Thursday, December 22, 2011

Happy Holidays!


It’s hard to believe we are in the midst of the holiday season. As you begin travelling in the coming days, I would like to wish you all a safe and very happy holidays! I hope this season is filled with all that brings you joy and makes this such a wonderful time of year. More than anything, I am looking forward to focusing on what bring me the most joy: family. Here’s to you and yours; may you have a great holiday season and a prosperous new year!

Friday, December 9, 2011

Part 2: The Enterprise Lending Solution (ELS)

To recap Part 1 of the LOS vs ELS series, I took a look at what has historically been recognized as the LOS. Overpromises of an end-to-end solution offering the flexibility lenders needed, while under-delivering technology that was mediocre at best – that is – if the implementation even got the client off the ground.

With lenders catching on to the false promises of LOS providers, it was clear they needed to look for something different. Enter the ELS, a term coined by Mortgage Cadence in 2005. The Enterprise Lending Solution was created through not only hearing, but understanding, the cries for help within the industry. Lenders didn't need a system to simply store their loans - they needed a system that allowed each person involved in the lifecycle of a loan to immediately access that loan at the appropriate time, in a manner that was efficient, and in a way that reduced the risk of manual errors.

What did all of this mean for the ELS? The ELS needed to replace the disparate systems and create one, consolidated solution. It also meant that a workflow engine needed to be put in place allowing the creation of rules to drive tasks and manage the loan process with as little human intervention as possible. No longer would users have to re-input data between systems and risk manual data-entry errors. The efficiency gains and return on investment were enough to convince many forward-thinking lenders to take a chance, since what they were doing was not working. The results speak for itself:case studies showing 30% efficiency gains and cost savings in the millions over the first few years.

However, you will notice I have been speaking in the past tense. The ELS was introduced to the marketplace in 2005 with great success. The buzz word caught on and became almost synonymous with "LOS" as technology providers sought to ride the "ELS Wave", diluting the term. Where are we today and what does the future look like as the mortgage industry rebuilds? Stay tuned to find out.

Tuesday, November 29, 2011

Economic Outlook: Nearly 90 Bank Failures This Year

At first glance, the list below speaks for itself; if you were to tally up the total number of bank failures in 2011 alone, you would end up with a whopping 87 failed banks. But this is not the full story. Take a closer look at the list. Note that the majority of these are small, community banks. These are the ones hurting most and being forced to shut their doors. What gives? For one, the sheer volume of underwater loans has skyrocketed over the past few years. Add to this the lack of assistance from the FED, and you’ve created a recipe for disaster for these smaller players. However, if the past few years have taught us anything, it’s that many things have been swept under the rug and left for the critics to piece back together, so I’d like to open the floor and ask you: what do you believe is the cause for the bank failures this year?

November
1. Central Progressive Bank, Lacombe, LA
2. Polk County Bank, Johnston, IA
3. Community Bank of Rockmart, Rockmart, GA
4. SunFirst Bank, Saint George, UT
5. Mid City Bank, Inc., Omaha, NE

October
6. All American Bank, Des Plaines, IL
7. Community Banks of Colorado, Greenwood Village, CO
8. Community Capital Bank, Jonesboro, GA
9. Decatur First Bank, Decatur, GA
10. Old Harbor Bank, Clearwater, FL
11. Country Bank, Aledo, IL
12. First State Bank, Cranford, NJ
13. Blue Ridge Savings Bank, Inc., Asheville, NC
14. Piedmont Community Bank, Gray, GA
15. Sun Security Bank, Ellington, MO
16. The RiverBank, Wyoming, MN

September
17. First International Bank, Plano, TX
18. Citizens Bank of Northern California, Nevada City, CA
19. Bank of the Commonwealth, Norfolk, VA
20. The First National Bank Of Florida, Milton, FL
21. CreekSide Bank, Woodstock, GA
22. Patriot Bank of Georgia, Cumming, GA

August
23. First Choice Bank, Geneva, IL
24. First Southern National Bank, Statesboro, GA
25. Lydian Private Bank, Palm Beach, FL, including its division Virtual Bank
26. Public Savings Bank, Huntingdon Valley, PA
27. The First National Bank of Olathe, Olathe, KS
28. Bank of Whitman, Colfax, WA
29. Bank of Shorewood, Shorewood, IL

July
30. Integra Bank National Association, Evansville, IN
31. BankMeridian, N.A., Columbia, SC
32. Virginia Business Bank, Richmond, VA
33. Bank of Choice, Greeley, CO
34. LandMark Bank of Florida, Sarasota, FL
35. Southshore Community Bank, Apollo Beach, FL
36. Summit Bank, Prescott, AZ
37. First Peoples Bank, Port St. Lucie, FL
38. High Trust Bank, Stockbridge, GA
39. One Georgia Bank, Atlanta, GA
40. Signature Bank, Windsor, CO
41. Colorado Capital Bank, Castle Rock, CO
42. First Chicago Bank & Trust, Chicago, IL

June
43. Mountain Heritage Bank, Clayton, GA
44. First Commercial Bank of Tampa Bay, Tampa, FL
45. McIntosh State Bank, Jackson, GA
46. Atlantic Bank and Trust, Charleston, SC

May
47. First Heritage Bank, Snohomish, WA
48. Summit Banking Company, Burlington, WA
49. First Georgia Banking Company, Franklin, GA
50. Atlantic Southern Bank, Macon, GA
51. Coastal Bank, Cocoa Beach, FL

April
52. Community Central Bank, Mount Clemens, MI
53. The Park Avenue Bank, Valdosta, GA
54. First Choice Community Bank, Dallas, GA
55. Cortez Community Bank, Brooksville, FL
56. First National Bank of Central Florida, Winter Park, FL
57. Heritage Banking Group, Carthage, MS
58. Rosemount National Bank, Rosemount, MN
59. Superior Bank, Birmingham, AL
60. Nexity Bank, Birmingham, AL
61. New Horizons Bank, East Ellijay, GA
62. Bartow County Bank, Cartersville, GA
63. Nevada Commerce Bank, Las Vegas, NV
64. Western Springs National Bank and Trust, Western Springs, IL

March
65. The Bank of Commerce, Wood Dale, IL
66. Legacy Bank, Milwaukee, WI The First National Bank of Davis, Davis, OK

February
67. Valley Community Bank, St. Charles, IL
68. San Luis Trust Bank, FSB, San Luis Obispo, CA
69. Charter Oak Bank, Napa, CA
70. Citizens Bank of Effingham, Springfield, GA
71. Habersham Bank, Clarkesville, GA
72. Canyon National Bank, Palm Springs, CA
73. Badger State Bank, Cassville, WI Peoples State Bank, Hamtramck, MI
74. Sunshine State Community Bank, Port Orange, FL
75. Community First Bank Chicago, Chicago, IL
76. North Georgia Bank, Watkinsville, GA
77. American Trust Bank, Roswell, GA

January
78. First Community Bank, Taos, NM
79. FirsTier Bank, Louisville, CO Evergreen State Bank, Stoughton, WI
80. The First State Bank, Camargo, OK
81. United Western Bank, Denver, CO
82. The Bank of Asheville, Asheville, NC
83. CommunitySouth Bank & Trust, Easley, SC
84. Enterprise Banking Company, McDonough, GA
85. Oglethorpe Bank, Brunswick, GA
86. Legacy Bank, Scottsdale, AZ
87. First Commercial Bank of Florida, Orlando, FL

*List obtained from the FDIC: http://www.fdic.gov/bank/historical/bank/index.html

Wednesday, November 23, 2011

Happy Thanksgiving!

