The Fed Compensation Rule, the SBA and Snowfall

I am writing this post today, as I do all of my posts, sitting in my office with a large picture window to my left.  What makes today different is that for most El Pasoans, and for many Americans, today is a snow day.  I have received telephone calls on my cell phone today from work colleagues who assumed I did not make it to the office since the icy streets kept many business people at home and resulted in school closures city wide.  Fortunately, because of the close proximity of my office to my home and the well-maintained streets which connect those two points, I have never had a day in almost eight years at this location that I was unable to get to work.

As I did my work this morning, I noticed the gently falling snow, and I thought about the impact that those tiny, seemingly harmless little flakes are having today on the entire nation.  Airports are closed, schools are closed, travelers are stranded, and offices are shut down all because of tiny bits of ice.  By itself, one snowflake would be unnoticeable--en masse they have defeated armies.  (For example, Napoleon's army was not able to conquer Russia because of the fierce Russian winters and heavy snow.)

This principle holds true for many situations in life.  Take, for example, regulation.  We have seen regulation upon regulation in our industry implemented over the last two years.  Individually some really were not very difficult.  For instance, the recently implemented changes to the truth in lending form that became mandatory two days ago were inconvenient and unnecessarily expensive, but they did not really pose a challenge other than the cost of compliance.  Other changes presented more challenges.  Learning to comply with the new good faith estimate requirements in 2010 posed a real difficulty as did completing all of the licensing requirements for the Safe Act.  But individually, these would not have been insurmountable.

Now on April 1, 2011, the mortgage industry is facing its greatest challenge to date with the implementation of the Federal Reserve rule on compensation of loan officers.  With fewer than sixty days left before implementation, the mortgage industry is scrambling to get a clear guidelines as to how to implement the rule and how to comply with it.

Two weeks ago, the SBA Office of Advocacy sent a letter to the Federal Reserve requesting that they provide guidance to small companies.  The Fed responded with a four page letter which was mainly designed to silence the Office of Advocacy rather than to deal with the specific issues.  This week, the Office of Advocacy has written to the Federal Reserve once again requesting clear guidelines for small entities for implementation of the new rule and requesting a delay in the final rule until small businesses can be trained on how to comply with the new guidelines.

The National Association of Mortgage Brokers is on board with this fight and they are circulating the SBA's letter and asking for people employed in the industry to send the letter on to their congressional representatives to pressure the Federal Reserve for a delay.  Personally, I think that the chances of getting any sort of a delay on this are about as slim as that of a snowball surviving in Florida.  We went through much the same process with the implementation of changes to RESPA and the new good faith estimate just over a year ago.  The industry begged for more time and tried to utilize congressional relationships to pressure HUD into giving us a stay, but in the end the rule was implemented exactly as scheduled.  I believe that this Federal Reserve rule will follow exactly the same course.

However, the results of implementing this rule are going to be disastrous.  The housing market is facing a double dip not because no one is willing to buy houses, but because so few consumers can qualify under the stringent new standards.  The net result of the Federal Reserve rule is not going to be cheaper, more transparent mortgages.  It is going to be more expensive, less available mortgages, more inventory on the market that cannot be purchased because interested would be home buyers cannot get the loans, and more unemployment as an increasing number of people who are working in our industry find themselves out of a job.

Perhaps in their eagerness to stack regulation on top of regulation while trying to make the world a safer place for home buyers, all of our governing bodies need to look at the example of the snowflake.  By packing regulations on our industry, the Federal Reserve, along with HUD, the legislative and executive branches of government, and all of the other entities which have a hand in regulating the housing finance industry are bringing the entire nation to a stand still.

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Give Thanks

Every Thanksgiving for as many years as I can remember, my mother had a tradition at Thanksgiving dinner.  After my father prayed over the food, my mother asked each of us to name one thing that had happened in the last year that we were thankful for.  As I got older, knowing that I would have to state what I was grateful for, I started thinking about the year a couple of weeks in advance of the holiday, and I found that even in difficult years, I had a lot to be thankful for.  My mother's tradition, which she continues to this day, has helped me to really think about the meaning of Thanksgiving each year.

This year has seen so many negative changes and so much bad news that those of us who work in real estate and mortgage lending might feel stumped at my mother's dinner table the day after tomorrow.  So in the spirit of Thanksgiving week, I have compiled a list of 5 things that all of us in our industry can give thanks for on November 25.

1.  We still have low interest rates.  For all of the problems we have had with rule changes, underwriting changes and guideline changes, 2010 has seen record low interest rates.  When I started in this industry in 1998, I would have never believed it possible that I would be financing people at fixed interest rates in the 3's.  Those low interest rates have allowed those of us in lending to weather tough times and perform a real service for borrowers who now have fixed rates lower than we ever imagined.

2.  We are seeing lower housing prices.  Yes, I know that this is a mixed blessing at best, but think about it.  With underwriting standards so tight, many borrowers could not qualify at all if housing prices had not dropped.  Lower prices mean that many home buyers who had been priced out of an accelerating market can actually afford a home.

3. We have access to great programs.  We have seen a huge number of products go away, but there are still some great loan programs that allow borrowers to qualify for financing.  Programs like Fannie Mae's Home Path give borrowers an opportunity to buy a home with conventional financing, a reduced down payment and no mortgage insurance.  I just finished quoting a borrower for Home Path investment loan with 10% down and no mortgage insurance and a 5.25% fixed rate for 30 years.  Although we mourn the loss of some of our past programs, great financing still exists for qualified buyers.

4. We have greater FHA availability.  This is huge.  Back in the early part of the decade, the broker industry lobbied repeatedly for HUD to open up FHA to brokers, totally without success.  Now that the market is FHA dependent, HUD has opened up access to brokers.  This means more competition and better pricing options for consumers.

5. We are still alive, and we are not alone! "Don't worry about things--food, drink and clothes. For you already have life and a body--and they are more important than what to eat and what to wear. Look at the birds!  They don't worry about what to eat--they don't need to sow or reap or store up food--for your heavenly Father feeds them...And why worry about your clothes? Look at the field lilies! They don't worry  about theirs. Yet King Solomon in all his glory was not clothed as beautifully as they.  And if God cares so wonderfully for flowers that are here today and gone tomorrow, won't he more surely care for you....So don't be anxious about tomorrow. God will take care of your tomorrow too.  Live one day at a time."  (Matthew 6: 25-34 TLB)

Now that's something we can be thankful for every day!  Happy Thanksgiving.