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How are the Feds bailing out Countrywide today?

1- Certainly, as Countrywide has moved it’s fundings to its federally-chartered bank, any Fed market activity benefits them.

2- I said that they way out of the mess was for Countrywide to originate new loans in less risky programs. CFC has rolled out a major reverse mortgage program and is compensating brokers to refer those loans to them. While some people believe its actions violate the spirit of HUD laws, there are no HUD guidelines specifically forbidding this practice. Reverse mortgages are three times as profitable as conforming loans and carry little or no risk to the originator because of the HUD guarantee.

3- Finally, aggressive use of the FHA and VA loans are being practiced by Countrywide underwriters. The word in the mortgage brokerage community is that CFC is the place to go if you have a dubious guvvie file. We hear that CFC underwriters are primarily focused on the ability to repay the loan as opposed to a demonstrated ability to repay the loans. That’s lender talk for “if the guy has jacked up credit but can afford the payments, send it to CFC”. The word on the street is that CFC is approving those loans. Guvvie loans are twice as profitable as conforming loans and carry no risk to the originator.

From Greg Swann:

Twenty-five nominees. I confess that it’s faster for me on Sunday if I’m not too picky, but this week saw a surplus of very good posts.

Vote for the People’s Choice Award here. You can use the voting interface to see each nominated post, so comparison is easy.

Please don’t spam the voting. I accept that there can be differing moral standards on scamming social media, but only one of those standards applies here. If you email 300 of your closest friends, telling them to vote for you, I will ignore all your votes. We’re interested in what is popular among people who participate here, not how popular you are with your buddies. That doesn’t even seem to me to be a complicated idea, but I’m explicating it nevertheless.

Voting runs through to 12 Noon MST Monday. I’ll announce the winners of this week’s awards soon thereafter.

Here is this week’s short-list of Odysseus Medal nominees:

CLICK TO SEE THE NOMINEES AND VOTE FOR THE BEST ENTRY 

Pretty graphic title.  I'm a little more in-your face than most pundits.  Neither of those scenarios sound good, in fact, both are horrific.  California's going to bleed...hell, it's bleeding already.

I wrote an article about the California Governor's brokered deal with loan servicers:

Is this measure politically motivated? You betchya. The Governator is taking care of his own, regardless of the inequities it levies on the rest of the country. The lenders are in a bind so they’ll appreciate this artificial market stabilization until the rest of the country catches up. This is Nixonian economics, plain and simple. THAT interventionist policy exacerbated rather than solved the problem of inflation.

What I’m about to say will be unpopular in the Golden State; housing prices are artificially inflated and need to come down meet rational economic models. Borrowers who make $90,000 annually can’t afford $700,000 homes. You can intervene in markets but the price of Amsterdam tulips will naturally gravitate towards its real economic value.

While I don't like the idea of reckless borrowers getting a free ride, Robert Kerr exposed the insidious nature of the lenders' motivation in this comment:

This CA proposal has to rank right up there with the most well-disguised scams of all time. The Governor is busy patting himself on the back, the press is fawning over the lenders’ benevolence …and the lenders are laughing all the way to the bank.

This isn’t a bailout, it’s Loan Sharking 101. When your borrower starts drowning under the vig, you cut back the vig, roll it over onto the principal and keep bleeding, at a slower rate.

Did Arnold’s advisors get this great idea from watching Richie Aprile run his shy on The Sopranos?

An upside-down borrower with a $400K mortgage on a $300K home isn’t helped with temporarily frozen payments. If the lenders really wanted to help, they would reappraise and write off some or all of the overvaluation.

Did he really just say that?  He compared the loan servicers to organized crime?  CONTINUED

We're racking our brains for brilliance. Now, we have a name for our conference.

Unchained will be all about you, the independent thinking real estate agent or loan originator who is defining her service offering through Web 2.0; interactive marketing.  It's not for the mainstream folks who troll for the stray buyer at the overpriced Open House.  The loan originator who still delivers donuts and rate sheets or is obsessed with the movie Boiler Room will be out-of-place.

We're talking to a REALLY big name in this space for the keynote address. The kind of guy Seth Godin calls boss. If we ink the sponsor, we'll deliver a speaker who defined this consumer-centric marketing philosophy.  We have exciting speakers lining up for the chance to share the things they've done on the Web, and done effectively.  REAL people, agents and originators, who have embraced this revolutionary way to connect with consumers.

