Fannie Strikes Again: New Appraisal Regs Increase Costs and Wait Times

BUREAUCRATS STRIKE AGAIN - NEW APPRAISAL REGS INCREASE COSTS AND WAIT TIMES

Once again, Fannie and Freddie have come up with a massive bureaucracy which legitimacy is suspect and has no clear path to usefulness. UAD and UCDP compliance increases costs of appraisals and how long it takes to obtain one.

Definition: This new Uniform Appraisal Dataset (UAD) specifies the new way appraisals must be formatted or prepared for review. The GSEs are also developing a Uniform Collateral Data Portal (UCDP), where the appraisers can make the submission. The UCDP went into voluntary effect June 27 and the use of it will be a requirement starting March 19, 2012.

See the glossary (at the end of this article) for meanings of the various acronyms.

The GSEs will end up with a massive database - every appraisal on every loan it guarantees or holds. It already has an appraisal for every loan file. Only now, it will be formatted according to specified fields which will allegedly give some analysts the ability to compile and format the data.

There is no doubt that increased data can be helpful in any economic endeavor. The entire credit world rests upon it. But, it also relies upon (actually it lives and dies by) the proper analysis of data and not just the raw data itself.

And this is where the rub comes in. While the GSEs (Fannie Mae, Freddie Mac) and HUD will be the repositories of all this mass of information, we have no idea how they might use it. Well, that’s not totally accurate. Here’s what we do know.

The GSE’s and HUD will use the data to “flag” a concern about an appraisal that is entered into the system. Let’s say that the data tracking reveals that values have been declining or have been flat in a particular zip code or neighborhood. The lender can still package and sell the loan to Fannie or Freddie or place it for coverage with HUD (FHA loans). But, if the loan ever defaults or shows signs of stress, the investors/insurers (GSE’s/HUD) are off the hook. They immediately tell the lender “we told you so.”

Since the GSE’s and HUD are national in scope, what’s to prevent them from interpreting data nationally? In other words, while values may be rising in one area of the country and falling in another area, the GSE’s could use the data to hedge their credit risk by flagging as many appraisals as possible – any that have the slightest oddity or nuance. In this manner, they would be tightening their reviews and acceptance standards of appraisals nationally, not adjusting them as they have always been adjusted, regionally or really locally. Remember, all real estate is Location, Location, Location! Or “Local, Local, Local!”

So now we have it. The net result is CYA. Or really, “pass-the-buck.” The buck passing is from Fannie/ Freddie/HUD back to the lenders who deliver the loans for sale.

Jon Prior has observed,

1“Lenders know that with access to this kind of data, the GSEs will have an easier time enforcing repurchase and warranty claims.”

Now, one might argue that lenders must indeed take greater responsibility for the quality of loans that they package and re-sell. And I can go along with that so long as it’s a rational requirement under contract law and reasonable purchase agreements. Lenders should not deliver loans to the GSEs that it knows to be bad. (But, one must ask “What is a bad loan?” See http://divorce-mortgage.blogspot.com/2011/08/is-there-such-thing-as-bad-loan.html).

The fact is, there are already severe penalties to lenders who fraudulently deliver faulty loans. It’s called . . . well, I already gave it away, “fraud.” There is simply no incentive (any more than for it to commit any number of criminal acts) for a lender to do this.

But, this is not what is happening. The GSE’s are increasingly becoming less of an investor and more of a temporary holding place for mortgages so long as they do not show loss. That’s NOT an investor. If it is, I think I’d like to be an investor under those terms. So long as my “investments” show a profit, I keep them. If they show a loss, I make whoever sold them to me buy them back. You can call this a lot of things but it’s not “investing.”

Here’s what UAD and UCDP will actually feature:

1. Increased Costs
Besides the extra time that an appraiser must devote to these new forms (some estimate about 2 hours per appraisal) and the sheer expense of having to do this (some say that in a free market, they would have to raise their price by about 10%), there are numerous other costs not visible to the casual inquirer.

