I was just sent a link to sign a petition against a proposed Bill H.R. 3915 written by Miller, Watt, and Frank.  which effectively will annihilate the mortgage brokerage industry.

 Here is the link to the Bill

http://www.house.gov/apps/list/press/financialsvcs_dem/subprimeleg.pdf

This legislation is geared to remove the financial incentives paid by lending institutions to brokers as a means to attract loans.   In short, these wunderkind politicians have seen the light to solve the mortgage industry crisis and simply put, it is to only allow broker licenses to individuals with substantial net worths (increases limit from $25,000 to $100,000); to force brokers to act solely as agents (not able to go to the free markets); and to eliminate financial incentives (Yield Spread Premiums) paid by lending institutions to brokers. 

Clearly they have concluded that brokers are the single reason for the current mortgage crisis.  It should not surprise me that our government once again holds voters free of responsibility and chooses to blame one segment of an industry responsible for effects of the free market at work. 

YSP is nothing more than the free market at work. It is a mechanism for lending institutions to influence the markets as needed to achieve its own objectives.  YSP is simply how much a lender is willing to pay a broker for delivering a loan at a certain interest rate.  Every bank offers differing interest rates on Certificates of Deposits or savings accounts depending on that specific institutions liquidity needs at a given time. Mortgages of various loan structures and terms are no different. Every lender offers different rates for each type of mortgage they offer based on a multitude of factors such as their respective demand for certain loan types, interest spread margins which ultimately lead to net profit margins, appetite for risk, among other reasons.  The fact that brokers actually responded to the various associated YSP incentives is somehow a problem explains a lot about our legislators.  If they relied upon people to act rationally, none of them would have jobs.

To think that removing YSP's paid to brokers will in any way remedy the mortgage crisis or help avoid a repeat in the future is pure ignorance.  Brokers do not set YSP levels or approve loans, lenders do.  As the president of Equity Advantage Mortgage Corporation, I come from a strong commercial banking background.  In my 22 year banking career, if you made stupid underwriting decisions, you ended up with a bunch of bad loans and lots of loan losses.  My salary had nothing to do with it.  The credit policy of every bank is different.  That is why banks with very loose underwriting guidelines make a lot of money when they are originating loans, but suffer the greatest losses and fail when all those bad loans come home to roost.  More conservative lenders, I assure you, are not suffering the same fate of losses as the "anything goes" lenders are.  The free market place is merely shaking out all the loans which never should have been approved.  It was not the fault of the brokers (save those who committed fraud in preparing loan applications).  The lenders themselves reviewed every single file and funded every single loan, and some lenders actually did decline loans that others took with open arms.  Borrowers are also not excused from knowing that their payments had the potential to increase 30% a month in two years and that they had no legitimate way to ever afford making those payments. 

I am not trying to lay off blame as there is a lot to go around.  My issue is that unfounded and clearly poorly thought-out legislation to declare brokers as the cause of the problem and thus to eliminate their right to compensation is something we simply must not allow to stand.

I subscribe to economist Adam Smith's invisible hand theory which states that the free market will intervene (thus the invisible hand) and cause the market to return to equilibrium.  Lenders which had very loose underwriting guidelines will suffer losses and/or fail.  In certain cases, where brokers were involved, the recourse to the brokers has been invoked and those brokers have suffered losses and/or failed.  The invisible hand is causing lenders to tighten up loan underwriting standards to avoid suffering future losses.  If not, they will fail.  The investors in the secondary market have cut and run from purchasing new mortgage backed securities until they are satisfied that the new loans are underwritten more conservatively.  All of these events are inter-related and force the markets back to equilibrium eventually.  I recognize that peoples lives are being devastated in the interim, but legislation will not serve to ease that problem, certainly not this legislation.

So ask yourself why so many loans are going into foreclosure now.  If you wanted to make bad loans, there is no shortage to be had now and you could have perhaps several million very happy customers.  But alas, the lenders will not underwrite those loans now, nor will investors purchase the portfolios, so the existing loans will result in foreclosures. This is the Invisible Hand principle at work.

Why these small minded legislators think that eliminating YSP's to brokers is somehow the answer is baffling to me.   The market forces are working just fine.  I believe in democracy and freedom.  I have the right to make a living and I already have legislation I am subject to.  Guess what, I can't get a loan approved now that I could have six months ago and it has nothing to do with my YSP, or even my RIGHT to be paid a YSP.  The lenders simply have tighter guidelines now. 

Thank you Congressmen, but we don't need your "help".  Try and justify your existence some other way.   I have already written my Senators and Congressman to urge them to vote no, as well as signed a petition http://www.petitiononline.com/HR3915/.  Please make your voice heard as well.  It's up to us to ensure this legislation does not pass.

My name is David Alterman and as President of a growing business Equity Advantage Mortgage Corporation ,  there are days when I am spinning like a top juggling so many tasks.  We all have days like that.  There are also those days when it feels like minutes roll into hours and it seems like the day will never end.  In either case, there is common objective which I try to remind myself of every day.  I had the thought, but only recently was able to effectively describe it.  I actually heard it on one of my favorite TV shows "Flip This House" and  it came about when the company owners' apprentice was assigned to oversee his first "flip".  He spent one entire day on a project trying to paint a room, yet the entire project was falling terribly behind schedule. 

