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There’s always something to howl about.

Author: Brian Brady (page 21 of 27)

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

November 3, 2007

HR 3915: Exploring the Minds of the Enablers

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Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

HR 3915 is referred to as the Mortgage Reform and Anti-Predatory Lending Act of 2007. It was introduced by Congressman Barney Frank of Massachusetts. I explored some libertarian thought about the bill here. I spent the last few days, perusing supporting messages, to discover if I might be mistaken. This is what I found:

The Center for Responsible Lending encourages support of this bill. Here is the letter they want you to write to your Congresspeople:

I am deeply concerned about the plight of 2.2 million families who have lost their homes to abusive subprime loans, or who will lose their home in the near future. Without stronger protections against predatory lending, the same conditions that led to this disaster will inevitably come up again. The Mortgage Reform and Anti-Predatory Lending Act of 2007 (H.R. 3915), which is based in part on existing state laws that have been effective, would help prevent another subprime disaster in the future.

Hmmm, well they fired a biased shot across the bow by referring to subprime loans (in general) as abusive. It lets you know that they despise any loan that isn’t an “agency” loan. The CRL also predicts that (a) more people will lose their homes (b) the disaster, left unchecked, will happen again. What they don’t tell you is that the innovative lending products added some ten million NEW homeowners to the ranks this decade. While 2 million foreclosures suck, a net gain of 8 million homeowners is nothing short of astounding.

The bill addresses many abusive lending practices that directly contributed to today’s foreclosures crisis, including reckless loan underwriting, abusive subprime prepayment penalties, and direct incentives for mortgage brokers to steer families into excessively expensive and risky loans. Basically, the bill would allow consumers to have greater confidence that subprime lenders will refrain from reckless lending and assess whether complex loan products are truly affordable for the families that receive them.

Ho ho ho! Reckless, abusive, and steering! Underwriting is to protect the lenders, not the borrowers. Here comes Big Momma to tell Read more

November 1, 2007

Mortgage Grader: Revolutionary or Just One More Marketing Widget?

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Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Mortgage Grader is a consumer-operated, automated underwriting system. Jeff Lazerson, its founder, has been working on this idea for 3-4 years. It was released this summer.

Consumers enter information and are issued an approval. The mortgage grading engine mashes up various automated underwriting systems (FNMA Desktop Originator, proprietary sub-prime engines, etc.), searches out the best terms, and delivers the equivalent of a wholesale lending approval, with wholesale rates, to the consumer. The consumer then hires an approved mortgage broker to package the loan for a flat fee.

Have we heard this idea before? Jeff Corbett has been talking about a transparent underwriting and rate search engine for some time, now.

I know both Jeffs. I met Jeff Corbett last year and have known Jeff Lazerson, since 1997, when he was selling his book, “How to Make A Fortune In Loans Without Leaving Your Desk“. Both are veterans of the industry who have seen mortgage consumers get raked over the coals by originators.

Transparency is nothing new to the mortgage industry. Mortgage brokers have practiced transparency, by law, for years. Mortgage originators often teach customers how to lower their fees by accepting a higher interest rate in exchange for lender-paid yield spread premium– I’ve done that since the mid 90’s.

Transparency is the law for mortgage brokers. Flat fee loan originations are nothing new. Innovation Mortgage has been offering a flat fee model for 6 years now.

Is this the end of the full-service mortgage originator? Absolutely not. Technology, while useful, is the consumer’s worst enemy. Ten years ago, mortgage originators feared that Desktop Originator would eliminate their utility. It was the advancement of technology, however, that allowed for more innovative loan programs. The only way for these technology engines to work is if we revert back to the “good ol’ days” of two loan programs: 30 year fixed and 15 year fixed. Nobody really wants less choices.

Nothing beats the advice of a mortgage professional. We are the first experience many consumers have with financial planning. Two hours with one of us will help a consumer to better understand Read more

October 28, 2007

HR 3915 Is Dangerous

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Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

HR 3915, The Mortgage Reform and Anti-Predatory Lending Act of 2007, was introduced by Barney Frank, (D-MA). Congressman Frank is also the Chairman of the House Committee on Financial Services. I outlined the key components of the bill with a link to the text here.

