Posts Tagged ‘HERA’

I don’t vent.  I don’t blow up.  I think that kind of negative emotion is counterproductive and I fight it.  Still, I’m mortal.  Sue me.

The enemy of growth is uncertainty.

I am a gardener some of the year, in my spare time, and I have about a hundred houseplants, and I’ve learned a few things from this activity that bear directly on the current economy.

Plants grow well in certain conditions. They like there to be a certain amount of light, a certain amount of heat, and a certain amount of water. Not an average over a week, mind you, but a definite amount every day. No water for six days, then 3 gallons all at once will kill most plants. Light uninterrupted for four days, then three days of darkness is not really conducive to good growth. An average temperature of 65 is great, as long at it doesn’t consist of half the time at 30 and the other half at 100. Plants like it predictable. A little water today, a little more tomorrow. 14 hours of light today, 14 hours tomorrow. Temperatures in the 60-70 range all the time.

Oh, they’ll still grow if things are a little sketchy. They can take a few days of rain, then a few days of bright sunshine and heat. If the soil’s not right, or the water is the wrong ph, or there are rocks to negotiate, they can handle that, but they won’t grow as well as they might otherwise have, and if two or three of those things combine, the failure rate goes up pretty fast. Bugs, incidentally, love to attack weak plants. They tend to leave stronger ones alone. What that means is that once you start down the path to weakening your plants, you can expect other things to start going wrong and make things worse.

Let’s apply this to the current economy, shall we?

Corporations like things predictable. If they know what tax policy is going to be, they can concentrate reserves and personnel on development and growth. If tax policy is changing every ten minutes, a lot of those resources are channeled into figuring out whether today’s successful business model is going to be illegal in a year, or perhaps next week. It’s distracting and it’s destructive.

In the mortgage industry, which is my industry, we’ve spent the last year trying to figure out what all the new rules and regulations mean for us, how much extra time we will have to devote to managing the increased paperwork, and whether whole lines of business are even viable. Some of us – the best of us – will survive this, too, as we’ve survived everything else so far. But NONE of us will do better work for the client or ourselves than we would have if we’d been left alone. ALL of us, and this goes for the Top 100 all the way down to the green kid that just got his license, are spending huge amounts of time learning to navigate government regulations instead of trying to do a good job for the borrower.

The argument is fairly made that if we had spent our time doing a good job for the consumer in the first place, we wouldn’t have all this government regulation, so it’s our own fault. But this argument is stupid.

First off, it’s not the broker on the street that created the 100% no-down 520 FICO no-doc loan. All the brokers did was sell the product. Was it a mistake to sell it? I guess. But you know the part of page 3 of the 1003 that asks all the invasive questions about race and sex and national origin? That’s not there because brokers needed more boxes to check. It’s there because the government will sue you and put you in jail if you don’t make loans to people, especially low-income people and MOST especially people that routinely fall into the category of higher-risk borrower. A broker could decide not to sell any of those products at all, but this is sort of like deciding not to sell iPhones because you think that it’s a fad and people will eventually figure out that you can’t replace the battery. It’s stupid to do this. Businesses exist to make money, and failing to sell what people are buying, just because you don’t like it yourself, is a great way to end up working at WalMart. No offense, Mr. Walton. This is even more especially true when the Department of Housing and Urban Development can put you in federal prison for not doing so.

Second, the vast majority of the problem in the real-estate industry has been caused not by bad loans, but by bad houses. Not that they’re poorly constructed, but that they were overpriced. Some of that is the fault of the lending institutions, which created loans that roughly doubled the available pool of buyers, naturally (and somewhat artificially) boosting home values. At least as much of it is the fault of the government, pushing said lenders to create loans for people that traditionally default in huge numbers. And a lot of the fault has to be carried by the Fed, leaving interest rates at ridiculously low levels for a long time, again reducing the cost of buying and ramping up demand. None of that stuff has anything to do with the loan officer on the street.

And lastly, there’s the elephant in the room, which is that none of the government regulations will do one blessed thing to make any of the above less likely in the future. None. Not HVCC, a lawsuit about a lender-owned AMC that specifically permits lender owned AMCs to continue. Not HERA, a gigantic waste of time and money that pushed closings back a week or more on most loans. Not RESPA, The Sequel, which hilariously creates a new, “simpler”, 3-page Good Faith Estimate that is so iron-bound that no lender with any reputation will issue one until the borrower signs a notarized contract to do business with that lender and nobody else. Not one of these byzantine regulations – oh, and let’s include the national database of loan originators, which now requires a fingerprint card, as if there were any evidence whatever that such provisions have reduced any kind of fraud in any industry – will do anything whatever to reduce the incidence of evil people duping stupid ones.

But it will make it so that the good loan officers are unable to distinguish themselves from the rest of the herd. It will make it more expensive, more complicated, and more difficult to continue to work in this industry, which will chop down the number of players and – consult any economics textbook – raise the prices for the borrowers.

Our plant will continue to grow. We will make it through the drought, through the hail, and force our roots through the rocky ground. We will survive. But we will never produce the fruit that we could have, and no one else will, either. And tens of thousands of our compatriots will be out there competing for the six available jobs, having been killed off not by incompetence or laziness, but by the twin terrors of the Great Recession and Uncle Sam.  Worst of all, we can’t even plan for what we’re going to do next year, because we never know from one minute to the next what new dragon will rear its head.  Not a market dragon, hard as those are to deal with, but the mighty dragon of government, trying to “help”, and changing the temperature and the landscape because it makes re-election a better bet.

Happy New Year.

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.