Community Development Banking List
10-10-2008, 02:58 PM
Original message from: DKleiber@caplink.org
As we all know, this is very complicated mess but I think Tim has pretty
much diagnosed the disease correctly - I just disagree with his
suggested prescription. (I should preface my comments with an admission
that while I have done a lot of lending, I have not done direct mortgage
lending so please correct me if my assumptions are in error).
When lenders can off-load the risk associated with a mortgage they
write, the incentive becomes to write as many as possible - it becomes a
race for deal-based fees - not management of earnings over time
generated by a spread. This is what I believe drove the mass of mortgage
brokers (many of whom are no longer in business) and in-house bank
lenders to offer absurd terms to whoever came in the door. Even this
could potentially have been handled by the market if the mortgage
obligation itself stayed together - so the risk associated with a given
deal (and the responsibility for managing the work-out if necessary) was
clearly in someone's portfolio. The market could have priced and
managed that risk. What we have now is a situation where the risk
exposure to a given mortgage is spread around a large number of
investors - no one of which has the knowledge of, connection to,
authority for, and often even the capacity to manage the underlying
deal. Because of this they can't accurately judge the risk represented
by what is probably a fairly small percentage of a pool of mortgages,
but this uncertainly taints the whole pool. So what to do?
The answer is not to change the mechanism by which the players get paid
- that probably doesn't make sense in this kind of marketplace. The
market will weed out the over-supply of R/E agents, brokers, etc. if
certain more fundamental changes are made. The answer is also not to
restrict the selling of whole mortgages (though if lenders had to retain
the risk they underwrote this whole mess would likely never have
happened). The answer might be to prohibit the pooling and subsequent
serial carving-up of the pool. Efficient markets work when they have
full information and clear lines of accountability- it is the lack of
that information/accountability that is sending markets into a tailspin.
If this change was made, my guess is that some (maybe many) of these
mortgages might still get done, but they would be handled by groups that
specialized in the management of this high risk portfolio and they would
get paid to do so through risk-adjusted interest rates. Instead, the
opposite occurred - rates effectively declined for poorer credits though
the mechanism of ARMS, etc. further fueling the fire. If the amount of
this type of lending dropped below what was considered appropriate, or
desirable from a social-engineering point of view, we could possibly
establish mechanisms for directly subsidizing down-payments, monthly
payments, mortgage insurance, etc. for qualifying borrowers.
Dave Kleiber
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________________________________
From: bounce-3155414-4989936@list.cornell.edu
[mailto:bounce-3155414-4989936@list.cornell.edu] On Behalf Of Jones,
Anthony M
Sent: Thursday, October 09, 2008 9:03 AM
To: carl.malone@harrisbank.com; tloc@centuryhousing.org;
pbetts@memphis.edu; jtroesh@servicepluscu.org;
communitydevelopmentbanking-l@list.cornell.edu
Subject: Re: communitydevelopmentbanking-l digest: October 04, 2008
I totally agree Mr. Malone. What you're hearing is a nostalgic longing
for a long lost time when banking was a respected profession and banks
themselves were pillars and protectors of the community. But the world
has changed. Banks today are just another retail establishment going
after market share. Mortgage bankers only eat what they kill. So finding
suitable kill becomes the ultimate goal. And, not unlike with used car
salesmen, bad apples are a necessary evil that drag down the reputation
of all. In order to survive, even the most high-minded must either leave
the profession or lay down with dogs.
Perhaps deregulation and competition are necessary evils. But I must
admit, I too long for the good old days when E. F. Hutton spoke and
people listened.
From the sidelines,
anthony
Out of the office. Sent from my wireless handheld.
This message thumb-typed and not spell checked.
________________________________
From: Malone, Carl
To: Tim O'Connell ; pbetts@memphis.edu ; jtroesh@servicepluscu.org ;
Jones, Anthony M; communitydevelopmentbanking-l@list.cornell.edu
Sent: Thu Oct 09 10:47:09 2008
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
Tim:
My question was based on 26 years of banking experience. Given the
reality of the mortgage marketplace and the number of competitors all
chasing the same clients, how else would you compensate these people? In
my opinion, in sales, you pay based upon effort and success. If you
don't exert effort and are not successful, you don't get paid. With all
due respect, your argument doesn't hold water.
________________________________
From: Tim O'Connell [mailto:tloc@centuryhousing.org]
Sent: Wednesday, October 08, 2008 2:08 PM
To: Malone, Carl; pbetts@memphis.edu; jtroesh@servicepluscu.org;
ajones@co.pinellas.fl.us; communitydevelopmentbanking-l@list.cornell.edu
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
How much do you pay for babysitters? Or lawyers? Or doctors? Or
accountants? This is not rocket science -- if you offer $XX and no one
applies, you are not offering enough. If you offer $YY and you have a
thousand applicants, you are paying too much. Compensation should be a
return for work/labor, not a windfall for luck or success, especially
when the worker actually has little control over the outcome of her
work. No salesman or broker actually controls the terms of the deal,
and they should not be compensated on the basis of things beyond their
control. It is their 'best efforts' and expertise that should be used
as the basis of compensation, not on whether the market went up or down
today, or whether there were sunspots or a hurricane.
________________________________
From: Malone, Carl [mailto:carl.malone@harrisbank.com]
Sent: Wednesday, October 08, 2008 10:29 AM
To: Tim O'Connell; 'pbetts@memphis.edu'; 'jtroesh@servicepluscu.org';
'ajones@co.pinellas.fl.us';
'communitydevelopmentbanking-l@list.cornell.edu'
Subject: Re: communitydevelopmentbanking-l digest: October 04, 2008
Interesting, but how do you determine what is fair and equitable for
compensation given a banks need for revenue?
