Here’s to a shimmering ‘08 December 31, 2007
For some sad reason, right as a year is close to screeching to a halt, I can’t help but utter the phrase “good riddens.” It rolls off my tongue almost perfunctorily. Each year has its highs and lows, and this year was no exception. 2007 kicked off in morbid fashion when my mother was almost killed in a head-on collision (thanks to an ignorant driver) in the leafy Chicago suburbs. Luckily, she survived relatively unscathed, at least physically. On the plus side, I moved to Seattle and made headway on some new goals, established new routines and dived into graduate school and volunteer projects. But besides mourning our own unpleasant experiences, it’s easy to be sullen over the year our own nation has endured: We continue to heartbreakingly lose too many American soldiers as tension swells in the Middle East; the housing market continues to look grim; scandal riddled the sports worlds; and the most recent blows - floods battered Seattle and the senseless slayings in Carnation. At times, it’s difficult to not want to disencumber yourself from the fetters of all that plagues our world, and just pretend it’s not happening.
However, there’s a sort of dis-ease that comes with a new year as well and as I’ve grown older have tried to ask myself, how am I going to make this year a step up from the previous? Even slight tweaks in one facet of one’s life can undoubtly make the new year more resplendent. But that’s always easier said than done. If your 2008 starts murky, here’s a web site that might quell your moroseness and prompt you to unleash chuckle or two.
Let’s hope 2008 is great! Cheers!
Sweet Home Chicago!
Going home to Chicago for the holidays was more than enjoyable. It had been a year since I had seen one of my brothers and sister-in-law and months since I had seen my parents and other siblings. Presents, food, laughter and fun brimmed my empty-nester parents’ home. What was most surprising was how maneuvering the airports during the holidays was quite a cakewalk. Though my redeye flight leaving Seattle was delayed two hours (mechanical aircraft problems really ease my mind, j/k), which meant we took off from the Emerald City at the ungodly time of 2 a.m., leaving me zombie-like for the first few days of my trip while my friends and I braved the malls for holiday gifts and indulged in a Chinese massage.
One thing that was apparent was that returning to the Midwest had me reverting to the fast-paced way of talking, going-about-things that I have somewhat left behind since I’ve lived in Seattle. It’s interesting to hear if others observe differences in a person that hasn’t been back in months. My mom (jokingly, I hope) repeatedly called me detached, which made me ornery and react with a slight cringe. Though I attributed any disconnectedness to the redder than red redeye flight and time change. Five days in Chicagoland was plenty, especially with the bitter cold that is inevitable there, but I treasured mingling and going to church with my numerous friends and family there. One of my hobbies is writing novellas, so I was also tempted to start a yearly book club with the family since books became a hot topic at the dinner table at certain points, or whip out the Scrabble board, but my geeky self resisted!
As a sort of news junkie, I couldn’t help but inquire into how the Chicago burbs have handled the intense media scrutiny that has swirled around Bolingbrook, IL (neighboring town of my hometown) and embattled ex-cop Drew Peterson, who is under the glare in regards to his missing wife. Some of my friends mentioned the onslaught of Fox News trucks around and others just cited an eeriness to the areas amid the hubbub.
And go figure, we didn’t have a white Christmas in Chicago, but I heard Seattle sure did. And how about the last two gorgeous sunny days we’ve had here in Seattle - just an anomaly? Perhaps yes.
Happy New Year to you all!
Sphere: Related ContentReliving 1999 in 2008
If you live in select Seattle area zip codes, you can relive just a little bit of 1999 with Amazon Fresh. They have reasonable prices and early morning delivery. Complimentary Pets.com sock puppet not included.
Sphere: Related ContentAre Short Sales Affecting our Home Prices?
This downturn in real estate is so much different than the one we ‘older than dirt’ agents experienced in 1980’s. Then, with inflation over 12% and interest rates over 20%, we knew why we were in so much trouble and saw only long term effects since it was a problem with our national economy. We were using rubies, horses, businesses, anything we could use for exchange for a down payment and doing ‘mushroom closings’ where the sale wasn’t recorded to avoid paragraph 17 of the note to kick in. (before you judge, let me mention that this was with attorney guidance!)
