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| "What problems?" |
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| Stale Mates? |
Sure you feel that this has gone on way too long with little result. Sounds a bit like the current state of our National political system - much talk, much arguing, much posturing, but not much movement nor progress ....
Let's try one more shot at seeing if we can agree on reform:
The State Of The World As We Now Find It!
(.... and yes, "life is not fair".)
- Borrowers love and prefer 30-year fixed rate mortgages. OK?
- 30-year fixed rate loans are a dangerous "investment" for a financial institution due to IRR. We witnessed what can happen if you "book" lots of them with the S&L Crash. OK?
- Most prudent institutions, therefore, sell excess 30-yr fixed mortgages to Fan/Fred, which in theory have the sophistication to evaluate, monitor and guarantee the mortgages purchased, relying upon rating agencies, economists, and honest mortgage brokers to assist. OK?
- Fan/Fred are "bankrupt", because "things were not as they seemed" in the mortgage market . Many of the players in the mortgage process were not honest - including some individual borrowers and perhaps some credit unions. OK?
- The collapse of Fan/Fred and the subsequent conservatorship of both by the FED, has left the U.S. taxpayer as the only available buyer of 30-year fixed rate mortgages. The FED is "the market". OK?
"Countrywide Federal" - It is difficult if not impossible to change human nature. You can not legislatively "reform" dishonesty, greed, nor stupidity - even with 2,200 pages of mandates. OK?
- In 2013, nothing has really changed from the mortgage lending processes of 2008 except "the innocent"(borrowers and lenders!) are now being punished and penalized for the sins of the guilty - with more punishment waiting in the wings.
- Unchanged, we are primed to repeat the
errors of the past; and, as many of you have pointed out ( Dennis Moriarity has usually been the most brutally accurate and succinct.) tremendous financial and political forces are aligned and fully-funded to make sure the status quo survives. OK?
We're on the same track...
1. Since politically it may be impossible to close Fan/Fred and since a secondary mortgage market can be beneficial, the government "guarantee", implied or otherwise, going forward - must go!
Believe that one could actually get done!
(Uninsured hedge funds might even compete against Fan/Fred.)
2. Limit the federal guarantee to indexed 5-year ARM's. Real goals here include continued ownership of the mortgage by the originating (local) financial institution, reducing fraud, increasing accountability, and making "on the books lending" IRR management again prudently possible. Better local "look you in the eyes", "eat our own cooking" underwriting, better "skin in the game" resolution of servicing problems and default, more profitable local institutions, keep the funds (CRA !) and the jobs in the local community.
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| Yes, Congress can ban things which explode like blimps ... and mortgages. |
Certainly Congress and Mr. Bernanke would like to be rid of mortgage risks of all sorts. First the S&L's, then Wall Street, ....who's next?
8 comments:
Seems that a reasonable mortgage would be a ten year balloon or adjustable. A rate reasonable to the risk taken, and a minimum payment based on a 30 year amortization with no prepayment could from the basis for a reasonable loan.
The only reason credit unions do not use something like this is NCUA IRR assumptions and the penalty they place on things beyond 5 years.
On you list of problems with 30 mortgages is people using their home as a piggy bank. There are a lot of automobiles, trips, and out consumer purchases tied to the mortgage meltdown that were consumed and not paid for.
Good idea...
Only suggested the 5yr because that is the standard elsewhere in the world..
Trying to anticipate the critics who will call you a loose cannon,rather than a Black Swan...
Fear not! Called worse than a loose cannon. I believe Credit Unions have a duty charged to them under the Act that allows them to be an alternative and to develop innovative products that serve member needs. NCUA is and has been wrong with their controlling dogma that all credit union mortgage loans should be only Fannie/Freddie loans. You can get this product at any bank or mortgage broker. Having a love for developing mortgage products that serve member needs and by extension the credit union get you called more than a loose cannon by the NCUA.
One question to answer about 30 mortgages that really needs to be asked is: "With all the problems they cause, who actually is served by forcing this products as a gold standard?"
Truly believe you should be fired or quit as a CEO unless you have multiple non-secondary compliant mortgage products that serve you individual member mortgage needs, because you are a chicken and are running a bank. Of course if the only product your members need is a 30 fixed mortgage, then you should consider being a bank!
I feel much better. At least with this rant I think I earned my loose cannon status! Please forgive any DETRITUS!
Guess I should add that if NCUA has IRR concerns, that's another good reason to use a familiar world standard such as the 5-yr so that there are many proven reference points...
Another something which might be worth looking at is the website and financial performance of Pentagon Federal CU. PenFed has a rightfully earned reputation for prudence, efficiency and excellent member service on a nationwide/global basis. You will notice that PF is well-capitalized, profitable, with excellent delinquency and charge-off ratios ...and a low cost of operation matched by few.
You might also note that PF is "loaned-out" - something that most CU's can only dream of in this economic environment.
PenFed is predominately a mortgage lender... They're core mortgage product? You got it... a 5-year ARM !
Our potential "CU Black Swan" already exists... and is performing exceptionally well... "unconfirmed" reports (but you can rely on this!)say NCUA buys into PenFed's low IRR analyses...
So you see why Dennis is my favorite...
By the way wouldn't you love to go to a conference just one time and have Dennis Moriarity and Doug Ferraro on an open discussion panel with Bill Cheney?
Rather than some jet pilot in a green jumpsuit "inspiring" you with some banality about "The Sky Is The Limit"....
While we're at it...let's add Bill Brooks to that panel...
Now it will sell out...but they won't !!!
What? I quess I am the designated LOOSE CANNON?
Still missing accountability.
Hard code that anyone who touches the mortgage has skin in the game.
Homeowner must put at least 10-15% down.
Lender that sells loan must keep 10%.
Issuer of mbs must keep 10%.
At implementation of this law, change the way accountability works with regulators...they all report or treasury, who reports to congress.
Put a layer between regulators and politicians. Could still be corrupted but it'll be more clear who/when corruption occurs.
Right now, no voter has a clue.
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