As we enter this holiday season, I have never been more thankful for my family and close friends. Over the years, I have had an incredible support system, and I cannot think of any greater gift than to have those I love unwaveringly by my side. I am also thankful for my freedom and the veterans that have made that possible. However, we must not forget that we still need to be critical of the system running our country and not stand idly by as our country’s stability continues to waver. I invite you to express what you are most thankful for in the comments below and what Thanksgiving means to you.

Warm Wishes!

Monday, November 21, 2011

Paul Sperry on the Government's Tie to the Housing Crisis

Below is a recent story from Investor’s Business Daily written by investigative journalist and my friend, Paul Sperry. As you may remember, he was the keynote speaker at the Mortgage Cadence Ascent user conference this past April and is always willing to share his unwavering opinions on governmental interference within the financial industry and our country as a whole. In this article, Sperry argues that the government fabricated the notion of abusive lending practices related to minority discrimination. As a result, the banks were forced to abide by the new laws or risk being shut down. Ultimately, I believe that excessive government intervention is the biggest problem facing our country today. What is your opinion on the source of the housing crisis? Share your thoughts in the comments below.



President Obama says the Occupy Wall Street protests show a "broad-based frustration" among Americans with the financial sector, which continues to kick against regulatory reforms three years after the financial crisis.

"You're seeing some of the same folks who acted irresponsibly trying to fight efforts to crack down on the abusive practices that got us into this in the first place," he complained earlier this month.

But what if government encouraged, even invented, those "abusive practices"?

Rewind to 1994. That year, the federal government declared war on an enemy — the racist lender — who officials claimed was to blame for differences in homeownership rate, and launched what would prove the costliest social crusade in U.S. history.

At President Clinton's direction, no fewer than 10 federal agencies issued a chilling ultimatum to banks and mortgage lenders to ease credit for lower-income minorities or face investigations for lending discrimination and suffer the related adverse publicity. They also were threatened with denial of access to the all-important secondary mortgage market and stiff fines, along with other penalties.

Bubble? Regulators Blew It
The threat was codified in a 20-page "Policy Statement on Discrimination in Lending" and entered into the Federal Register on April 15, 1994, by the Interagency Task Force on Fair Lending. Clinton set up the little-known body to coordinate an unprecedented crackdown on alleged bank redlining.

The edict — completely overlooked by the Financial Crisis Inquiry Commission and the mainstream media — was signed by then-HUD Secretary Henry Cisneros, Attorney General Janet Reno, Comptroller of the Currency Eugene Ludwig and Federal Reserve Chairman Alan Greenspan, along with the heads of six other financial regulatory agencies.

"The agencies will not tolerate lending discrimination in any form," the document warned financial institutions.

Ludwig at the time stated the ruling would be used by the agen cies as a fair-lending enforcement "tool," and would apply to "all lenders" — including banks and thrifts, credit unions, mortgage brokers and finance companies.

The unusual full-court press was predicated on a Boston Fed study showing mortgage lenders rejecting blacks and Hispanics in greater proportion than whites. The author of the 1992 study, hired by the Clinton White House, claimed it was racial "discrimination." But it was simply good underwriting.

It took private analysts, as well as at least one FDIC economist, little time to determine the Boston Fed study was terminally flawed. In addition to finding embarrassing mistakes in the data, they concluded that more relevant measures of a borrower's credit history — such as past delinquencies and whether the borrower met lenders credit standards — explained the gap in lending between whites and blacks, who on average had poorer credit and higher defaults.

The study did not take into account a host of other relevant data factoring into denials, including applicants' net worth, debt burden and employment record. Other variables, such as the size of down payments and the amount of the loans sought to the value of the property being bought, also were left out of the analysis. It also failed to consider whether the borrower submitted information that could not be verified, the presence of a cosigner and even the loan amount.

When these missing data were factored in, it became clear that the rejection rates were based on legitimate business decisions, not racism.

Still, the study was used to support a wholesale abandonment of traditional underwriting standards — the root cause of the mortgage crisis.

For the first time, Washington's bank regulators put racial lending at the top of their checklist. Banks that failed to throw open their lending windows to credit-poor minorities were denied expansion plans by the Fed in an era of frenzied financial mergers and acquisitions. HUD threatened to deny them access to Fannie Mae and Freddie Mac, which it controlled. And the Justice Department sued them for lending discrimination and branded them as racists in the press.

"HUD is authorized to direct Fannie Mae and Freddie Mac to undertake various remedial actions, including suspension, probation, reprimand or settlement, against lenders found to have engaged in discriminatory lending practices," the official policy statement warned.

The regulatory missive, which had the effect of law, advised lenders to bend "customary" underwriting standards for minority homebuyers with poor credit.

"Applying different lending standards to applicants who are members of a protected class is permissible," it said. "In addition, providing different treatment to applicants to address past discrimination would be permissible."

To that end, lenders were directed to "make changes in marketing strategy or loan products to better serve minority segments of the market." They were also advised to "change commission structures" to encourage brokers and loan officers to "lend in minority and low-income neighborhoods" — a practice Countrywide Financial, the poster boy of the subprime scandal, perfected. The government now condemns the practice it once encouraged as "predatory."

FDIC warned banks that even unintentional discrimination was against the law, and that they should be proactive in making "multicultural" loans. "An ounce of prevention is worth a pound of cure," the agency said in a separate advisory.

Confronted with the combined force of 10 federal regulators, lenders naturally toed the line, and were soon aggressively marketing subprime mortgages in urban areas. The marching orders threw such a scare into the industry that the American Bankers Association issued a "fair-lending tool kit" to every member. The Mortgage Bankers Association of America signed a "fair-lending" contract with HUD. So did Countrywide.
HUD also pushed Fannie and Freddie, which in effect set industry underwriting standards, to buy subprime mortgages, freeing lenders to originate even more high-risk loans.

"Lenders should ensure that their loan processors and underwriters are aware of the provisions of the secondary market guidelines that provide various alternative and flexible means by which applicants may demonstrate their ability and willingness to repay their loans," the policy statement decreed.

"Fannie Mae and Freddie Mac not infrequently purchase mortgages exceeding the suggested ratios" of monthly housing expense to income (28%) and total obligations to income (36%).

It warned lenders who rejected minority applicants with high debt ratios and low credit scores to "be prepared" to prove to federal regulators and prosecutors they weren't racist. "The Department of Justice is authorized to use the full range of its enforcement authority."

It took a little more than a decade for the negative effects of the assault on prudent lending to be felt. By 2006, the shaky subprime mortgages began to default. In 2008, the bubble exploded.

Clinton's task force survived the Bush administration, during which it produced fair-lending brochures in Spanish for immigrant home-loan applicants.

And it's still alive today. Obama is building on the fair-lending infrastructure Clinton put in place.

As IBD first reported in July, Attorney General Eric Holder has launched a witch hunt vs. "racist" banks.

