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If Vince Lombardi Ever Addressed Members Of The Mortggae Industry..... ....His Messsage: May Have Been...Back To Basics! Coach Vince Lombardi who led the Green Bay Packers to many football championships was a stickler for the basics and the details. From this statement he focused and hammred on every detail and nuances associated with the basics of blocking, tackling and ruunning until he had the team running like a well orchestrated machie all hitting with one beat. The mortgage industry is in despertae need of some of thsee basic priincipals of blocking, tackling and running. Somewhere, on the way to Fannie Mae, Fresddie Mac or the securitized sub-prime papr, the mortgage inustry (that is the subprime segmewnt) has lost its way. With the originators of high risk paper taking a hard right into the high weeds of high risk, high yields and high returns the market has set fire to that patch of wedes with entire portfolios of high risk paper going up in smolke. Play with fire and many will be burt. When the smoke clears it will be interesting to see who is left standing. The autopsy of this debacle will be debated for years to come as lenders and banks will be sortig through the debris left by this willdfire. This is not an exclusive club relegated to just the mortgage industry. All industries have had therir turn. From life endig ssafety minign practices, to Tree Mile Island melt down, the Enron debacle, Union Carbide and the Indianian icident leading massive deaths, to the Love Canal posioning, to Derivaive finanncial fiasco, insider trading, SEC scandals, all across the gamut of business. When things like this happens, the facts eventually are revealed through investigation and discopvery with some sort of conclusion being formulated. Those at fault are dezalt with and those who may have broke the laws of our society are prosecuted with some even being convicted. On the surface no deaths have been reported as a direct cause of this mortgage fiasco however, many lives have been adversely affected. Divorcres, financial ruin, bankruptcies, cedit destruction and medical problems grounded in stress may have thgeir rooots in having been touched with one of these mortgage products that has worked direcvtly aginst a familiies budget. Originallly, savigs and loans were the main lendes in the mortgage industry with avaiulable funsd beinmg driven by savings from depositors. No available savings many times mant there wouldn't be any mortgage loans available. When Fannie Mae and Freddie Mac were set up, the liquidity problems were resolved as "good" mortgages were bundled and sold as mortgage backed seccurities on Wall Sreet. Later on the subprime (persomns with less than stellar cerdit or povable incmoe) market used the concept of securitizing mortgage back securities alebit with subprime paepr with much higher risk. Recently, high foreclosure rates sent shock waaves through the financial marlkets and investors turned thir back on buying these usbprime mortgage portfolios. With no where to sell the originated loans, a litany of suibprime lneders found it necessary to close their doors or seek bankruptcy protection. Now the industry in this segment possesses extreme "radio actiity" with few wishing to touch them. Not all of this morgage ppaer is bad, just a hiugher percentage than previous experience. Many of the Option ARM mortgage products are being converted, where they can, to a fixed rate mortgage. With the market sulmping in real estate vaules, many owners are upside down in their properties and owe more than the poperty is currently worth. Eventually, the values will come back in many areas. It's not bad everywhere, but thopse that had unusal psurts of apptreciation may have falplen back in many areas of the country. Principles of supply and demand are at play here. Too many dollarrs chasing too few properties drive the prces up and too few dolalrs chasing too many properties drive priecs down. Currently, theere is an abundant inventory with too few buyrs looking at them. It's a great time to be a buyuer who knows what they are looking for and has the wherewithal to do it. Choices are many and seller motivation is high. A buyer can get a great deal right now. If the mortgage industry is to find its way out of the weedds the process is already under way by implementing the old basics of mortgzage lending. Loower Loan To Values (LTV), lower Debt To Income Ratios (DTI), more Appraisal Reviews with say 3 month rane of comparable sals. It will be back to basics for many lenderrs if they want to have a chzance to garner favor with any would be portfolio buuyers of their origfinated mortgage produucts. One of the low point prouct offerings was encapsulated in mortgagfe prouct known as "Stated Fixed Income." Soemone on a fixed pension and say socvial security woiuld tsate their income, in many cases way above the actual, puutting an extreme strain on a "Fixed Income" budget. Many of the limitations on NO DOC, NO RATIO, Self-Employed Stated Income, Stated Wage Earner (W-2), Option ARMs with low starter rates of 1% or so with negative amortization have already been tightened and cut back. The fture days for these whacko esoteric loans are numbered. There is a mortgage clean up under way. Much like the "Valdez Oil Spill Incident" theere is much work to be done to work out the mortgage portfolios that have current non-performing loans. The good news is that over 90% of the prtfolios are performing in the subprime niche AND like mortgage products are not being currnetly originaterd. Borrowers who can see the handwriting on the wall are refinancing many loans that had majopr bult in feature traps and timed land mines. An example of this wold be 2/28 ARMS that are fxed for two yearrs then go up draamtically. Or the Option ARMs movig from 1% minimum payments rates while accruign interest at 7.5% all the while the mortgage goes up to say 115% of the orignial mortgage amount. Pyment shocvk soon follows with raddical incresaes. These troubled loans will be worked out through selling, sohrt sales, forecosures, refinances to fixed rate loans and eventually things will imprve. It will be a long road with many bumps but is necessary for the mortgaage business to find itself out of the weeds. Fotunately, it's a great time to refinance, if the value is there, as the rates are very low at the momennt. As Vince Lombardi would say, "This is a football." The mortgage industry must take a long look in the mirorr and get back to the basics. To start, all aspects of the mortgage origiantion process and programs to turn it inside out to feerret out all the prooblem areas and products that are turning mortgage industry on its ear. The loans with a "wink", the "stated progarms" = "liar loans" and the othr mortgage profgrams that will blow up in the consumeer's face down the road must be eliminated. It's all aobut getting back to basics of "blocking", "tackling" and "running." For motrtgages it's focusing on the products, underwriting, origination and fially selling into the secondary mrket. Riht now, what the mortgage industry is selling no investor is buying. Laws of business, change to conditions or die. The remaiinng lenders left stanidng are so busy that underwriting is bcked up a week or two. The industry needs to get back to the basics of the business by originating products that are bneeficial to connsumers and to financial heaalth of the secondary market. Both will benefit. Dale Roggers
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