The Lyons Den

The Good news is that there are plenty of good professional loan officers and plenty of good borrowers to help, contrary to what is depicted in yesterdays Wall Street Journal Article titled “Refinancing May Be Harder to Enjoy- While Rates are Down, Lenders Tighten Rules; Savings Prove Slender” and other doom and gloom articles that are bombarding us all.

Sure! Of course the pendulum always swings too far but not far enough for the good borrower…well maybe, it depends. Is it on the way back to the middle? Will there be stability or normalcy for the good borrower?

The conundrum is a good borrower, avoiding a bad loan officer and a good loan officer managing (not avoiding) a bad borrower.

More good news is there are not many products left out there for the bad loan officer to slam people into what they can’t afford. Don’t get me wrong; unfortunately, we have had our fair share of bad loan officers! Fortunately, most will never find a way to make a living as a professional loan officer and have resorted to their roots. Regretfully, it didn’t happen sooner.

Professional (derived from the word to “profess.” As one would “profess” their faith or in this case as one would profess to a career) Loan Officers sell what is in the best interests of their client period! The correct mortgage market finds a balance or price for their knowledge and professionalism between their supply and demand as long as it is still a win-win.

I know that we have been talking energy here on the last few posts but without energy we won’t be able to do what we are about to do!

Success is real simple:

If the right group of Loan Officers, in the right model, market effectively and efficiently in order to get in front of the right group of borrowers and at the same time manage the bad borrowers through short sale and debt settlement then viability is achieved.

If you know anything at all about the mortgage business…the only viable way to operate as a borrower, professional loan officer, broker, or small mortgage banker is as a federally chartered bank.

• Financial Security – Your loan will fund
• National Charter in all 50 states – Ability to help borrowers all across the country.
• Regulation – The OTS or OCC eliminates most “bad loan officers” and provides for uniform compliance
• Competitive pricing – In-house product line with flexibility to broker.

The minute most mortgage bankers fund a loan on their warehouse line, at a cost of LIBOR plus 2 or 2.5, they are in most cases losing arbitrage. If they can’t sell the loan they are stuck with nothing to do other then to sell it at a loss on the scratch and dent market or write a check for it.

As a federal depository bank with a FHLB [fla-ub] line cost of funds are usually at fed funds rate plus a .25. Currently 4.75. The FHLB system was developed as a stable source of funds for residential mortgages during The Great Depression. Will it be IF The Next Great Depression occurs?

AND if you are a Realtor and know anything about the Real Estate business…the only viable way to operate is to focus in on high-end0 homebuyers and investors. I love the way fear and scarcity work, its almost as if people eat themselves. Everyone wants to unload and no one wants to buy…and if you think about it isn’t that is the perfect time to invest? (When there is blood in the streets!) I recently saw an interview with Donald Trump and he talked about that very thing. I think it was on Larry King.

The bad is that while housing may seem grim, I would guess that around 25% of the total mortgages made are Subprime and ALT-A.

The trillion dollar question is out of that 25% that eventually reset, how many have enough cash, equity, knowledge or income to be able to refinance or hang on for the ride? AND will that number carry over to the 75%? Will the job market be our savor or is it just a crazy eight between the two?

The ugly news is maybe it will end up looking like the scene from Back to the future II.

“Great Scott!” Will all of the “bad loan officers” be like Biff and work at Biffco?

Robert Prechter and Harry Dent Jr have been talking about the next great depression for years. Will this be it? Listen to Mr. Harry Dent. I would highly recommend signing up for his monthly newsletter or reading his most recent book The Next Great Bubble Boom: How to Profit from the Greatest Boom in History: 2006-2010 Mr. HS Dent has successfully predicted the late 1980’s and 2000 and puts them all together scientifically through historic cycles.

No matter the market, depression or not, there will always be folks out there raising their hands for help.

I truly believe, the one who will have all the success, is the one who can find them the best and has the right model to deliver the best! Will you focus on the 75% and manage the 25%?