"It's a more aggressive fair-lending enforcement approach now," said Washington lawyer Andrew Sandler of Buckley Sandler LLP in a recent interview. "It is well beyond anything we saw during the Clinton administration."

Tom Perez, assistant attorney general for civil rights, recently testified that his division "continues to participate in the federal Interagency Fair Lending Task Force." And he and the task force are working with the newly created Consumer Financial Protection Bureau to "enhance fair-lending enforcement."

The fair-lending task force's original policy paper undercuts the notion the financial crisis was all about banker "greed," though it certainly played a role after the fact. Rather, it offers compelling evidence that the crisis evolved chiefly from government mandates and threats to increase lending to applicants who could not afford them.

Friday, November 18, 2011

Part 1: The Traditional LOS

Back in September, I brought up the topic of the traditional Loan Origination System versus the Enterprise Lending System. The first installment of this series will focus on what has been conventionally known as the LOS. 


When I first entered the space in the 90s and began talking to lenders, it was clear that there were large gaps in the mortgage technology space. Not only was I seeing massive inefficiencies, but the amount of failed implementations was astounding. Loan origination systems were more of a central repository database catered to manual process than they were offering technological innovations. The manual data entry loads created huge risk of human error and significantly slowed the origination process down. Buzz words like “paperless” and “web-based” were running rampant, and what did it really mean? At best it meant an online form that could be filled out and pushed into a database where the manual processes began. I get it; 1999, and even 2006, were different times. The industry jargon was ahead of the times. But what happened when the false promises began catching up to the bulk of loan origination providers? Stay tuned…

Friday, November 11, 2011

Veteran’s Day 2011


Something to consider as we honor those who have, and continue to, serve our country: it doesn’t matter where you’re from, somebody died so you could enjoy the freedoms that this great democracy is founded upon. I would like to take a moment from my day and from yours to thank our armed forces and all veterans of foreign wars. The picture to the left is of my father who served in the Marine Corps in the 1st Division, Recon from 1967-1969 at a time when not many had a choice but to offer themselves upon the alter of freedom. At a time when the Vietnam conflict was unraveling, we know that all gave some and some gave all. Join me in making every day Veteran’s Day; hold our veterans in your thoughts and in your prayers every day of the year. We must recognize that Freedom is not free. One way to get involved: The Patriot Guard

Reverse Mortgages – Don’t Be Deceived!

video

The video posted above as well as the title of this post likely led you to think I am going to talk about how costly reverse mortgages are and how there are better options out there. However, you thought wrong.

The above video was the opening to the “Reverse Mortgages vs Traditional Products” NRMLA Annual panel featuring our very own Jeff Birdsell and Joe DeMarkey of MetLife and, in a light-hearted way, shows just how misunderstood reverse mortgages really are. This was a wildly successful session at the conference as Jeff charted fee comparisons, disposable income comparisons and APR comparisons between reverse mortgages and traditional products on a dynamic Excel document. Not only did this tool allow lenders to better understand the differences and similarities between these various products and scenarios, but it provided confirmation that the overall cost of a reverse mortgage is similar to traditional mortgages and, under certain circumstances, can actually be less expensive. In addition, since many large institutions have exited the reverse space, there was a lot of buzz at the show surrounding the smaller players being able to expand their reach and increase their business.

In the end, it’s safe to say that the reverse industry is not to be counted out as a viable industry as we roll into 2012. As long as the smaller lenders capitalize on the void left by the large institutions, success is just around the corner.

Friday, November 4, 2011

Fast Forward: A Sneak Peak into 2012

Tradeshow season has come to a close, and I, for one, am walking into 2012 with an insider look at the direction of the mortgage industry. The MBA Annual hosted in Chicago offered great insight into the trends going into the New Year and particularly what I will be watching. For starters, I noticed a lack of clear direction in the industry as a whole. As everyone slowly digs themselves out from under the collapse, overlooked issues are resurfacing and taking new precedence. Many financial institutions are walking on very thin ice due to their lack of business continuity, and the immense regulations continuously being put in place are still being brushed off. Instead of waiting until you are held accountable, take the competitive advantage and streamline your business processes for increased compliance and reduced risk. This, of course, should not come as a revelation to anyone. It is, however, meant to be taken as a warning. Proceed with caution; do not permit complacency or there will be consequences!

On a more positive note, many other trends leading into the New Year are hopeful signs of things to come. More depository institutions are forming relationships with mortgage companies, forging new business opportunities and ensuring greater strength and growth. In addition, despite signs that correspondent lending is losing steam, the companies that approached me about leveraging the Mortgage Cadence platform for just this purpose at the MBA Annual point in the opposite direction. With many large companies exiting the space, the smaller players are taking advantage of this great opportunity to get in the door and have put correspondent lending back on their radar. Finally, Wall Street is on its way back – with some trepidation, of course. The collapse, coupled with the present media concerns stimulated by the Occupy Wall Street movement, is influencing Wall Street to proceed with caution as they work toward re-establishing mortgage origination channels and relationships. In the end, all of these new developments lead me to believe that we are headed in the right direction going into 2012 and there is great opportunity around the corner. Even if the recession is not over, the mortgage industry is continuing to move more assuredly forward than we have seen in years. Make sure you are on the front of this wave and gain the momentum that will lead to success.

Friday, October 7, 2011

The Return of the Nightmare Implementation

Not so many years ago, the mortgage lending industry was awash with tales of botched integrations and endless (and ultimately fruitless) implementation. It seemed like everyone had their horror stories. When open architectures, Web services and industry-wide data standards started to make it easier for companies to integrate their offerings, we started to see few lending executives running away from new technology solutions.

In the refi boom years, we started to see a number of firms develop good implementation track records, attract strong client bases and serve them fairly well. Those firms that could not earn that reputation lost business or left the business, or both.

But memories in our industry tend to be short and lately we’ve seen a number of institutions fall prey to technology vendors that over promise and then have trouble delivering. Implementations are getting long again and we’re starting to hear more horror stories.

It’s not that mortgage lenders and servicers don’t know how to do due diligence. I think the problem is that institutions are under such pressure to implement solutions that they are falling prey to promises when they should be looking for proven software offered by a company with a solid record of successful implementations. That’s the key to success in our industry--and it always has been.

Photo credit: sticviews.com

Tuesday, October 4, 2011

Fall Conference Season

I hope to see many of you at one of the mortgage industry’s business conferences this fall. After a summer that seemed too short, we’re already back into our suits and heading to shows and expos around the country. In just a couple of week’s our team will be in Chicago for the Mortgage Bankers Association’s 98th Annual Convention and Expo.

Mortgage Cadence will have a booth on the exhibit hall floor, as usual, but this year our new Finale Document Services will also have its own presence there. Spinning Finale off onto its own was a good decision, allowing our marketing team to more easily share the information lenders and servicers are requesting.

I expect this show to be one of the better attended events we’ve seen over the past few years. Many believe, as I do, that the industry is ready to exit the downturn. I expect to be part of many conversations aimed at helping the government step away from out business so that we can do exactly that.

I also expect to see a fair number of new names at this show. Many of the faces are likely to be the same, but mergers and acquisitions are likely to change much of the branding we’ve seen in the past. There will also likely be some new entrants into the business run by entrepreneurs who know that if they can make it during the tough times, they’ll be in great position to profit in the years ahead...if they can last that long.

