Dumping the secondary mortgage market market

[Community Development Banking List]

Original message from: 2sparks@cox.net

Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage market, which is a major player in the mortgage mess, is being over looked.

The relative sudden dependence on the MBS system that has mushroomed into prominence since its inception, not that long ago, should be a clear signal to at least start a discussion on weather it was a good idea at all in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground for greed go unchallenged, or for that matter think that we can successfully manage greed with regulations? What is needed is a simple transparent way of raising money where mortgages are held and not securitorized. Is anyone interested in hearing more?

Matthew Sparks

[Community Development Banking List]

Original message from: richardrc01@gmail.com

If you get rid of the secondary market you are going to limit the resources
available for first time home buyers and also your low income purchasers.
Small financial institutions will not be able to create as many mortgages
based on federal restriction and low dept ratios. I feel that we just need
to regulate the mortgage markets better and insure that the borrowers can
actually afford to make the purchases. If we lower the dept ratios for
borrowers back to 12% it should eliminate some of the mistakes made in the
past. The secondary market is needed especially in small markets with
limited resources.

Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net> wrote:

Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage
market, which is a major player in the mortgage mess, is being over looked.

The relative sudden dependence on the MBS system that has mushroomed
into prominence since its inception, not that long ago, should be a clear
signal to at least start a discussion on weather it was a good idea at all
in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground for
greed go unchallenged, or for that matter think that we can successfully
manage greed with regulations? What is needed is a simple transparent way of
raising money where mortgages are held and not securitorized. Is anyone
interested in hearing more?

Matthew Sparks



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: carl.malone@harrisbank.com

While I agree that there is a need for a secondary market, we should consider trying to find ways to simplify access to affordable mortgage products to qualified borrowers. Dropping the DTR to 12 percent is both impractical and improbable. You could drop it to zero and still have defaults. The key, to me, is curing whatever issues to prospective borrower has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld

________________________________
From: bounce-4779857-4990520@list.cornell.edu <bounce-4779857-4990520@list.cornell.edu>
To: Matthew Sparks <2sparks@cox.net>
Cc: communitydevelopmentbanking-l@cornell.edu <communitydevelopmentbanking-l@cornell.edu>
Sent: Wed Dec 16 13:23:47 2009
Subject: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the resources available for first time home buyers and also your low income purchasers. Small financial institutions will not be able to create as many mortgages based on federal restriction and low dept ratios. I feel that we just need to regulate the mortgage markets better and insure that the borrowers can actually afford to make the purchases. If we lower the dept ratios for borrowers back to 12% it should eliminate some of the mistakes made in the past. The secondary market is needed especially in small markets with limited resources.

Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net<mailto:2sparks@cox.net>> wrote:
Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage market, which is a major player in the mortgage mess, is being over looked.

The relative sudden dependence on the MBS system that has mushroomed into prominence since its inception, not that long ago, should be a clear signal to at least start a discussion on weather it was a good idea at all in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground for greed go unchallenged, or for that matter think that we can successfully manage greed with regulations? What is needed is a simple transparent way of raising money where mortgages are held and not securitorized. Is anyone interested in hearing more?

Matthew Sparks




CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')


CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: results@curtisconcepts.com

Unless you supplant with an equally capable facility, access to home ownership will become more exclusive.
Sent from my Verizon Wireless BlackBerry

-----Original Message-----
From: Rich <richardrc01@gmail.com>
Date: Wed, 16 Dec 2009 09:23:47
To: Matthew Sparks<2sparks@cox.net>
Cc: <communitydevelopmentbanking-l@cornell.edu>
Subject: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the resources
available for first time home buyers and also your low income purchasers.
Small financial institutions will not be able to create as many mortgages
based on federal restriction and low dept ratios. I feel that we just need
to regulate the mortgage markets better and insure that the borrowers can
actually afford to make the purchases. If we lower the dept ratios for
borrowers back to 12% it should eliminate some of the mistakes made in the
past. The secondary market is needed especially in small markets with
limited resources.

Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net> wrote:

Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage
market, which is a major player in the mortgage mess, is being over looked.

The relative sudden dependence on the MBS system that has mushroomed
into prominence since its inception, not that long ago, should be a clear
signal to at least start a discussion on weather it was a good idea at all
in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground for
greed go unchallenged, or for that matter think that we can successfully
manage greed with regulations? What is needed is a simple transparent way of
raising money where mortgages are held and not securitorized. Is anyone
interested in hearing more?

Matthew Sparks



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: dliles@ncinitiative.org

Any time you allow financial institutions to create and trade their own
currency (Mortgage Backed Securities), greed is at play. And we know
what happens when greed is involved. Why else would they create this
type of investment? The SEC shares as much blame for this current
economic mess as banks do. Better regulation and tighter controls are
keys to avoiding future meltdowns. I realize this won't solve the
problems, because you can't legislate morals, but it would help. As for
holding mortgages, banks can't afford to originate and then shelve its
mortgage loans. Not only is it financially imprudent to do this as a
bank, but it would also greatly hinder their ability to fund new
mortgages. The secondary market has to remain in play. One of the things
I'd like to see is an increased capacity for FNMA and other government
agencies. If the government can fund TARP money, you would think we
could find some way to make new money available for OUALIFIED mortgage
borrowers.



Don

________________________________

From: bounce-4779857-8990890@list.cornell.edu
[mailto:bounce-4779857-8990890@list.cornell.edu] On Behalf Of Rich
Sent: Wednesday, December 16, 2009 1:46 PM
To: Matthew Sparks
Cc: communitydevelopmentbanking-l@cornell.edu
Subject: Re: Dumping the secondary mortgage market market



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: richardrc01@gmail.com

Although increasing fannie and freddies responsibility in the market is not
going to happen in the near future especially since they will be broke up in
the near future. The secondary market is making it possible for everyone to
be able to get a mortgage. Limiting the DTR will do a couple of things it
will insure that before the mortgage is underwritten the borrower can meet
the financial obligations toward the deed, and the institution does not put
the borrower in a fail situation. It will also make financial institutions
only loan to qualified home buyers. Sure there is always going to be
defaults in the market but it could be limited. Tarp isn't going to be here
for ever and we can't rely on government to solve all the problems. We need
to get back to common since approaches to lending and the greedy
institutions need to just go away.

On Wed, Dec 16, 2009 at 10:29 AM, Malone, Carl
<carl.malone@harrisbank.com>wrote:

While I agree that there is a need for a secondary market, we should
consider trying to find ways to simplify access to affordable mortgage
products to qualified borrowers. Dropping the DTR to 12 percent is both
impractical and improbable. You could drop it to zero and still have
defaults. The key, to me, is curing whatever issues to prospective borrower
has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld

------------------------------
*From*: bounce-4779857-4990520@list.cornell.edu <
bounce-4779857-4990520@list.cornell.edu>
*To*: Matthew Sparks <2sparks@cox.net>
*Cc*: communitydevelopmentbanking-l@cornell.edu <
communitydevelopmentbanking-l@cornell.edu>
*Sent*: Wed Dec 16 13:23:47 2009
*Subject*: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the
resources available for first time home buyers and also your low income
purchasers. Small financial institutions will not be able to create as many
mortgages based on federal restriction and low dept ratios. I feel that we
just need to regulate the mortgage markets better and insure that the
borrowers can actually afford to make the purchases. If we lower the dept
ratios for borrowers back to 12% it should eliminate some of the mistakes
made in the past. The secondary market is needed especially in small markets
with limited resources.

Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net> wrote:

> Hello,
>
> I feel ridding ourselves of the opaque, complex, secondary mortgage
> market, which is a major player in the mortgage mess, is being over looked.
>
> The relative sudden dependence on the MBS system that has mushroomed
> into prominence since its inception, not that long ago, should be a clear
> signal to at least start a discussion on weather it was a good idea at all
> in the first place. I for one think it was not.
>
> There are cheaper ways to finance homes. Why let a breeding ground for
> greed go unchallenged, or for that matter think that we can successfully
> manage greed with regulations? What is needed is a simple transparent way of
> raising money where mortgages are held and not securitorized. Is anyone
> interested in hearing more?
>
> Matthew Sparks
>
>
>
> CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')
>

CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: wtierney@numarkcu.org

Not really. You misspelled securitized which is actually not a word.
Aside from that, your assertion that "greed" is the primary motivating
factor for these instruments is somewhat misguided. I assume you are
talking about the greed of those handful of people who actually are paid
for placing these mortgages into the market. There may be some truth to
this argument if you are talking about the people on Wall Street who are
paid handsomely for placing these securities. But don't throw the baby
out with the bathwater just because a few companies and executives found
a way to make a lot of money. MBS and the secondary market have proven
to be a very useful tool in moving capital from capital rich areas to
capital poor areas at very reasonable rates. Missing this vehicle for
moving money capital poor areas might not be able to raise capital for
housing at all or would probably need to pay much higher rates to local
investors. The secondary market has also provided, until recently, very
liquid investments for financial institutions. Assuming we can safeguard
the liquidity of the investments they appear to add a strong social
benefit to our housing fabric.

