September 2, 2010

by Dean Harrington

“I remember exactly where I was when…”

Throughout our lives there are those indelible memories of events and circumstances that fuse us to where we were and what we were doing on a particular day. Depending on your age these events can be anything from “the day Kennedy was shot”, “to “9/11” to “The Miracle on Ice”, to “the day the space shuttle blew up” to this or that crash, natural disaster, election, victory or death.

These defining events mark our lives in a mysterious – almost hypnotic – way. We know what they smell like, what they look like and, most of all, what they feel like. I can’t remember what I ate for dinner last night or, heck, what I did two days ago but I can give you an animated history of everything that happened in my life on and around January 28, 1986, February 6, 1978 or September 11, 2001. I’m sure you know the feeling.

But why is this? How is this? What can it teach us? And how can it be applied in business?

These events, in effect, become bigger than themselves because they connect us – by minute, by day, by week. No longer are we watching separate TV shows, reading different parts of the newspaper or sharing dissimilar conversations at school, work or home. “It’s all anyone is talking about” is true because it’s all anyone is FOCUSED on and this creates the Money Ball of this phenomenon:

With everyone locked & loaded on the same event, the same message, the same topic, it turns strangers into acquaintances, the invisible neighbor into a visible neighbor, a co-worker that’s a name to a co-worker that’s a person. These events bridge emotional wariness, human indifference and conversational laziness. They inspire interaction and repel apathy.

During these times, when you walk through a grocery store or find yourself standing next to someone while pumping gas you have a pretty good idea of what’s on their mind, what they’re watching on TV or listening to on the radio. No longer are you strangers. No longer are you clueless as to what someone might be thinking about.

Naturally, this leads us right back into the news cycle; watching it, reading about it and listening to everything we can about it because it keeps us tied to people. It connects us.

The event is not using us to get connected. We are using the event to get connected.

So as Hurricane Earl (http://alturl.com/tmkxm) approaches and we all begin to assume the “connect” position within our culture this strange bonding process gets started. What can we learn from a business perspective?

Can businesses create events that connect us? Can we develop the kind of buzz around an event that turns strangers into acquaintances? Can we launch a compelling message that inspires interaction? Can we make the invisible, visible? How do we capture the “togetherness” of a shared experience (of shared emotions?) within our client base and amongst our staff?

How can we make the most of our own natural “disasters”?

“I remember exactly where I was when…” Fill in the blank and transform your business.

The cost to play in the tournament is $35.00 and that includes a game shirt and lunch. Must be 12 years or older to participate in the games.

BRING YOUR OWN GLOVES!!! Bats and balls will be supplied.

Event Schedule:

9AM – Registration

10AM- Team HomeStar Mortgage vs. Team Shamrock Financial

11:30AM – Team EXIT RI-South vs. Team EXIT RI-North

1-2PM – Lunch and Networking

2PM- Championship Game

3:30-4PM- Trophy Ceremony

During this webinar Mia will cover key points like:

• Reverse mortgage basics
• How to get your senior clients in a new home with no income or credit requirements
• Recent and upcoming changes

Register for this valuable event by clicking here: https://www2.gotomeeting.com/register/283168042

by Dean Harrington

Recent articles and news editorials (disguised as reporting, naturally) have begun to indict home ownership as a bad idea. While we await news that Santa Claus is evil and nice weather is harmful to your health let’s examine the argument against buying a home.

Most pundits that rail against buying a home in today’s market do so by pointing out that the value, or relative price, isn’t, well, yesterday’s market.   In other words, they suggest that buying a home at today’s price will not give the market value benefits afforded buyers in earlier market cycles.  OK, perhaps that’s true but it misses the MUCH larger point.

When confronted with a statement about the price or cost of something, we know the appropriate question is always: “Compared to what?”. Well, today’s home buying naysayers always compare buying now with buying before.  What they should be comparing is buying to RENTING; owning your own home vs. living in someone else’s – and paying them to do so. That’s the relative comparison.

If today’s automobiles became a lesser price value than yesteryears automobiles would people resort to walking everywhere? Buy a horse? No, they’d buy a lesser car or even a used one. The whole benefit of owning a car isn’t tossed out when the relative projected return on investment changes.