This time, it’s been very very confusing since our national economy is healthier, inflation appears under control and here in the Puget Sound area, there is low unemployment and signing bonuses are again being offered for qualified high tech employees.
So, the big question here in the northwest (I’m only referring to the NW, specifically King, Pierce and Snohomish County and of course, there’s Wenatchee), is, is this a short term or a long term correction.
And, is the effect of the short sale inventory going to be a drag on our home prices. There are phenomonal discounts right now in short sale properties. However, are they really affecting the price of normally marketed properties? Do buyers see these short sale properties as good homes for them to purchase, or are we only attracting fix and flippers and other investors to these properties.
The nwmls statistics show that in King County, there are 71 short sales, trustee, or foreclosures in the entire county. Of these, 27 are active, with an average price of $397,000 and average days on the market of 134.
21 are under contract either sti or pending and only 1 is sold in the last 6 months. So, with 27 active, and 22 sold or under contract in all of King County, compared to 8355 active, 1731 sti or pending and 10126 sold in the last 6 months, is there really a measurable effect? or is this just a temporary hiccup?
Sphere: Related ContentDustin Luther and ARDELL’s butt make “the news”
The BIG news today is that Inman named Dustin Luther, Owner and Founder of Rain City Guide among many other things, one of the Top TEN People to Watch in 2008
- Errol Samuelson, president, Realtor.com
- Sheila Bair, chairwoman, Federal Deposit Insurance Corp
- Lockhart Steele, founder and publisher Curbed.com
- Sam Zell, Chicago billionaire
- Kerry Killinger, CEO, Washington Mutual Inc.
- Andrew Cuomo, New York attorney general
- Dustin Luther, founder, 4realz.net
- Lawrence Yun, chief economist, National Association of Realtors
- Ben Bernanke, chairman, Federal Reserve
- Kurt Pfotenhauer, CEO, American Land Title Association
Those with an Inman subscription can catch it here for those who can’t see that link, the blurb on Dustin is reposted here.
Of lesser import, my butt appears to be the opening shot of Joe and Rudy’s great video posted yesterday, over at Sellsius of San Francisco Inman Connect/end of Blog Tour USA.
Congratulations Dustin!!! I agree that you are clearly one to be watching in 2008. We certainly will be watching you. I find myself becoming addicted to 4Realz.net very quickly, though I think that site is just a speck of what we will be seeing and hearing from you in 2008.
Happy New Year!
Sphere: Related Content
Washington State Loan Originator Licensing Update December 30, 2007
As of November 14th we had roughly 15,000 loan originators who had received an interim license during the year 2007. These licenses expire on Dec 31, 2007 and license renewal is conditioned upon them passing their competency exam and completing two continuing education courses, one of which must be an ethics course. At the November 14th Mortgage Broker Commission meeting, we were told that out of 15,000 LOs, there were only about 5,000 who had taken their competency exam.
The new loan originator exam was introduced in June andthe exam candidates were given a 600-question study guide along with the answers to the test questions. The LO exam is 100 questions long and candidates must pass with a 70%. One to two percent of the students that attended my exam prep course had actually read the entire 600 question study guide. Less than half of one percent of the exam candidates that came through my classroom had read the state law to which they’re subject to, the Mortgage Broker Practices Act. The pass rate for the LO exam currently sits at 89%. This means the exam is too easy. For those that did not pass the first time, the second try pass rate for them was 71%.
As of December 19th, WA State Department of Financial Institutions (DFI) reported that only 1,900 loan originators had renewed their license. At this point, we can try to project attrition numbers before the actual figures are released from the state which will likely be at the next Mortgage Broker Commission meeting, date TBD.
If there were 10,000 LOs who had not tested between mid November and now, and if we know that 1833 LOs are not physically located in WA state and could likely find a Promissor testing center near their city, then we’re left with 8,167 LOs that needed to take their exam before Dec 31st. I suppose if every testing center across the state was filled with exam candidates between Nov 14th and today, they all could have made it. I think not.
