An Endless Battle

By Moe Bedard

The mortgage and real estate industry has resembled a battlefield marred with carnage and destruction with what appears to have no end in sight. 210 imploded lenders and thousands of mortgage, real estate professionals and anything related to these professions in one way, shape or form, litter the path of no jobs and no hope. The bad apples spoiled it for the good apples. Loose lending standards and easy money for everyone (loan officers, real estate agents, appraisers, homeowners, investors, lenders and anyone associated with real estate) may have killed this business for good. A black cloud is following many of the good people in the mortgage industry as they try and find employment to no avail.Many have said they can’t find a job outside the industry because there is now a stigma associated with all mortgage professionals. Lack of regulation on the loose cannons and bad seeds, resulted in unscrupulous mortgage broker, chop shops sprouting up in almost every neighborhood in the country. Churning out cheesy, unlicensed loan officers, fresh out of high school, that sold one toxic and fraudulent mortgage after the other.

Unfortunately, it may be difficult to decipher the good broker from the bad broker because many borrowers were victims of the old wolf and sheep’s clothing. So, human tendency is to just place blame on the whole lot of them.
Trust is not going to come easy and brokers may never get a chance to earn that trust back. Hell, I remember real estate and mortgage fat cats that were selling and lending on homes here in Corona, Ca. by the bunch. $50,000-$70,000 gross commission months were common. Brand new Cadillac Escalades, 750 BMW’s and daily sushi and Martini lunches were the norm.
They themselves jumped in on the investment bandwagon and gobbled up multiple properties all over he inland empire. Now, well, let’s just say that they are way in over their heads. Those $50k months and sushi lunches are ancient history. Most are lucky to get a deal a month and are working just as hard, if not harder, for a much smaller piece of the pie. Many have given up and decided to throw in the towel because they feel there is no hope or dignity left in the business. Some have taken low paying jobs wherever they are lucky enough to get hired.

A lot of these professionals are 10-20-30 year respectable industry veterans with educations and impressive backgrounds. Just take a look at the local MLS, Riverside County Notice of Defaults or Trustee Sales and you will find several prolific agents, mortgage brokers, contractors etc. that are listed for the foreclosure auction block. I will give them the respect and not mention their names here, but it is quite a list. Many lenders are slowly but surely cutting off access to mortgage brokers by closing down their wholesale channels. The day I saw that Bank of America announced it was closing down it’s wholesale business back in October, I thought to myself that this was the beginning of the end of the mortgage brokerage business. B of A is one of the more conservative players and survivors in the lending game. Many suspect that the other major players will soon do the same.

If more lenders follow suit and shut down their broker business, this will mean that there is no way a broker can survive. Couple this with an already severe mortgage and credit crunch and you have a lethal cocktail for the mortgage broker professional.There are just not that many loans to be had out there and there isn’t much money being made. These people need food and shelter and selling mortgages or real estate doesn’t seem to be cutting it these days.
Yes, there are mortgages being made and deals being done. But it looks like most of the business is being completed on the retail side of the lending industry and many seasoned mortgage brokerage vets have already jumped ship to go work for the man 9-5. I’m sure I am going to get the comment from the guy who is still killing it on the brokerage side and even doing better now then back then. But either A, You are a BSer or B, you are of the extreme mortgage and real estate professional minority.

There have been many rumors circulating of other lenders that are going to shut down their wholesale channels in early 2008. With lending guidelines so tough and such a small mortgage market, isn’t that the common sense business move for lenders to make? Isn’t this a perfect time for lenders to just dominate, consolidate and own what is left when this market finally turns around? Is this the perfect time for Countrywide and other servicers or lenders to expand their services into real estate service companies? Think about the massive residential REO portfolios that they need to manage and sell? This isn’t about saving an industry, it’s about business survival. Make no bones about it. When people and massive companies are in survival mode, they make common sense and wise cut throat business moves to increase their bottom line. Wouldn’t one of those moves for the lenders that are left to cut out the middlemen and the commissions? Do lenders really need brokers anymore, now that subprime is a thing of the past? Will non-profits now be the conduit for borrowers and lenders to keep the greed out of the equation. (one of my theories)
There are long time veterans like Joe who believe and hope that they will survive.

