Mike

Like a lava flow advancing on a home in Hawaii, the mortgage meltdown that erupted in August has advanced and slowed, only to advance again, each time a little farther.  Fortunately, the Hawaiian home is insured.  Fortunately for whom?

The mortgage meltdown is reflected in the stock behavior of the world’s largest insurers.  AIG, according to Forbes the 6th largest company in the world and member of the Dow Industrials, has seen its stock value ebb and flow like the lava.  Since August 3rd, when it stood at better than $70 dollars a share, it has lost value in fits and spurts, following the fortunes of major players in the financial markets.  As of yesterday, it showed a loss for the year of more than 11% .

Following today’s announcement of an interest rate freeze for subprime borrowers, AIG recouped half its loss for the year in one trading session, doubling the best advance of any other Dow Industrial member.

Perceived risk is a funny thing.  In a seller’s market, it’s the risk of scarcity that drives the real estate buyer to plunk down a signature on a contract.  In a buyer’s market, it’s the risk of looking stupid that makes most of us keep our eyes averted and our hands in our pockets.

This market will turn around.  In Tucson, where I live and work, the mortgage meltdown won’t stop our population growth, which is predicted to continue at a clip of 2% per year through 2015.  Our MLS indicates enough inventory for at least a year or so.  Employment, which is strong, is not the whole picture.  People move to Tucson for reasons other than employment, and many are dragging a great big nest egg behind them.

And that’s the real estate opinion of this Tucson, AZ mortgage lender,
Mike in Tucson

A skydiver from up the road in Gilbert, AZ lost his life last week while practicing for a world record diamond formation jump in Florida. He was experienced, with more than 5,000 jumps to his credit. He hadn’t experienced the one thing that would cost him his life–getting tangled up in something beyond his control.

A skydiver friend commented that skydiving is the ultimate in accountability: “From the moment I fall from the plane, I’m dead until I do something.” “If what I do is the wrong thing, it’s all over.”

The light bulb went on in my brain. It often does that when a story has an application to my lending business. The parallels to business are striking:

• The fallout in the lending business has killed off some of the most experienced companies. One moment, Tucson based First Magnus Financial Corporation was poised to expand by 35% in 2008. The next, it was bankrupt.
• Loan officers by the thousands this summer found themselves unemployed through no fault of their own. Still, they’re unemployed, aren’t they?
• Small mortgage brokers with strong realtor relationships are struggling to survive as Purchase business has dried up along with Refinance business.

As a real estate developer on one of New Jersey’s barrier reef islands in the late 1980’s, I employed 21 full time union carpenters and owned a dozen speculative properties. In 1986, the tax law changed my business. I wasn’t aware of the implications of the change. In 1987, the stock market crashed. I hadn’t experienced a market crash, and didn’t believe it would affect the second home market as drastically as it did.

I didn’t do anything. Property values in my local market fell by as much as 50%.

I went from being worth $4,000,000 at age 40, with a debt to equity ratio of 1:4, to standing in front of a judge at age 41 and hearing “You may keep $4,500, or your car, but not both. Your choice.” The gavel fell, and I left the courtroom. I kept the car and started over.

In this market, my friend, you’re dead until you do something. Experience is what we get when we don’t get what we wanted to get. I don’t want any more experience. How about you? What will you do this week to assure your survival?

Lenderama readers will benefit from your thoughts. Please leave a comment.

Bloggers and the mainstream press get a lot of mileage out of the increase in foreclosures during a real estate downturn. Originators need to be prepared to deal with fact, not emotion, in order to help clients in difficulty.

“Banks Steal Black Children’s Futures,” rails Glen Ford on BlackAgendaReport.com. “The institutional banking practice of racist home mortgage interest gouging guarantees that successive generations of African Americans will lag further behind their white peers in wealth accumulation.”

Emotional rhetoric like this is nothing new. “How the government and big banks help second-mortgage companies prey on the poor” was a headline 15 years ago, in the June 1992 Washington Monthly.

There’s a sense, fanned by such journalism, that banks and originators funnel cash-strapped borrowers into a trap from which there is no escape. The bank doesn’t want a piddling 7 or 8 percent on its investment; what it really wants is your house!

Nothing could be farther from the truth.

Short sales (preforeclosure sales) can be a useful tool to keep a borrower out of foreclosure. If you as the originator are knowledgeable as to the FNMA guidelines for such a sale, you will help the client, the real estate agent and the lien holder.

In cases where Fannie Mae is the insurer, here’s the definition of a “short” sale: It is “the sale of a property in which Fannie Mae, the mortgage insurer, and the borrower all agree to accept its proceeds as satisfaction of a defaulted mortgage, even though the amount of those proceeds may be less than the amount owed on the mortgage.”

Complaint: “The bank won’t even discuss it with me.”

That may be because you’re jumping in too early in the process. FNMA Guidelines require the bank to exhaust “all other available means” before discussing a preforeclosure sale with a borrower. An appropriate workout plan may include mortgage modification or mortgage assumption.

In a mortgage modification, the purpose is to bring the borrower current in such a way that the mortgage will not default. This can be done by extending the term of the mortgage, reducing the interest rate for a period of time (usually two or three years,) recasting the balance of the mortgage (re-amortizing the outstanding debt) or capitalizing delinquent interest and escrow items.

Complaint: My borrower has experienced financial hardship, and the bank won’t work with him/her.

That may be because the borrower’s financial hardship “must be the result of an involuntary reduction in income or an unavoidable increase in expenditures.” Here are some examples FNMA lists:

• a long term layoff
• a job loss
• an involuntary reduction in pay
• a disability or illness that results in a decrease in income or in major medical expenses
• the death of the primary contributor to the mortgage payment
• a decline in a self-employed borrower’s earnings

If the circumstances are a result controllable circumstances, a short sale is unlikely to be approved. Your borrower can’t quit his job, voluntarily reduce the number of hours worked, or decide to go back to school, and expect that the bank will accommodate their desires.

If this is helpful, and if you would like me to answer a particular question, leave a comment below.

Los Angeles Craigslist has a post today. Here’s the headline: Mortgage Brokers, Loan Officers who want to make $400K+

“If you’re interested in making a high six figure income…” Okay. that’s 100% of the human race. “untapped sector of the market…” They must know something I don’t. “We can teach you how if you are willing…” Oh, I’m willing, all right! “We need 10 people who are top producers…” Got me there, but let’s keep on reading. What do I need to do to qualify?

- Be of good character
- Be able to convey trust over the phone
- Have excellent credit
- Creative thinker (what? all of a sudden they dropped the verb)
- Protecting client’s credit (and now they’ve changed to the infinitive)
- Integrity (have it? fake it? need it? what?)
- Stable (I miss that verb “to be”)

“Please do not contact us if you are not all of these things as we don’t want to waste our time…” They might exclude me. Oh, no! Hey, I’ve got those things!

“Compensation: $400K+ is very easy to obtain. Top producers will do more…” Maybe this is legit. I’m going to call.

Three percent of the workforce in the US will earn $100,000 or more. The guy that posted the ad might be there, but I doubt it. On the other hand, he has something that you probably don’t have.

A plan. While you’re hunkered down at your desk bemoaning the fact that you didn’t create and maintain a database over the past several years, he’s implementing a plan!

Success doesn’t require much. It does require a plan.

Just a little one. A successful plan doesn’t have to be big. It doesn’t have to cost a bundle. It does have to be implemented. The World Series is playing in the background. It occurs to me that the team in the field can’t score runs. Playing defense won’t allow you to implement.

This guy on Craigslist has a plan. Do you?

Click “comment” below, and tell the world what it is.