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SECRETS
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Insights,
Opinions & Commentary
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| The
Ebb & Flow of Broker Power |
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It's
that time of the cycle again when brokers have
the upper hand.
The cyclical nature of the mortgage lending
business means that experience gained in
previous market cycles will actually be valuable
when the market turns again. Unfortunately, most
of that experience doesn't remain close to the
broker community. Successful brokers tend to
move up in the business, becoming executives at
larger firms before moving on to mortgage
banking firms. Unsuccessful brokers fall out of
the business.
I recently heard one mortgage industry executive
say that upwards of 70% of the brokers working
in the business today have never been through an
entire mortgage lending cycle. That's bad news,
because those with experience are about to enter
another golden age of opportunity.
I started writing about the mortgage lending
business in 1997, at the height of the B&C
lending craze of the late 90s. These were the
heady days of The Money Store and The
Associates, when subprime lending was all the
rage and the nation's largest lenders were
making a fortune and then selling off their
businesses for a king's ransom. I spent a lot of
time writing about how wholesale lenders were
desperate to find the nation's best mortgage
brokers and lock them into their third-party
loan origination networks.
It was only a few years later that the world was
rocked by 9/11. In the aftermath of that
disaster, many feared that the country would be
thrown into an economic recession. There was
certainly enough fear, uncertainty and doubt
around to bring our economic system to its
knees. Instead, the Fed dropped interest rates
through the floor and the housing market saw a
refinance boom like the world had never known
before.
I spent the first few years of this decade
writing about technology, because that was the
key to allowing lenders to write more business
and business was plentiful. Meanwhile, brokers,
who had so recently been the object of the
wholesale lender's affection, were left to their
own devices. Companies didn't have a lot of time
to help brokers out with difficult deals. There
was too much business already flowing in the
doors.
And now, it appears that the market is turning
again, though so very slowly. Despite all of the
forces desperate to keep the U.S. housing
industry hot, the business is ruled by the
cycle. It can be manipulated to some degree, but
the wheel will never stop turning.
And so, recently, I've been hearing and writing
more about wholesale lenders who are desperate
to attract the nation's best brokers into their
third-party loan origination networks. All
manner of promises are being made and brokers
who can demonstrate their ability are being
courted aggressively.
How long will it last this time? That's very
difficult to say. One thing we're fairly sure of
is that things aren't even bad yet. Every time
an expert goes on the record indicating that the
boom is over and that the market will crash,
something happens to delay the executioner's
axe. But the market can't hold out forever.
Eventually, applications will fall and, as the
Mortgage Bankers Association has suggested, 40%
of the business will evaporate. When that
happens, broker power will be at its apex. But
only the most successful brokers will be in a
position to leverage this power.
As the market changes, wholesale lenders will be
more willing to give more to their loan sources,
but they will also have less patience with
brokers who can't deliver.