His mentor pointed out to him that he had focused on activity, not productivity.  The underlying concept is that of course picking up a paintbrush was helpful, but his main objective and best use of time was to run the project.  His time on an hourly basis, and his role in the project was to orchestrate all activity toward accomplishing the overall goal.  Getting tied up on a single task, which would have been better were it delegated, would have enabled him to oversee the activity of countless others.  Instead, one room was painted, and virtually nothing else in the house was accomplished that day. 

This is a pretty simple concept, yet, when in the middle of the day at my company, I found myself getting caught-up doing mundane tasks and staying active.  But was it the best and most productive use of my time?  No.  Now that I have a mantra to remind myself of, my productivity has increased considerably and I challenge myself to focus on those actions which truly are productive and help my company move towards achieving my goal. 

 Who would have thought watching those TV shows would teach me something more than how to re-tile a bathroom....

A shocking title I know.  But the former was perhaps the most startling and thought provoking concept I learned in college so many years ago...and the latter occurred to me as a child.

Prior to my life as a mortgage broker, I had an environmental economics professor who first raised this concept about murder to our class as a means to brutally illustrate the point that every benefit (reducing an unwanted event) comes with a cost, and eventually there is some balance that must be struck (an equilibrium).  The principle is that certainly no sane person in society wants to have to tolerate any murders, however the cost to eliminate this tragic reality would come at the sacrifice of nearly all of our freedom.  How many additional police would it take, cameras, surveillance, etc.  You get the idea.  We don't WANT murder, but we have our limits as to the cost we will bear to eliminate it from society.     

Let's look at a less extreme example.  We have speed limits, yet every car can reach speeds in excess of 100 miles per hour (although some need to be going downhill to achieve this feat).  Why not simply engineer limiters on cars to prevent speeding?  We have all been blown-off the road by some driver at one time or another.  But like you, I like to speed every so often and I would not buy a car that had this restriction either.  Thus, if they built it, we would not come.... 

OK, so what's my point here?  It is to shift the paradigm of thought to view things in a new light.   

I don't see the point of carpool lanes.  This is not where you thought this diatribe was going I bet....

I care about the environment as much as the next person but it strikes me as odd that the concept of carpool lanes which dates back to the 1970's still only have approximately 9% utilization.  Even with the millions of additional cars on the roads these days, utilization has never exceeded this amount based upon AAA estimates.  With the worsening traffic on the highways in metropolitan areas, we all measure distance in terms of time, not miles, and inch along to and from our various destinations throughout the day.  So how can it make sense to have 91% of traffic using 3 lanes, and only 9% of traffic using a fourth lane.  Think about why traffic always seems to open up whenever the freeway suddenly widens to accommodate more vehicles. 

That means by opening those lanes to everyone, we would have an instant reduction of congestion by 16%.  Exhaust from cars collectively would be reduced by an even greater percentage as the other 91% of cars would all achieve some benefit from less engine idle time, greater fuel efficiency translating into fewer fill-up's and increased production time.  The government charges a minimum fine of $341 for violation of the carpool lanes.  Why, because so many people would use it if the fine were less.  In theory, at $328 or $279, or some other lower arbitrary dollar amount, more of us would use it.  Imagine if that lane were available to everyone for free... We would all use it, and what fun is there in that? 

I have loved monorails since I first saw them as a child visiting Disneyland.  So with the point of buses and subways and carpool lanes all designed to improve our lives and ease congestion, why has nobody thought about monorails.  Think about this, monorails can run down the middle of every freeway, veer off through downtown corridors and all over suburban areas requiring a strip of land for the pilars not more than 3-6 feet wide.  They are quiet, pretty cool to look at, fast, and can snake their tracks almost anywhere.  No need to buy hundreds of millions of dollars of homes to clear a 100 foot wide swath through established areas, no need to burrow 100 foot deep tunnels at the cost of billions per mile for subways.  Even with earthquakes here in California, the cost and time to replace small sections of monorail tracks is virtually pennies to that of repairing a potential subway collapse.  We could errect an entire monorail system for the cost of just 3 or 4 miles of subway tunnels. 

One shocking concept in college has stuck with me all these years, but I believe it has enabled me to take a different perspective on society and why things are the way they are.  But it also inspires me to have a voice when it seems that the equilibrium gets out of balance.  Traffic congestion and the aversion of seemingly obvious solutions frustrates me.  Perhaps this commentary will have the same effect on others to cause a common sense change for the better.

Thank you to my professor, and thank you Mr. Disney!

David Alterman

As the president of Equity Advantage Mortgage Corporation, an established broker and insider to the mortgage lending industry with a background in economics, I am concerned about the media portrayal that the residential industry is on the brink of implosion.  Certainly, there have been the poster-child lenders whose loose underwriting in the sub-prime markets have led to their demise, however, this is a cyclical trend in any risk oriented industry.  We have seen credit card issuers who issued millions of cards with outrageous limits to unqualified customers knowing that enough would pay their bills to offset the ones who couldn't.  But you know what, both you and I stil have credit cards in our wallets right now. 

In reality, what has happened is that there is always a fringe who takes advantage of playing on the high risk margins to cash in and now it has come home to roost.  If you look closely, the major financial institutions, household names, such as Wells Fargo; Bank of America; U.S. Bank, which have maintained reasonable underwriting standards are all still very actively engaged in providing financing to sub-prime borrowers. 

This is not meant to infer that there will not be thousands of homeowners throughout the country who may lose their homes in the coming months as they face significant interest rate increases.  What it is meant to infer is that there is a viable refinance market available to them to avoid that from happening.  In other words, there may be a storm on the horizon, but the sky is still there and blue will be breaking through one mortgage at a time.    

David Alterman, President / CEO