Brian's Blog

A Final Word from Old Man 2009 as He Shuffles Out the Door……

As I mentioned in a recent blog, we all have every reason to not make a plan for 2010. We have every reason to just make it through another month, week, and day.

This industry is a shadow of its former self. You don’t spend your time thinking about how to beat the competition but instead how to defend against relentless government intervention through complicated handouts and immense regulatory changes from ever agency short of the Forest Service. You don’t brainstorm about creating new products when you have contracting guidelines from only four finite sources of money –GSEs, FHA, State Housing and bank portfolio. The implosion of Wall St and the elimination of its entire structure eliminates the shadow banking structure that created most of the bad but also the ability to expand and adapt in any lending capacity; without the secondary markets rebirth, we are stuck in a never ending groundhog day of paranoid bankers haunted by incompetent, over-reaching government.

So just like I said…you have no reason to plan…BUT YOU MUST. I don’t know but for my sanity I just have to do it. The feeling of floating through the days a victim to the whims of the market around me is wearing me down. From every change there is loss of course but there is also opportunity. It is time to come out of mourning, shed the black while respecting the memory and lessons of the loss, and move on. This is not the time to double down and blindly surges ahead—don’t misunderstand me. But it is the time to tighten up what you do have, prune back to your core strengths, and prepare for certain outcomes and opportunities so you can confidently take advantage and succeed.

Start with answering “who are you?” Today. Not in the past but today. I still see too many people stating that their company or they are a certain size or production number, but when I get the specifics for 07/08/09 I get the excuses. I know, I do it too. But be honest, what are you today, in this new world we are in. Where is your business coming from? Too much refi from a dwindling database of people with increasingly poor credit, employment and shrinking equity? HVCC didn’t take your equity away, we all did by equity farming through cashout and Helocs compounded with overbuilding and over lending.

Assuming you are a veteran of this business, your Rolodex and database are a shrinking pool for repeat transactions but they are still valuable for networking. Networking will help you go deeper to find those who haven’t been helped in debt management for a variety of reasons. But more importantly your network can help you beat the drums about why it’s a great time to buy for those who are in the position to do so. Whether it be a first home, second home or investment now is the time depending on your overall financial picture. Offer your personal free analysis and include your other members of your financial team like attorney, CPA, CFP, Insurance, etc or offer to work with their existing team.

This is the time to meet other professionals with influence through those you have built up good will from. You may not be able to help them with their situation but you can remind them that the choices you made together were good and that they are safe but maybe they have those who are not as fortunate and should give you a call. The amount of orphaned Realtor, Attorney, CPA, CFP, etc is astounding. If those folks go to their Rolodex under Mortgage now they see a name that flies them into a rage or that isn’t in the business anymore. It’s your job to fill that void. Only new blood built through warm calls will carry you into 2010 successfully.

Douglas Smith’s article in December Origination News gave some good specifics as to “how to “plan for 2010. His first key was to get beyond the big number goals and to chunk down to daily/weekly goals. I can’t tell you how huge that is to do. It is measurable and achievable and therefore realistic. It also creates habits and changes behavior. Large unruly goals allow for sloppy behavior in pursuit of the larger Grail that takes you far off course, making it better to never have a goal in the first place.

Second key to success in 2010 is to break the habits that living in survival mode allow. Look in the mirror now and ask what has to change. Ask others in a 360 view – those above, to the side and below you, you’ll be surprised! Some examples DS gave:
 – stop micromanaging files, take a better app, know your changing guides, and institute weekly exhaustive pipeline review
 – exit high maintenance and low performing relationships, prune and shift energy
 – pepper your schedule with visits to a variety of people of influence, with good planned follow up after
 – find greater efficiency through outsourcing or technology; nothing too crazy, just implementable and realistic
 – form a better relationship with your support staff and vendors, improve communication

If you want change, change those things you can control and just be aware of those you can’t like the government, the economy and FHA. As part of your 360 if you’d like my opinion, please drop me a line. I’d be happy to discuss.

Happy Holidays to you all and best wishes for a safe and rewarding 2010!!

The bill keeps going up....