--------------------------
Sent from my BlackBerry Wireless Handheld
________________________________
From: bounce-3151259-4990520@list.cornell.edu
To: Phyllis G Betts (pbetts) ; Josh Troesh ; Jones, Anthony M ;
communitydevelopmentbanking-l@list.cornell.edu
Sent: Wed Oct 08 12:07:18 2008
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
Frankly, there is a sort of self-unawareness about the single most
important part of this. As has been said many times, "Follow the
money." In this whole market, the underlying motivator was that our
housing industry is built on a commission model. Every one in the food
chain is paid based on volume and scale of sales. From the real estate
broker, through title insurance brokers, appraisers, bankers, securities
brokers, rating agencies and all the rest of the myriad of people who
touch each deal, the primary factor was to push more loans and push each
loan to the highest feasible price in order to maximize personal
income/profit.
It is the tragedy of the commons, where every shepherd wants to fatten
his sheep and so together they overgraze the common meadow. There are
only so many households who are capable of owning homes - whether for
financial or personal reasons - and that seems to be around 2/3 of the
households in the nation. However, the limits growth in the real estate
industry and belies the political propaganda that has become a national
mantra that only homeowners are real Americans. Think of all the many
ways that the message is reinforced daily. Only a few sitcoms have
renters as primary characters, and they almost always live in New York,
which most of the country thinks of as an aberration.
We need more television showing real people, like Rosie (much as I
dislike the star, the show was much truer to life than most), or All in
the Family, where families of average wealth and real problems live and
have to deal with daily issues, instead of 90210 and The OC, where
pampered children live in luxury and wealth. We live in a consumer
society where we are now hearing that the economy is contracting because
2/3 of our GDP is based on buying things. How many "things" do we need,
for crying out loud? Saving is a thing of the past, so families have no
reserve for emergencies or downpayments. This is partially because we
are being constantly advertised to Spend Spend Spend, and because there
is little tangible return from saving (have you checked passbook savings
rates are your local bank).
There was a time when banks had to take in deposits from savers in order
to have the money to lend others for their business of home mortgage.
No longer. Now they just belly-up to the bar at the Federal Reserve or
sell some securitized loans to Wall Street and they are off to the races
(making their income not on the difference between the borrowing and
lending interest rates, but from the fees and points they get from each
transaction -- back to working on commission).
And we need a compensation system that rewards the players in the real
estate industry for their work, not just the size and number of loans
they originate, process and sell to some poor sucker who has no idea
what the loan is worth. The whole thing would have been much reduced if
we paid fixed salaries and imposed penalties for making bad decisions.
Homeownership is not Heaven; Renters are not second-class members of
society; Profligacy is still a bad idea and Saving for a Rainy Day is
still good advice.
________________________________
From: bounce-3151133-5282651@list.cornell.edu
[mailto:bounce-3151133-5282651@list.cornell.edu] On Behalf Of Phyllis G
Betts (pbetts)
Sent: Monday, October 06, 2008 12:13 PM
To: Josh Troesh; Jones, Anthony M;
communitydevelopmentbanking-l@list.cornell.edu
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
This discussion of the meltdown has been highly valuable, and I think I
may add a bit of a twist (based on my own research in Memphis in
comparison with national data) by arguing that we are talking about two
related but distinct phenomena amidst the credit crunch and foreclosure
meltdown:
1. Foreclosures caused by "marginal" mortgages: subprime lending
targeted to low and moderate income borrowers (70% of whom do have
credit issues; 30% of whom were simply misled by their brokers) is
associated with foreclosures in weaker market cities. The slow bleed
over time was being absorbed by bundled securities and each player in
the subprime chain was still making money. In my own research, I've been
calling this path to foreclosure "marginal mortgages," meaning that the
chances of success at the outset were undermined by the very dynamics of
the way the loans were made. And nobody paid much attention to what was
happening in our neighborhoods because plenty of profit was still being
made.
2. Alt A lending targeted to moderate-high income borrowers (with fairly
decent credit and employment histories but "pushing the envelope" in
terms of housing affordability in hot markets): premised on the promise
of hyper-appreciation in property values and the opportunity to
refinance teaser provisions (including the now notorious "payment
optional" loan.) When the bubble burst in overheated markets, big dollar
investments could not so readily be absorbed by bundled securities. To
the extent that buyers, brokers, real estate agents, lenders,
appraisers, and securitizers had a vested interest in
hyper-appreciation, then we are a far cry from the exploitive and
deceptive subprime lending that is associated with African American
buyers in Memphis and other cities.
Minimal or even non-existent regulation (of mortgage brokers, for
example, in most states, to say nothing of mortgage companies) is the
underlying theme in both cases, but the Alt A instance - which is the
straw that broke the camel's back - is even more remote from CRA or
relaxation of credit standards for low and moderate buyers at the GSEs.
Phyllis G. Betts, Director
Center for Community Building and Neighborhood Action
901-678-1187 phone
901-678-1483 fax
School of Urban Affairs and Public Policy
The University of Memphis Downtown Site
600 Jefferson Ave Memphis 38105
________________________________
From: bounce-3143037-8994005@list.cornell.edu
[mailto:bounce-3143037-8994005@list.cornell.edu] On Behalf Of Josh
Troesh
Sent: Monday, October 06, 2008 12:45 PM
To: Jones, Anthony M; communitydevelopmentbanking-l@list.cornell.edu
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
I personally don't think the point of the article being mentioned was to
suggest that Minority Borrowers were to blame. I think the point was
that in order to achieve a desired goal (greater home-ownership amongst
minorities), we placed pressure on institutions to loosen lending
standards to get low income people of all races into homes they couldn't
afford. I take it as a warning of the specter of unintended
consequences.
