Richard's Real Estate Thoughts

Volkwagen Group of America President Stefan Jacoby gave a powerful and upbeat keynote speech at today's Spirit of Innovation Awards luncheon. His talk caught the spirit of the event, complimenting Chattanooga's vision and commitment to creative thinking, risk taking, and fresh ideas.

The two award winners were DJO Chattanooga who received the Kruesi Award and Adaptive Methods received the Early Innovator Award. The webcast production linked below includes some excellent and informative video about all the award nominees.

Mr. Jacoby said this spirit of these unique awards ties in well with the corporate culture at Volkswagen and was one of the reasons that Chattanooga was selected for its new US automotive manufacturing plant.

He said the decision to select Chattanooga was made "by the head and also by the heart. Chattanooga met all the specifications for the plant site, but also just felt right for Volkswagen." 

He specifically associated the idea of the Spirit of Innovation event and the Kruesi award as matching the spirit of Volkswagen.

He spoke about the commitment to education, cooperation between educators, government, and industry - a true strength of Chattanooga.

He called Chattanooga a big part of the Volkswagen plan to grow to a market share of 1 million cars. He said that VW is making a $1 billion investment towards that goal and towards the future of the company, the community, and the country.

He did discuss current market conditions, but said VW is in a position to take advantage of the opportunity that is inherent in today's economy.

He spoke of Volkswagen's commitment to research and development. Chattanooga's prototype automobile is in development right now. VW is engineering for a new automobile.

He did indicate that recent reports of expanding the plant to 300,000 cars are a part of the strategic planning, but initially the production goal remains 150,000.

It was an exciting event speech, made even better by the first webcast presentation of the event. Congratulations to the award winners and to the award nominees.

Kris Simmons of Fire Eye Productions, Inc., an award winning, Chattanooga based video production company, produced the webcast, and graciously gave permission to post a link to the webcast. You can find out more about Fire Eye Productions at their website, www.fireeyemedia.com .

This is the first stress test report I have heard about. Evidently the top of the list of 19 will need additional capital.

Bloomberg reports update on Bank of America and Citigroup bank stress test. The article says that full stress test results may be available as soon as May 4.

Questions include where the additional capital will come from and what will be the market response and economic impact.

It remains possible for additional TARP funds and further movement towards nationalization.

While this is going on, will another regional bank close this Friday?

NAMB has issued a call to action in response to today's markup of HR 1728 by the House Financial Services Committee.

UPDATE 4/29: The House Financial Services Committee has passed HR 1728, without HVCC delay amendment. Additionally there are provisions for credit risk retention and for yield spread premium restrictions. This according to several news sources. Here is the story from Wall Street Journal.

The primary focus of NAMB's call for action is to push for an amendment to delay implementation of HVCC, the policy that mandates a property appraisal process that many active in the industr believe will introduce inefficiency, unreliable valuation, increased costs, and will harm consumers by limiting the ability to transfer an appraisal from one lender to another.

Further, HVCC seems not to correct the problem it is intended to correct, which is coerced inflated appraisals. The appraisal management companies are not immune to being party to coercion. An appraisal management company was involved in the initial law suit that led to the HVCC procedures.

While delaying the implementation of HVCC is the primary focus of NAMB's call, the provision that is designed to end steering fees seems equally important.

The NAMB memo also addresses the section of the proposed legislation that addresses yield spread premium, kick backs, and steering incentives. The memo references "the importance of Title I, Section 103" of HR 1728, stating that this section "was carefully drafted and negotiated as part of HR 1728. This Section does its part to ban incentivized compensation from all distribution channels while still protecting mortgage brokers' ability to earn a living.  It offers true consumer protection."

The language of that section is of course difficult to read, but here are some points.

• For any mortgage loan, the total amount of direct and indirect compensation from all sources permitted to a mortgage originator may not vary based on the terms of the loan other than the amount of the principal.

• Nothing in the bill should restricting a consumer's ability to finance, including through rate or principal, any origination fees or costs permitted under this subsection, or the originator's ability to receive such fees or costs (including compensation) from any person, so long as such fees or costs were fully and clearly disclosed to the consumer earlier in the application process as required

Here is a link to the full bill. The two above quotes were taken from Title I, Section 103.

Here is the NAMB statement.

Here is a summary of the bill from the Financial Services Committee.

The April 24 webcast that of the hearing from Arpil 24 is available. Here is the link. In a previous post I had mistakenly attributed some comments that revealed a prevalent misconception with regard to yield spread premiums. The portion of the webcast that I heard is around the 1 hour and 30 minute point. The webcast gives a wide range of testimony.

In the portion of the webcast referred to above, an example is given that has a borrower qualified for a 5% rate but receiving an 8% rate. I really am not sure that is a realistic example. Perhaps some comments in the post can also address that question.