The danger behind this bill is that it doesn’t regulate the proper parties. When you read through the text, you’ll discover that there are two entities that are shouldering the brunt of the blame for the meltdown of the sub-prime mortgage market: originating firms and Wall Street securitizers. The bill stops short of levying any responsibility to the two most interested parties: borrowers and lenders (the individual investors). This bill exonerates them of the responsibility of due diligence.

Experience is the best instructor. An investor needs to lose 10% of his mortgage pool investment and a borrower needs to have his home foreclosed. That experience will instill a sense of personal responsibility in both parties. While loss of investment principal and foreclosure are devastating experiences, the old adage “time heals all wounds” truly is appropriate.

Jane Shaw, discussing Public Choice Theory:

Public choice takes the same principles that economists use to analyze people’s actions in the marketplace and applies them to people’s actions in collective decision making. Economists who study behavior in the private marketplace assume that people are motivated mainly by self-interest.

Ms. Shaw further exposes the dangers of regulation to correct market failure:

In the past many economists have argued that the way to rein in “market failures” such as monopolies is to introduce government action. But public choice economists point out that there also is such a thing as “government failure.” That is, there are reasons why government intervention does not achieve the desired effect.

This bill will provide a false sense of security to the consumer and encourage even more irresponsible behavior. Rather than let the instructional nature of failure naturally correct the market, the regulation would contract the industry so as to dissuade innovation and competition. The scoundrels will fleece the ignorant under the Read more

October 26, 2007

San Diego Fire Update: I… Wanna Hear… From a Chargers Fan

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Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Nick Canepa, of the San Diego Union Tribune, wrote that the game must go on this weekend and that it must be held at Qualcomm Stadium:

San Diego deserves this football game. It needs it. The event may not house or clothe anybody or do much to dramatically change even one life, but Chargers-Texans is this city’s game, and if it can be played here – and it can be – it should be. It belongs where it was intended.

I’m going to agree with him on this.  Anyone who doubts the healing power of Sport wasn’t at Game 1 of the 2001 World Series.  I stood in Bank One Ballpark, with tears streaming down my face, and sang “God Bless America” with NYC firefighters and EMS workers.  We hugged, bought each other beer, jeered each other’s teams, and celebrated the fact that our country was not only standing but ready to rise from the rubble.

I knew the damn game was meaningless.  I secretly wanted the Yanks to win so that The Big Apple would have a shot in the arm but they lost the Series in what could be described as on of the top five World Series in history.  The Diamondbacks won the only way it could be won; in seven games, right through the best team in baseball.

For 10-12 days, America healed.  We threw our arms around each other and diverted our eyes from that obscene smoking hole in Lower Manhattan.  We vowed to build higher, dream bigger, and soar like our national bird.

The Knights of Columbus in Solana Beach is holding its annual Spooky Knights party for the kids, as planned, on Saturday evening.  We’ll pray for the families affected, talk about how to help each other, and try to start the healing process.  If you’re anywhere near Solana Beach, stop in on Saturday; the first cold one is on me.

Qualcomm Stadium, the preferred Brady address last Monday, is clearing out.  We are going to have this football game…HERE...in San Diego.  This game is meaningless but this event is monumental.

Show me your lightning bolt!

 

More updates on the San Diego County Read more

October 25, 2007

HR 3915: Mortgage Reform and Anti-Predatory Lending Act of 2007

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Congressman Banker…err…Barney Frank co-authored legislation to “reform” the mortgage business on Monday.  You can view the 66-page text here.

Bullet Points of the bill include:

1- Prohibition of “yield spread premium” as compensation to originators.

2- Mandatory licensing of mortgage originators by a Federal registry or state regulator.  This Bill does direct the Office of Thrift Supervision to establish a registry for bank employees who originate loans.

3- Ability to repay the loan must be established.  Limits on cash-out refinances and a determination of a net tangible benefit to the borrower will apply.

4- Mandatory “pre-funding counseling” for certain “high-cost” loans by a certified HUD counselor.

You really must read this bill in its entirety.  Hidden among the bowels of the bill is language specifically limiting interest rates to 1.75% over the “published market rate” for conforming loans.  How can you determine a “market rate” if there are limits?  That’s just a paradox.