This is an example of when one tries to fix a societal problem with
reactive programs rather than proactive social change. We saw that some
minority groups weren't qualifying for homes in as great a number as
whites and Asians. As a result, we assumed that the qualifying
standards must be racially biased, so we altered the standards to allow
more minority home-ownership. This was a reactive program.
What we should have done is looked at the underlying causes of minority
poverty (less focus on education, few positive inner-city role models,
higher crime rates, etc) and worked to change those issues so that
minority poverty became less of a societal issue.
Josh Troesh
VP Marketing and Business Development
Service Plus Credit Union
951.680.1998 x1112
951.787.6699 (fax)
________________________________
From: bounce-3138390-5474748@list.cornell.edu
[mailto:bounce-3138390-5474748@list.cornell.edu] On Behalf Of Jones,
Anthony M
Sent: Sunday, October 05, 2008 1:49 PM
To: communitydevelopmentbanking-l@list.cornell.edu
Subject: Re: communitydevelopmentbanking-l digest: October 04, 2008
I know where you're going, but there is no evidence that loans to
minorities have anything to do with the GSE's problem. In fact, the
MyCommunity Mortgage program is one of the best performing sectors of
Fannie's portfolio. That's not where the no-doc, adjustable,
interest-only,subprime loans happened. And that is also not where the
foreclosures are occurring.
As I said, I know where you are going. But you can't get there from
here.
Out of the office. Sent from my wireless handheld.
This message thumb-typed and not spell checked.
----- Original Message -----
From: bounce-3137232-4991389@list.cornell.edu
<bounce-3137232-4991389@list.cornell.edu>
To: communitydevelopmentbanking-l digest recipients
<communitydevelopmentbanking-l@list.cornell.edu>
Sent: Sun Oct 05 02:03:38 2008
Subject: communitydevelopmentbanking-l digest: October 04, 2008
COMMUNITYDEVELOPMENTBANKING-L Digest for Saturday, October 04, 2008.
1. And you wonder where the problem is....
2. RE: And you wonder where the problem is....
----------------------------------------------------------------------
Subject: And you wonder where the problem is....
From: "Chris Duncan" <chris@jumbocdi.com>
Date: Fri, 3 Oct 2008 06:39:22 -0700
X-Message-Number: 1
Here is an article from 1999 that was published in the NYT. I think it
almost says it all. Bolding is mine.
Chris Duncan :O)
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities
and low-income consumers, the Fannie Mae Corporation is easing the
credit requirements on loans that it will purchase from banks and other
lenders.
The action, which will begin as a pilot program involving 24 banks in 15
markets -- including the New York metropolitan region -- will encourage
those banks to extend home mortgages to individuals whose credit is
generally not good enough to qualify for conventional loans. Fannie Mae
officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been
under increasing pressure from the Clinton Administration to expand
mortgage loans among low and moderate income people and felt pressure
from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been
pressing Fannie Mae to help them make more loans to so-called subprime
borrowers. These borrowers whose incomes, credit ratings and savings are
not good enough to qualify for conventional loans, can only get loans
from finance companies that charge much higher interest rates --
anywhere from three to four percentage points higher than conventional
loans.
''Fannie Mae has expanded home ownership for millions of families in the
1990's by reducing down payment requirements,'' said Franklin D. Raines,
Fannie Mae's chairman and chief executive officer. ''Yet there remain
too many borrowers whose credit is just a notch below what our
underwriting has required who have been relegated to paying
significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one
study indicates that 18 percent of the loans in the subprime market went
to black borrowers, compared to 5 per cent of loans in the conventional
loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae
is taking on significantly more risk, which may not pose any
difficulties during flush economic times. But the government-subsidized
corporation may run into trouble in an economic downturn, prompting a
government rescue similar to that of the savings and loan industry in
the 1980's.
''From the perspective of many people, including me, this is another
thrift industry growing up around us,'' said Peter Wallison a resident
fellow at the American Enterprise Institute. ''If they fail, the
government will have to step up and bail them out the way it stepped up
and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a
mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 -- a
rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage
point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not
lend money directly to consumers. Instead, it purchases loans that banks
make on what is called the secondary market. By expanding the type of
loans that it will buy, Fannie Mae is hoping to spur banks to make more
loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to
all potential borrowers who can qualify for a mortgage. But they add
that the move is intended in part to increase the number of minority and
low income home owners who tend to have worse credit ratings than
non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the
economic boom of the 1990's. The number of mortgages extended to
Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according
to Harvard University's Joint Center for Housing Studies. During that
same period the number of African Americans who got mortgages to buy a
home increased by 71.9 per cent and the number of Asian Americans by
46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for
homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag
behind non-Hispanic whites, in part because blacks and Hispanics in
particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that
by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio
be made up of loans to low and moderate-income borrowers. Last year, 44
percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is
investigating allegations of racial discrimination in the automated
underwriting systems used by Fannie Mae and Freddie Mac to determine the
credit-worthiness of credit applicants.
***********************************
Here is the link to the article.
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A ('http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A')
96F958260&sec=&spon=&pagewanted=1
Chris Duncan
Jumbo C.D. Investments, Inc.
Dixon, CA
1-800-234-4605
www.jumbocdinvestments.com
www.jumbocdinvestments.com/cd_rates_blog
Securities offered through Gill Capital Partners, Inc.
Member: FINRA - SIPC
Life is not measured by the number of
breaths we take but by the moments that
take our breath away.
----------------------------------------------------------------------
Subject: RE: And you wonder where the problem is....
From: George Samuels <georgey10@hotmail.com>
Date: Sat, 4 Oct 2008 19:46:05 -0400
X-Message-Number: 2
What "problem" are you talking about in particular Mr. Duncan? The
current credit crisis? And is this article suppose to sum it up? I don't
think so.
There is something called asset valuation. Wall Street is responsible
for that part.
