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?

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

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

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

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

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

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

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

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

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

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

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!

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.