For one, nearly all appraisals are generated through proprietary software and produce a copy in .pdf format. The cost to “extract” the necessary information from a .pdf formatted appraisal will run anywhere from a minimum of $3.50 per try to $12 per page (average number of pages = 17). But, not so fast. This still does not account for the inevitable errors in extraction which must be detected by painstaking review of the text of the appraisal. Now, we have more time and effort compounding upon initial outlays.

Of course, the increased “cost of doing business” manifests with the regularity of a fiber-rich diet these days. There is the time needed in the learning curve. Not only must appraisers learn new input protocols, mortgage professionals will either retreat into a shrug-of-the-shoulders form of denial or will engage an even steeper learning curve in order to simply learn how to read and interpret an appraisal. Mind you, this new education enhances the appraiser’s or mortgage professional’s skills one whit. It merely teaches them how to navigate through a bureaucratic morass.

I predict that by 2013 we will see an average, standard appraisal cost above $500 (from the previous average of about $350 in 2008).

2. Extra Time to Complete Appraisals
Here’s a peek-a-boo into my world. I received this notice from our bank’s appraisal coordinator on how long appraisal orders will now take.

“We have received notifications from RELS (Wells Fargo), VEROS (GMAC), and Streetlinks that turn times are a minimum of 7 days for a "typical" conforming loan and 10 days on jumbos and properties with special characteristics or locations, and our appraisers are right in line with these turn times as well. We expect this to continue and possibly increase a small bit over the next few weeks maybe month.”

Whereas we have been used to 3-5 day turn-times, we have immediately doubled that turn-time to from 7-10 days. This means that the increased time table has nothing to do with increased volume. It has nothing to do with a decreased work force. It is a response to one thing only – the new UAD compliance requirements.

These turn times will adjust and vary, even from lender to lender. But, there is no denying that the compliance requirements have increased the relative cost and turn-times for obtaining appraisals.

Enter the law of unintended consequences? It will also take underwriters longer to underwrite the loan file. Among other new duties, the underwriter will take extra time to review the appraisal with all its new acronyms, confusing terms and fields; then, send it to the investor for their data-base review, receive feedback (probably negative), run it by risk-management (which is a new internal review/approval process that each lender will need to employ to give a “thumbs up” or a “thumbs down” on whether or not they proceed with the loan in spite of negative feedback from the UCDP). Perhaps #3 should be simply “See #1 – More Costs.” There is no possible way for these extra time-thieves to do anything other than increase the cost of doing business.

3. Harder to comprehend
The new appraisal format will be harder for the layman (which includes nearly all borrowers and most mortgage professionals) to understand; mainly, because the appraiser will be allowed less opportunity for simple, written input or observation and the “fields” will be filled with incomprehensible acronyms. [This was allegedly done so that the actual form would not have to be expanded but more data could fit into the existing number of pages.] We won’t know how the heck to read the dang thing without a glossary and a RosettaStone course in Appraisal-ease, US Government Dialect to be precise.

In my view, UAD and UCDP are installments #N and #N+1 in a series of attempts to destroy the housing market.

Rather than tell you what I think you should do, let me tell you what The Mortgage Institute is doing to mitigate loss to consumers.

First of all, we are paying extra attention to the timing of an appraisal order. For example, in a divorce wherein one party is financing a buyout (and the property’s value is of critical importance), the appraisal must be ordered soon enough but not too soon. We are stepping up our request for information about the expected finalization of the divorce. I realize that this is a “roll of the eyes” moment for attorneys when a 3rd party (or even the client) wants to know when their divorce will finally be final. But, within reason, we will do our best to keep our fingers on the pulse of this timing so that we might perform on our approval and assessment letters.

Secondly, we are coaching our applicants to converse with the appraiser at the time of inspection. The more information that a home owner can provide the appraiser, especially when justifying a stronger value, the better (provided it is positive information).

