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Issue 029 November 2009 TheNicheReport.com

fanatical service.

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Blog Your Way To blog or not to blog, that is my website?

13

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CONTENTS

18

Issue 029

November 2009

House Painting as a career choice - Underappreciated or overlooked? Or: The future of the mortgage broker

NICHE REPORTS agency & FHA

pg 45

REVERSE

pg 45

HARD MONEY & NON-PRIME

pg 46

PORTFOLIO & ALT-A

pg 47

JUMBO

pg 47

CONSTRUCTION/REHAB

pg 47

COMMERCIAL

pg 48

martin andelman

FOUNDER & PRESIDENT Robert Pegg robert@nichereportonline.com CO-FOUNDER & PRESIDENT David Pegg david@nichereportonline.com MANAGING EDITOR Stewart Mednick stewart@nichereportonline.com

10 13

Blog Your Way Mark Morrison www.becomeamortgageblogger.com To blog or not to blog, that is the website?

Speed Marketing™ for Loan Officers Geoff Zimpfer creator, speed marketing™ for loan officers Doubling your REALTOR® referrals in 90 days.

24

Corporate Finance Trends W. Joseph Caton training and development consultant Mapping out the next real estate investment cycle.

6

Take back control of your marketing tom krug founder and President, MindRiverMarketing.com The case (once again) for direct mail.

Seizing Control of Your Retirement Bernie Navarro President and founder Benworth capital partners Plan by investing in mortgages.

14

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November 2009

DEPARTMENTS

EDITORIAL / CONTENT MANAGER Kristen Moser kristen@nichereportonline.com ACCOUNTING MANAGER Shawna Ingram shawna@nichereportonline.com Advertising Reps Jessica Grizzle Jessica@nichereportonline.com Mark Moulton mark@nichereportonline.com Production Manager Henry Suchman henry@nichereportonline.com

09

NOTE FROM THE FOUNDER

31

Production Assistant Dawn Exner dawn@nichereportonline.com

The Voice of housing

35

mbs warroom

ADVISORY BOARD Randall Marquis Senior Editor, The Mortgage Lender Implode-O-Meter

38 41 49 54

RULES & REGULATIONS HEADLINES TIP OF THE MONTH LENDER & RESOURCE DIRECTORY Bringing up the rear

COLUMNISTS Martin Andelman Karen Deis Matthew Graham Stewart Mednick Adam Quinones CONTRIBUTING AUTHORS W. Joseph Caton Tom Krug Mark Morrison Bernie Novarro Geoff Zimpfer


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Published monthly by BODA Publishing, LLC PO Box 494, Bentonville, AR 72712 Phone: 866.964.2695 Fax: 703.991.2362 Email: info@nichereportonline.com www.TheNicheReport.com

SUBSCRIPTIONS This publication is intended for real estate finance professionals. If you are a mortgage broker, lender, loan officer and you do not currently receive The Niche Report, please send your name, company name, and address to subscriptions@nichereportonline.com. Send address change requests to info@nichereportonline.com. Remember to include the old address. To opt-out of receiving The Niche Report, please send your request, including name, company name, and address to opt-out@nichereportonline.com.

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EDITORIALS / ARTICLES To submit an article for consideration in The Niche Report, please send an email to stewart@nichereportonline.com or call 866.964.2695. We are interested in original writings relevant to mortgage brokers and other real estate finance professionals. If you have a comment or question about an article or editorial published in The Niche Report, or if you have a suggestion for a topic you would like to see featured in a future issue, please send an email to stewart@nichereportonline.com.

THE NICHE REPORT POLICY The information and opinions expressed by contributing authors and advertisers within The Niche Report do not necessarily reflect those of BODA Publishing, LLC employees and should not be considered as endorsed or recommended by BODA Publishing, LLC.


NOTE FROM THE FOUNDER

Right now, as I type this, there are multiple blog/forum threads on multiple industry websites, discussing different theories on why, how and where wholesale lending is headed. This topic comes up every couple of months and is worth following. After sifting through much of the cliché doomsday and broker bashing rhetoric, I glean useful and insightful commentary, to say the least. Will brokers be able to survive? Or are they going the way of the dinosaur? Over the last two years, a huge contraction has hit the broker business. Some sources have total broker originations down below 20% of the overall market (from approximately 80%). There is and will be, without a doubt, a change in the way mortgage brokers conduct business. With many states opting to conform to the NMLS and new regulations such as the S.A.F.E. act, the landscape has and will be changed significantly. Many have transitioned their businesses to large and thriving correspondent channels. Originators who can’t or don’t want to conform to the new rules are moving to work under federally charted banks, for much less in commission and much less scrutiny. So you see, although broker biz has contracted drastically, it has for the most part transitioned to a different model with less headache. I believe brokers will adapt and survive, barring unforeseen sweeping legislative changes. This form of origination is too lean (financially) for large lenders (who buy TPO) to ignore. With NAMB West coming up in early December, it is very fitting that our Feature article this month is on “The Future of the Mortgage Broker” by Martin Andelman. Follow with him as he reflects on how we got here and why the broker needs to focus on a different philosophy. And for those of you who will be attending NAMB West, December 6th – 8th, please stop by our booth and pick up an extra copy of this very important issue to give to your fellow loan originators.

Keep up the fight,

Robert Pegg

TheNicheReport.com

9


Blog Your Credibility & Authority Among Your Audience and Boost Your Bottom Line To blog or not to blog, that is my website? by mark morrison

What is a Blog? Many people may be familiar with a blog but for those who are not, I will explain what it is and why you need one. A mortgage Blog is a platform on the web that allows you to communicate daily to your audience. Blogs are short articles called posts, typically on average of 250 words. The popularity of blogs has skyrocketed. Over 170,000 blogs are created daily compared to 60,000 in October 2006. That number is only expected to grow. The popularity of blogs has evolved from personal journal entry type entries to business blog marketing. Many companies such as Starbucks and Southwest Airlines have their own blog to connect with their audience. A blog is a valuable channel to add to your current marketing. It is very easy to add your blog address to your email signature, website, flyers, business cards, brochures, direct mail and other marketing material. You have just created an additional way your prospects can learn about what you do and how much you know by adding it to everything that has your name on it. The posts you write are typically industry related and are normally educational, informative or entertaining. By blogging, you are representing your knowledge within the industry to your audience. Blog VS Website Now, you ask, what is the difference between a blog and a website? A blog is actually a website. However, a website is static, meaning, it rarely if ever changes, where a blog is constantly changing. A blog is updated weekly 10

November 2009

if not daily. A website is like a brochure; it is a oneway form of communication. Typically, a website tells the reader how great you are whereas a blog is more of a learning community; a dialogue that goes on with the readers. Think of it like going out on a date. You go out with person “A” and all they talk about is themselves and how great they are. They don’t let you speak a word edge wise. All you hear is “blah blah blah blah.” Then you go out with person “B” and they talk to you like you’re a person, they create an open dialogue and share their knowledge. With whom do you think you’ll have a second date? A blog is a way to establish authority and credibility among your clients, potential clients and referral partners. I like to compare it to authoring a book. With a book, you are writing the entire book then publishing and displaying it in bookstores. However, with blogging, you are publishing your articles piece by piece over an extended period of time and its being published immediately over the Internet for all to see. The two accomplish the same end result: credibility and authority. In order to do this, you can not blog about unrelated topics such as the movie you saw this week. The topics need to be somewhat related and represent your industry knowledge.

Use A Blog To Brand Yourself Developing a blog gives you the ability to market yourself and create a brand name with virtually no costs. You can create a brand the traditional expensive way marketing through newspaper, radio and TV or the new explosive way through blogging. The former will require


very deep pockets of money and the latter will require almost none. If you’ve been frustrated by your previous methods of branding yourself, then maybe it’s time to change course. There are far too many mortgage officers in any given area with whom to compete. Not only that, since mortgage officers can perform business anywhere they are licensed, you are also competing with mortgage officers out of your area or state for that matter. Personal branding helps to distinguish you from all the others. Research shows that when consumers are faced with a large number of people with whom to develop business relationships, they’ll select the person with the strongest personal brand presence.

How do I get started? There are a number of blog platforms out there such as typepad or blogger. You can set up a blog with their server and pay a small monthly fee. I do not recommend using these platforms only because I do not like storing my posts on their servers because anything can happen. Also, these platforms usually limit you to what you can do as far as design and functionality is concerned. I prefer wordpress.org as my blogging platform. With wordpress.org, you do need to have some technical skill in setting up your blog. It’s free but you still need to pay a monthly fee for hosting and registering your domain name. Wordpress allows much more flexibility in the design and functionality of your blog than the others. Once you have your blog platform set up, you can start blogging. When writing posts, it’s important to keep some simple writing tips in mind. What Makes A Good Blog? Blog content is the key factor in making a good blog,

but the best blog content in the world is useless without good blog layout. Many factors influence whether a blog layout is well received. You should put careful consideration into your blog’s layout to ensure people get the benefit of the content without being put off by the layout. • Add Photos to Your Layout. Adding photos to your blog posts is one of the easiest ways to make your blog visually appealing, and simultaneously break up large chunks of text. • Break Posts up into Small Paragraphs. The best content in the world won’t get read if it’s in a long block of text that’s impossible to read and digest. Break blog posts up into small, easy-to-read paragraphs for your readers. • Add Subheads to Make Posts Easier to Read. Like paragraph breaks, subheadings make your blog posts easier to read. • Use Header Graphics to Convey Importance. By using related graphics in the header, you can easily convey to your readers that you have something important to say. • Use a Clean and Simple Layout for Easy Navigation. Your layout makes a very big difference in how effective your blog is at reaching your audience. If your layout is overly complicated or difficult to navigate, people are less likely to spend time reading your blog, and less likely to come back again and again to search about topics that are relevant and important. • Use the Right Font Size and Color Scheme. Font sizes convey a lot to readers. If your font size is too large, readers may get annoyed at having to scroll down so much to read your blog posts. However, if your font size is too small, readers may find it difficult to read your blog posts, and give up on deciphering your content. Use font sizes effectively to convey meaning and important content while still delivering an easy-to-read style to your readers.

visit: www.influencedp.com/leadmanagement

Mark Morrison is founder of http://www. BecomeAMortgageBlogger.com a done-for-you mortgage blog. You can visit his site to learn more about mortgage blogging as well as obtain a complimentary e-book entitled “Mortgage Blogging Blueprint.” You can contact Mark at info@ becomeamortgageblogger.com.

influence Lead Management Service can help ensure that your company gets the maximum benefit out of its lead generation efforts.