________________________________

From: bounce-4779668-8116703@list.cornell.edu
[mailto:bounce-4779668-8116703@list.cornell.edu] On Behalf Of Matthew
Sparks
Sent: Tuesday, December 15, 2009 3:17 PM
To: communitydevelopmentbanking-l@cornell.edu
Subject: Dumping the secondary mortgage market market


Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage
market, which is a major player in the mortgage mess, is being over
looked.

The relative sudden dependence on the MBS system that has mushroomed
into prominence since its inception, not that long ago, should be a
clear signal to at least start a discussion on weather it was a good
idea at all in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground
for greed go unchallenged, or for that matter think that we can
successfully manage greed with regulations? What is needed is a simple
transparent way of raising money where mortgages are held and not
securitorized. Is anyone interested in hearing more?

Matthew Sparks




CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: dwoodmanlp@yahoo.com

The secondary mortgage market is a very good tool for expanding available lending capital and reducing the cost of borrowing.*sound underwriting however became a casualty of easy moeny.*Loan originators need to have*some skin in the game.*
*
*
Dan Woodman

--- On Wed, 12/16/09, Rich <richardrc01@gmail.com> wrote:


From: Rich <richardrc01@gmail.com>
Subject: Re: Dumping the secondary mortgage market market
To: "Malone, Carl" <carl.malone@harrisbank.com>
Cc: "2sparks@cox.net" <2sparks@cox.net>, "communitydevelopmentbanking-l@cornell.edu" <communitydevelopmentbanking-l@cornell.edu>
Date: Wednesday, December 16, 2009, 3:17 PM


Although increasing fannie and freddies responsibility in the market is not going to happen in the near future especially since they will be broke up in the near future. The secondary market is making it possible for everyone to be able to get a mortgage. Limiting the DTR will do a couple of things it will insure that before the mortgage is underwritten the borrower can meet the financial obligations toward the deed, and the institution does not put the borrower in a fail situation. It will also make financial institutions only loan to qualified home buyers. Sure there is always going to be defaults in the market but it could be limited. Tarp isn't going to be here for ever and we can't rely on government to solve all the problems. We need to get back to common since approaches to lending and the greedy institutions need to just go away.


On Wed, Dec 16, 2009 at 10:29 AM, Malone, Carl <carl.malone@harrisbank.com> wrote:


While I agree that there is a need for a secondary market, we should consider trying to find ways to simplify access to affordable mortgage products to qualified borrowers. Dropping the DTR to 12 percent is both impractical and improbable. You could drop it to zero and still have defaults. The key, to me, is curing whatever issues to prospective borrower has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld




From: bounce-4779857-4990520@list.cornell.edu <bounce-4779857-4990520@list.cornell.edu>
To: Matthew Sparks <2sparks@cox.net>
Cc: communitydevelopmentbanking-l@cornell.edu <communitydevelopmentbanking-l@cornell.edu>
Sent: Wed Dec 16 13:23:47 2009
Subject: Re: Dumping the secondary mortgage market market





If you get rid of the secondary market you are going to limit the resources available for first time home buyers and also your low income purchasers. Small financial institutions will not be able to create as many mortgages based on federal restriction and low dept ratios. I feel that we just need to regulate the mortgage markets better and insure that the borrowers can actually afford to make the purchases. If we lower the dept ratios for borrowers back to 12% it should eliminate some of the mistakes made in the past. The secondary market is needed especially in small markets with limited resources.
*
Rich Chartrand.


On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net> wrote:



Hello,
*
*** I feel*ridding ourselves of the opaque, complex, secondary mortgage market, which is a major player in*the mortgage mess, is being over looked.
*
*** The relative sudden dependence on the MBS system that has mushroomed into prominence since its inception, not that long ago, should be a clear signal to at least start a discussion on weather it was a good idea at all in the first place. I for one think it was not.
*
*** There are cheaper ways to finance homes. Why let a breeding ground for greed go unchallenged, or for that matter think that we can*successfully manage greed with regulations? What is needed is a simple transparent way of raising money where mortgages are held and not securitorized. Is anyone interested in hearing more?
*
Matthew Sparks
*
*

CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: ejdodson@comcast.net

A flurry of messages have come through that deserve comment. Having been in
the trenches, so to speak, at Fannie Mae when the mortgage-backed security
market first developed and expanded, I know how much effort went into the
assessment and management of the various types of risk everyone realized was
associated with this innovation.

When many on this list already understand very well, however, is that
neither the savings institutions nor the commercial banks were in a position
to hold large numbers of fixed rate mortgage loans in portfolio during the
1980s when interest rates were extremely volatile. And, even though the rate
environment stabilized from the early 1990s, the yields on such assets were
insufficient to warrant devoting (and reserving capital) to portfolio who
loans. This was the case even during those periods when the pricing for ARM
loans moved consumer demand in the direction of ARMs. Moreover, it should be
remembered that the GSEs and FHA would not purchase or securitize ARMs made
to first-time homebuyers or under special programs targeted to low- to
moderate-income homebuyers.

It is no secret that FHA had (and may continue to have) serious difficulties
with fraud prevention and poor servicer performance. Fannie and Freddie were
not immune to fraud problems, and this challenge certainly became more
intense as loan volumes skyrocketed. The response was to introduce automated
underwriting systems and rely more heavily on data gathering and analysis to
prevent fraudulent collusion on the part of those whose financial incentives
was to make every deal work.

I have expressed the view previously that Fannie, Freddie, FHA and the FHLBs
(which hardly anyone mentions, even though they became significant investors
in MBS from about the mid-1990s on) added fuel to the speculation-driven and
overheated property markets by annually raising maximum loan limits to
accommodate the rising median price of residential property. This was deemed
necessary to keep up loan volumes and guarantee fees for the simple reason
that household savings was in constant decline. Only by the lowering of down
payment requirements and otherwise reducing the borrowers' cash contribution
to the transaction was it possible for people to qualify for higher and
higher loan amounts. And, what few analysts observed was the fact that
appraisal reports were showing rapidly rising land-to-total value ratios,
which meant we were financing more and more land value and less and less
housing value.

The proliferation of the private placement MBS market, with originations
poorly or fraudulently underwritten, with the bond rating agencies without
the wherewithal or commitment to scrutinizing the underlying collateral, and
with Wall Street hawking these securities to investors looking for greater
than realistic rates of return -- all this and the above conditions in the
conventional and FHA arena combined for the perfect storm.

Interesting, the policy solution being followed by the Federal Reserve is to
keep the discount rate for banks so low that the banks can tap into this
source of funds and, so long as they match durations well, make enormous
profits even on relatively high risk business lines. What the Fed chairman
understands is that in the property markets, any window of affordability
created by lowering interest rates will get capitalized into high property
prices. The policy gamble is that property prices will recover enough so
that homeowners (i.e., those who have managed to stay employed and keep
their credit score high during this recession) will eventually be able to
finance out of whatever subprime debt they took on, or even refinance out of
an ARM into a FRM. Sound good. The problem is that once the engine of
property price inflation starts up again it will take on momentum that
eventually cannot be sustained.

What the regulators ought to do instead, in my opinion, is to prohibit any
financial institution that accepts government-insured deposits from making
loans for the purchase or refinancing of land value (except in those
instances where a mortgagor is able to prove they were victimized by fraud
or predatory lending practices).

If the private mortgage insurers all collapse as a result of the current
crisis, homebuyers may have to go back in any event to the days when they
had to come up with a 20 percent cash down payment. It is one of the great
ironies of the property market that the very availability of PMI -- by
increasing the pool of potential homebuyers to include those with minimum
savings -- helped to drive up property prices. With greater demand
forecasted, builders competing with one another to acquire developable land,
and investors who saw huge short-term returns increasingly realized put more
and more money into land speculation.