If you’re planning on being at the show, drop us a line or drop by our booth.

Tuesday, September 20, 2011

Introduction: ELS versus LOS

For more than half a decade I’ve been telling the industry that the future of the mortgage lending business will be built on a new kind of technology. I have argued that the traditional loan origination system (LOS) is an outdated tool that cannot meet the evolving needs of the industry. Over the last year or so, I have seen my predication come true. The days of the Loan Origination System have given way to those of the Enterprise Lending System (ELS), though not everyone understands why or how. Even more peculiar is not everyone even really understands the difference between a LOS and an ELS.

For those who don’t spend their days working to bring mortgage technology to market, this transition may not be as clear. Some still believe that I’ve been talking about a change in labels, but I’m really talking about a change in the entire philosophy of mortgage technology for the loan origination business.

The dust is still settling from the financial crash, but the real requirements for Enterprise Lending Solutions are now clear. We now know what the technology of the future must look like.

From a distance, the LOS of the past and the ELS of the future may appear similar, but upon closer examination the differences become clear. That’s what I plan to do with this series of blog posts. Over the next few weeks, I’ll intersperse posts that compare and contrast LOS with ELS in with my regular blog posts. When I’m done, we’ll have looked at every aspect of modern loan origination technology and the differences between what the industry has used in the past and what it must adopt to compete in the future will become clear.

Anywhere along the line I welcome your comments and questions.

Friday, September 2, 2011

A New Home for Mortgage Cadence

One of the direct results of growth is the required change in facilities to house the people and technology that make a company work. I am very proud of our company’s recent news that Mortgage Cadence’s growth has required such a change. We moved into our new offices over the weekend.

I don’t often talk much about what we’re doing at Cadence in this space, but this was a big move for us and it speaks to changes we’re seeing in the market.

The move only took our company a few blocks from its former location, but miles from where we were in terms of space. Practically doubling the number of FTEs the company employs over the past year was making it very difficult to operate effectively out of the former space. The new offices provide plenty of room to work and expand.

Growing a business during the worst downturn our industry has seen in our lifetimes is definitely something to be proud of and I wish we could take all of the credit. In truth, part of the reason we’ve done so well is because lenders realize that even when times are tough, technology is required to keep their institutions running smoothly. In fact, the right technologies can keep them in business, especially in times like this.

One thing that served us very well was applying our proven origination technology to the problem of default servicing. Servicers found it very difficult to become loan product specialists overnight and they needed technology that could help them operate more like originators, making decisions and underwriting deals in an effort to workout more loans. The technology we developed for the Orchestrator Enterprise Lending System was perfect for this and lenders saw that.

We still have a lot of problem loans to work through and so we expect to continue to grow as the industry recovers. And then, of course, we expect to see the return of the loan originator and a more robust purchase and refinance market.

One thing the new space will provide is more room for people to come together, which will lead to even tighter collaborations between our team and our clients. With a more open floor-plan and plenty of conference and meeting space, we can continue our tradition of coming together in smaller groups to solve the industry’s biggest problems. So we invite you all to come out and see us. You can get all the specifics on where to find us now on our contact page.

In the meantime, we’re gearing up for big industry conferences from both NRMLA and MBA in the months ahead and I hope to see many of you at the shows.

Friday, August 19, 2011

Should We Open the Gold Window

The New American website published an interesting story this week. Charles Scaliger penned a piece in which he concluded that “Restoring a genuine gold standard would not solve all of our financial problems. But it would be a gargantuan first step in the right direction.”

He also pointed out that this week, which had seen such high market turbulence in the wake of the S&P downgrade, is the 40th anniversary of Nixon’s removal of the United States from the last vestiges of the gold standard.

Printing more money whenever it struck the government as a good idea has resulted in 40 years of financial instability, Scaliger points out. I can’t argue with that.

He points to a previous article in which Forbes magazine called for a return to the gold standard.

On the surface, this seems as likely as wishing on a star, but a few points are brought to our attention:
First, Nixon did not abolish the gold standard as it had existed from the founding of the country until the 1930s; he abolished the gold exchange standard which had existed since the end of the Second World War. This system did not allow ordinary American citizens to own gold coins, bullion, or certificates (a freedom that was not restored until 1974 by President Ford), or to redeem Federal Reserve notes in gold. That privilege was reserved for foreign holders of U.S. dollars only. This elitist “gold standard” was similar to that imposed on the peoples of Europe after World War I.
Scaliger points out that what he suggests would “require reforming several centuries’ worth of banking laws.”

The alternative? We’re living it.

Sacrificing the Dollar for Stock Growth

By now you must realize that the economic environment we all see outside our office windows is not a free market reality. The government has taken control and will continue to manipulate anything it can to create the outcomes it seeks. It appears that the only thing the government wants is a rising DOW. It’s willing to sacrifice the dollar to keep stocks rising.

Since the media seem to focus primarily on this indicator of financial well-being, it may be the government’s method of attempting to control consumer sentiment.

After Standard & Poor’s downgraded US debt and the stock market fell into a tailspin, most would think that the government’s power to manipulate the markets had been reduced. Not so.

The next day, the FOMC announced that it would not be increasing interest rates until at least the middle of 2013. Dan Norcini provides the resulting impact in his blog:
That acknowledgement, namely, that growth is so sluggish, the economy so moribond and unemployment so chronically high, sent money flowing into BOTH stocks and bonds at the same time. How's that for a neat trick by the boyz at the Fed? Here is the deal - the FOMC is attempting to drive money out of bonds and INTO equities based on the fact that they have guaranteed practically no return as far as yields go on short term Treasuries for at least two years.


Norcini calls this just another form of currency debasement, “but in a manner in which it is not so obvious as they had just come out and said, ‘We are going to do a QE3’.”

In effect, the government’s actions have indicated that there will be no growth in our economy for at least another couple of years, rendering the yield on US Treasuries low.

It may be time to start asking who is gaining from these actions. It’s certainly not the American taxpayer.

Thursday, August 11, 2011

Can We Stand Another Round of QE?

I’ve written a fair amount about the evils of the federal government’s Quantitative Easing program on this blog. I wrote about it back in May and again just a couple of weeks ago. And now, according to a HousingWire.com story, a Goldman Sachs analysts is saying that another round may be likely.

The form this third round would take is likely to be traditional quantitative easing, according to Goldman analyst Jan Hatzius.
Other options are rate caps — in which the Fed promises to buy as many securities as needed to hit a longer-term target — a price level or nominal gross domestic product target — or interventions in nongovernment securities markets (which would need congressional funding). "Of these, conventional QE is very likely the option with the lowest hurdle and the first to be deployed," Hatzius concluded.
After the S&P downgrade and the massive selloff that started this week, Gold has skyrocketed in price as investors seek safe havens. The last time I checked it was at $1,800 per ounce.

It’s time more Americans woke up and started paying attention. I know a lot of people who feel bad about what’s going on with the economy, they feel uneasy about the steps the government is taking, but they don’t know why they feel that way. The more they watch the cable news networks, the more confused they become.

That’s because they are allowing the media to control what they think, instead of educating themselves and their children. This must change. Another round of QE might be what it takes to wake more Americans up. It’s not what our economy really needs.