Yes the spigot was open and running, but it was the market's
responsibility to price these mortgage assets accordingly......it did
not. It overpriced them, and people, top level people, ran away with
billions of dollars.
We are bailing out Wall Street here. The taxpayer will get nothing,
despite all the "sugar-coated" stuff we hear. Many Americans have
already lost their homes and their savings. The stories are endless, as
I have mentioned before. We can go around the country, and we will find
millions that were duped out of millions.
This article only brings to light a small part of the problem, not the
major force behind it.
George
From: chris@jumbocdi.comTo: communitydevelopmentbanking-l@cornell.eduCC:
gina@uarkfcu.com; debbie@dakotalandfcu.comSubject: And you wonder where
the problem is....Date: Fri, 3 Oct 2008 06:39:22 -0700
Here is an article from 1999 that was published in the NYT. I think it
almost says it all. Bolding is mine.
Chris Duncan :O)
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities
and low-income consumers, the Fannie Mae Corporation is easing the
credit requirements on loans that it will purchase from banks and other
lenders. The action, which will begin as a pilot program involving 24
banks in 15 markets -- including the New York metropolitan region --
will encourage those banks to extend home mortgages to individuals whose
credit is generally not good enough to qualify for conventional loans.
Fannie Mae officials say they hope to make it a nationwide program by
next spring. Fannie Mae, the nation's biggest underwriter of home
mortgages, has been under increasing pressure from the Clinton
Administration to expand mortgage loans among low and moderate income
people and felt pressure from stock holders to maintain its phenomenal
growth in profits. In addition, banks, thrift institutions and mortgage
companies have been pressing Fannie Mae to help them make more loans to
so-called s
ubprime borrowers. These borrowers whose incomes, credit ratings and
savings are not good enough to qualify for conventional loans, can only
get loans from finance companies that charge much higher interest rates
-- anywhere from three to four percentage points higher than
conventional loans. ''Fannie Mae has expanded home ownership for
millions of families in the 1990's by reducing down payment
requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief
executive officer. ''Yet there remain too many borrowers whose credit is
just a notch below what our underwriting has required who have been
relegated to paying significantly higher mortgage rates in the so-called
subprime market.'' Demographic information on these borrowers is
sketchy. But at least one study indicates that 18 percent of the loans
in the subprime market went to black borrowers, compared to 5 per cent
of loans in the conventional loan market. In moving, even tentatively,
into this new area of len
d
ing, Fannie Mae is taking on significantly more risk, which may not
pose any difficulties during flush economic times. But the
government-subsidized corporation may run into trouble in an economic
downturn, prompting a government rescue similar to that of the savings
and loan industry in the 1980's. ''From the perspective of many people,
including me, this is another thrift industry growing up around us,''
said Peter Wallison a resident fellow at the American Enterprise
Institute. ''If they fail, the government will have to step up and bail
them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a
mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 -- a
rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage
point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does
not lend money directly to consumers. Instead, it purchases loans that
banks make on what is called the secondary market. By expanding the type
of loans that it will buy, Fannie Mae is hoping to spur banks to make
more loans to people with less-than-stellar credit ratings. Fannie Mae
officials stress that the new mortgages will be extended to all
potential borrowers who can qualify for a mortgage. But they add that
the move is intended in part to increase the number of minority and low
income home owners who tend to have worse credit ratings than
non-Hispanic whites. Home ownership has, in fact, exploded among
minorities during the economic boom of the 1990's. The number of
mortgages extended to Hispanic applicants jumped by 87.2 per cent from
1993 to 1998, according to Harvard University's Joint Center for Housing
Studies. During that same period the number of African Americans who got
mortgages to buy a h
o
me increased by 71.9 per cent and the number of Asian Americans by 46.3
per cent. In contrast, the number of non-Hispanic whites who received
loans for homes increased by 31.2 per cent. Despite these gains, home
ownership rates for minorities continue to lag behind non-Hispanic
whites, in part because blacks and Hispanics in particular tend to have
on average worse credit ratings. In July, the Department of Housing and
Urban Development proposed that by the year 2001, 50 percent of Fannie
Mae's and Freddie Mac's portfolio be made up of loans to low and
moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae
purchased were from these groups. The change in policy also comes at the
same time that HUD is investigating allegations of racial discrimination
in the automated underwriting systems used by Fannie Mae and Freddie Mac
to determine the credit-worthiness of credit applicants.
***********************************
Here is the link to the article.
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A ('http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A')
96F958260&sec=&spon=&pagewanted=1
Chris Duncan
Jumbo C.D. Investments, Inc.Dixon,
CA1-800-234-4605www.jumbocdinvestments.comwww.jumbocdinvestmen ts.com/cd_
rates_blog
Securities offered through Gill Capital Partners, Inc. Member: FINRA -
SIPC
Life is not measured by the number of breaths we take but by the moments
that take our breath away. CDB list instructions
http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')
__________________________________________________ _______________
Get more out of the Web. Learn 10 hidden secrets of Windows Live.
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As we all know, this is very complicated mess but I think Tim has pretty
much diagnosed the disease correctly - I just disagree with his
suggested prescription. (I should preface my comments with an admission
that while I have done a lot of lending, I have not done direct mortgage
lending so please correct me if my assumptions are in error).
When lenders can off-load the risk associated with a mortgage they
write, the incentive becomes to write as many as possible - it becomes a
race for deal-based fees - not management of earnings over time
generated by a spread. This is what I believe drove the mass of mortgage
brokers (many of whom are no longer in business) and in-house bank
lenders to offer absurd terms to whoever came in the door. Even this
could potentially have been handled by the market if the mortgage
obligation itself stayed together - so the risk associated with a given
deal (and the responsibility for managing the work-out if necessary) was
clearly in someone's portfolio. The market could have priced and
managed that risk. What we have now is a situation where the risk
exposure to a given mortgage is spread around a large number of
investors - no one of which has the knowledge of, connection to,
authority for, and often even the capacity to manage the underlying
deal. Because of this they can't accurately judge the risk represented
by what is probably a fairly small percentage of a pool of mortgages,
but this uncertainly taints the whole pool. So what to do?
