The feeling a homeowner gets is kind of like standing at the door of plane before you parachute out. I use this analogy to discuss the decision process of short sale or foreclosure.
Tuesday, May 18, 2010
Friday, May 14, 2010
FICO loses Court Battle
Frankly, so what. I remember back in the mid 90's when automated underwriting was being promoted. It was going to be the rage. Increase efficiencies, reduce costs and delinquencies. How did that work out? I remember when we all stood on stages speaking to groups telling them that we are dumbing down the mortgage industry. It was the end of the professional originator. Not that we were genius's but we were those career originators that cold actually look at Credit, Character, Capacity and Collateral and know that we had a good loan and we knew what was going to happen. It happened. One day I woke up and I was talking to a 24 year old underwriter that had a couple years of processing and could not even discuss the file and its merits and all the underwriter could do was read an AUS. Ugh!
So, FICO (Fair Isaac) is going to lose more than just this case against a new credit scoring model. They will probably lose even their trademark protections. Was their model flawed? Maybe. I don't think it takes too smart of a person to look back and decide that maybe FICO was not the clear indicator of default? All it takes is looking at the average initial FICO on borrowers defaulting on Fannie and Freddie loans to realize that their are other critical factors.
We need to get back to basics and common sense. I want to believe that these mistakes will not happen again but I recently spoke to a group of new loan officers. I know what you are thinking. Who do we need to smack in the face for actually hiring anyone with no experience in this business at a time like this? But, are any of the old school guys going to go out there and sell a mortgage? Probably not. Ignorance is bliss and I remember how happy, in March of 1994 when my boss kicked me out of the office as the refi boom had officially ended, that I was to go out and sell mortgages. So, I spoke to this group of originators fresh out of passing the NMLS test. I am so very scared for homeowners and the Realtors that come in contact with these kids.
To the hiring managers, owners, lenders etc. A license is not a predictor of ability. We need to stop the insanity and truly require that those that might take an application know what it takes to be a good borrowers. What is good credit actually, not just a score. How do you read paystubs, bank statements, credit reports (not just the cover page), how to read a title report, how to read an appraisal.
So, lets play Taps to the fall of FICO and hopefully risk managers on up will take a moment to consider how to bring the brain back into the business.
Thursday, May 13, 2010
States Looking to help the Unemployed and Underwater
original article
Well, we have 10 states that are going to get money. When you look at the list you might scratch your head and wonder why some states who have higher foreclosures seem to get less of the money. The reason is that the unemployment situation is a greater motivator for the program than points like negative equity or foreclosure numbers.
I read in the article that several states are focused on subsidies on payments. Well, if unemployment is the biggest factor then this makes sense. Maybe it is kicking the can down the road but at least the home does not go to foreclosure.
The other issue is principal reduction. Except they are not really talking about principal reduction. They are talking about principal forgiveness. Principal Forgiveness is the concept that if the borrower makes their payments on time (modified payment) at critical milestones the lender would forgive some of the principal. That might make sense until you understand that the primary motivator today for strategic default is negative equity. Those same borrowers that are walking away from their home are post loan mod and have realized that after all of the pain of the loan mod process they are still upside down and moving on a promise that Maybe, they will get a forgiveness of some of their principal. I believe this spells failure.
The other issue is the states are getting their monies today. Not in a few years, Today! Now, how exactly is TARP going to handle these monies that are supposed to be made available to states now but actually will not be used till later?
So, maybe the state, like AZ, goes ahead and pays down their portion of the matched principal reduction now as they have to spend the money now. What? That makes no sense. Now, the state becomes a proxy for a bailout for the capital markets as those monies become instant revenue for the Note Holder. Now you are really going to get the ire of the "Moral Hazard" crowds.
Another issue is, what happens if the homeowner does not perform? What if it goes to default anyway. Then Tax Payer money is really wasted then.
So, maybe the state takes all of the money and then banks it and only uses it till the bank performs on their share of the principal forgiveness. That is going to make no sense as the state is not going to get anymore money till they disburse what they have. How are they going to demonstrate success if it takes up to 5 years to find out?
Bottom line, I don't see how this is going to work unless the lender agrees to a complete forgiveness of principal today along with matching contribution from the state. Now, if that is true, then there are those that will believe that the homeowner has received a windfall. I would agree. We still need something to create accountability and responsibility for the homeowner. What if the parties, lender, state or both shared in the future appreciation of the home. Now, that would be a great way for the state and lender to recover what they have put out and holds the homeowner responsible for maintaining the home and its payments.
