Although a first time writer for the Lead Critic site, I have been a relatively frequent contributor for quite some time. Just to give you a little background, I come from the lead-gen side of the business. I say that for no reason other than disclosure, but my intention with this contribution is to draw some attention to something happening in our industry that would have an affect regardless of your role in 
the industry.
I wish I had a more profound source of inspiration for one of my life’s more valued tenants, but the truth of the matter is, I dig movies. Al Pachino’s ‘83 classic Scarface, I maintain, is the source of significant wisdom. But before we dive into that, I want to talk about something ripped right from today’s headlines
You may have read something recently about an event being referred to as the “Sub-prime Crisis.” In all seriousness it is nothing to joke about as millions of people are losing their homes and the economy is facing recession as a result of this event. But in classic political fashion, government is trying to swoop in like a cape-wearing super-hero to save the day.
Barney Frank, t
he long time congressman from Massachusetts wants to enact sweeping legislation that will affect how mortgages are originated. Like most politicians, I genuinely believe that he is well intentioned. But at the risk of sounding too political, I must also say that, like most Liberals, Frank’s heart is simply bigger than his brain.
In short, Frank wants to “temporarily increase the portfolio caps applicable to Freddie Mac and Fannie Mae, to provide necessary financing to curb foreclosures by facilitating the refinancing of at-risk sub-prime borrowers into safe, affordable loans…”
I don’t think anyone would maintain that they don’t want to help people from getting into a situation where they might lose their home. But the heart-is-bigger-than-the-brain part here is that there are no means to address how those funds will be backed in the event of additional foreclosures. So, we have a situation where millions of consumers made the poor decision, and many convinced to do so by slick mortgage brokers, of buying more home than they could afford via adjustable interest rate programs. So, Congressman Frank’s answer is to allow millions more to borrow more via our tax dollars only to be just as likely to foreclose as home prices will undoubtedly continue to fall in the face of re-setting loan terms.
At best, Frank’s bill, for which he is hoping to bring to a vote before the end of the year, is vague and full of holes. For example, it prohibits, “mortgage originators from steering, counseling, or directing a consumer into any residential mortgage loan that is not in the consumer’s interest.” That sure sounds great. But what the hell does it mean? Maybe, any loan where the consumer’s interest rate or monthly payment may increase? Well, what about a situation where the guy gets laid off and falls behind on his mortgage payments. He gets back on his feet but now has to refinance and wrap the past due amounts into the new loan by using equity so that he can become current on his mortgage. His interest rate and monthly payment are very well likely to increase in this situation, but isn’t the consumer better off? Yes he is, but if left to congress it could be viewed that he is moving into a loan that is “against his best interest,” and a broker would not be able to help him. So instead, the consumer loses his house.
Now back to my Scarface analogy. If you are not familiar with the movie, Al Pacino is a Cuban refugee that comes to America and aspires to become the pre-eminent cocaine drug lord, (I don’t think it was a Disney movie). Early in his career, Pacino’s character, Tony Montana, is mentored by a self-tanning-slathered Robert Loggia. Loggia’s character, Frank Lopez, tries to impart some wisdom on Tony early in his fledgling drug lord career.
Frank Lopez: You know what a chazzer is?
Tony Montana: No, Frank, you tell me. What is a chazzer?
Frank Lopez: It’s a Yiddish word for “pig.” See, the guy, he wants more than what he needs. He don’t fly straight no more.
The point is, the “chazzers,” in the industry tend to take themselves out of the game. They get too greedy and don’t fly straight. In this instance, they practice unsavory loan practices like pushing neg-ams, or fudging incomes on no-doc loans so as to qualify someone who shouldn’t have been qualified in the first place. The list is very long of those companies that lent money in this fashion during the refi boom. And pretty much every one of those companies are now trying to sell their assets for pennies on the dollar, whatever assets they can still access behind their doors chained closed.
What Senator Frank needs to realize is that, the government simply isn’t needed in this situation. It is tragic that the mortgage industry has been affected the way that it has, but all of the “chazzers” have moved onto another industry to try to taint. The net result, again tragic, is still an industry that is better off than it was before; cleansed, if you will. I think we have all seen the industry re-focus on things such as: consumer education, mortgages that fit consumer’s needs, and marketing sources that genuinely drive a quantifiable ROI. The industry is better having gone through what we just did. The last thing that we need is some meaningless and toothless legislation to further cloud the issue. Chazzers will always find a way to flourish. But it is fleeting and no amount of well-intentioned legislation will change that. Let the professionals – the mortgage brokers — do their jobs and please save my tax-dollars for all of the other meaningful things that are accomplished with it… whatever that may be.
