It may seem like a flash of the blindingly obvious, but it's interesting and potentially useful information for loan originators who focus on building purchase business in their local markets: Inside Mortgage Finance recently commissioned a national survey of real estate agents, and found that Realtors express a clear preference for local lenders over call centers.

Why Do Realtors Prefer Local Lenders?

Delayed Closings. According to the survey, delayed closings are much more common when the buyer is not using a lender with a local office. You know from your own experience that Realtors get very nervous when it begins to look like the closing may be delayed because the lender has not obtained a final approval from underwriting. 

Lack of Accountability. A home sale with a $250,000 purchase price is worth $7500 commissions to each of the Realtors in the transaction. With that much money on the line, they don't like surprises, and they especially don't like having to deal with a contact person in a faraway city that doesn't rely on the Realtor for their business and is in no way beholden to the Realtor for the current transaction. It is almost impossible for a Realtor in this situation to get a straight answer from anyone in authority at the out-of-town mortgage center. And if there is a problem at the closing table after office hours, there is no one the Realtor can call to get the problem resolved.

Lack of Experience with Local Lending Laws. You know your state's laws as they apply to mortgage lending. According to the Realtors who were surveyed, Call Center companies that loan in all 50 states make more mistakes that can lead to delays or worse.

The Inside Mortgage Finance survey (conducted by Campbell Research) was apparently focused only on Call Center lenders, but many of the complaints voiced by Realtors about the call centers also apply to the nationwide megabanks. My coaching clients have frequently told me that Realtors are constantly complaining about the big banks, as well as the call centers, but they are often reluctant to say anything about it to their buyer clients. They don't want to appear to be trying to influence the client as to their choice of lender, and ultimately they're afraid of losing the client altogether. In many cases, the Buyer has already gotten "preapproved" online by the call center or the big bank before they even approach a Realtor. From the Realtor's point of view, it's hard to un-ring that bell.

Suggested Action Step: Every time a Realtor tells you about a negative experience with a Call Center or mega-bank, take down enough information from the Realtor so that you can construct a narrative of what happened. Collect as many of these as you can, and put them together into a report that you can circulate directly to your own clients and prospects. You can also make these reports available to your Realtor Partners for distribution to their clients and prospects. Remember: nothing beats evidence. (In assembling the stories for your report, be sure to quote the Realtor who is telling the story, and get permission to use their name. Avoid directly naming the call center lender or the mega-bank in question. Use as much detail as possible, including dates, numbers, specifics of the transaction – especially specifics on why the loan was held up or declined – but don't name the consumers involved unless they have given their permission.)

The June existing home sales report came in about a week ago, and the bottom line is that it's too early to break out the champagne and party hats, but neither is it time to climb out on the ledge and think about jumping.

Sales in June fell a little more than 1% from the previous month, but they were about 15% higher than in June 2012. Based on the data so far this year, I would expect the total number of existing home sales for 2013 to be somewhere in the range of 4.5 million to 5 million homes. This appears to be the "new normal". One positive note for the mortgage industry is that the percentage of homes sold to investors has dropped to 20%, meaning that the share of cash sales is declining.

The National Association of Realtors also reported that inventory levels improved slightly, to a 5.2 month supply. They also said that the median price of homes sold in June was $214,200 – a 13.5% increase from the previous year. The NAR is very concerned about inventory levels, and is afraid that a continued short supply of homes for sale will cause "unsustainable" price increases that, combined with rising mortgage interest rates, could cause the housing recovery to stall.

New housing starts, according to the Commerce Department, also fell – by 10% in June from the previous month. (Much of that, but not all, was due to a fall in multifamily housing starts.)

The percentage of existing homes sold that were distressed – foreclosures or short sales – fell to 15% of total homes sold. This is good news, but we should also be aware that, according to CoreLogic, we continue to see about 50,000 new foreclosures every month. (The number was 55,000 in June.) This is much better than it was during the bust, of course, but is still significantly higher than what would be considered normal. The foreclosures we are seeing today are not a result of irresponsible lending practices, but rather are a reflection of a troubled economy in general.

My Take.
The recent rise in mortgage interest rates does not seem to have scared people away from buying homes; in fact, it looks like the rise in rates has moved many homebuyers off the fence.

If rates continue to rise (and I think that's a good bet, particularly toward the end of this year or the beginning of next year), I would expect rising rates to put downward pressure on home prices – especially if inventory levels go higher.

