Blown Mortgage

at April 1, 2008 in Random Thoughts and Why I Hate My Industry.

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Well welcome to stated valuations. That’s right. A new bank is now offering “stated valuations” or SVSI (stated value, stated income) without an appraisal check. Claiming “Purchase Money Without the Hassles” nomoreappraisals.com let’s LOs register to get immediate access to their rate sheets. The rates are obviously higher, but not what you’d think for such a product. They lend in all 50 states and take an unverified home valuation as acceptable collateral. The loans are purchase-money only which supposedly protects from over-valuation.

Just when you think you’ve seen the worst of it some sucker is going to be stuck buying these SVSI loans. I guess one is born every minute.

Article publish date: April 1, 2008

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OPT ARM - MAX FEES Cousin?

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at February 7, 2008 in Why I Hate My Industry. 9 Comments

Thanks to a Blown Mortgage reader for sending this gem in. From the “you can’t make this stuff up” department I submit for your pleasure and pain the license plate “OPT ARM”. As the submitter said:

I wonder how people who’ve been swindled into an Option ARM feel when they see this car driving down the road.

Or as my buddy said. “What were douche bag and slime ball taken?” The base price on a BMW 645ci is north of $70,000. So figure anywhere between 3 and 5 pay option arms to buy that sucker outright.

Gotta run now, I just vomited in my mouth a bit.

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Predicting Rates: The Newest Vegas Tablegame

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Graeme

at January 25, 2008 in Mortgage Musings and Why I Hate My Industry. 11 Comments

vegas vacation I’m back. Hold your applause please.

It has been several weeks since my last post. I promised the Blown Mortgage cognoscenti that I wouldn’t write posts unless I was moved to do so. I should probably be moved more often, but I digress.

The past four days have been a whirlwind at Brown Ram Mortgage as they have surely been elsewhere. I can break the week down into four parts:

1) Rates Hit the Floor- As 30-year Fixed Mortgages hit 5% the leads from prospective clients roll in real time. My partner and I brace for the windfall of new applications.

2) Existing Clients Want in on the Action- After sending out a flurry of applications to potential clients, old clients come calling with one demand: they want in on the action. Many of those clients whose rates have not changed as a result of the Fed Rates Cut (i.e. 99% of them) heard the news on Good Morning America about “rates being cut.” Why can’t theirs be cut too???

3) Pleading for Clients to Send in Their Applications- My partner and I hit the phones pleading with clients to take advantage of our free 30-day rate lock. “We can lock the 5% for free for 30-days. Worst case scenario you get the 5%, with the best case being a continuing drop in rates, whereby I will move you into the better loan.” Our fax sits quietly at its desk, waiting to be called upon.

4) Mortgage Rates Return to Normalcy (and by normalcy I mean still well below historical averages)- My partner and I call each potential client to let them know that we can no longer honor the rates on the applications due to back-to-back midday rate changes. Tears well up in our eyes; defiant prospects point to another “rate cut meeting” at the end of the month. Frustration brews a cup of coffee in our office kitchen.

So why did people wait? Why did they not send in their application and lock their interest rates at 5%? Why did homeowner’s who could merely swap their 6.625% for a 5.625% without cost hold-off??? Because Predicting Rates is the Newest Vegas Table Game.

This forum has already been used to bemoan the fact that everyone is an “expert” on mortgages, especially those people who aren’t involved in the industry at all. If I knew as much about my potential borrowers jobs as they knew about mine, I would be a qualified auto-mechanic, doctor, lawyer and geologist all at the same time! That mortgage arrogance, as I would like to deem it, is certainly part of the problem. However, there is a greater problem which is greed. Much like at the blackjack, craps or poker tables, mortgage shoppers always want more. Cutting their rate by .5% or even 1.25% isn’t enough because they want more. And much like that friend of yours who “knows how to win at blackjack” because they read a book, each mortgage shopper has the inside scoop from their trusted source about the direction of rates. “I heard on the_________(radio, TV, neighbor, newspaper, etc.) that rates are going to go down even more, so I am going to hold out.”

Well, I have heard that if you double down on 11, split 9’s or higher, and hold on 16, that you can win more money playing blackjack. But, I can count on one hand the amount of times that advice has panned out, so I’d rather take the guaranteed money (or savings) and push away from the table.