The argument against buying a home also fails on a number of more empirical levels that never seem to enter the discussion with today’s news media. Like………

1. Rental units are almost always smaller than a house or condo. This makes an apple- to-apples comparison more like grapes-to- apples.  Some value must be attached to additional living space.
2. Uncle Sam has a rooting interest in you owning a home instead of renting one. He lets you write off the interest payments and real estate taxes when you own. When you rent, the owner passes interest costs and real estate taxes to YOU and pockets the benefit themselves!
3. “1st, last, security” vs. “Down payment and closing costs” – almost the same nowadays.
4. Need good credit to rent a nice apartment. Need good credit to buy a home.
5. An average rent is $1,000-$1,200 a month. You can OWN a home for $1,000 or less a month!
6. 30% of all homes in this country have no mortgage. 30% How can owning a home be bad when so many live mortgage-free?
7. If buying a home with a 4% mortgage is not a good idea, can anyone ever advocate buying with, say, a 6%, 7% mortgage?

Look, owning a home is not the right choice for everyone. But the notion that real estate is suddenly an unwise decision for the vast majority of Americans because it proved to be a bad decision for a vast minority of Americans is the kind of “Headline News” that needs a new headline writer.

Dean can be reached at dean.harrington@shamrockfinancial.com .

August 17, 2010

by Dean Harrington

Most of us can relate to the idea that you learn more from tough times than from good times and that you mature more in painful experiences than pleasurable ones.  Anyone looking in the rear view mirror of their life can spot those true moments of growth by recognizing the hardest parts of the drive.

Months and years from now business men and women will look back and stand witness to what they learned or didn’t learn in today’s challenging times. What do you want to see? That you learned and grew or that you crumbled and drifted? That you left the opportunity to develop shipwrecked or that you grew stronger and better?

In today’s economy – with a shrinking demand curve and a flat GDP – we can safely say that we’re absolutely in those “tough times”, those “painful experiences”.  So how do we go about prospering in a poor market? How do you go about getting better when things are so bad?

It’s really just a matter of creative misdirection, a slight of hand; a simple relocation of the scoreboard.

Successful business people take their victories off the court; they take them away from the field. They move the scoreboard away from the stands and put it in the fitness center, the locker room, the track and the breakfast table.

Rather than focusing on the result, it’s time to focus on the effort. So, instead of counting sales, count prospecting dials or appointments. Instead of counting commissions, count investment in education and training, instead of focusing on closings, focus on building referral relationships. Instead of focusing on getting, focus on giving. Purchases or donations?  What do you think? It’s easy: build the muscle and the strength will come.

Think of it this way:

If there are fewer sales in today’s market, are your activities better trained on (1) finding magical ways to lift the demand curve (good luck with that!) or (2) improving every relevant skill needed to outperform your competition for those fewer sales? Are you so clever that you can find a way to raise GDP and lift the demand curve? Or are you smart enough to just win your share of the GDP?

Move the scoreboard. Your focus, attitude and production will blow away those still sitting in the stands wondering where it went.  

Dean can be reached at dean.harrington@shamrockfinancial.com .

August 13, 2010

The Big Man on Campus in mortgage underwriting is the borrowers “ability to repay“. The common thinking in the 2010 housing market is that the high level of defaults and foreclosure’s are the painful result of a decades worth of kicking the BMOC off campus. No doc, No income……no payment!

Few mortgage or real estate professionals would argue that making mortgage loans to unfit borrowers was like giving a driver’s license and a Mercedes to a class of forth graders. The facts, however, may tell a larger story.

A prospective borrowers “ability to repay” (debt-to-income ratio) is a tightly held underwriting criteria enforced strictly and legislated closely by government mortgage regulators and insurers. You make the mark and you get to progress along the underwriting obstacle course; miss the mark and you get removed. Typically, a borrower’s debt-to-income ratio needs to be 31% of the proposed mortgage payment and 43% of all credit obligations.

