Mortgage and Housing Volatility Far From Over
January 27th, 2010 Categories: Mortgage News
The Fed will stop buying mortgages beginning at end of March 2010.
Uh-oh. This is kind of a big deal.
Lets reflect back for a minute…
Back in September 2008 the bottom fell out of the mortgage and housing industry, the pillar of our economy at the time, as the MBS market was more or less exposed as a fraud and subsequently deemed toxic rather than the AAA rated investments they were being pimped out as. Former Wall Street stalwarts like Bear Stearns and Lehman Brothers were heavily invested in such securities and subsequently imploded almost overnight. Banks, lenders and the credit (mortgages) they offered disappeared like a David Blaine magic trick- *poof*
Crisis ensues and the government steps in to cauterize the gaping wound, funding the market to the tune of some trillion or so dollars in lieu of risking a catastrophic ceasing of our (and the worlds) economic engines.
Fast forward to January 2010.
The trillion dollar capital infusion coupled with keeping the overnight funds rate at or near zero has kept interest rates low and market volatility in relative check. Well this is about to change.
First, you can’t print a trillion new dollars and not expect inflation at some point on a relative level. Apart from the inflation dynamic, the Fed has decided that its time to cease backstopping the MBS market, and as a direct result, the housing market…preferring to hand things back off to the private sector.
Wait a minute…What private sector?? Who has an appetite for MBS’s and more importantly at what yields?
You can bet as sure as the sun will rise in the east tomorrow that the private funds, banks, lenders and their managers who do play in this sandbox will buffer margins to mitigate perceived risk in such securities, which all but guarantees higher interest rates.
The remaining banks are well capitalized for the most part (compared to late 2008, early ‘09), though they are still very gun-shy to lend except under the most pristine personal credit and financial conditions. Ask any mortgage originator about perpetually moving underwriting guidelines.
Pundits have warned of a ‘false bottom’ when it comes to the housing market for some time. Feel the floor shaking yet? As interest rates rise, housing affordability decreases subsequently exerting downward pressure on housing values…again.
What happens if the bottom does fall out?
I’m sure President Obama and his staff aren’t keen on sending the economy back into a tailspin. Surely the Fed has thought through the potential ramifications of their pending actions. They could simply step back in at anytime to shore up the market if things got too volatile, using Fannie Mae and Freddie Mac as the primary vehicles to do so…alas there are calls to abolish these GSE’s all together.
As stated, inflation has to be a big concern here too. How does the Fed pull all the ‘new capital’ out of the market to avoid hyper-inflation in a way that doesn’t send the economy back towards a protracted recession? One way is something called a ‘reverse REPO‘, where they sell their stockpile of MBS’s with a guarantee to buy them back in the future at a profit for the purchaser. Seems that this obscure company called ‘Google’ (among others) may be interested in this play…
Interesting times to say the least…the stakes are HUGE and not for the faint of heart.
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Indexable IDX Questions
January 26th, 2010 Categories: Real Estate News, Real Estate Technology
There has been much buzz about Indexable IDX plug-ins for real estate blogsites…
First things first…Why is this a big deal to begin with? IDX solutions are typically framed in to web/blogsites and offer little to no SEO value. An indexable IDX effectively creates separate posts for every listing, thus creating GOBS of real estate and general property related content that the Search Engines can’t help but crawl all over and index.
In theory, indexable IDX’s should subsequently send copious relevant organic traffic to a site that has implemented such a plug-in.
As far as I can tell Jason Benesch from The Real Estate Tomato pioneered an open source WordPress plug-in (ListingPress) that spurred further development by a handful of other tech vendors that I also highly respect, like Diverse Solutions dsIDXpress (Press Release).
The idea seems great in theory…as said, plug it in and instantly create a ton of crawlable property data for your real estate web/blogsite. If you are first in your market with one of these churning inside your site, there would appear to be a distinct SEM advantage.
So, I was having a conversation with some Housechick and this subject of Indexable IDX’s came up. Being she knows a thing or three about IDX’s and SEM, the obvious question was thrown out:
‘What happens when multiple people/sites in the same market implement such a tool?’
- Does the SEO value evaporate, since everyone will effectively have the same content?
- Do the mysterious Duplicate Content theories come into play, and as a result does Google and the other Search portals penalize sites for such?
- Which site running the same Indexable IDX ranks better? Is this where a higher PageRank becomes more than a bragging right and effectuates results for higher ranking on SERP’s?
- Is there a way to differentiate the content via novel implementation methods, result formats, or other such tweakery?
- Is one Indexable IDX different from another (not from a functionality standpoint, rather strictly from an SEO perspective)?