It could be set up on a schedule. Each year the homeowner keeps the home and maintains its payment the homeowner earns back a percentage of the appreciation. Let's say that after 5 years the homeowner splits that appreciation 50/50 with the state, lender or both? Now that could be a Tax Payer, Lender and Homeowner win. Those monies then could be recycled to help more homeowners and having spent the money they received they could then be ready to receive more as it is contemplated that this first $2.1 Billion in only the first of many.
just a few thoughts.
Well, we have 10 states that are going to get money. When you look at the list you might scratch your head and wonder why some states who have higher foreclosures seem to get less of the money. The reason is that the unemployment situation is a greater motivator for the program than points like negative equity or foreclosure numbers.
I read in the article that several states are focused on subsidies on payments. Well, if unemployment is the biggest factor then this makes sense. Maybe it is kicking the can down the road but at least the home does not go to foreclosure.
The other issue is principal reduction. Except they are not really talking about principal reduction. They are talking about principal forgiveness. Principal Forgiveness is the concept that if the borrower makes their payments on time (modified payment) at critical milestones the lender would forgive some of the principal. That might make sense until you understand that the primary motivator today for strategic default is negative equity. Those same borrowers that are walking away from their home are post loan mod and have realized that after all of the pain of the loan mod process they are still upside down and moving on a promise that Maybe, they will get a forgiveness of some of their principal. I believe this spells failure.
The other issue is the states are getting their monies today. Not in a few years, Today! Now, how exactly is TARP going to handle these monies that are supposed to be made available to states now but actually will not be used till later?
So, maybe the state, like AZ, goes ahead and pays down their portion of the matched principal reduction now as they have to spend the money now. What? That makes no sense. Now, the state becomes a proxy for a bailout for the capital markets as those monies become instant revenue for the Note Holder. Now you are really going to get the ire of the "Moral Hazard" crowds.
Another issue is, what happens if the homeowner does not perform? What if it goes to default anyway. Then Tax Payer money is really wasted then.
So, maybe the state takes all of the money and then banks it and only uses it till the bank performs on their share of the principal forgiveness. That is going to make no sense as the state is not going to get anymore money till they disburse what they have. How are they going to demonstrate success if it takes up to 5 years to find out?
Bottom line, I don't see how this is going to work unless the lender agrees to a complete forgiveness of principal today along with matching contribution from the state. Now, if that is true, then there are those that will believe that the homeowner has received a windfall. I would agree. We still need something to create accountability and responsibility for the homeowner. What if the parties, lender, state or both shared in the future appreciation of the home. Now, that would be a great way for the state and lender to recover what they have put out and holds the homeowner responsible for maintaining the home and its payments.
It could be set up on a schedule. Each year the homeowner keeps the home and maintains its payment the homeowner earns back a percentage of the appreciation. Let's say that after 5 years the homeowner splits that appreciation 50/50 with the state, lender or both? Now that could be a Tax Payer, Lender and Homeowner win. Those monies then could be recycled to help more homeowners and having spent the money they received they could then be ready to receive more as it is contemplated that this first $2.1 Billion in only the first of many.
just a few thoughts.
Just when Mortgage Brokers think they are the whipping boy they see this and realize
Just when Mortgage Brokers think they are the whipping boy they see this and realize they could have it worse. Mortgage Reform is coming and not in the way it was intented.
http://www.housingwire.com/2010/05/12/senate-adds-mortgage-underwriting-standards-to-dodd-bill-keeps-risk-retention/
With profits so compressed I don't see how issuers are going to hold a 5% equity in these deals without being able to "sell" that risk off.
http://www.housingwire.com/2010/05/12/senate-adds-mortgage-underwriting-standards-to-dodd-bill-keeps-risk-retention/
With profits so compressed I don't see how issuers are going to hold a 5% equity in these deals without being able to "sell" that risk off.
Tuesday, May 11, 2010
Mortgage Meltdown: How Banks Silenced Whistleblowers - ABC News
We are going to have to spend more time discussing this problem. When will homeowners begin to sue lenders in court to fight foreclosure because of these frauds?
Mortgage Meltdown: How Banks Silenced Whistleblowers - ABC News
Mortgage Meltdown: How Banks Silenced Whistleblowers - ABC News
HEFI (Home Equity Fractional Interest) Purchase Option
Check out this SlideShare Presentation: HEFI may change the way liquidity for real estate is made available.
Saturday, May 8, 2010
Short Sales Exposed; Insiders Tell All
AZ Realtors this is a must attend event. Great Panelists. Great Information. Find out what they did not teach in short sale class.
http://www.newleadingedgeucation.com/
http://www.newleadingedgeucation.com/
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