A Breakdown of the Yield Spread Premium

In today's market, if I charge a rate of 6.25% to the consumer, I am making 1.38% if the loan amount from one of my investors. State law requires that I disclose that on the HUD-1. If you go the local Savings Bank, their rate is 6.375%; go to the credit union and the rate is even higher at 6.5%. (I am using Middlesex Savings Bank and Digital Credit Union). In both cases, there is no Yield Spread Premium but the customer is actually paying more in their monthly payment.

Good banking practice, no matter if you are a Bank, Lender, Broker, whomever you go through for your mortgage, is to gross 1 to 1.5% of the loan amount. Most people agree, you do not want to have to pay points up front and in some cases we can charge a little higher rate, say 6.5% and make enough on the YSP to pay for the closing cost. At the end, my rate is the same as the credit union and the consumer had no closing costs. In that example you would save about $2500 in closing costs and would have a very competitive rate.

There is so much gray matter here because the consumer, politicians etc do not have an understanding of how the YSP actually works. Lenders such as East West, Drew Mortgage, and Leader Mortgage, to name a few, all act as Brokers in this arena. They are selling their mortgage (placing them directly with certain investors) and in return receive a Yield Spread Premium- no different then a mortgage broker would. The difference between the two is that I am placing the loan with that investor right way as opposed to the correspondent lender that is closing on the mortgage in their own name (leader mortgage) and then shipping the package right off to that investor.

What worries me most is that there are so many bad or uneducated loan officers out there. It does not matter who they work for- lender, broker, or bank. My company is a group of “bankers” from the 80’s and early 90’s with morals, and we are disgusted with what we see other lenders and brokers charging clients. To make this very simple: Yield Spread Premiums should be allowed but should be capped. No one in this industry needs to be making more than 2 to 2.5%, anything over that is just plain robbery. Our entire 2006 year of mortgages, roughly 55 million, we average 1.375% in the Yield Spread Premium. Our mortgage rates on average are 1/8 to 1/4 lower than all the local banks and credit unions who do not receive YSP.

Did you know that Federally Chartered Banks do not have to adhere to the State and Local lending laws? They do not use the disclosures we as brokers or local lenders have to use. What should be done is that all lending should disclose what they are making on the HUD-1 Settlement statement. Real Estate Brokers have to disclose their commission, the attorney posts their fees, mortgage brokers, appraisers and the list goes on, so why not make everyone disclose what they are making on the mortgage?

And for the record: I am definitely for tougher legislation in the mortgage industry! It is long time overdue and we need to weed out the mortgage companies and originators who are taking advantage of the consumers.

The Beauty of a Small Shop

After putting Gracie and Emma down to bed, I often sit and wonder about the state of today's mortgage market. With over 180 lending institutions crumbling over the 12 months, the government thinks it can step in and save the day. We know this is never good nor would we ever ask for their help. The mortgage market or the actual writing of a mortgage is and can be very complicated. I got my start back in 1991 from a small bank, where I learned how to underwrite a mortgage the old fashion way.

Imagine using a calculator to figure out pre-paid interest or even explaining to a client how an adjustable rate mortgage will actually adjust. Without all the fancy tools, I can show you how to increase your credit scores within just a few months.

I have been getting many calls from Lenders, Brokers and Bankers over the last few weeks asking if we are going to be okay. This is the beauty of being in a small shop; we have to be accountable for everything. We know how to integrate our government forms into our loan officer software so that we can be compliant. Did you know that a Federally Chartered bank does not have to comply with State and Local guidelines? Did you know that a mortgage broker can not “pad” their fees? If the credit report costs us $23.49, that is all we are allowed to charge. Look closely at your last closing documents- that Bank charged you a flat fee of $50.00 for that report. Imagine that each little item is marked up to $50… that comes to a little over $500 just in junk fees. Never mind the rate they are charging!