There is more to the story, of course, but these are the ingredients I saw
and experienced during my 30 odd years as a mortgage lender and then at
Fannie Mae.

Ed Dodson

[Community Development Banking List]

Original message from: eduardo@tacdc.org

I agree on the need for the secondary market, however, sound underwriting
wasn't the casualty of easy money. That's like saying that we would breath
harder if there was more oxygen available - it was the casualty of greed.
As to the Loan originators needing to have skin in the game: are you saying
that only the financial institutions that are providing the capital should
be allowed to originate? The loan origination market is a response to the
market need for the consumer to 'shop' options and the funders need get more
loans originated. These services will increase the 'risk', but overall have
provided an additional vehicle for the banks, and open competition
benefiting the homebuyer.



There is a parallel risk example of privatizing our government functions.
There will be additional costs and risks, and not everyone taking a contract
will perform, that's the nature of business. I don't believe that loan
originators don't already have skin in the game - they have the staff, the
systems, the licensing, the office space, etc. that they invest in to
provide the revenue generating services.



Eduardo R. Magaloni

Director of Development and Training

TACDC

1524 S IH-35, Suite 310

Austin, TX 78704

(512) 916-0508 ext. 103

www.tacdc.org

Enhancing Community Development in Texas



From: bounce-4780874-5282806@list.cornell.edu
[mailto:bounce-4780874-5282806@list.cornell.edu] On Behalf Of Dan Woodman
Sent: Wednesday, December 16, 2009 4:08 PM
To: CarlMalone; Rich
Cc: 2sparks@cox.net; communitydevelopmentbanking-l@cornell.edu
Subject: Re: Dumping the secondary mortgage market market




The secondary mortgage market is a very good tool for expanding available
lending capital and reducing the cost of borrowing. sound underwriting
however became a casualty of easy moeny. Loan originators need to have some
skin in the game.





Dan Woodman


--- On Wed, 12/16/09, Rich <richardrc01@gmail.com> wrote:


From: Rich <richardrc01@gmail.com>
Subject: Re: Dumping the secondary mortgage market market
To: "Malone, Carl" <carl.malone@harrisbank.com>
Cc: "2sparks@cox.net" <2sparks@cox.net>,
"communitydevelopmentbanking-l@cornell.edu"
<communitydevelopmentbanking-l@cornell.edu>
Date: Wednesday, December 16, 2009, 3:17 PM

Although increasing fannie and freddies responsibility in the market is not
going to happen in the near future especially since they will be broke up in
the near future. The secondary market is making it possible for everyone to
be able to get a mortgage. Limiting the DTR will do a couple of things it
will insure that before the mortgage is underwritten the borrower can meet
the financial obligations toward the deed, and the institution does not put
the borrower in a fail situation. It will also make financial institutions
only loan to qualified home buyers. Sure there is always going to be
defaults in the market but it could be limited. Tarp isn't going to be here
for ever and we can't rely on government to solve all the problems. We need
to get back to common since approaches to lending and the greedy
institutions need to just go away.

On Wed, Dec 16, 2009 at 10:29 AM, Malone, Carl <carl.malone@harrisbank.com
<http://us.mc510.mail.yahoo.com/mc/compose?to=carl.malone@harrisbank.com> ('http://us.mc510.mail.yahoo.com/mc/compose?to=carl.malone@harrisbank.com>') >
wrote:

While I agree that there is a need for a secondary market, we should
consider trying to find ways to simplify access to affordable mortgage
products to qualified borrowers. Dropping the DTR to 12 percent is both
impractical and improbable. You could drop it to zero and still have
defaults. The key, to me, is curing whatever issues to prospective borrower
has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld



_____

From: bounce-4779857-4990520@list.cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co ('http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co')
rnell.edu> <bounce-4779857-4990520@list.cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co ('http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co')
rnell.edu> >
To: Matthew Sparks <2sparks@cox.net
<http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net> ('http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net>') >
Cc: communitydevelopmentbanking-l@cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@ ('http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@')
cornell.edu> <communitydevelopmentbanking-l@cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@ ('http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@')
cornell.edu> >
Sent: Wed Dec 16 13:23:47 2009
Subject: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the resources
available for first time home buyers and also your low income purchasers.
Small financial institutions will not be able to create as many mortgages
based on federal restriction and low dept ratios. I feel that we just need
to regulate the mortgage markets better and insure that the borrowers can
actually afford to make the purchases. If we lower the dept ratios for
borrowers back to 12% it should eliminate some of the mistakes made in the
past. The secondary market is needed especially in small markets with
limited resources.



Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net
<http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net> ('http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net>') > wrote:

Hello,



I feel ridding ourselves of the opaque, complex, secondary mortgage
market, which is a major player in the mortgage mess, is being over looked.



The relative sudden dependence on the MBS system that has mushroomed
into prominence since its inception, not that long ago, should be a clear
signal to at least start a discussion on weather it was a good idea at all
in the first place. I for one think it was not.



There are cheaper ways to finance homes. Why let a breeding ground for
greed go unchallenged, or for that matter think that we can successfully
manage greed with regulations? What is needed is a simple transparent way of
raising money where mortgages are held and not securitorized. Is anyone
interested in hearing more?



Matthew Sparks







CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

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[Community Development Banking List]

Original message from: CRosenthal@cdcu.coop

The notion that secondary markets, per se, are a bad thing is obviously flawed. As has been abundantly argued on the list, the capacity of a primary lender to originate and hold loans, especially long-term, fixed loans, is limited.

It is certainly the case for the mostly small, low-income credit unions that my Federation represents and serves. Mortgage lending is, we believe, crucial to their ability to survive. It is very hard to forge a successful business model making large numbers of very small loans to low-income consumer at affordable rates. But many, if not most, of our community development credit unions (CDCUs) have been constrained in originating mortgages. One reason among several is the fact that low-volume originators have had limited ability to access the major secondary markets -- especially if they made non-conforming loans to meet the needs and characteristics of their low- and moderate-income members.

For this reason, the National Federation of CDCUs created our CDCU Mortgage Center, LLC, to purchase loans from our credit unions and free them up to expand their lending in their communities. In the world of secondary markets, we are definitely a very small, nice player, with a portfolio in the millions, not tens of billions. But to the degree that we can establish a pipeline, we believe we can play a significant role in expanding lending in the communities our credit unions serve.

In effect, we are serving as an aggregator or "pre-secondary market" for low-income credit unions. In 2010, we plan to execute our first resales of mortgages in our portfolio to CRA and social investors, who are looking to receive a near-market return on their investments. You can find us at www.cdcu.coop.


Clifford Rosenthal
President/CEO
National Federation of
*Community Development Credit Unions
116 John Street, 33rd Floor
New York, NY 10038
212-809-1850 ext. 216
fax: 212-809-3274
www.cdcu.coop
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[Community Development Banking List]

Original message from: 2sparks@cox.net

Eduardo,
What benefits homebuyers is lower interest rates and better terms. Loan originators could be tracked and additionally compensated for their success in writing good loans that continue to perform, and for as long as they perform. This type of payment would enrich their bottom line. All that has to be done is find a fair initial payment (.25% ?) and let the market determine to who, and how much of a bonus we are talking about. Of course there has to be a clear idea of how much is available to divvy up. That is where I lobby for dumping the secondary market for a public profit-sharing model of raising cash. Very transparent top to bottom.
----- Original Message -----
From: Eduardo R. Magaloni
To: 'Dan Woodman' ; 'CarlMalone' ; 'Rich'
Cc: 2sparks@cox.net ; communitydevelopmentbanking-l@cornell.edu
Sent: Thursday, December 17, 2009 11:38 AM
Subject: RE: Dumping the secondary mortgage market market


I agree on the need for the secondary market, however, sound underwriting wasn't the casualty of easy money. That's like saying that we would breath harder if there was more oxygen available - it was the casualty of greed. As to the Loan originators needing to have skin in the game: are you saying that only the financial institutions that are providing the capital should be allowed to originate? The loan origination market is a response to the market need for the consumer to 'shop' options and the funders need get more loans originated. These services will increase the 'risk', but overall have provided an additional vehicle for the banks, and open competition benefiting the homebuyer.



There is a parallel risk example of privatizing our government functions. There will be additional costs and risks, and not everyone taking a contract will perform, that's the nature of business. I don't believe that loan originators don't already have skin in the game - they have the staff, the systems, the licensing, the office space, etc. that they invest in to provide the revenue generating services.