Here are some news clips driving the point home very clearly that the consumer will ironically be paying much higher terms in order to create bureaucracy and systems to protect them from being over charged.The majority will pay more so the minority can be protected. Sadly I can guarantee you that these changes won't be enough and there will be complaints and examples of customers unhappy with their situation and looking for someone to blame. The new GFE has taken away the ability to itemize and forced everyone to lumpsum numbers in order to compare easily but customers will still ask "what's in this lumpsum". Brokers will be at a disadvantage and lenders will take advantage, keeping margins high. Customers will go with the perceived lower income to the originator vs what is best for them.

The lack of competition continues to keep rates artificially high. Losing AmTrust after TBW is a big blow to the broker community. TBW was overdue with ridiculous pricing and ridiculous credit approvals; it was a matter of time. AmTrust was much cleaner with great technology. How some of the other independent stay alive is a mystery to me given the desire of the big boys to eliminate TPO through the back door and the line difficulties. I wouldn't be surprised for a few of them to tumble as well. 

Should it be more expensive to get a loan insured by the Federal Housing Administration? That is the question the House Financial Services Committee examined last week Currently, FHA loans comprise more than 30% of the entire home-loan market. But as some of those insured loans have defaulted, the FHA loan-guarantee fund has slipped below the Congressionally mandated 2% level. As a result, some lawmakers are suggesting that FHA loans need to be more expensive to obtain. In fact, a House bill, the FHA Taxpayer Protection Act of 2009, would increase the minimum downpayment required to obtain a FHA loan to 5% from 3.5%. Almost 90% of FHA purchase loans issued between January and August 2009 had loan-to-value (LTV) ratios of 96 or higher, according to written testimony from Robert Story, chairman of the Mortgage Bankers Association. That amounts to a very small commitment on the parts of buyers. Housing and Urban Development secretary Shaun Donovan's testimony said he is committed to raising the expense of borrowing, though the agency is still exploring the best options and doesn't necessarily support raising the downpayment requirement. "We have made the decision to exercise our authority to increase the up-front cash that a borrower has to bring to the table in an FHA-backed loan -- to make sure that FHA borrowers have more 'skin in the game' and a stronger equity position in their loans," he said. Donovan outlined three such options: Increase the downpayment requirement, currently at a minimum of 3.5%; raise the upfront premium insurance premium from 1.75% to as much as 3%, which the FHA already has the authority to do; and decrease the allowable seller concessions for closing costs, which are now 6%, to 3%. Critics of increasing the upfront borrowing costs claim it's both unnecessary and could imperil the weak housing market recovery. Source: CNN/Money

 

Under a new rule from the U.S. Department of Housing and Urban Development, lenders will be required to have a net worth of more than $2 million. The rule was proposed by the Federal Housing Administration, a news release from HUD indicated. In addition to increasing net worth requirements, the rule strengthens lender approval criteria. The required minimum net worth is being increased from $250,000 to $1 million during the first year the rule takes effect. Within three years, the minimum net worth will be raised to $2.5 million. "These changes are consistent with industry standards and will ensure that FHA lenders are sufficiently capitalized to meet potential needs, thereby permitting FHA to mitigate losses and decrease risks to its insurance fund," the statement said. In addition, lenders will become liable for the practices of their correspondent brokers -- who will no longer be supervised by HUD. The housing agency expects the rule to "ensure that lenders possess the resources appropriate for the financial services they deliver. " Source: Mortgage Daily
 

Fannie Mae is raising its minimum score to 620 from 580 and lowering its maximum debt-to-income ratio to 45% to reduce future defaults. The underwriting changes go into effect the weekend of Dec. 12 as part of an update to Desktop Underwriter, the GSE's automated underwriting system. "The adjustments reflect careful analysis of a borrower's ability to repay their obligation over the life of the loan," said Fannie spokesman Brian Faith. Fannie claims that borrowers with scores below 620 are generally nine times more likely to become seriously delinquent than other borrowers. In modifying loans, "we have seen too many borrowers where their other consumer debt has jeopardized their success at homeownership," Mr. Faith said. He noted that none of these changes apply to Fannie's Refi Plus program, which provides a streamlined refinancing option for existing Fannie borrowers that have loan-to-value ratios greater than 80% and up to 125%. Source: National Mortgage News
 