All of these proposed measures will be more costly to the consumer and is a prime example of “Big Momma” acting as YOUR financial planner. 

Yield spread premium is a very effective way to defray the up-front costs of a loan. 

Mandatory licensing will cause consumers to place undue trust in the “government-approved” originator.  While I philosophically oppose any form of occupational licensing, I would support this mandatory licensing if it were unilaterally applied with testing of expertise.  If the government is going to create a class of “loan agents”, they had better be qualified to effectively counsel consumers about how to use their mortgage as a financial planning tool.

Government regulated underwriting guidelines will contract the real estate market.

Financial planning tips from a government agent?  Seriously, does anyone else notice the irony in this?
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October 19, 2007

Sub Prime Mortgage Crisis Caused By Unexpected Success

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Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Sub prime mortgage are defaulting at record proportions.  Lenders are closing their doors and confidence is waning on Wall Street. Greed, corruption, and irresponsibility have all been cited as the reasons for this contraction and collapse. While these factors might be contributing reasons, they are all byproducts from the underlying reason:

The real estate markets behaved better than were expected.

Understanding this concept will require a mastery of Dan Green’s presentation proving that real estate data is granular and not mosaic. Dan said:

But real estate is not a national story, folks. It’s highly, highly local.

To beat the point home, when you buy your next home, it won’t be a home that exists in all 50 states. It will be a home that exists in one state, in one town, in one neighborhood, on one street and that has its own character and economics. Much like the small pictures above.

And that’s what real estate is — it’s a series of very, very small pictures.

Lending developed into a national, or to use Dan’s analogy, mosaic, business. Local factors weren’t considered in the modeling when Wall Street developed the guidelines for Alt-A and sub prime loans. The Wall Street forecasters were correct in their assumptions that real estate was undervalued… nationally. The aging baby boomers and short supply would apply steady pressure on prices in the first decade of this millennium. Nationally, they expected properties to appreciate faster than the prior appreciation rate; they just didn’t anticipate that local markets would behave outside of their model.

Let’s set “ground zero” to Y2K. Wall Street forecasters expected real estate to appreciate at a rate exceeding 6% per annum. It did. They loosened loan guidelines, in a quest for yield, protected by rapidly appreciating collateral. Desirable areas, like Southern California Vegas, South Florida, and Phoenix, led the appreciation wave at rates that were double the expected appreciation rate. Other parts of the country, Idaho, Utah, and Texas, didn’t follow the boom until 3-5 years later. Nationally, the numbers made sense to Wall Street.

The Read more

October 15, 2007

Disingenuous Diatribe: Compliance is Crap-It’s About the Cash

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Broker-controlled blogging was a hot topic this weekend. I tried to raise some eyebrows (and awareness) with my speculation about the internet land grab the employing brokers and banks might try.

I think a few things might have gotten lost in the translation. While I said that the brokers and banks will claim that it is a compliance issue, I believe that the REAL reason will be that they want to control the marketing channel to the consumer. Here’s what I said, over on Active Rain:

That will put pressure on the large companies to provide higher compensation to the more effective sales agents. That, will be the problem. Large real estate brokers and banks will severely curb the weblogging efforts of the individual sales agents in the name of “compliance”. In short, the behemoths will say that they can not adequately protect the consumer from the unsupervised local messages being offered by its sales agents. That, will be bunk.

The end-game play, the brokerage firms and banks will make, will always be about the money. Control of the customer has always been a competitive advantage for a large broker or bank. If that competitive advantage is lost, the value proposition of a large firm is lost. They won’t tolerate that loss.

What I’m saying is “The Compliance Argument is Crap- They Just Want Your Money“. I’m telling you this so that you are prepared when the NAR comes at you with the “Internet Compliance Memorandum” from their convention next month. I have no inside information, it’s pure conjecture on my part. This is, as Greg Swann would say, “evil dressed up in a Brooks Brothers suit”. My opinion isn’t biased against big brokerage firms, it will be even worse for the mortgage originators. Our evil is dressed up in custom made suits with Italian loafers- there is no way the big bank Presidents will allow their “salespeople” to live better than they do.