Eduardo R. Magaloni

Director of Development and Training

TACDC

1524 S IH-35, Suite 310

Austin, TX 78704

(512) 916-0508 ext. 103

www.tacdc.org

Enhancing Community Development in Texas



From: bounce-4780874-5282806@list.cornell.edu [mailto:bounce-4780874-5282806@list.cornell.edu] On Behalf Of Dan Woodman
Sent: Wednesday, December 16, 2009 4:08 PM
To: CarlMalone; Rich
Cc: 2sparks@cox.net; communitydevelopmentbanking-l@cornell.edu
Subject: Re: Dumping the secondary mortgage market market



The secondary mortgage market is a very good tool for expanding available lending capital and reducing the cost of borrowing. sound underwriting however became a casualty of easy moeny. Loan originators need to have some skin in the game.





Dan Woodman


--- On Wed, 12/16/09, Rich <richardrc01@gmail.com> wrote:


From: Rich <richardrc01@gmail.com>
Subject: Re: Dumping the secondary mortgage market market
To: "Malone, Carl" <carl.malone@harrisbank.com>
Cc: "2sparks@cox.net" <2sparks@cox.net>, "communitydevelopmentbanking-l@cornell.edu" <communitydevelopmentbanking-l@cornell.edu>
Date: Wednesday, December 16, 2009, 3:17 PM

Although increasing fannie and freddies responsibility in the market is not going to happen in the near future especially since they will be broke up in the near future. The secondary market is making it possible for everyone to be able to get a mortgage. Limiting the DTR will do a couple of things it will insure that before the mortgage is underwritten the borrower can meet the financial obligations toward the deed, and the institution does not put the borrower in a fail situation. It will also make financial institutions only loan to qualified home buyers. Sure there is always going to be defaults in the market but it could be limited. Tarp isn't going to be here for ever and we can't rely on government to solve all the problems. We need to get back to common since approaches to lending and the greedy institutions need to just go away.

On Wed, Dec 16, 2009 at 10:29 AM, Malone, Carl <carl.malone@harrisbank.com> wrote:

While I agree that there is a need for a secondary market, we should consider trying to find ways to simplify access to affordable mortgage products to qualified borrowers. Dropping the DTR to 12 percent is both impractical and improbable. You could drop it to zero and still have defaults. The key, to me, is curing whatever issues to prospective borrower has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld




----------------------------------------------------------------------

From: bounce-4779857-4990520@list.cornell.edu <bounce-4779857-4990520@list.cornell.edu>
To: Matthew Sparks <2sparks@cox.net>
Cc: communitydevelopmentbanking-l@cornell.edu <communitydevelopmentbanking-l@cornell.edu>
Sent: Wed Dec 16 13:23:47 2009
Subject: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the resources available for first time home buyers and also your low income purchasers. Small financial institutions will not be able to create as many mortgages based on federal restriction and low dept ratios. I feel that we just need to regulate the mortgage markets better and insure that the borrowers can actually afford to make the purchases. If we lower the dept ratios for borrowers back to 12% it should eliminate some of the mistakes made in the past. The secondary market is needed especially in small markets with limited resources.



Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net> wrote:

Hello,



I feel ridding ourselves of the opaque, complex, secondary mortgage market, which is a major player in the mortgage mess, is being over looked.



The relative sudden dependence on the MBS system that has mushroomed into prominence since its inception, not that long ago, should be a clear signal to at least start a discussion on weather it was a good idea at all in the first place. I for one think it was not.



There are cheaper ways to finance homes. Why let a breeding ground for greed go unchallenged, or for that matter think that we can successfully manage greed with regulations? What is needed is a simple transparent way of raising money where mortgages are held and not securitorized. Is anyone interested in hearing more?



Matthew Sparks







CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')




CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

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------------------------------------------------------------------------------



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[Community Development Banking List]

Original message from: eduardo@tacdc.org

Matthew -

While I agree that with you in that the terms and lower interest rates
benefit the consumer the most, and that the compensation structure should be
changed, the role of the secondary market is to free the bank's capital buy
buying up the notes. It really doesn't have as much to do with the terms the
homebuyers are getting as what is created through competition and the
overall cost of the money the banks are using. Correct me if I am wrong,
please, but the secondary market basically uses the bond market to get
investment funds with which to buy the loans with, thereby allowing banks to
'cash out' their notes and issue more mortgages. If I am understanding that
process correctly, then the loan originators need the secondary market to
have the available cash, and the homebuyer benefits because there is
cash-flow through the lending institutions. Without that secondary market,
when the bank runs out of cash, it's out of the game. I think that would
lower competition from the banks and raise the cost of the loans for the
consumer. Yes, change the pay structure for the loan originator as you
described, but the way I understand it, the secondary market is a critical
partner in growing the economy.



What needs to change in the secondary market are the new 'bundling'
equations. Breaking up Fannie and Freddie is yet another example of
knee-jerk over-reactive public policy. It is the equivalent of present day
witch hunting. Find someone to blame and burn 'em at the stake! They
(Freddie and Fannie) are good, over all, and necessary to grow the economy.
We have to realize that there are aspects to the lending and investment
industries that conflict, and should not allow them to merge. These
policies also created the entities that are 'too big to fail'. Those are
the real structural problems, in my opinion. If we change those, along with
some of our regulatory (oversight) practices, then we can control the greed
that drove us to this point.



Eduardo R. Magaloni

Director of Development and Training

TACDC

1524 S IH-35, Suite 310

Austin, TX 78704

(512) 916-0508 ext. 103

www.tacdc.org

Enhancing Community Development in Texas



From: Matthew Sparks [mailto:2sparks@cox.net]
Sent: Thursday, December 17, 2009 3:13 PM
To: eduardo@tacdc.org; 'Dan Woodman'; 'CarlMalone'; 'Rich'
Cc: communitydevelopmentbanking-l@cornell.edu
Subject: Re: Dumping the secondary mortgage market market



Eduardo,

What benefits homebuyers is lower interest rates and better terms. Loan
originators could be tracked and additionally compensated for their success
in writing good loans that continue to perform, and for as long as they
perform. This type of payment would enrich their bottom line. All that has
to be done is find a fair initial payment (.25% ?) and let the market
determine to who, and how much of a bonus we are talking about. Of course
there has to be a clear idea of how much is available to divvy up. That is
where I lobby for dumping the secondary market for a public profit-sharing
model of raising cash. Very transparent top to bottom.

----- Original Message -----

From: Eduardo R. Magaloni <mailto:eduardo@tacdc.org>

To: 'Dan Woodman' <mailto:dwoodmanlp@yahoo.com> ; 'CarlMalone'
<mailto:carl.malone@harrisbank.com> ; 'Rich' <mailto:richardrc01@gmail.com>


Cc: 2sparks@cox.net ; communitydevelopmentbanking-l@cornell.edu

Sent: Thursday, December 17, 2009 11:38 AM

Subject: RE: Dumping the secondary mortgage market market



I agree on the need for the secondary market, however, sound underwriting
wasn't the casualty of easy money. That's like saying that we would breath
harder if there was more oxygen available - it was the casualty of greed.
As to the Loan originators needing to have skin in the game: are you saying
that only the financial institutions that are providing the capital should
be allowed to originate? The loan origination market is a response to the
market need for the consumer to 'shop' options and the funders need get more
loans originated. These services will increase the 'risk', but overall have
provided an additional vehicle for the banks, and open competition
benefiting the homebuyer.



There is a parallel risk example of privatizing our government functions.
There will be additional costs and risks, and not everyone taking a contract
will perform, that's the nature of business. I don't believe that loan
originators don't already have skin in the game - they have the staff, the
systems, the licensing, the office space, etc. that they invest in to
provide the revenue generating services.



Eduardo R. Magaloni

Director of Development and Training

TACDC

1524 S IH-35, Suite 310

Austin, TX 78704

(512) 916-0508 ext. 103

www.tacdc.org

Enhancing Community Development in Texas



From: bounce-4780874-5282806@list.cornell.edu
[mailto:bounce-4780874-5282806@list.cornell.edu] On Behalf Of Dan Woodman
Sent: Wednesday, December 16, 2009 4:08 PM
To: CarlMalone; Rich
Cc: 2sparks@cox.net; communitydevelopmentbanking-l@cornell.edu
Subject: Re: Dumping the secondary mortgage market market




The secondary mortgage market is a very good tool for expanding available
lending capital and reducing the cost of borrowing. sound underwriting
however became a casualty of easy moeny. Loan originators need to have some
skin in the game.