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Seizing Control of your retirment Plan by investing in mortgages, Part II by bernie navarro

This is the second in a six part series of articles on using your IRA to invest in non-traditional investments such as mortgages. Part one can be found in our July '09 issue. acroeconomics is what happens to everyone “ else’s IRA, Microeconomics is what is happening to mine.” Not a classic academic definition on the order of John Locke, Adam Smith, and John Keynes, yet one that resonates in today’s uncertain economic times. While most of us do not have a first hand perspective on the great depression, many of us recall the impact of gas shortages in the ‘70’s, 18 percent mortgages in the early ‘80s, the first gulf-war in the ‘90s and the economic and emotional damages that remain from the 2001 terrorist attacks. The current cauldron of tightened credit, newly restrictive bankruptcy laws, energy price hikes, and slipping European economies have undoubtedly exacerbated the economy. By looking at our stock accounts, we are asking, “are we at the bottom yet?” When should I make a move? When will the real estate market rebound? Emotionally, it is a bit draining, especially when played out against the backdrop of all these economic bailouts. Yet, time does not stand still – and we must earn a living or our investments must earn a positive return, despite our current environment. Have you heard of self directed IRAs? Credit is drying up for the investor, with banks unwilling to offer even well qualified borrowers access to capital for real estate investments. It is the perfect time to be a lender through your IRA. Banks are paying depositors less than 3 percent on their deposits. The opportunity clearly lies in the spread – or the margin the bank makes between what it pays depositors and what it earns from borrowers. There has never been a better time to take advantage of this spread and become a nontraditional lender.

M

Right now, a large majority of IRA funds are parked in money market funds, given the significant volatility of the stock market. According to BankRate.Com, the average CD yield is currently at 2.65 percent, while the average two year fixed equity based private mortgage is at 12 percent. Clearly, this is a huge opportunity to grow your money fast. Through a self-directed IRA, you can provide loans to for a commercial or residential property which is secured with a first mortgage. Based on your comfort with the investment and the rate of return offered, you may choose the higher returns of being a lender, rather than simply a depositor. The rate for the loan is negotiated between the borrower and the IRA account holder. Once the funds are issued to the borrower, all payments are made directly to the IRA administrator. The benefits are clear the lender earns a higher rate of return, secured by real-estate, all in a tax deferred fund. Through a self-directed IRA or an individual 401(k) plan, the power of choice can be a compelling prospect for both the IRA holder and the user of those funds. Private placements, tax lien certificates, and direct ownership of investment real estate may also be accessed through a selfdirected IRA or 401(k). So now may be the best time to ask yourself about your IRA and put it to work, potentially increase your return. As always, surround yourself with good advisors and don’t be discouraged – the best opportunities are often found when no one else is shopping. Mr. Navarro is the President and founder of Benworth Capital Partners in Coral Gables, Florida. Benworth Capital Partners is a privately funded hard equity mortgage lender. Mr. Navarro has quickly made Benworth Capital Partners the preeminent hard equity company focusing on South Florida. This has quickly earned them the right to be named the “Hard Equity Experts.” Mr. Navarro can be reached at 305-4455223 x202, or email: bernie@benworthcapital.com.

TheNicheReport.com

13


Speed Marketing™ for Loan Officers Doubling Your REALTOR® Referrals In 90 Days by geoff zimpfer

D

id you notice how quickly the halfway point of the year arrived? What a roller coaster it has been. We have seen a more challenging, shrinking market for refinance originations, overall loan volume down, and the number of originators competing for that shrinking pie greatly reduced. How are you doing so far? Are you on track with your production goals? How many sources of business do you have and what would happen to your income if one of those sources disappeared or suddenly under performed? By my observation and through non-scientific surveys of originators across the country, it appears that too many originators’ business is still weighted heavily on the refinance side of the scale. The old “live and die by the refi.” One of my favorite marketing axioms is that the worst number you can have in marketing is the number one. Meaning, if you rely solely on just one source of business for your production you are like a three-legged stool. It’s a little shaky and eventually, you wind up sitting on the floor. So, if you were searching for a reliable source of purchase business, where would you look? Would you advertise for buyers? Buy leads? Do direct mail to renters? Well, if you’re in search of a profitable source of purchase business, here is some recent facts you should know. According to the National Association of REALTORS® as many as 40 percent of homebuyers get their mortgage from whoever their agent recommends and 14

November 2009

28 percent of homebuyers already have a mortgage person they know or have worked with before. That means if you are counting on advertising or prospecting to fill your pipeline with purchase money loans, 68 percent of the market is already gone. So all your advertising is chasing just 32 percent of the market! Even worse, for every $100 you spend on advertising to attract homebuyers, you are immediately down to just $32,because 68 percent of every dollar spent is skimmed off the top; already spoken for in the marketplace. Would you put your money in an investment that took 68 percent of your money right off the top? In short, if you expect to not just survive but to thrive during this transitional market and beyond, a large part of your success will result from how effective you are at generating, capturing and growing your REALTOR® referred purchase business. Choosing to work with REALTORS® is a of course a choice. Most of us know working with REALTORS® can be challenging but very rewarding as well. The challenge for most originators is finding the good ones. Those REALTORS® who will be loyal, professional and who produce enough transactions per year so the relationship is profitable. Like most things in sales, it’s purely a numbers game. Just like the Prince Charming fairytale where the princess had to kiss so many toads until she found her prince, originators today have to kiss a lot of REALTORS®. Ok, no “kissing,” but you do have to sift and sort your way through lots of REALTORS® until you find those who will become reliable referral sources. Even though this industry is awash in training and


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Don’t risk your rate locks — The margin of error is now half of what is use to be which means that if you’re off by more than .125% you’ll absolutely need to redisclose which starts your “waiting period” all over again — and every time you redisclose. SureDocs insures your docs are delivered, reviewed, signed and back fast locking in rates and avoiding any unnecessary delays.

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motivation, so few loan officers actually experience very little significant success working with REALTORS® because they have no system for quickly sifting and sorting through large groups of REALTORS®. Most of us are taught to cold call, do open houses, network, etc. In today’s marketplace, that is a recipe for failure because cold calling does not work, open houses are ineffective and networking is hit and miss at best. What is needed is a turnkey system that puts you, the originator, consistently in front of large numbers of agents, delivering value to their business, building your personal brand and your database for continued marketing to your ever growing database of agents. Step one in doubling your agent referral business is to simply meet, sift and sort through more agents. It is similar to speed dating because you speed-up the process of sifting and sorting through your local “eligible” agent population, placing agents into your marketing funnel as A, B, or C level relationships and following up appropriately. It works better than open houses, coldcalling (ugh!) networking, flyers, and car washes. You will

also finally reach those elusive top producers and break into closed offices with little effort. Imagine having your first appointment with 146 agents all at once on the same day. Imagine capturing all of their contact information and getting permission to continually market yourself and your services to them over time. Now imagine making follow-up warm calls to those same 146 agents and requesting a brief meeting. Or, just call the ones who requested to meet with you because you have positioned yourself with a compelling offer that attracts agents to you like ants to a picnic lunch. How long would it normally take you to personally meet and present yourself and your company to 146 agents? One year? Two years? Most originators don’t meet that many agents in their entire career. How much faster would you find those good agents vs. cold calling, open houses and networking? How much faster would you develop referrals? That’s right. A lot faster! The only way to consistently get in front of that many agents at one time is by hosting and conducting what I call ‘WOW’ factor seminars for REALTORS®. These are

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not seminars dealing with the latest contract changes, bylaws, committee meetings etc. These are events that truly add measurable value to the agents business and personal lives, resulting in you boosting your REALTOR® referral partners and your purchase business. Here is a sample of proven topics that putt agents butts in the seats and loans in your pipeline. • Instant Tax Relief for REALTORS® • Get More Buyers Approved With FHA Financing • Gain the Inside Edge – Secrets of America’s Top Producers • The Power of Focus – How to Hit Your Business, Personal and Financial Targets with Absolute Certainty • Survival of The Fittest – How to Thrive and Profit In Today’s Real Estate Market • Using Creative Financing To Move More Listings Without Dropping Price When you become a source of valuable information that improves an agent’s business and his or her life, you are becoming an indispensable asset and resource worthy of earning referrals vs. just another person, with cool calendars to giveaway, from whom to originate a loan with some good rates.. With fewer Loan Officers competing for even fewer agent’s attention, it is even more important than ever to A) Differentiate yourself and B) Have a proven system for consistently growing your Realtor® referral partners. You remember the movie Field of Dreams with Kevin Costner, which has the infamous line “build it and they will come.” Just because you have a great company, great loan programs, superb operations, the lowest rates (don’t we all?) etc., does NOT guarantee “they” or anyone will come. The only thing that attracts “them” coming out to see your game is YOU and your marketing systems. Hosting “WOW factor” seminars for REALTORS® is hands-down, the best, most predictable way to ensure your success at capturing agent business and eliminating the common frustrations many originators struggle with when working to build a Realtor® referral business. Geoff Zimpfer is a Loan Officer and creator of Speed Marketing™ for Loan Officers - How to Get Maximum REALTORS® in Minimum Time. Subscribe to Zimpfer’s Blog and receive a Free Report at www.speedmarketingsystem. com/blog

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House Painting as a Career ChoiceUnderappreciated & Overlooked? Or: The Future of the Mortgage Broker by martin andelman

T

he holding of the National Association of Mortgage Brokers Western Conference, or NAMB West, seemed like the ideal time for me to consider the future of the mortgage broker, and more to the point, whether the mortgage broker has a future. I mean, let’s face facts … if the banks have any say in the matter, and they certainly have and likely will, then the mortgage broker is at best in trouble and at worst doomed. So, being the self-proclaimed thought leading, outof-the-box thinker that I am, I set out to do some out-ofthe-box, thought leadership type thinking on the subject, and I think I’ve come up with something that hasn’t already been written about exhaustively in the press. If you’re a mortgage broker, it may or may not be right for you, but keep an open mind… the idea may grow on you. House painting. It could just be the new career you’re looking for. Look, who has more experience with homes than you do? Oh sure, there are real estate agents and appraisers, but for one thing, they never made any real money anyway, so to most of them the meltdown just means spending more time carpooling the kids, or picking up a teaching job. And besides, homes are still going to be bought and sold, so they’ll be okay. Those homes will of course be financed too, just not by you, so it’s you that

has the real problem here. There are quite a few other reasons why mortgage brokers should consider transitioning to the house painting industry… and in a sincere effort to be helpful, I thought I’d outline a few to get the ball rolling. I’m sure you have your own reasons pro and con, so it might be a good idea to kick the concept around with your spouse and see what his or her thoughts might be.