Kelley and I speculated for a bit with no real conclusions, just educated guesses…so I called Google and am still on hold.
While I’m waiting, I ask the rest of the community: As adoption of indexable IDX’s reaches a certain saturation point by market, does the current innate SEO value diminish, evaporate, or worse? Thoughts?
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Worlds Biggest Baddest Mortgage Lead Funnel, by Google
January 19th, 2010 Categories: Mortgage News
Back at the end of August, exactly one post ago, I wrote of Googles pending entrance into the mortgage lead business.
Today Matt Carter at Inman News expounds on Googles ‘AdveRateQuote’ platform for the mortgage industry. Apparently they’ve partnered with pricing engines and lead generation providers to provide a better overall Search experience for the mortgage shopping consumer as well as a potentially better ROI (via higher conversion ratios) for the paying advertiser compared to a traditional AdWord campaign.
Google stomps into Zillow Mortgage Marketplace’s sandbox by offering an anonymous contact system between the mortgage professional and the consumer until the consumer is ready to formally engage. ZMM is far more information intensive and polished but this is definitely a shot into their bow.
Who does this potentially pinch the most? The maligned and molested Mortgage Broker…their main value proposition was offering consumers access to choice, this same access is becoming more and more available by the day. Mortgage Brokers have been on the unprotected endangered species list for about 6 months now, and hunting season has only just begun.
There is still alot to be desired when it comes to accurate mortgage qualification under this ad based system. Its a sheer numbers play, doing little to improve the accuracy and efficacy of the mortgage qualification process. The results are gross estimates based on generalized information, which often leads to confusion on the consumers behalf. Mortgage professionals can still manipulate the data being displayed to their liking…but cleaning up the quagmire of mortgage qualification isn’t Googles mission. Perpetuating greater ad spending is. To this point they’re likely to create enough in new revenues to buy another small island, complete with private jet service for Sergey and Larry.
At the end of the day Google is building a bigger, badder, better funnel for comparison based products and services…like mortgages. Its a win for Google if advertisers increase their current spend and/or more playas come to the ball. Its a win because they don’t have to deviate from their business model and risk alienating current users.
Reading between the lines a bit: I wonder what Google will do with the valuable mortgage data they stand to collect from the participating lenders? What happens when you cross pollinate hyper local mortgage data (yes mortgage rates and programs are very local in nature) with its real estate counterparts? Hmmmm…
Also read:
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Google Mortgage
August 27th, 2009 Categories: Mortgage News
Lots of buzz this morning (in my head at least) regarding the lawsuit Lending Tree has initiated versus Mortech, producer of mortgage rate pricing software, for apparently licensing their technology to Google for a service that will compete with Lending Tree…from Yahoo Finance:
LendingTree filed a lawsuit yesterday against Mortech, Inc., a technology provider, for violating its contract with LendingTree. According to the lawsuit, Mortech, whose technology helps automate lender offer pricing, violated its contractual covenants by partnering with Google to launch an online mortgage loan aggregator service similar to LendingTree.
So, apparently Google is going to enter the public mortgage quote comparison arena and soon, some sources indicate as early as next week.
Google Merchant Search (old news) looks to be the initial model. Screen shot of UK Google Merchant Search provided by rustybrick on Flickr h/t to Search Engine Land
The screen shot shows some very basic mortgage search and comparison factors, using very limited data sets and range values. Nothing all that sexy, mainly an advertising play for participating lenders not unlike the Bankrate’s of the world. Google has stated in response to the lawsuit (From the NYT):
We’re constantly looking for new ways to help people find what they are looking for on the Internet. As part of that effort, we are currently working on a small ad unit test that will run against a limited number of mortgage-related search queries in the U.S.
Meh. Actions speak louder than spin. As Lending Tree and Mortech go through their legal gymnastics, lets ponder the ramifications of the 1000 pound gorilla entering the room…
Google tends to enter sectors of business on the light side (see Google Base for real estate), choosing to keep things very simple (at first). Nonetheless Google has the power to alter the way industries function, especially when it comes to information exchange and spook the hell out of the targeted sector along the way. Real estate as a business and listing syndication propose far more complex issues and requires a relatively high level of human interaction (physical inspection of properties, local area knowledge, property is not a commodity etc) compared to mortgage rate quoting and pricing. Mortgage rates are commodities whose price can be accurately be delivered to a consumer entering accurate information using some relatively simple algorithms and a database…something Google is pretty good at.