Dan Woodman


--- On Wed, 12/16/09, Rich <richardrc01@gmail.com> wrote:


From: Rich <richardrc01@gmail.com>
Subject: Re: Dumping the secondary mortgage market market
To: "Malone, Carl" <carl.malone@harrisbank.com>
Cc: "2sparks@cox.net" <2sparks@cox.net>,
"communitydevelopmentbanking-l@cornell.edu"
<communitydevelopmentbanking-l@cornell.edu>
Date: Wednesday, December 16, 2009, 3:17 PM

Although increasing fannie and freddies responsibility in the market is not
going to happen in the near future especially since they will be broke up in
the near future. The secondary market is making it possible for everyone to
be able to get a mortgage. Limiting the DTR will do a couple of things it
will insure that before the mortgage is underwritten the borrower can meet
the financial obligations toward the deed, and the institution does not put
the borrower in a fail situation. It will also make financial institutions
only loan to qualified home buyers. Sure there is always going to be
defaults in the market but it could be limited. Tarp isn't going to be here
for ever and we can't rely on government to solve all the problems. We need
to get back to common since approaches to lending and the greedy
institutions need to just go away.

On Wed, Dec 16, 2009 at 10:29 AM, Malone, Carl <carl.malone@harrisbank.com
<http://us.mc510.mail.yahoo.com/mc/compose?to=carl.malone@harrisbank.com> ('http://us.mc510.mail.yahoo.com/mc/compose?to=carl.malone@harrisbank.com>') >
wrote:

While I agree that there is a need for a secondary market, we should
consider trying to find ways to simplify access to affordable mortgage
products to qualified borrowers. Dropping the DTR to 12 percent is both
impractical and improbable. You could drop it to zero and still have
defaults. The key, to me, is curing whatever issues to prospective borrower
has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld



_____

From: bounce-4779857-4990520@list.cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co ('http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co')
rnell.edu> <bounce-4779857-4990520@list.cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co ('http://us.mc510.mail.yahoo.com/mc/compose?to=bounce-4779857-4990520@list.co')
rnell.edu> >
To: Matthew Sparks <2sparks@cox.net
<http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net> ('http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net>') >
Cc: communitydevelopmentbanking-l@cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@ ('http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@')
cornell.edu> <communitydevelopmentbanking-l@cornell.edu
<http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@ ('http://us.mc510.mail.yahoo.com/mc/compose?to=communitydevelopmentbanking-l@')
cornell.edu> >
Sent: Wed Dec 16 13:23:47 2009
Subject: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the resources
available for first time home buyers and also your low income purchasers.
Small financial institutions will not be able to create as many mortgages
based on federal restriction and low dept ratios. I feel that we just need
to regulate the mortgage markets better and insure that the borrowers can
actually afford to make the purchases. If we lower the dept ratios for
borrowers back to 12% it should eliminate some of the mistakes made in the
past. The secondary market is needed especially in small markets with
limited resources.



Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net
<http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net> ('http://us.mc510.mail.yahoo.com/mc/compose?to=2sparks@cox.net>') > wrote:

Hello,



I feel ridding ourselves of the opaque, complex, secondary mortgage
market, which is a major player in the mortgage mess, is being over looked.



The relative sudden dependence on the MBS system that has mushroomed
into prominence since its inception, not that long ago, should be a clear
signal to at least start a discussion on weather it was a good idea at all
in the first place. I for one think it was not.



There are cheaper ways to finance homes. Why let a breeding ground for
greed go unchallenged, or for that matter think that we can successfully
manage greed with regulations? What is needed is a simple transparent way of
raising money where mortgages are held and not securitorized. Is anyone
interested in hearing more?



Matthew Sparks







CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')



CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

No virus found in this incoming message.
Checked by AVG - www.avg.com
Version: 8.5.426 / Virus Database: 270.14.108/2565 - Release Date: 12/14/09
19:40:00

_____


No virus found in this incoming message.
Checked by AVG - www.avg.com
Version: 8.5.427 / Virus Database: 270.14.111/2570 - Release Date: 12/17/09
08:30:00

No virus found in this incoming message.
Checked by AVG - www.avg.com
Version: 8.5.426 / Virus Database: 270.14.108/2565 - Release Date: 12/14/09
19:40:00

[Community Development Banking List]

Original message from: korneldw@forsyth.cc

I have been doing homeownership for 27 years and never heard of debt to income ratio maximums of 12%. Was it ever that low or was it in the days you had to pay cash for homes? Talk about freezing out new homebuyers. My idea is we never needed subprime or ARMs for first time homebuyers. The 30 year fixed rate financing is the way to go. However, no strict underwriting can protect against the job losses we are seeing in NC right now. I am not a believer in that it is a God given right to be a homeowner. It is a privilege that one must work for. Bad credit can be cleaned up, debt can be reduced, income can be increased. Our IDA program is living proof of this. Our motto is "we serve no homebuyer before their time."
Dan Kornelis
Housing Director
Forsyth County NC

________________________________
From: bounce-4780489-8994024@list.cornell.edu [mailto:bounce-4780489-8994024@list.cornell.edu] On Behalf Of Malone, Carl
Sent: Wednesday, December 16, 2009 2:30 PM
To: 'richardrc01@gmail.com'; '2sparks@cox.net'
Cc: 'communitydevelopmentbanking-l@cornell.edu'
Subject: Re: Dumping the secondary mortgage market market

While I agree that there is a need for a secondary market, we should consider trying to find ways to simplify access to affordable mortgage products to qualified borrowers. Dropping the DTR to 12 percent is both impractical and improbable. You could drop it to zero and still have defaults. The key, to me, is curing whatever issues to prospective borrower has before he gets in to the pipeline.
--------------------------
Sent from my BlackBerry Wireless Handheld

________________________________
From: bounce-4779857-4990520@list.cornell.edu <bounce-4779857-4990520@list.cornell.edu>
To: Matthew Sparks <2sparks@cox.net>
Cc: communitydevelopmentbanking-l@cornell.edu <communitydevelopmentbanking-l@cornell.edu>
Sent: Wed Dec 16 13:23:47 2009
Subject: Re: Dumping the secondary mortgage market market

If you get rid of the secondary market you are going to limit the resources available for first time home buyers and also your low income purchasers. Small financial institutions will not be able to create as many mortgages based on federal restriction and low dept ratios. I feel that we just need to regulate the mortgage markets better and insure that the borrowers can actually afford to make the purchases. If we lower the dept ratios for borrowers back to 12% it should eliminate some of the mistakes made in the past. The secondary market is needed especially in small markets with limited resources.

Rich Chartrand.

On Tue, Dec 15, 2009 at 12:16 PM, Matthew Sparks <2sparks@cox.net<mailto:2sparks@cox.net>> wrote:
Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage market, which is a major player in the mortgage mess, is being over looked.

The relative sudden dependence on the MBS system that has mushroomed into prominence since its inception, not that long ago, should be a clear signal to at least start a discussion on weather it was a good idea at all in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground for greed go unchallenged, or for that matter think that we can successfully manage greed with regulations? What is needed is a simple transparent way of raising money where mortgages are held and not securitorized. Is anyone interested in hearing more?

Matthew Sparks




CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')


CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')


CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

________________________________
NOTE: This is a Forsyth County operated e-mail system. ALL e-Mail communication is subject to be accessed by the news media and the public pursuant to the Public Records Law of North Carolina.

[Community Development Banking List]

Original message from: 2sparks@cox.net



Cliff, here is some white paper,I never heard that before. Thanks for
talking to me. Poke holes, ask questions, I could use the help. My idea
seems like it would work for you. However, I did not get that specific on
the white paper below so you will not see your concerns per say. If you read
between the lines and grasp the intent, it is meant to be fair to everyone
who participates, saving consumers money and making more money for
originators, in your case.



The refinancing of America

By: Matthew Sparks



I started wondering, after seeing the home industry begin to melt down
before my eyes, if there wasn't a better way to finance homes in this
country. After a year of working on this question I've come to the
conclusion that yes there is. The following is how my plan to save $45.5
billion per month unfolds.