What does it take to be the best in your
business? Training, experience, passion and a
willingness to do what your competitor will not
do to get the business and serve the customer
well. For those brokers who are prepared, 2007
will be a year of great opportunity. Article
by Rick Grant. He has been a reporter and editor
for 20 years and spent the last 10 writing about
financial services. He served as special reports
editor for National Mortgage News and managing
editor of Broker Magazine. He is currently CEO
of Texell Interactive Media. He can be contacted
at ricgrant@ptd.net. CLICK
HERE to tell us your views on Rick's piece
FHA Gets 1st Clean Audit in 16 Years
The Federal Housing Administration has
substantially improved its estimates of defaults
and claims on single-family loans, and the
agency recently received a clean audit for the
first time since 1990. The FHA has consistently
underestimated claims over the years, raising
the ire of White House budgeters and forcing
outsider auditors to cite the agency's inability
to predict the performance of its loans as a
"material weakness." To improve
estimates, the FHA recognized that loans with
downpayment assistance have higher claims rates
and incorporated credit scores in its
performance models. As a result, the agency's
claim estimate for fiscal year 2006 was
"right on the money," said Judith May,
director of the FHA's Office of Evaluation. The
FHA predicted that lenders would submit 54,260
claims, and the actual total was 52,106. This
estimate prompted the agency's outside auditor,
Urbach Kahn & Werlin, to sign off on the
agency's fiscal 2006 financial statement without
citing a material weakness. It is the first
clean audit the FHA has received since 1990,
when Congress required an annual outside audit
of the federal mortgage insurance fund. CLICK
HERE and talk about this on our Discussion Board
White House Economist Uncertain on Housing
President Bush's chief economic advisor said the
housing market has been "hit harder"
than expected and he isn't sure when it will
bottom out. "Obviously, we don't like to
see any one industry get hit and hit hard. That
affects people's jobs," said Ed Lazear,
chairman of the President Council of Economic
Advisers. But so far the downturn in the housing
section has not really impacted construction
jobs because commercial construction has
"taken up much of the slack," the CEA
chairman told reporters. Nevertheless, the
President's chief economist has lowered his
estimates of real gross domestic product from
3.6% in 2006 to 3.1% because of the housing
sector. But he believes the most the decline in
housing activity has already occurred.
"Whether it's bottomed out now or whether
it will take another quarter or so I think is
still up for grabs," Mr. Lazear said.
I'm surprised his gentlemen, who should know
better, can say ... residential housing values
skyrocketed - marching upward for a solid 8 year
stretch, and now they've only moderately fallen
a mere few months, and it's probably almost
over! I wonder why he's hallucinating outloud?
If you would like to memoralize your opinion CLICK
HERE and talk about this on our Discussion Board
Loan Limit Unchanged in '07
The conforming loan limit will remain at
$417,000 next year. Although the index used to
determine the maximum loan amount Fannie Mae and
Freddie Mac can purchase or guarantee showed a
slight decline of $501, the Office of Federal
Housing Enterprise Oversight said recently that
it would not lower the ceiling if the index
declined. The mere 0.16% slip in the average
price of both new and existing houses, from
$306,759 in October 2005 to $306,258 last month
(as measured by the Federal Housing Finance
Board), would have resulted in a $667 decline in
the limit -- to $416,333. But OFHEO Director
James Lockhart said recently that the ceiling
would not be lowered in order to "avoid
disrupting the end-of-year" mortgage
pipeline. However, the dropoff will be used in
calculating the loan limit for 2008. OFHEO took
over responsibility for setting the ceiling in
February 2004. Prior to this year's decline in
the FHFB index, the average increase in the
October-to-October price of houses over the
previous five years was 8.8%. Last year's limit
was 15.9% above the $359,650 ceiling in 2005. CLICK
HERE and give us your two cents on our
Discussion Board
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here!
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MBA:
Many ARMs Will Refi Before Reset
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The
Mortgage Bankers Association is predicting that
$600 billion to $700 billion worth of
adjustable-rate mortgages will refinance in 2007
before the loan resets and the borrower gets hit
with a higher rate. Those borrowers could end up
with 7.5% interest if the loan resets, but now
they can refinance into a 6.13% fixed-rate
mortgage, which would be "pretty
enticing," MBA economist Mike Fratantoni
said. The MBA estimates that $1.1 trillion to
$1.5 trillion in ARMs could reset in 2007, and
$600 to $700 billion of those loans "will
actually refi before they face any higher
payment," the MBA economist told the Women
in Housing and Finance symposium. "So you
have $300 to $400 billion worth of mortgages
where the borrowers will face a higher payment
for the first time," Mr. Fratantoni said.
"We don't think that will be a
macroeconomic event."
This was in last week's news ... BUT, now that
they must actually qualify and be able to afford
the new loan; with property values falling
everywhere - I won't hold my breath on many of
them actually getting approved. CLICK
HERE and talk about this on our Discussion Board
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