So, Senator Bradley Miller's bill has the approval of 45 of his peers. It moves on to the House, and then President Bush has the choice to sign it or veto it. My Republican friends don't think he will ever let government take over the market in such a gross fashion, but my Democrat friends think he may throw this bone to the Dems because he has taken such a hard line on other things. Whatever happens, the face of the mortgage industry is changing, and on the surface it appears that "Big Brother" is taking care of consumers who can't take care of themselves . . . Yeah, you can read into that remark that I don't think "BB" needs to interfere with our lives anymore, AND that consumers should be responsible for the things they do. Particularly when they make a commitment for 30 years and a lot of money.
I know there are loan officers who made loans with no thought to the consequences for the borrower and made a lot of money doing it. I'm not one of them, and I don't think all of them worked for broker shops.
I also know that what the politicians are ignoring is that America has a "hunger" for credit, and expects to get everything on a signature, not with the exchange of cold hard cash. Theoretically, they know they'll pay for using other people's money, but most don't look at it as realistically as, say, Dave Ramsey or Suze Orman.
They are also ignoring the fact that Wall Street fed that hunger with loan programs that created a lot of profit, because selling money makes money.
Two Wall Street firms moved directly into the sub prime market with their own mortgage companies to feed the greed:
Merrill-Lynch bought First Franklin (a company specializing in sub-prime loans) for $1.3 billion on Dec. 30, 2006. Why? Because the money was great!
Bear Stearns opened Bear Stearns Residential in 2005. This from Business Wire "Bear Stearns Residential will focus on non-conforming loans which are included in the private label MBS market." Read non-conforming: sub prime loans.
Loan Officers are sales people. Face it. They sell a product. Money. They do a lot of other things, the good ones consider long term goals of the borrowers, and real life circumstances, along with usually un-meetable expectations of the uninitiated. And they give advice, answer endless questions about credit, pricing, payments, programs. But it isn't a charity. They do it for pay. We have families to support, we can't do it for nothing!
Then there are loan officers who for whatever reason, be it greed, ignorance or lack of support from their company, will put a loan where ever it will close fastest and pay the most. And sometimes, they place loans that way because the borrower wants it that way - "I don't care what it costs, it has to close in 7 days!" They don't care before it closes, but they will after it closes . . .
So, my take on this is ~~
The way America works will change with this bill. Mortgages won't be easy to get (that has already happened, and will worsen)
Where America gets mortgages will change - Brokers will disappear, maybe not all of them, but a lot of them will do something else. They might work for a Bank or a lender, or they might change industries. (This is hard work, not easy money, and there is a tremendous amount of stress involved. If the stress increases and the money decreases, there comes a time when it just doesn't work anymore.)
We all know that when there isn't money to buy houses, there isn't money to build houses, and that means there isn't money to pay people in the real estate industry, or the construction industry, and that will trickle down to manufacturers. That is a lot of people who aren't making money like they were.
When there isn't any homequity money to use for debt consolidation, there are no credit cards being paid off, because we all know most people in this country aren't making huge payments on credit card debt out of their paychecks.
While I do believe that most things politicians do is primarily motivated by votes, and they leap to causes that will generate attention that they are concerned with their constituents' well being, these guys are offering some positive changes. Training and licensing requirements for loan officers is a very good thing. I've worked for a lot of companies in my 20 years in this business, and mostly, it is self-taught. Loan Officers learn a lot from the lenders they sell too, also. So, if the only reps calling on your company were from New Century Mortgage, or First Franklin, you got a lot of influence from the sub-prime mindset. Remember, they were selling too.
Attempting to change the way the market works by outlawing yield spread, and regulating underwriting guidelines is probably not such a great idea. I'm sure none of these lawmakers learned all the nuances of underwriting and risk management in the months since the sub-prime meltdown, but they want to redo the way the country runs. Impressive, isn't it?
The market would, if left alone, correct itself. Stated income loan guidelines are being changed every day. Stricter reasonableness tests of income have become standard with every lender I work with. The orchids of the mortgage world, the exotica, like Elvis, have mostly left the building. If they aren't gone, they are stripped down, and unappealing, so that borrowers don't qualify, or don't want them.
Everyone needs to remember that lenders don't want houses, they want the money. Since they are stuck with the foreclosures, they are doing everything they can to ensure that they don't write any more loans that fail.
I'm lately reading Mobs, Messiahs, and Markets, a really GREAT book by William Bonner and Lila Rajiva. It is hysterically funny, packed with good information, and well written; not like other dry, overly intellectual books on finance and politics.
There is a line in the Chapter "The Devil Made Them Do It" that reminds me of all the people behind H.R.3915:
"It was not what people did not know that proved their undoing: it was what they thought they knew that wasn't so."