Oh, and the venue will be oh, so UNCHAINED, nestled in the one uber-cool town in Arizona. Monday, this was an idea.  Wednesday, the idea got legs.  Today, we're pulling something together. 

UNCHAINED:  Not restricted by the bondage of a boss.  Free to roam.  Able to  sniff out new opportunities.  YOU.

I've been playing around with the idea of a "Boot Camp for Real Estate Web Marketers" for a few months, now.  Many of you know that I've tried to bridge the digital divide by calling or meeting as many people as I can from Active Rain.  I made it a goal to meet 100 people from Active Rain, at the beginning of this year.  I lost track but I know I was up around 70 this summer.

I started the year off with the First Arizona Bloggers Conference in Phoenix.  We had 20 people show up and share ideas in a roundtable format.  I was overwhelmed by the willingness people exhibited to meet and greet.  Clearly, two hours wasn't enough. 

It appeared that we needed a hands-on, how-to seminar format for people to share how they have spread their marketing message on the Web.  Bloggers are like a bunch of guerillas; using the big guys' strengths against them and to their advantage. 

I kept at this idea with Greg Swann; he embraced the idea and announced it to the world. 

We’re thinking Sunday, May 18, and Monday, May 19, 2008. After that, things get nebulous. But: All work and no play makes for a boring Bloodhound, so we’ll do something fun Saturday night, May 17, if you fly in early. Then maybe a networking/cocktail party Sunday night. There will be time for a round of golf on Monday morning. We might also set up real estate tours at that time, so you can get some product knowledge while you’re here. Or you can swim and sunbathe while the weather in Phoenix is still ideal — hot and dry.

But keep in mind that we’re only leaving time for leisure because we plan to work very hard. This is an event for people who already understand why we’re doing this stuff and want to learn how to do it better. We always want to push things farther and faster than anyone else. We always want to be at the head of the pack. I wouldn’t be surprised if our instructors assigned homework, and I am certain that more than one brand new Black Pearl will come out of the event.

We had an overwhelming initial response to the trial balloon.  We checked into conference facilities and had serious discussions with companies who want to sponsor such an event.  Greg offered an "interested parties" link- the e-mail was jumping today.

Some of the things our faculty wants to cover include:

1- SEO

2- Viral Marketing

3- Web brand promotion

4- Writing for Expertise

5- Building an e-Rolodex through social media

6- Podcasting

7- Vidcasting

8- Integrating mash-up tech sites

It will be a busy two days in the desert.  We'll have general sessions and breakout classes, all designed to teach you, the real estate practitioner, how to capitalize on the budding opportunity that is interactive marketing on the Web.  If you're thirsty, we'll turn on a firehose and invite you to take a sip.  If that's too much, we'll send you home with a DVD collection to recap what happened so you have it for posterity. 

Any suggestions for topics you want covered?

Do members REALLY own the content on Active Rain?

I asked that question some 13-14 months ago, wondering whether the hours I invested would be worthwhile. I was satisfied with the explanation that the content was, indeed, the members’ property.

Move.com attempted to buy Active Rain, it balked, and conversations about a future revenue model led the idea of syndicating the user content to the mainstream media. Again, the question of who owns the content arose- the answer was identical to the 2006 answer; the members own their content.

Justin Smith (aka Damion Foxworthy) wrote a satirical post, which won the People’s Choice Award, in the Odysseus Medal competition, about “selling” his Active Rain profile. Justin, through diligent weblogging and contribution to the community, has amassed some 100,000 points on Active Rain. The entry was cross-posted on Active Rain and generated an overwhelming response from the membership in the comments section. As usual, I “read too much into” this comment from Top Rainmaker, Jon Washburn:

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Todd Carpenter has the answer to the yield spread disclosure debate.  It's so stupendously simple, it will work.  Instead of relying upon the current prestidigitation in the mortgage business, or screaming about the evils of yield spread premium,  or whining about the how bankers have an unfair advantage over brokers,

Eliminate the disclosure of yield spread premium by mortgage brokers. 

I've been somewhat quiet on Active Rain.  Since August, mortgage origination has become an increasingly difficult job.  While the business has generally slowed, we specifically, have been booming with demand.  Unfortunately, it's not the demand I like.  Californians, Arizonans, hell, many Americans, are up to their eyeballs in debt.  Most couldn't afford it in the first place.  These past few months, I've missed calls, eschewed family life, and tried to keep up with the tons of homeowners in trouble.  I turn it all off on the weekends.