There are 2 things that will affect inventory levels, in terms of the number of months of supply. One of those things is whether we begin to see more people putting their homes on the market. If you owned a $350,000 home in 2007, and saw the value of that home drop to $250,000 or lower, you took a $100,000 hit to your net worth.

For most people, that's pretty hard to get over. Multiply by millions of homes, and you begin to get a sense of the scope of the financial disaster created by politicians' search for that utopia of "affordable housing". So as a result, we have millions of homeowners who would otherwise have sold by now for one reason or another, who are standing pat and waiting for the value of their home to at least reach the level it was at in 2007. More than anything else, this is the reason we don't have more inventory.

The other thing that would encourage homeowners to put their homes on the market would be in increase in the number of buyers actively looking to buy.

Forward-looking loan originators can help with both: they can help educate potential buyers to recognize that, if they're qualified to buy today, waiting is not in their best interests. And they can help potential sellers do a rational analysis of the pros and cons of putting their homes on the market today -- rather than waiting for home prices to reach the peak boom levels of 2007 -- something that (especially corrected for inflation) may not happen for a long time.

My next free online seminar for loan originators: "How to Get Appointments with Realtors" will be on Thursday, August 15th at 3 PM Eastern time (12 Noon Pacific). Go here for information, and to register.

If you were a fan of the 90's show The X-Files, you might remember that Agent Mulder kept a poster hanging in his work cubicle that said, "I want to believe".

And while we might not all want to believe in little green men, all of us in the real estate and mortgage industries want to believe that the housing market is on a strong path to recovery.

There are plenty of encouraging signs, too. But one claim that is being trumpeted is a bit premature: that we have entered a Seller's Market.

While home prices have been rising consistently lately, and inventory is declining, there is one necessary ingredient for a seller's market that we don't have yet: a strong and growing pool of buyers ready, willing, and eager to buy a home.

The fact is, we're running about 1.3 million units a year behind the average number of homes sold between 2001-2009 (which includes pre-boom, boom, and bust years).

And there are some fairly significant headwinds in our economy and real estate market that are pushing against the creation of enough buyers to raise those sales figures.

As just one loan officer, you may not be in a position to impact the national real estate market, but you can certainly have an impact on your local market, and in the process, you can build a reputation with both Realtors and Consumers as the go-to lender for the home purchase market -- which will put you in a very good position when we finally do fully recover from the disaster that struck in 2007-2008.

For a full analysis, and my recommendations for productive action, see my latest white paper, The Phantom Seller's Market -- which you can read on this site or download as a PDF.

According to the Mortgage Bankers Association, the average rate on a 30 year fixed rate mortgage hit 3.53% last week, the lowest rate since at least the 1950s. But thousands of people who want to buy a home are unable to get financing due to credit overlays and burdensome documentation standards for new mortgages. Home purchase activity, as measured by the MBA index, has fallen by 50 to 60% since 2008.  

"Qualified" Mortgages

The Dodd-Frank Act includes a provision known as the "qualified mortgage", and it imposes stiff penalties on lenders who make loans without enough evidence that the borrower can afford the loan. In principle, the concept of a "qualified mortgage" can easily be defended. The problem is that, so far, what constitutes a "qualified mortgage" has not yet been defined.

The job of making that definition has been delegated to the Consumer Financial Protection Bureau, one of a number of new regulatory agencies created by the Dodd-Frank Act. The CFPB has missed the deadline imposed by the legislation for completing this assignment, but not to worry – they have also missed deadlines for other important assignments, like new rules for loan officer compensation and new bank capital rules. In their wisdom, the eminent crafters of the Dodd Frank legislation have made provisions for all kinds of penalties for mortgage professionals who violate the law (whatever the law turns out to be, as defined by the unelected bureaucrats serving on the CFPB and its sister agencies) – but there will be no penalties of any kind imposed on the various boards and bureaus for missing their deadlines. Because, after all, those folks are all public servants.

It's hard to measure the impact that this particular obstacle has had on the willingness of lenders to lend, because there are also a number of other constraints on that willingness.

Multiple Layers of Regulation
The Wall Street Journal reports that on Friday, Federal Reserve Governor Elizabeth Duke said she was "really, really worried" about the cumulative effect of having one mortgage lending regulation on top of another: "I'm worried that you'll get to the point where the only loans that get made are the loans that fit in every single angle of the box, and that's going to be a very small number of loans." She added that policymakers should "find ways to make sure that you can still make the irregular loan, the one that doesn't fit exactly in the box."