Look at the follow up articles on Active Rain:

A Florida broker suggests that brokers need to Read more

October 9, 2007

Trim The Fat…No, Throw Away the Meat and Get a New Cow

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Frank Nelson, writing for the Sunday LA Times, outlined the knowledge crisis that affects our industries today:

“About half our members have never seen a down market,” said Colleen Badagliacco, president of the California Assn. of Realtors.

Edward Barrios, an agent with Shorewood Realtors in Manhattan Beach, believes a “gold-rush mentality” accounts for many of the people jumping into the real estate profession in recent years.

Some lack the necessary skills to keep pace with and interpret changing market needs, he said, and others are getting licenses just to trade their own homes, or do so for family and friends, saving thousands of dollars in commissions. “Every day,” he said, “I see agents who don’t know what they’re doing.

Agreed. I was astonished at the “gold rush” mentality in the real estate brokerage and mortgage origination business when I moved to San Diego in 2003. The effects of that mentality are being felt today. A local mortgage brokerage opted to cease its origination operations and concentrate solely on their business of buying out structured settlements. Essentially, they wanted to cash-in on the gold rush and hired originators, with little or no experience, and offered them unprofitable but generous compensation plans. Their strategy was to skim some money from the high volume.

They did themselves, their industry, and moreover, these originators a disservice. We’ve talked to a large number of their originators in the past two weeks; we’ve extended employment offers to two of them. One recent conversation was so ridiculous it was comical:

Are you closing 5 loans per month?

Uh, no. The market’s all jacked up.

Hmmm…perhaps you need some product education. How proficient are you on the AUS?

Say what?

Nevermind. Are you talking to at least five Realtors each day?

I won’t do business with Realtors.

Okay…how about CPAs, CFPs, insurance agents?

They refer business?

Let’s try something different. What sort of database management system are you using to keep in contact with your old clients?

Ah, man…I already refinanced those people up to their limits. They’re all pissed off now.

We, most likely, don’t have the resources you need Read more

October 3, 2007

The Mortgage Liquidity Crisis Is Over

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

The liquidity crisis in the mortgage industry is over. I don’t mean that we are going back to the lending guidelines of the go-go years of 2003-2006 but the non-conforming loan guidelines are coming back to a sense of normalcy.

Dan Green talked about the non-conforming home loan market being like the NFL Draft, six weeks ago:

As soon as the first buyer puts a “market value” on a specific type of sub-prime or Alt-A loan, a number of positive things will happen:

  1. Funds will re-value their holdings and begin allowing withdrawals again
  2. The sub-prime and Alt-A mortgage product menu will expand a bit
  3. Wall Street will relax a bit

Until that buyer shows up, though, mortgage money will stay out of the market like JaMarcus Russell stays out of training camp.

While the “top picks” were holding out, the “position players” went into training camp. The position players, in California, were the portfolio lenders. Banks like Downey Savings, First Federal Savings, and old skool Home Savings of America, stepped in and filled the void a little bit. They didn’t pick up all the slack but they did gain market share as Wall Street twiddled their thumbs.

Ponder Dan’s excellent sports analogy a second. August and September of 2007 was like the infamous 1994 baseball strike. Replacement players, far less talented than their striking counterparts, took the field for Spring Training in 1995. Major League Baseball took decisive action to insure that the game of baseball, admittedly watered-down in talent, would continue. That forced the MLB Players’ Union to deal with the prospect of being completely unnecessary.

The aforementioned portfolio lenders are the equivalent of the replacement players. They took market share from the superstars and actually started the get a bit greedy by raising their rates. When they started to get a significant portion of the cream-puff loans, the superstars on Wall Street stood up and took notice.

Flailing lender Countrywide was the first to cross the picket line. Desperation reigned in that house as they repositioned their warehouse lending capabilities away from the commercial paper market and Read more

October 2, 2007

Things You Can Legally Do In Nevada

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

1- Gamble your house away.

2- Patronize a prostitute.

3- Fund a stated…(sound of needle scratching across a vinyl record)

It may now be considered a crime to originate a stated income loan in the State of Nevada.  Of course all the waiters, cocktail servers, strippers, and construction workers will be left behind but there will be no stated income loans in Nevada.