Monday, August 8, 2011

Cracks in our Single Foundation

Not so long ago, back in early June, I wrote about the government's Quantitative Easing and how I was afraid that it was failing miserably.

At the time, I quoted from a post in Dan Norcini’s blog:
The one thing that has helped to keep some of the population from becoming completely depressed has been the fact that they could look at their 401K programs and still see that those were in the plus column for the year. In other words, while the rest of the world was seemingly going to economic hell, at least they were making a bit of money on their retirement accounts.
It was clear then that the federal government's actions were serving to prop up the stock market, which resulted in increased demand and higher prices, pushing 401(k) values higher. The fear was that it would end.

Today, the world watched as the New York Stock Exchange and NYSE Amex Cash Markets on Monday invoked a rule to smooth trading at the market open, as futures pointed to a drop of more than 2 percent.

The rule is designed to allow the exchange to suspend price indications in an attempt to speed the beginning of trading. It can be invoked when there is a lot of activity in the futures market before the markets open. Reporters from Reuters said:
S&P 500 futures SPc1 fell 28.2 points and were below fair value, a formula that evaluates pricing by taking into account interest rates, dividends and time to expiration of the contract. Dow Jones industrial average futures DJc1 lost 248 points and Nasdaq 100 futures NDc1 dropped 48.75 points.

Friday, August 5, 2011

Everyone is Spending Our Money Now

Earlier this week, the federal government's Bureau of Economic Analysis released a press release around its June findings in the area of personal income and outlays. The Bureau seemed pleased that personal income and disposable income were both up in the U.S. during the month.
Personal income increased $18.7 billion, or 0.1 percent, and disposable personal income (DPI) increased $16.3 billion, or 0.1 percent, in June, according to the Bureau of Economic Analysis. Personal consumption expenditures (PCE) decreased $21.9 billion, or 0.2 percent. In May, personal income increased $23.2 billion, or 0.2 percent, DPI increased $17.6 billion, or 0.2 percent, and PCE increased $5.9 billion, or 0.1 percent, based on revised estimates.
Real disposable income increased 0.3 percent in June, in contrast to a decrease of less than 0.1 percent in May, according to the Bureau.

All this may seem fine, like we're pulling ourselves out of something. But then I read further down in the release and found this:
Private wage and salary disbursements decreased $2.2 billion in June, in contrast to an increase of $15.0 billion in May. Goods-producing industries' payrolls decreased $1.8 billion, in contrast to an increase of $4.8 billion; manufacturing payrolls decreased $2.1 billion, in contrast to an increase of $4.1 billion. Services-producing industries' payrolls decreased $0.3 billion, in contrast to an increase of $10.1 billion. Government wage and salary disbursements decreased $0.4 billion, compared with a decrease of $0.5 billion.
How can Americans have more money if the private companies that employ them are paying out less? There is only one way. Americans are getting their money from the government, in the form of aid, benefits and unemployment.

The government, of course, is spending taxpayer money, which is money that until very recently belonged to you and I. This is not a recovery.

Friday, July 22, 2011

The Details that Blind the American Public

One of the ways those in power control the masses in a democratic country is to foster a very lively debate on a very limited range of issues. If the issue is whether or not the government should bail out the U.S. financial services industry, the government would rather have us focus on whether the funds were paid back or not. While it’s good that some of the TARP funds have made it back into the Treasury, it may not be so good that a limited range of very large corporations now know they can count on the government to bail them out if they make foolish long-term decisions for short-term gains.

Some think the Consumer Financial Protection Bureau that came online this week will prevent another financial fiasco. Others may disagree, but the debate has largely centered on who will run the CFPB and not whether it will come close to fulfilling its mission. Arguing over whether it should have been Warren instead of Cordray running the CFPB is to skip past the question of whether it will even work as a regulator.

A new bill in Congress now will change the way Fannie and Freddie operate, but it falls far short of taking the government out of the housing business. A debate will rage over the details in this bill, but those that want the government to remain the first best source of home finance liquidity will have already won.

It’s not easy to focus on what’s important when there is so much information flying around about the economy. But what we choose to focus on as voters may determine what control we have (or give up) over our financial future. What will you be focusing on this weekend?

Wednesday, July 20, 2011

Who Will Be the Next Economic Superpower

You don’t have to dig too far into the news to find that the US is not the only country in the world to be struggling financially right now. We’re in the middle of a global economic crisis and some of our friends in Europe are actually worse off than we are.

Even now, the European Union is deciding whether another bailout of Greece will be necessary.
“The French and German banks account for roughly half of all European banks’ exposure to those euro-zone countries, meaning that the combined exposure of European banks to those four nations is over $1.8 trillion, nearly half of which is with Spain alone. Thus, in the eyes of the elites and the institutions which serve them (such as the EU and IMF), a bailout is necessary because if Greece were to default on its debt, ‘investors may question whether French and German banks could withstand the potential losses, sparking a panic that could reverberate throughout the financial system.’”
But just because they’re having a hard time, too, don’t expect the Europeans to feel like we’re all in the same boat. In fact, the vast majority of them already think we’re out of the boat, freezing to death like an ill-fated Titanic passenger. A poll released by Pew Global Attitudes reported earlier this month that the majority of people in 15 of 22 countries surveyed believe that the days of American hegemony are numbered. According to one website that reported on the poll’s results, “The sentiment was most prevalent in Western Europe, where longtime allies took a very dim view of America’s superpower status.”

The truth is, there is no way our government can continue to spend money the way it does and hope to remain an economic superpower. Hard decisions have to be made and programs that some people depend upon may have to be cut. Otherwise, the government will have to find a way to pay down this debt and it’s only option will be to increase taxes.

If politicians continue to spend money in exchange for votes and then pass the debt back onto the voter, the US taxpayer will eventually look a lot more like the European taxpayer. Instead of paying 20-40% of our income to the government, we’ll be paying 30-50% of it to the government, just like they do in Europe. If that happens, we won’t be an economic superpower anymore either.

Friday, July 15, 2011

Principal Forgiveness Increasingly Part of the Solution

No one likes losing money on a deal, but when losing some now means keeping the loan out of default and potentially making more in the long run at the same time you keep borrowers in homes and speed the economic recovery, then it’s something that should be seriously considered. In fact, that’s what we’re seeing happen in the marketplace.

We’re already seeing more servicers that participate in the Home Affordable Modification Program use principal reduction to help underwater borrowers and make their payments more affordable. And they’re doing it more often, according to a recent Treasury Department report. Nearly 5,000 HAMP modifications included principal reductions, with the average principal amount reduced by $69,500.

And for those that aren’t considering this option on their own, the courts are helping out. While the dust hasn’t cleared yet on the BoA/BNY Mellon Settlement Agreement, part of the $8.5 billion deal includes language that will make it easier to modify many of the high risk loans that are due to be placed with special servicers. The settlement agreement spells out what these special servicers must do, but indicates that the resolution may, “pursuant to the Governing Agreements, include principal reductions.”

Expect to see more principal forgiveness in the days ahead as we work through this downturn. I expect it will become more and more in vogue among special servicers, and that’s good. It means that people are starting to get it.

As always, I look forward to your comments.

What Happened to All the Jobs

We all saw the disappointing job numbers that were recently released. A jobless recovery is no recovery at all, especially when you add it to very tight lending requirements and no equity to borrow against.

