Here's an idea that should spark some debate:

Take $700 Billion and distribute among every American homeowner - effectively paying down up to 10% or so of every homeowner's outstanding mortgage balance.  Couple this taxpayer/homeowner payout with a lender requirement to modify all 1st mortgage notes carrying an interest rate of 8% or higher to a lower rate.  This provides instant equity and affordability for existing homeowners, stops the foreclosure process in its tracks and would offer immediate relief to our heavily depressed real estate market.

Bill Gates, Cindy McCain, Warren Buffet, Ted Turner, and the Bush Family can pool their vast resources with Exxon and Shell to bail the banks out.

The big American oil companies post RECORD profits and all people seem to talk about is our horrible dependence on foreign oil.  If foreign oil is costing so much, how are the oil companies posting record profits?  Aren't profits what you get after you subtract expenses?  So how is the $4.00+ cost of gas per gallon blamed on foreigners?  What about the AMERICAN oil companies who are gouging us?  Why isn't anyone protesting their greed?

WHAT AM I MISSING????

I'm mid-way through a purchase loan.  I've been advising this client ever since I helped his parents with a purchase transaction over two years ago.   We have a great relationship.

A few weeks ago, he found a home and we began the purchase financing.  I found excellent pricing at ING Bank.  I was happy for him and he was excited about his great program and rate. 

Two days ago, the borrower came across ING's retail lending website.  I didn't even know ING had a retail branch!   My borrower wasn't shopping me - he was doing due dilligence on the bank that was going to be his new lender.  The bank I had introduced him to.

Their retail shop's rates are better than the wholesale side by a net spread of 1.5%!!!  

Of course, I'm on the phone immediately to ING Wholesale to see what they are doing about it.  Their response is complete ambivalence.  They actually started insulting my salesmanship as a broker. 

Hellooo!!  There may still be some slimy snake brokers out there who would attempt to sell the borrower into sticking with them instead of taking advantage of a rate their brokerage can't touch, but I'm not one of them. 

So here I am talking with my borrower on the phone and its going something like this:

He says, "Wow.  I feel terrible.  You've done so much for us and helped us so much."

I say, "Yes.  Thank you for that.  But I understand completely. If I were in your situation I would take that 5/1 arm at 5.25% with half the closing costs over the same loan program at 6% too.  Let's keep in touch..."

Then I might say if I have the nerve, "...and maybe you could cut me a check for out of pocket expenses I've already had (the credit report and per loan fee I pay my cutting edge LOS)??"

Hey, I'm all for competition.  And sometimes, retail pricing just works out better.  But for a company that PORTFOLIOS all its loans to set its pricing so that the retail branch undercuts the wholesale side in such a way that all possibility of competition is completely stamped out - something is wrong with that.

Now that the Fed's rule has been modified to make sense and has passed, retail banks seem to be trying to force the brokers out of business in a more creative, passive-aggressive kind of way.  

Wow.  And this time it may work - on me anyway.   

Dear Board of Governors of the Federal Reserve,

My name is Lisa Epstein.  I am founder and president (and broker of record) for JL Epstein, Inc. dba Leap Lending, a small 6-person mortgage brokerage based in San Diego, CA.  I am writing because I feel compelled to comment on the potential new Fed rule as it relates to mortgage brokers and their loan originators.  I have put off sending my comments in until today because every time I have sat down at the computer in an attempt to compose a thoughtful, well-rounded and cohesive letter that addresses every issue with this rule that I feel is SO important - I get overwhelmed with everything I want to say and so I have deleted every attempt thus far.  However, today is the deadline to comment on Docket No. R-1305 and I know that I MUST at least try to convey my feelings about the true and often-overlooked-lately value of the services that mortgage brokers provide to the consumer.  So here goes:

We, mortgage brokers, are actually running small businesses across the nation.  We spend quite a bit at our local Fry's, Staples and Office Depots.  We are self-employed and employers - adding valuable jobs to the marketplace.  We contribute and volunteer at local charities, we sit on community improvement committees.  We serve in local Chambers of Commerce.  We are your neighbors, friends, and fellow church-members.  