I thought the process should be quite simple for a good business man. Raise
money to lend, make the best loans you can, have a plan for foreclosures,
and have a good management team to run things. Knowing I did not have the
capital to finance the nation's housing industry, thereby being unable to
plan for profits of my own, I was able to objectively think what would be
the best business model to follow to accomplish the task of financing homes.

I decided there should be no private money involved. This was an easy
decision because private money is more expensive than public money is.
Private money gets too complex and hard to understand. And lastly, public
money is being used more now than private money, making the amount of money
needed to correct the problem smaller. The business model I chose also was
an easy choice. I chose a profit-sharing model because it fit best. My plan
for raising the money needed to cash out the private investors also lent
itself to the profit-sharing business plan, which coincided with a bonus;
the consolidating of the home industry. Consolidating the industry means
bringing homes with no mortgages (owners) together with homes with mortgages
(buyers). This made the most sense because using the unencumbered equity in
owner's homes is a secure collateral source with which to raise money. I'll
expand on this thought shortly.

At this point my idea was taking shape. I had gotten rid of expensive
private money and all that it entails, mortgage-backed securities (MBS),
derivatives, tranching, market instability, REMI's, MDO's, CdO's and the
list goes on. Buyers and sellers are partnered together in a profit sharing
business model, now all that was left, was to see if it "penciled out",
meaning could this idea pay for itself. Also it had to be fair to everyone,
which is just the way I do business.

I called the US Census Bureau and was directed to its website to find the
figures I needed to complete my feasibility study and check the veracity of
my idea. The figures I used from the site showed that the total value of
homes for both owners and buyers is over $14 trillion, even in this down
market. One third of the homes are owned free and clear, two thirds are
being purchased. The equity that the owners have is over $3 trillion. The
median value as I write this is listed at $192,400.

Now it was time to start finding out just how much cheaper public money is.
Remember when using a profit-sharing business model, as in this scenario,
all costs are kept as low as possible, you are not trying to make a profit
just cover costs, because costs are added together to find the interest rate
that will be charged for a loan and you want that to be low. I used 0% for
the cost of money for two reasons. One being that was the going rate from
the Federal Reserve at the time, and secondly it makes no sense for
taxpayers to be charge themselves interest for their own money. Next I
checked what it cost to manage and administrate large loan holdings by
looking at the balance sheets of Fannie and Freddie Mac, Goldman Sacks,
Wells Fargo, and other big private firms to make sure I made the best
estimate I could. I amitorized different interest rates with the median home
value and multiplied by the number of homes, and took 10% of that number
until I could generously cover the estimated administration costs in case I
miscalculated them. I was not surprised to find that the interest rate I
came up with was 3½%. With the prime rate at 0% which is what the Fed
charges big banks, many news sources were reporting that banks, which have
to add in a profit margin for themselves and their private and foreign
investors, were offering some of the lowest rates in resent history. Only
briefly during this time had rates slipped slightly below 5%,they tended to
hover between 5% and 6%. This made me feel confident that my 3½% figure for
an interest rate was sans profit motive, and correct, surly close enough to
add credence to my argument for profit-sharing.

Administration costs should be the highest costs, and being conservative, I
used the same 10% of revenue figure for all other cost categories, to give
my estimate lots of wiggle room. I then budgeted for growth--the idea being
to build in retained earnings so that no more taxpayer's money would ever
have to be used as the population got bigger. This was done using census
tables, going back in time and averaging growth and assuming it would
continue at that rate. Foreclosures were assigned the same costs and
budgeted for. I am confident this cost can be subtracted in the future
because foreclosures should be a money maker, but setting something up that
is this big will take time and cost money at first.

The final cost is the profit-sharing cost or dividend. Who gets how much is
a political decision. I suggest 1.3% of the value of a person's home be paid
to any one who has a house that is paid off. That translates into $208 per
month on the average home. Let's assume that everyone would refinance at 3½%
if they could stay wherever they were on their payment schedule. Also that
the terms of their home loan or any new home loan are user-friendly, meaning
assumable, and never starting over as long as it was kept current, no matter
where, or how many times you moved. No points or private mortgage insurance
(PMI) would be charged, and a person qualifies for profit-sharing when the
home loan is paid off. These and other money-saving terms would apply to all
home loans. The point is, the average home buyer will realize a savings of
over $800 per month over the life of a thirty-year loan if all these
benefits are added to the savings of a lower interest rate.

Now an important guarantee has to take place for profit-sharing to work.
Home owners that are justifying, or collateralizing if you prefer, the
printing of money to cash out the relatively small amount of private and
foreign investors still operating in home lending, need a similar guarantee
that Ginnie Mae gives to banks now, and that is one that has the full faith
and credit of the government behind it. What this means is as an owner (not
a buyer) in the profit-sharing system one can not be foreclosed on. Now,
Ginnie Mae guarantees the payment of all government loans, which means it
would be willing to print more money if need be. It is this guarantee that
drives the troubled MBS market according to their website. (I added the word
troubled) In the profit-sharing model the government guarantee is vital. Too
few owners would participate in the program without the guarantee and
rightfully so. The need for this guarantee is not unusual, or an added
sacrifice to accommodate changing the way we finance homes. One could look
at the guarantee in many ways, the important thing to remember are people
had to live somewhere and without people in houses we have no country.
Actually a better question to concern ourselves with is should we pay off
the debt and if so how fast?

How much debt/printing of money we are talking about to put the new plan
into action is hard to pin down. I have tried and am confident that $3
trillion should do it, but admittedly it is an educated guess because I
could not find this total anywhere. If you look at the revenue generated at
an interest rate of 3½% it works out to about $550 billion per year. If the
political decision was to forgo dividends, this debt can be paid off in
seven years. Remember that one dollar of home equity is acting as reserves
for every dollar borrowed from the Federal Reserve for a ratio of 1 to 1.
The ratio given to banks currently is 8 to 1, or 10 to 1, so this new system
is financially superior and less risky. I want to point out that the ratios
in use today get worse every time another layer of investing and borrowing
is added. Lending institutions have had ratios leveraging 1 to 100,and
200,and even higher. The new system has an additional $1.6 trillion in
equity not counted in the homes that are being bought, so technically there
is $1.53 in home equity backing every dollar borrowed.

The profit-sharing, government-sponsored entity (GSE) I'm describing has an
advantage that is not a priority under the system we use now. That is it
will hold the mortgages it funds. This will give it flexibility in dealing
with foreclosures that the current system that hold MBS wishes it had. I
will let you draw your own conclusions about how foreclosures could have
been handled if decision-making and control was not delegated to a trust
that is designed not to act, as is the case with MBS. As sad as the truth of
this topic is, I do know that a good business will profit off another's
misfortune, which we know did not happen. This is not going to be the case
in the new system which will make aggregate foreclosing profitable. This is
not to say that there will not be changes made such as rent-to-own, or other
superlative and compassionate ideas I have heard about, that would have kept
more people in their homes and perhaps stopped the slide of home values by
stabilizing neighborhoods, and in some cases prevented ghost towns where the
worst speculation took place.

I believe the nature of the business model I've chosen, one of a
profit-sharing GSE, solves the problem of banks to big to fail that has been
identified by the Federal Reserve, or at the very least will be nearly
completed, diminishing the need for more regulations. I must admit I was
skeptical on how well the Feds promises to regulate the MBS dominated
industry would work. I saw as greed, half-truths, and lies which are hard if
not impossible to regulate or legislate away, and these are traits that have
no place in any good business, especially one in which our government is
involved in. I will site one recent paper by Youngheng Deng, Stuart A.
Gabriel, and Anthony B. Sanders, from UCLA's Ziman Center of Real Estate
entitled "The Implosion of the CDO Market and the pricing of Subprime MBS"
that goes into great detail and I'll share four factors they named that
played into the melt-down that I feel fit my assessment. "Market Completion"
talks about tranching, senior vs. junior positions and how they were formed
to be marketed and intimated there was interest never to be paid. "Supply
Shift" removed assets from the books, which is not to be confused with off
book accounting which Enron made famous in some circles. "Shell Game", my
favorite name, dealt with how inaccurate information was disseminated.
Finally "Production Efficiency" over stated the cost savings of handling
large portfolios of MBS and other debt instruments as a reason not to worry
about the ability to receive future pay outs that never materialized. Enough
of past problems let's focus on the future.