Last year, one out of four loans, funded in Nevada, were stated income.  One out of three loans, funded in the Las Vegas metro area were stated income.

Gamble responsibly.

 

September 29, 2007

Activerain.com v. Move.com: The Duplicity at Activerain.com

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

In an effort to placate angry users, Active Rain announces that the content is owned by the author; not the network. This isolates the membership roster as the only valuable asset in the failed sales to Move.com

The platform is not proprietary, the content was never owned (and couldn’t legally be “sold”), and the points scheme is not unique; Gather.com and Yahoo!Answers use similar systems. So…The membership roster seems to be the $33 million asset.

Six hundred bucks a name. Wow! So it was just a membership play, huh? I’m not buying that. I think the content clarification announcement is kind of like closing the barn door after the horse ran away. I think Active Rain fully intended to profit off of my words but I don’t care.

Today, Jon Washburn defines the future after he got caught with his hand in the cookie jar. His pandering to the members neglects to recognize the members’ need for the network. He should have said, “Hey! I did it for the money!”  Could Move.com have profited off the 50,000 users? Certainly, most of the content would have stayed. Here’s why: The members’ motives for blogging on Active Rain were in line with the owners of the network’s motivation- Money.

Now, as a raving fan of the network, I’m prone to blurt the childish socialist mantra, “It’s MY community!” like any other happy Active Rainer. However, deep in the bowels of my conscience, the truth persists like a nagging mother.

You and I used Active Rain. We did it for the money. We did it for the allure of our names on the top of the search engines, for the leads that were sent our way, for the networking opportunities that materialized, and for the warm happy, fuzzy feeling that we got when we engaged in an activity that felt like marketing. You used Active Rain and I used Active Rain and that is perfectly fine.

What isn’t fine, is that Active Rainers are pissed that the boys wanted to set up their Read more

September 28, 2007

ActiveRain.com v. Move.com: Where’s Caleb?

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

Caleb Mardini was one of the founders of Active Rain. He played a significant role in the expansion of the network, offering weblogging tips and serving as one of the “community cops”. I’ve always been a Caleb fan because he was a sales guy; he sold real estate and originated loans before his tenure with Active Rain. He was the pivotal link between the tekkie-type owners and sales-type users.

Here’s Caleb swelling with pride about the sales profession:

Sales people should be celebrated. There are bad sales people I know. But they don’t represent what I did when selling. They shouldn’t be able to ruin the profession for me, or any other honest hard working professional out there. There are a whole lot of sales people who are making a difference in this world. They are doing a lot to assist people making important and life impacting decisions. In my recent past I took great pride in telling people I was a sales person. Sales is terrific and it makes the world go around. I have to say that as a sales person I took great pride telling people that I was in sales

How does a founding partner quit, in the midst of an obvious windfall, a mere week after he represented the Network in Louisiana?

Is Jon pulling a Michael Corleone ? Did Caleb throw in the towel because he recognized a no win situation?

If the former supposition is true, that a pretty crappy thing to do. If it’s the latter, then this trial is over before it got started.

Greg Swann raised the stakes by pointing out that Active Rain has thrown this lawsuit into the court of public opinion. Elevating its membership to advocates is risky. Public support and misplaced outrage has divided the community. Members are questioning whether the commitment they’ve made to the network was really worth it.

I’ve pointed out that Dustin’s existence at Move.com compromises its claim of innocence; Caleb’s sudden departure from Active Rain equally undermines the court of public opinion’s confidence in the veracity of the Network’s claim.

One thing Read more

September 27, 2007

ActiveRain.com v. Move.com: The Nagging Question

by

Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL

Author website

I can’t seem to get this out of my head. Call it the Dustin effect.

If Dustin was hired by Move.com as the Director of Interactive Marketing, and was teaching Realtors how to blog way back in early 2007, why are the Active Rain boys surprised that Move.com was developing a blog platform? What made them think that Move.com wouldn’t proceed with that product if they didn’t purchase Active Rain?

and yet…

Dustin was openly critical of Active Rain when he first joined (December, 2006) . Why would Move.com make an offer for Active Rain when its Director of Interactive Marketing had little good to say about the platform?
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