Thirdly, we are managing expectations. This applies to our customers who might expect a certain value to be reported on their appraisal to our first suggested “Equity Determination Worksheet” which includes potential sales scenarios wherein reductions to “net funds to seller” are seriously possible. This also has the overall effect of protecting, as much as possible, the home owner from future loss in equity because they overpaid their spouse for spouse’s interest in the property.

The best advice I have for you is to refer your clients to me as early as possible. It takes longer to develop the legitimate report of value opinion. Yet, this information still needs to be delivered to you within a sliver of time during the settlement negotiations. More lead time will benefit everyone.

1 http://www.housingwire.com/2011/09/01/new-gse-appraisal-database-to-tighten-scrutiny-on-mortgage-lenders?utm_source=feedburner&utm_medium=twitter&utm_campaign=Feed%3A+housingwire%2FuOVI+%28HousingWire%29; accessed 9/6/11

Freddie Mac’s propaganda on it: http://www.freddiemac.com/sell/secmktg/docs/uniform_appraisal_dataset_879.pdf


Glossary:
UAD - Uniform Appraisal Dataset
UCDP - Uniform Collateral Data Portal
GSE – Government Sponsored Entity (like Fannie Mae and Freddie Mac that began as a government agency, became privatized yet remain effectively backed by government or more accurately, tax payers). As such, they are sensitive to government-mandates, congressional law and agency regulations. They also work more closely with government to develop standards like
HVCC – Home Value Code of Conduct (beginning May 1, 2009) which redefined how appraisals must be ordered in a finance transaction, effectively increasing the cost of appraisals, reducing interaction between the originator and appraiser and eliminating certain communications altogether. All of this “consumer protection,” it must be noted, has not resulted in any reduction of appraisal fraud or any measurable benefit to the home buyer.
MAD – One’s condition upon attempting to digest yet one more series of regulations on the mortgage industry.

The Effect of 1Dodd-Frank on Divorcing Citizens - Part 1: QRM

Michelle Malkin's quick 2analysis of Dodd-Frank is spot on:
"Dodd-Frank, the 2,300-page financial "reform" monstrosity spearheaded by Capitol Hill corruptocrats, turned 1 this week. It made too-big banks bigger. It made too-risky incentives riskier. It made a lousy economy lousier. Billed as a "consumer protection" act, Dodd-Frank has succeeded phenomenally - in protecting and stimulating the business-stifling business of government."

Michelle Malkin has said 'Happy 1st Birthday' to Dodd-Frank by observing that only 12% of its rules have been issued. Even though the math of it leads us to expect that by the end of 2018 we might expect the bureaucracy to have completed its issuance of rules, in fact there is little hope that this monstrous bill will ever be fully implemented. If God is gracious to us, it will not.

The effect of Dodd-Frank on divorcing clients is the same as it is on all homeowners and borrowers: disastrous. But, it's difficult to explain all of it especially when no one person knows or understand the entire bill.

Today though, I focus on the harmful effects of QRM required by (Dodd-Frank).

QRM or Qualified Residential Mortgage is one of ten thousand euphemistic monikers that allow Barney Frank and Chris Dodd to pretend that they are protecting consumers from bad lending practices . . . the same lending practices they encouraged and insisted were just fine as late as 2006.

It's a bit complicated and the comment period is just closing on the matter but the basic reasoning is that if borrowers have more "skin in the game" default is lessened by that same degree of "skin." Also, the rule doesn't put direct limits on mortgage originating and lending. Rather it requires banks to retain a certain risk in its portfolio of loans if they do not meet the standards. It's a back-door way of setting loan standards.

The effect of the QRM rule could be that maximum LTV (Loan To Value) ratios in most loans will be limited to 80% for purchases and 75% for refinances. At least, that's what the current bureaucratic banter is about.