As a mortgage broker, I make it possible for my borrower to get the right loan program at a competitive interest rate because once I know the borrower's particular and unique financing situation, I am able to check with many lenders/investors on my borrower's behalf and get the very best loan program and rate available to that individual.  Because of my ability to earn YSP, I am able to cut closing costs to a minimum and not charge any origination fees to the borrower and in some cases, I am even able to cover some or all of the regular closing costs for the loan!  It is always the borrower's choice - and we talk about it - case by case - because everyone's situation and financing needs are unique.  Then, many times, issues are uncovered during the process of the loan - issues with prepayment penalties, delinquents taxes, alimony or child support that we didn't know about at the time of application, sometimes there are liens that show on title that we were unaware of at the time of the loan application.  These issues affect the potential new financing and possibly the loan program/loan amount/ysp.  Requiring certain unchangeable disclosures upfront, before the loan process in complete is ludicrous in the real world process of obtaining a home loan.  In many cases, if some of the proposed items are implemented, the mortgage broker could end up having performed an exceptional service on the borrower's behalf, representing hours and hours of work and end up with no compensation at closing.   

We, mortgage brokers, help you (the consumer) in a myriad of ways and you are benefited most by the many choices we make available to you.  When a consumer goes directly into a bank - the loan officer (who may not have ANY training at all in loan programs or financing strategies outside what that bank offers) will most likely offer the product that is being incentivised that week or month by the bank, without regard to client's needs or even looking outside the banks portfolio of products.  Without brokers, the borrower's choices will be heavily limited.  And the burden of searching for the right loan program falls completely on the borrower to go bank-to-bank looking for the right deal.  So many borrowers would end up just taking what was offered.  Where are the competition and the consumer choice in the above scenario?

On another note: to target YSP as if it is a bad thing for the consumer is baffling to me.  Because of YSP, I am able to keep borrower's closing costs to a minimum.  Again - this is an issue of consumer choice.  The borrower gets to choose the lower PAR rate with origination (this is nice when seller is paying closing costs or there is enough room in a refinance to cover closing costs and origination) or a higher rate where it is sometimes possible for me as the broker to cover ALL the closing costs for a borrower.  Moreover, forms of YSP exist in almost every business that I can think of: car sales, title, medical practitioners (doesn't the doctor receive UNDISCLOSED perks for prescribing that medication or using certain vendors?), banking (i.e. SRP which is NEVER disclosed to the consumer unlike YSP which is already ALWAYS disclosed), and the list goes on and on.  The bottom line: consumer choice is extremely important in every industry.  It keeps business competitive and when businesses are competing, it is always better for the consumer. 

Finally, there is no doubt that we need to eliminate fraud and make the mortgage and home buying process easier and more consumer friendly and I wholeheartedly support every effort toward making this possible.  But I believe that this proposed rule if adopted as written will end up making homeownership even farther out of reach for thousands of people, it does not make the process easier or more consumer friendly and it will effectively put me and thousands of other small business owners (mortgage brokers) out of business! 

I know many others have written and I can only hope that they are more effective in addressing the proposed rule on a point-by-point basis.  As for me, I am writing an emotional note, from my heart to say - please.  Please, let's address fraudulent practices.  Let's make buying a home less attorney friendly and more consumer friendly.  Let's fix the industry related issues that we can, but let's NOT adopt new rules and regulations that will most assuredly and without a doubt put thousands of people out of business. 

In closing, thank you for giving me the opportunity to comment on the proposed rule and for taking the time to read my letter!

Regards,

Lisa Epstein
Mortgage Broker and
Small Business Owner

Given what the financial markets have been through in the last year, it is important to stay on top of new information as it becomes available.  As you are probably aware, the "Economic Stimulus Act of 2008" has been passed by both the House and the Senate and now awaits the almost-certain Presidential signature expected tomorrow.  After the signature, then what? 

