My Prediction – A Case Study

It’s sorta like John McCain telling us ‘we may be in Iraq for 100 years,’ when you take data out of context, you can make it mean anything.

It’s like what one of our readers said to me a couple of days ago. He was an LO who left the business, similar to the stampede that entered during the Gold Rust days of the last cycle, but in the other direction. He’s considering jumping back into the industry, and asked me what I thought about that. He’s a pretty intelligent young man, he pointed out to me, he closely follows ‘The S&P/Case-Shiller® Home Price Indices’ who have reported the value of residential real estate held by households and non-profit organizations totaled US$ 22.4 trillion in 2006, so it’s real big. These indices capture and measure a vast and largely untapped U.S. housing asset class, and are designed to measure the change in the price of homes that have not undergone significant changes in quality. So, he strongly values them.

BTW, in April they reported Feb results, where there was a steep decline in values, and he said to me they’ve indicated the housing market will take something like ‘10 years to rebound.’ He’s also heard the secondary market is a real mess and his former friendly yet irresponsible non-conforming funding sources are all gone. Therefore I could hear in his voice, loud and clear, he’s worried about feeding his family!

Given that focus on two (2) seriously important factors, he’s scared to return to the residential real estate mortgage lending industry, as a self-employed mortgage broker. He’s not alone, I’m sure.

Now for my perspective today, yes I agree timing is vital and it looks like a moving target on the surface; in my view it’s not … consider these pieces of industry publication news and information:

In a blog posting I made two (2) weeks ago - http://americasmoneycenter.blogspot.com/2008/04/secondary-market.html#links - I pointed out, that contrary to what the press and more specifically industry publications seem to be focused upon, (between January 1st and March 31, 2008) there was $323,338.1 (in US $ Millons) securitized (that's well over a Quarter of a Trillion Dollars) in 'non-conforming' production! … so, NO the secondary market for non-conforming is not dead, it’s sick and yes a train wreck, but the end of the world is not at hand.

In June we had “Brokers Turning to FHA For Loans”: http://americasmoneycenter.net/phpBB2/viewtopic.php?t=1551

Then in August we saw “Brokers Migrate Back to Prime” http://americasmoneycenter.net/phpBB2/viewtopic.php?t=1574

We all intutitively know, mortgage bankers/ mortgage brokers and Loan Officers are skidish about where to turn, what to believe and which ‘guru’ to believe, given all I see myself, that surely doesn’t surprise me.

And let’s not forget the oft quoted ‘Bureau of Labor Statistics’ who tell us the overall industry is now down to 360,000 ‘Mortgage Bankers and Mortgage Brokers’ – even though HUD (inside it’s latest RESPA proposal says at year’s end we had more than 600,000 workers in the business). OK then who’s right? Consider this (use your own common sense) we both know there have been a lot of unlicensed originators working for net branches, etc., we also know the vast majority of employers (unlawfully in most cases) pay their LO’s via 1099 and not W-2, so both the Labor Dept and HUD stats simply couldn’t be correct, and in my opinion, not even close! BUT, yes a whole lot of people have left the indsutry; but I know you can lie with ‘real’ numbers and slant them to mean anything. So, yes lots are gone, we all agree that’s good for the biz, and more will come and go all the time, since that’s the nature of this business – say my 40+ years in it.

On, so now that I’ve ran far afield to provide you with several of my random thoughts on some of the circumstances of the industry today, and of course I read on the conforming side Fannie, Freddie, and the MI firms are clamping down hard as well (‘cause they’re supposed to be conservative!). Let me please say, you need to read a whole lot of industry publications to soak in the whole picture, which is in part some of what I’ve tried to do today for you (I’ve got another 10,000 words in my head about all of this, but too lazy to type them all out, and it would bore you to death anyway)!

Things are a mess, conforming will get uglier and stay tight for a little while, before they come to their senses (after being pressured by legislators soon to loosen up, and fulfill their Congressional mandate to be a viable secondary market for the Nation’s conforming lenders and ‘Stop Pushing Away Good Loans - http://americasmoneycenter.net/phpBB2/viewtopic.php?t=1709
), FHA will not be the end all of everyone’s subrpime dreams … and not nearly as wreckless as the last decade – more new subprime/non-conforming wholesalers will emerge THIS year and the bottom of the housing crisis will start to reverse THIS year.

You know that old saying of your father’s or your grand-father’s … “been there done that” – well, guess what? I’ve been there and done that, the punishment portion of this industry wide correction/cycle (just like the four I’ve been in the middle of) is coming to a close, and it’s on to the new paradigm way things will be done this pendulum swing in the opposite direction from the last cycle/swing.

So if you’re like this former LO I’m speaking about, or if you’ve stayed in the biz during these tough times, and you feel that you would be a credit to the industry to continue on Ethically with your career, then it is my pleasure to welcome you back, or to encourage you to stay.