One of the better commentaries I’ve seen on this recently was John Mauldin’s piece on his “Thoughts from the Frontline” blog.

In a recent blog post, John points out:
First, there were only 18,000 jobs created in June, the lowest since September 2010. While private employment rose by 57,000, government workers dropped by 39,000, continuing a trend as governments at all levels work to cut their budgets. Long-time readers know I think it is important to look at the direction of the revisions, and we got no help. May was revised down by 29,000 jobs and April a further down 15,000.
More jobs is the key to the recovery. I’ll give you my thoughts on the key to more jobs in a future post.

Friday, July 8, 2011

What I'm Listening to Now

See instructions below:



Click play and then close your eyes and think of your favorite stretch of road. Might be something recent or some distant memory from your childhood. Now think of going down that road on a motorcycle at a nice clip. It's 100 degrees out, but you can’t feel your skin burning because the air rushing by cools you. You let go of the handle bars, stretch your arms out in celebration of life. You’re on your bike, you're with your lady (or man if you are a lady). You're alive. You're listening to this song as you pull into a town that time forgot. An old western town, a blue color town. You get a red light as you approach the one stop light on main street. A weather and time worn lady, maybe 70 years young, eye balls you as she walks by in the crosswalk. As she gets right in front of you she cracks a small smile and nods in approval. You take that with you as you leave that town, back to the open road.

Yes, this happened last week and this is why I ride.

Tuesday, July 5, 2011

Government Stimulus Hasn’t Worked

I’m not the only one who keeps saying that pouring more money into the system is not helping us recover from the current recession.

You may have seen this story on CNBC.com, where Federal Reserve Governor Alan Greenspan talks about his take on the government’s response to the financial crisis.
“The Federal Reserve's massive stimulus program had little impact on the U.S. economy besides weakening the dollar and helping U.S. exports, Federal Reserve Governor Alan Greenspan told CNBC Thursday.”
According to Greenspan, the $2 trillion in quantative easing over the past two years had done little to loosen credit and boost the economy.

"While it has reduced the value of the dollar in the world markets, making it easier to export our products overseas, it hasn’t done much to speed the recovery. I am ill-aware of anything that really worked. Not only QE2 but QE1."

Of course, not everyone agrees. This video was posted on the HousingWire site last week and features QE advocate Paul Krugman making his case.

What do you think?

Friday, July 1, 2011

Preparing for the CFPB

It’s July 1st and as we prepare to head into a holiday weekend, we are also completing our preparations for working with the new Consumer Financial Protection Bureau. The new government uber-agency comes on line this month and is expected to change everything.

Of course, pols from both parties are continuing to fight over the future of the agency, some trying to limit its funding, others increase its powers. The most recent news I read told of some letters that have put the CFPB on defense.

The letters came from “the House Committee on Financial Services and the Committee on Oversight and Government Reform, represented by chairs Spencer Bachus and Darrell Issa, respectively, in calling for the release of any documents related to the correspondence in the possession of the Treasury Department,” according to the story.

In particular, the politicians said they were concerned about “Treasury Department adviser Elizabeth Warren’s refusal to unveil her involvement with mortgage servicers and state authorities in their negotiations. The letter is the second to address widespread concerns about the CFPB’s dealings.”

I don’t have a lot of patience for this back-and-forth. It’s just a waste of time and taxpayer money. In fact, I’m against the whole concept of the agency.

You see, I’m one of those people who doesn’t need the government’s protection. I think there are a lot of Americans who don’t need the government deciding what they can buy and what they can’t. We all go to the grocery store and compare labels before we buy, and I know that the Food & Drug Administration enforces product labeling laws and thank them. I’m not anti-government, I’m anti-big government and when you give the federal government an inch, they’ll take 20 miles. I’m worried that this is what’s happening with CFPB.

It’s not the government’s job to tell Americans what they can do. It’s insulting for them to suggest that the general population is so stupid that they need to have the federal government hold their hands during a financial transaction.

It’s time for the United States of America to stop being the world’s biggest Nanny State. If the government wants to enable better education, fine. Likewise, better enforcement of the laws already on the books would solve a lot of problems. But when it comes to trying to decide what’s best for Americans, it’s time to step back and revisit that pursuit of happiness concept that was written into the preamble of our Constitution.

As we prepare to head into this holiday weekend—this Independence Day celebration—we should all be thinking about ways we can become less reliant on our government and more reliant on ourselves, our families and our communities.

Tuesday, June 28, 2011

Will Subprime Mortgages Really Return?

One of the challenges we face in this country is that we don’t put enough value on context before we jump into an important conversation. Without context, we can talk about important issues, but we’re not really communicating. This is critically important when we speak about the return of “subprime” lending.

What really is subprime lending? All subprime lending means is making mortgage loans in a manner that deviates from traditional lending or more conservative lending practices. Typically, that means making loans with less money down, lower FICO scores, higher LTVs to borrowers who may not have spotless credit history from a repayment perspective. Subprime was easy to spot because they were the only loans that Fannie Mae and Freddie Mac wouldn’t buy--at least in the beginning. Later, they invested in plenty of them, both as whole loans and MBS, but that’s another post.

After the so-called “subprime meltdown” everyone left the market and the only people left doing any kind of lending were working for the federal government. But that will change. Loan requirements will ease and more people will qualify for loans because there is unmet demand in the marketplace. I’m not the only one who thinks so.

In fact, it’s already started, according to the OCC’s recent report.

It will come back more quickly with less government involvement. Traditional lenders understand credit risk. They know how to make decisions about what they feel is acceptable risk for their institutions. This should be comforting because most folks who originates subprime paper in this market will be doing so for their own portfolios. Banks know how to do this.

The government, on the other hand, doesn’t. That’s why HAMP was a failure. While there were good intentions behind the program, overly stringent requirements prevented it from helping borrowers stay in their homes.

Subprime is definitely coming back. Lenders who are ready to engage these borrowers stand to earn significant rewards.

Sunday, June 26, 2011

What I'm Listening to Now

Dedicated to my friend David, whose Mother went to the other side on Friday.

Friday, June 24, 2011

The Basis for My Commentary

Those of you who have been reading my blog for some time know that I am quite willing to tell you what I think. If I think the government has overstepped its bounds, I feel like its my duty to tell you. If I think the industry is falling short somewhere, I’ll be the first to tell you that, too. What I haven’t really shared with you is why I feel confident making these statements.

I was on the original team that founded Mortgage Cadence and launched the first version (1.0) of our loan origination system back in 1999. Very recently, we launched version 6.1. Over the past 12 years, Mortgage Cadence has continued to invest in its industry and in the development of industry-leading technology. Every single year since 1999, even through the downturn, we never retreated from our goal.

Today, we’re the only technology firm that provides enterprise lending solutions to the forward lending market, the reverse lending market, the Home Equity Lending business and default servicing. We see lenders, servicers and borrowers on every side of this business, we study them and we build technology to meet their needs. This gives us one of the most holistic views of the housing market of any technology vendor in our industry.

So when I see someone doing something that does not serve the needs of the industry or the borrowers we serve, I’ll tell you about it. I know this is a rapidly changing industry. I can’t see every perspective and would love to know about yours. When you see something you agree with--or something you don’t--I’d love to read your comments. Have a great weekend.