The answer is not to change the mechanism by which the players get paid
- that probably doesn't make sense in this kind of marketplace. The
market will weed out the over-supply of R/E agents, brokers, etc. if
certain more fundamental changes are made. The answer is also not to
restrict the selling of whole mortgages (though if lenders had to retain
the risk they underwrote this whole mess would likely never have
happened). The answer might be to prohibit the pooling and subsequent
serial carving-up of the pool. Efficient markets work when they have
full information and clear lines of accountability- it is the lack of
that information/accountability that is sending markets into a tailspin.
If this change was made, my guess is that some (maybe many) of these
mortgages might still get done, but they would be handled by groups that
specialized in the management of this high risk portfolio and they would
get paid to do so through risk-adjusted interest rates. Instead, the
opposite occurred - rates effectively declined for poorer credits though
the mechanism of ARMS, etc. further fueling the fire. If the amount of
this type of lending dropped below what was considered appropriate, or
desirable from a social-engineering point of view, we could possibly
establish mechanisms for directly subsidizing down-payments, monthly
payments, mortgage insurance, etc. for qualifying borrowers.
Dave Kleiber
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________________________________
From: bounce-3155414-4989936@list.cornell.edu
[mailto:bounce-3155414-4989936@list.cornell.edu] On Behalf Of Jones,
Anthony M
Sent: Thursday, October 09, 2008 9:03 AM
To: carl.malone@harrisbank.com; tloc@centuryhousing.org;
pbetts@memphis.edu; jtroesh@servicepluscu.org;
communitydevelopmentbanking-l@list.cornell.edu
Subject: Re: communitydevelopmentbanking-l digest: October 04, 2008
I totally agree Mr. Malone. What you're hearing is a nostalgic longing
for a long lost time when banking was a respected profession and banks
themselves were pillars and protectors of the community. But the world
has changed. Banks today are just another retail establishment going
after market share. Mortgage bankers only eat what they kill. So finding
suitable kill becomes the ultimate goal. And, not unlike with used car
salesmen, bad apples are a necessary evil that drag down the reputation
of all. In order to survive, even the most high-minded must either leave
the profession or lay down with dogs.
Perhaps deregulation and competition are necessary evils. But I must
admit, I too long for the good old days when E. F. Hutton spoke and
people listened.
From the sidelines,
anthony
Out of the office. Sent from my wireless handheld.
This message thumb-typed and not spell checked.
________________________________
From: Malone, Carl
To: Tim O'Connell ; pbetts@memphis.edu ; jtroesh@servicepluscu.org ;
Jones, Anthony M; communitydevelopmentbanking-l@list.cornell.edu
Sent: Thu Oct 09 10:47:09 2008
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
Tim:
My question was based on 26 years of banking experience. Given the
reality of the mortgage marketplace and the number of competitors all
chasing the same clients, how else would you compensate these people? In
my opinion, in sales, you pay based upon effort and success. If you
don't exert effort and are not successful, you don't get paid. With all
due respect, your argument doesn't hold water.
________________________________
From: Tim O'Connell [mailto:tloc@centuryhousing.org]
Sent: Wednesday, October 08, 2008 2:08 PM
To: Malone, Carl; pbetts@memphis.edu; jtroesh@servicepluscu.org;
ajones@co.pinellas.fl.us; communitydevelopmentbanking-l@list.cornell.edu
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
How much do you pay for babysitters? Or lawyers? Or doctors? Or
accountants? This is not rocket science -- if you offer $XX and no one
applies, you are not offering enough. If you offer $YY and you have a
thousand applicants, you are paying too much. Compensation should be a
return for work/labor, not a windfall for luck or success, especially
when the worker actually has little control over the outcome of her
work. No salesman or broker actually controls the terms of the deal,
and they should not be compensated on the basis of things beyond their
control. It is their 'best efforts' and expertise that should be used
as the basis of compensation, not on whether the market went up or down
today, or whether there were sunspots or a hurricane.
________________________________
From: Malone, Carl [mailto:carl.malone@harrisbank.com]
Sent: Wednesday, October 08, 2008 10:29 AM
To: Tim O'Connell; 'pbetts@memphis.edu'; 'jtroesh@servicepluscu.org';
'ajones@co.pinellas.fl.us';
'communitydevelopmentbanking-l@list.cornell.edu'
Subject: Re: communitydevelopmentbanking-l digest: October 04, 2008
Interesting, but how do you determine what is fair and equitable for
compensation given a banks need for revenue?
--------------------------
Sent from my BlackBerry Wireless Handheld
________________________________
From: bounce-3151259-4990520@list.cornell.edu
To: Phyllis G Betts (pbetts) ; Josh Troesh ; Jones, Anthony M ;
communitydevelopmentbanking-l@list.cornell.edu
Sent: Wed Oct 08 12:07:18 2008
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
Frankly, there is a sort of self-unawareness about the single most
important part of this. As has been said many times, "Follow the
money." In this whole market, the underlying motivator was that our
housing industry is built on a commission model. Every one in the food
chain is paid based on volume and scale of sales. From the real estate
broker, through title insurance brokers, appraisers, bankers, securities
brokers, rating agencies and all the rest of the myriad of people who
touch each deal, the primary factor was to push more loans and push each
loan to the highest feasible price in order to maximize personal
income/profit.