The Federal Housing Administration is asking for an increase in insurance premiums to replenish its diminishing capital reserves while hiking credit scores for applicants. Housing secretary Shaun Donovan will ask Congress to raise the 55-basis point cap on annual government MI premiums. Administratively, FHA officials are expected to raise the 1.75% upfront premium and prohibit those points from being rolled into the loan amount. (The agency does not need Congressional approval to raise upfront premiums.) Even though it is hiking loan costs, HUD will allow the upfront premium to be priced into the rate. It also will allow home sellers to pay the premium. "The good news is that they are doing this administratively and taking leadership," said Brian Chappelle, a consultant with Potomac Partners. As the health of the insurance fund improves, FHA can reduce the premiums and other restrictions, he added. Source: National Mortgage News

Call to Action...your career is under fire!

As each government agency, state and federal blindly takes a swing at our pinata the damage is starting to be seen. The most egregious legislation to be proposed yet is the new TIL Reg from Federal Reserve. The Federal Reserve Board has PROPOSED a new Truth in Lending Rule (12 CFR 226.36 ~ Prohibited Acts or Practices in Connection with Credit Secured by Real Property or a Consumer's Dwelling) specifically, changes to the compensation of a loan originator as outlined under the Board's Proposal Ch. 226 . 36 (d) (1) on page 43282 "prohibited compensation based upon the loan amount". Here is a link to the reg (http://www.massmba.com/i4a/pages/index.cfm?pageid=3776 ). It is crucial that our voices be heard in order for calmer minds to be heard instead of the mob mentality that is reigning today. Here is a link with a spot for your commentary(http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm ) . I have included my response below to get your juices flowing....poor a nice glass of red and let your voice be heard!!!

I would love for you to copy this blog on any responses so we can all see where we stand and demonstrate the collective wisdom of the professionals in this industry.

RESPONSE TO REGZ/TIL CLOSED END MORTGAGE #1366

We have just come through the worst housing/mortgage market since the Thirties. Our housing/mortgage system from Main Street to Wall Street has been shown to be riddled with issues. Many of the good lenders have been pointing this out since TILA was enacted in 1968 but to no avail. These new TIL regs are the last changes to be enacted. They are being enacted without seeing the effect of the many regs previously, and currently, being rolled out. As eager as you may be to make up for lost time or to fix horrible wrongs, the key to all solutions is to "Do No Harm".

I have been in the Home Lending Business since 1986. I have worked for local banks, national banks, national mortgage lenders and currently for a regional mortgage banker. I have been an originator, underwriter, manager and executive. These are my observations given my experience above:

--I am shocked that the fed would believe that a customer should continue to shop and make various applications during the process of obtaining financing. The costs of processing a loan including appraisal and credit add to the borrowers over-all costs and pricing. Encouraging customers to try and time rates while under the duress and timeline of buying a home is irresponsible. The shopping should be done in advance, and then an application should be made. If you believe terms shouldn’t change then the customer should be required by law to lock in an interest rate at application and ALL must honor it. If a lender OR a borrower changes their terms or reneges during this period they BOTH should be liable. The history of lending is cluttered with lenders who closed their doors due to hedging/pull thru issues. Institutionalizing the playing of lenders till the end would cause lenders to raise the pricing to cover these loses.

--You cannot change human behavior by socializing prices. In 2009 our government has changed appraisal process (incurring poor service levels, eliminating competition and increasing costs to consumer), adding the MDIA (which have delayed many closings ), adding long overdue loan officer licensing and regulation (which has eliminated over 70% of loan officers and institutions while increasing costs and rates but leaving quality personnel and institutions), and instituting new GFE/RESPA guides (which solve many of the issues in this report). These changes will fix the large majority of issues without killing the industry that is needed to help the consumer navigate this new confusing world. LET THE CHANGES TAKE EFFECT before you add more! Any good physician knows that attempts to cure have to be given time, measured and watched, before new attempts to fix are attempted.

--Subprime, Option Arm, No Doc loans were not created by sales people but by institutions and investors. Stop the creation of weapons of mass destruction by controlling the arms makers not just the army who was asked to pull the trigger. This report is trying to fix problems that don’t exist today (due to the closure of the secondary market, elimination of subprime and alt-a lending and eradication of the majority of brokers and non-bank companies) but can in the future. Take your time and get it right at the root cause and source or we could revisit the crisis again.

