JUNE 2009 O
ARIZONA MORTGAGE PROFESSIONAL MAGAZINE
O www.NationalMortgageProfessional.com
financial and economic crisis
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lunch. They were swept away by the investment aspect, the lure of easy money, to borrow a phrase from an old Eagles tune. How could homebuyers go wrong? Little or no downpayment required and asset price appreciation of 10, 12, 15 even 20 percent per year for five straight years in markets like Florida, California, Arizona, Nevada and elsewhere looked irresistible. Sign ‘em up! And since 10 percent of $500,000 is larger than 10 percent of $300,000 (which may be affordable) let’s take the $500,000 house and finance it with interest only, at a 2.5 percent start rate (for six months) and a second mortgage. No guts, no glory, no skin in the game. An ATM in every home … if only for a while. In reviewing this presentation, my friend Richard Garrigan, a retired professor of real estate finance at DePaul University in Chicago, noted that much of the housing speculation could be traced to the Federal tax law change that occurred in the late 1990s. This change permitted a married couple to avoid up to $500,000 in capital gains on a primary residence after owning it for a minimum two-year period. Furthermore, a second home could be acquired and become a primary residence after the first home was sold. Think of all the housing demand this tax law change stimulated. Free capital gains and tax write-offs to boot. Again, the law of unintended consequences surfaces. Near the bottom of my hierarchy of blame rest the originators—the brokers, the real estate agents … the street level participants. Sure, they originated many loans now delinquent and foreclosed, and sure, they pocketed lots of commission dollars—though impishly small compared to Wall Street’s take. However, none of these brokers, which The New York Times recently called “predatory,” ever underwrote a loan or approved a commission. None. First and last, they were salespeople. They didn’t create payment option ARMs (POAs) and other risky products. And
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like all salespeople, they sold the products they were given, thinking little about the consequences or risk potential of a black swan. Not surprisingly, most felt they were doing borrowers a great favor, and for years, they literally were. In 2006 brokers, loan officers, real estate agents, lenders, etc. could look back and pat themselves on the back for a job well done. Virtually all of their customers had houses that were worth tens even hundreds of thousands of dollars more than when they were initially financed. Brokers were largely blind to any understanding of the magnitude of what they were doing. If Alan Greenspan didn’t see the crisis coming, nor Henry Paulson or Ben Bernanke, how could mortgage brokers? In the Inferno, Dante reserves separate places in Hell for various transgressors. From where I’m sitting, a largely dispassionate perch, the worse places go to the Fed, the Congress and the regulators. That’s where the buck should stop. Less bad places go to Wall Street. The least of the worst seats are reserved for the mortgagors and mortgagees. Or, to put it in the words of Vijay Mathur, professor emeritus of economics, in a recent op-ed piece: “Hence the ultimate fault lies with Congress, the Bush Administration and the Fed, because they were the only ones who were capable of taking a macro view and seeing the inter-relationships between the various segments of the global financial market. But they all ignored the warning signs of the housing bubble and financial collapse.” And so it goes … we now live with the aftermath and consequences of a two-term Administration and an ideology that put us at the bottom of a deep hole. The challenge ahead is to crawl out as quickly as possible, then fill in the hole so we can never again stumble into the perfect storm. Tom LaMalfa may be reached by e-mail at tom.lamalfa@gmail.com.
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mortgateNOW announces MNI Update mortgageNOW Inc. has announced its MNI Update, a value-added service that provides credit information so that borrower profile information is fairly evaluated on credit decisions. MNI Update will educate the consumer on their credit score, along with providing strategies to assist them to accurately reflect their credit score with continuing oversight throughout the process. “Based on the testimonials from users on our Web site, we have found this program to be extremely successful in helping consumers obtain mortgage financing that may have otherwise been turned down,” said James Marchese, CEO of mortgageNOW Inc. Brooklyn Heights, Ohio-based mortgageNOW Inc. is a national mortgage banker, FHA direct lender, offering the opportunity for experienced loan officers, managers and telemarketers to originate government loans through its branch locations. For more information, call (732) 4500088 or visit www.mtgnow.com.
AllRegs and Mortech offer Leadmark product and pricing engine
AllRegs, an information management provider for the mortgage industry, has announced the availability of Leadmark, a Web-based product and pricing engine, lead management and guideline solution. The Leadmark product, created by Mortech, a mortgage technology software company specializing in daily pricing, product decisioning and lead management, is targeted to smaller mortgage businesses and online mortgage lead purchasers. “Now, more than ever, it is important to support small mortgage organizations and mortgage broker shops with business generation, and we believe that Leadmark is the next great resource in their toolkit,” said Dan Thoms, senior vice president of AllRegs. “The small guys deserve the same powerful tools that large mortgage organizations have to do their business. Leadmark levels the playing field for the small mortgage banker and mortgage broker.”
Leadmark provides access to a lead aggregator, product guidelines and lead management tools in one automated system. The product and pricing engine can be used solely for those in need of an easy way to price loans, or combined with lead management features. A key feature of Leadmark is the ability to integrate seamlessly with one of a variety of Internet lead aggregators. “We designed Leadmark as a simple yet powerful solution for lenders looking to price and manage leads,” said Don Kracl, president of Mortech. “By incorporating AllRegs’ guidelines into the new solution, we’re confident the system can be adopted by any sized organization. Mortgage professionals have enough hurdles today; Leadmark gives lenders the resiliency they need to maximize profits.” For more information, visit www.allregs.com/leadmark or www.mortechinc.com.
Byte announces software for the Home Affordability Modification Program Byte Software has announced the release of the BytePro Loan Modification Edition, providing servicers with an all-in-one tool for processing modifications under the Treasury’s Home Affordable Modification Program (HMP). The BytePro Loan Modification Edition allows servicers to process HMP modifications from initial borrower contact through completion of the modification. It automatically calculates the interest rate, term and balance of the modified loan in accordance with Treasury mandates, and it produces all the documents that must be executed by the borrower and servicer. For loans that do not qualify for the HMP program, the software provides the ability to modify loans according to the lender’s own parameters. “Processing a loan modification is remarkably similar to originating a new mortgage loan,” stated Joe Herb, Byte Software’s general manager. “Both involve gathering application information from borrowers, ordering real estate settlement services, producing loan documents and performing complicated financial calculations.” The HMP program was announced by the Obama Administration on Feb. 18, 2009 and is expected to help between