LOs were reporting up until mid December that many of the testing sites were not completely booked when they took their exam. I had been predicting LO attrition to be about 2,000 since the meltdown began. Now I believe we could see further LO attrition, up to 4,000. This will consist of LOs who haven’t closed a loan in many months and who have found other employment, LOs who were only originating subprime, LOs who have chosen to work for a retail bank or consumer loan lender not subject to licensing, LOs who were not able to pass the background, fingerprinting, and felony checks, and LOs who have just simply de-prioritized the licensing renewal requirements.
LOs who do not pass their exam, complete their two required courses, and renew their license online must stop originating (scroll down to numbers 18-22) at midnight on Dec 31, 2007 and transfer all files in process to their broker or another licensed loan originator. LOs will have 45 days to pass the exam and complete the required CE classes while originating NO loans. After Feb 14, 2008, if a LO has not passed the exam and completed his or her required CE, the interim license will expire and the LO will need to start the application process all over again from the beginning and must wait until their new license arrives from DFI before being able to do the job of, and earning fees from loan origination. There are no exceptions; not even one loan. New LOs entering the industry on Jan 1, 2008 may not originate until they pass their exam and receive their license from DFI.
I receive an interesting phone call from a student late Sunday afternoon. She was once again canceling her attendance at the Dec 31st ethics class, and for the third time, was asking me to move her into another class. I made sure she realized that if she didn’t finish up by midnight on Dec 31st that she would have to stop originating. Here’s what she said; “Oh, yeah, I know. I haven’t taken my test yet either. Can you put me into a Jan class please, and sorry to have to reschedule on you again.” To her it seemed like missing the deadline was no big deal.
I guess the 50% late fee ($62.50) wasn’t much of a deterrent, and neither was the threat to “stop originating at midnight on Dec 31, 2007.”
Sphere: Related ContentLinden Home Loans Charged with Bait and Switch Advertising December 28, 2007
The Washington State Department of Financial Institutions (DFI) has charged Linden Home Loans, “Home of the 1% Mortgage,” with bait and switch advertising. The DFI investigation discovered that Linden promised consumers residential mortgage loans at “1% interest, with no points and no fees,” yet no one ever received those loan terms in 2006. DFI is now investigating whether anyone in 2007 received a 1% mortgage. DFI reviewed 91 files that were originated during the time the ads aired. Only 10 of these borrowers received a 1% mortgage and those who did, paid $10,000 in fees. Read the statement of charges here (link opens PDF.)
“Deb Bortner, Director of the Department’s Division of Consumer Services, noted that in addition to bait and switch advertising, Linden allegedly violated the Mortgage Broker Practices Act by misrepresenting loan terms, omitting required disclosures, and engaging in an unfair and deceptive practice. “The 1% rate touted by Linden lasts only a matter of months, and requires borrowers to accept predatory loan terms that would greatly increase costs to borrowers,” Bortner said. “Consumers have to be careful. Low rate, low cost mortgage loans may be available, but they often result in borrowers paying more than they should,” she continued. “In this case, we allege that Linden’s offer was illusory—consumers who responded to the bait were switched to higher rate and higher cost mortgages. The borrowers who did get the 1% rate — only 44 of 333 borrowers — paid fees that in some cases grossly exceeded traditional broker fees.”
If the final consent order follows the statement of charges, the company’s mortgage broker’s license will be suspended for 30 days, along with the loan originator licenses of the company owners. The fine will be at least $150,000. The company is going to fight the charges and has requested a DFI hearing.
Watch the TV commercial here
Listen to the radio ad here
These ads provided ongoing, live, telephone leads for their loan originators. Unfortunately, deceptive mortgage advertisements by other companies are still playing on TV and on the radio. It will be interesting to see what 2008 has in store for those companies because DFI tells us in the press release that more advertising enforcement actions are forthcoming.
The follow up question becomes, if these homeowners were deceived and are now facing foreclosure, would they be able to bring action against Linden?
If the answer is yes, then maybe we’ll finally start to see the beginning of the end of deceptive mortgage ads.
Washington State DFI investigators are encouraging consumers who have been deceived by mortgage advertisements to contact DFI at (360) 902-8700 or 877-746-4334.
