Archive for March, 2007
The Need for Transparent Mortgage Rate Search
March 30th, 2007 Categories: Mortgage News, Real Estate News, Real Estate Technology
I’ve had some heated (and circular) conversations with many in the mortgage industry regarding how unregulated the industry actually is, how it would be near impossible for legislation to clean up the mess. The Mortgage Industry needs something more than new Statements and Policies from regulatory agencies, with a few sacrificial lambs served up for show.Does anyone see the parallels between the Enrons, WorldComs and the mortgage industry? These books are cooked ‘X-tra well done’…ahhh, I can hear the paper hum of all the paper shredders as I type this.
Via my blogging here and ActiveRain it’s become very evident that unless you are inside the mortgage industry, you’re an outsider, and if you’re an outsider, you’ pay in cold hard cash. Even Realtors, designated and educated real estate professionals, have little idea about how the mortgage industry ‘works’. This amazes me since most Realtors tried to tell me how to do my job..? 
There’s no other industry that makes you pay for what you don’t know quite like the mortgage business. Michael and I like to call the greater traditional mortgage shops out there: The Mortgage Cartel.
The Mortgage Cartel has been busy burning wagons and taking scalps since the mid 1980’s, with the dawn of the mortgage broker. It was the Wild West and the Gold Rush all wrapped in one. Brokers jumped claims and worked the angles including something known as yield spread premium (YSP).YSP was introduced by the banks as a way for borrowers to finance closing costs through a voluntary increase in their interest rates. At least that was the idea. It was only a matter of time before brokers hijacked YSP and turned it into a clandestine profit center financed by unwitting consumers who had no idea what interest rates they actually qualified for. It was a recipe for disaster.
The passage of Regulation X in 1992 defined and outlawed hidden lender kick-backs. Post Reg X, brokers were forced to be more creative in order to maintain their hefty back-end “rips.” While typical loan fees ranged from 1%–3%, there was almost always another 1% - 3% in hidden YSP camouflaged by ambiguous documentation and verbal gymnastics.
The problem with Reg X was that it only addressed the mortgage broker—leaving mortgage bankers, for all intents and purposes, untouchable. To this day, direct lenders like DiTech can lawfully withhold information from the borrower during the process of mortgage program and rate selection. Things were bad, but they were about to get worse.
By the late 1990’s, networked information technology had reduced the task of pre-qualifying a mortgage to a point and click affair. Online brokerages like Ameriquest, DiTech, and eLoan emerged, waving a red cape at a bull market of consumers eager to reap the benefits of the New Economy. By 2002, the Disinformation Age of real estate finance was in full swing.
Operating beyond the reach of Reg X, online uber-shills sucked billions of dollars in overpaid interest expense out of the economy through such notorious schemes as DiTech’s “$395 Flat-Fee Loana Trojan horse packed with up to 3 points in hidden yield spread courtesy of an inflated interest rate.
At the peak of the refi boom, the Mortgage Cartel had effectively turned the Internet against consumers making the process of obtaining a mortgage online nothing more than a faster ride down the same dark alley. The disturbing truth is, if you got a mortgage between 1987 - 2007, the overwhelming odds are your monthly payment harbors a broker’s secret payday. And if you got your loan through a direct lender, you can all but guarantee it.
With bankers on one side and brokers on the other, the consumer was bound to get squeezed. When comparing identical offers from a mortgage broker and a mortgage banker, consumers routinely chose the more expensive loan.
Faced with the most uneven of playing fields, many brokers rationalized a culture of deception. One look at a typical HUD-1 broker closing statement is all the proof you need. Nevertheless, it was the online direct lender that posed the most imminent threat to consumers.
Why? Because it wasn’t perceived as one.
Also See:
e-Lenders: When Thieves Compete, you Lose
Transpareny in the Mortgage Service Industries
The Mortgage Industry’s internal Civil War
Interesting Reads from Around the Real Estate Blogosphere
March 29th, 2007 Categories: Mortgage News
Grim Reality- A savvy insiders look at the potential effects of the Sub-Prime lending correction. Thx to The Matrix.
Second Life- Who says real estate brokerages are not tech-progressive enough. Joel’s got the Coldwell Banker office (and a boat) all to himself. I wonder how they can afford such nice digs??
Realonomics- Transparent Pat provided the initial tip-off to this new blogs existence. Interestingly progressive.
Gettin Real Localfied- Find-a-Home appears (for some) to cross Realtor Fair-Housing laws by displaying ethnic and religious (and other) demographical data, although I don’t see it. Fair-Housing is intended to insure a qualified buyer gets shown all qualified homes regardless of buyers ethnicity, religious preference, etc. But is it wrong if I’m an Asian practicing Buddhism and a staunch Republican who wants to live near others who ‘appreciate’ similar values? Map-Mash-ups seem to offer as objective a view as is possible on these sensitive demographics, for those who really want to know??
Anywhoo…
Sphere: Related ContentA Warm Buzz in the Real Estate Blogosphere
March 24th, 2007 Categories: Mortgage News
Watch The XBroker Blog as we document every entrepreneur’s dream: Raising millions of dollars to fund their dream—in this case, a transparent real estate search engine known as Realespace.
Starting Monday, I’ll count down the 7 days prior to our Founders’ Banquet with 7 posts discussing the dynamic features that Realespace will offer real estate buyers, sellers, and everyone in between.
And then, on the 8th day, we raise.
Let me spread a little link love to some of my favorite Blogauthors, in no particular order:
Sphere: Related ContentThe Mortgage Brokers New Clothes
March 23rd, 2007 Categories: Mortgage News
The well is drying up. The Good Leads are scarce.