You're right - I'm reading your mind right now - that would kill the housing market. The "skin-in-the-game" argument only sounds plausible. It really doesn't hold water. No research has shown that greater down payments decrease the likelihood of default. Loss of a job is still the #1 trigger for foreclosure. Second to that seems to be divorce, of all things! It's amazing and a school child could figure it out - when people don't get paid, they usually cannot make their house payments. The amount of money they put down on the house doesn't factor into this inability to make the mortgage payments.

And while I'm on it, most people forget that Fannie Mae and Freddie Mac worked very well for 73 and 34 years respectively most of the time on 95% LTV financing maximums. So, there's no science and only cherry-picked evidence to support any notion that increasing down payments to 20% would cure any of the ills in the housing market.

But economic realities rarely inform statist politicians who are hell-bent on using government to exact their utopian schemes upon capital-producing, tax-paying citizens even if their scheme seems to swing away from their previous designs (of no or lower down payments and loosened credit standards).

Heretofore, we have been able to obtain mortgage refinancing loans for as high as 95 - 96.5% LTV ratios (credit and income qualifying assumed). Provided the Owelty Agreement and Lien were constructed properly so as to avoid the severe limitations of Texas Equity financing (you should have attended my CLE-Accredited seminar on "The Proper Use of the Owelty Agreement and Lien"), divorcing borrowers were able to effectively roll in debt (including legal fees) that enabled them to make housing costs supremely more affordable for their post-divorce situation. In many (if not most) cases, we have been able to structure a dramatic decrease in overall monthly expenditures for the grantee-borrower in these transactions.

I needn't tell you how important this is to many clients who are facing a financial tenuous position after their divorce is finalized. And I might add, it's one of the reasons I'm very happy and satisfied with what I am doing - helping folks at the intersection of divorce and mortgage finance.

This part of Dodd-Frank will virtually bring to an end the ability to finance a buyout in nearly all cases. Unless a couple's house is leveraged at 50% or less of its value, there wouldn't be enough "equity" value to access a 50/50 buyout. A $100,000 house with a $50,000 mortgage could finance an additional $25,000 for a total of $75,000 (or 75% LTV ratio). Of course, this doesn't factor closing costs and room for include the "rolling in" of debts in the buyout. But mostly, it's a rare property that owes only ½ of its total market value to the bank.

Other than calling your congressman and senator and telling them to repeal Dodd-Frank, there's not a lot one can do other than cross one's fingers - not a good strategy, is it. 3 There are bills in both houses of Congress that seek to repeal Dodd-Frank. My fear is that a Republican House will piece-meal its repeal by trying to fix it; and the Democrat Senate will tinker around a bit with it and perhaps make it more incomprehensible and harmful.

If you have questions about any of this, please email me or call me at 972-724-2881.
Noel Cookman

NOTES
1 Text of Dodd-Frank can be accessed at: http://docs.house.gov/rules/finserv/111_hr4173_finsrvcr.pdf
2 Michelle Malkin's article can be accessed at: http://www.creators.com/opinion/michelle-malkin/the-beltway-industry-full-time-employment-act.html
3 H.R. 87 in the house and S. 746, S. 712 and an amendment (S.AMDT.394) to the Economic Development Revitalization Act of 2011 on June 7 to repeal the law.

The Effect of Dodd-Frank on Divorcing Citizens - Part 2: LO Compensation

Dodd-Frank is the most sweeping legislation affecting the financial industry to come out of congress since Glass-Steagall (The Banking Act of 1933). Not even its repeal with Gramm-Leach-Bliley Act) in 1999 comes close.

As Charlie Gasparino remarked in horror on his program a couple of months ago,
“this [new bill] will change the entire financial landscape of America.”

SYNOPSIS of this article…

The Loan Officer Compensation Rule is a product of Dodd-Frank (Wall Street Financial Reform Act) and is administered by the Federal Reserve. It purports to protect consumers by fixing loan originator’s compensation.

