I originated mortgages full time for 5 years in the early 2000s. I worked for both mortgage brokers, who place loans with 3rd party lenders, and, as they are termed in New York, mortgage bankers, who are direct lenders. Up until recently, it was hard for a guy off the street to distinguish between the two- the mortgage application verbiage used and process, to the borrower, was pretty much the same. Even as a loan officer, I saw enormous parallels: the qualifying software was the same, and the rates and pay structure were similar. We either earned money on the front end paid directly by the borrower, often referred to as “points,” or were paid on the back end by the lender in the form of a Yield Spread Premium (YSP) for brokers or a Service Release Premium (SRP) for bankers. The nomenclature differed, but the net effect was the same: the higher the interest rate, the higher the commission (premium). 

When the Subprime Meltdown hit in 2007 and the Financial Crisis hit in 2008, mortgage brokers carried the PR chum bucket for bad loans. Even though Ameriquest, Countrywide and dozens of other major players who were direct lenders failed, it was mortgage brokers, and their yield spread premiums that were often the culprit in both the cyber world and polite company. There were arguments over the true purpose of the YSP. 

The banking industry and major media, in their best mad as hell voices, lobbied hard for YSP to be outlawed, and this past week, they succeeded. Yield Spread Premiums are now against the law. 

From the Fed: 

Today, lenders commonly pay loan originators more compensation if the borrower accepts an interest rate higher than the rate required by the lender (commonly referred to as a “yield spread premium”). Under the final rule, however, a loan originator may not receive compensation that is based on the interest rate or other loan terms. This will prevent loan originators from increasing their own compensation by raising the consumers’ loan costs, such as by increasing the interest rate or points. Loan originators can continue to receive compensation that is based on a percentage of the loan amount, which is a common practice.

As with many governmental “solutions,” this is outwardly politically expedient but will only hurt the public in the end. Why? Because the playing field is now completely tilted in the favor of large lenders, who keep their version of YSP. Smaller lending entities who previously dealt with brokers will be elbowed out of market share, and mortgage brokers now play by rules so severely tilted against them that they will go out of business. The baby has been thrown out with the bathwater, because brokerages, for all their flaws, were serving a need the bigger banks would often not. 

The Service Release Premium, the banker’s equivalent to the Yield Spread Premium, is still legal. Direct lenders get to play by their own rules now. Whether you agree with the YSP or not, banks still have the back end option with SRP. Brokers, who often had the capacity to place a loan with literally dozens of lenders, do not. Whatever abuse there was with YSP is still available to lenders in the form of SRP. The lobbyists saw to that. It wasn’t enough that YSP was required to be disclosed on the HUD-1 while the bankers SRP was not; they had to kill it, and cut the jugular of brokers. Who needs competition? 

Here’s how it plays out for the borrowers in 2011: If you have good credit and are a W-2 employee, you can call your own shots the same way it has always been. But if you are self employed, have less than great credit, or need a niche product in our diverse society, you’ll have no mortgage broker to find that specialty loan. Instead, you’ll have your choice between a large, monolithic lender’s single portfolio and a small community bank, both of whom will scoop the cream off the top and throw the rest back, with the exception of their Community Reinvestment Act requirements. There will be no mortgage broker to find your niche product because they won’t be able to operate profitably. 

Banks already adjusted to the stupid things they were doing 5 years ago. Underwriting a loan now is as hard as it ever was prior to the Federal Housing Administration’s genesis in the 1930s. We are rapidly heading toward a world where large big box lenders will be like huge telecoms, with consumers choosing either their loan portfolio or renting. Smaller community banks will be there for well credentialed people, and ironically, the folks who screamed about killing those evil brokers who were opening doors the big banks wouldn’t open, will lament their extinction. Who loses? You. Big banks just did an end around past their most egregious offenses and the government played Washington General defense for us. 

Happy? 

My prior posts on Yield Spread Premium

I love building my team, my brand, and my organization. If it wasn’t “mine” with my good name, there are things that I do that I might not otherwise. But that goes for anyone who is a principal in an organization. My days recently have been a measure of Radar O’Reilly, a dash of Patton, 2 scoops of Grunt, and a generous portion of Mother Hen. And I have loved every minute of it. In between the building is the troubleshooting; often, troubleshooting and building are one and the same. 