Well, in addition to the tax rebates you've heard so much about, H.R. 5140:

• Raises the FHA and conforming loan limits to the lesser of $729,750 or 125% of an area's median home sales price. 
• Only six areas in the country will see the $729,750 limit:  5 in CA - the areas of San Diego, San Jose, San Francisco, Los Angeles/Riverside, Sacramento; and Hawaii is the other.
• Other areas in the country will see an increase up to 125% of the median sales price or stay the same at $417,000.
• The FHA and conforming loan limit increase is meant to be temporary and is set to expire December 31, 2008 (unless it is extended which wouldn't surprise me).
• The new limits will most likely apply to owner occupied properties, 15 and 30 year fixed rate loan products, fully amortized (sorry, no interest only).
• ARMs are being considered, but most likely will end up only with one type of ARM product (for example, 5/1 ARMs).
• There will be strict credit guidelines and overlays including CLTV most likely restricted to 90% or less.           
• The limits will be effective as soon as they are signed and then it will be up to Fannie Mae to determine guidelines and pricing and the lenders to pass this on to borrowers.

While this is probably a positive step toward increasing liquidity in the markets, it is important not to over-promise the benefits.  There is still a perceived risk in higher loan amounts and Fannie and Freddie will most certainly want to be compensated for this perceived higher level of risk.  This would translate into higher fees being passed on to the consumer.  Also, there is the question of how to package the new higher loan amounts at the secondary market level and who (what investors) will buy them and in what format.   

Now we have only to wait for King George to add his special touch (as he has done to hundreds of bills before this one) before he signs it.  It may be a completely different bill when it comes out of the oval office tomorrow.

They have even given it a name: The Stimulus Package. 

The US deficit is predicted to reach $250 billion in 2008 BEFORE this "stimulus package" which will cost as much as an estimated $200 billion.

So $600 tax rebate per person is going to cure what ails the economy of this country?

Hmmmm.  Will somebody please give me some of whatever Nancy and co. are smoking cause I'm going to need it.

In a surprise move this morning, the Federal Reserve lowered the Fed Funds Rate by .75% to 3.50%. This move was prompted by an emergency meeting last night as global equity markets sold off significantly due to foreign investors' fears of a US recession.  It is very interesting to note that this morning's Fed cut was the first intermeeting Fed action since September 16, 2001 and the deepest one day cut since 1984. 

While many believe that a cut to the Fed Funds Rate results in an immediate decrease to mortgage rates, this is not true. In fact, on several occasions in the past, a cut to the Fed Funds Rate resulted in mortgage rates going higher in following weeks.  However, we are in uncharted waters now and turmoil and market panic are impossible to predict and do not necessarily follow the rules of history.

Currently we are enjoying mortgage rates at three-year lows, and we have actually seen rates improve already this morning, mostly due to the early morning US stock sell-off.  Additionally, the LIBOR which was at 5.15% just a few weeks ago is now at 3.71%.   In this sea of fear, here is some good news for the housing industry.   

The bottom line is that if you have been considering a refinance or purchase lately, now is a good time to get the process started. 

Once upon a time there were two borrowers whose loans were set to close within a week of each other. 

Borrower number one was fortunate that his Loan Officer worked with a wonderful appraiser named Mark.  Now Mark was the ideal appraiser - conservative, but not too conservative.  He used only solid comps and always made reasonable adjustments.  When the Loan Officer submitted a loan with Mark's appraisal, she never had to worry about value.  Appraisal Review?  Bring it on.

Borrower number two, on the other hand, went to our LO mid-way through his transaction with an appraisal he had already paid for by a wicked appraiser we'll call Ron.  Since the borrower had already paid for the appraisal, our heroine agreed to at least begin work with the existing appraisal.  Upon review, she was crushed to realize that there was going to be a problem.  Every one of Ron's comps crossed a major boundary!   We're talking MAJOR boundary - as in the 163, 15 and 8 freeways.  The poor Loan Officer couldn't even quote a rate to this client so sure was she that a review and value cut lay lurking in the shadows at the lender's corporate office.

Now for the Dicksonian Twist: 

Our heroine sent both loans to the same lender - actually apologizing to her Rep for the shoddy appraisal that was sure to be a problem and not wanting her good reputation to be tarnished.  But alas!  True Blue Mark's appraisal was cut by more than 20% and Bad Boy Ron's break-every-major-boundary-rule appraised value held.

The End 

 *****************************************************************************************

Epilogue: Always true to her word and able to take value cuts in a single bound (thanks to a short period of really awesome rates, dude), our heroine was able to change lenders (and the new lender did not even review the good and solid appraisal) and grab a better rate for borrower number one at the same time!   So, all the borrowers lived happily ever after, after all.