Thursday, June 23, 2011

Our Government: A Living Oxymoron

When you slam two words that mean opposite things together to form one name, we call it an oxymoron. Jumbo shrimp is a classic example. When you claim to be trying to help, but you take actions that basically guarantee the opposite result, I call that oxymoronic. Now, our own government has given us a perfect example.

Many of you saw the news earlier this week that HUD would launch a new Emergency Homeowners’ Loan Program (EHLP).

Under this program, HUD will offer “a zero interest, forgivable bridge loan to any homeowner who has experienced a substantial loss of income (a reduction of at least 15%) due to unemployment or underemployment caused by adverse economic conditions or medical condition.”

The program can be used in some cases to bring a delinquent borrower current and will then offer ongoing monthly assistance. This assistance will last for up to 2 years and will doubtless cost billions of dollars.

Now, at the same time the government will send billions of dollars worth of taxypayer money to folks who are already likely to be on unemployment, the same Agency is allegedly telling one of the nation’s largest banks to foreclose on reverse mortgage borrowers who fail to make timely property tax payments.

Despite the fact that these older Americans have already bought their homes and paid off their loans and who are now taking out reverse mortgages, often with the intention of using the proceeds to help their children make their own mortgage payments, HUD would like to take them out of the game because they failed to make a $2,000 property tax payment and then turn around and give away billions in taxpayer money to people who can’t find jobs--and then never ask for it back! With reverse mortgages, that equity must be repaid when the home is sold or the borrower dies.

Can there be any other prescription for this ailment than to get the bureaucrats out of the housing business?

We have expert originators who are backing out of the reverse mortgage lending business because the government won’t let them do their jobs. Who can blame them? They can’t stand up to the media firestorm that would surely result the first time they foreclosed on an American elderly couple who were just trying to make the most of their greatest asset.

These large financial institutions have loan officers who are experts at loan origination, who have studied the rules for reverse mortgage lending and who are actually trying to make loans, but the government can’t get out of the way.

Those of you have been in this industry for more than a cycle know that HUD’s enforcement of Community Reinvestment Act lending drove the industry into the subprime sector and forced banks to lend money to people who had no capacity to repay it. That, more than anything Wall Street did, led us to the financial crash.

What will EHLP lead us to? I look forward to your comments.

Friday, June 17, 2011

New Study, Same Old News

When Paul Dales, senior U.S. economist for Capital Economics, released his study earlier this week under the headline: Housing Collapse Steeper Than During the Great Depression, it caused quite a stir.

The economist’s numbers indicate that the U.S. housing collapse is now worse than during the Great Depression and said that the market likely will continue to fall for the rest of the year before going stagnant, according to a report published on FoxNews.com.

What got most people upset was that he compared our current situation to the Great Depression. He later said his numbers only related to the value of homes during the two time periods.

But for those who have lost their jobs, are losing their homes and no longer have retirement accounts, what’s the real difference? We shouldn’t be arguing over semantics, we should be working on the problem.

As for how bad the current situation is relative to home prices, those reading this blog have already read that news.

Tuesday, June 14, 2011

Just What We Need

According to the official website of the Republican Party, President Obama’s health care program is responsible for a new tax that will make it even harder for our housing industry to recover in the future. According to a post from earlier this week:
“Beginning January 1, 2013, ObamaCare imposes a 3.8% Medicare tax on unearned income, including the sale of single family homes, townhouses, co-ops, condominiums, and even rental income.”
According to the GOP, the new ObamaCare tax is the first time the government will apply a 3.8 percent tax on unearned income.

Does it seem like there are people working within the federal government that just don’t realize how important a healthy housing industry is to the overall health of our economy?

I would love to hear your comments on this.

Thursday, June 9, 2011

More Thoughts on Quantitative Easing

I ran across this blog recently. I bring it to your attention for two reasons. First, we should all be paying attention to this because once fully understood many will find the government’s actions misguided (at best).

But also because if, like me, you’re working within either the U.S. housing or home finance industries, this impacts how quickly we’ll be able to recover.

According to this post in Dan Norcini’s blog:
The one thing that has helped to keep some of the population from becoming completely depressed has been the fact that they could look at their 401K programs and still see that those were in the plus column for the year. In other words, while the rest of the world was seemingly going to economic hell, at least they were making a bit of money on their retirement accounts.
As Norcini points out, it will be very challenging for the government to take this away and without QE, the markets are likely to revolt.

I’m not an “I told you so” guy, but anyone who has read my blog for any length of time knows that I believe this situation bears watching closely.

See my post on quantitative easing here.

And my recent podcast here, where I talk about consumers and their 401(k)s.

Monday, June 6, 2011

How Far We’ve Fallen

No one is making too big a deal out of the fact that home prices continue to fall. Some are calling this a double dip, but for homeowners it’s a continuous slide into an underwater condition on their homes.

According to this story by Stephen Foley, home prices in the United States have now fallen more, on a relative basis, than they did during our Great Depression.
“The brief recovery in prices in 2009, spurred by government aid to first-time buyers, has now been entirely snuffed out, and the average American home now costs 33 per cent less than it did at the peak of the housing bubble in 2007. The peak-to-trough fall in house prices in the 1930s Depression was 31 per cent – and prices took 19 years to recover after that downturn.”
According to the Case-Shiller National House Price Index, we’re back to house prices of the 2002 levels. With no relief in sight.

As we struggle to recover, the world is watching. There is nothing in this news that is likely to instill confidence in foreign investors, nothing that will make them eager to invest in our mortgage-backed securities. Until we get another buyer for our mortgage paper, someone other than the Fed, our market will continue to struggle.

Friday, May 27, 2011

Happy Memorial Day

You’ve probably noticed that I do a lot of critical analysis on the economy, our lawmakers and the industry in this space. If I think something is working or not working, I’m never afraid to tell you about it. But I want to make one thing clear. I don’t speak up about the problems I see impacting us all because I’m filled with anger or hatred or want to see the entire system burned to the ground. I speak out because I love this country.

That’s a message I want to be sure to get across, especially on Memorial Day, when we give thanks and remember the sacrifices made by those who came before us.

So, let me make sure you heard me. I’m not saying that I kinda like living here and that it’s okay until I retire to an island somewhere, I’m telling you that I love America. I love raising my family here and running my business here. It may be outdated, but I still think America is the greatest country on Earth, and I want that to continue, for my children’s sake and my grandchildren’s as well.

So, when I see Americans and their politicians making bad decisions or making short term decisions for personal gain or decisions that benefit only their constituents, it concerns me. My analysis of the Founding Fathers was, regardless of how you interpret the Constitution or the Bill of Rights, these men believed that there was a moral foundation and a camaraderie and a sense of being one united nation under God that all Americans would share. And I know those words were written into the Pledge of Allegiance long after the Founding Fathers were dead, but they were written by someone who, like me, was still a believer in that dream.

And so on this holiday weekend (we’re celebrating Memorial Day in the States, a holiday that deserves it’s own post sometime), I’m not going to focus on what’s wrong in America, I’m going to direct my passion in a different direction. I’m going to go out with my beautiful wife and family and have a great time.

One of the things I love being able to do is collect, rebuild and show Hot Rods. Here’s one of my cars, and my wife Christine.