Late last month, a strong agent in the firm came to me for insight on handling a recently approved short sale. We had a conference call with the seller, and after 2 weeks of drama and intensive hand holding with the client myself, it closed. The agent had done all she could do; a team effort was needed. One could make a case that my intervention saved her considerable efforts and great work when circumstances in the client’s life seemed to create an impasse. We got to the other side together. I don’t care about credit, I want my agent to be paid for her great work.  

Last week, another agent told me about an attorney who adjourned a closing over a $150 repair that was delayed (they were offered a $10,000 escrow for 24 hours), and then demanded a $1000 adjournment fee when the closing was rescheduled. I reached out to the other broker to see if we could convert the discord to agreement. And independent broker like I, He couldn’t be bothered, preferring to put his energy into unhelpful, passive aggressive emails that wouldn’t forward the transaction. We went around him through the attorney on our side and had that fee reduced to $300. The deal got done. 

This morning, one of our agents asked what other marketing sites her listing could be posted, because her sellers have indicated that a large franchise might be better if they expire unsold next month. As I write this, Ann is posting the listing to a localized marketing portal we found and reviewing where else it can be syndicated. I emailed the agent to schedule a meeting with the clients. Nobody ever bought a house because of the sign in the yard; I’ll get her an extension. 

These are things we do daily, but the above three are what come to mind before coffee. I’m not big on sales meetings; the agents learn in these instances by osmosis and watching me work with the client. They’ll have a new tool going forward. I do quite a bit one on one in  non-crisis mode also.  I think the team knows that I have their back, and that we are always looking at the architecture of the company to give them every advantage. This much is for sure: The split to the broker in our company is not tribute to the godfather; we endeavor to take as much shrapnel in our keisters as they. And when the commission comes in, we earn it as a team. 

I once had a mentor tell me that the truly wealthy don’t cash big checks, they write them to others. That’s my goal. 

After reading a remark by John Elwell, I had a thought about virtual tours: in this area, at least, they seem to have run their course. Not long ago, a few years perhaps, many brokers offered virtual tours. I seldom see them anymore. Our MLS now has the capacity for 30 home photos, plenty for even a massive home, and Youtube and other outlets make for easy videos of home tours. So, virtual tours seem to have taken a back seat. But why? 

A few thoughts:

• The virtual tours I have used are clunky and tend to crash or slow the computer down. A guy eating his lunch at his work computer can easily click through Jpegs to get a feel for a home without having his computer freeze on a shower as his boss walks by. Virtual tours don’t give that immediate feedback, and that is a problem. 
• For the same money or less, you can even put up a single property website, which gives the listing, among other things, a presence on Google that a virtual tour cannot give. 
• They are VERY virtual. What I mean is that some sort of do more harm than help. A kitchen, for example, can look too large or small on a VT, and in either case that is a problem. 

Just listed: This 2338 square foot 4 bedroom 3 bath 1920’s Lewis Bowman designed New England colonial on over a third of an acre in Pelham Manor. Boasts a rocking chair porch, patio, ample parking, and gorgeous landscaping outside. Inside is exquisite, charming, and updated: Stainless steel kitchen appliances, butler pantry, huge living room with fireplace, formal dining room, all while retaining the 1920’s character. A true gem. This is a short sale subject to lender approval. Price: $899,900. Call J. Philip Faranda, Broker, for details. (914) 723-8900. 

This is the market report for the single family home sale activity for the county seat, White Plains, for July of 2010. The city has a number of zip codes, as well as many other types of housing (multi family, condos, co ops) and I can break the activity down down by zip code or property type by request. This should give an overall trend of the market compared to July of 2009. All information is from the Westchester Putnam Multiple Listing Service for single family homes in White Plains.

Things are looking up. Sales are up, the median price is up, and there are a whopping 42 homes under contract, which equals almost one third of the available homes for sale. The same condition existed back in May, and the market is showing no signs of cooling off with Autumn approaching. This speaks to the good quality of life that is available in White Plains.  

My previous postings on White Plains can all be found here.

I might as well have set my hair on fire. 

The adversarial, confrontational, and flat out uncalled for hostility surprised me. I won’t bore you with the details, but suffice to say that my 56 game hitting streak of building bridges with my colleagues ended with that effort, and I don’t look forward to another transaction with the guy’s firm (I have since begun a new streak). Curious as to why he was so miserable, one of the things I did was check out his company web page. What I found was disconcerting. 