But the sneaky reality of someones “ability to repay” is that it’s merely a static snapshot in time. Today’s 28% ratio can be next months 56% ratio if the borrower accumulates additional debt, loses their job, takes a pay cut or drops an additional source of income. The silent homeowner obligations that fall outside of the “ability to repay” – taxes, water bills, car repairs, tuition, medical bills etc.- can also rock the “ability to repay” staging. So if “ability to repay” is so chaotic, sounreliable what could investors and regulators adopt as a better predictor of payment performance? Hmmmmm, easy: “The willingness to repay.”

What someone has the ability to do can differ wildly from what someone has the willingness to do. My two young daughters have the ability to be quiet on long drives but their willingness is another matter entirely. They have the ability to keep their rooms clean but not so much the willingness. Likewise, plenty of existing homeowners have the ability to repay, but absent a financial stake in the home – EQUITY – their willingness evaporates. Millions of homes in the US are now underwater. The greatest threat to the payment status of these mortgages is NOT someones ability to pay in as much as it’s their willingness to repay. Month after month we continue to see qualified borrowers leave their home. “Strategic Default” is the new rage in today’s mortgage industry. The key to reversing this trend is for FHA, Fannie, Freddie and additional funding sources to recognize that there is a huge potential to assist a troubled housing market by loosening up the unreliable “ability to repay” criteria in cases where a prospective borrowers “willingness to repay” is enhanced by down payment or equity position.

A buyer willing to put 20% down will out-perform a buyer putting 3% down no matter what the “ability to repay” tells you on the day they are underwritten. Same thing with a refinance candidate who has 20%-50% equity but a slightly higher debt ratio. In fact, I would advocate a return to, GASP…… no-income loans if the borrower is able to put down 25%. Especially in a bottomed-out market.

We need solutions and that means applying common sense. Until then, loan performance will court the “ability to repay” while a healthy market will lust for the “willingness to repay.”

Dean can be reached at dean.harrington@shamrockfinancial.com .

by Dean Harrington

After a digest of industry related updates let’s take a few thoughts from the other side of my brain:

• My assistant thinks I jump around from topic to topic too much. Last week she sat me down and suggested I have ADHD. I told her I think rates are heading lower; I need to get to the gym; and the best count for a hit-in-run is 2-1. She mentioned something about Ritalin but I told her I drink red wine, not white wine.
• Let me get this straight: there’s so much telemarketing going on that we need federal legislation aimed to virtually eliminate it, yet the loss of telemarketing jobs is said to be “minimal” and “of little consequence” to unemployment?
• I love when people preach “don’t believe everything you read on the Internet”; like the Internet is a singular destination. It’s kind of like answering: “a store” when someone asks where you bought a particular shirt. Next time you’re asked how you got somewhere just say “transportation”. The Internet is more than just an Internet. It has newspapers, universities, public service web sites etc…
• Years ago we had to tell a girl in our office that she couldn’t get paid to just stand around and look beautiful. She disagreed and we parted ways. A few months ago I stumbled on the show ‘Deal or No Deal’ and guess what? There she is opening up the cases. Guess we were dead wrong about not getting paid to stand around and look beautiful. Good for her.
• Line of the week comes from my four year old while driving to the store: “Dad, if I don’t ask for a toy can I get one?” I got her one just on her ability to craft such an effective question.
• All these prescription drug commercials make me awfully skeptical. Don’t these advertisers know we can’t actually write our own prescriptions, that we didn’t go to medical school? I swear these companies would try to sell heart and liver transplants if they could fit them in the bottle.
• File this under the “why bother” category: Gave up wine for a week or so to see what impact it would have on my weight and lost ounces! So if I keep this up until Labor Day, I’ll be divorced, my kids will have disowned me and the people I work with will curse my very existence….. but I’ll be down a pound, maybe two. Hand me a corkscrew.
• On this very day several years ago I was holding my young daughter during a graveside military service for an uncle of ours who had passed away. When the 21 gun salute began she leaned over and whispered loudly (always funny when kids do that): “Is this the part where they take Uncle Dick out of the box and shoot him?”
• Owning a home isn’t a right but making the mortgage payment is.

Dean can be reached at dean.harrington@shamrockfinancial.com .

