I've been somewhat quiet on Active Rain.  Since August, mortgage origination has become an increasingly difficult job.  While the business has generally slowed, we specifically, have been booming with demand.  Unfortunately, it's not the demand I like.  Californians, Arizonans, hell, many Americans, are up to their eyeballs in debt.  Most couldn't afford it in the first place.  These past few months, I've missed calls, eschewed family life, and tried to keep up with the tons of homeowners in trouble.  I turn it all off on the weekends.

I read a lot.  I realize that after I hit 40 (2 years ago) my weekends had transformed from chandelier swinging and body-boarding to a happy hours with real estate brokers, golf with stock brokers, and Church.  Between those events, I consume blogs, Milton Friedman, Bill Gross, Barron's, and Knowledge@Wharton.  I read a LOT because I'm a money geek.  I love money, not in the materialistic sense but I love money.  I guess I should say that I am intrigued by finance.

I prognosticate every week on Mortgage Rates Report about the direction of interest rates.  I speculate on the direction of certain real estate markets.  I follow specific companies and their demise on Wall Street. I follow the mortgage and real estate industries like a kid from the Bronx follows the pin-striped boys of summer.

Lenn Harley caught something I said a year ago and found it to be prescient (her word); I wish I were wrong.   The comments in her post suggest that I should talk about the upcoming year; I really don't want to do that because I don't have great "visions" for 2008.  Some thoughts about the next 12-18 months:

1- More not less of the foreclosure activity we saw these past 5-6 months will continue through 2008.  A combination of ARM resets, tightened loan guidelines, and affordability problems will affect American homeowners in a  dramatic way.  It's easy to levy the blame on Greenspan, mortgage originators, Wall Street, or REALTORS but at the end of the day, the "greed" ultimately came from the homeowners.  The American homeowner, aided by some opportunistic market participants, got drunk on the drug of materialism, financed by a world wide capital glut.He partied up the profits while the clock struck twelve.  The foreclosures and continued short sales will be the hangover from the five year orgy we had in the first part of the decade.

2- The housing recession will extend to the American economy.  Homeowners drew upon home equity like a a high-roller draws chips at the Venetian hotel in Vegas.  Nobody will "stand up" for them with the bookies anymore.  The money spigot is shut and won't be turned on no matter what the Fed does to interest rates.  Less money means less disposable spending dollars.  While, Virginia, there still is a Santa Claus, he won't be staying long at your house this year and might just skip you next year.

3- There will be a marked class distinction that develops within the next 6-7 years.  It won't be determined by assets but by debt and its utilization.  Those that respected money will get more of it; those that didn't respect it will lose it.  That will have a profound effect on productivity as the "hourly worker" will become despondent about his life and stop pushing for the overtime.  Why work the extra hours to make the mortgage payment when the house was lost in foreclosure?  A commitment to mediocrity will be the mantra of the American worker because every disposable dollar will be spent payig the bar tab he ran up five years ago.  Personal bankruptcies will rise.

4- Housing prices will drop...more.  The aforementioned reasons for foreclosures rising will be the same pressures felt in the housing market in 2008.  Prices will continue to drop until a level of affordability can be established.  That means that the investors (real investors put 20% down) will step in when the deals cash flow.  It also means that until the rent v. buy figure is at parity, the incentive to own will be tabled until the economics of homeownership make sense.  Determine the median income for your metro area, multiply it by 5 and that's your new median price.  In San Diego, the income is about $70,000 which predicts a median price of $350,000, far below the current $470,000.  That suggests another 15-20% drop in prices here.

5- Real estate agents and mortgage originators will flee the industry faster than teenagers bolt from a keg party when the cops show up.  It is my belief that  fully 9,000 of the 14,000 licensees in San Diego County won't make a living wage this year; expect most of them to be on to another job next year.  The remaining practitioners will be fielding calls and e-mails from disgruntled homeowners like a an airport gate agent in a snowstorm.  Learning how to say "No, I'm sorry I can't be of assistance" will be the single best script to learn for next year.  Smart practitioners will learn how to properly qualify WILLING buyers and sellers and will profit immensely from it.

6- People will buy homes, they always do.  A culture of opportunism will develop among the buying pool and if left untrained, they will drive practitioners insane.  The wise REALTOR or originator will assess motivation as much as qualification before accepting a brokerage or financing engagement. 

7- Fundamental underwriting guidelines will reign supreme for the next 12-18 months.  Think Y2K when you think of lending.  If you weren't around back then, ask me for help.  FHA financing, being touted as the "catch-all" for the wounded borrowers, will be woefully inadequate to handle this debacle.  While FHA offers expanded credit and LTV guidelines, the ability to repay the loan is still required.  John and Jane Homeowner just don't make the money to support their debt-load.  100% financing won't go away for those with sufficient credit, reserves, and income.  First-time home buyers will emerge as the predominant players in the home buying market.  Relationship building, counseling, and firm but encouraging advice will need to be dispensed.

8- More home buyers will go online to start their home search. By reading this article, you are at a decided advantage over your competition...you're here, already.  The very nature of the on-line home searcher demands that you do free work before you ever talk to them.  Successful practitioners will "convert" these modern day "open house looky-loos" into viable prospective clients by forcing them onto the phone, then to a lender, and ultimately into their office to sign an exclusive buyer brokerage agreement.

The characteristics of the thrivers these next 12-18 months will be superior relationship building, keen intuition about the viability of the prospective client, and decisive closing skills to encourage action.  Practitioners will need strong lending partners who can deliver more than rates or programs; the future of the purchase mortgage originators will lay in their ability to help the REALTOR convert the prospect from a name and e-mail address to a executed contract.

It is my greatest wish to have Lenn Harley write a blog post entitled, "Brady's prognostication skills are all washed up" next Halloween but I just don't see it that way.

I lend in 42 states.  I've been in the consumer financial services game for 20 years.  While I should have been a Jesuit priest or a Naval Academy grad...I'm a mortgage originator.  I have a six-year old daughter with a passion to attend Villanova University so I wont be going anywhere soon.  If you need a salty sailor to help you ride out the storm, I'm seasoned.