Transitioning to the new system will entail value determination of owners
homes, this may prove to be cumbersome so the dividend could be tiered and
not property specific to expedite transition. I think the seventy employees
at Ginnie Mae would be a great place to start looking for administration. I
was dumb founded to learn that so much money and responsibility was handled
by so few, but again this is just an educated guess on my part. A warning to
all is that political contributions will change within the housing industry,
as banks see there participation reduced to fee for service contracts, which
demands less lobbing.

I hope it is clear that the new system is not raising taxes. Debt in the
housing industry is an unavoidable fact and a not-for-profit system is the
best way to handle that debt. There is no social agenda. The more interest
you pay the bigger your dividend. Until all the start-up money for the new
venture is paid off, taxpayers will be involved. It is only fair that
renters be compensated in some way, for they pay taxes too. The best option
for the system would be to give a credit they could bank for a down payment
on a home loan. This credit could be discounted for cash, or applied to
taxes, but would cost more.

In conclusion I believe it is clear why I think we should change to a
profit-sharing system. My figures show that going forward with this idea
will keep $45.5 billion per month in the hands of consumers. The dividend
payment that owners earned would come at a time for most when they are
looking to live on a fixed income, and would be a supplement to Social
Security. $45.5 billion per month bears repeating, and makes one wonder--is
this the number we can assign to the greed we have all been talking about?



----- Original Message -----
From: "Cliff Rosenthal" <CRosenthal@cdcu.coop>
To: <communitydevelopmentbanking-l@cornell.edu>
Sent: Thursday, December 17, 2009 12:06 PM
Subject: RE: Dumping the secondary mortgage market


The notion that secondary markets, per se, are a bad thing is obviously
flawed. As has been abundantly argued on the list, the capacity of a
primary lender to originate and hold loans, especially long-term, fixed
loans, is limited.

It is certainly the case for the mostly small, low-income credit unions that
my Federation represents and serves. Mortgage lending is, we believe,
crucial to their ability to survive. It is very hard to forge a successful
business model making large numbers of very small loans to low-income
consumer at affordable rates. But many, if not most, of our community
development credit unions (CDCUs) have been constrained in originating
mortgages. One reason among several is the fact that low-volume originators
have had limited ability to access the major secondary markets -- especially
if they made non-conforming loans to meet the needs and characteristics of
their low- and moderate-income members.

For this reason, the National Federation of CDCUs created our CDCU Mortgage
Center, LLC, to purchase loans from our credit unions and free them up to
expand their lending in their communities. In the world of secondary
markets, we are definitely a very small, nice player, with a portfolio in
the millions, not tens of billions. But to the degree that we can establish
a pipeline, we believe we can play a significant role in expanding lending
in the communities our credit unions serve.

In effect, we are serving as an aggregator or "pre-secondary market" for
low-income credit unions. In 2010, we plan to execute our first resales of
mortgages in our portfolio to CRA and social investors, who are looking to
receive a near-market return on their investments. You can find us at
www.cdcu.coop.


Clifford Rosenthal
President/CEO
National Federation of
Community Development Credit Unions
116 John Street, 33rd Floor
New York, NY 10038
212-809-1850 ext. 216
fax: 212-809-3274
www.cdcu.coop
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[Community Development Banking List]

Original message from: tloc@centuryhousing.org

Read the article on Fannie and Freddie in this - http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin09/si_win09.pdf ('http://www.fdic.gov/regulations/examinations/supervisory/insights/siwin09/si_win09.pdf')

Once someone figures out how to replace what they do, some of which is not commercially viable because the IRR is too low for lenders to bother with the business, then we can get rid of them in residential. As to commercial lending's secondary market, who cares? That is pure gambling and the investment houses and REITs can have all they want.

From: bounce-4779668-5282651@list.cornell.edu [mailto:bounce-4779668-5282651@list.cornell.edu] On Behalf Of Matthew Sparks
Sent: Tuesday, December 15, 2009 1:17 PM
To: communitydevelopmentbanking-l@cornell.edu
Subject: Dumping the secondary mortgage market market

Hello,

I feel ridding ourselves of the opaque, complex, secondary mortgage market, which is a major player in the mortgage mess, is being over looked.

The relative sudden dependence on the MBS system that has mushroomed into prominence since its inception, not that long ago, should be a clear signal to at least start a discussion on weather it was a good idea at all in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding ground for greed go unchallenged, or for that matter think that we can successfully manage greed with regulations? What is needed is a simple transparent way of raising money where mortgages are held and not securitorized. Is anyone interested in hearing more?

Matthew Sparks




CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: lfoster@masoncity.net

se*cu*ri*tize (s -ky r -t z )
tr.v. se*cu*ri*tized, se*cu*ri*tiz*ing, se*cu*ri*tiz*es
To buy (loans, such as mortgages) from lenders, arrange them in groups,
and issue bonds on the groups.

-----Original Message-----
From: bounce-4780625-4991599@list.cornell.edu
[mailto:bounce-4780625-4991599@list.cornell.edu] On Behalf Of William
Tierney
Sent: Wednesday, December 16, 2009 12:18 PM
To: Matthew Sparks; communitydevelopmentbanking-l@cornell.edu
Subject: RE: Dumping the secondary mortgage market market


Not really. You misspelled securitized which is actually not a
word. Aside from that, your assertion that "greed" is the primary
motivating factor for these instruments is somewhat misguided. I assume
you are talking about the greed of those handful of people who actually
are paid for placing these mortgages into the market. There may be some
truth to this argument if you are talking about the people on Wall
Street who are paid handsomely for placing these securities. But don't
throw the baby out with the bathwater just because a few companies and
executives found a way to make a lot of money. MBS and the secondary
market have proven to be a very useful tool in moving capital from
capital rich areas to capital poor areas at very reasonable rates.
Missing this vehicle for moving money capital poor areas might not be
able to raise capital for housing at all or would probably need to pay
much higher rates to local investors. The secondary market has also
provided, until recently, very liquid investments for financial
institutions. Assuming we can safeguard the liquidity of the investments
they appear to add a strong social benefit to our housing fabric.

________________________________

From: bounce-4779668-8116703@list.cornell.edu
[mailto:bounce-4779668-8116703@list.cornell.edu] On Behalf Of Matthew
Sparks
Sent: Tuesday, December 15, 2009 3:17 PM
To: communitydevelopmentbanking-l@cornell.edu
Subject: Dumping the secondary mortgage market market


Hello,

I feel ridding ourselves of the opaque, complex, secondary
mortgage market, which is a major player in the mortgage mess, is being
over looked.

The relative sudden dependence on the MBS system that has
mushroomed into prominence since its inception, not that long ago,
should be a clear signal to at least start a discussion on weather it
was a good idea at all in the first place. I for one think it was not.

There are cheaper ways to finance homes. Why let a breeding
ground for greed go unchallenged, or for that matter think that we can
successfully manage greed with regulations? What is needed is a simple
transparent way of raising money where mortgages are held and not
securitorized. Is anyone interested in hearing more?

Matthew Sparks




CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')


CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')

[Community Development Banking List]

Original message from: daoudakeita@yahoo.com

Hi All,

Not sure if anyone has mentioned this, but one thing that can help is if both the originator and the investment banker(s) who packages, shops around and arranges the deal has to hold a portion of the MBS investment themselves - say 5-10%. It's not perfect, but leaves some skin in the game...

Chris Linder

--- On Thu, 12/17/09, Eduardo R. Magaloni <eduardo@tacdc.org> wrote:

From: Eduardo R. Magaloni <eduardo@tacdc.org>
Subject: RE: Dumping the secondary mortgage market market
To: "'Matthew Sparks'" <2sparks@cox.net>, "'Dan Woodman'" <dwoodmanlp@yahoo.com>, "'CarlMalone'" <carl.malone@harrisbank.com>, "'Rich'" <richardrc01@gmail.com>
Cc: communitydevelopmentbanking-l@cornell.edu
Date: Thursday, December 17, 2009, 4:53 PM
















Matthew –

While I agree that with you in
that the terms and lower interest
rates benefit the consumer the most, and that the
compensation structure should
be changed, the role of the secondary market is to free the
bank’s
capital buy buying up the notes. It really doesn’t
have as much to do
with the terms the homebuyers are getting as what is
created through
competition and the overall cost ofÂ* the money the
banks are using.Â* Correct
me if I am wrong, please, but the secondary market
basically uses the bond
market to get investment funds with which to buy the loans
with, thereby allowing
banks to ‘cash out’ their notes and issue more
mortgages. Â*If
I am understanding that process correctly, then the loan
originators need the
secondary market to have the available cash, and the
homebuyer benefits because
there is cash-flow through the lending institutions.Â*
Without that secondary
market, when the bank runs out of cash, it’s out of
the game.Â* I
think that would lower competition from the banks and raise
the cost of the
loans for the consumer.Â* Yes, change the pay structure
for the loan
originator as you described, but the way I understand it,
the secondary market
is a critical partner in growing the economy.