Want to know an interesting fact about Federal Reserve Governor Elizabeth Duke? She is the only member of the Federal Reserve Board of Governors who has actually worked in private sector banking. There are 7 members of the Board; three of them are academics (economists) who have also worked in government, and the other three are lawyers.

Buy-Backs/Put-Backs
The Wall Street Journal also reported in the same article (Tuesday, October 9) that, in a survey  conducted by the Federal Reserve, senior loan officers said "the biggest concern keeping lending standards tight right now has more to do with banks' fear that they'll have to buy back delinquent mortgages from Fannie, Freddie, and other investors." 25% of respondents cited "put-back" risk as the most important factor in keeping lending standards tight. An additional 33% said it was a "very important" factor.

At a Senate hearing in July, Treasury Secretary Timothy Geithner admitted, "Mortgage credit is tighter than it should be, and the main reason for that is because banks… feel much more vulnerable now to what people call 'put-back'."

According to Inside Mortgage Finance, Fannie and Freddie have already asked banks to repurchase $66 billion in mortgages made between 2006 and 2008, and the balance of outstanding demands from both of the former GSE's at the end of July was up 37% from a year earlier.

It used to be a loan officer's job to determine that a borrower could reasonably repay a loan. Today, our job is to protect ourselves and our employers from put-backs, and we do this by requiring borrowers to produce reams of documentation so that we can deliver loans that cannot be questioned by regulators who, it could be argued, don't know enough about mortgage lending to qualify for a job as a loan officer.

Remember this the next time you get frustrated with your underwriter or your company. Prepare your clients and Realtors for the experience -- don't sugar-coat it. Let them know you will have their backs all the way, and that you will fight for their loan. And try to help them understand who the real culprits are in all of this.

Yesterday's jobs report, expected to show 150,000 new jobs created in August, came in at a disappointing 96,000 instead. The official unemployment rate actually dropped from 8.3% to 8.1% (because 119,000 people stopped looking for work in the same month) .

Fed Chairman Bernanke has already been hinting that the Federal Reserve is ready to begin a third round of Quantitative Easing, in an attempt to prevent the stagnant US economy from slipping into another recession. Quantitative Easing, in which the Fed buys US debt, is another way of saying that the Fed is planning to monetize the debt – which is a euphemism for printing a bunch of money and inflating our currency and making our money worth less.

There is some possibility that the Fed will wait to take action until after the election, in order to try to avoid making Fed policy a political issue during the campaign.

Chairman Bernanke's term ends in 2014, and Republican presidential candidate Mitt Romney has already indicated that he will not renominate Mr. Bernanke as chairman.

In the short term, a QE3 policy could temporarily help to keep interest rates low – a result which many in the mortgage and real estate industries would no doubt welcome.

At the same time, quantitative easing is, by definition, inflationary. QE2 seems to have had the effect of doubling the official inflation rate from 1.5% to 3%. Price inflation will affect virtually everything, including house prices. Again this is something that many people in our industry would welcome, but we should be careful what we wish for. When the cost of something goes up but its value does not, our money buys less of it.

What effect would a QE3 likely have on home sales? Average household income (in inflation-adjusted dollars) has fallen by $4000 in the last 4 years. An inflationary monetary policy would further exacerbate that problem. People are paying more, relative to their incomes, for basics like food and energy, reducing their ability to save to buy a home. Home price inflation would make it worse for buyers, and wouldn't even help sellers -- because the value of higher prices would be negated by inflation.

More importantly, the US debt now stands at $16 trillion – a number which exceeds the size of our entire economy – and it is growing every day. We are "fortunate" that, largely because of the problems of the European economy, U.S. Treasury debt is still considered a relatively safe haven, which means the Treasury Dept. is able to borrow at very low interest rates. Another round of quantitative easing may temporarily make us feel better (when the Fed buys Treasuries, the Treasury Department does not have to sell as much of its debt on the open market), but after the party ends, the inevitable hangover comes. A 10 year treasury currently pays 2.78%. But in 2000 -- just 12 years ago -- the rate was 6.03%. If the Treasury's cost of borrowing were to return to 2000 levels, it would raise our interest payments on the today's national debt by a breathtaking $520 billion annually.

As Friedrich Hayek (Nobel Prize winner in Economics and awarded the Presidential Medal of Freedom) warned, "I do not think it is an exaggeration to say history is largely a history of inflation, usually inflations engineered by governments for the gain of governments."

As I said, we in the mortgage industry should be careful what we wish for.