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The weekends make Monday so tough on me - there is so much good stuff debated over the weekend that I want to respond to, comment on, and argue against. It makes me wonder if it would be worth just staying up all Sunday night to crank it all out. But, alas, I need sleep. So here are some short rejoinders and feedback to some of this weekend’s posts that I wish to respond in greater length to, but want to point you to them for the time being.
Jillayne Schlicke of Rain City Guide talks about Subprime Solutions and how to solve the problem of retail loan origination. Her recommendations are good, the only one I have a problem with is the "self regulating" argument. Jillayne uses this argument of self regulation to call for loan officers to affiliate with some type of ethical lending standard.
There are now four national professional associations where retail mortgage salespeople can voluntarily choose to act with professional status, or at least pledge a higher level of honesty than the existing industry associations. Members of NAMB must simply look like they’re honest.
I have a problem with the concept of ethical lending associations, designations or other privately developed ethical lending platforms. Jillayne is smart and sharp, so I need to reason out a much longer response than this or she will hand me my lunch; but in short the reasons I don’t like private ethical lending entities are: (1) they themselves are not regulated (2) they all set their own standards, and they all vary (3) this provides inconsistencies which make it easy for consumer confusion in the marketplace (4) this confusion ruins the effectiveness of such affiliations (5) it is easy for lender’s to "look ethical" on a handful of files and in practice be out of compliance (6) many of the criteria for membership are not related to actual ethics or service delivery, such as time in business.
I have a whole post for this one.
Keith over at Housing PANIC has a great post on how mortgage broker’s are compensated via Yield Spread Premium kick backs to work against the borrower’s best interests.
"The YSP or "Yield Spread Premium" is nothing more than the Bank’s kickback to the broker for doing the loan.
The worse the loan, in terms of interest rate, that the broker gets the borrower to agree to, the higher the YSP dollars go to the broker.
What exactly, other than honesty, is the broker’s motivation for helping a borrower get the best available deal?
Brutally honest and spot-on. I have a lot to say about yield spread premium. And it is even worse than that, as my recent New Century YSP post outlines.
Mr. Jackson over at Housing Wire and echoed at Housing Doom talk about the Bear Stearns IPO of a hedge-fund owned primarily by Bear Stearns that is made up entirely of under-performing CDO’s (collateralized debt obligations - subprime mortgages). Bear Stearns is selling stock in its bad loans. Brilliant? Let’s see: buy bad loans, force mortgage companies to buy them back, take under-performing loans costing us money, make a new hedge fund that we own buy them all, IPO the hedge fund and pass the capital risk to the new share holders. Brilliant indeed. Sick too, but brilliant none the less.
There I feel better getting those off my chest. Now I can dig in!
