Blog of the Mortgage

First I would direct you to my Education Station where I’ve posted a column from Tanta @ Calculated Risk regarding the definitions of REO & Foreclosure. We’ve seen a significant uptick in purchase business in the last couple of weeks. This is a complete about-face from the Refi only business we were running on in January-February. I would first like to compliment you on adapting and going and getting that purchase business and second thank you for choosing me as your lending partner for it.

We all know what the majority of that purchase business is driven by: Foreclosure and more importantly REO. As you’ll learn REO comes out of failed foreclosures. These sales are defining entire markets (Modesto/Stockton; Brentwood/Antioch et. al.) and causing those with refinance opportunity all kinds of heartache (see: declining markets). None the less we’re able to find actually affordable homes for people that can fully document their incomes. This is great news. Until you get into the transaction.

The REO companies (mostly management middle men that are put in place to extract maximum return from their portfolio of scratch & dent loans/properties) are being less than accommodating in helping these transactions along (ironic considering their purpose). Add to that the title companies they have hired to handle this business. These outfits (not YOUR title partners to be sure) are so flooded with business that they could care less the quality of their work at this point. Oddly we were working with many of these same outfits in 2003-04 and their quality was significantly higher.

In any case we’ve been getting many a rush funding due to the REO “drop-deadline” and lock expirations.

This is exasperated by the title companies that they’ve (REO) chosen. The packages they are sending back are nothing short of disastrous. You’ve noticed it, your Realtors have noticed it and my Funder(s) has to deal with them. To be sure you’re doing everything to get all your conditions in advance.

So, to help mitigate many of the problems that arise by using these firms remember: your customer, the buyer (not seller), gets to direct where the Title/Escrow portion of the transaction is handled.

I would highly recommend that you a). Give Your title partners an opportunity to support you b). Do whatever you can to drop the REO companies Title/Escrow service like it’s hot.

From there it’s basically a management of the situation. Being proactive will help all of us meet our “drop-deadlines” on time.

1. be certain to pull your funding conditions from our website on the loan status page.
2. turn your funding conditions into our conditions fax/e-mail as early as possible
3. make sure that the title/escrow company is well aware of your time frames and goals as well with respect to lock expiration/REO “drop-deadline”.
4. be sure that your title company is using a competent third party signing agent if necessary (for some reason the notaries are missing pages/documents etc).
5. The California per diem interim interest disclosure: make sure the proper boxes are checked.
6. make sure that escrow sends us Correct Wiring Instructions
7. Make sure that the sellers docs are completed and returned with the funding package.
8. Hazard insurance information is complete as well.

This one was brought up by my counterpart Terri. But it was furthered by both a re-post on Blownmortgage.com and a CAMB meeting I attended Wednesday in San Francisco.

In the last couple of months I’ve personally lost (by way of your losing) loans to retail organizations: CW, CITI, BofA, etc. it might seem like they’re not that competitive (which they’re not) but they have been killing us in rate/price on some products and also doing things us in wholesale (that’s you and me both) wouldn’t be able to do.

For some background: I’ve come from being a processor, loan officer and multi-branch manager on your side of the fence. I went to wholesale after 2003.

I’ve fought for these loans as a broker and I’ve given guidance to many a newbie loan officer being in Wholesale. What is interesting is that up until Terri mentioned it I had completely over-looked one of the best competitive advantages that loan officers have in the marketplace, it was solidified by what another veteran brought up today.

It’s the Service and knowledge aspect of what we provide to our customers. As loan officer’s we’re far more local than many of the over the phone retail outfits that our customers might encounter (the DiTechs/CW service centers etc.). We really, really know our market. We know our customers, their economic concerns, their neighborhoods, schools and other tangible/intangible aspects to their life.

As loan officers we have an abundance of options available (even though we sometimes get caught up in the he’s got/I’m missing game). This means we can choose between lenders, credit suppliers, appraisers and the like. We also, by extension, have truly service oriented partners (that’d be myself and my team) to stand behind you when you’re working on your loan for funding.

The thing we need to remember is that now, more than ever, our clients need to have us around as our experience and understanding of their specific marketplace will help them to make sound financial decisions going forward in working through this tumultuous time. I’ve heard from various sources that in the last year some where between 40-60% of the loan officers/originators that were around are no longer in the business. That means that there are more home owners than ever before (we were @ 69% ownership rate nationwide by end of ’06) and fewer loan officers than ever before to handle this business.

There is opportunity out there available and we have to remember that we are as much our clients (past or potential) resource as we have ever been.

Our value is not in the final rate we deliver. Our value is found in our local understanding and the lending environment expertise that we bring to each transaction and also the guidance we deliver going forward to our customers.

After fielding my umpteenth “Realtor” *rush* call today and after having a couple of separate conversations with my counterpart Terri Buckman and client Chuck Walrath I wanted to take the time to address these separate topics. Plus I have a bad habit of listening to people who have two of my careers packed into their own :)

First some background. I originally came from the broker side (that’d be your side of the fence). During those first four years I went from processor to LO to Manager/VP and the whole time I was taught to never make more than a point on a loan. Not only that, but we did loads of up front disclosure and documentation (ie. did the borrower actually qualify for the loan in question?). Shoot, we even had fee guarantees in 2003!

I went into Wholesale for a number of reason’s but the primary one was that I thought I would get closer to the secondary market piece of origination (boy was I ever wrong about that). I found out quickly that the market was full of recent additions (I was raising my hand back then). Most of the conversations I attempted to have surrounded the reasonability and affordability aspects of the qualification process. What it ended up being was a lesson in reverse engineering a qualification ratio to get someone into a house, any house (I stopped looking at appraisals). I realized that nothing I did would change most of my client’s minds about earning a commission over reasonable income/affordability.

As you may gather right now most (if not all) of my previous clients are gone (you’re sighing relief aren’t you?). The one’s that are still here were here when I got here and had been for almost 10 years (funny how that works out?) – likely too because the list that follows is old news to them.

So, here, in this market I get to go beyond back to basics, and train on how to do it. There are a couple of things we need to do.

1. Temper our Realtors and Referral Partners by explaining the process (it takes time for a loan approval).
2. Make sure that our clients are qualified for the homes they are buying
3. Be prepared to send clients back to the drawing board when it comes home buying. No one “Has to buy” a home. They need to afford it & and be able to plan for uncertain events.
4. Ask our clients to present every inch of income & asset documentation. This is after all 2008. We are the ones still here to help the clients weed through a mess someone else has likely put them in. If they don’t want to play then move on.
5. Be prepared to get every person living in the home involved in the loan
6. And finally be able to stand firm in telling our Realtors and clients: You need to find a cheaper home (h/t Terri).

One last thing as a take away and something that I’ve been thinking a lot about lately is this: What about these larger loan amounts (this what Chuck & I were discussing)? We know they’re going to help many people refinance (though not near as many as had been hoped), we know they’re going to help people buy homes at more affordable rates (again, not near as many as thought). But let’s consider beyond 2008. What about 2011? Or 2012 (when some say California will “normalize”). We must remember to address these forward issues with our clients in every transaction. We must ask the hard questions: what’s your long-term plan? What’s your goal with respect to housing, with respect to work? All of these things must become part of our conversations up front. I think we’re going to come out just fine. Scraped, bruised, a little dented sure but in the end these new requirements are going to allow us to go deeper in our initial client contact conversations and to solidify our positions as the Mortgage Experts going forward.