I saw this nice little pieced the other day, about the cyclical nature of the industry and the correction we're experiencing - albeit it gently instead of crashing as I had predicted in several articles written for our newsletters and posted in several industry discussion boards earlier this year:
"The National Association of Realtors joins Alan Greenspan in saying "we think housing has now hit bottom." Why do they think it has hit bottom already? What kind of bottom is it that is less than 2% below the all-time high? What kind of world is that allows consumers, homeowners and speculators to go on the biggest, debt-fueled binge of all time pushing up housing so much that the typical house went up more than 50% in the last five years, and permitting Americans to 'take out' $1.3 trillion from their houses over a two-year period and then, when the bubble finally pops, punishes them with a decline of less than 2%? The median house in August was worth precisely 1.7% less than it was worth the year before." There's a definate sarcastic tone to this writers comment - but he's hit it right on the nose in my view!
The pendulum swong in the direction of hyper-inflation for residential real property values and at the same time mortgage interest rates took a nose-dive to all-time historical lows, while wholesale funding sources - on a greed binge - offered ever more reckless loan products (called "exotics"), all resulted in residential mortgage lending industry employments numbers to soar with hundreds of thousands of new commissioned salesmen, to well over 500,000, primarily being driven by the opportunity to make a lot of money (unlike previous cycles which attracted new people who were far more career minded), and therefore placing their own interests before those of their own customers; the net branch paradigm grew from nowhere to more than 20% of industry employed people (in my opinion), most with no investment in their branch or career, and all poking around in the unlicensed and unsupervised darkness, brutalizing one customer after another as they learned (from their kitchen table) by delivering punishing mistakes to customer dreams, time and time again. Results? A real mess. Loads of income earned by commissioned sales-types, a mega number of homeowners punished due to listening to many of them and accepting loan products offered which neither the loan officer nor the borrower understood - even though the borrowers thought their loan officer knew his/her own loan products (what they really understood was how to influence borrowers to selected the loan type that made them the most commisisons in far too many cases - can you say STATED/MARGIN/YSP?).
As this pendulum now swings back the other way, we're seeing home property values sinking and rates climbing. This is the fourth cycle I have seen, the early casualties tend to be those larger firms that grew the most during this period - they've had/have large overhead expenses - and now with production numbers sinking - they choke first.
The more nimble loan officers/mortgage brokers - who during this period did all they could not to invest in their own companies (as they should have), but instead withdrew the income out of the biz and plopped it into their own payroll; so today they continue to work out of their homes (sometimes in their jammies with bunny feet still attached) with little or no commercial business expenses or overhead (or assets either). They'll hang on the longest hoping the correction will be short lived, it won't ... it's gonna run a few years in this reversed direction, heading back to a more normal reality unlike the last 8 years or so of easy-times.
One early casualty NetBank Inc. sold $8.5 billion in mortgage servicing rights, according to an announcement Friday. The rights represented the majority of the company's MSRs. A more significant victim 'ECC Capital Corp' announced it will sell certain operating asset to Bear Stearns Residential Mortgage Corp. The assets are those used in ECC's subprime wholesale mortgage unit (Encore Credit). Bear was both warehousing and buying loans from the non-depository subprime firm. Sometime in the past there were loan "buyback" issues between the two parties, but a spokeswoman for Bear has said the matter was settled long ago. Golden West Financial, parent of World Savings, one of the last of the Savings & Loans -- and a payment-option ARM giant -- has been swallowed up by Wachovia Corp. Late this past week, Centex, which recently sold its subprime unit, reported a 28% drop in orders and a huge uptick in home purchase cancellations. Two more subprime firms going ... Morgan Stanley initiated coverage of Accredited Home Lenders, calling the subprime company an "underweight." Accredited recently saw its loan buyback requests surge. Morgan, of course, is in the process of buying Saxon Capital, which is also a subprime funder.
These are merely a small handful of what's to come, I predict probably another 2 dozen wholesale funding sources will be gone before end of the first quarter 2007; plus another 100,000 LO's and Brokers will also be gone.