It is the tragedy of the commons, where every shepherd wants to fatten
his sheep and so together they overgraze the common meadow. There are
only so many households who are capable of owning homes - whether for
financial or personal reasons - and that seems to be around 2/3 of the
households in the nation. However, the limits growth in the real estate
industry and belies the political propaganda that has become a national
mantra that only homeowners are real Americans. Think of all the many
ways that the message is reinforced daily. Only a few sitcoms have
renters as primary characters, and they almost always live in New York,
which most of the country thinks of as an aberration.
We need more television showing real people, like Rosie (much as I
dislike the star, the show was much truer to life than most), or All in
the Family, where families of average wealth and real problems live and
have to deal with daily issues, instead of 90210 and The OC, where
pampered children live in luxury and wealth. We live in a consumer
society where we are now hearing that the economy is contracting because
2/3 of our GDP is based on buying things. How many "things" do we need,
for crying out loud? Saving is a thing of the past, so families have no
reserve for emergencies or downpayments. This is partially because we
are being constantly advertised to Spend Spend Spend, and because there
is little tangible return from saving (have you checked passbook savings
rates are your local bank).
There was a time when banks had to take in deposits from savers in order
to have the money to lend others for their business of home mortgage.
No longer. Now they just belly-up to the bar at the Federal Reserve or
sell some securitized loans to Wall Street and they are off to the races
(making their income not on the difference between the borrowing and
lending interest rates, but from the fees and points they get from each
transaction -- back to working on commission).
And we need a compensation system that rewards the players in the real
estate industry for their work, not just the size and number of loans
they originate, process and sell to some poor sucker who has no idea
what the loan is worth. The whole thing would have been much reduced if
we paid fixed salaries and imposed penalties for making bad decisions.
Homeownership is not Heaven; Renters are not second-class members of
society; Profligacy is still a bad idea and Saving for a Rainy Day is
still good advice.
________________________________
From: bounce-3151133-5282651@list.cornell.edu
[mailto:bounce-3151133-5282651@list.cornell.edu] On Behalf Of Phyllis G
Betts (pbetts)
Sent: Monday, October 06, 2008 12:13 PM
To: Josh Troesh; Jones, Anthony M;
communitydevelopmentbanking-l@list.cornell.edu
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
This discussion of the meltdown has been highly valuable, and I think I
may add a bit of a twist (based on my own research in Memphis in
comparison with national data) by arguing that we are talking about two
related but distinct phenomena amidst the credit crunch and foreclosure
meltdown:
1. Foreclosures caused by "marginal" mortgages: subprime lending
targeted to low and moderate income borrowers (70% of whom do have
credit issues; 30% of whom were simply misled by their brokers) is
associated with foreclosures in weaker market cities. The slow bleed
over time was being absorbed by bundled securities and each player in
the subprime chain was still making money. In my own research, I've been
calling this path to foreclosure "marginal mortgages," meaning that the
chances of success at the outset were undermined by the very dynamics of
the way the loans were made. And nobody paid much attention to what was
happening in our neighborhoods because plenty of profit was still being
made.
2. Alt A lending targeted to moderate-high income borrowers (with fairly
decent credit and employment histories but "pushing the envelope" in
terms of housing affordability in hot markets): premised on the promise
of hyper-appreciation in property values and the opportunity to
refinance teaser provisions (including the now notorious "payment
optional" loan.) When the bubble burst in overheated markets, big dollar
investments could not so readily be absorbed by bundled securities. To
the extent that buyers, brokers, real estate agents, lenders,
appraisers, and securitizers had a vested interest in
hyper-appreciation, then we are a far cry from the exploitive and
deceptive subprime lending that is associated with African American
buyers in Memphis and other cities.
Minimal or even non-existent regulation (of mortgage brokers, for
example, in most states, to say nothing of mortgage companies) is the
underlying theme in both cases, but the Alt A instance - which is the
straw that broke the camel's back - is even more remote from CRA or
relaxation of credit standards for low and moderate buyers at the GSEs.
Phyllis G. Betts, Director
Center for Community Building and Neighborhood Action
901-678-1187 phone
901-678-1483 fax
School of Urban Affairs and Public Policy
The University of Memphis Downtown Site
600 Jefferson Ave Memphis 38105
________________________________
From: bounce-3143037-8994005@list.cornell.edu
[mailto:bounce-3143037-8994005@list.cornell.edu] On Behalf Of Josh
Troesh
Sent: Monday, October 06, 2008 12:45 PM
To: Jones, Anthony M; communitydevelopmentbanking-l@list.cornell.edu
Subject: RE: communitydevelopmentbanking-l digest: October 04, 2008
I personally don't think the point of the article being mentioned was to
suggest that Minority Borrowers were to blame. I think the point was
that in order to achieve a desired goal (greater home-ownership amongst
minorities), we placed pressure on institutions to loosen lending
standards to get low income people of all races into homes they couldn't
afford. I take it as a warning of the specter of unintended
consequences.
This is an example of when one tries to fix a societal problem with
reactive programs rather than proactive social change. We saw that some
minority groups weren't qualifying for homes in as great a number as
whites and Asians. As a result, we assumed that the qualifying
standards must be racially biased, so we altered the standards to allow
more minority home-ownership. This was a reactive program.
What we should have done is looked at the underlying causes of minority
poverty (less focus on education, few positive inner-city role models,
higher crime rates, etc) and worked to change those issues so that
minority poverty became less of a societal issue.
Josh Troesh
VP Marketing and Business Development
Service Plus Credit Union
951.680.1998 x1112
951.787.6699 (fax)
________________________________
From: bounce-3138390-5474748@list.cornell.edu
[mailto:bounce-3138390-5474748@list.cornell.edu] On Behalf Of Jones,
Anthony M
Sent: Sunday, October 05, 2008 1:49 PM
To: communitydevelopmentbanking-l@list.cornell.edu
Subject: Re: communitydevelopmentbanking-l digest: October 04, 2008
I know where you're going, but there is no evidence that loans to
minorities have anything to do with the GSE's problem. In fact, the
MyCommunity Mortgage program is one of the best performing sectors of
Fannie's portfolio. That's not where the no-doc, adjustable,
interest-only,subprime loans happened. And that is also not where the
foreclosures are occurring.
