Views Of The GFE 2010 or Did They Say GOOD Faith Estimate?

I suppose that depending on your position in the process of obtaining a mortgage there are many views that one can take with regard to the new Good Faith Estimate that came into effect 1/1/10. I thought it might be interesting to look at this excercise through the eyes of the different role players in this mortgage game.

Through the eyes of the Consumer:

The consumer is King or so I always thought. The consumer is confused, too confused to complain. The new GFE2010 disclosure, at the end of the day, does not give a line item detail of costs associated with obtaining a mortgage. The consumer has been given less information except for the addition of a yield spread premium (rebate), formerly used by honest brokers to offset the cost for the rate he would deliver. Now the consumer sees a disclosure with much higher costs. Yet the arithmetic ends up virtually the same albeit more confusing for the consumer. I as a consumer before this new disclosure would have seen on the old Good Faith Estimate a line by line detail of the broker's fees, the lender's fees, the appraiser, escrow and title. It showed who received the fees and it showed who paid them. Now the one thing that I can see coming out of this is that it'll make it harder to bait and switch the consumer at the last minute. Oh wait, this new GFE 2010 has a change of circumstance box, that can change the rate at the end of the transaction.

As a consumer, I want protection, not confusion. Whoever put this new GFE 2010 together just expanded what was 1 page into 4 pages that seems to tell me less.

Through the eyes of an escrow officer:

As an escrow agent, it's my job to reconcile the numbers and make sure that everyone gets credited and debited correctly on a real estate transaction. To do this I complete a HUD-1 which is a final closing statement. We're 3 months in to using the new and "improved" GFE 2010 and I have not been able to balance a HUD-1 correctly on the first try yet. Now we have these zero tolerance sections and 10% tolerance sections that need to balance. The lenders have me moving numbers around from credit to debit and from buyer to seller and vice versa. It is confusing me and I am a professional, at least I was. The lender gives us a Truth In Lending (TIL) and the broker gives us a GFE and I in turn reconcile the HUD-1. The strangest thing is that on the last purchase that I closed, the contract clearly showed that the seller was to pay the transfer tax and the Owner's Title policy, yet I was forced by the lender to charge this to the broker, because the broker did not disclose this amount to the borrower, who wasn't paying it anyways.

Boy, it used to be simpler then it is now. We knew who paid what and reflected as much on the closing statement. What used to take me 2 hours can now drag on 2 days, for the same fee.

Through the eyes of the lender:

Well, as the lender in today's mortgage industry, I am running scared. I don't want to cross the government, which has made life hell for us with over-regulation. Rather then policing the existing regulations which already adequately protected the consumer, they have installed themselves into our industry with red tape and more costs and no true understanding of process. Now I have to work with Big Government, so we're doing our best. First we had to change our system internally to make sure that we sell loans to Fannie and Freddie that comply with the new rules. We are now the compliance cops because we are making these loans to the consumer but selling to the GSE's (Government Sanctioned Enterprises). Our customer service has suffered because of our own confusion. This new format has specific instructions from RESPA (Real Estate Settlement Protection Act), that I can clearly see are wrong and yet I have to comply or Fannie and Freddie won't buy the loans. Too much Government. That's what I see.

Through the eyes of the Government:

Our economy has been slaughtered by the real estate market. Behind the real estate market is the financing of real estate. Residentially speaking the consumer was a lamb being led to slaughter. We the government don't make mistakes, so we must find those fallible dark areas and bring them to light. It was not we the government who implemented such a loosening of the credit strings that started this avalanche. Our recent socialist views of housing for everyone with no risk to them and don't forget the Healthcare plan we just shoved up your asses. Sorry, as the government I shouldn't have phrased it so honestly. My apologies. But back to the point, we as the government must appear to be working, so we have brought about the HVCC (Home Valuation Code of Conduct), which really helped ruin a few carreers. Oops sorry again for actually lowering the quality of the product, while getting a few of our buddies paid as Appraisal Management Companies er, unnecessary middlemen. We, the government are excited about the new MDIA (Mortgage Disclosure Improvement Act) set forth by our guys at HUD through RESPA. That's been stealth like in our approach.

Here, we've improved the disclosure process that the broker must use on the consumer. It's 4 pages now instead of 1. And it totals everything up now. See this big number. That's the number that matters. You don't really need to know how we got there and who got paid what. We didn't want to confuse you with our political words or twists, so we added pages and spread out less information. Oh yeah now we've taken the broker's rebate income from him and gave it to you. That's why the number is so big now. The broker used to disclose this to you, but since it was so easy to hide, we took it away rather then cap it. We didn't realize it until it was too late, but the lenders already capped the rebate so the consumer didn't get too screwed. The fact is, us government types don't like the working stiffs. We like big banks. They pay us alot of money. We really didn't feel the need to regulate the banks as heavily as the brokers. We've spent alot of taxpayer money trying to figure out all these new regulations rather then enforcing existing rules. We, the government need to continue to figure out how best to justify why we're here. We'll get more involved and coninue making non-sensical laws. That justifies us.

We have perfected the process of making imperfect systems less perfect or more imperfect, politically speaking. However you want to twist it!

And finally through the eyes of a broker:

I certainly understand that there are bad brokers out there that take advantage of their client. But I always gave full disclosure of all fees that a borrower paid to obtain a mortgage on our previous Good Faith Estimate. A line by line detailed cost breakdown was important to my client. It also included the rebate paid by a wholesale lender that was formerly broker compensation. This rebate was a negative fee that related to a higher rate. So if I offered my client a higher rate then I would receive a bigger rebate. A simple rebate cap enforced by the lender would have put a big dent in abuse of the client.