--Having worked in banking and in large institutions, I have seen that there are always ways for margins to be made no matter what the regulation change. What the sales people were paid is not as important as what the customer paid vs. what the market rate was that day. Today lenders are enjoying their fattest margins in years but their expenses are increasing at an ever higher rate. So the customer today is paying a higher market rate than they did a few years ago during all the lawlessness. Why? Less competition. Maybe its right that they should if that’s what it means to get the process right; but the fact remains that they are paying more than they were. Also today I can provide a lower rate to a customer than a Wells Fargo or Chase and my loan officer will make more than the Wells employee due to efficiencies and lower overhead. To you that would be wrong because he could have worked for nothing. He “steered” the customer to a "higher rate" than he could have given; but it was still lower than Wells or Bank of America (institutions chosen to survive by the Fed and given advantages during our darkest hours). Let the remaining competition act with the new-better forms and better remaining professional licensed originators. Then measure it and see if it is still sick, before you forcibly operate and potentially kill a patient already on the mend.

We appreciate as a profession that much needed regulation that has occurred after 30 years of inaction. The shock of these changes has thrown an anemic and ravaged industry into a tailspin. But snap judgments and emotional reactions from the public sector don’t solve the issues in the private sector. The recent administrations alphabet soup of solutions to stem foreclosures is a perfect example. They were of minimal effect, great cost, and the public rejected the paperwork and confusion. Do not kill the newly licensed and tested professionals who are needed to be advocates for the borrower and lender throughout the home buying process in order to eradicate the 5% of morally corrupt individuals potentially still lurking out there. Increase enforcement of all the existing regulations before you create more. It’s only the good guys who play by the rules anyway. Without enforcement, only a handful of banks with no competition will be left with some rogue lenders who will be ignoring the rules without impunity….and who will protect the customer then?

Brian Koss

So... how you liking your new job?

I don't care if you've been sitting in the same office with the same business card (that will change too) for the last 20 years in the mortgage business, your job, AND career, has changed. Whether you are sales, ops, or management, it has changed. Yes, even if you work for a bank or credit union, it has changed! I know all you banker types are laughing thinking that all these new regs are simply put on earth to eliminate brokers and mortgage companies(and its working BTW); but these rules are meant to change the way business is done when anyone gets a loan. It just takes longer for the policies to work their way through the banking regulators and to penetrate the Federal preemption shield.

There will be licensing and registration of some sort for bankers. As brokers and mortgage bankers begin putting their license number and formal name on all their marketing material and application forms (including business cards), the public perception will go from the NMLS number looking like a convict number to a well earned designation. If we play it right as an industry we can show that these tests and long classes give us a higher level of expertise and buyer fiduciary education that positions us above our banker friends. When asked, you can describe that our courses and tests are open to all professionals in the business but that the banks use a legal loophole so their people don't have to take the tests or education. Now the bankers will respond that they have internal or FDIC forced testing but Sexual Harassment and How To Handle Cash at Closing Time is not the same....I will bet that the bankers actually voluntarily make their people take the courses and testing because of perception issues.

On the business card front... and all marketing for that matter. You need to go into your NMLS site and go thru all the tabs in your Profile. You need to make sure your data is listed correctly. If you are moving companies, you need to change your email and phone numbers; otherwise when you move NMLS won't be able to track you down when they have questions --and they will. They will then just suspend your license or claim abandonment, making it impossible to get paid as you are unlicensed. AND your name has to be exactly as you want it to appear on your card/marketing and you have to be able to support by your license or other documentation suitable for NMLS. For example if I put my name in NMLS as Lawrence Brian Koss instead of L Brian Koss; I would have to go by Lawrence Brian. Change it in the system. For the ladies out there who still go by their maiden name after 20 years in this business and 10 years of marriage. If you have changed your name on all your legal docs to his name, NMLS expects you to change your name in NMLS to your married name. If your name was Beulah Sanderson but you've gone by Sandy since you were a baby, you may have an issue. But do your home work and fight it now or you'll be Beulah for life!