As I said, I know where you are going. But you can't get there from
here.
Out of the office. Sent from my wireless handheld.
This message thumb-typed and not spell checked.
----- Original Message -----
From: bounce-3137232-4991389@list.cornell.edu
<bounce-3137232-4991389@list.cornell.edu>
To: communitydevelopmentbanking-l digest recipients
<communitydevelopmentbanking-l@list.cornell.edu>
Sent: Sun Oct 05 02:03:38 2008
Subject: communitydevelopmentbanking-l digest: October 04, 2008
COMMUNITYDEVELOPMENTBANKING-L Digest for Saturday, October 04, 2008.
1. And you wonder where the problem is....
2. RE: And you wonder where the problem is....
----------------------------------------------------------------------
Subject: And you wonder where the problem is....
From: "Chris Duncan" <chris@jumbocdi.com>
Date: Fri, 3 Oct 2008 06:39:22 -0700
X-Message-Number: 1
Here is an article from 1999 that was published in the NYT. I think it
almost says it all. Bolding is mine.
Chris Duncan :O)
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities
and low-income consumers, the Fannie Mae Corporation is easing the
credit requirements on loans that it will purchase from banks and other
lenders.
The action, which will begin as a pilot program involving 24 banks in 15
markets -- including the New York metropolitan region -- will encourage
those banks to extend home mortgages to individuals whose credit is
generally not good enough to qualify for conventional loans. Fannie Mae
officials say they hope to make it a nationwide program by next spring.
Fannie Mae, the nation's biggest underwriter of home mortgages, has been
under increasing pressure from the Clinton Administration to expand
mortgage loans among low and moderate income people and felt pressure
from stock holders to maintain its phenomenal growth in profits.
In addition, banks, thrift institutions and mortgage companies have been
pressing Fannie Mae to help them make more loans to so-called subprime
borrowers. These borrowers whose incomes, credit ratings and savings are
not good enough to qualify for conventional loans, can only get loans
from finance companies that charge much higher interest rates --
anywhere from three to four percentage points higher than conventional
loans.
''Fannie Mae has expanded home ownership for millions of families in the
1990's by reducing down payment requirements,'' said Franklin D. Raines,
Fannie Mae's chairman and chief executive officer. ''Yet there remain
too many borrowers whose credit is just a notch below what our
underwriting has required who have been relegated to paying
significantly higher mortgage rates in the so-called subprime market.''
Demographic information on these borrowers is sketchy. But at least one
study indicates that 18 percent of the loans in the subprime market went
to black borrowers, compared to 5 per cent of loans in the conventional
loan market.
In moving, even tentatively, into this new area of lending, Fannie Mae
is taking on significantly more risk, which may not pose any
difficulties during flush economic times. But the government-subsidized
corporation may run into trouble in an economic downturn, prompting a
government rescue similar to that of the savings and loan industry in
the 1980's.
''From the perspective of many people, including me, this is another
thrift industry growing up around us,'' said Peter Wallison a resident
fellow at the American Enterprise Institute. ''If they fail, the
government will have to step up and bail them out the way it stepped up
and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a
mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 -- a
rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage
point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does not
lend money directly to consumers. Instead, it purchases loans that banks
make on what is called the secondary market. By expanding the type of
loans that it will buy, Fannie Mae is hoping to spur banks to make more
loans to people with less-than-stellar credit ratings.
Fannie Mae officials stress that the new mortgages will be extended to
all potential borrowers who can qualify for a mortgage. But they add
that the move is intended in part to increase the number of minority and
low income home owners who tend to have worse credit ratings than
non-Hispanic whites.
Home ownership has, in fact, exploded among minorities during the
economic boom of the 1990's. The number of mortgages extended to
Hispanic applicants jumped by 87.2 per cent from 1993 to 1998, according
to Harvard University's Joint Center for Housing Studies. During that
same period the number of African Americans who got mortgages to buy a
home increased by 71.9 per cent and the number of Asian Americans by
46.3 per cent.
In contrast, the number of non-Hispanic whites who received loans for
homes increased by 31.2 per cent.
Despite these gains, home ownership rates for minorities continue to lag
behind non-Hispanic whites, in part because blacks and Hispanics in
particular tend to have on average worse credit ratings.
In July, the Department of Housing and Urban Development proposed that
by the year 2001, 50 percent of Fannie Mae's and Freddie Mac's portfolio
be made up of loans to low and moderate-income borrowers. Last year, 44
percent of the loans Fannie Mae purchased were from these groups.
The change in policy also comes at the same time that HUD is
investigating allegations of racial discrimination in the automated
underwriting systems used by Fannie Mae and Freddie Mac to determine the
credit-worthiness of credit applicants.
***********************************
Here is the link to the article.
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A ('http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A')
96F958260&sec=&spon=&pagewanted=1
Chris Duncan
Jumbo C.D. Investments, Inc.
Dixon, CA
1-800-234-4605
www.jumbocdinvestments.com
www.jumbocdinvestments.com/cd_rates_blog
Securities offered through Gill Capital Partners, Inc.
Member: FINRA - SIPC
Life is not measured by the number of
breaths we take but by the moments that
take our breath away.
----------------------------------------------------------------------
Subject: RE: And you wonder where the problem is....
From: George Samuels <georgey10@hotmail.com>
Date: Sat, 4 Oct 2008 19:46:05 -0400
X-Message-Number: 2
What "problem" are you talking about in particular Mr. Duncan? The
current credit crisis? And is this article suppose to sum it up? I don't
think so.
