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.)

As you probably know, I've been presenting a series of free monthly online seminars on how to develop your purchase market business.

The latest of these seminars, How to Give Effective Presentations to Realtors, presented on Sept. 19th, is now available for you to view on the website here. You can also access previous seminar videos here

I will be traveling some in October, so the next online seminar -- How to Develop Solid Realtor Partnerships -- will be on Thursday, November 14th at 11:00 Eastern Time (12 Noon Pacific). If you were registered for the last seminar, you're automatically enrolled in all future seminars in this series. But if you haven't registered yet, you can do that here.

For a preview of what will be covered in the new seminar, please go to the Seminars page

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.

In my last post, I used an analogy to demonstrate the idea that our national housing market is sick.

The question I would now like to explore is whether mortgage professionals can play a positive role in healing our ailing housing market.

When they consider the systemic problems of the current housing market, most loan officers would come to the understandable conclusion that these problems are well beyond their ability to fix:

• Depressed home values, keeping traditional Sellers and holders of distressed inventory from putting homes on the market.
• The difficulty of getting buyers approved for financing in today's regulatory and, some would say, paranoid underwriting environment.
• Concerns about the state of the economy, keeping prospective home buyers from committing to buying a home.

Fans of the Star Trek franchise will be forgiven for being reminded of Dr. Leonard McCoy's frequent rejoinder to Captain Kirk: "Dammit Jim, I'm a doctor, not a _________!!!"

The whole thing looks like a big, tangled ball of yarn. But sometimes if you pull on the right end from the right direction, you can create order out of chaos.

Let's start with the supposition that the current market represents a very good opportunity for people who would like to own their own homes. Let's further suppose that many of these people are currently inhibited from pursuing that opportunity because of their concerns about home values, their ability to be approved for financing, and their concerns about their own financial stability in the face of our troubled economy.

The case can be made that the currently depressed value of homes is, in fact, a feature – not a bug – if your goal is to buy a home that will increase in value over the years. When values are depressed, you can make a better deal. Add to that the fact that mortgage interest rates are currently at historic lows, and the opportunity becomes even more attractive.
Furthermore, mortgage loan underwriting, which most informed people would agree is more stringent today than it has been in many years, is itself a protection against taking unnecessary financial risk – for a prospective home buyer. We have a hard enough time qualifying people who can actually afford the home they want to buy; it is even less likely that we could gain underwriting approval for someone who is on thin ice financially, and would be taking an unreasonable risk if they were to try to buy a home.

So a case can be made that if you want to buy a home, you should at least look into it. You have very little to lose – other than a little of your time – and even if it turns out that now is not the time for you to buy a home, you will at least have learned something from the experience – including some kind of action plan that would put you where you want to be in the future.

Now, if we can accept this supposition, who would be in the best position to help prospective homebuyers overcome their fears and inhibitions – and take positive, productive steps forward?

Realtors? While Realtors are generally well informed about their local markets, are able to give good advice to homebuyers, and are capable of making the arguments in my supposition, the problem they would experience (and in fact are experiencing) is that their arguments tend to be seen as self-serving. In other words, while you and I would say that their advice that now is a very good time to buy a home is, in fact, good advice, consumers would tend to view it skeptically.

Politicians? OK, now you're just being silly.

Mortgage professionals are in a unique position to make a reasoned, balanced, objective case for the idea that, assuming you are financially ready to buy a home, now is as good a time as we have seen in many years for you to take steps in that direction.

Mortgage professionals are also in a unique position to be able to predict, with greater accuracy than just about anyone else, whether or not your efforts to obtain financing will be rewarded with success.

Mortgage professionals – particularly if they take the time and trouble to educate themselves about their local real estate markets – are in a unique position to credibly give potential home buyers and objective analysis of the likely effects that buying a home would have on a family's finances.

And finally, because mortgage professionals are seen as being more objective and neutral (perhaps because they do in fact sometimes say no to a prospective borrower). As long as loan officers do not present or position themselves as "salespeople", they are more likely than anyone else to be seen as credible, even authoritative, by people who are considering the purchase of the home.

We know that there is a significant amount of pent-up demand in our real estate market, composed of millions of people who want to own a home, but are afraid to take the plunge for a variety of reasons, most of which are based on unexamined fear and misinformation.

If every loan officer in the country were to help just one person/family each month to recognize that they can, in fact, afford to buy a home, and that it is in their best long-term financial interests to do so, it would immediately increase the number of home sales in the United States by a staggering 25%.

