RECOVERING FROM THE MORTGAGE CRISIS

Pundit A disagreed with Pundit B who said that the American people have some responsibility in this crisis.  I disagree with both. The American people have everything to do with this crisis….AND we will have everything to do with recovering from it.

We forget that a corporate name is nothing but people.  People (we the American people) filled every role during every transaction that took place in route to this current position.  Too many of us, in any and every related field, got caught up in the rush to short term profits.

And it will require all of us to improve our performances, cooperate and contribute to recovery.  We the people got us into this mess and we will get us out.

The critical unit in this travail is the residential mortgage loan.  Too many are delinquent and too many are in excess of the property value.  As we performed brilliantly in creating and innovating our way to booming home sales and mortgage loan volumes, now is the time to be creative and innovative in the recovery.

The market will change.  Depressed today, it will not be so tomorrow.  Let’s think about options and possible solutions.  Let’s get as creative with our collection efforts as we were with our sales efforts.

[1] Let’s restructure into 80 / 20 / +’s

            Create some solid 80% LTV*, full doc, 1st position loans 
and park the 2nd and or 3rd position pieces.
Put these on hold for 4 month intervals.  Devalued asset, but not lost. 
It took us 6 years to recover from the last bail out (RTC and S&L’s).  Let’s not set a limit as yet, but let’s start allowing the holders of these devalued assets some latitude, so that the pressure to foreclose is lessened.

[* LTV is Loan To Value, a key measure of credit risk. Generally, the lower the ratio, the lower the risk, because the collateral property could be sold quickly at a price that would pay off the debt in full.]

[2] Let’s stop flooding the real estate markets with foreclosed properties

            Let’s coach the homeowners back to some fiscal health.
Let’s help borrowers to understand cash flows and re-structure mortgage repayments to suit.  Collectors need to be coaches.

[3] Negative amortization is not the worst thing.  Being homeless is worse and coupled with vacant uncared for properties is worse still.

The depressed market today, will not be so tomorrow.  Can we curb our immediate gratification just a bit and be a little patient? 

Foreclosure must be the last resort.

Can we coach the tenants and help them to escape their debt, or at least manage it?

In the event that a home is sold short, and a mortgage balance remains, let’s explore some new options.  Should not the lender and originator involved in selling this product bear some responsibility for this remaining balance?  And also, there are cases where the customer, being always right, demanded such a product, and thus, customers too bear some responsibility.

 [4] During the rush to profits, many sales people were employed to sell the real estate and the mortgage loans, and they were compensated well enough to make it worth their while.

Let’s now deploy the same strategy and employ that many coaches, compensated just as well, to help borrowers recover?

A great many mortgage folks have been laid off, perhaps it is time to re-tool them, rehire them as credit coaches.

[5] Credit coaches to continue to work with their clients.

Let’s redefine the relationship between borrower and collector, who in this effort will be called coaches, to help borrowers make decisions now, and over the next 12 months….longer or shorter if necessary.  But let the borrower know they have a trusted financial coach to help teach the basics of cash flow and family economics. Cooperation between coach and borrower must become the norm.

[6] Community cooperation

Additional help and solutions lie within each community.  Local charitable organizations and churches have human and financial assets that can assist their memberships and neighborhoods, too.  Credit counseling, spiritual support, basic needs assistance and job seeking assistance can help some to not only keep their homes, but learn how to do so more easily.

[7] There is no room for unethical behavior

            … period.       

[8] Lessons learned?

[] We are NOT a stronger community when every American owns a home.  We are a stronger community when every home owner can afford to live and keep up the home in which they live.

[] If we continue to offer complicated loan products, we have to re-think sales compensation concepts and loan disclosure concepts.  (The disclosure challenge now is that there are too many disclosure documents, written in very small print using far too many words.  Borrowers are over-whelmed.)

One specific change might be to provide the actual Note* prior to loan closing.  And perhaps, if all these disclosures are necessary, perhaps they too can be provided prior to the closing.

[The Note is the document that sets forth the repayment terms.  It shows the interest rate and the monthly payment.  If an Adjustable Rate Mortgage, it shows the future interest rates and monthly payments and the dates on which these will change.]

[] Stated Income and no verification loan products, if continued, must be available only at low LTV’s.

[9] Local regulatory knowledge and presence.

We are a diverse country and few generalized statements apply to all markets.  Each market is local AND in some cases, micro-local. 

Statistical analysis and risk models are brilliant and useful, but they are not fool-proof.  Sometimes, actual, local, market knowledge is and should be part of the decision-making.

There were several mortgage banking entities that set up a network of offices that served the entire country.  A similar network of regulatory offices could be established to house local professionals who can and should monitor the loan products being offered in their territories.  (I imagine that there may be some vacant offices available for this effort?)

Perhaps, as part of the redefinition of FNMA and FHLMC, they could share in the expense and utilization of these local offices.

[10] Keep improving ….

As many improvements as we might set forth today, tomorrow will present new data and we must continue to adjust.   We don’t have to, and nor will we, set forth 10 perfect commandments that will fix this current mess and prevent a future one.  The best we can do is begin corrective action and then continue to get better by closely monitoring the results and paying attention to changing market demands.

The critical unit in this current crisis is the residential mortgage loan.  Too many are delinquent and too many are in excess of the property value.  As we performed brilliantly in creating and innovating our way to record home sales and mortgage loan volumes, now is the time to be creative and innovative in the recovery.