| SECRETS EXPOSED!
| Insights, Opinions & Commentary
| | Where You Heading? | Except for the latest re-fi cycle, mortgage rates have been in the 8% to 9% range on average since the early 1970's. With that in mind - the recent Mortgage Bankers Association of America (MBA) economic forecast reporting 30-year fixed 'conforming' mortgage rates will rise to slightly more than 7% by the end of 2006, comes as little surprise to most veterans in the industry. In fact some are predicting that number may be much closer to 8%. The (MBA) said residential mortgage originations will decrease from the record $3.8 billion reached last year to $2.57 billion, $1.96 billion and $1.85 billion in 2004, 2005 and 2006, respectively.
As the industry calms down from dream levels of production and profits, where are you heading? Are you thinking down stream a year or more, or focusing only on tommorrow?
Some are considering seeking investment capital; approaching investors to either build and develop an organization, or to expand existing ones as the 'conforming' market continues the shake-out it's just begun. Hopefully they will recognize a need for a very specific and detailed proposal about how they plan to use the money they are trying to raise and what it will do to the bottom line, because investors will expect to see it, and also understand that raising capital is an expensive and very time-consuming activity. Many have tried this option, most fail at it. No matter what you may think about your special plans, it's not a slam-dunk.
On the other hand, some may be considering selling their firm one day soon. Many who are broker/originators, naively feel their production these past few 'dream years' and relationship contacts (who will disappear when they sell & leave), plus their used computers & old furniture may be worth hundreds of thousands of dollars to potential buyers. That group should instead, be cautious to center their thoughts on retaining earning in their company (and not pull most of it out), and focus more closely on 'long term and steady' production numbers, so they'll really have something saleable - since most interest from serious buyers is directed on organizations with $500 Million+ in annual production for some time, and not in Mom & Pop shops!
Maybe you're in the third group. Not considering raising capital in these times of many opportunities, nor thinking about selling out - but instead simply going along with the flow! That bunch will have the most difficult time of the three, what with the constant changes in this industry which will continue to catch them flat-footed. Their long-term survival is suspect without a plan of action. Historically, at this point in the rate cycle in a contracting market, just bobbing along clueless won't work! They can look forward to being part of the 50% employed in the industry today, who will be out of work within one year. You gotta have a plan - and work that plan - to survive and prosper; you can't wish it will simply all work out fine! Click Here to discuss this item on our Board
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| | | Stated Loans Are Evil ? | So this morning I was speaking with a subprime AE who had e-mailed me that they now have a 100% (CLTV) STATED wage earner program with a pretty low credit score. During that conversation I explained I just got an application (which told me the applicants $6,500 income) and as I spoke with the customer in their living room, they showed me their W-2's & check-stubs but they wouldn't meet the DTI ratios needed to go full doc; but now that I see this new program where I guess I can say their income is $7,500 in my submission to the wholesaler, and it will fit their DTI ratios!
She said "Sure we do those all the time" - then I said "BUT I know that $7500 is fraud. Does your management know that when transactions like this (weak credit profile and DTI numbers that are out of line) are submitted, that they are not truthful?" She said: "Of course they do." I said, thanks for your time and hung up.
So then I get on the phone with one of the people that taught me how to underwrite subprime loans and he said "... the problem with this is that YOU know what real underwriting is actually all about - that's your problem! 100% of every STATED loan these days is fraud and the industry knows it and doesn't care, because they mostly are not portfolio lenders like we used to be. When the problems explode later, it's somebody else's worry."
I tell him the following: 1). I'm damn proud I learned how to really underwrite subprime loans. 2). I'm sad things in this business are the way they are, because in the long term, that sort of thing can't work. 3). I've never done a STATED loan in my long career. Never needed to, I gave them the loan they could afford instead. He told me: Time to retire from doing loans, your ethics don't match the real world anymore. Click Here to discuss this item on our Board
Something You Want To Say?
We have started to host this segment in our newsletter, where one of our readers tells us what's on their mind. Did you see last month's article here on Training to Retain? It was authored by one of our readers; I hope you liked it as much as we did. If you want to write a short industry relevant article (approximately 500 words) for this monthly newsletter; send it in! Our readers are looking for different viewpoints. Click Here to discuss this item on our Board
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