There is something called asset valuation. Wall Street is responsible
for that part.
Yes the spigot was open and running, but it was the market's
responsibility to price these mortgage assets accordingly......it did
not. It overpriced them, and people, top level people, ran away with
billions of dollars.
We are bailing out Wall Street here. The taxpayer will get nothing,
despite all the "sugar-coated" stuff we hear. Many Americans have
already lost their homes and their savings. The stories are endless, as
I have mentioned before. We can go around the country, and we will find
millions that were duped out of millions.
This article only brings to light a small part of the problem, not the
major force behind it.
George
From: chris@jumbocdi.comTo: communitydevelopmentbanking-l@cornell.eduCC:
gina@uarkfcu.com; debbie@dakotalandfcu.comSubject: And you wonder where
the problem is....Date: Fri, 3 Oct 2008 06:39:22 -0700
Here is an article from 1999 that was published in the NYT. I think it
almost says it all. Bolding is mine.
Chris Duncan :O)
Fannie Mae Eases Credit To Aid Mortgage Lending
By STEVEN A. HOLMES
Published: September 30, 1999
In a move that could help increase home ownership rates among minorities
and low-income consumers, the Fannie Mae Corporation is easing the
credit requirements on loans that it will purchase from banks and other
lenders. The action, which will begin as a pilot program involving 24
banks in 15 markets -- including the New York metropolitan region --
will encourage those banks to extend home mortgages to individuals whose
credit is generally not good enough to qualify for conventional loans.
Fannie Mae officials say they hope to make it a nationwide program by
next spring. Fannie Mae, the nation's biggest underwriter of home
mortgages, has been under increasing pressure from the Clinton
Administration to expand mortgage loans among low and moderate income
people and felt pressure from stock holders to maintain its phenomenal
growth in profits. In addition, banks, thrift institutions and mortgage
companies have been pressing Fannie Mae to help them make more loans to
so-called s
ubprime borrowers. These borrowers whose incomes, credit ratings and
savings are not good enough to qualify for conventional loans, can only
get loans from finance companies that charge much higher interest rates
-- anywhere from three to four percentage points higher than
conventional loans. ''Fannie Mae has expanded home ownership for
millions of families in the 1990's by reducing down payment
requirements,'' said Franklin D. Raines, Fannie Mae's chairman and chief
executive officer. ''Yet there remain too many borrowers whose credit is
just a notch below what our underwriting has required who have been
relegated to paying significantly higher mortgage rates in the so-called
subprime market.'' Demographic information on these borrowers is
sketchy. But at least one study indicates that 18 percent of the loans
in the subprime market went to black borrowers, compared to 5 per cent
of loans in the conventional loan market. In moving, even tentatively,
into this new area of len
d
ing, Fannie Mae is taking on significantly more risk, which may not
pose any difficulties during flush economic times. But the
government-subsidized corporation may run into trouble in an economic
downturn, prompting a government rescue similar to that of the savings
and loan industry in the 1980's. ''From the perspective of many people,
including me, this is another thrift industry growing up around us,''
said Peter Wallison a resident fellow at the American Enterprise
Institute. ''If they fail, the government will have to step up and bail
them out the way it stepped up and bailed out the thrift industry.''
Under Fannie Mae's pilot program, consumers who qualify can secure a
mortgage with an interest rate one percentage point above that of a
conventional, 30-year fixed rate mortgage of less than $240,000 -- a
rate that currently averages about 7.76 per cent. If the borrower makes
his or her monthly payments on time for two years, the one percentage
point premium is dropped.
Fannie Mae, the nation's biggest underwriter of home mortgages, does
not lend money directly to consumers. Instead, it purchases loans that
banks make on what is called the secondary market. By expanding the type
of loans that it will buy, Fannie Mae is hoping to spur banks to make
more loans to people with less-than-stellar credit ratings. Fannie Mae
officials stress that the new mortgages will be extended to all
potential borrowers who can qualify for a mortgage. But they add that
the move is intended in part to increase the number of minority and low
income home owners who tend to have worse credit ratings than
non-Hispanic whites. Home ownership has, in fact, exploded among
minorities during the economic boom of the 1990's. The number of
mortgages extended to Hispanic applicants jumped by 87.2 per cent from
1993 to 1998, according to Harvard University's Joint Center for Housing
Studies. During that same period the number of African Americans who got
mortgages to buy a h
o
me increased by 71.9 per cent and the number of Asian Americans by 46.3
per cent. In contrast, the number of non-Hispanic whites who received
loans for homes increased by 31.2 per cent. Despite these gains, home
ownership rates for minorities continue to lag behind non-Hispanic
whites, in part because blacks and Hispanics in particular tend to have
on average worse credit ratings. In July, the Department of Housing and
Urban Development proposed that by the year 2001, 50 percent of Fannie
Mae's and Freddie Mac's portfolio be made up of loans to low and
moderate-income borrowers. Last year, 44 percent of the loans Fannie Mae
purchased were from these groups. The change in policy also comes at the
same time that HUD is investigating allegations of racial discrimination
in the automated underwriting systems used by Fannie Mae and Freddie Mac
to determine the credit-worthiness of credit applicants.
***********************************
Here is the link to the article.
http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A ('http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A')
96F958260&sec=&spon=&pagewanted=1
Chris Duncan
Jumbo C.D. Investments, Inc.Dixon,
CA1-800-234-4605www.jumbocdinvestments.comwww.jumbocdinvestmen ts.com/cd_
rates_blog
Securities offered through Gill Capital Partners, Inc. Member: FINRA -
SIPC
Life is not measured by the number of breaths we take but by the moments
that take our breath away. CDB list instructions
http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')
__________________________________________________ _______________
Get more out of the Web. Learn 10 hidden secrets of Windows Live.
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