These new loan officers today; they are selling a product, and if this doesn’t work out, they’ll go back to whatever else they were selling before. It is a shame that no one has morals or any kind of ethics to adhere to.

The worst thing about the mortgage meltdown is the Government. We actually have people and politicians writing these bills and new legislation that do not know the first thing about the mortgage industry.

If we get rid of Yield Spread Premiums, (YSP) it will not only close down the mortgage broker, but it will close down many of the small banks that don’t lend there own money anymore. It will close down the correspondent lender as well as many of the wholesale lenders. Don’t forget about the real estate attorneys and real estate brokers that have made a nice living from the mortgage brokers as well. Oh yeah, you might as well shut down the real estate appraisers too.

Just my random thoughts from the night!

The Nickersons Celebrate Fall

Having to cook for a growing family, we have learned to simplify our recipes. We have also made it a fun thing to do to share with our girls and something the entire family can do together. You will find this apple pie very easy to make and you will need less than 30 minutes to complete, even with a 2 ½ year old at your side. J

These are the ingredients you will need for the pie.

1 Pillsbury pie crust

7 apples, Macintosh and/or Granny Smith

1/2 cup of sugar blended with 2 tsp. of cinnamon

1 Tablespoon of Lemon Juice

Prepare pie crust in your favorite pie plate

Peel and slice apples and then place in bowl. Mix in lemon, sugar and cinnamon and gently toss to make sure all apples are coated. Place apples in a pie plate. Place pie crust over apples. Seal the edges and decorate edge with fork or fingers. Poke a few holes on top and be creative when doing this.

Bake at 425 degrees for 45-50 min

Serve warm with your favorite ice cream.

The G is for Grace and E is for Emma.

Enjoy, The Nickerson’s!

Fed's Drop Rates?

What rate is the Federal Reserve Bank dropping? The Fed Funds Rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight.

What Does This Mean?

If for any reason a bank fell short of its Federal Reserve deposit requirements, it could borrower funds from another Lending Institution, this is the rate it would be charged to repay the loan. This has not happened that often until recent months.

The Fed Fund Rate is now used as an index to set many different rates used for borrowing and granting credit.

Some examples are the prime rate, which is currently at 7.75%. The prime is set by taking The Fed Fund rate plus 3.00%, which would give the rate of 7.75%. Many banks will use this number to set Home Equity Lines of Credit.

Federal Chairman Ben Bernanke

When setting rates such as these, an index and a margin are required. The index is a published rate that can be adjusted on a daily basis based on the economy and is typically a rate that is common. The Fed Fund Rate, The 1 Year Treasury Bill, The LIBOR are to name a few. A Lender or Bank will then add its Margin to the index. This Margin is the fee or price the bank needs to charge in order to be profitable when lending to credit worthy clients. The higher the risk of the client, the higher the margin is to be charged in order to maintain this loan.

Many times you will see the language “An index plus a Margin”. Adjustable Rate Mortgages, when adjusted, are based on the 1 Year Treasury Bill plus a Margin of 2.75%. When calculated out, this generates a rate of 7.25% today. Credit cards work very similar, the index most commonly used for credit cards is the Prime Rate. Then a margin is to this index. You will see in the very fine print of your credit card, The Prime Rate published in the Wall Street Journal plus a margin of 16.00%. When added to together, this forms your credit card rate of 23.75%. Credit Cards is a very risky business with so many borrowers defaulting on them, therefore a much higher rate is charged.

Car Loans, personal loans, lines of credit, commercial loans and credit cards are many of the loans and programs that are affected the Fed Fund Rate. These loans can be adjusted monthly, quarterly or when the Federal Reserves feels like it (has to be a good reason of course). The one rate it has no direct relationship to is the Fixed Rate Mortgages.

