Friday, March 18, 2011

What Now?

I sit in my office this Friday afternoon, listening to the traffic go by through the open windows, while I wait to drive over to the title company to close a purchase loan for two of the best borrowers I have ever worked with.  The purchasers, who were well qualified--were also extremely pleasant and agreeable through the loan process.  The appraisal came in higher than the sales price.  The lender asked for reasonable conditions and cleared them quickly. The documents came in time for both the first and second lien; and we are scheduled to close and fund today on the final day of our contract.  It was a dream transaction--the kind that rarely occurs any more but that helps me remember why I have chosen mortgage origination as a profession for the past thirteen years.

It seems strange then, today, to know that in less than 2 weeks, mortgage origination as we know it today will change radically.  Some lenders are actually implementing the new rules early, so loans that are being originated under the current standards will have to be locked by Friday, March 25.  How incredible to think that we are only 7 days away from the biggest shift that our industry has experienced during my career.

After days of hearing about filed law suits, requests for injunctions, letters from Senators, and letters from various Congressmen, we are now only days away from implementation of the FRB new rule on loan originator compensation and, as was the case with RESPA reform in January of 2010, it is starting to look as though the cavalry is not going to show up to save us. None of the efforts to delay the rule appear to have made any headway whatsoever, and now we are all left with the question, "What now?"

This week I had an interesting email exchange with a reader from California who is disillusioned with the efforts to influence our elected representatives and disheartened by the complete lack of support for our industry.  He raises some very good points in drawing analogies between our situation as loan originators and the mandates imposed on the appraisers by HVCC.  And he notes that the independent loan originator is being squeezed out of the industry--we handle roughly 10% of the mortgage originations today as opposed to about 65% five years ago.  "What I can't quite get, and maybe it's just me, is how the Fed has the authority to impose this draconian ruling on an entire industry."  Finally my email pen pal points out that if the government can impose these restrictions on our industry, what is to stop the micro management of any other industry?  What is to stop the government from regulating the compensation of people in all walks of life?

I thought that this email raised such good points that I have spent several days thinking about it.  The reader is looking for a way to stop the implementation of the Fed Rule in two weeks.  All of us would like to see that.  But if we are not successful in doing that, as it appears that we will not be, then what?

I believe that the only solution to this situation is to repeal Dodd Frank.  That may seem like an unattainable goal, but it isn't.  Remember that Michele Bachmann has already introduced a bill to repeal Dodd Frank.  That was largely a token gesture with no support, but it shows that a bill can be introduced.  The problem is that there is no support for repeal.  And that is largely our own fault.

Our combined industries of real estate services--appraisals, loan origination, title services, and real estate services--contributed in a large way to the huge economic boom that this country experienced in the last decade.  We made the American Dream of Homeownership possible for millions of people.  But the media and special interests turned us into villains and we allowed them to.  Rather than touting the good things that we had accomplished for the country, we focused on "the bad actors" who needed to get out of the industry.  And we wasted time lobbying politicians who despised us.  At the beginning of 2008, I had an opportunity to go meet with El Paso Congressman Sylvestre Reyes.  This meeting was made possible by the fact that I had recently assisted one of his aides in the purchase of his first home.  The aide set up the meeting so that I could discuss my concerns about the types of regulation being drafted, but the Congressman did not show up. Instead, he sent a second aide, who listened to my concerns and then smirked as he told me that "there are definitely going to be reforms."  I knew right then that I had wasted my time.  Sending emails and letters to people whose minds are closed is a waste of ink and the time that it takes to put our thoughts on paper.

But that is not to say that there is nothing we can do.  We can be our own advocates, since no one will advocate for us. Who is better qualified than us to tell our communities the truth about why their house values are dropping or to explain to the despondent home owner why he can't sell his house? I am amazed when I meet consumers who ask me how long I think it will be before financing returns to "normal".  So many people believe that the current tightening of lending standards is just an overreaction to the loose lending guidelines of the past and in a few years balance will return.  When I get to talk to these borrowers, I tell them that this is not just lenders being strict--the stringent new guidelines are codified into law and they will remain tough as long as the law does.

Nationally there has been a lot of support for amending or repealing the health care law.  The Dodd-Frank bill, which will easily have consequences as sweeping as Obama Care, has been barely mentioned at all.  Why?  Because many Americans believe that Obama Care will impact on their lives negatively, whereas most Americans don't appear to believe that Dodd Frank impacts their lives at all.  Most people seem to think that Dodd Frank affects only "greedy rich people".  They do not know or care that it is costing thousands of small business owners their businesses, that it will affect home values nationwide, that it will ultimately impact on every American who wants to buy or sell their home from now on.

But we can help to change that perception by telling the truth whenever and wherever we get the opportunity. The next time you are talking to your neighbor who is complaining that he is so underwater in his mortgage that he could go deep sea fishing, don't just sympathize.  Tell him that property values are going to keep dropping as long as housing financing is almost non existent and as long as appraisers are forced to work for appraisal management companies.  And when your family member or friend complains that he cannot get any service at the bank or that his loan application has been denied, let him know that this is why we need choices in financing.

My reader said that he does not want our industry be "Don Quixotic."  And I certainly don't want that either--Don Quixote never accomplished anything!  But a consistent, on point, honest message about the real reason that things are not improving in the housing industry can make a geniune impact. 

As bad as everything seems today, we will probably all still be alive in two years.  The only message politicians remember is the one they receive at the ballot box, so exercise your right to vote and find out where your representative stands (and has stood) on Dodd Frank and financial reform.  Today we are losing our jobs, but in 2012, it's their turn.

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