But, in doing so, it actually tends to

1) drive prices up by creating upward pressure on fees and relative interest rates,
2) marginalize (and therefore eliminate) even more mortgage professionals from the market by limiting their compensation,
3) introduce a disturbing and regulatory burden throughout the lending industry.

It will be more difficult for the average consumer to find a mortgage professional who has been around and is stable. There will be fewer industry workers competing for borrowers’ loans.

All in all, it’s just one more reason why you need to rely on The Mortgage Institute to solve issues at the intersection of divorce and mortgage finance.


Full Article…

If you think that you will not be affected, think again. And, think about the effect of Dodd-Frank on you and divorcing clients. Consumers (homeowners and borrowers) are harmed by this legislation and no measurable benefit accrues to the market, to home-owners, to borrowers, to industry workers, really to anyone. There does seem to be a windfall to the big banks which are not harmed by rules like the one I discuss today, the Loan Officer Compensation Rule. In fact, the banks’ coffers are enriched while the front line loan originators are made to pay.
You just should know that these regulations and laws creep up on everyone, often without warning and in areas that are out of sight. Being aware of them will make you a better lawyer, a more informed professional and a wiser negotiator.

The Loan Officer Compensation Rule is required by Dodd-Frank and enforced by the Federal Reserve. It specifies and limits how loan originators are paid.

I will not defend originators, of which I am one, other than to say that like all professionals they are capable of performing outstanding services or committing crimes or anything in between. Very few commit crimes and when they do and are caught, they pay severe penalties. One’s disdain for originators (or opinion of any sort) should be tempered with knowledge and not the misinformation that is so prevalent in the press today.

Hopefully, your general impression of loan originators will be positive due to my influence upon you. I perform a value-added service by bringing solutions to divorce negotiations. But, I do it by using mortgage financing and that is how I am paid. And that brings me to the real effect upon financing for your divorcing clients. I am less able, not more, to devote energies and resources to this value-added service (the Divorce-Mortgage Specialty) because more and more of my time, monies and energies are devoted to regulatory compliance, none of which has brought any value to the consumer, your client. Moreover, such regulations that I am bound to enact are actually increasing costs to your borrowing clients.

But, I’m getting ahead of myself.

The Loan Officer Compensation Rule essentially requires that originators be paid a level amount (as a percentage against the loan amount) on all loans. In other words, if my compensation is set at 1%, I must be paid $3,000 for a $300,000 loan and only $600 for a $60,000 loan. No matter that the actual work required for the $60,000 may be (and often is) twice or more times the work required for the $300,000 loan. No matter that my $60,000 customer would gladly pay me 5 points (between fees and Yield Spread Premium via the interest rate) to originate and close her loan. No matter that no originator can stay in business making $600 in compensation on loans (which is a BEFORE-expenses compensation by the way). No matter that I would happily make .5% for the $400,000 loan which is often the case so that I might remain competitive in the market. The amount of compensation must be a pre-set percentage of future loan amounts – even though I have no idea exactly what those loan amounts might be.

One can immediately see all sorts of problems with this pricing structure. What about the originator who does mostly small loan amounts? She would set her pricing so that she would receive compensation at a higher percentage, say 4%. But, when she gets a call to originate a $400,000 loan, while she would be happy to make $16,000 (for closing this loan - $400,000 X 4%) such a quote would easily be outbid by another originator who “specialized” in larger loan amounts and had priced his large loans so as to make only, let’s say, 1%.

Then, the reverse happens. The large-loan specialist has set his percentage at 1% so that he can be competitive with these large loans. But, he gets a call to close a $75,000 loan. Click. He cannot do it. It’s not worth his time. So, the consumer loses. The originators lose. And loans find an originator who has PRE-priced her loans and is therefore unable to compete for any and every customer.

A short course in Economics 101 is in order here: Competition is what drives prices down and consumers get better deals. Regulations drive costs (and therefore prices) up and consumers get less choice and worse deals than they otherwise would get.

