Originating Mortgage Loans

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Last week I received a voicemail from my brother Lawrence in Colorado. While listening to his message I could tell he was very excited and dying to tell me about a very successful day he had just concluded. However, before I continue, allow me to step back and set the story up.

On December 17, 2006, I posted a Blog titled; "Yes The Mortgage Business Is Going Through a Shakeup - Be Thankful." In it, I wrote the following:

Over the past few years, the mortgage ranks have swollen from 180,000 to over 300,000 people in the industry.  That's a lot of people who have only known the diamond studded days of the refi-boom.  Unfortunately many only know how to be order-takers, not professional LOAN ORIGINATORS. 

Loan Originators who have been around for 10 to 15 years or more know what it means to ORIGINATE a loan.  It means marketing yourself aggressively, building a reputation, and generating a steady stream of referrals.  They've seen high rates and low rates and they know that this too will pass.  Rates will go down again, and they'll be well prepared to take advantage of the next interest cycle.  Veteran producers aren't giving-up.  Neither should you.  Decide now if you have the determination to stick-it out.  Do you have a passion for what you do?

Be thankful for the shake-up because it means a whole lot of unskilled loan officers will go the way of the saber tooth tiger and stop ruining the reputation of the industry.  Best of all, it means a whole lot more business for you!

As a sidenote, we are also witnessing that this shakeup also applies to mortgage lenders.

Our business will only get stronger.

The Market Composite Index, an overall measure of mortgage applications, rose from 606.6 to 626.1 on a seasonally adjusted basis during the week ended Feb. 23, according to the Mortgage Bankers Association's Weekly Mortgage Applications Survey. Read on...

I'll admit upfront, I LOVE FHA LOANS!

Fortunately I'm in an area that 70% of the housing stock is within the FHA loan limits. Sadly, I know originators in California who also love FHA loans. Problem is, with the average price of a home in Orange County at $560,000, the FHA loan limits are too low.

What I love most about FHA is an "A minus" borrower can get a prime paper rate. This means borrowers with marginal credit scores can get approved at "A" paper rates. Best of all, they are underwritten to sound underwriting principles. There are no stated income guidelines, no interest-only options, and no negative amortization.  FHA however does have reduced documentation requirements for FHA-to-FHA refinances, yet, only if a borrower is going to lower their rate or term.  Best of all, in our current matrix driven world of underwriting, FHA loans are common sense in their underwriting approach.

Did I tell you love FHA loans?

Here's the problem.  HUD has loan limits that are too darn low in high cost markets that desperately need the program.  For example. San Diego has a median home price exceeding $540,000 with an FHA loan limit at $362,000.  This also holds true for the California Bay Area, Los Angeles. Boston,  NYC, Connecticut...and our nations captital, Washington, DC (where HUD is located).

What the heck, in our nations capital (again, where HUD is located), the median priced home stands at $470,000 with an FHA loan limit of $362,000? Is it just an anomaly?  If HUD, a US government agency established to provide affordable housing and financing can't provide its own clerical help a good loan program, then there is definitely something wrong.

But..I still love FHA loans.

With the  FHA Modernization Act of 2006 expiring in Congress last year, Congress is again expected to re-introduce legislation this year that will:

1. Assess the mortgage insurance premium (MIP) according to credit risk.  Better borrowers will pay less.
2. Eliminate the 3% downpayment requirement (100% financing).
3. Index loan limits to reflect market prices.

There seems to be no real opposition to FHA modernization from either the President or Congress on both sides of the aisle. Barney Frank and Hillary Clinton both seem determined to get the legislation through in 2007. President Bush has publically stated he will sign it and FHA Commissioner Brian Montgomery is ardently backing it.

If FHA Modernization passes this year, I do believe it will help stimulate the real estate markets across the nation (especially in the high cost markets). Additionally, it will fill a void for borrowers who as of recent had to get a subprime loan.

Yep, I love FHA loans!

If you have been reading the industry news or even my Blog site recently, you know the sub-prime sector is reeling. Put that together with inflationary concerns and you have a lot of worried loan originators.

Yet, after talking to top producers throughout the country, they are excited about 2007. They all report they have had to step up their marketing based activities; however, they are uniformly saying they fully expect to exceed their 2006 numbers. In December, I posted a Blog titled, "Yes, The Mortgage Business Is Going Through A Shake-Up - Be Thankful." It aligns exactly with what top producers have been telling me lately, I suggest you read it.

For example, one of the best originators in the country is Mike Grace out of Athens, Georgia. Mike not only originates loans very successfully, he also manages three very profitable branches for Wells Fargo Home Mortgage. If you know anything about Athens real estate, you know Mike Grace is a dominant force in that market.

Even though Mike has been in the business twenty years and is a top producer, he sensed the market shifting last fall and realized he had gradually stopped doing some of the marketing activities that had made him successful. If you hang around Mike for any length of time, here are a few things you will notice about him:

1. He is brutally HONEST (even with himself)
2. He LOVES his daughters
3. He will take the shirt off his back to HELP anyone
4. He is PASSIONATE about the mortgage business
5. He KNOWS his underwriting guidelines as well as any underwriter
6. He is a DIEHEART University of Georgia Dawg fan (Don't hold that against him)

That said, Mike made an honest self-assessment and realized the market was returning to normal (not the boom period our industry recently experienced) and it was essential he also return to the fundamentals that had originally made him successful. Mike always tells his team not to rest on their laurels and he took his own advice. Since September, Mike has been working like a man possessed. Guess what, unlike his competitors, he had a great December and January and the rest of the year is shaping up to exceed 2006.

I can go on and on with additional examples, however it boils down to one thing:

You know what you need to do; the secret is doing it and doing it consistently over a prolonged period.

Below are previous postings that relate to this discussion. Take the time to review them and may 2007 be a great year for you!

Yes, The Mortgage Business Is Going Through A Shake-Up - Be Thankful

Sub-Prime Market Tightening - Yes There Is a Positive Side

To Get Rich, Just Follow the Instructions

Are You Mining the "Acres of Diamonds" in Your Database?

Ten Things an Originator Must Master

Predictions for the Mortgage Lending Industry 2007

Mortgage Planning for Mortgage Professionals

Washington Post (02/28/07) P. D2; Trejos, Nancy
The National Association of Realtors reports a 3-percent jump in existing-home sales to a seven-month high in January from the previous month, though resales were down 4.3 percent year-over-year. Meanwhile, the median price slipped 3.1 percent to $210,600 from $217,400 in January 2006, and the trade group believes the decline helped push buyers back into the market. NAR also reports a 2.9-percent increase in resale inventory to 3.55 million, equivalent to a 6.6-month supply. Regionally, existing-home sales surged 5.6 percent in the West and a more modest 2 percent in the South.
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Additional National Association of Realtors (NAR) Full Story

Originator Times Online (02/26/07)
Consumerinfo.com, doing business as Experian Consumer Direct, will pay $300,000 to settle Federal Trade Commission charges that ads for its "free credit report" offer failed to disclose adequately that consumers who signed up would be automatically enrolled in a credit- monitoring program and charged $79.95. The FTC alleged that the failure to clearly disclose the enrollment and charges violated a previous settlement.
Full Story