Becoming an Involved Leader Contribute your time, experience and creativity towards influencing solutions By George L. Duarte, MBA, CMC
“Be an industry leader; represent consumers’ right to the American Dream, and small business by being involved and contributing your ideas to your local and state legislators.”
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APRIL 2012
MINNESOTA MORTGAGE PROFESSIONAL MAGAZINE
NationalMortgageProfessional.com
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efending your industry and the consumer’s right to choose service providers means that you have to remain engaged in the advocacy and legislative/regulatory process, no matter what forces or trends are operating against you. Those of us in the mortgage loan originator (MLO) business, especially as independent brokers, have seen the tidal wave of blame, recriminations and the resultant flood of knee-jerk reaction legislation and new regulations overwhelm the market. Starting with the Home Valuation Code of Conduct (HVCC), one regulation after another, layered on without considering the individual or cumulative effects, are causing the real estate market to fail to recover; causing further confusion among consumers, and creating unlimited liability for MLOs and lenders. When people get confused, they do nothing. We’ve all seen the statistics of how many potential first-time homebuyers are sitting on the sidelines, failing to take advantage of this historical juncture of the lowest rates ever, and depressed property values. Their fear of the security of their jobs in this economy is compounded by confusion of the mortgage process and extensive paperwork; with no clear assurance on the future value of owning a home. For the first time ever, there are forces inside and outside of government questioning America’s historic commitment to homeownership as the integral foundation of “The American Dream.” They say that there is nothing wrong being a life-long renter, and there are many people who just shouldn’t own homes. “They” fail to say that when you’re a renter, you’re paying the landlord’s mortgage; and that homeownership is the historically proven method for the 99 percent to build equity and savings over their lifetime. It is also not mentioned that individual homeownership has been critical to the economic advancement of African-Americans, Hispanics and other minorities in this country. Thankfully, this battle is still being waged, and “they” have not yet managed to prevail, and deprive Americans of their right to the American Dream. This is where we in the mortgage origination industry should choose to stay high profile and be more engaged
than ever. We are warriors defending the American Dream, and the rights of small businesses to survive as a viable consumer choice distribution channel against the marketplace and regulatory advantages of those entities that are “too big to fail.” We are out there in the streets every day, working and helping real people solve their problems and achieve their goals; no one knows the effects of the current economy and poorly-thought-out regulations have upon consumers and the real estate market better than us. It is easy to become discouraged and feel helpless against the flood of recriminations and resultant regulations that has occurred over the past four years, but this is exactly what our adversaries want to have happen, so that we give up the fight and quietly go away. However, it is important to understand that the wheel has again turned, and that things have gotten so bad in the real estate market in most of the country without any apparent hope for improvement, that legislators are becoming much more receptive to ideas from industry veterans; recognizing that we are in the trenches every day, and that we know what works and what doesn’t. Therefore, it is more important than ever to be engaged at every level of government, from city council to county supervisor to State Assembly and Senate to members of Congress. Remember, a famous man once said that all real estate, like politics, is local. It is impossible to underestimate the potential possibilities of establishing relationships with your local legislators, especially in these times of hyper communication. The marketplace and legislators are thirsty for positive input and good ideas. Be an industry leader, stay in the game, make sure your voice is heard as an industry expert who knows how it works; and be sure to contribute to the discussions of how to improve the real estate market. To this end, I have written a bill designed to address all the loans that HARP 2.0 does not—adjustable-rate mortgages (ARMs) that are owned by other than Fannie Mae and Freddie Mac that are jumbos, monthly adjustables, Alt-A and sub-prime loans. In California, the majority of loans in the state are not owned by Fannie and Freddie, and most Californians are not helped by HARP 2.0. The bill is called the “Homeowners Relief and Home Retention Act of 2012” and appears below for your review and thoughts. I have been around the legislative and bill-making arena for many years and harbor no illusions about the chances this bill has, or what the end product would look like. I also have no emotional investment in this bill, knowing it will be bent,
spindled and slammed, and I will take no personal offense at that process. Obviously, I think the bill has a lot of merits to benefit both consumers and the banking industry (it doesn’t require principal balance reduction or cramdowns); doesn’t require any government money; and lowers the homeowners’ payments substantially for a five-year period, pumping much needed liquidity into homeowners’ hands. This bill is designed to stimulate serious discussion about doing something different to address the housing crisis, the situation is not improving by conventional thinking. To do things the same way and expect different results is the definition of insanity. I have had discussions with several members of the California State Senate and Assembly about this bill, and they are very receptive to having it move through the bill creation and sponsorship process. Right now, this bill has been submitted to the California Association of Realtors (CAR) State Legislative Committee and on to their lobbying team for review, discussion and proposed sponsorship by CAR. We remain very optimistic about its chances, having gotten very good feedback on the idea. Here is the bill in its current and original form as of April 2, 2012:
Homeowners Mortgage Relief and Home Retention Act of 2012 Summary-Situation Report The economy continues to be stalled, unemployment remains stubbornly high and the real estate market has stabilized in some areas, but continues to deteriorate in others. Many homeowners are still distressed, causing more properties to go on the market at ever lower prices, to the point where more than half of homes for sale in any given area are short sales and foreclosures, with “regular” listings in the minority. Those who don’t have to sell, don’t, preferring to wait it out. Even those homeowners who are willing to hold on and wait it out in rapidly declining areas are losing hope, and considering walking from their properties. So far, federal efforts to stem the housing crisis have done little if any good, to the frustration of homeowners and Congress alike, look at the Hope 4 Homeowners Program—announced with great fanfare in 2008, but with no net effect at all. President Barack Obama’s latest efforts, a re-working of
his Administration’s Home Affordable Refinance Programs (HARP), HARP 2.0, will apply to only a minority of Californians whose loans are owned by Fannie Mae and Freddie Mac, it has been expanded to remove the loan-tovalue (LTV) limits. It is estimated that nearly 60 percent of all the mortgage loans in California do not qualify under HARP 2.0, limiting the benefits and impact in the state. This estimated 60 percent consists of option ARMs, subprime loans (which are ARMs), and jumbo loans, most of which are either option ARMs or intermediate ARMs. The American economy will continue to flounder until the housing market is stabilized and consumer confidence returns. Two things need to occur: Stop the decline in property values by establishing stability in mortgage payments and returning a measure of affordability to existing homeowners, encouraging and enabling them to stay in their homes. Establish credit liquidity into the market to enable and encourage firsttime homebuyers to purchase the excess inventory of homes from homebuilders, foreclosures and short sales. Homes are more affordable than any time in the past 15 years, with the home affordability rate in California now at over the 60 percent mark, up from only 16 percent just five years ago. There is a pent up demand in young families looking to establish their households and families, whose twin problems are availability of downpayment and closing cost funds, and much tighter qualifying guidelines. The only low downpayment program available now for non-veterans is the FHA program; along with the Cal HFA program that is periodically available, but unreliable due to the state’s fiscal crisis. FHA has recently increased its downpayment requirement, and raised the mortgage insurance premium (MIP) fee as well, which it will be doing again twice more in 2012. The FHA program has actually historically been of limited utility in California, with too low loan limits, which is large part of what caused the rise of sub-prime loans in the first place. The current management of FHA is very concerned for the safety and viability of the program, because its usage has increased more than 120 percent in the last year. The underwriting requirements have gotten more conservative, with requirements for higher credit scores as an example. continued on page 44