Posts Tagged ‘utah mortgage’

Things that need doing, that desperately need doing, that I do not have time to do:

1. A real, physical newspaper for Lehi.  I started one, but have not had the time to continue.  It was worth the investment.  I learned a lot.  I believe it matters.

2. A serious attempt at a local literary revival.  I know a good deal about the mechanics of how to get a book written, published, and sold.  I am also a fierce proponent of the power of locality and community, and, although this runs counter to the conventional wisdom, I believe that the physical is still more powerful than the virtual.  I believe that it is not only possible but highly desirable to have a local press for local writers distributing books through local stores.  I can see the entire thing, how it would all work.  I don’t have time (and likely don’t have the skills) to do it.

3. Hard research on the value of coaching rotation in college football.  I have a theory.  It would be an interesting one – and potentially a valuable one – to any university that was thinking of trying to win a national championship.  Don’t have time to do the research to see if my theory is true.

4. A solid PR campaign for the mortgage/ real-estate industry.  We’ve been savaged over the last few years because of the economic downturn supposedly caused by the greed and fraud of people who do what I do.  The record could use some straightening out, and more than that, the value created by people that do what I do should be and must be highlighted.  Those of us that are really good at what we do provide services that save people millions.  I believe it would be a very good thing if more people understood that.

5. TEDx Lehi.  There are huge numbers of techies in this part of the valley, and more coming all the time.  We’re a creative and interesting bunch.  The TED program is one of the most interesting and inspiring ideas I’ve seen in a long while, and I want to be part of putting one on right here in Utah County.  I don’t have time to do it.

6. Writing Training Trap.  My good friend Glen has a terrific idea for a business book.  It needs to be written.  Not only can I not write it, I don’t even have time to badger him so that HE has time to write it.

That’s depressing enough for one day.

I had a friend ask me if I was going to survive the wreckage of the mortgage industry, if I was worried about being out of business.  There are several stock answers I use to that question (“as long as there’s a mortgage industry, I’ll be working in it,” etc.) , but I decided at that moment on a new one: Hell no.  The second I don’t have a job here I have ten more ready to go.  Give me back the 40+ weekly hours I spend on mortgages, and I probably have time to do three or four of those things above.  If City 1st ever gets rid of me, I won’t even have time to move my desk.

Meantime, if you’re looking around for something to do, I have some suggestions.

Let’s say, hypothetically, that I have a loan that I’m working on. It’s a complicated one, involving four different lenders being asked to perform different roles in the transaction, and a couple dozen other things. It’s going to take a couple of months to do, and that is if the appraisal isn’t horrible, if the loan can even be done.

We start to work. Over and over we hit hurdles, and over and over we jump them. We resolve concerns. We deal with lenders and underwriters and processors and appraisal people and title people. This all takes time.

Two months go by. Three months. We are working on the file every single day. EVERY day. We hit snags and we figure out how to get them loose and keep moving forward. The deal is on the point of being approved.

Then one of the lenders changes its mind and backs out. We can find a replacement, but in order to get that replacement to play ball, I have to give up all my compensation, and even write a check to bribe the new lender. The negotiations on how to do this take about twelve, thirteen hours. All told, I’m now into this deal a hundred hours or more, hours that in order to save the deal, I cannot get paid for.

Boo hoo. This stuff happens. That’s not the point.

What I want to know (here’s the serious question) is this: how do I let the client know what I’ve done?

I don’t ask this because I want the credit. I ask this because I want the reputation I deserve, which is that I will do whatever it takes, including acting as the Red Cross, to get a deal done. I need that reputation for my business to thrive. I have earned that reputation. How do I go about making sure that I have it?

If I were in the position my clients are in, I would darn well want to know what Hell my loan officer had to go through to get my loan done. I would want to know that the deal was inches from falling apart after 100 days of work, and that to save it, he is doing the deal for nothing. When people go above and beyond the call of duty for me, I like to know it, because those are the people I want to do business with.