The LO Compensation Rule completely subverts normal market pricing pressures. In fact, it has introduced an upward pressure on prices (rates and fees). Here’s how. There is an accommodation for a re-set in the compensation structure for each originator. The bank can reevaluate the originator’s performance (or amount of fees they have earned for the bank) and adjust that originator’s compensation to reflect their production. But, the Federal Reserve has refused to specify how often this could be done except to say that it cannot be done frequently but only infrequently. How’s that for a regulator’s bait?

I’ll let you guess what the attorneys are telling their client banks about how to determine “infrequency.” Well, no I won’t let you guess. The lawyers are telling the banks to only reevaluate and make adjustments no less frequently than every year. Loan originators would be happy with every month as that would effectively allow them to be paid as they always have – monthly and in precise proportion to what they have earned, the fees they have generated. The truth is, while banks and lenders have taken a stab at what is “infrequent” it is still too soon to see how all of it will shake out. The rule began in April and there have really been only 2 or 3 pay cycles since the rule took effect (depending on what date loans were originated). So banks don’t know how often they will be adjusting pay structures and they certainly do not know what the regulators will say when they come in and tell banks “sorry, but that is not infrequent enough.”

They really do deserve a 10% approval rating! Dodd, Frank and the congress that voted for it, that is; not the banks, lawyers and originators.

Back to how this creates upward pressure on prices. If you are a loan originator and understand that your new compensation is based no longer on the fees you can earn on each loan but upon the fees (as a percentage of loan amounts) on the loans you have already closed in the past, how would you “price” your loans now and going forward? Well, for one thing, if you are doing an $800,000 loan, you certainly do not want to price it so as to make only .250% (which would yield you $2,000) because that means that when you are closing an $80,000 loan in the future you would only make $200. It doesn’t work in reverse (pricing low now in anticipation of future large loan amounts) because no one knows the future and, as any wise business advisor would tell you, one can certainly not make projections based on rosy and overly optimistic predictions. Also, to price a small loan amount lower now in anticipation of larger loan amounts in the future doesn’t put enough money in the originator’s pocket right now. She might not survive to see that fictitious larger loan amount in the future.

Another way that the rule creates upward pressure on prices is because, since banks must pay their originator’s a fixed percentage and because they cannot OVER-pay them, they therefore must UNDER-pay them. So, if an originator wishes to stay even compared to what she has been making on her loans, she will need to charge a bit more to the customer (through fees or through the rate) to do so.

Still another factor that creates upward pressure on prices is the age old factor of regulatory burdens. Every time new regulations are introduced in virtually any industry, the consumer pays more for the product being regulated. Why? It’s simple. It increases the cost of doing business which is then passed on to the consumer. In our bank (a relatively small slice of the financial industry), our VP over mortgage lending spent countless hours and considerable monies trying to understand the new regulation. Then, other managers had to spend additional and countless hours designing complicated formulas for pay – for each loan officer in their company. And this now must happen on an “infrequent” basis. Imagine 100 loan officers whose pay structure must be constantly reevaluated and for whom the bank must now prepare customizable pay packages.

This is the proverbial tip of the iceberg. The regulatory requirements on banks and mortgage professionals are now getting to be gargantuan.

If you are in a heavily regulated industry, you know exactly what I mean. If not, you need a good example.

Let’s say you work at a lawyer’s office as a paralegal. The state imposes extra paper work that you must file with the state every week and it takes an average of 8 hours to do this paper work. You can hire someone else to do this work for you; all of it except 2 hours’ worth which the government says that you alone must perform. You cannot do it on “company time” and you cannot be paid extra for it. You can come in on Saturdays – EVERY Saturday whether you are on vacation or not – and simply increase your work load by 20% while keeping your pay exactly the same. Or you can take money out of your pocket and pay someone else to do all but ¼ of it which you must continue to do. Or, you hear another lawyer is hiring paralegals and she has agreed to let you spend Fridays doing your regulatory work (or will hire an assistant to do it for you – even better) except for the 2 hours’ work you must do for yourself and the new attorney will allow you to do this on “company time.”

