Can We Just Shoot The Dog?

New Generation Lending was conceived about 6 months ago based on the fact that our government is too involved in every aspect of the mortgage industry. Even before the government actually comandeered Fannie Mae and Freddie Mac, their involvement was too much. I have actually felt this way for years because really, what's the difference between being a Government Sanctioned Enterprise (GSE) with preferential treatment or actually being run by the government? There is just too much opportunity for corruption. Heck, the Head of the Congressional Finance Committee had an affair with one of the head guys at Fannie Mae. And now he wants to dismantle them also. A lover scorned?

Don't get me wrong, we need regulation and oversight and we need to maintain fairness and equality when providing home loans to consumers. But that should be for protection of the consumer, not bailing out banks with consumer money because the government stepped in with "entitlement not rights" to own a home.

I am not surprised that sooner or later all of the finger pointing that has occured in the mortgage industry finally got around to the ultimate culprits. Fannie Mae was directed really with making sure that everyone, that means EVERYONE was able to own a home and a piece of the American Dream, whether they could afford it or not. The thing is that the push began with Lyndon Johnson and travelled through Jimmy Carter and got a final push from slick Willie Clinton. There was no fore-thought placed on the fact that if you continue to place debt behind debt, which is how Fannie Mae raises or recycles money, sooner or later, if you mix that concept with high risk loans, it will FAIL.

Owning a home is a right . It is not an entitlement.

If we go back to this way of thinking then we will make loans to people that will not take their home ownership lightly and will earn their right to ownership. Which, in turn will stabilize the housing market, which as we have now seen is a big part of our economy. $12 Trillion worth. Mortgages were originally conceived as long term investments amortized to make homes more affordable. Let's get this thing grounded again.

When Fannie Mae securitizes mortgage notes into bond issues and sells them to institutional investors, the money invested originates from the people and is placed in to the economy by the institutional investors (asset managers, pension funds, etc.). The people are also the taxpayers. Currently the taxpayers are at a loss of $111 Billion to bail Fannie Mae.

Now let's pretend that the government wasn't involved in this industry. If loans were made using private investment, through the same institutional investors with the same money from the people, then what has changed? We have just accomplished the same process without the government cost, red tape, debt and in -efficiency. For the investor there is a fair return. But the money cycle continues. We just can't make dumb loans.

The asset managers may say that they need the guarantees that the government provides. We saw how those guarantees worked. The banks are still being paid back for bad loans that they made, while being pushed by the government to turn a blind eye to risk. What a vicious cycle! I'm a firm believer that if the borrower is at risk (for their down payment or equity) then they will fight to keep what's theirs. 100% financing so EVERYONE can own a home was never going to work. Not for the lender and not for the consumer.

Fannie and Freddie are too cumbersome. They are a dying dog. Put them out of our misery.

Go ahead, shoot the dog. No more suffering. We need a New Generation!

Fannie Proving To Be A Loser

Shut Up Barney

House Of Cards

New Mortgage Industry System Needed

The current predominant mortgage industry system includes the US Government coming to the rescue of our banking system and the secondary mortgage market. Fannie Mae and Freddie Mac, as well as FHA dominate the secondary market. 

There is $12 Trillion in mortgage debt in the US. Fannie Mae and Freddie Mac own $5.3 Trillion of that. Yet their losses to date, have cost the taxpayer $111 Billion. We have bailed them only so far. There is more to come. This system is broken. Does it really make sense to put debt behind debt behind debt. Essentially that is what our mortgage backed securities market is doing. The derivatives or leftovers at the top of the upside down pyramid don't pay. Somebody got caught with their pants down and the taxpayer has to step in and provide cover.

What is wrong with this picture? Even Barney Frank who is Chairman of the House Finance Committee, and is nowhere near the top of my list for Congressman of the Month or Year or Decade, has called for the dismantelling of these behemoths' that are proving to be dinasaurs.

The fact is that what we need to do is develop a system that will provide stability over time.

