This coming November (2010), I will complete my 51st year as a mortgage banker, and as the old saying goes, “Nobody knows the trouble I’ve seen.” The last 10 years make the previous 41 pale in comparison. That statement seems hard to believe, as I remember business slowdowns/recessions of the past five decades:
►The Ohio usury law flare-up that put mortgage bankers out of business for weeks;
►The absolute and total absence of mortgage money in the mid 1970s (solved by the genius of Lewis Ranierri and his idea of mortgage-backed securities);
►De-regulation of the banks;
►The early 1980s when we made mortgage loans at 20 percent interest and more, and hoped and prayed that some day, rates would drop back to a more reasonable 12 percent;
►The savings and loan debacle; and
The examples above are just a few of the “opportunities” we faced, and you know what, we overcame each and every one of these crises.
Up until the mid- to late-1980s, we enjoyed at least a semblance of competency in business and political leadership. The erosion in quality of leadership, integrity and honesty seemed to creep in virtually unnoticed over the last decade or so. The recessions we faced were met with straightforward common sense, guided by “the law of the jungle.” There were no massive government bailouts full of graft and pork, no coddling of incompetent management, no changing of laws and regulations to justify shady dealings, and corporate CEOs who failed or were caught with their hands in the cookie jar were dismissed and they didn’t leave with million dollar bonuses for their inept failures!
I have always made it a point to be a cheerleader or a thorn in the side of our political leaders, depending on their needs. Looking back to the early 1970s and forward, and reviewing letters I have received from congressmen, governors and even a United States president show a clear picture of negative change. My files include personal responses from some who actually show they read my letters, from Sen. Joe Lieberman (who after a long and thoughtful response to my concern, reminded me, “I am not your Congressman”), Sens./Reps. Sherrod Brown (several letters), Ralph Regula, John Glenn, Jesse Helms (a very intelligent two-page letter), Rod Gram, George Voinovich and Ohio Gov. James Rhodes.
The last few years, the responses are basically boiler plate and most show they didn’t read or understand my concern … nevertheless, I continue the bombardment of letters to elected officials. Several of these men have verified that heavy incoming citizen concern on a particular subject does get their attention. The insanity of “sub-prime lending” is now being matched by new lending regulations/requirements, many of which are inconsistent, detrimental to borrowers, and create draconian penalties to lenders for errors that are easily made due to misunderstanding foggy and confusing rules. Wonder what would happen if we simply re-imposed common sense underwriting that served us well for most of the 20th Century?
At the time of application, the borrower is given a list of closing costs that accurately show what cash they will need at closing, the note interest rate is clearly stated (not an annual percentage rate that no one understands). A borrower must have a credit report that shows a history depicting both the ability and willingness to pay their obligations (the credit report is actually underwritten by an underwriter, and is not credit score-driven) actually obtaining a written verification of stable employment and showing income sufficient to service their mortgage and debt. The total mortgage payment would come to no more than 28-30 percent of their monthly household income, and total mortgage payment and total monthly debt payments would come to no more than 36-38 percent of their monthly income. In addition, they must verify actual cash in the bank available for downpayment. The cry would be loud and clear: “If you did this … no one could qualify for a mortgage!” Wrong … the borrower would now qualify for a mortgage they could handle! Instead of starting with a $250,000 home, they would have to buy a $180,000 home. That’s the way it worked when sanity prevailed.
Up to the mid- to late-1980s, our company had a mortgage servicing portfolio of about $125 million dollars and our delinquency ratio on any payments 30 days or more past due was always less than three percent. Today, the industry standard is 10 percent or more on delinquencies! The politicians and regulators are on a crusade … they are unapologetically on a mission to eliminate all but the banks and huge lenders from the business of mortgage lending. While the Mortgage Bankers Association (MBA) and National Association of Mortgage Brokers (NAMB) are fighting to preserve the industry as we know it, the changes already imposed have driven hundreds of small mortgage bankers and mortgage brokers out of business or into the arms of the banks. I know it seems like expectorating into the wind, but we must speak our minds, let the politicians and special interest groups know the huge mistakes that are now being made in our industry. E-mail every person you know who holds even a semblance of influence in our industry and clearly and honestly state your case! Those cards and letters must increase!
Canton, Ohio’s own Bill James, CMC is a mortgage banker, freelance journalist and 12-year monthly columnist for The Ohio Mortgage Press. He may be reached by e-mail at email@example.com.