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OTS Opines That Federally-Chartered Thrifts and Their Operating Subsidiaries are Exempt From Georgia and New York High-Cost Loan Laws

May 31, 2004

Enduring the Winds of ChangeAnthony O. KellumRESPA reform, market changes, paradigm shift, sub-prime lending, To everything there is a season ... and a time to every purpose under heaven. --Ecclesiastes 3:1 It seemed the horses always knew first. Strangely void of their carefree gait, the thick summer breeze and slow-motion silence must have unveiled the secrets of the coming wrath. Long before midnight, blue clouds rolled thick atop southern trees, and every animal in sight with a God-given sixth sense, stood perfectly still. Anticipating the fury that would soon rain down, even in ethereal silence, they knew somehow that the storm was coming, and coming quick. By the time mere humans knew what hit my grandfathers farmhouse, all that remained was a perfect row of empty shoes beneath the kitchen table. Oblivious to all warning, five sets of shoes were still neatly tied; yet vacant in the twinkling of an eye as men flew across the room, thrust by one single bolt of lightning. Thankfully, most of us have been spared such shock of sudden change. Let us congratulate our industry analysts and annual predictions. From the first time mortgage brokers heard the mere rumor of an industry slow down, the whisper of RESPA reform, or the day we watched Wall Street monuments crumble before our very eyes, the portent of radical change was well told. Our forced evolution, though no less painful, should now be a systematic tightening of our belts as the wise man has mandated a survival regimen to become more lean, and focused in purpose. The Way We Were In amazement, I reflect upon my start as a naive broker just 10 years ago, when American dreams sat high atop rolling hills, resting in the sure win of a pension, 401(k), mutual funds, technology, and economic staples like the auto industry or utility companies. However, such confidence has been replaced with late-night sales pitches: Find your safety net. Call today to start your own home-based business! Though once unscathed as pristine snow, the borrowers of 2004 have endured the wounds of economic warfare. The trust we held is all but gone. Post-Sept. 11, post-WorldComm, Enron and K-Mart, the search for the predatory lender and legislation to end cold-calling & how can both broker and borrower do anything but evolve. As 30-year-old sons work beside their 65-year-old fathers in a quest for more overtime, America--to say the least--has changed. Gone are the days of innocence when trusting borrowers relied in full confidence on the mortgage expert with all of the answers. After three to four refis per household, and a barrage of warnings of mortgage predators armed with pens, brokers have been forced to be at the top of their profession even more. A business owner could once trust a new employee to handle valuable clients, yet now uncertainty compels us to hold the hand of the unknown element a bit tighter, and watch closer and a bit longer. Compared to days bygone, today I feel an underlying sense that brokers work daily to redeem their name and prove that they are worthy to again receive that innocent, pure trust. Will the party continue? I doubt it. --NAMB Past President Joseph Falk With these succinct words, therein rests the whole truth of the matter. As the music fades, however, we dont want the dance to end. As we launch headlong into this new year, its safe to say weve heard it all. The prophets of doom all say loan volume will "tank" in 2004. In contrast are the eternal optimists who predict we will prance forever on our yellow brick road to eternal originations and high property values. I believe the truth lies somewhere in between. Without question, tomorrow will bring business opportunity for the early riser. And, as every ounce of life is inevitably drained from the refinance well, what remains will be the next pool of emerging first-time home buyers. One local Sunday real estate section reads Now you can afford a new house--payments from $605 per month. Such hope is the ripe fruit of the low interest rates that have saved industry veterans and will create a generation of new dream owners. Submerged in the Sub-Prime Waters According to National Mortgage News, its not a matter of if, but rather when the downturn comes; when the conventional refis slow, sub-prime will gain space in the market share pit. When a production downturn does come, sub-prime funders will weather the storm much better than their conventional counterparts. Conventional counterparts are now faced with the torn survivors of one of the worst stock shocks and job markets in American history. As laid-off fathers struggle to make new mortgage payments, in the natural course of cause-and-effect, job loss creates bruised credit, and bruised credit evolves into a class of the reluctant sub-prime borrower. Those who were foreign to the shame of 30 days late have been pushed to cross the forbidden line by underemployment, and are now submerged in foreign sub-prime waters. As they have tread water to remain afloat, for many victims of the market crash and lost pensions, the foundation of homeownership is their only refuge. Statistics show that sub-prime lenders funded a record $241 billion in home mortgages in 2002, a gain of 33 percent in one year. Many predict an upward trend will continue. Many years ago, I plainly remember the disdain and dismissal of lenders and brokers dealing with those loans. Survival says its time to wake up and broaden our horizons. To Everything There Is a Season Our industry is experiencing a correction, with pay scales out of balance and astronomical commissions that are cost-prohibitive for small business owners. Mortgage brokers, though commonly tied through the bonds of intimate family-style business, must mirror the trimming of excess that every other American industry has already embraced. There are some roads upon which we turn, and others that turn on us. As mortgage brokers trim their payrolls monthly, the bitter reality is that small business must make the hard choices in order to stay alive. We will either be the victors, or casualties, of war. In spite of it all, the long-term outlook remains largely optimistic. With decreasing unemployment and tentative consumer confidence, we seem to be clinging on for growth. But let us not be those who can discern the direction of the wind and tide, but cannot discern the signs of this time. We must face the fact that we are now, and will always be, evolving. Whether through new legislation, interest rate fluctuation, unemployment or a slow housing market, we are all irrevocably transformed by the events that surround us. A prudent man foresees calamity and girds himself. The storm survivors are those who are diligent to find an anchor and embrace it. They are the swaying arched southern trees that dust the ground yet never break. Ultimately, this is our time to survive, and soon rise again. Anthony O. Kellum is Chair of the National Association of Mortgage Brokers Affordable Housing Committee and Immediate Past President of the Michigan Mortgage Brokers Association. He may be reached by phone at (888) 4-KELLUM, or e-mail [email protected].
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