Interestingly, Linden named it’s company after a tree that is suppose to represent family values, prosperity, and truthfulness. While they’re rethinking their marketing program, they might want to make sure that their “Home Free” contest actually went through as advertised. I see no reference to an announcement of the winners, though the contest deadline has passed. Also, their website advertises that they have “thousands of loan products” available which is a pretty bold statement in today’s market.
Their website is still up and running, they’re still taking applications and they have voluntarily taken down their “Home of the 1% Mortgage” ads.
I am unsure as to what would happen if a loan is in process when the final consent order is handed down. If they’re told to cease operations for 30 days, at that time I would guess that any loans in process would likely have to be transferred to another licensed mortgage broker. Realtors, and consumers: have a plan B lender lined up if your mortgage broker is Linden, or inquire with your Linden loan originator as to what their plans are, when the final consent order is served. Who knows, maybe they’ll win when they plea their case before DFI. But then why would they voluntarily take down the advertisements?
12/29/07 Update: Linden Home Free contest winners have been posted here.
Sphere: Related ContentThe Last Friday’s Rates for 2007
Today escaped me between dealing with clients and then trying to take some time off to run our boys around exchanging 
Christmas gifts before the New Year. I post rates here and at Mortgage Porter every Friday. I tend to post them at MP first and then stall a couple hours in case of price changs so that our Rain City Guide readers can have the most current rates. Well…today that didn’t work out so well! ;)
I’m going to make an exception and send you over to Mortgage Porter for Friday’s rates. This will not be the rule.
Many mortgage companies will be closing early on December 31, 2007 and re-opening for business as usual on January 2, 2008.
Happy New Year!
Sphere: Related ContentWhere are the coyotes in Seattle? December 27, 2007
The answer: everywhere. An especially instructive mashup would be coyote sightings and missing cats (via Craigslist?). I saw one running in my neighborhood a couple of weeks ago and found a raccoon two doors down last night.
Sphere: Related ContentChristmas Neighborhood Round-up…. December 26, 2007
….December began with snow flurries and we had a (brief) White Christmas too!
Holiday parking woes in Ballard at Large and it’s a Blue Christmas on Alki on Beach Drive Blog.
On Capitol Hill The Northwest Film forum and Santa partying it up, Mid Beacon Hill and The Year in Review photo story part II.
A different kind of man in a different kind of red suit on Capitol Hill Triangle , another Red Suit (Mayor Rosemarie Ives) in Redmond Nieghborhood Blog.
Give One Get One program is touched upon in Cosmo Seattle , and a Holiday gift idea from Broadway Seattle.
Christmas lights in Week 50 in Kirkland 52 , and the Christmas Star returning (?) on Beacon Hill Lights.
Kirkland dogs are dreaming of a Dog Park in Kirkland Weblog , and Winter Solstice at Miller Park Neighborhood Association.
Christmas in Issaquah in Issaquah Undressed , World Peace and the Scary Santa in SammaMishmash.
Dreaming of a White Christmas came true in West Seattle Blog , and my Seattle’s Urban Villages Christmas Lights tour….
Sphere: Related ContentRecent Mortgage Fraud Developments and Future Outlook December 23, 2007
Before we use to rely on automated underwriting systems and credit scores we had humans who would carefully underwrite mortgage loan files. During the caveman human underwriter days, loan originators and loan processors knew that underwriters could make or break a file. An underwriter had god-like power to grant or deny the American dream. They had minds like a detective and long-term memory capabilities of an autistic child who can recount the entire screenplay of The Incredible Journey along with all the background noises. Underwriters knew which loan originators had a history of submitting fake gift downpayment letters because they would all sit and chainsmoke together in an un-vented room for 9 hour straight comparing sob stories from loan originators whose files were denied. After work, they would saunter off to network with other underwriters from other banks at a local bar or Mortgage Banker’s Association meeting, same/same. Any fraud that a loan originator tried to pull off was easily sniffed out, with the LO retreating for a while and eventually leaving the company due to the ice cold group shun effect. There were no stated income loans. Two years of tax returns, a P&L and a balance sheet were brought in to underwriting and a few days later, an underwriter would hand the LO a sheet of paper telling the LO what number to use as income for qualifying purposes. If the newly self-employed could not qualify, that person found a co-signer, usually a parent.