Our society is a capitalist one, admittedly a fragile yet firmly planted one, based upon the natural swings of our markets - financial and otherwise, all carefully manipulated by the shrouded-in-secrecy, all powerful Fed (anyone out there read The Creature from Jekyl Island??).  

But all confidence in the Fed aside: President Bush is working with the big boys on a plan to aid defaulting borrowers.  According to the Wall Street Journal, the main idea of this aid would be to get lenders to extend for a number of years the short term low rates that were offered on subprime mortgages, loans.  They even want to name it something catchy like, "Teaser Freezer."  Sounds good, right?  What's wrong with helping out the little guy? 

Well, right or wrong, every loan in these billion dollar defaulting portfolios was funded by investors, offered by brokers and lenders and chosen (yes I said chosen) by consumers.  Every single funded loan put money in the pocket of a multitude of people: from the consumer to realtors, escrow officers, title reps, loan officers, brokers, lenders, account executives, warehouse lenders and investors.  

If the consumer and the lending bank were the only ones being affected, I don't think we would be seeing the extent of government involvement we are seeing here.  But the bottom line is that there is so much more at stake than the consumer losing his home or the value of a bank's lending portfolio.   In fact the bank that lent the money, most likely already made a bundle on the loan and used that money to lend more.  Most of the loans originated are sold to an investor and then packaged together in billion dollar hunks and ultimately sold on Wall Street.  The Wall Street billion dollar buyers insure these investments.  Some of the same banks who underwrote, funded and sold the loans in the first place are the ones who insure the billion dollar investments.  Here is where the plot thickens.  In fact, it gets so muddy that it is impossible to boil down to a recognizable state.  Unchecked, we are in for it.  I believe the word recession is a gross understatement.

BUT, as Newton's Third Law states, "Every action has an equal and opposite reaction."  I believe that applies here.  Where am I going with this?  Well, when asked about the proposal on Friday, the President's press secretary offered some comforting news: Dana Perino said, "The president has been clear that no taxpayer money should be used for any sort of bailout." 

So at last, here is my problem with the government's Teaser Freezer: Someone is going to pay.  Every new law opens the way for a flood of litigation.  And believe me, while Bush is trying to include the big players, it will be impossible to get everyone on board with his plan.  Investors are going to lose big money and they will spend big money on high-powered attorneys to challenge the legality of the "Teaser Freezer" and get their money back. 

And you can bank on this: taxpayers will foot the multi-million dollar bill to defend the law.  Ironic isn't it?

The other day, I was deeply concerned about HR 3915 passing the House as written, because it could very well have put mortgage brokerages like mine out of business.   Why?  Because as a rule, I earn my living from lender-paid Yield Spread Premium (YSP), not origination points from the borrower.   And in these days of declining home equity and climbing LTVs, there just isn't room in the loan amount for the added cost of origination points.  What borrower in this market can or will come in with cash to close a loan?  Of course, some do - but it is rare. 

Today was the annual San Diego CAMB (CA Association of Mortgage Brokers) mixer/event at the Marriot in La Jolla.  The president-elect of NAMB (National Association of Mortgage Brokers),  Marc Savitt, spoke at one of the break-out sessions and it was really neat to hear first-hand about the way they were able to get the verbiage banning broker YSP out of HR 3915 before it passed the House the other day.  In addition to a lot of industry lobbying and letters from mortgage brokers, there was a NAMB phone call to an influential person and a very important ammendment authored by Congressman Gary Miller which replaced the offending verbiage. Of course there is still some offensive material in it (don't get me started about the legislation of underwriting guidelines...) but at least the worst is over for now.

In CA, where our average loan amounts are at least $350,000, I get a great rate for my borrower, 1% YSP from the lender and with no origination fee I'm able to keep closing costs to a bare minimum.   I always talk with my clients about rates, origination points and yield spread premiums, and everyone of my loan officers does this also or they don't work with me.  During the discussion, the borrower decides to take PAR pricing and pay origination points or take a slightly higher (it really is usually only very slightly higher) rate and not pay origination.  Nine times out of ten, the borrowers would rather not pay origination fees when given the choice.  

It really all boils down to consumer choice - and taking away consumer choices is never a good idea.