 

Enjoying classic cars is a uniquely American pass time and it’s just one more reason I love this country. If you also love America and living a full life outside of work, Friend me on Facebook. I hope you all have a great holiday weekend.

Thursday, May 26, 2011

A Long, Slow Recovery

If you’ve been reading my blog very long, you know that my interest in our economy goes well beyond the mortgage industry. A lot of what I’ve been saying was echoed last week in one of the better bloggers I follow, John Mauldins.

Check out what John has to say about the state of our recovery.

I've commented on much of this. Now, look back at some recent posts and you’ll more of the story.

Money Management at the Treasury

Still Manipulating the Markets

And listen to my most recent podcast here: http://michaeldetwiler.blogspot.com/2011/05/podcast-my-thoughts-on-quantitative.html

I would love to hear your thoughts on this. Leave a comment.

Monday, May 23, 2011

Paul Sperry on the Fate of Smaller Banks

In this article from Investors Business Daily, Paul Sperry lays out some very real threats to smaller institutions that will come about as an unintended consequence of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
“Bankers say the bureau is empowered to demand any information it wants from any bank at any time and in any form. That means spending more time and money filing reports and huddling with regulators vs. serving customers.

Banks will be subject to some 20 new reporting mandates under the Home Mortgage Disclosure Act, including data fields on loan pricing designed to help regulators police "predatory lending."
Paul was kind enough to address the Mortgage Cadence team and our customers in Vail at our recent Aspire Users Conference. I think he did a great job and the many comments we received from attendees afterward indicate they agree with me. He has some great ideas and I’m happy to support him.

As for smaller banks and their reporting requirements, those that use the right technology will find it significantly easier to provide their business partners, their customers and their regulators with the information they need when they need it.

Are you ready to provide information to the CFPB?

Tuesday, May 17, 2011

Podcast: My Thoughts on Quantitative Easing

I've been promising to send out my thoughts on the whole quantitative easing concept and what it means to our economy, the housing industry and the world economy. This podcast fulfills that promise.

As I point out in this recording, I don't consider myself an academic. Normally, concepts like QE might be considered squarely in the territory of financial analysts and Ph.D.'s. But when the signs become so clear and the evidence so compelling that it can no longer be ignored, those of us working to keep our country and economy strong are called to speak out.

That's what I'm doing here and I hope you get some value out of it. I also hope you respond. Don't be afraid to leave a comment on this page. Sure, we moderate all comments to this blog, but I won't prevent anyone from speaking out if they present a good argument, respectfully and with a goal of making things better. So, let me know what you think.

Monday, May 16, 2011

More Money Management Problems at the Treasury

You may have already seen this item on the Zero Hedge blog. I read it this morning and can only shake my head.

Now what? How can we expect a GSE (Government Sponsored Enterprise) to be successful when the Government itself is in such disarray and clearly has no understanding of how to run anything within a budget, let alone profitably?

Meanwhile, over at Dan Norcini’s blog we find that the Long Bond Flops on Poor Auction Results.
Reports are that the $16 billion, 30 year bond auction, generated poor demand. That should not come as much of a surprise after the big rally has dropped yields down to levels that no one in their right mind would want to lock up capital at for 30 years.

Bonds dropped nearly a full point on the auction news but are once again finding buying at a critical technical juncture. No surprise there also in this heavily rigged market.
No one wants US debt….gee, I wonder why.

Friday, May 13, 2011

Understanding Housing Data

Throughout the downturn, the mainstream press has suffered through the task of explaining the crisis to their readers. Some reporters have done better than others, but most have missed the point.

This story in USA Today is an example of a media outlet reporting on an oxymoron without seeming to realize it. Yes, more homes were sold during the period studied, a slight increase was noted.

But prices fell at the same time.
Existing home sales rose 3.7% from February to a seasonally adjusted annual rate of 5.1 million, the National Association of Realtors reported Wednesday. That marked the sixth monthly rise for existing home sales in the past eight months. "We're clearly on a recovery path," says Lawrence Yun, NAR chief economist.
If the real estate crash taught us anything, it was to scrutinize the source of the statistic as carefully as the data itself. We all remember the reports NAR was putting out just prior to the crash. Perhaps those that sell homes can be forgiven for attempting to convince buyers that a recovery is imminent, but they should not be trusted.

In the same article, NAR reported that 40% of sales during the period were distressed homes, up from 35% a year ago. That’s a statistic worth considering.

Bottom line: we’re not in a recovery. Not yet.

Tuesday, May 10, 2011

Thoughts on the Impact of Quantitative Easing

I’ll be uploading a podcast shortly that will give you my take on the whole QE question, but I want to set the stage first with some information I’ve been tracking from around the industry.

Jim Sinclair is a gold trader I follow. You can always expect the price of precious metal to go up in time of uncertainty. It appears now that the price of gold is out of control. Look what he says about where gold will go next.
Consider for a moment what things would have looked like if QE did not exist in the US as well as other major Western financial systems. What would this so called recovery look like? Now think how things will look if the Fed, pressured politically, ceases QE. Then think how fast and big the next program (with a new name for QE) will be to manufacture money before all legislators, Democrats and Republicans, get sent home along with the Administration in 2012. Be realistic. Before our beloved politicians give up their power forever the master of the financial universe will burn down the dollar barn. Gold is locked and loaded for $1650 and 
We don’t have to look far to see where a lot of this uncertainty is coming from. You probably saw how China put a scare in the markets not long ago. I found this story on the Zero Hedge blog.
China has decided to serve the world another surprise. Following last week's announcement by PBoC Governor Zhou (Where's Waldo) Xiaochuan that the country's excessive stockpile of USD reserves has to be urgently diversified, today we get a sense of just how big the upcoming Chinese defection from the "buy US debt" Nash equilibrium will be. Not surprisingly, China appears to be getting ready to cut its USD reserves by roughly the amount of dollars that was recently printed by the Fed, or $2 trilion or so. And to think that this comes just as news that the Japanese pension fund will soon be dumping who knows what. So, once again, how about that "end of QE"?
Can we really expect our government to be capable of controlling the markets? I’ll give you my thoughts in a podcast shortly, but please leave your comments here.

Thursday, May 5, 2011

Mixed Messages from the Government

By now you’ve probably seen the “guidelines and goals” HUD has put out for lending to underprivileged, non-qualified borrowers. The government can’t very well turn its back on voters who are eager to buy into the American Dream, not if they want to get re-elected.

Now, the Federal Reserve Board has issued a proposed rule under Regulation Z that would require creditors to determine a consumer's ability to repay a mortgage before making the loan and would establish minimum mortgage underwriting standards.

Lenders have a number of options for complying with the rule, according to the proposal. They can verify specified underwriting factors and conclude that the borrower can repay; they can make a “qualified mortgage,” which hasn’t been fully defined yet but that would offer the lender protection from liability; the lender can make a loan with a baloon payment; or it can refinance the borrower into a loan with a lower monthly payment.

The rule is out for comment, but since the Fed won’t even be the body that finalizes the rule, it’s not clear who will comment. The Consumer Financial Protection Bureau will take up the work once it comes up to speed.

Hopefully, when that happens and more regulatory power is put into one agency, we’ll get some clarity on what the government wants lenders to do: make loans to people who the industry can prove can repay them, or make loans to borrowers we know cannot.