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Okay, this is just wrong….

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Tom

at December 14, 2007 in Consumer Mortgage Tips and Why I Hate My Industry.

396%? How can someone who does something like that sleep at night?

Check out the story here……

I know it’s not actually mortgages, but it’s finance/lending related and it’s nasty.

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Why let a $2 billion quarterly loss ruin the holiday cheer?

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at December 14, 2007 in Mortgage Musings and Why I Hate My Industry. 6 Comments

Freddie Mac, one of the two Government Sponsored Entities (remember this part) that buy conforming residential mortgages, apparently didn’t let a $2 billion quarterly loss and 50% cut in its dividend to shareholders ruin the holiday spirit. The big GSE kept the mood high with employees and families this year with their family holiday event held at the swank Ritz-Carlton at Tyson’s Corner, VA.

Big hat tip to one of our own Blown Mortgage readers for sending in a copy of the hotel schedule which shows the 3 hour event that took place yesterday evening. You can see the picture below (click for a larger image).

Seriously? The Ritz-Freakin’-Carlton? Who’s thinking over there? Looking at this I feel like I’m on crazy pills. Running the risk of sounding like Captain Obvious - Memo to Freddie staff: When you’re hemorrhaging cash like a stuck pig and cutting shareholder value - ixnay on the swanky holiday parties at luxury hotels!

I’m sure the shareholders that saw their dividend slashed by 50% are more than happy to foot the bill on this one; I just wonder how the taxpayers are going to swallow the much larger bill that a GSE bail out will require.

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Monday Blame Game: Mortgage Lead Scumbags

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at December 10, 2007 in Credit, Economy and Why I Hate My Industry. 9 Comments

Even today they exist, and even today, they illegally spam. Lead brokers. Giant telemarketing operations that sell (and resell) data of dubious quality to mortgage brokers who then pass it down to their originators. Mortgage lead companies are ultra-middlemen–selling stuff to the middlemen mortgage brokers (and yes, bankers) the names of customers that have been bothered at home and basically, haven’t hung up. Lead companies still exist, they are still scum, and they are like the financial equivalent of fast food companies: you can’t argue with their right to exist, but they make the country a worse place.

The lead brokers happened upon a technique that–with minimal skill, care and effort, people’s worthless home equity could be magically transformed into valuable brokerage fees. They could start the boiler room process, paying people very little, and ship loads of “lukewarm” leads to mortgage brokers. Leads really harmed things by transforming the culture of the industry from abundance to scarcity.

Someone starts a business as a mortgage broker to help serve their community, to help fill a need, and to offer their expertise in lending to their customers. Noble, good. They figure if we build it…they will come. But then the fax comes up with faxes offering free mortgage leads. These leads don’t require the same attention to detail, care, or service than local customers that they might bump into at the grocery store. It doesn’t matter if you “slam dunk,” someone that’s a lead, so you learn that you can get ‘em for all you can.

The March to Scarcity

Fees go up, so the broker orders more, and so the meth addiction starts. No longer interested in being part of the local scene, the broker that wanted to do it better is corrupted by the cheap dollars. Local accountability is removed from the process, so it doesn’t matter what you charge. Instead of working with local Realtors, the relationship that brokers have becomes adversarial (Here, the classic: “Why do you care what I make rears,” its familiar head). The shortcut path promotes a mentality that you must wring ALL YOU CAN from the limited supply of leads. You’re not building a business, you’re closing people on deals.

So the race to the bottom continues. Nobody forced the brokers to take the leads, just like nobody forces people to go into a pawn shop. The practice should be legal. But it doesn’t make it any less scummy.

And the beat goes on. A worse variant of these leads exists though. Trigger leads.

Trigger Leads: Credit Repositories are Buckets of Filth.

Any human being that sold, bought, called on or profited from these foul little slips of paper has irrevocably and permanently ceded the moral high ground in every disagreement that they may have at any point in their lives. Trigger leads work like this: A mortgage company pulls credit on a customer with their permission. That same credit file is then resold by the credit bureau to one or many different mortgage companies because the customer didn’t opt out at www.optoutprescreen.com. That the credit bureau have any credibility left after having resold consumer data is unfathomable to me.