"The National Association of Realtors joins Alan Greenspan in saying "we think housing has now hit bottom." Why do they think it has hit bottom already? What kind of bottom is it that is less than 2% below the all-time high? What kind of world is that allows consumers, homeowners and speculators to go on the biggest, debt-fueled binge of all time pushing up housing so much that the typical house went up more than 50% in the last five years, and permitting Americans to 'take out' $1.3 trillion from their houses over a two-year period and then, when the bubble finally pops, punishes them with a decline of less than 2%? The median house in August was worth precisely 1.7% less than it was worth the year before." There's a definate sarcastic tone to this writers comment - but he's hit it right on the nose in my view!
The pendulum swong in the direction of hyper-inflation for residential real property values and at the same time mortgage interest rates took a nose-dive to all-time historical lows, while wholesale funding sources - on a greed binge - offered ever more reckless loan products (called "exotics"), all resulted in residential mortgage lending industry employments numbers to soar with hundreds of thousands of new commissioned salesmen, to well over 500,000, primarily being driven by the opportunity to make a lot of money (unlike previous cycles which attracted new people who were far more career minded), and therefore placing their own interests before those of their own customers; the net branch paradigm grew from nowhere to more than 20% of industry employed people (in my opinion), most with no investment in their branch or career, and all poking around in the unlicensed and unsupervised darkness, brutalizing one customer after another as they learned (from their kitchen table) by delivering punishing mistakes to customer dreams, time and time again. Results? A real mess. Loads of income earned by commissioned sales-types, a mega number of homeowners punished due to listening to many of them and accepting loan products offered which neither the loan officer nor the borrower understood - even though the borrowers thought their loan officer knew his/her own loan products (what they really understood was how to influence borrowers to selected the loan type that made them the most commisisons in far too many cases - can you say STATED/MARGIN/YSP?).
As this pendulum now swings back the other way, we're seeing home property values sinking and rates climbing. This is the fourth cycle I have seen, the early casualties tend to be those larger firms that grew the most during this period - they've had/have large overhead expenses - and now with production numbers sinking - they choke first.
The more nimble loan officers/mortgage brokers - who during this period did all they could not to invest in their own companies (as they should have), but instead withdrew the income out of the biz and plopped it into their own payroll; so today they continue to work out of their homes (sometimes in their jammies with bunny feet still attached) with little or no commercial business expenses or overhead (or assets either). They'll hang on the longest hoping the correction will be short lived, it won't ... it's gonna run a few years in this reversed direction, heading back to a more normal reality unlike the last 8 years or so of easy-times.
One early casualty NetBank Inc. sold $8.5 billion in mortgage servicing rights, according to an announcement Friday. The rights represented the majority of the company's MSRs. A more significant victim 'ECC Capital Corp' announced it will sell certain operating asset to Bear Stearns Residential Mortgage Corp. The assets are those used in ECC's subprime wholesale mortgage unit (Encore Credit). Bear was both warehousing and buying loans from the non-depository subprime firm. Sometime in the past there were loan "buyback" issues between the two parties, but a spokeswoman for Bear has said the matter was settled long ago. Golden West Financial, parent of World Savings, one of the last of the Savings & Loans -- and a payment-option ARM giant -- has been swallowed up by Wachovia Corp. Late this past week, Centex, which recently sold its subprime unit, reported a 28% drop in orders and a huge uptick in home purchase cancellations. Two more subprime firms going ... Morgan Stanley initiated coverage of Accredited Home Lenders, calling the subprime company an "underweight." Accredited recently saw its loan buyback requests surge. Morgan, of course, is in the process of buying Saxon Capital, which is also a subprime funder.
These are merely a small handful of what's to come, I predict probably another 2 dozen wholesale funding sources will be gone before end of the first quarter 2007; plus another 100,000 LO's and Brokers will also be gone.
posted by Secret! at 12:09 PM
0 Comments:
Post a Comment
<< Home