Archive for January, 2011
Lance Cassell is the managing director of the Consumer Mortgage Bureau, an organization that provides consumers tools and education to make informed homebuying decisions. For this edition of In This Corner, Cassell sits down with HousingWire to talk about a new originator designation program through the CMB that creates an online network of credited originators for consumers to choose from. Originators must apply and be accepted to the program, where they can create an online profile, post pictures and a resume.
HousingWire: What motivated the Consumer Mortgage Bureau to develop this kind of "originator standard," if you will? Where did this idea to classify mortgage originators come from?
Lance Cassell: We feel strongly that the borrowers should know more about their mortgage than the loan officer. Consumers need to make sure they know their loan officer and know the type of loan they're getting. With the launch of the National Mortgage Licensing System, put in effect by the SAFE Act in 2008, there are two distinct types of loan officers — licensed officers and ones that simply need to be registered. We created the designation program to not only explain what those differences are, but to allow loan officers the opportunity to take it a step further — create a profile page, put a picture or their logo up there, tout some of the training they've done. It also allows them to put their specialization up there.
HW: Since this designation can be applied nationally, how do you feel this will change mortgage origination in the future?
LC: With the advent of SAFE Act, a minimal standard was put across nationwide. There's a minimum number of hours of continuing and pre-licensing education. There's also national test originators have to take and a state test for every state they want to do business in. We believe the mortgage industry is coming out of a darker time. We're trying to elevate the industry and enrich the mortgage process, by bringing more accountability to it and more transparency to it. In the end, I think you'll see potential homeowners getting the mortgage they should be getting. Frankly if they don't qualify for a mortgage, they'll know why and be able to go back, fix whatever they need to fix, and come back and get that mortgage.
HW: Sounds like everybody's trying to create this standard for the industry players, and what your organization is trying to do is focus on the consumer and build a smarter consumer. Is that a valid conclusion?
LC: Absolutely. In the mortgage industry, it's alphabet soup. We have a glossary of terms on our website for consumers and ultimately we feel they need to be educated. There's no doubt it takes two to tango. When the borrowers put their name on and sign that loan agreement, that's the biggest investment they're going to make in their life. It's a 30-year mortgage and they have to know what they're signing. Of course, there were professionals out there that took advantage of programs, but the mortgage industry is made up of problem solvers. Over the last five to 10 years, they've figured out how to solve a lot of problems, and this just another one we're all trying to solve together.
HW: With this new designation program, what can borrowers and consumers expect from an originator with a title (registered mortgage professor and licensed mortgage professional) as opposed to one without? What will be the difference?
LC: I think the biggest difference is transparency. I know for a fact many of the consumers I talk to don't know the difference between a loan officer at a bank around the corner versus a mortgage broker, versus a mortgage originator in another state. We're really trying to be transparent as much as possible in the process, and I think federal legislation that is coming down has helped. There are all kinds of programs and money available for first-time homebuyers and for people who have gotten in over their head. This designation will show consumers that the mortgage originator cares. They care enough to differentiate themselves from other loan originators out there.
HW: Your company is taking full responsibility in designating these originators and saying, "These guys know how to do it right." What if they mess up? How do you account for ethical lapses in this designation program?
LC: The ethical piece comes into play because that is a gray area and it has been. Originators have taken a lot of heat in the media for different things over the last couple years. We take that into account and if somebody has negative feedback put on their profile, we get both sides of the story and if we need to remove them, we remove them.
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This year is positioned to be a stronger year for commercial mortgage-backed securities, as industry analysts say the sector hit bottom in 2010. Although, the market still remains far short of its highest point.
Moody's Investors Service expects CMBS issuance will grow to $37 billion in 2011, with an estimated $13 billion in the first quarter alone. Four years ago, CMBS issuance reached $230 billion. The firm also said CMBS portfolios will be larger and more diversified than previous years.
"With 2008 and 2009 posting dramatic drops in issuance from the peak of the market in 2007, 2010 marked a resurrection of sorts for CMBS," Moody's wrote in a recent report. "Based on what is already in the (first quarter) pipeline, Moody's anticipates these trends will continue and accelerate."
The hotel and multifamily sectors will continue to recover throughout the year, according to Moody's. Because pricing is so volatile in these sectors, they are usually the first to feel the effects of an economic downturn, but also the first to rebound. Other sectors will lag a bit with regard to recovery, but all outlooks remain positive.
"Office, retail and industrial market fundamentals will start to form a bottom in 2011, with a strong rebound not expected until 2012," Moody's said.
CMBS delinquencies increased 2% in December, capping off the year at $62.32 billion worth of delinquent loans, according to Realpoint, a credit rating agency. This figure is up 50% from 2009 when CMBS delinquencies totaled $41.6 billion.
Although delinquencies increased across all sectors, the firm said new issuance in 2011 will offset delinquency growth.
"As liquidations of severely distressed defaulted loans picked up speed in the latter half of 2009 into 2010, and modifications or forbearance at the loan level continue to be discussed between borrowers and special servicers, there may be a delinquency 'leveling-off' period through year-end 2010 or early 2011," Realpoint said.
Write to Christine Ricciardi.
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Peter Wallison, one of four dissenting members of the Financial Crisis Inquiry Commission, railed against the report on the cause of the financial crisis, and named the government's housing policy as the culprit behind the meltdown.
Wallison, the Arthur F. Burns Fellow in financial policy studies at the American Enterprise Institute, released his 93-page rebuttal ahead of the FCIC report Thursday. In it, he said the commission merely pursued facts that fit its initial assumptions about "lax regulation, greed and recklessness on Wall Street."
The commission found that the crisis was avoidable had regulators and financial institutions not ignored dramatic increases in household mortgage debt, a viral growth in financial firms' trading activities, unregulated derivatives and many other red flags.
But Wallison said the cause came a decade before.
"I believe that the sine qua non of the financial crisis was U.S. government housing policy, which led to the creation of 27 million subprime and other risky loans — half of all mortgages in the United States — which were ready to default as soon as the massive 1997–2007 housing bubble began to deflate," Wallison wrote.
Had the U.S. not pursued this policy, he added, "the great financial crisis of 2008 would never have occurred."
While the FCIC concluded that the government-sponsored enterprises followed Wall Street into the subprime quagmire, Wallison blamed policy developed by Congress in 1992 by the Department of Housing and Urban Development during the Clinton and George W. Bush administrations that sought to increase homeownership in the U.S.
Government entities such as Fannie Mae and Freddie Mac, the Federal Housing Administration and insured banks were "compelled" to compete for more mortgage borrowers, causing underwriting standards to decline and swelled a housing bubble for a decade before bursting in 2007.
Wallison even questioned why the report was commissioned in the first place if Congress passed and President Obama signed the financial overhaul that was the Dodd-Frank Act six months before the report was completed.
"In the end, the majority’s report turned out to be a just-so story about the financial crisis, rather than a report on what caused the financial crisis," Wallison wrote.
Wallison is not the only disagreeing voice in the room. Three other members of the FCIC board also published a joint dissent claiming that financial shock and panicking markets are largely to blame.
Write to Jon Prior.
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