A Dozen Reasons Mortgage Brokers are Uniquely Positioned to Dominate the House Painting Industry. 1. You know where the homes are. 2. It’s a growth industry – When you can’t buy or sell you might as well paint. 3. Leverage your existing knowledge of homes, and still talk about TARPs. 4. “Yield Spread Premium” replaced by “Premium Yield Spread”. Phrase now applies to choice of paint, but no one cares if it’s disclosed to homeowners. 5. Expertise in “refinancing” replaced with expertise in “refinishing”. 6. Skill using a calculator remains at a premium, and when lease on Mercedes or Lexus runs out a 1992 pick-up fits in culturally with new peer group. 7. Opportunity for predatory painting and being


bilingual still a plus. 8. No stressing out over current interest rates or unfair competition by banks. 9. Relationships with real estate agents and brokers more valuable than ever. 10. Trade in “white-collar” job for “no-collar” job. Paris Hilton says: “Overalls are hot.” 11. Flexible hours, save on dry cleaning, work at home. (Not your home, perhaps, but “a” home.) 12. Long-standing professional association provides opportunity for networking at trade shows. Painting & Decorating Contractors of America (PDCA) Est. 1884, offers scholarships and emphasizes safety. See, and you thought I was going to be sarcastic, instead of thoughtful, insightful and caring, as I so clearly was. It’s not as far fetched as you thought going in, right? Holds some merit? Since at this point I’m confident that I’ve got a few of you on board with the whole idea, I thought I’d go a step further and provide some specific insight into the language of the house painting profession, which will help those making the transition that much more comfortable from day one of their new career. Every industry has its own lexicon, and house painting is no exception.

12 Phrases to Learn When Transitioning from Mortgage Broker to House Painter: Move the truck! Don’t let go of the ladder, you idiot! I thought you said you wanted blue. Hurry up, house painter! When’s lunch? Good job! Wash the roller and the brushes! It was like that before I got here. Can you cash my check? I don’t understand. God, my back is killing me. I only had one beer, boss. I used to be a mortgage broker. Okay… so have I made my point, or do you need more? The banks and mortgage bankers want your brokering behinds gone, and unless you plan on robbing

banks and donating the proceeds to your elected representatives, you should plan on the banking lobby getting their way more often than not. In other words, as a mortgage broker today, you’re one of two things: You either recognize that you’re in trouble career-wise, or you’re deep in denial, thinkingwise. Gaze into the countenance of a mortgage broker today, and you’ll see someone that looks like a Christian Scientist with appendicitis. Someone not exactly sure what the future holds, but concerned that without something close to divine intervention, it’s very likely going to hurt. It shouldn’t be a secret that some believe the mortgage broker to be dead man walking. At the other end of the spectrum there are those awaiting the return of exotic stated income teaser rate loans and, one might presume, the resurgence of 8-track tapes and typewriters. Still others seem to be banking on a never-ending stream of tax credits and REOs to keep the market moving forward, at least until, they seem to think, “things get back to normal”. At the moment, the only lender is the United States government. That state of affairs, however, won’t last forever. It may take 3-5 years or longer, but the government will eventually have to buy the toxic assets still clogging bank balance sheets, and hopefully by then a new generation of investors won’t remember that their fathers who once sold mortgage-backed securities that, although rated AAA, turned out to be something between worth less and worthless. And when that day comes, the thinking goes… happy days will be here again. Of course, by then… you’ll be living under a bridge, your spouse will have long since remarried a dentist, and you’ll be an expert at cooking up a very tasty squirrel pie when the kids pull over for a visit. Either that, or you’ll have thrown yourself out a window on the 89th floor of the Bank of America building in New York, hopefully taking at least one investment banker with you. Banks and other direct lenders apparently view putting mortgage brokers out of business as key to getting things back on track. It’s as if to say: “You see, Mr. and Ms. Investor? We’re getting rid of the less-thantrustworthy and therefore risky part of mortgage lending, so come on in… the water’s fine… it’s time to get back into the pool (pun intended). TheNicheReport.com

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Too Politically Connected to Fail… In case you haven’t been paying attention, the banking lobby has an awful lot of political clout in Washington D.C. these days. Perhaps it’s the fact that Secretary Geithner spends so much time on the phone with Goldman’s CEO, Lord Blankfein, that I think I read recently that part of President Obama’s plan to pay for health care reform is to make the call a 900 number in order to provide medical care to several hundred thousand of the uninsured in this country. In 2007, just a year after becoming CEO of Goldman Sachs Group, Lord Blankfein received total compensation of $53,965,418, but he also realized $45.76 million from the vesting of stock, bringing his total compensation and other awards to about $100 million, according to Goldman's proxy filing with the U.S. Securities and Exchange Commission. Apparently, Goldman did quite well in 2007? And, after a full year on the job, I suppose it’s not unreasonable that the firm’s CEO should win the friggin’ Powerball lottery as a single ticket holder. Whatever. My point here is that the banking lobby is driving the legislative branch of our government, and at least sharing the driving with the executive branch. A great example of this control was seen this past year on numerous occasions. One was when the proposed bankruptcy reform bill, which was not only proposed by House Democrats, but also was something that President Obama said he would support throughout his campaign, and again as recently as February 20th this year, when he introduced his plan to stem the tide of foreclosures and stop the free fall in housing prices by Making Home Affordable again. During his speech introducing the plan, he referred to judges having the right to write down mortgages on primary residences, which was the key component of the bankruptcy reform bill. But when it came time for a vote, something must have become more important because Mr. Hope turned into a fast change artist and was nowhere to be seen. When the bill, which was strongly opposed by the banking lobby, was defeated in the Senate, Senator Dick Durbin made the following comment as a guest on his hometown radio station: “It’s hard to believe in a time when we’re facing a banking crisis that many of the banks created – they are still the most powerful lobby on Capitol Hill. And frankly, they own the place.”


Makes you feel all warm and fuzzy inside, doesn’t it? But by far, the most prescient statement made by an absolutely shameless banker this past year came straight from the mouth of the President and CEO of the American Bankers Association, Edward Yingling. Ed was testifying in front of Congress related to a proposed new federal agency dedicated to protecting consumers when he said: “It is now widely understood that the current economic situation originated primarily in the largely unregulated nonbank sector. Banks watched as mortgage brokers and others made loans to consumers that a good banker just would not make and they now face the prospect of another burdensome layer of regulation aimed primarily at their less-regulated or unregulated competitors. It is simply unfair to inflict another burden on these banks that had nothing to do with the problems that were created.” Personally, I think that statement makes things pretty darn clear for the future of mortgage brokers. He might as well have come right out and said it: The only way mortgage brokers are going to get close to homes in the years to come is by painting them. And you think that I’m reading too much into his statement before Congress? Well… fair enough… I’ll dial it back a notch. How’s this: Mortgage brokers, as a whole, are going to be the bank’s betch from this point forward.

In the Interest of Full Disclosure… Before I launch into what I think the mortgage brokers of this country need to consider as they limp forward, I think some disclosure is in order. For one thing, what I know about mortgages you could put in a thimble. My wife and I own three homes at present and all I know about mortgages is how to get one without reading it. The other thing you should know is that I liked my mortgage broker. I thought he did an excellent job. Not only did he look at all kinds of different loans available at the time, but he had the decency not to attempt to make me an expert on each and every nuance of all the loans he didn’t select, which I appreciated a great deal. And when it came time to sign, and I told him that he HAD to be at our home by 8:00 PM because we wanted to watch LOST at 9:00 PM… well, he showed up by 7:45 PM! That’s what I call being responsive to a customer’s needs. I also should admit that I don’t have the foggiest idea what my mortgage broker made on our mortgage, but then I just bought a new Suburban and I don’t know what GM

or the dealership made on that transaction either. He didn’t tell me what he made on our mortgage, so I didn’t tell him what I made on my last client at work. Fair is fair. He didn’t charge us any points or fees, and I’m fairly certain that whatever he got paid, well… I’m pretty sure that I wouldn’t have been eligible to receive that check had I shopped loans at 11 banks like he did. I don’t think I’ve ever seen a sign at Wells Fargo saying: Get your loan here and we’ll write you a commission check for ten grand, or anything like that. You should also know that I have an Option ARM and I like it just fine, so sue me. Of course, if my home’s value drops by 75% before this is over, and my payment triples as a result, and I can’t refinance to a fixed rate, I won’t like it one bit, but I can’t really blame my mortgage broker for all that.

Three more things you should know and then I’ll move on: 1. I hate the banks with the white-hot intensity of a thousand suns. For a while I was having

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trouble deciding whether I hated the investment banks or commercial banks more, but since every financial institution on Wall Street became a commercial bank in order to get TARP funds and unlimited access to zero interest loans at the discount window, the decision became moot and I now hate them all equally. The fact is that bankers of one type or another, committed egregious acts of fraud, lied about, well… everything, leveraged investments beyond all reason, destroyed the bond market, lowered reserves for future losses so they could pay billions in bonuses, and ultimately bankrupted themselves, the federal government, and much of the planet. I’m almost positive that my mortgage broker didn’t do any of that. He seemed bright enough and all, but I don’t think he would have been up to all that and still have had time to shop around for my loan. And I’m damn sure that sub-prime borrowers had nothing to do with any of that either, capisce? The bottom-line is, mortgage brokers didn’t cause the Chernobyl-type meltdown of our markets and it wasn’t the fault of people with sub-par credit scores and meager

incomes that wanted to buy houses either. I know what the banking lobby would have us believe, but to them I can only say… sell it somewhere else… I have excellent reading comprehension skills, paid attention in graduate school, and I’m not buying any of it. 2. I firmly believe that if we, and by we I mean everyone who’s not a senior banking executive in this country, do not stand against these unscrupulous tyrants and break the financial oligarchy that have a vice-like grip on the cojones of everyone in Washington, from our Commander in Chief to the junior senator from Illinois… oh wait, that’s not a good example, is it? Never mind, the point is that unless we stop the banking lobby from controlling our government, it’ll be 2025 before Congress can even think about not further extending unemployment benefits. 3. I’ve spent a 20-year career as the CEO of a highly successful communications strategy consulting firm that has helped Fortune 500 companies and others across the country and around the world overcome a myriad of challenges by strategically and creatively positioning them

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to compete in changing environments and win. And that’s all I have to say about that, you can Google me to find out more. The point is… I may not know squat about mortgages, but I’m no amateur when it comes to what I’m about to suggest.

