Monthly Archives: October 2013

What Do You Want on the Menu?

Many years ago the menu items available at most restaurants did not have much variety. Let’s consider raw oysters for example. Oysters were not everyone’s cup of tea. But as popularity grew, more and more restaurants began serving raw oysters. And as demand for oysters grew, more oysters needed to be harvested from the sea, and shipped great distances.

Everyone knows we need to be careful about the quality and freshness of something you’re going to eat that hasn’t been cooked. (Something about the months that have an “R” in them.) But we also tend to rely on the restaurant and/or supplier to protect us from bad oysters. And what about the waiter who notices a batch of mollusks that don’t particularly look or smell good? Should he tell his customer not to order them? The other waiters are serving them. The restaurant kept them on the menu. Would he lose his job if he discouraged folks from ordering this popular menu item?

And what about people who bought oysters and other “fresh seafood” from a guy in a truck parked beside the road, or who drove up unsolicited to the house selling “discount oysters”?

Over time, it was discovered that certain people were allergic to oysters. Others, based upon their DNA were susceptible to illness that didn’t show up for several months, or years. Not all oysters caused issues. But many did. And ultimately an oyster illness pandemic broke out. Somebody should do something about this! And so the FDA steps in, with the help of Congress, and regulates the sale of oysters. Absolutely no more oysters are to be sold to the American people.

Whew! Thank goodness the Federal Government stepped in and protected us from this menacing menu item, right?  But what about the oysters that were harvested, shipped, and prepared correctly? And the folks who really liked oysters? I guess the common theory is that it’s better to protect the masses by eliminating these darn things altogether than figure out how to make sure only good ones are served.

Well, I am a mortgage banker. So this must have a point somewhere. Who is responsible for oysters causing a pandemic and no longer being available? What if oysters were “non conforming specialty loan products”. And the waiter was a loan officer. And the restaurant was your local bank, or mortgage company. Then replace the supplier/harvester with the large lenders, Fannie Mae/Freddie Mac, and bond houses who made this “menu item” available. What if the guy pushing oysters unsolicited up and down the street was the unknown mortgage company sending postcards to you and all your neighbors?

Who is responsible? The many people who bought oysters from someone they didn’t know? Shouldn’t they have known better? The waiter who served something on the menu? The restaurant who was making a menu item available that was highly popular? The supplier/harvester who was keeping up with demand? The answer is yes – and no (and very hard to pinpoint). And, no doubt, there are still those professionals who know how to do things right, and have everyone’s best interest and safety at heart.

The next round of tightening standards for mortgage lending is coming after the first of the year. Government rules will cause some borrowers to be denied loans who would today be approved. And it is very possible that many lenders will remove some products from their menu. (More on this later.)

In the mean time, let’s keep an eye on what we’re being protected from. What’s next? Mahi Mahi? (30 yr fixed rate loans?)  Swordfish? (The ability to purchase a home with less than 20% down?) How far does the pendulum need to swing before we all feel safe?CameraAwesomePhoto

The Shutdown Effect

By now, most everyone should be aware that the stalled budget talks in Washington have created a Government shutdown of many “non-essential” services.  Fannie Mae and Freddie Mac are not affected by the shutdown. And FHA is operational, but with a significantly reduced staff, which could lead to some delays. The most impactful of shuttered government departments is the IRS. The IRS has been closed since Tuesday when this mess began. Since most all lenders require income verification documents from the IRS, this is causing major problems for homebuyers and those trying to refinance. The good news however, is that many lenders (and most that we at Pinnacle deal with) have temporarily waived the requirement for this information from the IRS. So, for now, it’s business as usual.

Now for the BAD news:

The government shutdown will soon take a back seat to the looming October 17th deadline for the debt ceiling. In a US Treasury statement yesterday, “In the event that a debt limit impasse were to lead to a default, it could have catastrophic effect on not just financial markets but also on job creation, consumer spending and economic growth – with many private sector analysts believing that is could lead to events of the magnitude of late 2008 or worse, and the result then was a recession more severe than any seen since the Great Depression”.

A related statement yesterday from Nashville’s Congressman Jim Cooper described “the government shutdown as playing with dynamite, but risking default is nitroglycerin”.

So what is the GOOD news?

Those of us in the mortgage industry will often say that “bad news is good news”. And this is no exception. With all of the turmoil in Washington, and no encouraging signs of economic rebound any time soon, mortgage rates have fallen to the lowest levels we’ve seen in months. The Fed tapering off of its current mortgage bond purchases will most likely now be put off even farther into the future.

So, now is definitely the time to take advantage of interest rates before they again resume their march higher.