Below is a link to this article on our website, where you can find more about Emerson Lending Company.

http://emersonlending.net/custompage-view.aspx?id=25

Mortgage Rates Edge Up

Mortgage Rates Edge Up

September 21, 2007

WASHINGTON -- Long-term home-mortgage rates rose slightly this week, with the 30-year fixed rate averaging 6.34% compared with last week's 6.31%, according to Freddie Mac's weekly survey.
The mortgage rate averaged 6.40% a year ago.
The reduction in the Federal Reserve's target rate earlier in the week should help bring down short-term interest rates and "should also dissipate some of the volatility in short-term interest rates we observed earlier," said Frank Nothaft, chief economist at Freddie Mac.
The one-year, Treasury-indexed adjustable-rate mortgage inched down to 5.65% from 5.66% in the wake of the Fed move, in which it trimmed the fed-funds rate to 4.75%.

This information has been copied directly from the Wall Street Journal.

Educated consumers know and understand that The Fed cutting short term rates does not directly affect mortgage rates.

30 Year Fixed

Mortgages rates are a funny animal. These last few weeks, mortgage rates dropped dramatically due to the anticipation the Fed's will drop its rate on September 18th. Here is the catch, the bond market has priced in a 3/8th drop in the Fed Rates. What this means is, if the Fed only drops rates by 1 quarter, mortgage rates would actually go up! If they drop the rate a full half percent, most likely mortgage rates will stay the same. Mortgage rates have already been adjusted for the assumption of what the Fed's will do. It is pure speculation as well!

As the owner of a mortgage company, I have many clients that will want to hold off in locking their interest rate, they feel it is better to wait until the Fed's meet. The client feels that mortgage rates will drop when the Fed lowers their rate, at this time it may be to late. Especially if the Fed holds off entirely, then you will see mortgages jump back up.

Remember to find a mortgage company that can lock you in today and re lock your mortgage rate if the rates decide to drop.



Call me anytime about mortgages, rates or our take on the economy!

Bill Nickerson
President
Emerson Lending Company
978-264-4803

Rants and Raves about Mortgages: Angry at the Media

Rants and Raves about Mortgages: Angry at the Media

Mortgage Rates Drop

Mortgage rates continue to drop this week. The 30 year fixed rate ended at 6.125% with 0 points today. In June we were at our high of 6.875%. The economy is forcing the rates down in order to assist in the housing market. This has now become the perfect time buy your next home or refinance. House prices are low and mortgage rates are still at all time low.

Make sure when you are looking at mortgage rates, that the APR (annual percentage rate) matches the rate! If the APR is different, it could be there are hidden fees.

Yields on interest-rate futures fell as traders priced in higher odds of cuts in the Fed's target for the overnight lending rate between banks, which has been 5.25 percent since June 2006. September futures on the federal funds rate yield 4.93 percent, down 6 basis points. The yield fully prices in a half percentage point cut by Sept. 18.

Former Fed Chairman Alan Greenspan spoke in regards to the economy and said "The behavior in what we are observing in the last seven weeks is identical in many respects to what we saw in 1998, what we saw in the stock-market crash of 1987,''

Let's hope that Ben Bernanke can live up to the great Alan Greenspan!

Have a great night and always feel free to email me with questions or concerns about the mortgage industry!



Bill Nickerson
President
Emerson Lending
Acton MA
bill@emersonlending.net

Angry at the Media

This is a recent letter I sent off to as many people as I could in a fit of rage of how the media is not helping the banking/mortgage world.


Dear Channel WCVB TV Channel 5 Boston MA,


Let me start off by saying I have been in banking and mortgage lending for over 15 years and pride myself and my staff for offering traditional Fannie Mae mortgage programs to homeowners. I own Emerson Lending Company in Acton MA and we consult with our clients and assist them in making the right choices for home ownership. We do not charge points, we keep our closing costs lower than the neighborhood savings bank and we do not charge broker fees. We continue to provide services and consult with homeowners of what they can actually afford. I currently own my own mortgage company in Massachusetts. My company was incorporated by the Commonwealth in 2003 and I am reviewed and audited by The Massachusetts Division of Banks.

Today, Saturday August 11, 2007, I tuned into your station at 12:30pm looking for news, when I noticed a “paid programming” event. After viewing the paid programming for only a few moments, I was outraged and absolutely disgusted at what I was watching. I was especially outraged after this past week and what the economy has gone through in the banking world.

