Loan Think

When the housing markets tank and banks collapse, FHA is not supposed to run for the hills and hide. The Federal Housing Administration's job is to hold down the fort, continue making mortgage credit available and cover the retreat of Fannie Mae, Freddie Mac and private mortgage insurance companies. It is FHA’s mission to counterpunch a credit crunch.The fact that FHA single-family originations tripled to $170 billion in fiscal year 2008 is a testament to problems facing the mortgage industry and the void left by private sources of mortgage capital. Yet, FHA is doing what it always does — insuring mortgages that meet its old-fashioned credit underwriting standards.But suddenly everyone seems to be worried about FHA. Some are concerned that subprime lenders have infiltrated the ranks of FHA-approved lenders.Others point to a default rate (loans 90 days or more past due) that is creeping up, declining loan loss reserves and capital. Even Fannie and Freddie are continuing to deteriorate as wards of the government. Is FHA going to be the next shoe to drop in the mortgage debacle?“FHA poses significant risks to taxpayers and therefore requires diligent oversight,” Sen. Richard Shelby, R-Ala., said recently.FHA has always served less creditworthy borrowers. It was into subprime lending before subprime was cool.In the run-up to the housing and foreclosure crisis, the Wall Street conduits stole FHA’s traditional customers with fast and easy credit while Fannie and Freddie creamed off FHA’s best customers.In 2005, FHA had a mere 4% market share. Few lenders even bothered to keep their FHA lending operations going. Now FHA is the rage and everyone is piling back in.Yes, it is risky to insure mortgages when house prices are falling and half a million people are losing their jobs every month.Fannie and Freddie have responded by increasing their loan fees, tightening their credit standards, like the private mortgage insurers. It’s really a double tax on borrowers who can still quality for a conventional mortgage to refinance or purchase a home. But FHA continues to provide credit at a reasonable price.FHA has outlived many recessions and financial crises since it was created in 1934. It weathered the S&L crisis when hundreds of banks and thrifts failed between 1989 and 1992.Back then, Congress became alarmed that FHA might tank also. So the lawmakers passed a FHA reform bill that forced the agency to raise its insurance premiums in 1991, which made FHA less competitive.In the aftermath of those reforms, the FHA’s market share slowly declined, particularly refinancings, and the private subprime market took off.So beware of the FHA critics that call more oversight.What FHA really needs is more funding to increase its staff, pay its best people competitive salaries and update its infrastructure and information systems.While excess FHA revenue goes to the U.S. Treasury to pay for food stamps and Army Humvees, House and Senate appropriators have shortchanged FHA’s operating budget for decades.Each year, appropriations barons Sens. Shelby and Christopher Bond, R-Mo., seem to make a special effort to keep FHA at the back of the budget line.Continuing to starve FHA makes no sense when it is fulfilling its mission and the federal government is throwing billions of dollars at banks just to get them to lend again.Yes, FHA may end up in the red. It may need government assistance for the first time in its history if the housing market doesn’t stabilize by the end of this year. But the losses would be chump change compared to the bailouts Fannie and Freddie are getting.And unlike Fannie and Freddie, there is a good chance FHA can pay it back and reimburse the U.S. Treasury.At a time when mortgage credit is contracting, forcing FHA to throttle back isn’t going to help anyone. It's only going to make things worse.

As the dust continues to settle after the subprime meltdown, there has been a significant amount of energy and activity around “appraiser independence” by regulators. The Federal Housing Finance Agency (FHFA) has formally announced the final version of the Home Valuation Code of Conduct (HVCC) to be implemented by May 1, 2009. To implement this code, lending processes will have to be changed and/or modified, thus presenting an opportunity for the mortgage industry to innovate.

In my weekend column I mentioned that no publicly traded companies are issuing press releases stating that they are actually hiring workers. Well, Jim Sykes of Assurant Specialty Property of Florence, S.C., has called me on the carpet. (ASP, among other things, provides hazard and flood insurance tracking.) Jim says back in December ASP, a subsidiary of the publicly traded Assurant (which sells specialized insurance products), issued a release saying its Florence center planned to hire up to 100 additional employees. The office is the third largest of ASP's five hazard insurance service centers. He said at year-end Florence had 677 workers, a gain of 84 from year-end 2007. He said the Florence location is still hiring but also noted that the employment numbers "include temps, since we do a lot of temp to perm hiring"…

It is not only businesses that are suffering during these tough economic times. Employees who are having problems dealing with their own debt are bringing their financial problems into the workplace and this is having an impact on their productivity.

Customer service expert John DiJulius said it is a fact that firms with high levels of customer service have a healthier corporate culture, lower employee turnover, higher customer retention, more referrals and ultimately make price less relevant.

Mortgage originators cannot turn "you know what into shinola." I get it. But, the faster you define the file as "crap" the better for your referral partners. Within a day, you definitely have the credit and know what you face regarding credit. Right?

While nearly half of the small business owners who participated in a recent Wells Fargo/Gallup Small Business Index survey said they have a plan if their business hits a bump in 2009, most still had a positive outlook for the coming year.

For the past month rumors have been floating around that PennyMac might be hunting for some major office space in Irvine, Calif., to expand its mortgage bottomfishing business. However, a few days ago a spokesman for the company shot down those rumors. Based in Calabasas, PennyMac has roughly 45,000 square feet there to house its 80 or so full-time employees. "We have plenty of space," he said. PennyMac, which recently bought a loan portfolio from the Federal Deposit Insurance Corporation, is managed by former Countrywide Home Loans president Stanford Kurland…

I've become something of a layoff junkie. But I take no perverse pleasure in all the news of companies cutting thousands upon thousands of full-time workers. Lives are disrupted. Families are in crisis. An appraiser I know in Arizona says the "side story" to all this is that the divorce rate is spiking up. Why? Answer: financial stress leads to crumbling marriages. I watch and read the layoff news with rapt attention for this one reason: I figure 50% to 60% of these newly minted unemployed have mortgages. And if I had to guess, I would say the figure could be as high as 80%. It's hard to tell. For the white-collar folks the percentage with mortgage debt might be 90%. Who knows, really? You know the numbers by now: 500,000 U.S. job cuts in December alone and thousands more this past week - Eastman Kodak, Caterpillar, take your pick. The layoff news is unrelenting, which leads me to ask this: when's the last time a publicly traded company issued a press release saying it was actually hiring workers? Google that one. Many households these days have two wage earners but given the high cost of housing the past decade it doesn't take much to send a mortgage into delinquency. Of course, housing is starting to become a whole lot cheaper but there's a Catch-22: if you don't have a job you can't buy. Next Friday, the new unemployment numbers come out. In a few weeks National Mortgage News will release its delinquency numbers for 4Q. The results likely will not be pretty. If you want to look at the 3Q results drop an e-mail to Deartra.Todd@SourceMedia.com and ask about NMN's Quarterly Data Report...

NEW LAWSUIT BASED ON THE CRISP AND COLE FIASCO IN BAKERSFIELD, CALIF.