Mortgage

Should I Move To the European Union (EU) for the Best Information?

The recession has lingered for the last four and a half years. We’ve had depressing housing starts, dismal non-farm payrolls, swelling first time claims of unemployment, and sharp drops in the retail and manufacturing indexes. The Board of Governors of the Federal Reserve has met many times to discuss the economy and presented scholarly papers to a variety of listeners across the county. Moreover, the Chairman himself, Dr. Benjamin Bernanke, has testified under oath before Congress and various sub-committees about the state of the economy. All told, any of these events could have sent the market gyrating in half-point to full point swings, but no longer. Lately, the market shrugs off the announcements off and goes back to its business. However, the current meat of the economic matter occurs overseas and we are now forced to keep our eyes on a new set of metrics.

For instance, the European fragility has created a new aura of fear and anxiety. For the first time in my life, I could care a less about domestic unemployment claims effect on interest rates. Instead, my current preoccupation centers on discussions at the EU Summit, German unemployment, Euro-zone economic sentiment, Italian weekly jobless claims and the seven-year note auction for Spanish bonds. Additionally, my focus has shifted from Capitol Hill to the European Commission, because the quarterly report on the Euro Area carries more weight now than “The Beige Book” from the Bureau of Labor Statistics. The economic nerve central has shifted to Brussels and away from D.C. Unfortunately, it’s quite difficult to get a handle on how things are done on the other side of the Atlantic with all of the idiosyncrasies of operating in the European Union. Some countries are in the Union while others are not. Some are members of the Union don’t use the currency. Furthermore, others nations have completely chosen to go it alone, which complicates things even further.

C-SPAN is great for getting up to the minute, play-by-play for information about Congress, but I’ve yet to see a media equivalent for the E.U., which is sorely needed given its overarching grip on our economy. While Europe determines what the Union will be and who will be in it, we will continue to languish in the economic doldrums as the GDP of our nation (derived from Europe—really?) moves at a snail’s pace.

As far as the mortgage market is concerned, problems in Europe create happy times for all. In the short term, anyone who can qualify will get a great rate, compliments of the Irish flu, Portuguese plague, or a German sneeze. However, in the long run, we will suffer as a result of underutilized capacity in factories and phones that don’t ring as frequently, due to a lack of demand for our goods and services overseas.

Indeed, I never thought that I’d see the day when America’s GDP wasn’t as important to me as German optimism for a European turnaround. Also, I wouldn’t have believed that Deutscheland would be the one country to hold up the European continent. These are interesting times. The Euro is getting close to being pari pasu with the dollar at a 1:1 ratio (currently it’s 1.22). Realistically, I would never be able to move to the E.U.– it’s definitely cheaper to be there right now, and one would most certainly be around the movers and shakers who are shaping the world’s economies. However, I love my country, and could never leave; but the truth of the matter is, my wife wouldn’t let me!

Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance, he can be reached at howardpr@rosecityrealtyinc.flywheelsites.com.

What Will We Do Without Wells Fargo?

The news flash that rocked the mortgage brokerage industry came out on July 12^th. Wells Fargo decided that it would no longer fund mortgages that were originated, priced, and sold by independent mortgage brokers. For most people, this didn’t mean much; however, when you understand the context behind it, this is a huge blow not only to brokers, but to everyone who borrows for residential finance.

As it stands, one in three mortgages originated by people in this country are done through Wells Fargo. Another key statistic is, that at one time, mortgage brokers originated 40% of all mortgages. Since 2008, this number has dwindled as enhanced scrutiny and the advent of the NMLS (National Mortgage Licensing Registry) testing requirements sent many brokers packing or back to school in order to maintain their profession. Settlements exceeding $25 billion in fines, fees, and penalties were levied against the major banks for various mortgage infractions in the last 36 months. This has caused Citibank, Chase, Bank of America, and Goldman Sachs to abandon the mortgage broker and/or correspondent (“direct lender”) distribution channels. As other mortgage professionals and I had shared with so many people, this is not good for brokers, but in the long run it is not good for the American people. In the end, borrowers will pay more in costs, fees, and higher interest rates.

For example, we are living in a day and age when it is an absolute crime to quote someone a zero point rate above 4.00% to refinace their home, when the borrower has equity and a 750 plus FICO score. However, this is exactly what a Bank of America retail branch representative did when quoting a rate for a potential borrower. The borrower was told three times that the best they could offer was 4.125%. Then, the same individual called me and I locked him for 45 days at 3.5%. On a monthly basis, this is a difference of $210 in payment. Another example is that one of my colleagues received a similar call and was competing for business with a retail branch representative from Chase. This person was quoted a rate in the 5.00% range! I couldn’t believe what I was told. As you can imagine, my friend easily bested that proposal and took the business from Chase. Clearly, the consumer suffers when left with only a retail option.

By and large, brokers provide cheaper options by working with a plethora of lenders. The list of available sources is dwindling, but most brokers work with at least seven different lenders. As such, if competing against bank “V,” it behooves the broker to check with bank “W,” “X,” “Y,” and “Z” to determine who has the lowest rate and highest closing cost credit to pass on to the borrower. The broker’s costs are cheaper than a retail branch because our overhead is normally lower, as most brokers only hire the bare minimum staff needed to function and run their businesses effectively. Also, most brokers (and their staff) live and die by the deal. So if deals don’t close, brokers don’t get paid. Conversely, banks still pay salaries and benefits, which can cost thousands per month per employee. Accordingly, it filters down to the rate quoted to the consumer. Finally, for the most part, brokers are specialists in their trade. They are not bound to cross sell or collaborate with other departments to offer other goods and services. Their only focus is mortgages–plain and simple. Hence, it is easy to surmise that brokers have a distinct advantage over the loan officer at the local branch. Indeed, that’s what makes Wells Fargo’s decision leaves many shaking in their boots.