Instead now I must fill out all of the same fees as before using a GFE 2010. My problem is that it doesn't break fees down line by line. Now, even if I initially pay my credit reporting vendor for a client's credit report, I cannot collect from the borrower. It doesn't make sense. This is a hard cost for obtaining a loan and I can't collect it from the client. Now it must show that the Lender's fee is paid by the broker and now the broker must collect from the borrower. Even though the client is paying the lender, it must show as though the broker collects and pays as a pass through. Why? This serves no purpose except to appear as though the broker is charging more fees, even though its the lender making that money.

And the worst travesty of the new GFE 2010 is RESPA's insistance that even if a borrower is NOT paying for a service, it must be disclosed. This makes my blood boil. Even if it stipulates in a purchase contract that a seller is paying for transfer tax and an Owner's title policy, it must be disclosed on the GFE to the borrower. In California, for instance, these fees are typically paid by the seller. HUD is actually penalizing the broker for not disclosing these fees paid by the SELLER to the buyer. How does this make sense? If these non borrower fees are not on the GFE 2010 then the money is debited from the broker's hard earned commission. They are forcing the seller to breach a purchase contract, This is wrong.

The end result is a continuing unfriendly atmosphere for the broker, even though in almost every comparison, the broker is a less expensive way for the consumer to get a loan then going to a Bank. The banks don't have the same disclosures and thus mask their fees and charge more.

If you're a consumer, shop around. If you're a broker, we need to change this! If you're a lender, good luck with the politics. If you're a lawmaker, shame on you, why don't you actually put the people first?

Can't wait to see New Generation Lending get up and running. Fair prices, new programs, common sense and no government involvement. Contact us with questions.

This was worth posting again. Short sale profits for One West Bank

So Who's Short On A Short Sale

As a mortgage broker in Southern California I have, of course been hired to do short sale financing. There are certain hot spots for this activity. Like the Inland Empire for instance. They built alot of new homes, the prices climbed, the flippers flipped, and the buyers bought, using no income qualifying and 100% loans to value. Well we all know how that house of cards came tumbling down.


But are we aware of what has been left in its wake? The loan modifications are failing a high percentage of the time, because the borrower still isn't making the money that he or his broker put down on that loan application to buy the house. Foreclosures that have been going on for 2 years, with the borrowers still living in the house for free rent because the banks can't follow through on the volume of foreclosures. And then there are the short sales!


Opportunity raised its ugly head on short sales. Companies such as One West have taken over the assets of lenders such as IndyMac. Well this raises a big disconnect in the system. Whereas the lenders that originally made loans or serviced a loan would be familiar enough with the loan process so as to understand the timing of today's loan process. With regard to the short sale process, ultimately a negotiator from the current holder of the mortgage note will say yes or no to the short offer. Getting the paperwork to the right negotiator in this process can take months.


But, alas, we have a negotiator's approval to proceed. It took 4 months and yay, its approved. Now you can truly start your loan process. By the way, you only have 24 days to close. Nevermind that the borrower's information is 4 months old. Update the loan package, which by the way is the same as starting over. Here's why I say there's a disconnect in the system; there have been times when a loan could be completed in 24 days, but so many layers have been added to this process. A non-lender has a tough time understanding the added time elements. The companies that have bought these non-performing (and by the way, can't lose) assets are not traditional lenders. They are the Pirhana that swim around waiting for these opportunities. (more on this later) 

So from the beginning of the loan process, once the negotiator says yes, there is unnecessary pressure from the listing agent and the selling agent and the escrow company and supposedly the selling bank (the New Pirhana Bank of the US). The broker or lender faced with the a "short" time frame is under pressure for what reason? Do any of the above believe that the lender wouldn't want to work as quickly as possible? 

So here's the point, if the same lenders that made the loans in the first place agree to a short sale price, then that lender should understand the loan process, if they are still doing loans. They would quite normally give a short sale purchase contract enough time to complete the deal. On every short sale I've financed, I have heard the agent and then escrow say "it has to close by this date or the deal's dead." Rarely, there is a per diem but this makes more sense if the selling bank wants the transaction closed by a certain date. If a per diem is charged, it simply makes more sense then cancelling and starting over again.

The bottom line is, who needs the pressure? If the transaction is completed successfully and it takes a comfortable 45 days, that's a good thing. Set the selling bank straight from the beginning of the transaction on realistic timing. I just had a new deal open and the selling lender has given 21 days to close or there is a per diem charge. Nevermind that it took more then 5 months to get a yes answer. They're looney. 

Now for the other side of the coin. Suppose Pirhanna Bank of the US just purchased a portfolio of non-performing loans. They're foreclosing on these homes and they've been oferred a short sale arrangement on some of these properties. Actually, this is what they prefer because they aren't going to incur the cost of the foreclosure. The Pirhannas can't lose. Here's why. They buy the asset for $.30 on the $1. Thirty percent. Say they pay $60K for a property whose note is $200K. They short sale the proerty for $120K. They have now doubled their money, but they're not done. They are then going to collect the other $80K write down (the loss difference between $200K and $120K) from the Government. This accounts against the entire $200K, which means they just pocketed a total of $140K. Ahhh, the American dream. The guys with the money just walked in, bought a property for $60 and walked away with $140K, including $80K paid for by the taxpayers. 

Folks, this is whats happening out there. Not to mention short sale fraud by realtors that write low ball offers with assignee clauses to lock down a price and then bring in a real buyer. These are just remnants of the wasteland that was once the driving force of the US economy.

The lending industry needs a change. New Generation Lending, upon proper capitalization will take positive steps to stabilize the mortgage industry once again.

IndyMac Fiasco

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.