And yet, I cannot get past the “tooting my own horn” of the process. It feels vaguely pathetic to go to the borrower and say, “let me tell you the unshirted Hell I have had to go through to get this loan done for you, on top of which I am doing this as a compassionate service.”

Probably I will say nothing, or not very much. That’s my usual MO. But I depend for my livelihood on the goodwill of my clients, and their willingness to tell their friends about me. This is a story that would be worth telling.

Help me figure out how to tell it.

P.S. Don’t say, “well, you already did, right here in your blog.” Seriously? You’re going to be at a party this weekend, and you’re going to say “hey, you should talk to this guy whose blog I read. He blogged about doing this amazing thing to keep a deal alive. I’m sure he wasn’t making it up. You should call him.” That’s going to be a real referral? The best referrals – almost the ONLY mortgage referrals – come from the personal experience of the person doing the referring. The only people that can make a good referral to me out of this experience are the clients themselves. And they don’t read blogs (or I would never have posted this).

I do write about mortgages, you know.  I don’t do it here all that often, which is a thing in the process of changing (eventually), but I do it, and I do it a lot.

In case you’re interested, which seems unlikely but is possible, I have a couple of posts about the foreclosure mess on Zillow’s Mortgages Unzipped blog.  The first one is here, and I’ll link to the second one if they ever put it up.  I also have a piece on where I think rates are headed for the next six months, which you might find useful.

In other news, I have an article in the November issue of The Niche Report, which is the second of the mortgage-industry publications to want my stuff, after the Scotsman Guide, for which I’ve written several articles.  I’m still waiting for a paying gig, but in the meantime it’s nice to have people interested in printing and reprinting the things I write.

The Seattle Times reports that the Senate has passed a bill allowing for some changes in the FHA fee structure, under the fascinating but slightly misleading title “Senate Approves Higher Government Mortgage Fees.”

One fee goes up (probably, depends on FHA bureaucrats), and one comes down (ditto).  Monthly mortgage insurance (which the Post calls an “annual fee” for some reason) rises from an annualized .55% of the loan to .9%, with the FHA having authority to take it to 1.5%.  But the up-front mortgage insurance fee (UFMIP), which had been 1.75% and is now 2.25%, will come down to 1%.  The net change is measurable, about $40 more per month on a typical mortgage in Utah, so the fees are being “raised” in that sense, but more importantly, they’re being shifted.

And why?  Glad you asked.  Whatever the stated rationale for the change in fees, the effect will be to increase the competitiveness of FHA loans vs. conventional financing, by decreasing the UFMIP to 1% and increasing the monthly MI, FHA loans will more closely match their conventional counterparts, but with just a 3.5% down payment requirement, FHA will now have an even clearer advantage in the marketplace.  Borrowers were skittish (and rightly) of paying a whacking 2.25% of the loan amount in UFMIP.  The number for a $200,000 mortgage in Utah is $4500, and that’s a massive and visible addition to your closing costs when shopping for a loan.  Under the new rules, it would be only $2000, a much more manageable number.  Then the fee increases are hidden in the monthly payment.  Presto!  Much more palatable to the consumer, and more money for the FHA.

Expect the changes to take effect around October 1.

Rumors have begun to swirl that the Obama Administration, facing what are very likely to be catastrophic losses in November, have cooked up a last-gasp attempt to prove that they are doing something about the economy.  The plan is to have FNMA/FHLMC (Fannie and Freddie to you and me) forgive billions in mortgage debt owed by homeowners that owe more than their homes are worth.

A few things here.