So, Google is looking to license some pretty robust rate pricing software, the type which mortgage brokers and bankers use and depend on in their day to day business. Does Google offer indigenous rate pricing software to loan originators using their service? It makes a ton of sense as it would increase the accuracy and thus the validity of the service. How much control they allow loan originators over the mortgage pricing data being displayed to consumers is the big question in my mind. I have my opinions…can you hear me in Mountain View? Give me a call, I’d love to chat 
It would seem that Zillow Mortgage Marketplace (ZMM) would have the most heartburn over this news since the similarities are obvious. ZMM is primarily a niche advertising/publishing/search platform that allows consumers to anonymously get mortgage quotes based on financial and credit risk factors from participating loan officers. Approved pricing engines tie into ZMM’s API to generate automated quotes on behalf of the mortgage professional using one of these systems to automatically respond to consumers. ZMM’s auto-quoting platform is mostly a convenience/efficiency perk for participating loan officers trying to deal with thousands of voyeuristic consumer rate quote requests.
Is there a benefit in hosting your own pricing engine over tying in APIs from third party services? I think so. Rather than being beholden to third party data aggregators and maintaining these multiple information pipes pulling from the essentially the same resources for hundreds of loan officers, why not streamline things even further and eliminate what is an unnecessary information middle man? I’m marginally surprised ZMM hasn’t done this yet…who knows, maybe they will. Maybe they should. Yes, they should…like right now.
Lending Tree’s primary revenue stream comes from the origination of mortgages, something that wouldn’t appear to be in Google’s wheelhouse, yet as stated, Lending Tree is maintaining via the lawsuit against Mortech that Google will directly compete with them.
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Drug Cartels, Cancerous Growth and The F*cked Mortgage Industry
August 24th, 2009 Categories: Mortgage Advice, Mortgage News
Who is to blame for the housing and mortgage markets undoing depends on who you ask. Consumers blame everyone, brokers blame banks, banks blame brokers, appraisers are in the cross-hairs, even real estate professionals are not immune to the finger pointing…I think Michael Jackson had something to do with it all, but I can’t prove that.
We need to blame someone, so I ask the echo chamber: Who were the architects and engineers that created and enabled all of ‘this’? Before I answer, lets use the drug trade for my first analogy.
First loan is for free...
Who are the real criminals in the illicit drug trade? The users, the street level pushers, or the cartels who manufacture and make the drugs available aka The Enablers? One could make legitimate arguments that all are to fault for varying degrees. If users didn’t use, pushers couldn’t push and manufacturers would be out of business cause there is no demand for the product…yet that’s more tail wagging the dog. IMHO thou who enables is at the root of fault.
In theory, if the enablers didn’t produce the illicit product in the first place, there would be no pusher or user. The banks and other institutions who engineered the easy to acquire, downright addictive financial products framed an environment where unchecked growth dominated, deceit was rewarded and ethical business practitioners were punished.
Unchecked Growth is Bad, mmkay?
Follow me into more analogymnastics…What is uncontrolled growth called in the human body? Cancer. Without an internal system of checks and balances and proper detection techniques cancer manifests silently, usually until its too late when the organism has been consumed, ravaged to (near) death. You picking up what I’m putting down? Mortgage industry hell bent on growth until it consumed itself and imploded *pffft*
How is cancer treated? Traditionally with chemotherapy- an indiscriminate, very thoughtless killer of all things living. Wipe everything out and hopefully the body regenerates enough good cells to recuperate. This is effectively what’s happening to the mortgage industry- important aspects have been or are being primed for indiscriminate eradication. As nonsensical as mortgage qualification standards were just over a year ago, so are the proposed ‘fixes’ being introduced via legislation.
Self-medication is a bad idea, thus charging the same people who architected the demise of entire institutions with implementing a cure is a bad idea, mmmkay? Medicine has evolved by studying and understanding what makes organisms tick on very (very) micro levels- further, how small thoughtful changes in the right places can cause substantial improvements. Business, industry as a whole, needs to adopt similar methodologies of implementing micro-evolutionary change rather than blow it all away, Bruce Willis-Die Hard style.
We will protect you, promise.
What is currently being proposed by law makers as solutions to the mortgage mess is incestuous at best. These changes are couched as ‘protective measures for the consumer’, which is a bunch of bullshit, seeing that the new Home Value Code of Conduct (HVCC) and H.R. 1728’s proposal to ban Yield Spread Premiums serve to do nothing of the sort. Instead they will (try to) eliminate the mortgage broker, compromise the real estate professional and ultimately harm the consumer…all for the banks gain.
Think that our policy makers in Washington wouldn’t let such things happen? Think again…after all, they’ve invested heavily in these institutions that are ‘too big to fail’.
Next: Review of the Home Value Code of Conduct (HVCC), H.R. 1728 and why they’re bullets designed to kill off the mortgage broker.
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