August 4, 2010
Ranchos Palos Verdes, CA

Note: Lenders One is the nations largest mortgage banking cooperative. (http://alturl.com/gasrz)

Final thoughts from Lenders One Conference

Just a few quick thoughts and random remarks as we leave the L1 mortgage banking conference in Southern California.

With all the change and uncertainty in the industry, most attendees were focused on what good old Joe Friday used to say: “Just the facts, mam, just the facts.” The prevailing wisdom was that no matter what the regulatory changes amount to, if known, they could and would be dealt with. Owners and high-level executives here pretty much sang from the same hymnal this week: Knowing the bad news and dealing with it is better than pretending there is no bad news. “Whatever the conditions, we will find a way to succeed.”

Most appear primarily concerned with loan officer compensation changes, buy-back pressures and the future of Fannie and Freddie. Jobs and taxes leave just about everyone shaking their head and insisting there is no real estate rebound without better news on these two fronts.

Keynote speaker, Kyle Maynard, a 24 year old athlete born with congenital amputation of the forearms and lower legs appropriately echoed the theme of the conference in delivering an uplifting speech that preached daily perseverance and always maintaining a can-do attitude no matter what the challenges. Kyle also thoughtfully reminded us not to doubt or judge others and to always look to inspire those within your reach.

This concludes our broadcast. We look forward to returning to our regularly scheduled program with a few lighter entries later this week.

Dean Harrington has been active in the consumer finance industry since 1984 and is the current Chief Executive Officer of Shamrock Financial. Dean can be reached at dean.harrington@shamrockfinancial.com .

August 3, 2010
Ranchos Palos Verdes, CA

Note: Lenders One is the nations largest mortgage banking cooperative. (http://alturl.com/gasrz)

Community Mortgage Lenders of America (http://www.cmlamerica.com/) presented three speakers at the Lenders One mortgage banking conference on Monday. Howard Glaser, Rob Zimmer and Clint Rockwell. Their collective remarks centered around the recently passed Financial Reform bill.

Glaser led off by thanking the enormous efforts of Lenders One members in helping launch and support CML of America and naturally expressed that the work is not done and we must continue to be vigilant in having the voices of independent mortgage bankers heard on Capital Hill. He noted that just one year ago, all of DC was perfectly comfortable with a 10% risk retention requirement for all mortgages written in the United States. Glaser insisted that Congress had no idea that the complete destruction of the mortgage industry was at hand if risk retention was part of any financial reform bill. He reported that this number was worked down to lower thresholds but still part of the bill until the final hours, stressing the importance of being at the table for those last minute negotiations.

Glaser pointed out that passage of the 2,300 page bill was not possible without congress “punting” on actual statutes and deferring to regulators to actually define the bill after it was enacted into law. (I’m guessing this is what Nancy Pelosi D-CA meant we she was quoted as saying: “We’ll get it passed and then figure it out.”). This bill itself therefore becomes a bit of a moving target for the mortgage banking industry as we await clarification of literally 100′s of regulations. One thing for sure, according to Glaser, is that there will now be “an ankle weight on lending”.

Given the enormous scope of regulation, Glaser noted that Mortgage Brokers will be put out of business simply because “they are unregulatable”. The feeling being that with the fed so heavily involved in regulating all aspects of consumer lending, a consolidation of players is a must. He also concluded that such a consolidation brings about companies that the fed will come to see as “Too big too fail.” Thereby giving congress even more control over the industry.

Glaser concluded by suggesting the uncertainty of the bills eventual impact means that private capital investment in the mortgage banking industry will remain absent in the market until investors know exactly what these regulations are, how they will be enforced and what their consequences will be.

More later.

Dean Harrington has been active in the consumer finance industry since 1984 and is the current Chief Executive Officer of Shamrock Financial. Dean can be reached at dean.harrington@shamrockfinancial.com .

August 2, 2010
Ranchos Palos Verdes, CA

Note: Lenders One is the nations largest mortgage banking cooperative. (http://alturl.com/gasrz)

Day one of this bi-annual three day event kicked off this morning with Howard Glaser, lead council for the Community Mortgage Lenders of America (CML of America) and Rob Zimmer of CML of America, followed by Doug Duncan, VP and Chief Economist of Fannie Mae.