I read a lot.  I realize that after I hit 40 (2 years ago) my weekends had transformed from chandelier swinging and body-boarding to a happy hours with real estate brokers, golf with stock brokers, and Church.  Between those events, I consume blogs, Milton Friedman, Bill Gross, Barron's, and Knowledge@Wharton.  I read a LOT because I'm a money geek.  I love money, not in the materialistic sense but I love money.  I guess I should say that I am intrigued by finance.

I prognosticate every week on Mortgage Rates Report about the direction of interest rates.  I speculate on the direction of certain real estate markets.  I follow specific companies and their demise on Wall Street. I follow the mortgage and real estate industries like a kid from the Bronx follows the pin-striped boys of summer.

Lenn Harley caught something I said a year ago and found it to be prescient (her word); I wish I were wrong.   The comments in her post suggest that I should talk about the upcoming year; I really don't want to do that because I don't have great "visions" for 2008.  Some thoughts about the next 12-18 months:

1- More not less of the foreclosure activity we saw these past 5-6 months will continue through 2008.  A combination of ARM resets, tightened loan guidelines, and affordability problems will affect American homeowners in a  dramatic way.  It's easy to levy the blame on Greenspan, mortgage originators, Wall Street, or REALTORS but at the end of the day, the "greed" ultimately came from the homeowners.  The American homeowner, aided by some opportunistic market participants, got drunk on the drug of materialism, financed by a world wide capital glut.He partied up the profits while the clock struck twelve.  The foreclosures and continued short sales will be the hangover from the five year orgy we had in the first part of the decade.

2- The housing recession will extend to the American economy.  Homeowners drew upon home equity like a a high-roller draws chips at the Venetian hotel in Vegas.  Nobody will "stand up" for them with the bookies anymore.  The money spigot is shut and won't be turned on no matter what the Fed does to interest rates.  Less money means less disposable spending dollars.  While, Virginia, there still is a Santa Claus, he won't be staying long at your house this year and might just skip you next year.

3- There will be a marked class distinction that develops within the next 6-7 years.  It won't be determined by assets but by debt and its utilization.  Those that respected money will get more of it; those that didn't respect it will lose it.  That will have a profound effect on productivity as the "hourly worker" will become despondent about his life and stop pushing for the overtime.  Why work the extra hours to make the mortgage payment when the house was lost in foreclosure?  A commitment to mediocrity will be the mantra of the American worker because every disposable dollar will be spent payig the bar tab he ran up five years ago.  Personal bankruptcies will rise.

4- Housing prices will drop...more.  The aforementioned reasons for foreclosures rising will be the same pressures felt in the housing market in 2008.  Prices will continue to drop until a level of affordability can be established.  That means that the investors (real investors put 20% down) will step in when the deals cash flow.  It also means that until the rent v. buy figure is at parity, the incentive to own will be tabled until the economics of homeownership make sense.  Determine the median income for your metro area, multiply it by 5 and that's your new median price.  In San Diego, the income is about $70,000 which predicts a median price of $350,000, far below the current $470,000.  That suggests another 15-20% drop in prices here.

5- Real estate agents and mortgage originators will flee the industry faster than teenagers bolt from a keg party when the cops show up.  It is my belief that  fully 9,000 of the 14,000 licensees in San Diego County won't make a living wage this year; expect most of them to be on to another job next year.  The remaining practitioners will be fielding calls and e-mails from disgruntled homeowners like a an airport gate agent in a snowstorm.  Learning how to say "No, I'm sorry I can't be of assistance" will be the single best script to learn for next year.  Smart practitioners will learn how to properly qualify WILLING buyers and sellers and will profit immensely from it.

6- People will buy homes, they always do.  A culture of opportunism will develop among the buying pool and if left untrained, they will drive practitioners insane.  The wise REALTOR or originator will assess motivation as much as qualification before accepting a brokerage or financing engagement. 