• Do rates really need to jump around from minute to minute on mortgages?
• A better question might be does the trading of the securities 2 doors down (bonds and derivatives) from the mortgage note really need to affect the rate of the note?
• These notes are usually long term notes of 15 years or more unless the loan is special purpose or adjustable and short term.
• Don't lose the concept that we are actually borrowing from ourselves
• Shouldn't we adhere more to our own long term goals?
• Its time to employ an advocate for the people that will keep rates within reason and consistent.
• Separate the needs of the consumer that simply wants to purchase a home for the long term to live in from the borrower who is flipping for profit.
• We can advocate fair pricing for these homes by applying a reasonable ceiling or markup of value so a consumer isn't over paying for his home.
• The fees being charged while buying a home or refinancing a home have gone up because of the debt that Fannie and Freddie are paying back to the taxpayers. Its the same taxpayer paying these fees to pay themselves back. 

Are we getting the drift yet. The system is broken. We need to get this back into Private hands so that we have the control back.

New Generation Lending has the plan. We use common sense. In our status quo system the term "common sense" has been thrown out with the the baby's bathwater. I mentioned in a previous blog that I don't believe Sub prime loans were the culprit in our mortgage disaster. New Generation will offer a Sub prime loan program as well as stated income programs. But these loan programs must be offered with common sense underwriting criteria. New Generation Lending has proprietary underwriting guidelines ready to put to market. We are ready to revolutionize the mortgage industry.

If you'd like to hear more or discuss New Generation Lending in detail, please don't hesitate to connect.

Let's get it right.

The Current Mortgage Industry

I have been in the mortgage industry for 25 years. When I started, rates were 16.5%. Now rates are 5%. I lived with and through the real estate debacle in the late 80's and early 90's. The nightmare we are living through now however is the worst.



Alot of the problem now is the fingers pointing in the wrong direction and mis-information about the causes of our current predicament. One cannot broad stroke this blame on the Sub prime mortgage failure. I have worked both the retail (for the consumer) and wholesale (for the lender) sides of this business. Sub prime, by itself did not cause this. A new category of loan products evolved from greed and lack of fore-thought. Alternative "A" loan programs offered:

• 100% financing
• up to $1MM
• with 620 credit scores and
• Stated income (no income documentation).

On no level did it make sense to lend someone $1MM without a down payment when they didn't prove their income. This type of loan brought many opportunists into the market that flipped properties and profitted while they caused false ceilings on real estate values.

So if we isolate the main problem on these 2 reasons for failure, it becomes a little easier to make the right adjustments moving forward. Legislators have clumped it all together and called it a Sub prime mortgage failure. The fact is, we offered Sub prime loans for 30 years and before these new loan programs evolved into high risk insanity, they performed with certain consistency.

The fallout now includes:

• An appraisal ordering system that allows or invites low quality cut rate appraisals that stunt growth
• Banks that have tightened credit which also stunts growth
• Banks that have received bailout money from taxpayers
• Government bailouts and takeovers of the previously government sanctioned secondary mortgage market monsters Fannie Mae and Freddie Mac
• $111 Billion to date to Fannie from Taxpayers
• Rates are low, Fees are high
• A realization that the Mortgage Industry needed a makeover.
• Blame for this horrible Financial Time should include EVERYONE that was involved.
• People who would like to own a home again or for the first time, stuck on the sidelines
• A real need for fresh ideas

I have gathered some good people together and its really time for a Mortgage Revolution. We are looking to implement new and fresh answers to making loans which make sense. New Generation Lending is a wholesale lending company that will use their own proprietary guidelines. We are a start-up with the answers that will make us an Industry Transforming Legacy.

A friend of mine suggested that people are always looking for something out here in the keyword universe. Maybe one of you who reads this will know someone that would like to be a part of the replacement for Fannie Mae.

We are looking to change the industry with private equity investment in our intact Mortgage Pool Offering which will deliver the lowest Prepay Risk in the MBS market due to our proprietary risk management and servicing abilities. So, if you're in the mortgage business and would like to make a difference starting something new or if you're an investor that wants big returns, look me up.