I cannot avoid the fact that I'm getting old. After all, I've spent more than thirty-five years in lending. That said, however, I certainly hope that I haven't become so jaded about the world in general, and the financial world in particular, or so set in my ways that I don't embrace intelligent change. The key word here is "intelligent". And, without a doubt there are changes coming. Whether or not the changes are "intelligent" remains to be seen.
The changes to our industry that began in 2000-2001, I felt, and still feel, came under the heading of unintelligent change. Loan approval criteria became substantially more liberal and culminated in 2004 when lenders said that all someone need to buy a home was two to three years of credit, with two or open three accounts, and a decent credit score. They needed no money down and didn't need to prove anything! Never mind whether or not they made enough money, or had enough in reserve to afford the loan, all that was required was to show an acceptable credit report and sign on the dotted line!
In their ever-present desire to increase market share, I'm sure lenders felt secure in their more liberal guidelines, especially with a great deal of encouragement from Wall Street and their ever-growing menu of exotic mortgage backed security options with incomprehensible multi-layered risk levels. Common sense, however, along with some experience (maybe my age showing a little here) would make it seem obvious that housing prices don't rise forever, without at least some periodic corrections, and interest rates don't stay at near historical lows forever. Less obvious, but certainly not beyond simple reason, is that if you leverage a loan portfolio of say, a hundred million dollars to the point that there is perhaps as much as eight or nine hundred million borrowed against it, with only the original hundred million in real property as security, there is clearly a possibility for losses. In hindsight, it seems obvious, as an industry, that we allowed unreasonable optimism to rule decision making and now we are paying for it with a rather unpleasant trip back to the land of reality.
As an owner of a mortgage brokerage, along with two other great partners in our corporation, perhaps, what disturbs me the most, is the fact that loan agents across the nation, took huge advantage of the overly liberal qualification standards. It's been reported that, in order to get clients to qualify, loan agents iinflated incomes as much as fifty percent over actual earnings. And that's not just limited to a few loans either. Additionally, I've heard first hand from some wholesale representatives that as many as sixty percent of the loans submitted to them include two points in rebate along with a point up front. Where I live, with some of the most expensive housing prices in the nation, that amounts to a lot of money. In this regard, we, as loan agents, are equally responsible for our current circumstances.
That brings me back to my comment about changes on the horizon and whether or not they are "intelligent". First of all, some change, and I mean restrictive change, is inevitable given the publicity surrounding the current housing woes. There are more foreclosures than normal and there are still more coming. Even if the numbers are not nearly as dramatic as the media makes it seem, reality for a person is what they believe to be true. With public sentiment being what drives most politicians, since that sentiment determines elections, politicians can't afford to leave things as they are. They must take action. Whether or not that action is "intelligent" or not remains to be seen and we have a hand in what type of changes take place. We can influence it by voicing our opinion to our legislators and by encouraging others in our industry to do the same. As for me, I strongly oppose completely eliminating stated income loans as I feel it would hurt more self-employed people, and those who work second jobs, than it would protect. Also, for a variety of reasons, all related to client benefit rather than for broker income reasons, I would oppose complete elimination of yield spread premiums. I would not oppose restrictions in these two areas if they were reasonable and well thought out. I do not oppose requiring some form of licensing for those involved in direct loan negotiations with a client nor would I oppose a national registry of loan officers which could help prevent a bad actor, who loses their license in one state, from simply moving to another and repeating their bad acts with more clients.
These, of course, are my opinions. What's important, is that you let your opinions be known to the right people. Considering that the future of our industry is at stake, it's important that "intelligent" change is made to help us get back to reality in lending policy. We all have a stake in this so let your opinions be known to whomever is appropriate. That may include your corporate management, legal department, lobbyists and legislative representatives or all of the above. The circumstances are too important to ignore.
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