All things being equal, this new attorney must raise her fees (the part that reflects her cost of doing business) by more than 20%. (It never just costs the boss the mere salary of her new employee. There are always additional taxes and regulatory costs involved with new hires not to mention the simple internal costs of extra furniture, space to be rented, supplies to be purchased, insurance to be paid, ad infinitum).

And don’t forget, the paralegal’s boss just lost at least 5% productivity from the paralegal. He or she must commit 2 hours of company time (5% of a 40 hour work week). At some point, people are stretched too thin or costs continue to rise to accommodate the increased burdens.

So, how does all of this affect divorcing clients? It makes shopping for loans very difficult. It really makes it impossible to shop for the best deal because the first quality in a lender-originator should be that they understand divorce and financing issues related to it. It’s unfair for me to say this because I am still the only Divorce-Mortgage Specialist in Texas and maybe one of only a handful in the country. My mother says that I am, hands-down, the best in any case. So it doesn’t matter how many others there are.  The key here, of course, is to find a way to get certain transactions closed at any rate or price. Even so, the borrowing landscape is more confusing and its costs are more complicated and obscure.

And a new disturbing trend – the disappearance of mortgage brokers and originators – does not bode well for the consumer. There will simply be less choice. The bright spot is that only the strong survive. The down side is that the strong are not always the best, they are just strong. In theory, and we shall see if it works out in practice, the bad originators are weeded out of the industry, leaving a higher quality and more stable field of mortgage professionals to service consumers.

The solution is really to rely upon tried and true wisdom – find a competent lending professional whom you trust and who understands your problems and issues and is able to solve them. The service is beyond worthwhile. It is critical to a closed transaction and a final resolution to your cases.

Of course, that's me - Noel Cookman - at 972-724-2881 or noel@themortgageinstitute.com.

Is There Such A Thing as a Bad Loan?

Is There Such A Thing as a Bad Loan?
A Call for Sanity in the Housing Meltdown Debate
Noel Cookman, August 11, 2011

I have devoted this blog to issues that affect folks at the intersection of divorce and mortgage finance. And this post is no different except that the information is applicable to virtually every consumer in the industrialized world. Quite often though, in order to understand specific issues (like how mortgage financing is affected by divorce), it is necessary to have a working knowledge of the basics and the ability to sift through popular myths in the housing-finance industry. This article will help you with that understanding.

Is there such a thing as a “bad loan?” We certainly have heard from ten thousand pundits and analysts that banks and mortgage companies “put home owners into bad loans.”

The hapless and grossly uninformed Dick Morris throws this verbal grenade into the conversation.

“…those who made bad loans that have eaten away, like termites, at the foundation of our world economy are largely escaping culpability. There have been no convictions, no indictments, and no real investigations into their irresponsible conduct in making these loans in the first place.” [Morris and McGann, Fleeced, 2008, Harper Collins Publishers, page 238.]

I’d say that anything that functions like a termite and has the power to eat away at “the foundation of the world economy” is certainly a very powerful force and evil as well. When you really think about it, that’s pretty strong language from a fellow who makes his living as a serious analyst; and, as the author, Morris wastes no time telling us who is fleeced and who is doing the fleecing. The first line of the inside front flap tells the story - $26.95. If you paid it, you’ve been fleeced.

But now, since you have the privilege of accessing my endless wisdom and highly expert analysis on the matter, you shall be more properly informed than you have been to this point, heretofore having been fed dribble for nigh unto 4 years from the press, the government, politicians (like Barney Frank and Chris Dodd) and pundits.