So What and Who Cares? Okay, so the meltdown was not the fault of rogue mortgage brokers, but that plus roughly a grand in cash will still buy you a three-bedroom/two bath townhouse in Detroit, so what does it matter? The bankers are going to hang you for it anyway. By the time Congress gets through with your industry, you’ll be lucky if a bank will let you hand out credit card applications while standing in their parking lot dressed as a duck. Unless… You had to know by now that I had something in mind, right? Unless the mortgage broker industry recognizes its future as being uncertain at best, and rather than hoping against hope that banks forget past sins and invite brokers to the dance when the band starts playing again, the industry decides that it must reposition itself… redefine its value proposition, and control its own destiny, reinventing what it means to be a mortgage broker. Thus far, and I know I’m going to get some nasty emails over this… the mortgage broker industry has been pretty darn insipid about the whole thing, in my opinion. As part of my research for this article, I watched a series of videotaped interviews with the presidents of mortgage broker state associations from various states across the country. Each one was asked the same question, and I’m paraphrasing here: Interviewer: “This has been a very tough year for mortgage brokers. Can you tell the mortgage brokers watching, how you see their collective future? Is there a light at the end of the tunnel?” In each case, the association president answered by offering some combination of statements about how the industry must: • Focus on the needs of our customers. • Recognize that many of those leaving the industry never should have entered in the first place. • Concentrate on education. • Accept the fact that we don’t have a crystal ball. • See the positives of the banking industry now stabilizing.

• Know that consumers will always need mortgage brokers and that mortgage brokers will always be there to help them with their mortgage needs. Hang on a sec… I need a sip of water. I just threw up in my mouth a little. Come on guys, that’s not taking the bull by the horns, that’s just plain taking the bull. Don’t get me wrong, I’m not beating up on the association presidents, really I’m not. I mean… it looked to me like the video guy ambushed them at a conference and asked them the first question that came to mind. No big deal. The point is that I’ve read a lot about what others in the industry have to say and it’s not all that different. In fact, of all of the articles I’ve written in the last year, this is the one I tried to research the most, and also the topic on which I found the most repetition in my research. I don’t care whom you ask about the future of the mortgage broker, you get pretty much the same responses from everyone involved. It’s kind of creepy, if you ask me. Mortgage brokers have to set their own destiny going forward, in my view. Kissing banker butt and hoping to be thrown a bone simply isn’t going to cut it. I’m saying these things because I liked my mortgage broker remember? And I want mortgage brokers to be around the next time I feel like throwing a few of my hard earned sheckles at a condo in the mountains, or what have you. I don’t want to have to engage in unintelligible and unbearably boring conversations with banking dweebs in order to figure out which one I should choose as the winner of a modernized version of the 1960s television game show, “To Tell The Truth”.

Let Me Ask You a Question… When I hire a real estate broker, he or she works for me… in my best interest… period. He or she takes time to understand what I want to do and why, and then does everything possible so that my objectives are at least met, if not exceeded. Not only that, but he or she stays in touch over the years and even provides me with an essentially unlimited supply of narrow lined pads of paper, which eliminates my need to purchase message pads on which to write phone messages. When I hire an insurance broker, he or she also works for me… in my best interest… period. He or she takes the time to thoroughly understand my insurance needs and not only delivers what I think I need, but leads me to purchase the insurance products I didn’t know I needed, but am glad to have bought. And not only that, but I’ve

- continued on page 43

TheNicheReport.com

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corporate finance trends Mapping out the next real estate investment cycle

by w. joseph caton

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ince experiencing an unprecedented run up that began late summer of 2008, a critical measurement of stability in the credit markets has been showing signs of strength in recent weeks. Spreads, or the difference between how much payment lenders demand as interest above yields on benchmark instruments like LIBOR and U.S. treasury bonds, have been on a declining trend. Overall, declining spreads is good news for any credit and interest rate driven business such as real estate finance and the fixed-income portfolios they represent. To begin with, real estate debt investment activity has typically mirrored what happens in the corporate finance arena, and generally lags such activity by anywhere from six to nine months. For instance, before any semblance of trouble reached the mortgage-backed securities and real estate lending sectors, some private equity firms first began to experience difficulty in raising funds for highly publicized leveraged buyouts. These deals dominated the news headlines and the pages of corporate finance trade journals during the capital markets liquidity peak. And these transactions were among the very high flying ones that ran into trouble despite their well-known brand names.

Follow the leader The first hint of trouble occurred in the summer of 2007, when leveraged buyout private equity specialists began to abandon some deals such as the original $5.5 billion ServiceMaster buyout attempt by Clayton, Dubilier & Rice, Inc. And later, the resale of the Chrysler brand from then Germany’s DaimlerChrysler Corporation 24

November 2009

to Cerberus Capital Management was delayed and renegotiated more than once. The reason? The buyers were having difficulty raising the required debt. Shortly thereafter, the credit markets began to freeze up, resulting in the ensuing credit crunch that enveloped both the debt markets and Wall Street itself. The real estate finance business then experienced its version of the credit meltdown beginning in the first quarter of 2008; almost exactly eight months after the corporate finance market went into its freefall. But while the corporate finance space has continued to see fallout from defaults and bankruptcy filings, the creative financing minds of Wall Street have been busy at work. For one thing, many companies (including the U.S. automakers) have embarked on a debt-exchange binge in recent months that have served to dampen the blow of a rising tide of corporate defaults and bankruptcies. Analysts at Standard & Poor’s have recently taken note of just how much this trend is proliferating across multiple business sectors, including real estate finance and investment ventures. In its regular client report on credit markets activities, Standard & Poor’s noted that spreads had tightened across every industry measure, including the dicey banking sector. This represents a ray of hope for resolving an increasing number of distress debt issues, including mortgages. It is also reason for optimism among both fixed income investors and borrowers such as real estate owners. Lending rates and debt investment yields, as measured by the Standard & Poor’s Composite Credit Spread Index, has been tightening since the beginning of the year. At mid October, the investment-grade composite credit spread tightened to 235 basis points, compared to 531


basis points at the beginning of the year. The speculative grade composite spread tightened to 740 basis points from 1,628 at the beginning of the year. Even though these are relatively wide spreads on a historical basis, they are a far cry from the unsustainable wide margins recorded in December 2008, when speculative-grade spreads had exploded to almost 1,800 basis points, and investment-grade spreads were over 1,200 basis points. At the very least, current spreads indicate that investors are being paid more of a premium for taking on additional risk and are somewhat satisfied with it. This development reverses what many market observers say was the root cause of the initial credit market meltdown in the first place – investors not being compensated enough for the level of risk they were forced to shoulder.

High-yield real estate So what do these emerging credit market trends mean for the real estate finance business, which is at best just muddling along, and still widely expected to move into further decline? One important thing is that real estate investment firms and fund managers struggling with sub-performing assets are now finding a deeper well of investment partners willing to enter into creative risk sharing transactions. It is a deeper well than just a few months ago, when buyers were expecting a real estate Armageddon to unfold. That is no longer the case, although some still do. But there is a resurging appetite for real estate-backed deals today – particularly high-yielding notes – even though the trading market remains quite dicey. A significant amount of capital remains on the sidelines awaiting opportunities, even though many investors remain cautious. Thus, few owners of either real estate assets or loans are willing to sell into this environment. At the very least, they are aware that lenders and loan investors will demand higher risk premiums in order to either make property or loan trades happen under current market conditions. This standoff in the loan and asset trading business has created opportunities for some lenders and investors. Lending is turning out to be the alternative strategy to buying legacy notes and other securities. For instance, New York-based W Financial Group, a direct lender recently provided a $5.7 million loan to a borrower for the purchase of a defaulted first mortgage from an investment bank. The loan was for a prime commercial property in West Chelsea, New York City. According

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to Gregg Winter, the firm’s principal manager, “The borrowers in this case are seasoned opportunistic real estate investors, who saw the value of this deal even in the current tumultuous market environment.” Winter offered another recent transaction as an example of how this type of creative deal structuring is emerging as an alternative investment strategy. W Financial provided acquisition financing to a borrower for purchase of a defaulted note from a Florida bank. The note was secured by eleven unsold condominiums located in a large project in Vero Beach, Fla. He says that the eleven units were the last of a 700-unit project and that the developer owned those remaining unsold units. Winter’s client purchased the defaulted note at a discount, and as a high-yield investment. So, the real estate finance and investment cycle is once again following the early trends of the corporate finance marketplace. As borrowers and property owners run into the challenges of declining rents, falling values, and possible loan maturity defaults, creative lending is riding to the rescue. Capital rescue missions are an emerging trend, and are seen in the number of lenders that are prepared to lend for the purchase and rescue of distress notes and properties. Madison Realty Capital, a debt investment firm is actively pursuing opportunities to lend to qualified borrowers for the purchase of distressed and defaulted notes as well. And as many investors clamor to buy distressed notes, the New York-headquartered asset-based lender intends to take advantage of such opportunities. As a sign of just how wide open this market is, Madison Realty Capital even hones in on the property type it is most keen to rescue – value-added multifamily properties. We are actively acquiring performing and nonperforming senior debt on multifamily properties from banks looking to sell,” says Roy A. Schoenfeld, vice president at Madison Realty Capital. “We are also actively seeking to finance note purchases collateralized by multifamily properties.”

Bond buyers rule Yet another trend is emerging as further evidence real estate debt is coming back in vogue. Life is returning to the high-yield corporate finance marketplace, and spilling over into real estate debt. One does not have to look too far for evidence of this. The first half of 2009 produced a walloping rally in the high-yield market. And analysts at JPMorgan Chase and Standard & Poor’s noted recently that new issuance in the high-yield bond market has been 26

November 2009

increasing at a steady clip. For instance, JPMorgan Chase asset management reported that the second quarter was a strong one for highyield U.S. corporate bonds, both in terms of issuance and pricing. The fixed-income asset management arm of the bank says that the May to June period was its most active for high-yield bonds, with a total of $26.5 billion in new notes issuance to market, since $29.3 billion was issued in November of 2006. "Another sign of improvement can be seen in the high-yield primary bond market," says Diane Vazza, head of Standard & Poor's Global Fixed Income Research Group. Speaking about new issuance that Standard & Poor’s rates and tracks, Vazza says, "New issuance surged $18.1 billion in May, the best month since June 2007. However, the large headline number does not represent a substantial increase in new demand for credit or an increase in the supply of new money, because a bulk of the recent issuance has been used to refinance bonds and loans." To be sure, as interest returns to the junk bond market – and it clearly has – struggling real estate investment ventures will benefit from investors’ appetite for such high yield fixedincome products. Property owners who are willing to enter into partnerships or issue high-yield debt can move to the forefront of this marketplace with high quality assets. But these borrowers or debt issuers will need to have a critical component in place in order to capitalize on current market conditions – a viable asset management program. Absent a good program with professionals who can work out loans and line up partners to rescue failing projects, the issuance of high-yield debt or taking on partners can be detrimental. By all means the road to a comeback in the real estate finance and investment business runs through a viable asset management program. These professionals are in high demand, and according to some industry observers they are in shorter and shorter supply. There is one area of the market, however, where signs of life have yet to emerge – the leveraged loan market. Property owners and investors whose business model relies on high leverage loans will have to remain sidelined until lenders and loan investors can warm up again to high leverage lending in either the corporate finance or real estate investment markets. Joe Caton is a training and development consultant for real estate finance and investment professionals. Caton can be reached at jcaton@hartfordone.com.