7- Fundamental underwriting guidelines will reign supreme for the next 12-18 months.  Think Y2K when you think of lending.  If you weren't around back then, ask me for help.  FHA financing, being touted as the "catch-all" for the wounded borrowers, will be woefully inadequate to handle this debacle.  While FHA offers expanded credit and LTV guidelines, the ability to repay the loan is still required.  John and Jane Homeowner just don't make the money to support their debt-load.  100% financing won't go away for those with sufficient credit, reserves, and income.  First-time home buyers will emerge as the predominant players in the home buying market.  Relationship building, counseling, and firm but encouraging advice will need to be dispensed.

8- More home buyers will go online to start their home search. By reading this article, you are at a decided advantage over your competition...you're here, already.  The very nature of the on-line home searcher demands that you do free work before you ever talk to them.  Successful practitioners will "convert" these modern day "open house looky-loos" into viable prospective clients by forcing them onto the phone, then to a lender, and ultimately into their office to sign an exclusive buyer brokerage agreement.

The characteristics of the thrivers these next 12-18 months will be superior relationship building, keen intuition about the viability of the prospective client, and decisive closing skills to encourage action.  Practitioners will need strong lending partners who can deliver more than rates or programs; the future of the purchase mortgage originators will lay in their ability to help the REALTOR convert the prospect from a name and e-mail address to a executed contract.

It is my greatest wish to have Lenn Harley write a blog post entitled, "Brady's prognostication skills are all washed up" next Halloween but I just don't see it that way.

I lend in 42 states.  I've been in the consumer financial services game for 20 years.  While I should have been a Jesuit priest or a Naval Academy grad...I'm a mortgage originator.  I have a six-year old daughter with a passion to attend Villanova University so I wont be going anywhere soon.  If you need a salty sailor to help you ride out the storm, I'm seasoned.

Big banks have a HUGE advantage over mortgage brokerage firms; they have the money. Federally-chartered banks also are regulated differently than mortgage brokers; they are overseen by the Office of Thrift Supervision, a successor regulator to the Federal Home Loan Bank Board. Federally-chartered banks also subscribe to FDIC insurance which imposes another layer of oversight to them. In the interest of simplification, the OTS regulates banking activity while the FDIC monitors the bank’s investments.

Big banks have a lot to lose if they have a rogue originator among their ranks. That’s not to say it doesn’t happen; rogue originators infest every business model, including the big banks. What is apparent, however, is that the big banks have greater systems in place to supervise the actions of their employees than do mortgage brokerage and correspondent lending firms. They also have more stake in the origination process- the authority to borrow and lend money with the legislated blanket of a government guarantee (FDIC insurance).

Steering is an ugly practice practiced by real estate agents and mortgage originators alike.  The problems lies in the compensation; incentives or bonuses often taint the advice given you by your real estate or lending agent .  These secret incentives often manifest after you've been lulled into the bliss of your home purchase and get explained away as "volume incentives" or "relationship bonuses".  They are not illegal nor should they be.   They do, however, subvert the process of agency and bastardize the relationship between you and the professional you hired.  

This article will refer to different authors in the real estate brokerage and mortgage origination communities.  Spend two hours reading all of the linked articles and you'll learn how to get superior real estate representation and a mortgage professional who embraces the concept of fiduciary agency. 

I'll start off with the disclosure that I've accepted engagements as an exclusive mortgage broker and as a mortgage originator "hustling deals".  I mostly adhere to this policy: 

• My firm charges 1% of the loan amount plus $495 for mortgage brokerage services (lender fees and third party fees not inclusive).
• My firm charges 1.375% of the loan amount plus $1795 (inclusive of all lender and third-party fees) when acting as a principal to the transaction, funding the loan.
• My firm will charge a minimum fee of $3000 and a maximum fee of $10,000
  

Does that sound expensive?  It's really not.  In fact, I'm probably priced at the lower end of the compensation range for loan originators.  I base my compensation model to be in-line with the prime bank lenders' compensation model to its originators.  For a reader to claim that "Big Bank in America is cheaper; they offer no-cost loans" shows an ignorance of the relationship between rates and closing costs.  The first thing a reader must understand that relationship by knowing about  yield spread premium. 

READ: Yield Spread Premium: A Tutorial For Realtors

I also accept engagements for mortgage origination under the "hustle theory".  In fact, most customers initially choose this method of compensation because it is how they were trained to shop for loans.  It is based on the false premise that market information available is correct.  It preys upon the misunderstanding of market information by the customer in a primary search for the "lowest rate" and a secondary search for "reasonable" fees.  Often the rate or fees are compromised to accomodate the other other.  

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