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The Inside Look: Mortgage Market Meltdown

Yahoo Finance  

River Edge, NJ – July 5, 2007 - - It’s impossible to go two days without seeing a negative article about the mortgage or housing markets.  What was once an industry coveted by many, is now a featured horror show on the brink of major turmoil. Debates linger about not if the housing market will crash, but a matter of when and how catastrophic.

Who is to blame? Without question there is no one group or category of collaborators that can be held fully liable for the current housing chaos. It started with aggressive realtors who were tripping over one another’s feet trying to fill the demand for new home purchases without regard for affordability. It carried through to desperate buyers, who were determined to get into their home by any and all means necessary. Real Estate Speculators (“Investors”) added to the commotion by quickly amassing properties, and were even quicker to patch and “flip” it as soon as possible. Aided by Mortgage Brokers who were unethical and compromising in the types of loans they forced onto desperate buyers, for purely financial motives.  And finally fueled by Wall Street companies, Hedge Funds, and Mortgage bonding agencies that were desperate for as much of the origination share as possible, without regard to prudent or sensible underwriting standards whatsoever. What’s left? A market in shock, panic and chaos that is rewriting history daily with record breaking delinquencies, and vanishing originators who caused it all. And with the snap of a finger, Wall Street funding has retreated almost as quickly as it appeared, making it almost impossible for many would-be buyers to capitalize on the housing market of yesteryear. Added to the mix, a long awaited housing decline that finally put a restraint on the millions of homeowners who were using their home as a virtual ATM’s through ‘equity gains’ over the last five years. For the victims, the combination of housing depreciation coupled with an illiquid secondary mortgage market leaves millions of people stranded with limited options on their ticking mortgage time-bombs. “The market has been over-extended for quiet some time”, says Shmuel Shayowitz, President of Approved Funding Corp., a Mortgage Banking organization based in River Edge, New Jersey. “You could see the writing on the wall when national cable TV channels feature 24 hours of back to back Real Estate programming for buyers, sellers and speculators”.  Furthermore adds Shayowitz, “These exotic mortgage products had a time and place in the market, but in the hands of inexperienced and unscrupulous instigators, they crafted this tragedy.” Exotic products referenced by Mr. Shayowitz include certain 100% Financing programs, negative amortization loans, Payment-Option Arms, and certain Interest-Only loans that do not adequately measure the borrowers ability of repayment as one of the requirements of qualification. A survey recently conducted by BankRate.com, a premier financial website, indicated that a majority of homebuyers have no idea whether their mortgage has a fixed or variable interest rate. Most do not know for certain whether their mortgage contains a pre-payment penalty thus restricting them from refinancing their mortgage without paying an early “termination fee”. Most borrowers claim to have gone through the process too quickly, or with loan officers that did not properly advise them of the various mortgage features tied to their loan.  “We had access to all these products, but we chose not to use them unless it absolutely made sense for our client”, notes Shayowitz.  “As a company policy, we made it our mission to be certain the client understood the loan they were getting, and that it made sense for their overall financial situation”. The different business approaches are quiet apparent today. Lenders who failed to adequately evaluate and structure their loans prudently, were forced to take-back all the loans that were sold to secondary market conduits. Agreements between originators and investors obligate the “Lender of Record” to “buy back” loans that either do not perform within a certain defined time period, or those with loan misrepresentation. For the countless lenders out of business today, the repurchase demands were too numerous to handle, and they were forced to either close their doors for lack of cash-flow, merge or sell themselves for capital infusion, or declare bankruptcy to shield itself from creditors. “What will happen is that the Brokers or Originators who were careless and inconsiderate, will slowly get squeezed out, and the market will begin to gradually stabilize”, says Shayowitz, who maintains that it has been challenging for his Mortgage Bank as well during this conversion. “It’s always tough to lose deals, but even more so when you know the client is going with someone else who is either steering them wrong, or deceiving the client initially to lure them in, and ultimately offer them a higher rate then originally promised, or quite possibly submitting the loan with misrepresentation to get for better rates.” Approved Funding is not alone in combating deceptive mortgage practices, as the Mortgage Bankers Association recently revealed that Mortgage Fraud is at an all time high.  The MBA stated, “the FBI simply does not have enough bodies to handle a fraud epidemic in the industry, which reportedly lost more than $4 billion in 2006 alone as a result of the problem”.  “You need to suck it up and know that you are in it for the long haul, and that eventually these fraudsters will leave the industry”, added Shayowitz who recently joined the National Association of Responsible Loan Officers.  Shayowitz joined instantly as a Founding Member to contribute to an Agency whose mission is to combat irresponsible and predatory lending practices in the mortgage industry.  The National Association of Responsible Loan Officers was created to educate consumers about their home financing options and ensure they understand the financing alternatives available to them. By participating as members of NARLO, loan officers are financing the most aggressive public education effort in the mortgage financing industry. 

Through his membership and leadership in NARLO as well as numerous other reputable organizations, Shayowitz has set his company apart as a Bank to turn to for ethical and responsible financing advice. Shayowitz says he sees some people literally starting their business plans all over again and wondering where to go first. “For those of us that never lost the consultation approach, this market is no different than anything that I have been doing since I started in this business over 13 years ago. Service, Integrity and Passion is what I pride myself with from day one!”  There are still “many aggressive products and deals out there” adds Shayowitz, many that he believes will continue through the end of this year.  His advice for homeowners or potential homebuyers, “Service…Service…Service… Make sure you are fully comfortable and cognizant with the consultation of your loan advisor before you commit to anything.”