We’ll summarize Mr. Duncan’s comments today and CML of America’s comments later on.

The economic forecast for the real estate and mortgage market is best described as “Unusually Uncertain”.Today’s “recovery” is historically about half as strong as most recovery’s but Mr. Duncan places the odds of a double-dip recession at only one in four. Housing represents about 18% of today’s “recovery” and without “incentive policies” this figure may very well have been a negative number. The absence of those incentive policies (read: homebuyer assistance programs) fosters this “unusually uncertain” forecast as does the recently passed financial reform bill, which CML of America covered in detail in their remarks this morning.

Of all the key economic indicators, the one most vital to Duncan in forecasting of any strength in a recovery is Private Sector Payroll. He cautioned that looking at Public Sector payroll was unwise as it is created largely from monies removed from the private sector and therefore runs counterintuitively from the private sector.

Corporate profits and liquidity are strong and this should indicate a willingness to expand hiring – and thereby Private Sector Payroll but “policy uncertainty” has employers reluctant to expand payrolls and has consumers reluctant to increase demand with spending.

Duncan also cautions that any income tax increase in 2011 will further reduce Private Sector Payroll as prospective job seekers, already compromised in their job search by lengthened unemployment benefits, may become further dissuaded from returning to the work force by lower projected take home pay realized with an income tax increase. In addition, Duncan notes that consumer confidence is at it’s lowest point since the mid-1960′s.

Additional points:

• Credit has stopped tightening but has not yet begun to start loosening.
• Vacancy rates are at historic highs with excess supply expected to top 7 million units. This has all but stopped the demand for additional construction, a key leader in any economic recovery. Duncan forecasts a return to normal vacancy rates and a corresponding up-turn in housing starts to begin no sooner than early 2013.
• Home ownership rates reached a high of 69.7% nationally and has now fallen to 67%, a number that needs to go even lower in his estimation.

More later on comments by Mr. Glaser, Rob Zimmer and Clint Rockwell.

Dean Harrington has been active in the consumer finance industry since 1984 and is the current Chief Executive Officer of Shamrock Financial. Dean can be reached at dean.harrington@shamrockfinancial.com .

Wednesday, July 28, 2010

We all learn as kids that every action we take results in SOMETHING. By the time we’re adults we’re actually able to forecast that something most of the time. This kind of defines the difference between childhood and adulthood on many levels.

Unfortunately, bureaucrats and politicians often stay stuck in the childhood understanding of actions while those in private enterprise are forced to operate in adulthood.

History is littered with positively stunning examples of laws and regulations enacted by politicians to seek or predict one action only to see a completely different set of results. Some are reversible with little or no damage. Others lay in wait, hatching a dire, unintended set of ramifications that, by the time they are noticed, have done untold harm.

Back in 1992, Congress passed a new law to heavily tax yachts that sold for more than $100K. The result? People started buying these yachts outside the US, crippling the luxury boat builders market here in my home state of Rhode Island. Congress repealed the tax a year later but the industry has never fully recovered.

More recently, many states have made it illegal to text while operating a motor vehicle. Simple enough, right? Ah, no. Several states took it one step further and ruled it illegal to text even at a red light or parked on the side of the road. Unintended consequence? Since the fine is the same to text while stopped or while driving more drivers will, quite naturally, elect not pull over or wait for a red light before texting because there is no incentive in the way of avoiding a fine.

The Law of Unintended Consequences has been alive and well in the mortgage and real estate industry for years and you don’t need me to itemize the examples here. However, there is a startling regulation, born and raised in Congress, that imperils future mortgage applicants and I find it remarkable how few people know about it.

In July of 2008, the SAFE Act (Secure and Fair Enforcement for Mortgage Licensing Act of 2008) established the National Mortgage Licensing System (NMLS) in order to license and regulate individual mortgage originators operating in the housing industry. The criteria used for licensing are educational, financial and criminal. In other words, you have to pass tests, pay your bills on time and be free of a criminal record. Most consumers would probably agree that these standards represent a move in the right direction; so the bureaucrats and politicians got it right? Ah, no. Not even close.

