What I'm Listening to Now

Radiohead's "The King of Limbs"

Check out the track by track review at Rolling Stone.

NAR Admits its Data was Flawed

You may have seen the story about the National Association of Realtors released on Reuters yesterday. In its story reporter Mark Felsenthal quotes a Wall Street Journal story from Monday where it was revealed that the housing trade association “is examining the possibility that the data it releases underestimated the collapse of the housing industry.”

I am shaking my head at this. Three years after the crash, reporters are just digging up the story that NAR, a group that promotes Realtors, the frontline salespeople for the housing industry, may have skewed the data to make the industry look better than it did. Who would have thought that the people who most depend upon consumer confidence would sugar coat their data to make people feel more confident about buying a home? I mean, besides me.

And it wasn't just me who said the industry was in trouble. Reuters reported that NAR's home sales count was overstating reality by as much as 20 percent, at least according to CoreLogic's numbers.

What does this mean for the rest of us? It could mean that S&P's estimated 4-year time line for disposing of the REO on the market is wrong. There may be a bigger backlog of unsold homes than we realize, making this climb out of the recession harder and longer.

Some quotations for your consideration

Why did Jesse James rob banks? Because that's where the money is.
--Jesse Jackson, addressing hundreds of ACORN delegates shortly before the 1992 Democratic National Convention in New York

When I was president, we instituted a vigorous enforcement of the Community Reinvestment Act, a little-known law that requires banks to loan money.
--Bill Clinton, 2007

Oh no...it's happening again.
--Michael Detwiler, Today

How to Close the Lid on the GSEs

In a move that surprised many, the Treasury Department and the Department of Housing and Urban Development came out with a joint report this week outlining the process for winding down the mortgage lending industry’s two largest investors, Fannie Mae and Freddie Mac. While many in the industry had been clamoring for an end to the GSEs, few thought the government would allow it to happen.

Of course, nothing in the new document indicates that it would happen quickly. In its report, the Treasury Department offered three options for shutting down Fannie and Freddie and reducing the government’s role in the lending business.

The first option is for the government to get out of lending completely, except for existing agencies, such as FHA and VA. The second is to provide a government guarantee on mortgages whenever the market is in trouble. The third option is for the government to provide a form of insurance for a select range of mortgage investments that are currently guaranteed by private insurers. The government guarantee would kick in only if those private companies couldn't pay.

Regardless of the option chosen, as long as it’s one of these, the government will still play an important role in the industry. But with the insurance option, it’s likely to cost the taxpayers a lot less.

There are other advantages to this option as well. Chief among these may be that it allows the private sector to begin to identify opportunities and provide long-term solutions to our industry. Who knows, it may even stop the governmental socio-economic experimentation that laid the foundation for the challenges the residential mortgage market has been saddled with...but I doubt it.

What’s your take on the best way to wind down the GSEs? I look forward to your comments.

What I'm Listening To Now

This attracted my attention over the weekend. I hope you all had a good one and are ready for another great week.

Opportunity: Home Price Stabilization

It was good to see Forbes cover the recent report from Fiserv on its Case-Shiller Index. We’ve been seeing stabilization in home prices for some time. I told you about it in a podcast earlier this year.

This is an opportunity for lenders who are ready to take advantage of it. Forbes reported that the Index shows that after a record five years of home price declines, some metropolitan area housing markets are now showing signs of stabilizing. According to the story:

“Amongst those where prices have already stabilized are San Diego, Washington, D.C., and San Francisco, according Fiserv. As the year goes by, 75% of metro markets will have hit bottom and prices will subsequently stabilize. New York City, Minneapolis, and Portland, Oregon are amongst those that will join the ranks of stability by the end of this year.”

This will bring more investors back into our space that understand how the markets work and who know how to buy low and sell high. Lenders already own a lot of property in these MSAs so they’re in the best position to provide the financing to qualified investors.

I think this is just one bright spot we’ll be blessed with in 2011 and this isn’t the first time I’ve said so. But to capitalize on this, lenders need to be ready to sell and close loans. Because you know I’m the CEO of a mortgage technology firm, you know I’m going to say that technology will be critical. You’re right, because it is.

But beyond that and from an industry perspective, this opportunity will be for folks that embrace the new lending paradigm and understand that in this industry it’s not ever going to be the way that it was before.

What Tech Will Lenders Need Next

I saw the news recently that respondents to the Mortech survey expect to be spending more on technology this year. This does not surprise me. It's during this part of the cycle that the right technology can be a differentiator.

I remember when Bank of America bought Framework in the hope that other lending institutions would believe that technology was not a differentiator and take their business to BofA. That didn't happen because every lender knows that the systems they use are an extension of their business and critical to their long-term success.

I remember learning this lesson from my father (hear my podcast on this). I knew when we started Mortgage Cadence that if we could automate the process and eliminate human touches, at the end of the day, we would drive cost out of the process and improve quality. Those are the keys to success in today's market.

In fact, these are the things that are always critical when the industry recovers from a downturn. That's where I expect to see lenders putting their tech spend this year, where it will drive down costs and improve loan quality.

Where do you see lenders investing in technology this year?