Sales techniques are becoming more dubious by the week.
Business is way down, over 50%, and the average cost to acquire a closed loan has doubled.
While the title says brokers, bankers are not immune anymore. In fact bankers stand to lose more credibility and business than anyone.
You’ve tried to pitch service and efficiency to combat the cloak and dagger banker monopoly. Unfortunately, in desperation to stay afloat in a swiftly draining pool, the broker community finds new ways to earn the distrust and contempt of consumers everywhere while the big mortgage bankers spend hundreds of millions on deceptive advertising and plunder with perceived impunity.
Now youre engaged in the fight of your life over the same diminishing pool of increasingly jaded prospects, relying on woefully ineffective marketing:
VOICE BROADCASTING
Three years ago, it cost $35 per live transfer with a $400–$600 Cost Per Acquisition (CPA) and a 10% - 12% close ratio. Today, a live transfer costs over $75, carries a $1,400-$2,000 CPA, and has a sub-5% conversion ratio.
WEBCASTING & INTERNET LEADS
Nothing more than the Internet equivalent of voice broadcasting. Lead aggregators provide a nice interface to scrape data from. Think the above VB numbers above are depressing? Good luck converting an Internet Shopper.
DIRECT MAIL
Hear that? It’s the sound of your piece (of you know what) hitting the trash can. If your’re lucky, they’ll open it first. Bottom line: Too expensive and ineffective with traditional methods and messages.
TELEVISION & RADIO
Come on—if you could afford it, you wouldn’t be here.
While you’re gasping for air trying to squeeze 4 points or $10,000 out of every deal and consumers are drowning in debt, the wholesale giants are saturating the market with their filthy no cost, no fee propaganda.
Until RESPA discrepancies are addressed, more and more brokerages will fold and consumers will continue to be quietly robbed of their financial futures./p>
What are you doing to differentiate yourself from what has become viewed as the Industry Norm.
As the mortgage service industries are put in brighter and brighter lights, the relative lack of transparency in many current broker/bankers business process models will justify them as predatory and deceptive. In an unregulated industry what’s cool today can be crucified tomorrow. Consider:
Black letter RESPA law is currently being enforced in multiple legal arenas, with no consideration to loan officer type. The ways of non-disclosure are being punished with greater and greater frequency.
Material misrepresentation is the legal jargon of the year. Take that into the courtroom, and chances are what may now be common practice, may be construed as Fraud. Are you guilty? Survey says: YES.
7 out of your last 10 loans are out of Truth In Lending Act (TILA) compliance. Unintentional does not equal exoneration.
Do you really understand the TILA the way it may be interpreted in a court of law?
Brokers (and Bankers) the time to change is now. You have a unique opportunity to seize unprecedented control over the mortgage service industries by operating from the unique platform of 100% Transparency.
The Writings On The Wall: Evolve or Die.
Sphere: Related ContentIt’s Not Just Sub-Prime…
March 23rd, 2007 Categories: Mortgage News
The ‘Carnival of Real Estate’ continues to elude me–Ive always been interested in participating, just never seem to find the time or remember to actually register…or exactly where to do so. Any direction on how to get on the bus would be appreciated. (Thx Greg)
The Sub-Prime Shenanigans. Although Ive done my share of reading into The Great Sub-Prime Mortgage Correction, and (of course) have a personal view to share from the space between my ears, Pat did his own mini carnival on this topic. I’ve had numerous convo’s with Pat, met him, and really value his insight…so I trust his ‘A-list’, although I had to choose a different winner: Nigel Swaby’s post from the Salt Lake Real Estate Blog hits on a key risk factor that is often way overlooked: Borrower Assets. It reminds me of the differences between being ‘rich’ and ‘wealthy’.
‘You can’t get rid of ‘Wealth’ if you wanted to…’Rich’ is something you can lose over a crazy summer and a drug habit.’
‘Shaq is Rich, The Man who signs his check is Wealthy’
(Official props to Chris Rock)
Rich is measured in current money, Wealth is measured in time and experience. Look at your assets (your residence is not an asset). If your regular income were to stop today, how long could you make all your current liability payments and live as you are accustomed to before ‘going negative’? Unfortunately ‘The Shenanigans’ will be blamed primarily on grievous broker conduct against the “poor defenseless sub-prime borrower”. But, the Consumer and the Lender deserve their fair share of blame, all the way up the credit ladder.
During the pending mortgage fallout a ‘Borrower Type’ who is sure to be overlooked by the mainstream is the 660+ credit score who bought too much home because they could (A- Paper).An low initial interest rate with WIWA (What Income What Assets ?) documentation requirements made the dream of looking and feeling Rich rather easy (perception is reality?). What happens when the mortgage program adjusts up 3% and Amortized as advertised? Current ‘disposable’ income is squashed as the paycheck can no longer keep pace with the payment. No surprise here, it’s the same for EVERYONE.
On the contrary, there are plenty of 610 credit score Full Doc ‘Borrower Type’ with $3k in the bank (Sub-Prime) out there who have never missed a payment, yet will have the rug yanked out from underneath them. They can thank the financially irresponsible consumer, broker, banker, and lender.
So…I agree with Nigel, Lenders should think in terms of the individuals relative wealth/ financial responsibility when granting high LTV mortgages. Also….qualification methods should be carefully adjusted according to past mistakes, not abandoned as if they never existed. The current methods being suggested are too discriminate and unfairly biased towards punishing the ‘Sub-Prime’ market, when in fact the entire pool has been peed in….its all contaminated.
Also See:
Grievous Mortgage Broker Conduct
Sphere: Related Content