Who would think the credit companies would be able to sell information about you–your score, your phone number, and the fact that you’ve applied for a mortgage in 24 hours? Who would opt IN to such a list? This is nothing more than institutionalized identity theft, and another thing that created false urgency, and rewarded perverse behaviors. The credit bureaus sold this again to lead companies (and in some cases mortgage companies directly), and customers complaine about getting 10-20 calls in a day regarding their mortgage.

Brokers with the “everyone’s doin’ it” mentality should immediately and permanently exit the industry. You’ve received stolen information, permitted the credit bureaus to cannibalize our industry by profiting from a scuzzy, repugnant and sick business practice. Please leave the industry now, and go back to selling vinyl products to senior citizens.

Chris Johnson points the finger at someone new each Monday. When he’s not tilting at windmills he runs the Ten Day Team at First Ohio Home Finance in Columbus Ohio. chris@tendayteam.com for more details.

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What Will Sales Monkeys Do?

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at December 6, 2007 in Credit, Job Search and Why I Hate My Industry. 24 Comments

An average loan officer from 2000-2006 got a pile of leads on their chair every week. These were generated by telemarketing leads, Internet leads and even those “win a Car” displays in the malls of the Midwest. The loan officer would call the people up, and try to “slam dunk,” the customers into various loans of different and dubious suitability.

These people had/have no care or need for relationships–if an average fee was $8500 a loan, and they could do 5 a month, the average split being something around 47% paid these 20 something modern Matchstick Men could make $240,000 for stripping equity as a “multi state lender’s representative.” These folks had closing ability, and had good communication skills, to a point, but they were clearly overcompensated, and the market is rejecting the idea that a bunch of 20 somethings, fresh from the used car lot can be in charge of the financial fortune of good people in America. But where will they go?

None of these failures had a need for prolonged relationships with the same Realtors, Customers, CPAs, Attorneys. It was a series of quick, one night stands with their customers–that they’d hope to never see again. What happens to the guy that brings home a new woman each night do when he hits 40 and is more like Herb Tarlek than Brad Pitt? Where are all of you exiting lenders going?

What industries are currently paying so much to so many for so little? My guesses are Pharm Sales, Insurance, and maybe even Energy if they can dumb the job down enough.

What are your guesses?

Chris Johnson runs The Ten Day Team at First Ohio Home Finance in Westerville, OH. He is happy to put pithy guest posts on your blog if you email chris@tendayteam.com

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Monday’s Blame Game: Dirty, Dirty AEs.

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at December 3, 2007 in Industry Mortgage Tips, Marketing, Mortgage Musings and Why I Hate My Industry. 41 Comments

Dirty, Dirty A.Es.

Part of the problem that puts us where we are today is the way mortgages are sold. The process creates a ton of perverse incentives that cause an overall degrading of credit risk across the spectrum. Wholesalers bop into mortgage companies and talk about program highlights. They employ Account Executives (AEs) to communicate their messages. The AEs chat up how quickly they close loans, and what loans they are looking for. The originators are their customers. A good, knowledgeable rep is worth their weight in gold, because they know which exceptions their companies will and won’t take.

Originators generally have the choice of many different places to send their money. I myself use five total sources, but back in the subprime heyday, there were people in our office four and five times a day–minimum–trying to get us to send our clients to them.

Exceptions: The Rule in Lending

In a sea of sameness, these originators began to sell what exceptions–tough deals–their company took. First Franklin was the ’score driven’ lender, allowing people 12 hours out of their bankruptcy discharge to close loans. This “score driven” bias was a huge reason to send stuff to First Franklin because they could (in 2005) close loans when the borrower had thousands in money owed to bad credit card bills, judgments under 10k, and even Child Support. There were others.

The AEs began selling their “exceptions,” or “niches.” Things that they did that nobody else did. The now defunct Own It was notorious for doing high-loan-to-value loans for people that had no history of paying anything, ever. Do you see what happens?
Successful reps wanted to win, so they would get relationships with underwriters, and write to the LETTER of the guidelines negotiated with their securitizers. Crap loans–that were obviously crap loans–were not only accepted, they were sought after by reps and sales managers. “We’ll do that,” was the mantra of the highly aggressive, industrious and intelligent AE community.