1. The number 1 predictor of foreclosure is negative equity.  Those that are underwater in their homes are 3x as likely to walk away as those that are even or have some money in their properties.  Some of the foreclosure wave has been caused by job losses, but as much as 26% of foreclosures are termed “strategic” – that is, homeowners walked away as a financial decision, not because they couldn’t make payments.  So to stem the tide of foreclosure, eliminating underwater mortgages is likely to be a good thing.
2. Foreclosure decisions are heavily impacted by the amount of the negative equity, not just its existence.  The National Bureau of Economic Research found that 17% of homeowners would default on purpose if their debt overhang was 50% of the value of the house, but almost nobody would if the overhang was 10% or less.  To reduce the volume of foreclosure, then, simply reduce the debt overhang to 10% or less of the home value.
3. Debt forgiveness is not, by itself, a bad thing.  I have long advocated for banks holding mortgages on underwater properties to forgive part of the principal owed and wipe out the overhang.  Doing this substantially reduces the likelihood of foreclosure and earns incredible goodwill in a time when banks could use it.  But few banks are doing this, and none with any regularity.  We can deduce from this that stopping foreclosure is not necessarily in the banks’ best interests.
4. When something as nasty as a foreclosure, with its attendant legal fees, loss of capital, and negative impact on home prices, stops being viewed as an unmixed evil, it is certain that something is screwing with the market.  That something is 99.94522% likely to be the government.  In this case, banks have come to understand that what makes for happy regulators and what makes for healthy banks are not necessarily the same thing.  Banks understand that in the event of trouble, they can count on the government to “do something”.
5. The economy always recovers fastest when government STOPS “doing something”, and leaves things for the markets to sort out.  Uncertainty is the enemy of markets.  In the event that government has to be acting, and it will tell you that’s in pretty much every event, the best thing to do is always reduce regulation and taxes and let people fix things themselves.  Unfortunately, an election year is never a time to expect this kind of restraint.

So if banks should write down mortgage debt, why shouldn’t Fannie and Freddie?  Two reasons.  One, banks are going to make different calculations about whether it makes financial sense for them to do this.  Those calculations are heavily affected by the competition, and what the competition is doing.  The decision to do something or not to do it will be made with reference to the markets and what will be in the best interests of the long-term health of the bank.  Fannie and Freddie have no such calculus.  They have no competition.  They can’t fail – the Treasury Department already said it wouldn’t let that happen, no matter what.  So the decisions will be made by bureaucrats without any requirement for financial sense.  Bad, bad combination.  Isn’t that a major reason we ended up in this mess in the first place?

Second, Fannie and Freddie (and by Fannie and Freddie, I mean Bernanke, Obama, and Geithner, et al.) aren’t playing with private money.  They’re playing with PUBLIC money.  Tax money.  If Chase Bank wants to write down a couple billion in mortgage debt, they’re making a financial calculation that this is going to be good for the company in the future.  If they’re wrong, only they and their shareholders suffer.  If, however, Fannie and Freddie make that same calculation, it will be a political one based on what will be good for the administration in an election year, not necessarily (and some would argue only accidentally) what is in the best interests of the taxpayers.  If Fannie and Freddie miscalculate, it harms the entire country.

The law of unintended consequences is at work here.  Connect the dots:

• Bank makes loan to home at a high loan-to-value (LTV).
• Housing market declines, leaving the house underwater.
• Bank sells loan to Fannie Mae at 100% of face value.
• Fannie Mae writes down the debt, re-establishing equity using (future) tax money.
• Mortgage note is now worth 80% of original value.

Pretend for a moment you’re a bank executive.  You can connect the dots, can’t you?  You will in the future make a) fewer high LTV loans or b) more high LTV loans?

Very good.  If you chose b), you are ready to be a bank executive.  Your risk is mitigated strongly by the backstop of tax money that Fannie/Freddie provide.  You make a miscalculation, no problem.  Fannie Mae (a stand-in for Uncle Sam) is there to bail you out.  If Fannie were a private entity, this calculus would be quite different, but the giant mortgage-purchasing behemoths FNMA and FHLMC are pure government now.  And this is only one of the consequences; doubtless there will be more, and even worse ones that I cannot forsee.

I think writing down mortgages is a good idea.  I advocate it.  But like all good ideas, this one can be done by the wrong parties for the wrong reasons, and in those cases the results will almost always be disappointing.

Stay tuned.