I'm not an attorney but I know what these new rules say and how they can be interpreted. You need to do the research in the NMLS site. It is really a very good site with lots of explanations. Explore, do the research. Then question, debate and fight it now. Don't wait and be stubborn. By ignoring it you are putting your license and your company at risk. Today if any loans you did become non-performing, every investor will rip through the loan looking for compliance issues so they can kick it back. And we know every file will have plenty of BS minutiae "errors" that don't impact the credit decision or the borrowers understanding of the loan, but nonetheless will put you at risk. Be smart and take this seriously.

It's your new job...

Wait till I get into the new GFE and TIL! That will blow your mind... so loosen up and stop fighting the change. It's not as bad as you think, but it will take adjustment of how you present your self and your services. Say it with me Brothers and Sisters...Change is good!

Embracing Errors

   Dr. Robert Cialdini in his Inside Influence Report discusses "Error Management, not Banishment" as a key to success. The best of us have embraced the education of well reviewed and studied mistakes. Frequently I tell prospective employee partners that "here at MNI we can't tell you the perfect recipe for success but we can tell what likely won't work." It has been proven by certain psychologists that a history of setbacks and hardships can actually create a healthy, upbeat and confident individual.

The key is in how you are able to accept and learn from the mistakes.   Error Management Training (EMT)is the art of handling the study of past mistakes in a constructive manner in order to gain insight so as to avoid bad decisions and increase the likelihood of future good decisions.  The opposite of this model is the negative Error Avoidance Model. This model is the nagging "told-you-so" voice that makes you catatonic over the fear of making a mistake. EAM makes you believe you have failed personally not just professionally. It emphasizes the setback and doesn't show you how you will recover from it.

In today's mortgage world there are nothing but land mines set by the federal and state governments, attorney generals, HUD, warehouse providers, GSE's and investors. It was nice to see the early 2010 "we promise to be easy on you" announcement from the regulators on the implementation of the new RESPA guides/GFE/HUD. Compliance risk is now EQUAL to credit risk in our world as the penalties are equal and the allowances are similar. Investors are already using compliance violations as a way to send back a loan that is not performing when they can't find anything wrong with the credit decision.

 Now we must add more layers of compliance checks into the process along with compliance dedicated employees and management. This means potentially poor and slow service and higher cost but a safer process. Did we all not grow up in cars with no seat belts or airbags??? But some of us did not finish growing up because those two things were not mandated. Now they are and the majority of us pay the price of daily hastle and higher acquisition costs to protect the few who could be affected. But deep down we do it because we know it could have been us in the minority. For any of us who have kids we plan and fear about being in the minority who are affected, so we play along quickly(and our kids ride us to ensure compliance!) even though we didn't before. Hearing that "errors are a natural part of the learning process" and that "you learn from your errors" is an important training technique to create positive attitude and resiliency in all situations.

The first key to EMT to actively explore new tasks in order to encounter mistakes and thereby to recognize them and where they occur. Second it is then important to teach how to react when the error occurs; the key is when not if. As organizations we have to make sure we have a culture that avoids error hunting but instead becomes error opportunists. Recent studies demonstrated that companies that possessed a strong error management vs avoidance culture were 400% more likely to be among the most profitable in their industry. It just makes sense you cant stop people from being human; you just need to show them how to maximize the opportunities so they can improve their odds of making less errors in the future.

As humans we recognize this need to accept errors. But we measure how we see if people are actively trying to control their errors and also how they react when they do make them. In hotels they have measured the survey rating level and likelihood of recommending or returning to the hotel. They have found that people who have experienced an issue during their stay that was resolved quickly and with apology gave a higher satisfaction rating and were more likely to return or refer than those whose experience was flawless.

Why? Maybe its because according to the marketing we present they expect a perfect experience and you just gave them what they were expecting. BUT if something goes wrong--which the cynic in all of us expects to happen--our expectations are lowered and able to be easily wowed by doing something special to remedy. By the rule of reciprocity, if you go out of your way to do something for me then I feel I should do something for you.

We need to put our energies today into doing the best we can with what we have, especially when we have a lifetime of changes being implemented in such a short time. We need to set those expectations with our referral partners and direct customers. Then we need to plan and master the art of Error Management; we need to have plans, systems and empowerment to allow those at the point of the customer experience to make things right with apologies and remedy. The mortgage business is too fraught with potential error points with all the humans involved at every hand-off for their not to be fallibility. Take the pressure off perfection and put it on resolution and customer satisfaction.