[I am away from the computer on a daily basis, and my access to e-mail is
sporadic and not timely. In my place are daily commentaries from a series of
very knowledgeable mortgage industry people with different backgrounds, and
they have been given very little direction about what to write about - the
latest is below. Our views may or may not coincide, but I thank them for
their time in volunteering and helping out.]
How You Can Make a Difference
(and make a lot of money in the process)
I think it's fairly safe to say that most of the people who jumped into the
industry to promote the toxic loan products left a long time ago. For the
most part, those who remain in the industry to clean up this mess were not
the ones who were promoting the products to start out with. I am sure there
are a lot of Loan Officers who feel like I do. We have always put the needs
of our clients first and did not give in to the temptation of the fat
commissions that were being offered to promote those products. We can't help
but feel that we are being punished for someone else's crimes.
The real irony is that many of the changes that have come about actually
make it harder those of us who have acted as professionals to serve and
protect the borrowers now.
Although most of us remaining in the industry did not cause the problems, we
are in a unique position to solve them. I do feel that the biggest
opportunities remain fairly unidentified by most Realtors and Loan Officers
No matter who is responsible for the housing meltdown, there is no debate
that it has been devastating to the economy and resulted in a lot of
suffering. You can't work in this industry without seeing the hardship every
day. Clearly there is a need to stabilize the housing market and create
employment. We have the ability to do both with products that offer multiple
benefits right now. It is truly a case where 1 plus 1 equals much more than
Just about anywhere you go in this country there is a significant inventory
of distressed properties. There are also a significant number of skilled
people in the construction field that are currently unemployed. These two
dynamics have a clear symbiotic connection.
Currently, these houses are bringing down the values in these neighborhoods
as they sit empty and neglected. They're also putting a strain on law
enforcement and other municipal services at a time when they are already
struggling due to the lack of revenue. When they do sell it is typically to
an investor who pays cash for the property. Obviously, they're buying it at
a deep discount, which further reduces housing values and municipal
revenues. Typically, these investors either repair them and rent them out,
or repair and sell them. In either case they will not generally do more than
a token level of work to them. Since the extent of the repairs translates
directly into employment and revenue for the community, this is certainly
not an optimal situation. They are also not concerned about including the
measures to increase the energy efficiency of a home because they will not
be paying the utility bills.
There are even direct correlations between the percentage of rental houses
in a neighborhood and things like teen pregnancy, drug abuse, dropout rates
We have the ability to change this dynamic by increasing ownership.
Now, let's look at what we can create here. We have the products that allow
owner occupants to purchase these properties, repair them, and turn them
into very nice homes. They can make them very energy efficient as well. This
results in much higher levels of repair and upgrade to these properties
creating more jobs, higher sales prices, higher tax revenues, and better
neighborhoods. As if this is not enough, cash buyers are not good for my
business or yours. I make my living originating loans.
So how do we accomplish this? Let's talk about the energy efficiency
component of this for a moment. Increasing the energy efficiency of these
homes involves additional upgrades and job creation. It also makes the home
more comfortable, affordable, and dependable for the new owner. In many
cases the savings on their monthly utility bill can be substantially greater
than the cost that it adds to the mortgage payment.
This means the homeowner is holding onto money they would have been sending
to a utility company every month. This money is remaining in the community,
creating additional jobs and municipal revenue.
I am a huge advocate for the Energy Efficient Mortgage Program (EEM). In
fact, it is very likely that I have personally done more EEMs since the
program was introduced in 1993 than any other loan officer in the nation.
When this program was first introduced I was very excited about it. In all
honesty, my excitement was not based in any extremist desire to save the
world; it was based on the fact that this was clearly a way to remove a
major barrier for many buyers.
Let me explain; when I was talking to qualified buyers whether they were
first-time or move-up buyers, they had one thing in common, fear and
anxiety. The biggest factor among those who ultimately chose not to buy was
fear and anxiety. They were looking at increasing their monthly housing
expense. They had to deplete their savings to get into the home and would
now be responsible for any major unexpected repairs.