WCVB TV was allowing a “paid advertiser”, a mortgage lender to promote various types of mortgage programs that brought the housing market to where it is today. I am absolutely disgusted with who ever is in charge of your programming, ethics and morals. Such programs as a 50 Year note, 40 Year note and even the Negative Amortization mortgages were being pushed along with a host of other mortgages that continue to get consumers in trouble. The paid advertiser was promoting taking cash out of your home and then moving to a video showing a couple in their overpriced speed boat. Your home is not a casino!

You have certainly witnessed as well as reported the news over the last few months of how foreclosures, bankruptcies and homeowners have lost their homes. Of course, you have seen the political race in the nation and how each candidate would like to go after fraudulent mortgage companies. Some of the main targets have been mortgages with pre-payment penalties, adjustable rate mortgages and of course loans with high costs to the borrower. This company was touting these products like George Foreman and his grill!

Do you actually care about the content of what you are airing or do you fall into the category of this type of Mortgage Company? By that I mean, “Let’s just take the money from them and who cares what happens after” mentality. I know your channel and newspaper both receive advertising dollars from many of the Alt A Lenders who put us in this mess, but yet your writers have the nerve to slam the big honest lenders?!?!?

I am not a writer or a political activist of any kind, but when something like this is so blatantly obvious of how it can affect the consumer, I must speak out. I have sent this to my local and statewide elected officials as well as many real estate professionals.


Sincerely,


William Nickerson
President
Emerson Lending Company
Acton MA 01720

Mortgage Rates Drop

This week in the mortgage market was another interesting one! Mortgage rates continue to improve and home prices are at a 2 to 3 year low. We saw the 30 year fixed rate drop to 6.25% today with 0 points. You do the math, this is the perfect time time to buy a home, and I mean any home! A new home, a vacation home, an investment property or even the condo for your kids while they are in school for a few years. More good news, no big banks went out of business today! Although, the day is not over yet.

The media loves to promote fear and we as consumers buy into every time. I have read more articles about how the sky is falling and the banking world is crumbling as we speak. Don't get me wrong, there is some unsettling news out there, but if we stick to basics as we once did, the mortgage world will be okay. If a rate sounds to good to be true, it is! Pre-payment penalties, Negative amortization, adjustable rate mortgages... these are all gimmicks to stretch your dollar. What happens when you stretch a dollar too much? It rips! I see too many buyers come in with the idea that they can grow into the payment after a few years?!?! Never thinking of the what ifs? Banks and Lenders have trimmed their product line, there is no more of the No document loans to 100%, jeez, I wonder why.... It will be harder for you to take cash out of your home up to 100% as well. And get this, we want to see that you have good credit. Remember, home ownership actually is a privilege and not a right. It is something we must all earn.

Here is the classic story you will see in the paper: A couple rents a house for $800 per month, all there bills are behind and they have no savings. They a buy a house and the mortgage payment is $2400 with taxes and insurance. I want you to think this through, if they can not afford there rent, how are they going to be able to afford this new mortgage payment? Not only do I blame the idiot loan officer for putting them in this position, but I have to blame the buyers as well. Imagine that dinner conversation: Honey, I know we can make it now, so why don't we just go for broke and really screw ourselves! Whatta Think?

We are always looking to point the fingers, it is never my fault! Stick to the basics! If you can not afford it, you can not afford it!

It is now more important than ever to have that proper pre-approval in hand. This is to be done before you look at homes! The last thing you need to do is to show up to the mortgage company with a signed offer in hand and you never checked your credit. Talk about stress! Now you are scrambling to find a mortgage product to fit your credit. Sometimes this can be a challenge.

If you have any questions about the mortgages or just the plain truth about what is going on in the market, give me a call any time or send me an email at bill@emersonlending.net

Check out our website at http://www.emersonlending.net/

As always, thank you for reading!

Bill Nickerson, President

Emerson Lending Company

179 Great Road

Acton MA 01720

978-264-4803