Count your blessings

Well as opposed to last January, the low rates seem to be here to stay. The insanity of it all! Even when we get low rates we get a government that promises even lower rates (4.5% for everyone!) so applicants delay closings waiting for the headline to become a fact! You end up renegotiating your pipeline and lose all your money, blow through your hedges and be faced by EPO with hits galore. What a nasty business....this could be the Nantucket Sleigh Ride that kills off the remaining true mortgage bankers.

Credit lines are non-existent and held by the same companies that really hate TPO business and are the biggest competition to the mortgage bankers. These big banks are confused as to what to be. Wells and Citi have left the warehouse business and pulled back on much of their TPO. Chase and BofA seem to be still giving lines but want profitability in irrational markets. We are heading to higher levels of unemployment that will cause a torrent of buybacks that will wipe out most of the remaining mortgage bankers. Foreclosure will triple from record highs and the agencies will kill their customers by pushing it all back. Isn't ironic that now we own Fannie and Freddie, they are screwing us more than ever!

In todays dual income world you have twice the potential of losing a job in a household. This will take the 10% rate of unemployment to feel like 20%. So 2 out of every 10 loans you have done in the past will come back to haunt you, plus the effect on values will have a much longer effect. Potentially all mortgage bankers, and especially wholesalers, will not have the assets to with stand this wave of buybacks. Plus their line providers will pull their funding due to net worth and profitability requirements.

So that leaves the banks with their precious money-printing charters left to rule the world. But we all know banks fatal errors of arrogance, fear and slothfulness. They will blow it and a new world will be created where broker,banker like entities will arise again to fill the need. But that will be many years away. In the meantime, all those bad loans will still hurt the banks. We have a long list of banks already under-water that the FDIC is trying to find a partner for. That list of 50-100 will balloon to 300-600 over the next two years. A Resolution Trust Co will be created to handle the disposition of all the assets and the number of banks will shrink again by 20%.

So do you have to work for a bank now? No but it depends what your fears and concerns are. Banks can make money in other areas so they exit the mortgage business on a whim. There will always be persevering entrepreneurs who will succeed in any market, but this sea-change will keep the number greatly down. Ideally mortgage bankers using investors to buy a bank charter and start fresh is probably the best model. There are no legacy liability issues and you get the access to the treasury with good business minds driving. Problem is that Bernie Madoff just scared away the hedge/PE guys for a long while. The fear that he caused to hit the market will keep money in the sock drawer for months, if not years, to come.

So you see, I have no answers. We are shutting down our wholesale division because there are few options for them to go to. It is a shame because they are good people who are good at what they do. There either isn't enough volume to make money at 5.5% or not enough credit to handle the business at 4.75%. Dancing on the razor's edge is fun for no one.....especially all these families who work there.

So if you are in a good place, take advantage of these rates and make some money. Be smart. Be selective as to who you do business with. Take the loans only that you know will qualify and commit to you. Don't forget to take care of your referral sources though! Remember purchase by day, refi by night!

Remember your health, your family and your friends at work during these crazy times. Take any money you make and save what you can, because when rates go back up just a little, we will be faced with a trickle of business.

Comments

[Frank Mancino]

Brian, Thank you once again for your timely words of wisdom. Happy Holidays to you and your family and her's to a Joyous, Healthy and Prosperous 2009!!

Frank Mancino