George's Blog

    The prognosis for the mortgage industry for 2008 pretty murky, but there are several things that are clearly going to occur, and are starting already. There is a lot of legislation on the Federal level, and in California that is already having a big impact on consumers’ ability to get home loans. Politicians have been under fire from constituents and consumer groups to “Do Something” about the mortgage meltdown, and all sorts of proposals are being written into new laws and regulations, that may very well have the effect of “overreacting” and chilling the mortgage market (and housing) recovery. After all, it stands to reason that if fewer people can get loans to buy or refinance homes, fewer new and resale homes will sell, dragging out the eventual housing prices recovery. It’s all about the financing.

    Like all legislation and regulations, there are some very good things occurring, and some things that are actually bad for the consumer and are not well thought out. One of the good things happening is the greater Federal control and regulation of who can be a mortgage loan originator (loan officer or mortgage broker). On January 1^st, there is a new federally based system being put into place a standardized and mandatory process to more thoroughly license and track mortgage brokers and loan officers. 7 states have joined this system immediately, and 42 are expected to be included by the end of 2008. The new system creates a uniform application for mortgage brokers and a database that banking regulators can use to track down loan officers who have been banned from one state from moving to another. This registration covers all loan officers(originators) for state chartered banks and financial institutions, independent mortgage brokerages, credit unions, but does not include those who work for federally chartered banks ( their lobby was too powerful). This system is being put into place and managed by the Conference of State Bank Supervisors and the American Association of Residential Mortgage Regulators (CSBS/AARMR). The Anti-Predatory Lending Bill passed by the House of Representatives in November goes further by requiring that loan originators (except federal bank employees) pass a written test, take continuing education courses every year, pass an FBI criminal background check, have their personal credit reports checked, and declare the predominant color of their spouses underwear (just kidding on that last one). There will be even more restrictions developing in California as the year progresses. There is talk in Sacramento about the Dept of Real Estate (DRE) developing a new, separate license for mortgage loan origination from the current Broker or Salesperson license, for example.

    What this even means for the consumer and loan originators, is that far fewer loan agents will be able to get in the business, far fewer will be able to stay in the business and will have to go out of business. I’m ok with this, because I believe the net result will be far fewer competitors in the business, which always had a very low barrier of entry to it, allowing all sorts of amateurs and others who really shouldn’t have been in it. The survivors of the Mortgage Meltdown and these new regulations should be of a much higher caliber, and more professional, thereby being able to render a greater quality of mortgage loan service to consumers, rather the “rate hacks” who just sold the lowest rate and payment regardless of the consequences, as we have seen.

Other Big Changes that will affect consumers-

    There will be reduction and elimination of loan programs, especially “stated income” and “light doc” loans, that will seriously impact self employed borrowers, and others of unconventional or hard to document income.

    There will be much tighter underwriting guidelines- higher credit scores, more cash reserves required, qualifying at fully indexed rates on ARMs, higher down payments, restrictions on cash out amounts, lower debt ratios, etc.

    Pre purchase planning is more critical than ever-More on these subjects in the next installment.

George L. Duarte

“The Real Deal Guy”(SM)