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Archive for June, 2008

The Blame Game—Who are you pointing a finger at?

Wednesday, June 25th, 2008

“Home prices in 20 major U.S. cities have dropped a record 15.3% in the past year. We are back to where we were in 2004, according to the Case-Shiller home price index released Tuesday by Standard & Poor’s.” Yesterday’s Wall Street Journal article started a firestorm of opinion and thoughts amongst my friends and colleagues and I wanted to share it with you. While home prices are at their lowest in the last five years, market saturation is at its highest; no one is buying or selling homes.


I started reaching out people in the industry to chat about the implications of a market where low home prices were not selling and it spawned quite a few responses. Even the guy sitting next to me on the airplane had something to say about it. This seems to be a topic on the tip of every American’s tongue. See what just a few of them had to say: (Note these are not necessarily my opinions but opinions of my peers and past clients in and out of the mortgage industry.)


“Home buyers are irrational – 2 years ago subprime & prime buyers bought second and third homes. Now even prime buyers are not buying in sufficient numbers. Why not? Are they crazy?! Irrational enough to buy in a market driven by a trifecta of poor lending, brokering and buying decisions but now when it makes the most sense to buy, not buying. Just crazy.”

-Anonymous Real Estate Client

“The rich get richer and the poor get poorer. In a restricted liquidity market, the middle to lower class almost always suffers. Credit costs soar for lower FICO holders, while limited purchases and lending leads to incentives for those with ‘prime’ credit. Go to any car dealership this weekend and ‘Prime’ credit holders can buy a car with no money down, $2.99 gas for two years and a $5000 rebate; got bad credit, don’t waste your time.”

-Noel Collins (Myself)

“Banks caused the problem. Bad lending practices caused ancillary markets to collapse. If banks had not lent to borrowers with lower FICO scores or offered brokers the ability to borrow money for 0% down payments we would not be in trouble. In the past, the average down payment needed for a home purchase qualification was at least 10%. Because of the lack of liquidity time shares, rental cars, hotel reservation rates, food costs, restaurants and tourist attractions are failing.”

-Passenger on flight from LA to Phoenix

“The home buyer is at fault. Even subprime buyers obtained a good loan, paid off credit cards and inserted a positive cash flow in their banks. What happened? They spent the money, got new credit cards, bought a new car or home and paid their mortgages late. If they had followed our financial advice they would be able refinance at prime rates even in today’s market.” –

Chris Stone – EDMC – California

“It is the President’s fault. If George W. Bush had lowered interest rates sooner and not hedged his bet on big oil and the Iraq war, the financial industry would not have collapsed.” —

Anonymous Human Resource Director – Mortgage Industry

“Hedge funds and overreaction compounded the problem. If people had not focused on making money during this crisis we would be better off”.

-David Staral – The Staral Group

“Inexperienced loan originators. Many loan officers – I use the word loosely were inexperienced and only learned how to take orders. One bank/broker I talked with said it was fine when lending was like “Clubbing baby seals” but in today’s market a loan originator/agent needs to b a financial EXPERT! - Period! Inexperienced loan originators looking for a quick buck didn’t point our customers in the right direction; they pointed them into their bank account. I cannot reach my agent any longer; he went back to selling cars.”

– Subprime Customer stuck in an ARM


“My agent went bankrupt and is now facing felony charges in Georgia.”

-Failed Mortgage Banker/Broker


How far will the downturn in our economy take us? Some of my more outspoken colleagues say this will only lead to more money making by the richest of the richest and that more needs to be done for the middle and lower classes. Didn’t we take the financial decision making out of the hands of the wealthy and extend it to our poorer peers? Where did that put us? Banks, buyers, Bush—whose fault is it?

Mortgage turnaround only 12 months away?

Wednesday, June 18th, 2008

Banks are insolvent, foreclosures and REO’s are up 100% this year, and the mortgage Implode-o-meter continues to grow at a frightening rate. Many of us knew that this was coming, the housing bubble had to burst at some point and the industry that has served us all so well has receded a great deal since early 2007. As many have pointed out there continue to be opportunities out there for savvy mortgage companies and the industry that remains in place today is fundamentally stronger and of a higher quality than ever before. There’s been a necessary clear out of the were in it for a quick buck, that cared less about the consumer. The companies that remain today are more ethical, and more focused on efficiency and best practices than ever before. At Leads360, where we are focused on enabling mortgage best practices, in some ways it’s actually been a good thing. We’ve been one of the few companies in the industry to grow during this downturn and the customers that we have lost have not tended to be the ones that were prepared to fully embrace best practice sales efforts.


But the really big question is when will the industry return to what it was? I believe the answer is that the next 6-9 months are going to be very tough (perhaps tougher than the past 9 months), that a rebound will occur in about a year and we’ll likely see a return to a very buoyant mortgage (re-fi) market in mid-2010. I base this view solely upon the forecast ARM reset schedule for the next 3 years (see below; we are currently in month 18). According to this data what we’ve primarily seen over the past year are subprime ARM resets. This has been a key driver of the current foreclosure/subprime crisis. My belief is that given what else is occurring in the macro-financial ecosystem, the non-subprime market is what will drive mortgage company profits for the next decade. Given this the ARM reset schedule suggests a significant upturn in demand for these products, in around 12 months time.So if I am right, or partially right, what should we do now? The answer is probably more of what we have been doing. As an industry we need to continue our relentless focus on the bottom line. Operational efficiency is key to success and this frankly begins and ends with savvy marketing focused on increasing ROI from less spend. Mortgage companies need to focus on the highest return marketing channels of which Internet lead buying (the highest ROI marketing medium) should be a key component. Beyond buying Internet leads, companies should focus on working them effectively to maximize their conversion… to this end anyone without a Lead Management System should consider adopting one.