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Addressing Continued Concerns About the FHA by Brian Montgomery

“The reasons for FHA's problems are very different from the ones experienced in the subprime sector where unsafe loan features and poor underwriting made investing in non-agency mortgages risky from the start.”

I

n January of this year, both Joe Murin and I were asked by HUD Secretary Donovan to remain as Ginnie Mae president and FHA Commissioner respectively to help the new Administration deal with the on-going housing crisis. We both were privileged to be asked and were honored to continue serving in the Obama Administration for several more months. However, today, as a former government official, if I could leave you with one message it would be this: There has never been a point in our nation’s history that better illustrates exactly why FHA and Ginnie Mae exist. During these uncertain economic times, their counter-cyclical role of ensuring adequate mortgage activity and liquidity has been necessary and vital. FHA has saved close to one million sub-prime/Alt-A borrowers from possible financial ruin by allowing them to refinance into a safe and secure 30-year fixed rate mortgage. Another 2 million qualified borrowers (80% of them first-time homebuyers) have taken advantage of the declining house prices and historically low interest rates to purchase a home using FHA. FHA’s role has grown substantially from three percent of lending activity by dollar volume in 2006 to nearly twenty-five percent of all mortgages originated today. That massive uptick in volume occurred almost overnight beginning in

spring 2008. Through it all…. FHA has helped pump more than $400 billion of mortgage activity and liquidity into the market since 2008, while still managing to deliver a higher credit quality borrower whose average FICO score is 700. One can only imagine how much worse our economy would be right now without the FHA. However, the growth of FHA in the past eighteen months has understandably attracted a lot of attention. While the FHA did not take part in the housing boom, it is feeling its effects. As many anticipated, given the current sluggish economy, the FHA is experiencing an increased rate of delinquencies and more foreclosures. Simultaneously, as home values fall or just fail to appreciate, the number of homes the FHA insures is rising significantly. In October, this forced HUD to announce that in 2010 the FHA's reserves could dip below the mandatory two percent level required by Congress. (Which was discussed in last month’s column) Reminder: FHA collects premiums from borrowers (revenue) and also pays out claims to lenders when loans go into default and foreclosure (outlays). For FHA, the primary reason for continued defaults and foreclosures will be macro-economic problems that go beyond the scope of underwriting. For instance, continued job losses and the further decline of home values and equity. Absent a massive economic downturn, I don’t believe - continued on page 52 TheNicheReport.com

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Take Back Control of Your Marketing The case (once again) for direct mail by tom krug

S

earching for your next prospect in this market can be challenging. With so many Lead Providers popping up and offering everything from exclusive to semiexclusive leads it’s difficult to figure out what’s really a good lead and what’s not. Are they originating the lead themselves or are they more of the same over-sold leads from aggregators? Perhaps you have gone through a few Lead Providers in your search for a quality lead (maybe even a dozen or more)? You are tired of competing with 27 other companies over the same prospect. Quantity is no longer a viable option, quality is more important than ever. You need a lead that zeros in on the exact prospect that will fit your program guidelines. You can choose to take control of your marketing by creating your own Lead flow. If you’re thinking this is about search engine optimization or pay-per-click advertising for leads, think again. What’s old is new. Direct mail is once again helping companies locate their ideal prospects. Direct mail is not for the faint of heart, but done correctly and consistently, you can eliminate the middleman and take back control of your marketing.

The Case for Direct Mail Look at your own mail, have you noticed fewer mortgage solicitations; fewer financial offers all around? Times have changed and fewer companies are promoting through the mail, that is good news! It’s true, and that means there is less competition for your Mailer in the mailbox. If you are using Direct Mail to get your message out, then this is the time to reap big rewards. Less competition for your Mailer means higher response rates for you. And isn’t that what you really want? The quality of a Mailer lead is special and arguably the best lead next to a referral. Consider for a moment the mind-set of a 32

November 2009

Direct Mailer call-in client. They have found you from your Mailer. They have picked up the phone, taken that first step of calling a stranger. No one twisted their arm. They are calling you. This type of consumer typically is not a shopper as much as someone surfing the web. They are looking for confidential answers/solutions to their existing challenges/problems. They’re ready now. We all know that call-ins are some of the best leads, but not all mailers will produce the same results. Here are some key areas to review as you plan out your Direct Mail campaign.

The Mailer When you sort your own mail, you probably create two stacks: the important stack, and the junk stack – and so does your prospect. So, the first goal is to have the prospect put your mailer in that important stack of mail. Size, shape, color, copy, these are all factors that will impact which stack your Mailer lands in. How do you do this? If you understand the mind-set of your prospect, you can create an eye-catching mailer that will help influence and increase your odds that your Mailer lands in the right pile of mail. For example, if you are sending a mailer to prospects in financial distress you may decide on an official looking Letter or Snap-Pack (the ones with the perforated edges). Testing a variety of strong copy on the outside of the envelope can work out as well. Just be careful here, not everyone will appreciate this type of Mailer and too much trickery without real solutions on the inside may lead to some irritable call-ins. Consider the theme of your mailer in selecting a Letter or Snap-Pack. Is your theme going to be personal as in “feel, felt, found?” Then you’ll want to stick with a letter and envelope. Need to look more official? Selecting a Snap-Pack will help convey an important and urgent message. Developing the look of your Mailer with


your client in mind is the first step. Once they open your Mailer, you have got about 2.6 seconds to convince them to keep reading.

The Content You made it to the right pile of mail and your Mailer has been opened. Here is your chance to get the reader to act. Think Google Adwords. Those are the ads that pop up on the right side of your web searches. There are only three lines to convince you to “read on” and click through to a website. Your headline and introduction on your Mailer needs to be just as relevant and solutions based. Avoid excessively wordy copy. Ernest Hemingway was famous for writing in a terse minimalist style. He got straight to the point. Challenged to tell a story in only 6 words he wrote: For sale: baby shoes, never used. We can learn a lot from Ernest. Use short sentences. Get to the point. If you’ve done your job in the opening, now you have their attention and have sparked their interest enough to move them to the benefits of your program. This area is where you can showcase the features and benefits of your program. Using bullets and charts work well. Again, remember to keep it simple and straight to the point. Depending on the style of your Mailer you may want to ad testimonials to ad confidence and credibility to your claims. Pay careful attention here to the claims of your offer. Consumers are smart. If your claims appear to be too unrealistic (while still being true) you’ll lose the reader quickly. How should the consumer contact you? Why should they contact you, and why right now? Your copy should lead the prospect to eventually act and pick up the phone to dial your toll-free number. To accomplish this, your Mailer needs to flush out their needs and offer up a great solution. Fear of loss, hope for gain is a powerful motivator. Strong multiple call-to-actions should be strategically placed throughout the copy. If the prospect “gets it” in the opening paragraph, by all means, offer him a way to contact you. It’s not necessary to make the prospect wait till they reach the signature line. And speaking of signature lines, your PS should restate the benefits of your offer. Do not forget this. Studies have proven that the PS line is almost always read. Share your new Mailer with a few friends and colleagues and get their opinions. Feedback is important and often reveals areas that need change or improvement. Watch them as they read your Mailer. Is it easy for them to read through, or do they get hung up on certain parts? Do

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not try to get it right on the first try. Writing copy is a skill and will take several edits.

It’s all In the List You can have the best looking Mailer, but if you are not mailing to the right list then you’ll burn through more postage money than you can imagine. Do not skimp on the list! A quality list is a big part of the success of your direct mail campaign. Dealing with a reputable list broker is key and being able to zero in on the right prospect is critical. If you can refine your list and mail only to those prospects that have a burning need for your program you will save on postage (the biggest cost of direct mail) and ensure that those call-ins are best qualified. Work with your list broker to help you select your ideal prospect. Tracking your Campaign The Mailer is out the door, now you need to track the results. Complete tracking is more than your receptionist telling you how many calls came in on a particular day. With todays technology it’s easy to get very granular on the details of your campaign. One of the best methods is through call-

tracking. With call-tracking software you should be able to record all the calls that come in and also capture any hangups. This can be easily added to your campaign and at a minimal cost. Managed effectively, you’ll understand and know all the key metrics important in measuring the results of your direct mail. Direct mail is a solution that is working in today’s market. With proper planning and execution, you can create your own lead flow and by-pass the Lead Vender middlemen. Creating your own Lead through direct mail will help you take back control of your marketing and improve your ROI.

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MBS WARROOM

MBSWARROOM.COM Do i lock or float? by Adam Quinones

E

very morning at 6AM I am roused from sleep by an old-fashioned electronic alarm clock. The one that goes 'WAH!' 'WAH!' 'WAH!'. After three rounds of snoozing, I convince myself it's time to get up and head to the office. When I arrive, I unpack my journal and read the notes I took during the previous trading session. Was it a range day or trend day? Who was buying? Why were they buying? What events disrupted the market? What price levels were frequently tested? How far did momentum carry valuations? What were closing marks? Next I mull over the day ahead. What's on the economic calendar? Who is speaking? What's happening on Capitol Hill? What might move money? How far will it go? I spend a few minutes chatting with friends on instant messenger. We compare yield spread levels, share current coupon values, discuss prepayment assumptions, and poke fun at each other's home town hockey teams. (Easy for me to say, Alex Ovechkin wears my home team's jersey) After adequate study, I outline my observations and prepare morning commentary for 20,000 loyal readers (shout out to readers!). In the morning post, which we call MBS OPEN, we communicate our interpretations of the marketplace and provide guidance on the day ahead. Our objective is to offer insightful analysis and understandable explanations to a growing group of curious mortgage market participants who are seeking

answers to their questions. Both consumers and professionals. Matt and I do this five times a day. MBS OPEN, MBS MORNING, MBS LUNCH, MBS AFTERNOON, AND MBS CLOSE...with an occasional MBS ALERT mixed in too. As we publish new content, readers comment, ask questions, and often times argue with each other. We reply to comments, pose questions of our own, and occasionally join in on heated debates. We are sociable with the community. Considering that we publish tailored discussion on the interaction of financial markets and the mortgageworld....it's understandable that we are asked this question quite often: DO I LOCK OR FLOAT??? Here's how our response generally goes: How big is your pipeline? What are the loan amounts? How many loans are you floating? If you lose rebate is your borrower willing to pay points? Did you promise the borrower a certain rate? If the rate goes up will the DTIs still work? Do you sell direct or broker? If you don't close this loan can you still pay your bills? When are your loans closing? It's almost an interrogation. You can imagine the reaction of readers. It's something along the lines of: Why so many questions? Why does that matter? I just want to know if I should lock or float! We usually reply back with our current sentiment

