As the US economy continues to struggle to emerge from one of the most costly recessions in modern times, those of us in the mortgage industry find ourselves more challenged then ever before in our careers. As the founder and CEO of Superior Mortgage Corp., a privately held mortgage banking company with over 22 years experience, I have a unique view of what is happening (not to mention sometimes a little cynical). Many of the changes and new regulations are certainly justified but much of the effort to correct what went wrong in the past is misguided. These days it seems every politician, state, or federal regulator is looking to make a difference and correct the ills of the past. That is admirable but the problems are not easily corrected, especially in a manner that will actually help the consumer and not do major damage to the thousands of mortgage professionals that have always done their job in an honest and professional manner and the millions of consumers that have always borrowed responsibly.
Here is some of what is happening with my opinion of the true affect on correcting the problems that got us in to this mess.
1. We have experienced many underwriting changes all of which have made borrowing money more challenging and supposedly safer for lenders. Let's face it, major change was needed. Underwriting guidelines had become a joke. Large bank lenders and Wall Street firms drove lending volume by pretty much doing away with all the common sense guidelines that we followed successfully as an industry for years. But now just like a pendulum, the changes are going too far. Fannie Mae and Freddie Mac are in government conservatorship and want out. In the meantime it appears good business logic is absent in the recent changes. My fear: if they keep taking away the ability to lend to good borrowers, they are negatively affecting supply and demand and continuing the downward pressure on home values. Simple economics. The fewer the number of people that qualify for loans the less demand to buy the lower prices have to go. Do you know who suffers more losses when this happens? Us, the taxpayer, since we now own the largest source of mortgage money in the world, Fannie Mae and Freddie Mac. Not to mention Fannie Mae and Freddie Mac increase their own losses when values continue to trend down.
2. We have a new rule in lending called Home Valuation Code of Conduct or HVCC. The idea of the HVCC is great. It requires lenders to remove the influence anyone in loan production may have from the appraisal process. You see, over valuation was blamed for much of our current crisis and in fact it certainly contributed. The problems our customer service has suffered as companies struggle to be compliant are forced to use "Appraisal Management Companies" that often lack local real estate knowledge and take much longer to complete appraisals. These Management companies are often owned or influenced by big banks which figured out how to use this new federal law to create a profit center at the expense of hard working, honest professional appraisers. Maybe in the end this will turn out to be a good control.Right now the jury is out.At Superior we built an internal system with all the processes and controls required to meet the letter of the new law while still providing the best and most accurate appraisal service we can provide.
3. Another new law requires even more accuracy in what is known as the "Truth in Lending" regulations. The annual percentage rate (APR) that is disclosed to consumers for over 20 years (and never really helped them shop the way the government envisioned) now has to be accurate to within 1/8 of 1 percent. When any of the loan terms change that affect the APR by more then 1/8 of 1 percent the lender must re-disclose in writing and prove the consumer received the new disclosure. Then the transaction can not close for 3 business days. Get this, even if the APR goes down in favor of the consumer this new Federal Government regulation is there to protect you by not allowing you to close your loan for 3 business days. This regulation has great intentions and will probably help a few consumers while frustrating many more. The problem comes down to trust and working with trustworthy individuals. Unfortunately the mortgage industry has no credibility because of 10% or 20% of the people that abused the system for their own benefit. That leaves the honest professionals and our honest consumers to meet the challenge of the new regulations. My suggestion, work with one of our professionals and understand before you start the process that new regulations designed to protect you may add a few extra days to the process.
4. More education required. Well it is about time. Imagine trusting your largest financial debt transaction to be handled by someone with NO formal education in mortgage banking. Bye, bye part timers and in it for a quick buck loan officers and welcome to dedicated professionals. Of course we just like the underwriting pendulum swinging too far and some of the education requirements appear they will be onerous but that is okay if it helps police out those individuals that are not dedicated to helping people borrow the right way with loans they understand and can afford.
5. On the bright side the Federal Government has certainly taken some consumer friendly actions. The Fed has been buying Mortgage Backed Securities to the tune of $20 billion or more per week for most of this year. That has helped keep rates really low. Historically low fixed rates in the fours and fives. In addition anyone buying their first home has had a good shot at getting an $8,000 tax credit (speak to your tax professional ASAP). Now when we thought this great tax break may be over the new bill is passed extending the credit through the first quarter of next year and adding a $6,500 tax credit for anyone who has owned and lived in a primary home for at least five years and wishes to buy another home. You can contact a Superior representative for details and remember to always check with your own tax preparer for confirmation of your ability to qualify for these credits.
6. Other good news: Home sales have picked up considerably in most parts of the country from this time last year. Values are thought to be stable in most markets and even starting to increase in the best markets. Inventories are still large so interested buyers have a lot to choose from and are still able to drive great bargains. So are we out of the woods yet? Maybe not but at Superior we are optimistic about the future of housing and the economy.
We are ready and dedicated to help you understand how to borrow responsibly so you will be able to enjoy your home for years to come. We are the mortgage banker you can trust!
Steve Cors
