I frequently read a handful of industry discussion boards, and post on some of them from time to time, as some of you know. I see this particular question being asked and discussed often, so I thought I would take a stab at it this morning for you.
Based upon what I read, the conventional wisdom seems to be that it will 'come back' (like it was the last several years) and that it will probably take a dozen years or so to do that. That 'conventional wisdom' I speak about, looks like it's coming from people who joined our industry during the last industry cycle Aug '98 to late Dec '05, so in my view they lack a clear picture in the broader context of the business.
I want to give you some of it's history, so you'll have a well-rounded view of the horizon. Subprime, formerly called B/C paper and/or 'non-conforming,' began in 1914 (with my initial industry employer and others). As an eye-witness, I know it was a around in 1966 when I started as a twenty-something LO. Fannie Mae and her snot-nosed step half-brother Freddie Mac (labeled 'conforming') began in 1972 and BTW, I went to their baby showers, etc. and drank a lot of beer!
Since then, Fannie (FNMA) & Freddie (FHLMC) - let's call them by the initials they like to use these days "GSE's" - during their history have stumbled badly a couple of times and ONLY because they are Government Sponsored Enterprises, they haven't exploded all over everybody like 'non-conforming' has a couple of times (but been real close).
The way in which 'non-conforming' was done - 'originate to distribute' - during the last 20 years (not before that), and especially the reckless way it was handled the last decade, is at the core of what it's going through, and what you all have seen recently.
The last full year of originations before the Aug.’98 to Dec.’05 cycle when rates plunged and home values soared to the heavens, give us a production volume of $65.693 Billion for Subprime’s 1998 annual total. While the 2007 annual total for Subprime was nearly three (3) times that at $181.289 Billion, and as has been reported just 2 weeks ago on the front page of the NMN, "B&C Vanishes as Volumes Fall to 7-Year Low."
News reports from December ’03, were reporting that a Mortgage Broker shift to Subprime had started, 'conforming' was off by 1/3. Therefore, for the 5 year period 1998 through 2003, mortgage brokers (60+% of the market) were concentrating on 'conforming' loans; then subprime took off like a rocketship, only to slide backwards significantly as we moved into the current industry correction.
 I sware, I'm not trying to make your head explode. Actual number of individual loan transactions closed/funded in 1998 was 1,021,676 – 2007 it was 933,480. So, back in 1998 (we worked harder not smarter), we closed more individual transactions, and made a whole lot less money for our troubles!
It is my observation Subprime it will not be back like it was during the '98-'05 period (ever again), but IS back (if you thought it left) right now ... only YOU don't know who the players are, and who the big-shot players are going to be (nor do I) ... because they are starting/building/growing/ developing, etc. right as we speak. It's my sense going forward they will operate nearly as they did during the period immediately prior to the start of the last cycle in August '98 with annual production totals for the next several years (about 1/3 of today’s numbers), and similar to that period. Register then tell us what you think on our Discussion Board
Freddie Seeks Appraisal Comments
Freddie Mac is seeking public comments until April 30 on the appraisal policies it agreed to implement as part of a settlement with New York Attorney General Andrew Cuomo. Freddie Mac and Fannie Mae are slated to implement the new appraisal code by Jan. 1 under the March 3 settlement with Mr. Cuomo. "To implement the Code with minimum disruption to the market and, as required under the agreement, Freddie Mac is requesting comments on operational and implementation issues, as well as unintended consequences or risks you identify in connection with the requirements of the Code," Freddie said. The agreement bars Freddie and Fannie from purchasing mortgages [Nationwide] from lenders that use in-house appraisers or subsidiary appraisal firms. On brokered loans, lenders must certify that the mortgage broker did not select the appraiser ... I WONDER WHO ORDERED THIS ONE? Register then tell us what you think on our Discussion Board
Revised RESPA Proposal Out!
On March 14th, HUD revealed it's long awaited RESPA makeover after six years, seven roundtables and thousands of industry comments since HUD first proposed RESPA reform in 2002, the agency has at last formally released the entire contents of its extensive new proposal for revamping RESPA and fundamentally altering the closing process. Mortgage brokers face critical changes; there's a 60 day comment period. Be sure to thoroughly and carefully read the new 131 page anticipated law changes right HERE and send in your comments to HUD. For our mortgage brokerage friends, don't hold your breath waiting for NAMB! Register then tell us what you think on our Discussion Board and see an Analysis
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