TheNicheReport.com

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MBS WARROOM

and give a pre-recorded market outlook. What's interesting about that situation is, readers come away from those conversations with more clarity about their personal stance despite the fact that we rarely suggest one strategy versus another. Our hope is always that our readers will dig deep enough into what we’re writing that they can formulate their own LOCK or FLOAT decisions. Easy answers are great, but they’re not necessarily the most correct! And based on the “interrogation” mentioned above, one answer is not usually applicable to everyone. We know what readers mean when they ask LOCK or FLOAT. To most, it can seem as simple as whether or not we think rates are going higher or lower. But you have to tell us more. Asking the question LOCK or FLOAT without providing the details of your pipeline makes it difficult for us to provide credible guidance. We have no clue whether or not you can afford to lose a deal. The point is: While we don't mind answering the LOCK/FLOAT question, we encourage readers to participate in the progressive evolution of the mortgage and housing industry. We would rather help you fully understand the REAL factors influencing your LOCK/ FLOAT decision. We would rather help you decide on your own strategy. We won't be sitting next to you when a prospective borrower ask YOU the LOCK/FLOAT question...one must be well-prepared and have a wellinformed opinion. I'd prefer not to mention the fact that our industry has been, defamed, denounced, denigrated, and disparaged,... but an angry mob of regulators has formed around us. Isn't in everyone's best interest to put the industry's finest foot forward? Don't confuse my position with an allegation. I'm not implying the profession is filled with crooks and jokers. If anything it's the total opposite. Those left originating,

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processing, underwriting, selling, shipping, servicing, or securitizing mortgage loans are likely worth their weight in basis points. After all, if you weren't a productive contributor to the loan process, you were likely a casualty of the crisis. Only the strong survived. More than anything, by actively communicating and expanding on the events and actions that affect you and your business on a daily basis, we feel that we are adding transparency to the muddled mortgage marketplace. The more we empower YOU, the more we are participating in the revamping of outsider perceptions, and maybe even helping to revitalize the industry in the long run. While the depths to which we take our audience in analyzing the markets can be fairly intense, we always find a way to break it down PLAIN AND SIMPLE for you. In upcoming issues of the Niche Report, we will provide PLAIN AND SIMPLE explanations of the dynamics of the secondary mortgage markets. Sometimes you will get me, other times you will get Matt, and once in a while you will get both of us. I leave you with a brief primer on the mortgagebacked securities (MBS) coupons that influence rate sheet rebate. The MBS coupons that determine your rate sheet pricing are traded in the TBA MBS market... TBA = To be Announced. In the TBA MBS market, at the time a trade is made, buyers and sellers agree to a few specific terms like what coupon, the issuing agency (Fannie, Freddie, Ginnie), the size of trade, and a buy/sell price. The actual pools of loans are NOT exchanged when market participants make this commitment. Instead, the MBS buyer and the seller make an agreement to complete their transaction at a later date. MBS trading settles once a month. In the MBS market this date is pre-determined, it is called SETTLEMENT DATE (clever name huh?). Two days before the pre-scheduled settlement date, the MBS seller "notifies" the MBS buyer of the specific pools they intend to deliver to satisfy the previously agreed upon terms of trade. The MBS buyer reviews the loan information to ensure the seller is fulfilling the standard requirements of the trade agreement. Then, two days later on settlement date, funds are wired to the MBS seller and the MBS buyer's account is credited the corresponding mortgage-backed securities.


MBS WARROOM

The TBA trading mechanism plays a very important role in the generation of mortgage rates. The TBA market allows originators to make "forward commitments" before the loans in their pipeline are actually closed...just like loan officers lock in interest rates before the loan goes to closing. For both the mortgage bank and the loan officer, this function serves as a hedge. It protects their pipelines from interest rate risk (rates getting higher and their loans not being worth as much). If mortgage bankers were forced to lock in their rates after closing...they would likely add in a large "interest rate risk" premium to rate sheets in an effort to protect themselves from shifts in the yield curve. We do this all day every day on www. MortgageNewsDaily.com and www.mbsWARroom.com. We invite you to join in on the progressive expansion of the industry's knowledge base. Adam Quinones is Managing Editor of Mortgage News Daily and co-founder of the MBS War Room. Matt Graham is the creator of the MBS War Room, a first of its kind service bringing institutional quality market data and analysis to mortgage market professionals.

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RULES & REGULATION HEADLINES

Rules & Regulation Headlines FHA is the big news this month, with 7 updates (well really more than that) under their belt— and they have a huge impact if you are a HUD lender. Because of column space, we will give you the top 3! Of course, a month can’t go by without a couple of Fannie & Freddie updates either.

FHA’s Version of HVCC – Appraiser Independence – Effective January 1, 2010. So how is this different from the Home Valuation Code of Conduct (HVCC)? In this ML, FHA adopted a lot of the HVCC language. What they did not adopt is the “Borrower Receipt of Appraisal” paragraph. This means that for FHA, there is NO requirement that the borrower receive a copy of the appraisal at least 3 days prior to closing (unless borrower waived requirement). So no 3-day requirement, and no waiver to worry about. • FHA-approved lenders are prohibited from accepting appraisals prepared by FHA appraisers who are selected, retained or compensated in any manner by a mortgage broker or any member of lender’s staff who is compensated on a commission basis tied to the successful completion of a loan. • Appraiser who performed appraisal MUST be correctly identified in FHA Connection or administrative sanctions will apply. • Lenders must ensure that appraisal and Appraisal Management Company (AMC) fees comply with the following: o FHA appraisers are not prohibited from recording the fee the appraiser was paid in the appraisal report. o FHA appraisers are compensated at a rate that is customary and reasonable for the market area. o The fee for the completion of the appraisal may not include a fee for management or any other activity other than the performance of the appraisal. o Any management fees charged must be for actual services related to ordering, processing, or reviewing of appraisals. o AMC fees must not exceed what is customary and reasonable for market area.

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The following additional clarification is offered on existing FHA appraisal requirements: • Conflicts of interest (ML 1996-26) – To avoid conflicts of interest or the appearance thereof, the following are prohibited from ordering or managing an appraisal assignment: o Any person who receives commission upon the successful completion of a loan; o Any person who reports to any officer of the lender not independent of the loan production staff and process.

FHA Revised Streamline Refinance Transaction – Effective November 17, 2009 – ML 2009-32. Anybody else just see his or her paycheck get smaller? Let’s face it, this one hurts. And it’s a bummer that everybody’s got to lose out so that we could get the “churners” under control. Revisions for ALL Streamline Refinance Transactions • Seasoning – At the time of application, the borrower must have made at least 6 payments • Payment History – At the time of loan application acceptable payment history is defined as follows: o For mortgages with less than a 12-month history – all payment must be made within month due (no 30 day lates). o For mortgages with history greater than 12 months: • No more than one 30 day late in the preceding 12 months AND • All payments during 3 months preceding application must be made within month due. • Net Tangible Benefit – There must be benefit to borrower defined as: o Reduction in the total mortgage payment (principal,


RULES & REGULATION HEADLINES

interest, taxes, insurance, HOA fees, ground rents, special assessments and all subordinate liens). o Refinancing from an ARM to a fixed rate mortgage, OR o Reducing the term of the mortgage

Reduction in Total Mortgage Payment: • New total mortgage payment is 5 percent lower than the current total payment. • Applicable when refinancing from Fixed Rate to Fixed Rate, ARM to ARM, GPM to Fixed Rate, GPM to ARM, 203(k) to 203(b) and 235 to 203(b).

Outstanding principal balance* MINUS UFMIP refund PLUS new UFMIP. New Maximum Loan Calculation for Streamline Refi’s WITH an Appraisal The lower of: • Outstanding principal balance* MINUS UFMIP refund, PLUS closing costs, prepaids , and new UFMIP; OR • 97.75 percent of the new appraised value PLUS new UFMIP. *May include interest charged when payoff is not received on first day of the month but may not included delinquent interest, late charges, or escrow shortages.

Fixed Rate to ARM: Fixed rate mortgages may be refinanced to one-year ARM provided interest rate on new loan is at least 2 percentage points below the current interest rate. ARM to Fixed Rate: Interest rate on new mortgage will be no greater than 2 percentage points above current rate of the one-year ARM. For Hybrid ARMs, total new mortgage payment may not increase more than 20 percent. Reduction in Term: Loan must be underwritten and closed as a rate and term (no cash-out) refinance. Investment Properties/Secondary Residences: In addition to meeting the total payment reduction requirement, these properties are not eligible for streamline refinances to ARMs. • Certification and Verifications o Case binder must include signed and dated cover letter on lender’s letterhead stating that borrower is employed and has income as the time of loan application. o Lender must verify and document assets needed to close. o Payoff statement must be included in case binder. • Credit Score – All credit scores, if available, must be entered in FHA Connection. • Maximum CLTV – If subordinate financing is remaining, maximum CLTV is 125%. o For streamlined refis without an appraisal, CLTV is based on original appraised value of property. o For streamlined refis with an appraisal, CLTV is based on new appraised value. • TOTAL Scorecard – Lenders should not use TOTAL on streamline refis. If a lender uses TOTAL, that loan must be underwritten and closed at a rate and term (no cash-out) refi. • Uniform Residential Loan Application (URLA) – Short form URLA’s are no longer allowed.

New Maximum Loan Calculation for Streamline Refi’s WITHOUT an Appraisal

Note: Discount points may not be included in the new mortgage. If borrower has agreed to pay, lender must verify assets to pay them. FHA Appraisal Assignment Rule From Lender to Lender – Appraisal Portability – Effective January 1, 2010. ML 2009-29 This letter HUD specifically states that it’s NOT OKAY for lenders to order second appraisals just to get higher values or to ‘get around’ repairs. Duh!! I get calls all the time from Realtors whose buyers, after receiving a disappointing FHA appraisal, have been told by another lender, “Let me do the loan. We’ll order another appraisal.” Not any more! Appraisal Transfer and Client Name Change in Report • When a borrower switches lenders, the first lender MUST, at the BORROWER’S request, transfer the case to the second lender. • FHA does not require that the client (lender) name be changed on the appraisal when it is transferred. • In accordance with Uniform Standards of Professional Appraisal Practice (USPAP) the lender is NOT permitted to request that the appraiser change the name of the client on the appraisal report unless it is a new appraisal assignment. The second lender may engage in a new appraisal assignment with the original appraiser strictly for the purpose of the client name change. The new client name should include the lender and HUD.