Home values today are stuck at levels roughly 30% below where they were at the peak of the housing boom – and they are stuck there for the very simple reason that there is way too much inventory (including shadow inventory that has not yet hit the market), and because not enough people are buying homes. Increase the number of homes being sold, and values will begin to recover. The overall economy will begin to improve. And while no one in their right minds wants to return to the Wild West days of Franklin Raines, Barney Frank, Chris Dodd, James Johnson, and Angelo Mozilo, one can even hope that an economic recovery would result in a return to prudent – but not paranoid – lending standards.

Thus, the ball of yarn becomes untangled.

Repeat after me: "Let there be an economic recovery, and let it begin with me."

Have you ever talked to your car, or your computer, pleading with it to start or to run, or begging it not to let you down? This behavior is called anthropomorphizing, and we do it in an effort to relate to a concept or an inanimate object. And it can sometimes be a useful exercise.

Let's pretend that the Housing Market is a person. We'll call it "HM". People like you who work in the mortgage industry care a great deal about HM, because he is the source of all of your business – one way or another. When HM is healthy and happy, you do well. When he isn't, your life tends to go about the way it has been going for the last five years. So you really want things to go well for HM.

The good news for HM is that home prices have shown some modest recovery this year. But the bad news is that the number of home sales is declining. Home sales are very important to our friend HM, because they have a lot to do with his self-esteem and overall sense of well-being. It's sort of like the way you would feel if you looked at your 401(k) and realized it is now worth a lot less than it was five years ago.

HM cares a great deal about his girlfriend, Consumer Confidence. In a sense, if she's happy, he's happy. But unfortunately, she's not very happy – consumer confidence has been dropping like a rock. At this point, our friend HM has got to be worried that his girlfriend is about to break up with him, maybe even permanently.

The Housing Market is basically your meal ticket, so you really want to help "him" (and in the process, help yourself) – but you're not sure what to do, because let's face it, our pal HM has a lot of problems!

Home values are still roughly at 2001 to 2003 levels (pre-bubble).

Home sales are at record low levels in spite of the fact that inventory remains high (despite some claims to the contrary), prices are low, and mortgage interest rates are also at record low levels. Ordinarily, you would expect this to bring home buyers out of the woodwork to take advantage of these classic Buyers Market conditions, but that hasn't happened. That's because consumers are worried about their jobs, their finances, the economy, and the possibility that home values have not yet hit bottom. No one wants to own a declining asset.

25-35% of all the home sales in this country are distressed properties (foreclosures and short sales). Those homes sell for  less than comparable non-distressed properties. Potential Sellers are afraid to put their homes on the market because they will lose too much equity. This results in far fewer move-up buyers. The housing market today consists essentially of first-time buyers and investors, and many of the people who would ordinarily be first-time homebuyers have decided to rent instead, for the reasons I stated in the preceding paragraph -- and because, to the degree there is a shortage of inventory, it's at the lowest end of the price range -- the kinds of homes many first-time buyers look for.

And, as if all of that were not bad enough, we are still looking at an enormous "shadow inventory" of delinquent mortgages, estimated at between 4 to 5 million homes – a huge backlog of inventory that hasn't even hit the market yet. At the rate that homes are being sold today, this would add more than a year's supply to our already bloated national housing inventory.

So one way of looking at our friend HM's predicament (and yours) – would be to say that he has an absolutely massive case of constipation. If you want to help him, and yourself, and frankly, the whole country – you need to be bringing the laxative, and lots of it.

Next: "But I'm just a loan officer, not a doctor!)

According to Inside Mortgage Finance, a Fed survey of senior loan officers revealed that  one-third of these loan officers indicated  that HARP applications accounted for 30% or more of their total applications over the last three months. FHFA reports a record high number of almost 126,008 HARP mortgages in June – about a third of Fannie and Freddie's total refi business for that month.

At the same time non-HARP business that Fannie and Freddie fell 25% between the first and second quarters (a period in which interest rates were declining). Inside Mortgage Finance's conclusion: "What that means is that even with a surge in HARP activity, overall mortgage refinancing activity is declining.

Margaret Thatcher famously said, "the problem with socialism is that, sooner or later, you run out of other people's money."

To that I would add that the problem with spending all of your time doing refinances, especially when rates are at record lows, is that sooner or later you run out of people you can refinance.

Meanwhile, LOs who were smart enough not to take their eye off the purchase market ball have gained ground on you.

Have you hugged your Realtors lately?

Bob