Well, every time I think I've seen it all, another shoe drops. Fannie/Freddie bite the dust, and as expected, the govt. couldn't let them truly fail. It was truly the right thing to do. The web of debt instruments out there in the world that are tied through F/F are innumerable. Bottom-line is that we are a massive debtor nation now and we owe our debts to the world, in particular China, Japan, Germany, etc. They stopped buying F/F debt over the past month, in essence causing a reverse run in the institutions, which cause a massive vote of no-confidence. The spreads of mbs/treasury were gapping away. So the fed went in to really see what was going on, and lo and behold the books still were cooked. The new CEO's still weren't being truthful as to the extent of the problems!
Lie to me once shame on you, lie to me twice, shame on us. Lie to me 10x, we take over the business and wipe out the shareholders. So now we have GNMAs ugly step sisters Fannie and Freddie who now by association are .5% more attractive because they are in the Fed Family. But as you can see by the volatility this week, no one really knows how attractive they are. Traders are evenly split as to what this new conservator-ship means. Are they as good as Ginnie's? What is the long term plan? Aren't these loans still suspect given the terms of underwriting? If Paulson is leaving the end decision to the next president and Congress in 2010, what will that mean? Will the securities trade with the election polls?
Bottom-line is that this recent lifeline of rates in the 5's thrown to us is just one lifeline with the string that it is a one time move and not necessarily a trend. It is a one-time adjustment of spreads given govt backing of F/F. The underlying rate fundamentals are still at question. Now it is true that the rising unemployment rate and general slowing of the economy is causing fed funds futures to show some minor bias towards the Fed lowering rates slightly. But sitting at 2% does not allow for a trend to 0%. Plus the unwinding of oil to below $100/barrel is just an unwinding of a trade. Do we believe that the oil crisis is over? As I write this Ike is slamming Galveston and wiping out refineries and rigs. Remember Katrina's effect on oil and commodity prices?
Plus how are we going to pay for this F/F bailout? on top of a war, on top of a rehab of TX/LA post hurricane, on top of a new president promising the world? Start the presses at the treasury! Increase the deficit! Now, you can believe we will raise taxes to pay it down but that will be inflationary potentiallyy too. Bottom-line you can't believe in a bond rally to bail our asses out of this dragging market.There is a point to 2 points in excess fees that F/F have levied in fees per loan that the gov't won't unwind, as well as a hefty layer of tight restrictions eliminating 3 years of refis.
What I'm trying to say is, for those who came into this business during the rate ride down and made a living off of refis, this is not the return of happy days. Do not get distracted by this tease! This is the Castle of Virgins with the Blinking Fake Grail on top distracting Sir Galahad from his Quest. (for you Monty Python fans out there) Your quest should be to build a business based on referrals from non-rate sensitive sources like Realtors, Attys, CFP's, CPA's, ... and past clients.But, you say, don't we contact past clients for refi's? Yes but that is not the purpose of the contact; it is to be their respected debt management expert who they trust enough with all their debt questions that they refer all their friends and family as a zealous advocate for you.
That purpose is what you do 9-5; it is your core business. For many, this core business has not paid the bills over the past 2 years. If they hadn't saved money from the gluttony of the early part of this decade, they would be in a position to either leave the business or find other sources of income. I have found too many people working other jobs for menial wages during these times in order to make ends meet. The second job could easily be a variety of second approaches to add to the core business.
#1 of course, is priming the existing book of business for refinances. If you have been keeping in touch with active debt management and not just recipes and "cards from the heart", you will have actual buy orders in for 100% committed clients.You can see those who did it this week. There are LOs who had a double digit app week and those who had none. If you had dedicated just one night per week to actively contacting your clients over the past year, running the scenarios where it made sense to refi, establishing a buy point, drilling home the docs needed and that a lock is a lock; you would have made more income in one month than a year of part time jobs.
#2 is that you could have diversified from your core and embraced reverse or commercial lending as a new tool to penetrate another dimension of your book.If you studied those products, became an expert (or leveraged one in your company), you could have gone back to your warm book of contacts and probed for business while educating them. Do you have past customers over 60? Do they have parents? Then they are potential customers. Do you have self-employed customers who maybe own or want to own a building? Do your customers have CPA's or Attys? Then they too are potential customers. The great part to niches like these is that they can become your core, just like a second job. You might find a passion or vision you wouldn't have before.
It is never too late to make the right choice! While the tourniquet is on, start implementing before the next shoe drops.....
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