Apparently, his firm is the only firm in the world that will really serve the clients. Everyone else is a back-stabbing mercenary, to paraphrase his claims. Most of the content was venom, and one of the things on the site was comparison chart of other firms compared to Grouchy’s brokerage. Take a look and tell me if you find it truthful. For my part, I have certainly done everything they say I won’t do, and I don’t operate on their model!

Is this Kosher in your view?  

Perhaps you know Ethyl. She’s been around a while, and takes every opportunity to tell you so. The details of her background are a little murky, as she was originally licensed in the real estate Mesozoic Era, but she just prefers the term “35 years in the business” which she repeats a minimum of 1.2 times per minute. There were some years early on when Ethyl was quite a producer, but your computerized MLS records going back to 1998, don’t have her selling much. But she doesn’t tell that to her clients. They just know she’s a “million dollar producer,” a “top office producer” and 3-time WhoopdeDoo award winner. 

She might have had her own brokerage, but it didn’t stay open if she did. She trades on the good name of her office, and if you speak with her, she’s the reason the office produces the numbers it produces. Her office teammates know her to be temperamental and rather arrogant, yet she always seems to have someone who wants to see their listings (how does she do that, anyway?), so they have an uneasy truce. She’ll write an offer one of these days.    

When Ethyl pulls up to the front of your listing Sunday morning in her pristine, leased  Lexus, she invokes her 35 years in the business when you tell her your sellers need more notice than, like, now. Ethyl then loudly asks “they want to sell, don’t they?” When you bring an offer on one of her listings, if it isn’t full price, Ethyl acts as if you just did donuts on her front lawn. She has only 2 moods: annoyed or condescending. 

Every so often, Ethyl does write an offer up on a home for sale, and when asked for a pre approval, she says she’s been doing this 35 years and her buyers are “gold.” Ethyl gets insulted easily; don’t you know who she is? If you do have a deal on the table with Ethyl Broomhandle, she gets very testy when you don’t call her back right away, but she herself is a little challenged with answering emails or her cell phone. Ethyl will often punt a problem the brokers could resolve by saying “let the attorneys handle that” as she stuffs her phone into her purse with her can of Aqua Net on her way into her bridge game. 

Ethyl will never tell you that if it weren’t for her husband, she’d have been out of the business in 1978, 1987, 1992, and 2008. She’s never been the primary bread winner. She steals the odd lead. She doesn’t work very hard. But she’s Ethyl Broomhandle, dammit, she was selling homes when you were in grammar school, and you better show some respect.

Have you met Ethyl?  

I have blogged before that not all short sales get a seller 100% absolved of their debt. New York is not  a non- recourse state.  Sometimes, the bank wants cash at closing or proposes a small installement note after closing. It is rare, but it happens, and it is often linked to the seller’s hardship. If the seller does not have a compelling hardship, the bank might take this position. It is the lesser of two evils, because as small post closing debt is better than a foreclosure. 

We had a short sale seller balk at owing any money after the closing and demanded that the agents pay part of her deficiency from their commission. This person viewed the commission as being fair game for subsidizing her. Our agent didn’t see it that way, and suggested they really deserved more for getting their own buyer after the house was listed previously for 3 years with no offers elsewhere. Some agents might cave in and kick money in the make the deal work, rationalizing that something is better than nothing after breaking their butts for 6 months.

I am not one of those agents. I am the kind of agent that knows enough math to tell this ungrateful um, person, that with an auction date in 3 weeks that I’d rather have a $30,000 loan than a $350,000 foreclosure. It is simple math. Moreover, the giveback would not have helped, except to lower the payment $15 per month while the licensee lost a chunk of their hard-earned income.

Bear in kind that this isn’t the bank putting their hands in the cookie jar. It was the seller. The choice seemed clear to me. We owe our clients advocacy, confidentiality, loyalty, and all fiduciary duties. But we don’t owe clients our grocery money or mortgage payment. With all due respect to the financial strain and stress of a short sale, my kids will not pay the bill. When the best deal a seller can get doesn’t give them a get out of jail free card, they need to choose something other than hurting their agent.

The deal did close, and the seller is now out of hot water, out of foreclosure, and has a standing offer from me personally as broker to renegotiate the note. The relationship between the agent and seller however, was strained, and while that is a shame, I cannot fathom the client begrudging that my agents have to earn a living.