Amazingly, the new NMLS mandate exempted any and all mortgage originators working for a federal savings bank (huge contributors to political campaigns) or credit union. Can you imagine if this were the case with, say, doctors? Some needed a medical license, some didn’t – depends on if they work at a hospital or a private clinic. Now, I’m not trying to equate mortgage origination with surgery (well, wait a minute, seen FHA’s new guidelines lately?) but all financial planners nationally have to be licensed no matter who they work for. Why not mortgage originators?

So where’s the Law of Unintended Consequences you ask? Some have likely already figured it out. It’s not all that well hidden.

If you’re a mortgage originator who couldn’t pass the test, or who has gone bankrupt, or who has a criminal record, guess where you end up originating mortgages? That’s right. The Law of Unintended Consequences brought to you, ironically, by the SAFE ACT.

Dean Harrington has been active in the consumer finance industry since 1984 and is the current Chief Executive Officer of Shamrock Financial. Dean can be reached at dean.harrington@shamrockfinancial.com .

Back then, we all learned that the basic tenants of lending decisions were based on The 3 C’s: Character, Capacity and Collateral.

A refresher course:

Character: Quite simply, did the applicant pay their bills on time. We use to grade them like school A, B, C, D. If you were a C or D you were an easily denied; if you were an A or B we considered the next C.

Capacity: Did the applicant make enough money to afford the new payment, especially when considering the other things he or she had to pay each month? If so, we looked at the third and most important C.

Collateral: Did the applicant have enough equity in their property (refinance) or would they be creating enough equity in the way of a down payment (purchase) to make their collateral sufficient enough to absorb risk for the lender.

Now, the industry cleverly hedged bets against one C if another C went lacking a bit. We just made sure to price the note a little higher and collect it (“Hello Mr/Mrs Borrower, your payment will be late as of next week”) a little stronger. Delinquency rates were always modestly offset by higher yields and by more “personalized” collection efforts, along with adjustments made in the requirements of the remaining two C’s. This model served everyone quite well for a long time.

The carpenter, waitress, hair-dresser or any other member of the “underground” economy could qualify for a loan without documented “Capacity” by being required to have BETTER Character (higher credit score) and better Collateral (more equity/higher down payment). By the same token, the B-credit guy who might otherwise have been rejected was also approved if their equity position could ease the risk. More money down cured a lot of sins.

Unfortunately, this all ended with the free-for-all of rising market values that fostered the no-money down frenzy. Collateral was essentially removed from the Three C’s because it became like the weather in New England: If you don’t like it, just wait for tomorrow, it’ll change. And since that change was UPWARDS, who cared about Collateral, and for that matter, the other two C’s didn’t matter much either. The whole notion of “skin in the game” was lost at sea.

We then “bundled” all these loans into securities and lost that “personalized” collection touch. Prescription for disaster: Filled.

Now back to the original question posed at my luncheon; “haven’t we learned that you can’t lend with only 3% down? Um, yes and no, I guess”… You see, the trouble today is that we have thrown the baby out with the bathwater. We have abandoned the basic lessons the Three C’s taught us long ago. So yes, you can allow an applicant to put just 3% but the other two C’s must be very, very strong. And just as importantly, you can lend to the person who doesn’t disclose all their income (code for not paying all their taxes, BTW). Just make sure they put 20% down!

The guy who misses payments now and again? Sure, lend to him too, just make sure his Capacity is excellent and his down payment/equity is high too. Oh, and don’t give them the lowest of all rates like a true Three C’s applicant. Bump it a full point. i.e.: 6% instead of 5%.

We can do this. We can return to a traditional market. We just can’t do it without some understanding of what a traditional market loved most: It’s 3 C’s.

During this webinar Rod will cover key points like:  

• Single Family Housing Guaranteed Loan Program **Changes**
• Benefits
• Lender Approval
• Applicant & Property Eligibility
• The Process
• Resources available

Register for this valuable event by clicking here:

https://www2.gotomeeting.com/register/469981306