I am not really sure what is meant by "steering incentives." Perhaps someone can in a comment provide a definition of that term.

Here is the link to find your congressional contact, provided from NAMB website. http://capwiz.com/namb/dbq/officials/

Real estate professional and consumers alike should take some time to review the bill and to listen to the webcast.

In the bill and the webcast, the concept of Credit Risk Retention, skin in the game for all originators, is discussed. This concept and any legislation involving it have the potential also of drastic impact.

In a post from April 24, I falsely attributed to Denise Leonard, Vice President, Government Affairs, National Association of Mortgage Brokers, comments that were apparently made by a representative from the Federal Reserve.

I regret the mistake. I will send NAMB and Ms Leonard a written apology.

I also apologize to the Active Rain and other blogging communities. Those of us who have a blog, have a responsibility, to the public and to ourselves, to verify our information and sources.

I did not perform this responsibility with this post.

When Ms Leonard's actual testimony becomes available as a transcript, I will post that here and on the original post.

Thanks to Marc Savitt, President of NAMB, and to Mark Green, of Top Mind, for correcting my error.

Richard Smith

There has been so much posted about Twitter. And, if you are not on Twitter, it is time.

A couple LO's in my office, and now me also, are becoming great fans of FaceBook. As well as a great many people I know on a nonprofessional level. I complained at Sunday School yesterday that all my friend recommendations were for people under 25.

(For those who do not know, I am over 25.)

Facebook works. It is fun. It is growing. It is effective.

The fastest growing demographic on the site is actually over 35.

You can actually target a more local audience than with Twitter.

If you are not on Facebook. It is time.

Visit my Facebook profile.

HR 1728 will be considered tomorrow before the House Financial Services committee. It needs to be known by all that mortgage reform in some form is coming this year.

Some of the main points of HR 1728 include a Federal Duty of Care that included licensing, providing "appropriate mortgage loans", and tagging each loan with an originator ID. That is pretty interesting.

Yield spread premiums are specically labelled steering incentives, The scary thing about this label is that it reveals to me a lack of understanding about the bond market on the part of those who are making this legistation.

The language is that premiums cannot be used to steer applicants towards more costly mortgages.

To me this language is too open, leaving wide range of interpretation for later regulators. Even if the bill becomes law, efforts must be made to determine what might constituting "steering to a higher cost"

I understand taking a qualified client from FHA loan to a subprime, adjustable rate loan, but are we also concerned with much smaller price variations that fall within competitive prime market rate ranges.

The bill provides for some safe harbor concerns to ensure put aside secondary market investor concerns over potential libilities.

Here is a summary provided by the House Financial Services Committee.

One thing remains in my mind, mortgage brokers need quality representation - during the legislation process and also during the regulatory process.

The federal government has published its stress test for major banks. The stress test is to determine how vulnerable these large banks are to various economic worst case scenarios. The actual stress reports are being given privately to the individual banks.

Those banks who fail could be required to increase their capital reserves.

The stress scenarios involve worsening unemployment and continued declines in home values.

The goals of the stress test scenarios were to evaluate the extent of potential problems and to improve market confidence in the financial system.

The effect may have been just the opposite, to increase market instability.

With 27 bank closing through April 24, is the decision to focus on saving large banks the right choice? Saving the large banks, while allowing smaller, regional banks to close, serves to further centralize the financial market. It seems to me to create even more "too big too fail" liability for the federal government.

Is bigger always better?

Why is the decision to save the large banks? These banks hold 1/2 of all bank loans.

How much debate has occured on this too big to fail philosophy? How transparent has been the decision to go big?

Is it better to bet on fewer bigger banks, that were in a large way responsible for financial crash?

Is it better to bet on more smaller, regional banks? Possibly more in tuned with local needs?

Does it take a large bank to compete globally?

It the risk of "too big too fail" too great for our Treasury? 

Here is the justification of the program, taken from Friday's publication of the Federal Reserve announcement for the The Supervisory Capital Assessment Program: Design and Implementation.

"Given the heightened uncertainty around the future course of the U.S. economy and potential losses in the banking system, supervisors believe it prudent for large bank holding companies (BHCs) to hold additional capital to provide a buffer against higher losses than generally expected, and still remain sufficiently capitalized at over the next two years and able to lend to creditworthy borrowers should such losses materialize. The purpose of the Supervisory Capital Assessment Program (SCAP), which is being conducted by the supervisory agencies, is to assess the size of these capital needs."

We are in position of needing to stabilize the financial market. This means protecting large banks. Does mean encouraging further consolidation of banking by allowing small banks to fail?

Should our policy be to continue to encourage larger and larger banks?