Yes, I was an underwriter back in the mid 1980s, and I was the youngest underwriter on staff. I was recruited from processing because I use to submit my files already underwritten along with the conditions for loan approval. What was apparent to me even as a 23 year old was that if my boss had to report to the same person that was in charge of sales and production, every file would have been approved. But she reported to someone else. It was that person’s job to make sure we were making good credit decisions. The goals of production and risk are in harmony, if you take a long-term look at the possible consequences of making credit decisions that are too far out of balance either way. Each part of a mortgage company needs the other part to maximize good consequences for all.
Recent Mortgage Fraud Developments
The outlook for mortgage fraud across the United States is grim. I started this series at the end of October with background research conducted by the FBI that concluded that the most damaging mortgage fraud consisted of many people in the industry working together; fraud for profit.
As of today, I am no longer convinced that fraud for profit is the most damaging kind of mortgage fraud.
Today I believe if we put all the out-of-work underwriters back to work and opened up all the loan files in the defaulting tranches of subprime, Alt-A, and prime loans, we would find the same kind of problems that Fitch, the ratings agency, found when they re-undewrote a small sample of 45 early default loans from the 2006 vintage. Now granted, this is a small sample. However, after working within corporations most of my adult life, I also know that the public really never hears how bad things are. The name of the report is “The Impact of Poor Underwriting Practices and Fraud in Subprime Residential Mortgage Backed Securities” dated Nov 28, 2007. Anyone can read the report by going to fitchratings.com You have to provide them with an email address, but there is no charge. Here are the bullet points:
45 loans with early defaults, originated during 2006, subprime, with an average FICO score of 686. Each loan had one or more of the following characteristics:
66% Occupancy fraud (stated owner occupied but never occupied)
51% Property value was materially different from the original appraisal
48% First time homebuyer yet credit report showed other mortgage information
44% Payment shock greater than 100% and some instances of 200% payment shock
44% Questionable stated income or employment in conflict with info on the credit report
22% Hawk Alert (Fraud) noted on the credit report
18% Social security numbers on the credit report do not match the SS# on the application
17% Seller concessions outside the allowable parameters
16% Credit report indicated their score was artificially inflated via an authorized user
16% Straw buyer
16% Identity theft indicated
10% Signature fraud indicated
6% Not an arms-length transaction
Fitch explained that when a lender used a high FICO score or a high property value/lower LTV to offset other risk factors, when just one of the above areas of fraud were present, the risk of default overshadowed the high FICO and property value.
Just this past Friday Dec 21st, Fitch downgraded 5.3 billion in RMBS, and this is just ONE ratings agency.
Future Outlook
Old-fashioned human underwriting is making its way back to banks and lenders. This is good news to everyone but the people who answered sales job ads that said “make six figures your first year with no experience” who got into the industry for no other reason than to make money, who don’t care about homeowners, and who really don’t care much about mortgage lending at all. Those that care, that will complain about the amount of time it will take to hand-underwrite your files, to that I say, let the invisible hand of the free market help re-build competent, competitive, service-oriented underwriting departments without the god-like attitude.
The future begins now. We should all expect massive re-assessment of risk management processes within those companies that originate loans such as bankers and lenders. Mortgage brokers should prepare for their banks and lenders to probe deeper into the mortgage broker’s business practices, including systems, education, and training on risk reduction, fraud “no tolerance” policies, and anonymous whistleblower fraud reporting systems.
This also holds true for investment bankers issuing Residential Mortgage Backed Securities. Fitch is putting everyone on notice that it was not able to and cannot, today properly rate RMBS if they’re left to rely on fraudulent loan files. Since risk assessment is only now beginning, I predict the vintage 2007 subprime loans will fare no better than 2006.
However, when we look back 20 years from now perhaps the biggest mortgage fraud case of them all will be the corporate CEOs that left taxpayers and shareholders holding the bag while they scooted out the door holding their golden parachute.
Report mortgage fraud tips to the FBI by following this link.
Part 1: Mortgage Fraud
Part 2: Case Studies
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