Following the announcement, US Bank held a conference call with its field representatives and brokers. The bank is contemplating its commitment to the broker channel (wholesale) and whether or not it wants to continue working with third party originators. Whispers were heard in the halls of GMAC (AKA Ally Bank) as its field reps celebrated and worried at the same time. Wells Fargo’s exit means more broker business, but the decision makers in the corner office took a look at their own discontinuation of brokered loans as well. The reasoning that Wells gave for its decision was “due to the complexities of this business in the current environment.” Hence, this is code for “we have taken too many hits, have been sued too many times, and have paid out too much money, so now, if we don’t do the loans ourselves, we are not going to do them.” What a travesty. Some people blame dishonest brokers, and there are some. There are also many honest ones with spotless records and impeccable character. Therefore, don’t punish the majority for the sins of a few. The country needs more choices and options, but Wells was an option that has been taken away.

In summary, these are some amazing times in the mortgage industry. Anyone in the industry who isn’t busy obviously isn’t going into the office right now. Rates are at their lowest point in recorded history. Brokers are working to originate loans but also looking for new sources while pondering their future. Many of us feel that extinction is around the corner and we are being forced out. Well, I don’t necessarily buy that. Realtors know that a competent broker with a solid Rolodex of lenders is hard to find, so they are worth keeping. The best of brokers can tear apart a 1040 and figure out a borrower’s true income. There is always a market for a true pro. Wells’ exit has caused many hearts to skip a beat and initiate heartburn, but it is not the end of the world. When private equity, hedge funds, investment banks, insurance companies, and other esoteric players entered the market, Wells only had a small piece of the market and having a Fannie/Freddie loan was the exception not the rule. The market will scream louder for alternative products to fill unique leads, and brokers will be there to fill those voids. It’s still scary to watch Wells go. Now, you have to wonder–who’s next?

Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance, he can be reached at howardpr@rosecityrealtyinc.flywheelsites.com.

It was a settlement like no other. The nation’s top banks consisting of Bank of America, Wells, Chase, Ally Financial (formerly GMAC), and Citibank agreed to fork over a record $25 billion in response to charges of “robo-signing” and other irregularities concerning foreclosure procedures. The big banks agreed to forgive principal, establish counseling centers for distressed homeowners, and set up training programs, thereby putting a whole new face on mortgage lending. Accordingly, there was a feeling of “things are surely going to change” in the air, and they did.  More lenders have doubled down on their compliance practices and expanded their quality control procedures than ever before. The need for testing and continuing education has increased exponentially. One would think that with the enhancements put in place to corral the mavericks in the industry, the attorney generals (AGs) would be satiated, right? Well, that is not the case.

Many of the same AGs who signed on the master settlement are now going solo to implement their own state-specific measures to keep homeowners in their homes. AGs are calling the recently established procedures inefficient, unnecessary and shoddy. As such, each AG is proposing their own rules to right the wrongs throughout the land.  For instance, the California legislature is voting on its own new set of statutes; Oregon talking about modifying its state’s modification process; and New York is proposing the criminalization of foreclosure forgeries. This is totally an example of the left hand not knowing what the right hand is doing.

What many of these individual regulators fail to recognize is that as they go it alone, the consumer pays for the trickle down effects of any new rule. For each lender to be aware of what Iowa is requiring, versus what Idaho is legislating, compared to what Indiana is enacting, and Illinois is instituting, creates a legal quagmire of inconsistency. If a lender, on a state-by-state basis, has to pay to retain a cadre attorneys to draw up policies and procedures for each state, the uncoordinated billing will skyrocket and the effect will translate into higher rates, more disclosures, and longer wait times in quality control, which eventually leads to dissatisfied customers.

As the rules and regulations have increased, consumers (or customers) have grown more irate. HVCC, the Housing Values Code of Conduct has killed appraisals. The new GFEs (Good Faith Estimates) have confused borrowers and loan officers alike, and the stringent timelines have all decimated more deals than can be counted. So, the increase in regulations has done more to hurt consumers than help. An increase in rules and regulations without coordination or a consolidation of ideals at a national level is a recipe for disaster. In fact, the majority of the lenders that signed onto the original settlement officially thought that their multi-billion portion of the master settlement took care of all of this; I guess not.

It appears that each state AG wants their own platform to waive the proverbial flag of victory from their own state capital and not share the spoils. Unfortunately, uncoordinated efforts will not serve the consumer. Instead, the winner will be the individual who finds the lender with the lowest cost structure that in the end will yield the lowest rate at the best terms. Too bad real estate is governed at the state level; otherwise, just as these AGs are going it alone to make their own rules, the consumer should be able to cross their state line to find the state with the least amount of regulations to find the lowest cost financing that suits them and their families, without being burden by an AG with something to prove or an ego to satiate.

Preston Howard is a mortgage broker and Principal of Rose City Realty, Inc. in Pasadena, CA. Specializing in various facets of real estate finance, he can be reached at howardpr@rosecityrealtyinc.flywheelsites.com.