THDA, Tennessee Housing Development Agency, has this month introduced their anticipated second mortgage program. The program is to be used in conjuction with the stimulus tax credit for first time home buyers. The purpose is to assist potential home owners by providing a no interest loan. THDA recommends that borrowers use their tax credit to pay the loan off, when the credit refund is received.

Some details:

The THDA second mortgage is for the down payment. It is only available with an FHA loan closed with the THDA Great Rate or THDA Great Advantage programs.

The minimum credit score is 620 and THDA's maximum income limits apply.

The program is offered to first time home buyers.

If the borrower decides not to repay the second mortgage with their tax refund, payments can be made.
The loan is interest free until June 1, 2010. At that time the loan will have a 10 year term. The interest rate is 1% above the first mortgage rate.

For the THDA Great Rate program, the current interest rate is 5.55%.

For the THDA Great Advantage program, the current interest rate is 5.85%.

The second mortgage can be used for downpayment or for closing cost, but it in the amount of the 3.5% FHA minimum down payment. The second mortgage can be used with other sources of closing funds that are acceptable to FHA: gift funds, seller paid costs, and of course the 2% grant from the THDA Great Advantage program.

More details on the THDA programs are posted here.

If you have any questions about eligibily for this program, please call.

Last year there were, I think, 25 bank failures. To date this year, there have been 27. Two today. Heritage Bank in Michigan and American Southern in Kennesaw, GA. The pace is apparently picking up.

With the news about GM shedding Pontiac, numerous plant closings, the economy remains troubled. There has been here and there a piece of encouraging news, but I do not think the turn has been made yet.

We are coming into a new economy. More centralized? Less American? More government? Less debt? More socialized? Less entrepreneurial?

A congressman has recently asked if capitalism is the same as survival of the fittest. I wonder what his view of capitalism is. I wonder what he thinks should be the fundament economic principle.

When we do make the turn, what will the road be like and where will it go?

In this post, which started as Members Only but was posted public as comments grew, I falsely attributed to NAMB Government Affairs Committee Chariman, Denise Leonard, with calling yield spread premium a kickback and not being able to answer whether capitalism is the same as "survival of the fittest.

These comments were apparently made by the representative of Federal Reserve. Looking over the list of witnesses at the hearing, the Federal Reserve representative was Ms. Sandra Braunstein, Director of the Division of Consumer and Community Affairs.

Mark Green, of http://www.topofmind.com/, has researched and discovered my error. I apologize to NAMB, the AR community, and most especially to Denise Leonard.

I will leave this post active, prefaced with this apology. And express my regret but also my relief that the comments I heard were not made by a representative of NAMB.

The prepared statement that Ms Leonard gave before the committee is linked here, and was also included below in the original post.

When the transcript of the hearing is available, I will post it here.

Here is a link to my posted apology.

Richard Smith

The webcast that I heard is finally available. Here is the link. I joined while it was in progress and mistakenly thought the witness was Denise Leonard from NAMB. The hearing webcast is over 6 hours long. The part I viewed is around the 1 hour 30 minute point. The webcast gives a wide range of testimony.

Original post follows.

Today NAMB Government Affairs Committee Chairman, Denise Leonard, testified before the House Financial Services committee regarding HR 1728, the Mortgage Reform and Anti-Predatory Lending Act of 2009.

NAMB stands for National Association of Mortgage Brokers. Their website is www.namb.org.

Denise Leonard's testimony was disappointing in my mind. She seemed unprepared for many of the most basic questions.

When asked if yield spread premiums are kickbacks, she replied "yes."

When asked if capitalism is the same as "survival of the fittest" she replied, after some pause, that she was not able to answer that question. 

It is not good that in the face of some very significant mortgage reform, mortgage brokers are being so under represented. At least under represented in my mind.

HR 1728, Mortgage Reform of 2009, is a very encompassing piece of legislation. It covers many issues that were addressed in 2008, such as the SAFE Act which called for national loan originator registration, HOEPA Rules revision which prohibits lending practices deemed deceptive, including "coercive appraisals", HUD's new RESPA reform, the new HVCC (appraisal ordering)policies.

This last policy has been negotiated between FHMA and Freddie Mac in a settlement over a law suit that charged a lender (not a broker, by the way) conspired to coerce inflated values with an appraisal management company (not an appraiser, by the way).

The new legislation for 2009 covers loan origination with a prohibition of steering incentive, sets minimum standards for tangible benefits, regulates mortgage defined as high cost, institutes appraisal requirements, and addresses mortgage servicing concerns.

With such important issues being considered, important for our industry as well as the economy as a whole, I wish our representation were a little better prepared to answer congressional inquiry.

If anyone else saw the testimony I would love to hear other thoughts. Maybe she gave better representation in parts of the testimony that I missed.

Here is the official NAMB statement on the pending legislation.

Here is the proposed bill, HR 1728.