I have become all consumed by putting together what I hope to be the largest nationwide subprime wholesale operation you’ve seen in some time - Common Sense Lending at it’s core. Those of you that remember subprime for the decades before 1998 - that’s pretty much what you have to look forward to from our new sister company. THAT sort of lending works well in all economic climates and industry cycles.
The rate sheet’s done, as is the matrix, the underwriting guidelines (these were the first items to get completed), the key people for the most part have been engaged, software’s been lined up, as has our CPA, compliance resources … so as I’ve said before - lot’s been done.
The way the wind is blowing in Washington with potential new regulations, the future of the Government’s continued involvement in related industries and ours as well, etc. are all things that I know you’re all concerned about, as am I. Everyone reading this knows, good quality full-doc customers, with decent credit histories who can afford the proposed new loan is smart (and BTW is the majority of the American population). At each extreme, seems like the Government wants to control (Fannie/Freddie & FHA) thinking as I see it, so they won’t be our enemy. With the Government operating at the edges, that leaves the middle area that we all know of as middle americans and the preponderance of the Countries homeowners.
I’ll give you a quote from the new underwriting guidelines, this is what’s at the heart of the new lending company division; so if you’re thinking about possibly doing business with the new firm look this quote over. You may currently be satisfied with doing business at the margins now, but if this fits with how you can operate and the type of customers you feel you can attract, then they'll want you:
"In a nutshell, we like applicants who have a satisfactory credit history, with no recent significant credit problems, who can document their ability to repay the loan in a timely manner, and who appreciate the sanctity of their payment’s due date."
One thing that I do know, is things will get back to normal (except the stupid reckless lending standards of the past decade), so the end of the world for our industry is not near.
Fed Wants Flat Fees for LOs and Brokers
The Federal Reserve Board is pushing the mortgage industry toward paying originators a flat fee under a proposed rule but lenders can continue to compensate loan officers and brokers based on the interest rate, according to regulatory experts. At first read, the proposed Truth in Lending Act rule appears to ban yield-spread premiums, which are a form of broker compensation that can be increased by pushing up the interest rate. American Bankers Association senior regulatory counsel Rod Alba points out that the Fed is prohibiting compensation based on the terms and conditions of the loan transaction. "The proposed rule does not appear to ban the practice of compensating the mortgage broker through the interest rate. But it does intend to put limits on the more abusive uses of yield-spread premiums," Mr. Alba said. As proposed, lenders can pay a broker one point, for example, but not a range of one point to two points where brokers have the discretion to increase the mortgage rate and their compensation. In addition, a lender cannot increase a LO or broker's compensation for "steering" borrowers into loans with adjustable rates or prepayment penalties. The Fed also is seeking public comment on allowing lenders to compensate LOs and brokers based on the principal amount of the mortgage. The Fed notes that compensation based on the loan amount is a "common practice today."
S&P/Case-Shiller Finds Home Prices Stabilizing
House prices have reversed their steep decline and it appears home prices are finally stabilizing at mid-2003 levels, according to the May Standard & Poor's/Case-Shiller 20-city house price index. The May HPI shows that prices have fallen 17.1% from a year ago, which is slower than the 18.1% annual decline in April. "The pace of descent in home price value appears to be slowing," said David Blitzer, chairman of S&P's index committee. While the index has reached a "clear inflection point," he said, prices are still down 17% on a year over year basis and "so we likely do have a way to go before we see sustained home price appreciation."
Beige Book: Residential Real Estate Improving?
Lending is steady or slower and residential real estate generally remains weak with signs of improvement, according to the Federal Reserve's Beige Book. Residential real estate lending is decreasing in New York, Richmond, and St. Louis, according to the Fed. Dallas' outstanding mortgage volumes are steady but low, while Kansas City's rise in mortgages is slowing. Refinancing activity is dropping dramatically in Richmond, decreasing in New York and Cleveland, and maintaining its pace in Dallas. Credit quality is varying by district with commercial real estate concerns leading to tighter credit in some areas as generally credit standards continue to tighten or remain stable. The only district where residential real estate sales are failing to improve is St. Louis, where they instead are seeing a steep drop. The Fed said the low end of the market, particularly entry-level sales, continues to do relatively well, with some districts attributing this to the first-time homebuyer tax credit. The Boston and New York districts said condominium sales are still far below 2008 levels. Home prices continue to decline in most cases although some districts see possible signs of stabilization. Three districts said foreclosure sales are putting downward pressure on prices. Residential construction appears to remain slow, with three districts noting that financing is difficult, according to the report. Respondents said commercial real estate sales volume is low, or even "non-existent" in some districts, citing a combination of tight credit and weak demand. Tight credit also was cited as a factor in limited or declining commercial construction in most districts, exceptions being health and institutional construction in the St. Louis district, public sector construction in the Chicago district and World Trade Center reconstruction in Manhattan.
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