Their concerns were legitimate.
I recognized the EEM as a great way to protect these buyers and alleviate a
lot of their fears. The program required an independent evaluation to
determine that the savings on their energy bill would be greater than the
increase to their mortgage payment. This made the house more affordable.
Most importantly it addressed the single most common unexpected expense that
affects homeowners in my area, the failure of their air-conditioning unit.
There is typically no warning of this, and it is very expensive to replace.
Here was a program that allowed them to finance 100% of the cost to replace
that old inefficient air-conditioning unit with a brand-new,
state-of-the-art one that was under warranty. Many of these distressed
properties have issues that can be addressed using nothing but the EEM. And
when properties need upgrades and repairs that go beyond the EEM there are
several solutions we can offer. The FHA 203K, Streamline 203K, and FNMA
Homestyle Renovation loans all provide opportunities for owner occupant
buyers to purchase these distressed houses and turn them into very nice
It has taken me almost 20 years of specializing in these programs to learn
how to use them effectively. If we are going to have the impact that we need
to on this process we need to greatly reduce that learning curve. I created
a platform to assist policymakers, contractors, and those in the real estate
community with practical information on how these programs really work. If
you are interested in creating a lot of opportunities for yourself while
making a significant contribution to solving the issues your community are
currently facing, you are welcome to utilize this resource at
I have also been speaking at state and national events to promote the
understanding of these opportunities. Some of these presentations may be
found on my site as well as a list of upcoming venues. I am currently
developing a video series that will be offered through a blog format that I
will be introducing in the next couple of days. Through this I will be
offering ongoing tips and training related to these opportunities. If you
would like to receive these presentations please email
that you are added to this distribution list. Although most of the
information provided there is relevant nationally, some of it relates to
local and state programs as I currently limit my loan origination to
Residential Loan Officer specializing in homebuyer programs, energy
financing opportunities, and acquisition/rehabilitation financing throughout
the state of California since 1993.
Editor's note: Word has hit the tape that Bank of America is near an $8.5
billion settlement with a group of non-agency investors on
226 deals, of which 15 are re-REMICs. The remaining 211 deals have a current
balance outstanding of $79 billion and original balance of $178 billion. As
such, the $8.5bn of settlement translates into 10.8% of the current balance
and 4.8% of the original balance, but exact details are changing as more
comes to light and many questions remain. For example, for non-agency
investors, is the issue of whether the settlement payment is made to the
investor group directly or to the trusts involved in the complaint - both
have pros and cons although most believe that the money will likely flow
into the trusts, otherwise BofA would expose itself to a large contingent
liability from other investors in these deals. When will the money be dished
out to investors?
It is expected that the cash flow will come over several months.
What does this mean for BAC liability and other non-agency deals? Remember
that total Countrywide non-agency issuance during 2004-07 (the period during
which the deals in the settlement were issued) was $523 billion, so the
settlement covers about 35% of this. There is some fear that the remaining
65% of production, although probably cleaner, could be subject to more
liability, therefore between $24-30 billion!
Regardless, any positive news, which includes less uncertainty such as some
kind of settlement, may help prices of existing securities.
But will this, or any settlement, be passed down somehow to the originators
which sold loans to Countrywide between 2004 and 2007? First, remember that
this settlement is for non-agency product. Second, and I am not privy to any
inside information, just because a settlement includes a portion of
BofA/Countrywide's production, that doesn't mean that BofA, or any large
investor, will "call off the hounds" in pursuing full retribution against
originators. The settlement does not resolve issues for smaller lenders,
especially when fraud is involved, nor does it mean that BofA (or any
investor) would ever say, "Well, we settled for X pennies on the dollar, so
we will let you do the same."
If you're interested, visit my twice-a-month blog at the STRATMOR Group web
site located at www.stratmorgroup.com
. The current blog takes a look at near-term news for non-agency securities,
such as jumbo residential loans. If you have both the time and inclination
make a comment on what I have written, or on other comments so that folks
can learn what's going on out there from the other readers.