Lots of interesting actions occurring these last few weeks. Most are interconnected and many explain why we are still in the malaise we are in as an industry, country and world.
First is the general hand-wringing over the economy sliding backwards into a deeper recession and arguing over the causes and who is to blame. As usual a top down approach has not succeeded after opening up the checkbook to have government cure all ills without partnership from those who could actually give real time input into the solution. These solutions conflict with the simultaneous restrictions from dozens of agencies and politicians all based on an industry that is currently dead or in a coma. Sub-prime, Alt A, Secondary Market all are shut down, side-lined and eviscerated in ways that make these arguments all moot.
So the assumptions that lowering rates by the Fed buying more mortgages again is a waste of tax-payers money and a costly delay in the effort to jump start housing and the US economy. It is almost 2012 and the government is just coming to terms that the 2009 HARP program fell short by missing 80% of the 5 million borrower goal. This is no surprise to any of us. If the government wants to truly see where they are missing go beyond cryptic HMDA and ECOA data and get into the thousands of loans that are declined to refinance AND purchase. The real story is where money could have been saved and homes bought, but frequently roadblocks got in the way.
Plenty declines are still people who want to cash out, consolidate, or purchase for all the wrong reasons. They don’t manage money well but can’t see that and still feel entitled to what others have. We are still pushed by realtors and builders to do loans that shouldn’t be done. Rarely do we see referral partners caring whether a borrower can truly afford the home. Where are NAR and NAHB on educating their members on their responsibilities in the aftermath of this debacle? The pressure cooker that LO’s are subject to when they can’t make their own mortgage payment to push the envelope still exists and needs to be examined by their own constituencies. Lord knows NAR and NAHB threw the mortgage industry under the bus very quickly to make sure we were the scapegoats.
So even though rates fell below 4% for 30 yr fix for a record time little appreciable business flowed in. If anything we saw people leaving our business!! Why? What is working against Obama’s plan to save homeowners $60-80B a year or .5 our GDP?
1) Appraisals. As you have heard me say, values continue to be a mystery. The HVCC and AIR regulations have created a baffled, scared and confused group of underwriters and appraisers. The interpretations of the regs are all over the place but the liability is massive. Ironically the route has been to go the AMC path to protect the lending institution which Cuomo had been trying to eliminate. Now we have our worst appraisers doing the majority of our business and our most senior being irrational and obstinate on the other hand. Both come in at different values and both are pissed off. We have gone from having appraisals being inflated by 10+% with lots of comps to choose from including emotional bidding wars, down to appraisals with virtually no comps to choose from including comps of desperate sellers done by scared, beaten up appraisers and audited by scared, beaten up underwriters. Is it a surprise that “values” are an issue? I believe in many areas we are talking up to 20%+ swings simply from the people and environment not the true value.
2) Lack of competition and capital flowing into lending market.
A)Was it really a lack of regulation that caused our issues or a lack of enforced existing regulation? I’d argue the latter. Some of our most obvious industry embarrassments still lend today or were allowed to survive much longer than they should have been. Recently we saw TBW execs go to jail but they were being nailed for outright fraud. The damage they were affecting on Ginnie and Fannie were allowed to continue to the end. Now we have Allied in the same boat. They were well known as a shop that flaunted the rules openly, especially on FHA and their compare ratios were a neon sign in the desert. Its 2011!! This was known for years and years! Now the industry gets painted with this brush at a time it can ill afford it. It doesn’t instill confidence in people outside the industry trying to get in and only tightens credit.
B)The regulatory environment for those wanting to grow as a significant financial institution is keeping large firms from getting into the lending business. MetLife’s abrupt exit was in direct relation to the regulatory pain that 4% of their income was causing 100% of their company, especially executive and shareholder comp. This keeps the wealthy field of insurance companies out of the direct lending business; a logical source of capital that is repelled from investing.
C) REITs were looking to be a major player in the filling of the void left by the collapse of the GSEs but an unnecessary and vague letter from the SEC has left them catatonic and on the sidelines. REITs will still play a role but be de-leveraged in a way that takes scale away. Was this really the time to investigate and question a long standing tax code? The SEC hasn’t proposed a solution or denied the structure, just thrown a wrench into everything. And a note from Garret,Watts, Annaly REIT has raised $5.8B this year to invest in loans! That’s Annaly worth $17B, while BofA is at $66B and dropping…the market is telling us where the confidence lies.
3) One last thought on HARP and govies. The non-qualifying program was a dominant product in the refi boom years ago. It acted very much like a simple rate modification and lowered the payments of thousands of borrowers easily and efficiently. The rub is that the performance of these loans has been poor, especially TPO. If a company isn’t servicing the deal most are avoiding or bouncing to a full credit qualify refi. I don’t blame them. Given the presence of people like Allied and many one-eyed wholesalers, I wouldn’t want to be blindly signing off on deals that are destined to die.
So the solution may be to find a middle ground that involves counseling or other modification of debt. Also not having the report card be affected by the one doing the refi but by the original originator on streamlines would get more folks in the game and saving money.
The pendulum has swung too far and smart minds are realizing it. It just takes awhile for the momentum to start back. Keep the pressure on our legislatures to see the light. The baby, the bathwater and the whole house has been thrown out at this point……