this pointless tilting at windmills in Congress, why not get behind a proposal that has a chance to work, and fixes not only our problems but the industry’s as well?

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