Perverse Incentives

On more than ten occasions, I was told how to do a “phantom second” by a rep–essentially asking me to commit fraud against his own company. On more than five, it was put in writing. I was told to “throw away income docs,” and run it “stated”. And–from the perspective of the AE–they are paid to get acceptable loans. That’s their job, and the incentives were pretty perverse. If you were good at finding–and selling–the soft spots in your company, you get promoted to management, where you disseminate the information even faster. A partial verbatim niche sheet from a now (nearly) defunct lender (bonus points if you guess which lender in the comments).

unlimited 90 day lates if no NOD filed.
“Seller Seconds” fine with us (Note: quotes his, not mine)
1 DAY OUT OF FORECLOSURE W/620 IF BANKRUPTCY 1 YEAR OLD.

So–the incentive to put volume above all other concerns–including quality–meant that lenders were actually trolling for business that we all knew HAD to be worse than risky. That it remained acceptable for so long was mostly because of the “popular because it’s popular” Ponzi effect of the Real Estate Boom. Once the prices dropped and the valve to “sell or refinance” was removed, well, the mortgages were all Blown.

Chris Johnson is a mortgage lender in Westerville, OH specializing in closing purchase loans in ten days or less. He can be found many places on the web, including here.

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Getting Consumer Trust Back

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at November 29, 2007 in Consumer Mortgage Tips, Credit, Economy and Why I Hate My Industry. 6 Comments

So, how dare I insinuate a loan officer may be even a little bit responsible for putting his/her borrowers in a suicide loan? It was fascinating to get that firsr dose of impassioned hate mail, that.”What am I supposed to do, starve?” we’re asked. “A Realtor is just gonna send their business elsewhere if I can’t close this deal.” Oh, no! There’s not another deal to be had, anywhere! If that particular agent (who should be ashamed of himself for pushing a client into a high payment) doesn’t send you business–you’ll starve? What a load.

That justification is bogus, insulting, and it comes from a scarcity mentality. One deal is trivial, unless we’re gouging our customers. We have a moral responsibility to rise above this crap, and to have some standards about the business that we do. Turn down business from the Realtors that habitually red line their clients. Go through the numbers with the clients, and tell them–honestly–based on experience and spending what you’d recommend. Yes, FNMA is still approving people at 64.99% debt to income ratios. Does that mean we should make the loan? Only in rare exceptions when the borrower really has a means to pay for this loan, and a plan to do it.

Our business is not a zero sum game. If we get that out of our head, two steps ahead of the game. The reason that people mistrust our is because everyone spins stuff for selfish reasons. The NAMB spins (One side of the mouth here, the other here, the NAR spins, and yes, the media spins yarns of doom and gloom to sell papers and ad ad space.

There is still an enormous market of people that want to buy, should buy and need to buy. The terrible ethos of “now” didn’t and doesn’t work. Originators for both brokers and bankers must act as front line underwriters. I know some brokers do. This isn’t and shouldn’t be novel–not for Agents who are–in most states–fiduciaries. Counsel people, ensure that they know what they’re getting and giving up. Let’s them to the best of our ability, so we don’t drive headlong off of a cliff.

Nice words. What’s in it for me?

People have built in BS detectors. If you’re someone who is rock solid, you benefit because it attracts referrals faster than anything else. I’ve done it the wrong way, and I’ve done it the right way. The right way is more lucrative both short and long term. No matter what happens, our jobs as originators will survive in some form or fashion. No matter what happens, we will still stick around. Are we going to continue to accept the lowest common denominator?

If we have pride in what we do–and we find ways to counsel people on what’s right for them–we will be magnetic to the kind of clients, Realtors, CPAs and others that are an absolute joy to work with. Ultimately, we can’t fool people long term. We need to be front line underwriters, protecting both our clients, and the financial institutions that make this possible. It’s an easier, more harmonious path, and the only way that we can survive in a transparent 2.0 world.

Chris Johnson is team leader of the Ten Day Team, where Realtors get their clients low rate loans in ten calendar days.

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Uncle Angelo Ruined by TheStreet.com

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