Fannie Mae Tightens Credit. Also Streamlines MI--All in Announcement 2009-29 (Effective Dates November 1 & December 12, 2009) Some real positives for Fannie loans and MI coverage requirements -- Fannie intends to simplify MI option. Financed MI – TheNicheReport.com

39


RULES & REGULATION HEADLINES quite possibly the best MI option available – and Fannie seems to finally “get it”. Fannie is removing some barriers to this old dog – get back into school with your favorite MI Rep. And Credit Scores Jump Again. The only exceptions are nontraditional credit and Refi Plus or DU Refi Plus loans. The new MI minimum coverage level options are now available to all DU loans (Versions 7.0, 7.1 and 8.0) and manually underwritten loans. Fannie differentiates the coverage requirements at the 20 yr mark – see table 1. And for the minimum coverage level choice, Fannie with assess a LLPA – see table 2. Wide use of the minimum coverage options will help preserve capital of the MI companies and thereby improve the capacity of the industry -- somebody at Fannie was thinking… Credit Scores are jumping again – 620 minimum is now required for all FNMA loans. Manually underwritten loans are higher depending upon the transaction type – pretty much went up 20 points across the board from previous rules. The only exceptions are nontraditional credit and Refi Plus or DU Refi Plus loans. Important dates: • Applications November 1, 2009 for manually underwritten loans

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Freddie Encourages (with a capital E) Use of Manual Overlay Due to LP Delay – (Effective November 1, 2009) Changes to underwriting requirements published July 10, 2009 were to be implemented for all applications as of October 1, 2009. There has been a delay with the update of LP for new messaging. The new effective date will now be November 1, 2009. HOWEVER, you are encouraged to begin underwriting to the new standards now using a manual overlay tool provided online. This overlay will help to translate existing LP messages into new underwriting and documentation requirements. USDA Clarifies Medical Deductions & Annual Income Calculations What triggered the notice was the fact that RD staff started receiving numerous calls and e-mails from lenders who had been told that they could deduct the pre-tax insurance premiums that employees were paying out of their gross annual wages. This false rumor began spreading across the United States and RD felt they had to send out a policy clarification. The IRS does allows various programs to give individuals tax advantages to offset health care costs however these programs cannot be used as income eligibility deductions for the Guaranteed Rural Housing loan program. These IRS allowed programs include: • Health savings accounts (HSAs). • Medical savings accounts (Archer MSAs and Medicare Advantage MSAs). • Health flexible spending arrangements (FSAs). • Health reimbursement arrangements (HRAs).

Just because a person pays $300 per month towards their Health Savings Account (HSA) for example, does not mean RD will allow a borrower to deduct $3,600 off their gross wages in order to income qualify for the GRH loan program. Provided monthly by www.MortgageCurrentcy.com - Interpreting the Rules and Regulation Changes for loan officers, processors, underwriters and owners/managers. Mortgage Talking Points ™, charts and checklists included.


TIP OF THE MONTH

TIP OF THE MONTH Ever think about what 'Effort' means? BY STEWART MEDNICK

In last month’s column, I spoke about effort and how it applied to success. I could spend an entire book’s length, cover to cover, on success and the philosophies that have been rendered over the years. But about 1,000 so called Gurus have already done so in varying degrees of success. So let’s not beat a dead horse. However, the key element to success is effort. No matter how anyone can slice, dice, mince, and puree success, it never happens by divine intervention. Some sweat and thought needs to be integral ingredients to this recipe. The mental aspect is almost synonymous with motivation. Everyone has a point of motivation. I have written about “where is the pain” and how to assist your customer in finding this sore spot and by eliminating this, you can successfully close a sale. Well, close the sale on yourself, so to speak. A famous baseball manager was once quoted as saying, “fifty percent of the game is ninety percent mental….” Gotta love baseball for a great source of writing material. Beyond the mental element, there is effort, which boils down to physically, actually performing actions. There are four aspects and stages of effort: rigor, persistence, passion, and endurance. Let me break down each component. Rigor. This is the necessary drive and focus of effort. This is the element that will point you in the direction you want to go. Scrupulous or inflexible accuracy or adherence is a dictionary definition. The point is, if you

have a goal and you want to obtain that goal, you need to incorporate rigor as the foundation of your effort. Do not compromise. Do not change direction. Do not quit. Rigor establishes the direction and tempo of your effort. Persistence. The amount of effort used is my definition for persistence. Amount is not a volume type of thing. Rather, a greater or lesser measurement. It is the degree of rigor. One must continue “steadfastly or firmly toward purpose with course of action, especially in spite of opposition, remonstrance, etc.” You need to set a goal, attack that goal with gusto and last or endure tenaciously through all opposition. Of course, this is somewhat utopian, but I believe in the 80 percent rule; you will achieve 80 percent of your goal. So set that goal higher than you think is obtainable and be persistent. Passion. Passion is always synonymous with love. Love is an enigma, especially in the context of burning desire to accomplish a goal. Well, if persistence is the measurable volume of rigor, then passion is the fuel for longevity. Time, obstacles, focus, and lack of encouragement are all things that can make one stumble and wane in effort. Passion is the automatic reset. Passion is the reason for the rigor. This is why many people fail at achieving their goals, it is something they are not passionate about. If you have been struggling for the last two years with achieving your professional goals, maybe a reassessment is in order to see if your ‘passion for the action’ is still burning inside you. Endurance. This is the power to bear hardship. The passion will fuel your desire, endurance is the engine to drive the distance. Persistence will keep you going

TheNicheReport.com

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TIP OF THE MONTH

after each hazard is cleared. In the most economically challenged time of this generation, many of you are still closing deals. This shows your durability to with stand the elements that oppose you. That is endurance. Not much more is needed to be said. Effort = rigor + persistence + passion + endurance. Effort, short and sweet. Apply it generously in everything you do.

Stewart Mednick is a seasoned mortgage banker and published author. His writing focuses on relationship development, personal empowerment, customer satisfaction, marketing and sales techniques. Stewart is available for marketing consulting, personal coaching and training sessions. If you have a comment or a question for Stewart, contact him at 651-895-5122 or smednick1@netzero.net

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- continued from page 23

had the same insurance broker for like two decades now. I don’t think I could get rid of him at this point if I wanted to. He knows more about my life than I do. And when I hire a stockbroker or financial advisor, as they now seem to prefer being called, he or she works for me… period. He or she takes the time to understand my short and longer term goals and then often makes some pretty terrible recommendations, which cost me a fortune every 5-7 years, but that’s not the point here. He or she also calls me throughout each year, raises new topics, helps me understand my choices, which are often bad and worse, and in general tries to do the best job possible even when confronted with crummy market conditions. So, why is it when I hire a mortgage broker he or she works to protect the interests of the bank? What is up with that? To be entirely candid, I did not know that was the case until this past year when I started writing about the mortgage meltdown and foreclosure crisis and a mortgage broker informed me that my own mortgage broker had no fiduciary duty to me, but rather had such a duty to the bank that originated my loan. And not only was I surprised to learn this little tidbit, but I haven’t heard from my guy since, and I don’t even get free pads of paper or a refrigerator magnet… nothing. Also, I was pissed that my mortgage broker hadn’t told me that he was actually working for the other team. Had I known that, I would have hired someone to check his work. Why do all the other brokers in my life protect my interests, and hang around for years, while my mortgage broker thinks he’s a banker and the only time I hear from him is when I need a new loan? The only way this is a sustainable business model for serving the needs of consumers is if interest rates remain flat at 4.75%, and the bank accepts stated tax returns and paycheck stubs written by hand on a napkin. If that’s the case then I don’t suppose it matters what type of service you deliver as a mortgage broker. The chances of me referring you to someone I know are about the same as you riding a unicorn to your next appointment, but who cares, everyone’s a buyer. In that type of environment, you can probably pick up three new loans while ordering the Grand Slam Breakfast at Denny’s breakfast counter.

“Positioning… The Battle for Your Mind,” written back in 1981 by Al Trout and jack Reis. Positioning is what consumers think about when they hear the name of a product or brand. For example, when we see a BMW, we’re supposed to think “Ultimate Driving Machine,” but when we see a Volvo, we’re supposed to think “Safety”. Safety is Volvo’s positioning. What do we think about when we’re introduced to a real estate broker? Well, I think narrow lined pads of paper on which I write phone messages, but that’s not the point. I’m kidding… when I think real estate broker, I think about buying or selling real estate. I think… new house, or vacation home. When I think insurance broker, questions come to mind about coverage I either do or don’t have. And when I think stockbroker I think… well, bad example… you don’t want to know what I think about when I think stockbroker, but maybe next year you will… we’ll see. The point is… I don’t know what to think when I think mortgage broker. Should I think “advocate” or “adversary”? I’m not entirely sure. Should I think: “Gee, here’s an opportunity to find out something I’ve wanted to know about the mortgage market,” or should I think “this guys just shilling for the bank and won’t tell me the whole truth about anything”? Should I ask a mortgage broker about anything besides mortgages? Or is the knowledge of mortgage brokers limited to one subject: mortgages? What can I use a mortgage broker for? And when should, and when shouldn’t I use him or her for whatever that thing is? I’m serious… looking forward, I don’t really know how to answer any of those questions… and that’s really a problem. Whose interests does a mortgage broker represent in a mortgage transaction? Mine? The bank? His or her own? If the answer to that question is anything but “mine,” then you can’t and won’t be trusted by your clients. If the answer is “the bank’s,” then you’ll be dependent on the banks to decide if they want to let you play and to what extent they’ll allow your involvement. And if the answer is “your own,” then you’ll likely get your butt kicked more than once when someone like me discovers that you stuck me for a few extra thousand by hiding it on page 37 at the bottom in a formula that requires me to bone up on my algebra in order to catch it.

A Profession in Need of Positioning… The profession that brokers mortgages needs to be re-positioned in the minds of consumers… badly. Positioning is a concept that was first discussed in the book,

It’s time to sit down and ask yourself a few questions: As a mortgage broker, what is your product? Is it the loan itself? Is it arranging for the loan? Shopping for the TheNicheReport.com

43


Guaranteed, an established and well-funded Mortgage Banker since 1992, is positioned to continue its prominence in the industry. As a leading FHA Direct Endorsed Lender, we underwrite all files in-house. This allows for faster approvals, common-sense underwriting and timely closings. We are actively seeking relationships with productive mortgage teams and entrepreneurial mortgage professionals.

we’ve seen before, so whoever is saying that they know the answers to questions about what the future holds is lying… or just comically foolish. Just look closely at Tim Geithner’s face the next time he’s on television. Then come and tell me that he knows what’s ahead. Like hell he does. I can assure you of some things, however. Like the fact that we haven’t hit the bottom of anything, for example. Real estate values will continue to decline. The banks will continue, with the approval of Treasury, to pretend that they’re stable and trying to help themselves and this country, instead of the insolvent mess that most of them unquestionably are. Next year, hundreds of banks will close, unable to stay afloat without the continued infusion of secretive government loans. TARP is only the discussion bait for public consumption; the real numbers are in trillions, not hundreds of billions. Consumers are going to need expertise in various matters related to loans, credit and debt for some time. Are you willing to reinvent and reposition yourself as a mortgage broker… willing to place your client’s interests above your own, or is this an idea to which your people will pay lip service only? Are you prepared to do more, work harder, likely earn less, and compete based on a lot more than just a lower rate or shaving off a point here and there? Because you can absolutely count on the banks willingness to do whatever it takes to make sure that any future line they’re standing in, they’ll be standing in front of you, the mortgage broker. Of course, whether they are in front of you really is up to you. We may not know exactly what to expect from our mortgage brokers these days or in the future, but we’re all going to know for a long time that we can’t trust the banks to do what’s best for anyone but the banks. And when you stop to consider that as our current catastrophe worsens, and things feel like they’re never going to improve, we’ll need help and we’ll turn to those we trust to provide us with answers. Will the mortgage broker be one of those trusted advisors, or will I find my mortgage broker at a bank’s warehouse operation, positioned under some executive’s desk trying to make a good impression?

