Why again, are Lenders going out of business?
Chuck Ponzi July 3rd, 2007
The Seattle Times’ story about the shuttering of Mortgage Investment Lending Associates and filing of Chapter 11 bankruptcy is particularly insightful into the human minds ability to ignore just what it processed a few seconds ago. Consider these 2 passages in the same story:
Rather than writing loans itself, MILA matched funds from big lenders with the subprime clients of mortgage brokers. Its proprietary online loan-management system was designed to tell in minutes if those clients were good loan risks.
Lenders are saying they were not.
The second passage:
Bortner said her department looked at MILA and concluded “they went out of business for the same reason as many, many other lenders have gone out of business: The market turned against them. We had no evidence of poor management or any of those things.”
Which makes me wonder… what exactly do you call doing the job poorly?
I suppose in my field, and in most others, it would be called incompetence, laziness, or we might even attribute it to bad management. In the lending field, it seems that’s not the case. The MARKET TURNS AGAINST YOU.
Now, if lenders had slowly gone out of business due to shrinking margins and numerous staff reductions, I might be inclined to believe the line that the market turned. But, if your company goes down in a blaze of Chapter 11 within a few weeks or months due to your protagonist (paper money pimp) calling you to the rug, caving your face in with their fist and leaving with a hunk of flesh removed from your buttocks, I’m inclined to call that a MARKET BEATDOWN. Perhaps if you smoothed that over enough for the home viewers, it might morph into the market turning against you, but only in the sense that a pack of rabid wolves might turn against you, tearing you to pieces.
Perhaps in my next job review, if any part of it is unfavorable, I’ll just refer to it as if my job turned against me. Perhaps if the reading public can accept such garbage, my boss will accept it as well. Still, I think I’ll not take my chances just yet.
But, with credit spreads widening, the market is about to turn against a lot more companies.
If you think back a couple of years a small event happened that may have escaped everybodies notice.
It was called 9-11 in all the press releases.
The economy took a major dive and Mr greenspan had to come up with a quick plan to keep the country moving or we would be in the provebial crapper.
Lets drop the iterest rate so low that everybody can afford a big house and live like kings. That way nobody will notice that we are really screwed!
You are now paying for that policy by slowly raising interest rates and house prices that are out of site.
Look at Japans housing prices from the late early 80’s until the early 90’s.
Hmmm, see how they went from flat to spike and then to flat again. Back to same price as in early 80’s. Fast forward ahead to US in early 2000’s look ahead to 2010 and see housing prices at some level as pre-9/11.
make plans accordingly!
I’ve written my share of software over the years, and I can tell you this: If I were writing a “proprietary online loan-management system” to match up subprime loans with OPM, I’m pretty sure it wouldn’t take “minutes” to determine whether it was a good risk or not. In fact, I think it could be done instantly if you dispensed with all that complicated asset and job verification, credit history and other financial voodoo. So it seems obvious to me that their failure was a direct result of their software platform. Probably a bunch of slackers in the engineering department.
(sarcasm off)
Banks have gone bankrupt because they weren’t loaning depositors money, they were loaning money that would be replenished to them after investors purchased the loan that they gave out. That being said, people say the market turned against them because investors stopped buying their loans. So yes, the market did turn against them.
They may have had buyers lined up only to have them say no at the last minute…(which happened to a large bank that I work and I had a loan placed with them at the time) which would leave them with millions (or whatever loans they had accumulated since the last sale to investors) on their books with no cash replenished and BAM they are now bankrupt. The bank that I’m referring to had this happen to them back in March but have since adjusted their programs and guidelines and are now once again are able to sell their loans because they are more conservative in their loan to value requirements.
You have banks with deep pockets who are staying afloat now because they don’t necessarily HAVE to sell that loan right away to an investor. They can portfolio it since they are getting their cash from the bank that backs them or perhaps they ARE the bank. Those that depend on selling almost all their loans to the secondary market are having the toughest time.
Chris,
You’re mistaken. They did not go out of business due to not being able to do loans and slowly bleeding overhead, they went out of business because of buybacks… the same reason that New Century, Fremont, and scores of others went belly up. Hence, their creditors are IBs, not the landlord and the power company.
Chuck Ponzi
Chuck you are right I apologize. I didn’t mention the buybacks but it’s still true that they stopped purchasing the loans they made which on top of the buybacks sunk the ship, of course the buybacks were enough to do that on their own. You are right…my fault.
This is amazing:
From: “SOCALMLS” (info@info.socalmls.com)
Sent: Thursday, July 05, 2007 9:00 AM
Subject: SoCalMLS - IMPORTANT TEMPO CHANGE
DOM/CDOM No Longer In Client Reports
With the changing market there has been much discussion, contention and even litigation over Days on Market and Cumulative Days on Market figures. One view is that it hurts sellers, another is that it helps buyers.
The bottom line is that you, the real estate professional are in the best position to explain to your customer - buyer or seller - what the true DOM figure is and what it means.
To that end, the SoCalMLS BOD, after getting input from MLS Committees and other practitioners, have decided to remove the DOM and CDOM fields from all Client reports. You will still have this information available to you in the Agent reports, which also link to the history report for each listing. The history report gives you a much more precise overview of what transpired for a particular listing. With that ammunition you should be prepared to better explain to your client the ramifications of the DOM data.
If you have any questions as to how to access the history please feel free to give us a call…
SoCalMLS
One view is that it hurts sellers, another is that it helps buyers.
Err.. aren’t those really the same “view?”
Ummm… what difference does DOM really make? If the house is overpriced, it is overpriced on day 7 and on day 700, thus in my mind in this market DOM is irrelevent. There is no need really to know that information. Lots of houses are on the market for ages and there is nothing wrong with them in a stuck market like we have in the IE, so one cannot really discern anything useful from the DOM figure. Very few houses are selling, there is LOTS of inventory, AND loans are perhaps a little harder to come by. As a potential buyer, I don’t really care how long the house is on the market. Does anyone see this differently?
I like to see when a couple of places go on the market at the same time and then notice most of them just sit for months while 1 or 2 sold within a week of being posted. So I think it helps normal buyers when looking at properties online. Now if I had to actually go hunting for a house/condo by driving around, that number would be much harder to make sense of. I automatically assume realtors don’t do anything useful at this point.
A comment above mentioned 911. Hey this ‘bubble’ created after 911 through the private ‘Federal’(oxymoron) ‘Reserve’(what reserve?) ended up being quite a diversion from the unresolved mysteries of 911. Huh?
About the original post Chuck,
You could make the case that the buisness plan was bad and only worked in a rising market.
So, perhaps the author was over polite “market turned against them” vs jacked up stupid buisness plan.
I just published an article about Sherman Oaks real estate, in
comparison to the Encino real estate market. It has lots of statistics of the
key elements of those areas, such as $/sf, median days on market, etc.
You may find the article at:
http://realestateandhomes.blog.....e-and.html
Henry
http://www.movoto.com
I am a student in economy university