Â*

What needs to change in the
secondary market are the new ‘bundling’
equations.Â* Breaking up Fannie and Freddie is yet
another example of
knee-jerk over-reactive public policy.Â* It is the
equivalent of present
day witch hunting.Â* Find someone to blame and burn
‘em at the stake!
Â*They (Freddie and Fannie) are good, over all, and
necessary to grow the
economy.Â* We have to realize that there are aspects to
the lending and
investment industries that conflict, and should not allow
them to merge.Â*
These policies also created the entities that are
‘too big to fail’.Â*
Â*Â*Those are the real structural problems, in my
opinion.Â* If we
change those, along with some of our regulatory (oversight)
practices, then we
can control the greed that drove us to this point.Â*


Â*



Eduardo R. Magaloni

Director of Development and
Training

TACDC

1524 S IH-35, Suite
310

Austin, TX 78704

(512) 916-0508 ext.
103

www.tacdc.org

Enhancing Community Development
in Texas



Â*





From: Matthew Sparks
[mailto:2sparks@cox.net]

Sent: Thursday, December 17, 2009 3:13 PM

To: eduardo@tacdc.org; 'Dan Woodman';
'CarlMalone'; 'Rich'

Cc: communitydevelopmentbanking-l@cornell.edu

Subject: Re: Dumping the secondary mortgage market
market





Â*



Eduardo,






What
benefits homebuyers is lower interest rates and better
terms. Loan
originatorsÂ*could be tracked and additionally
compensated for their
success in writing good loans that continue to perform, and
for as long as they
perform. This type of payment would enrich their bottom
line. All that has to
be done is find a fair initial payment (.25% ?) and let the
market determine to
who, and how muchÂ*of aÂ*bonus we are talking
about.Â*Of course
there has to beÂ*a clear idea of how much is available
to divvy up. That is
where I lobby for dumping the secondary market for a public
profit-sharing
model of raising cash.Â*Very transparent top to
bottom.







-----
Original Message -----





From:
Eduardo R. Magaloni






To: 'Dan Woodman'
; 'CarlMalone'
; 'Rich'






Cc: 2sparks@cox.net ; communitydevelopmentbanking-l@cornell.edu






Sent: Thursday, December
17, 2009 11:38 AM





Subject: RE: Dumping the
secondary mortgage market market





Â*



I agree on the need for the
secondary market, however, sound
underwriting wasn’t the casualty of easy money.
That’s like saying
that we would breath harder if there was more oxygen
available – it was
the casualty of greed.Â* As to the Loan originators
needing to have skin in
the game: are you saying that only the financial
institutions that are providing
the capital should be allowed to originate?Â* The loan
origination market
is a response to the market need for the consumer to
‘shop’ options
and the funders need get more loans originated. These
services will increase
the ‘risk’, but overall have provided an
additional vehicle for the
banks, and open competition benefiting the homebuyer.


Â*

There is a parallel risk
example of privatizing our government
functions.Â* There will be additional costs and risks,
and not everyone
taking a contract will perform, that’s the nature of
business.Â* I
don’t believe that loan originators don’t
already have skin in the
game – they have the staff, the systems, the
licensing, the office space,
etc… that they invest in to provide the revenue
generating
services.Â* Â*Â*

Â*

Eduardo R. Magaloni

Director of Development and
Training

TACDC

1524 S IH-35, Suite
310

Austin, TX 78704

(512) 916-0508 ext.
103

www.tacdc.org

Enhancing Community Development
in Texas

Â*



From:
bounce-4780874-5282806@list.cornell.edu
[mailto:bounce-4780874-5282806@list.cornell.edu]
On Behalf Of Dan Woodman

Sent: Wednesday, December 16, 2009 4:08 PM

To: CarlMalone; Rich

Cc: 2sparks@cox.net;
communitydevelopmentbanking-l@cornell.edu

Subject: Re: Dumping the secondary mortgage market
market



Â*





The secondary mortgage market is a
very good tool for
expanding available lending capital and reducing the cost
of
borrowing.Â*sound underwriting however became a
casualty of easy
moeny.Â*Loan originators need to haveÂ*some skin
in the game.Â*


Â*


Â*


Dan Woodman




--- On Wed, 12/16/09, Rich
<richardrc01@gmail.com> wrote:




From: Rich <richardrc01@gmail.com>

Subject: Re: Dumping the secondary mortgage market
market

To: "Malone, Carl"
<carl.malone@harrisbank.com>

Cc: "2sparks@cox.net" <2sparks@cox.net>,
"communitydevelopmentbanking-l@cornell.edu"
<communitydevelopmentbanking-l@cornell.edu>

Date: Wednesday, December 16, 2009, 3:17 PM

Although increasing fannie
and freddies responsibility in the market is not going to
happen in the near
future especially since they will be broke up in the near
future. The
secondary market is making it possible for everyone to be
able to get a
mortgage. Limiting the DTR will do a couple of things it
will insure that
before the mortgage is underwritten the borrower can meet
the financial
obligations toward the deed, and the institution does not
put the borrower in
a fail situation. It will also make financial
institutions only loan to
qualified home buyers. Sure there is always going to be
defaults in the
market but it could be limited. Tarp isn't going to
be here for ever and we
can't rely on government to solve all the problems.
We need to get back to
common since approaches to lending and the greedy
institutions need to just
go away.

On Wed, Dec 16, 2009 at 10:29 AM,
Malone, Carl <carl.malone@harrisbank.com> wrote:

While I agree that there is a need
for a secondary market, we
should consider trying to find ways to simplify access to
affordable mortgage
products to qualified borrowers. Dropping the DTR to 12
percent is both
impractical and improbable. You could drop it to zero and
still have
defaults. The key, to me, is curing whatever issues to
prospective borrower
has before he gets in to the pipeline.

--------------------------

Sent from my BlackBerry Wireless Handheld

Â*




From: bounce-4779857-4990520@list.cornell.edu <bounce-4779857-4990520@list.cornell.edu>

To: Matthew Sparks <2sparks@cox.net>

Cc: communitydevelopmentbanking-l@cornell.edu <communitydevelopmentbanking-l@cornell.edu>

Sent: Wed Dec 16 13:23:47 2009

Subject: Re: Dumping the secondary mortgage market
market




If you get rid of the secondary
market you are going to
limit the resources available for first time home buyers
and also your low
income purchasers. Small financial institutions will not
be able to create as
many mortgages based on federal restriction and low dept
ratios. I feel that
we just need to regulate the mortgage markets better and
insure that the
borrowers can actually afford to make the purchases. If
we lower the dept
ratios for borrowers back to 12% it should eliminate some
of the mistakes
made in the past. The secondary market is needed
especially in small markets
with limited resources.


Â*


Rich
Chartrand.


On Tue, Dec 15, 2009 at 12:16 PM,
Matthew Sparks <2sparks@cox.net> wrote:


Hello,


Â*


Â*Â*Â*
I feelÂ*ridding ourselves of the opaque, complex,
secondary mortgage
market, which is a major player inÂ*the mortgage
mess, is being over
looked.


Â*


Â*Â*Â*
The relative sudden dependence on the MBS system that has
mushroomed into
prominence since its inception, not that long ago, should
be a clear signal
to at least start a discussion on weather it was a good
idea at all in the
first place. I for one think it was not.


Â*


Â*Â*Â*
There are cheaper ways to finance homes. Why let a
breeding ground for greed
go unchallenged, or for that matter think that we
canÂ*successfully
manage greed with regulations? What is needed is a simple
transparent way of
raising money where mortgages are held and not
securitorized. Is anyone
interested in hearing more?


Â*


Matthew
Sparks


Â*


Â*

Â*

CDB
list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')




Â*

CDB
list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')





Â*

CDB
list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')








Â*

CDB list instructions http://www.runonthebank.net/cdblist.htm ('http://www.runonthebank.net/cdblist.htm')


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