EXECUTIVE OFFICES: 108 Corporate Park Drive, Suite 301, White Plains, NY 10604 CALL: Kelley Berkheiser or Louis Tesoriero (888) 329-GHMC www.joinguaranteed.com

Martin Andelman is a staff writer for The Niche Report. He also writes an almost daily column on Ml-Implode.com called Mandelman Matters. He also publishes a Monthly Museletter and you can follow "Mandelman" on Twitter. Send your reponses to martin@nichereportonline.com

loan? What about advising the borrowers as to which loan is right for their needs? Or is it something even broader, something to do with total debt management? Does your product stop at mortgages or do you also advise people on improving credit scores? And what about other types of loans? Do you provide anything related to loans for other purposes? What about credit cards? Do you know where interest rates and fees are relatively better than they are somewhere else? And what about general banking relationships? Can you advise me as to which bank represents a better fit for my needs and why? I don’t know the answers and chances are you don’t know all of them either. And even if you think you do, what we’ve all endured, and what we’ll continue to deal with in the foreseeable future is more than reason enough to question whatever it is that you thought before the meltdown occurred. It may not be the Great Depression, but it’s the Great Disruption for sure. If you haven’t already done so, it’s time you came to terms with what’s happening in this country. This is not a “market correction”. It’s not part of some cycle that

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The voice of housing - continued from page 31

FHA will face the same type of catastrophic losses we saw in the subprime sector. The reasons for FHA's problems are very different from the ones experienced in the subprime sector where unsafe loan features and poor underwriting made investing in non-agency mortgages risky from the start. The FHA has undeniably tightened guidelines in an effort to help ensure a higher loan quality. Prospective borrowers must verify income and job history as part of a rigorous underwriting process. I offer this assurance in an effort to raise your comfort level as to the future of FHA. FHA must keep its eyes on the ball to make certain that American homeowners and renters are served while American taxpayers are protected. As a reminder, I offer the following insight about the strategies the FHA is considering to ensure the market remains confident in the FHA’s risk management models: • Tighten underwriting criteria • Increase premiums • Raise the down payment requirements above 3.5% • Overlay a credit score cut-off Looking forward, it is important for all of us to continue advocating for reforms that better ensure a vibrant, transparent, and sound mortgage marketplace. Current market conditions highlight the critical role of the private and public sectors in keeping mortgage credit flowing. All of us are trying to make sure we are well positioned to continue serving customers as this industry moves through truly tectonic change. I welcome the opportunity to hear about the challenges you face and discuss how all of us are addressing this brave new world of mortgage finance. http:// www.mortgagenewsdaily.com/channels/voiceofhousing/

As FHA Commissioner, Brian Montgomery was responsible for the oversight and modernization of the insurance fund’s $600 billion portfolio. He was also responsible for HUD's regulatory tasks to the housing mission of the GSEs and the manufactured housing industry. Montgomery came to HUD from the Executive Office of the President. At the White House, he contributed to the policy process on a wide range of issues including increase access to affordable housing.


BRINGING UP THE REAR - continued from page 54

f#@k up.” How was that? Clear enough? I’m not being too technical, am I? Going too fast for your obviously diminutive brain, Mick? If there’s a God… and I’d like to think there is… then one day soon Ed and Mickey will be on some sort of panel discussion and I’ll be in the audience. Be afraid, Ed and Mickey… and they should be very afraid, because no one gets away with saying things that mindbogglingly stupid with me around. If 99% of the loan modification packages are “incomplete,” you jackass, then who’s fault would you say that is, Mr. Vice Chairman? Must be those good-fornothing borrowers, right? Or maybe it’s those horrible attorneys or mortgage professionals who charge for their services, but just can’t seem to get it right, even after submitting and receiving approval on literally thousands of loan modifications in the past. , is that what you’re asking us to believe, Michael? Does that even sound possible to anyone in this country? The only way that 99% of 500,000 submitted loan modification packages could be incomplete is if the lenders and servicers are coming up with new requirements after the fact, which I have no trouble believing. Young says the industry is also concerned about the “expected dropout of a sizable number of qualified borrowers who fail to make all the payments required during the trial period”. Is that what the members of the Mortgage Bankers Association are concerned about? Really? Boy, I’d love to see the actual data on that, not that it will ever be published. Young also says that this fear of borrowers not making their trial period payments has been heightened by the concerns of some servicers that “borrowers will use the trial period to game the foreclosure process and delay their own foreclosures by another 5 or 6 months”. Borrowers will “game the foreclosure process”? Are you friggin’ kidding me? Who will game the foreclosure process? Borrowers? The borrowers are going to “game the foreclosure process”? Not the servicers… nah… they wouldn’t game anything, right? It’s the borrowers that are gaming the system, don’t you know. Pinto’s math states that ultimately only 100,000 to 200,000 of the 500,000 trial modifications will become permanent, and that’s assuming a re-default rate of 50%, only 50,000 to 100,000 performing loans will result. Okay, so we can agree that this guy’s no math major, right? A difference of 100,000 to 200,000 is a difference of… hmmm… quite a bit… wait… carry the three, divide by seven… 100%? That’s like describing a suspect as being

six to twelve feet tall, weighing 150-300 pounds. Why in the world would anyone assume 50% to be the re-default rate of HAMP modifications? HAMP modifications take into account the borrower’s income and expenses and are supposed to result in a monthly payment that’s no more than 31% of the borrowers gross monthly income, right? I’m not personally involved in loan modifications, but I think that’s right. Memo to the Mortgage Bankers Association, et al: A loan modification is when the amount of the borrower’s monthly payment goes down… not up, morons. You know how we can all know that? Because if I were to line up 10 million American homeowners from coast to coast and ask them whether a loan modification meant that a mortgage payment went up or down, it’s extremely likely that not be a single person would check the box for “up”. Get it, you slimy, lying, manipulative covet of number crunching clowns? Anyway… so, Mr. Pinto’s ultimate point is that, based on his industry’s obviously highly scientific projections, the Obama Administration’s stated goal, which is to keep 3-4 million homeowners in their homes by modifying their mortgages instead of foreclosing, would require 15-30 million homeowners in trial period modifications. Or, in other words, half a million trial mods isn’t going to cut it, and 1,200 is one heck of a long way away from 3-4 million. The irony is that Mr. Pinto, Mr. Young and yours truly all agree that the Obama Administration’s plan to stabilize the housing markets by stopping foreclosures has absolutely no chance whatsoever of succeeding is certainly not lost on me, nor on you the reader, I would imagine. However, we come to the same conclusion as a result of traveling very different paths marked by very different assumptions along the way. Mr. Pinto believes that in order to make the program work, we should have more homeowners in trial modifications than there are homeowners at risk of losing homes to foreclosure. Mr. Young seems to think that borrowers being unable to qualify is the problem. I, on the other hand, believe that mortgage servicers simply have to stop being the unscrupulous liars and war profiteers they have thus far proven themselves to be, and start modifying loans in the best interests of investors and our nation as a whole. Come on people… it’s almost midterm election time… time to send a message. So, what’s it going to be... fork or pitch fork? TheNicheReport.com

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It's a tie:

Ex-Fannie Mae Chief Credit Officer Edward Pinto & Michael Young, Vice Chairman of the Mortgage Bankers Association BY MARTIN ANDELMAN

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t was late last July when mortgage servicers participating in the Home Affordable Modification Program (“HAMP”) were summoned to attend a meeting in Washington D.C. The administration had decided it was unhappy with servicer performance as related to loan modifications, both in general, and specifically as related to HAMP, and they were calling the servicers to a summit meeting so they could be read the riot act. There was a new sheriff in town and his name was Timothy Geithner. After the meeting the statements from Treasury made most people believe that Tim had indeed laid down the law… or at least we were led to believe that he was rather irritated. He set a wonderfully arbitrary goal for 2009: 500,000 HAMP modifications by year’s end. Then, I remember hearing numbers going up almost daily. Within a week, Bank of America announced that it had initiated tens of thousands of modifications. Not to be out-fibbed, Wells Fargo, Chase, and the others followed suit and I remember thinking to myself… “Wow, that’s much too fast. They should be lying slower.” Well, now the ex-Fannie Mae Chief Credit Officer, Edward Pinto has come out attacking Treasury’s claim that 500,000 homeowners have entered the HAMP loan modification program. He doesn’t buy it. According to Pinto, HAMP is rapidly becoming, “I will pretend to modify your loan if you will pretend to make the payments.” Lovely… isn’t that just friggin’ lovely, especially when you consider that he’s talking about a $375 billion federal program?

Even though there were 200,000 loans in the trial modification phase as of late July, and Secretary Geithner announced that the industry has exceeded its goal of reaching 500,000 by year’s end, Pinto says that to-date there are only something like 1,200 borrowers that have received permanent modifications. The rest are in the “trial” phase… the phase wherein homeowners usually find their homes in foreclosure, regardless of whether they make their trial payments as agreed. Further, according to Michael Young, Vice Chairman of the Mortgage Bankers Association, 99% of the loan modification packages are incomplete, which has led to speculation that many of the 500,000 will never submit the documentation required to qualify. Okay… time-frigging-out over here. Everyone just stop whatever else you’re doing as you’re reading this. Re-read the last two paragraphs. The part where it states: “99% of the loan modification packages are incomplete,” and that 1,200 borrowers have been granted real modifications. (The rest, as my Grandmother used to say, is BUPKES, which is a Yiddish word meaning something worthless, absurd or anything stated publicly by Timothy Geithner.) Now, I realize that some of my readers don’t agree with my position on the whole loan modification thing. But, if this isn’t starting to make any of you realize that we, the American people, are being fed endless lines of unadulterated horse manure… well, I just don’t know what to say. “99% of the loan modification packages are incomplete?” I’d like to say a few words in response to Young’s and Pinto’s assertions: “It’s your industry… either do something productive about the problem, or shut the - continued on page 53

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November 2009

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TNR - November 2009