To further confuse the existing bewilderment, according to more writers than I can quote, we are told that banks put home owners into loans the banks knew in advance (mind you) the borrowers could not repay. Now, that just might be a bad loan – if one actually existed. I’ll address that concoction of irrational notions in just a minute.

First, let’s get something clear. So long as you owe money to the bank (a mortgage note in repayment) for your house, you are NOT the homeowner except by way of a very misleading title. The bank owns your home. You can negotiate the sale of it under certain circumstances. But, quit making payments and you’ll find out who really owns your home. This is more than a fine distinction. Politicians and analysts are fond of portraying the “home owner” as the poor, victimized citizen being preyed upon by evil and greedy banks when the borrower-occupant quits making payments and the bank wants their collateral back. Emphasize “their” collateral.

You are free to pay cash for your house. You are free to pay your mortgage off in full. But, you are not the home owner until you do so.

Loans are not moral creatures. They cannot be bad or good. They cannot act altruistically or with a social conscience. Nor can they act with malice.

Even the fact-starved analysts who refer to “bad loans” do so only after the loans have defaulted. That is, they are only “bad” in reverse. One might think this is obvious. But, journalists, writers, pundits and politicians cannot help themselves. They have to make statements that sound important or ominous with an air of moral indignation. Unless they can identify a demon, they cannot present themselves as an angel. So, they refer to certain loans as “sub-prime” as if the prefix “sub” should imply leprosy or some inferior quality. In fact and for the most part, these loans were paid off in exactly the same manner as “prime” loans were paid off and with relatively the same performance ratio. That is, until the entire real estate bubble burst and masses of borrowers lost their jobs or had to move and couldn’t unload their house that was “upside down,” its value now being less than the amount owed on it.

So, what makes a loan go “bad?”

Loans that go into default and/or foreclosure do so because of reasons completely apart from any feature of the actual mortgage loan. That is to say, there is nothing within the terms of the loan (or note) that cause it to be defaulted on. So, what causes a loan to go into default? And by the way, a loan is technically in default after even one payment is more than 30 days past due not just when foreclosure action is initiated.

The first, and by far the most common, reason for default on a mortgage is job loss. When a borrower loses his job and therefore his income, it’s a simple conclusion, he cannot pay his bills. But, the ability (or not) to pay the mortgage payment is totally independent of any feature or quality of the mortgage note. These so-called bad mortgages are paid just fine up until the borrower has lost his job.

Okay, you might reason, let’s look at what the critics really mean when they say “bad loans.” Everyone knows that loans are not animated beings with moral qualities, you say. While I’m not so sure people really do understand this, let me assume it for now. And I think I know what the critics mean when they charge lenders with “making bad loans.”

One of the common accusations is that lenders made loans that they knew – imagine this, they actually knew – in advance the borrowers could not repay.

But, another faulty assumption about sub-prime loans is that they were defaulted on because the interest rates were high and/or the rates were adjustable and after the home buyers got into their homes, the rate adjustment went even higher thus making the payments out of reach. In spite of the fact that borrowers were fully aware of the terms of these adjustable rate mortgages, that the payments could – and most likely would – increase, pundits like Dick Morris continue to portray them as victims, taken advantage of by predatory lenders.

Before I demolish this poor argument, it’s time for a personal story. I was a sub-prime borrower. I actually got two mortgages (one in 2001 and another in 2003) that were sub-prime loans.

In my case, there were three factors that caused me not to qualify for one of those “conforming” or “prime” mortgages of which Barney Frank, Chris Dodd and Dick Morris now approve. First, I was self-employed for less than two years in a new industry. Secondly, I could not document my income in the traditional manner. Thirdly, I didn’t want to make a down payment – I needed 100% financing. The only difference in the second loan in 2003 was that I was now able to document my income and had been in the industry now for the required two years. The lender on my first sub-prime mortgage allowed me to borrow the entire purchase price of the house. But, they charged me – apples to apples – about 2.5% higher than prevailing prime rates, the rate I would have received had I qualified under the conforming guidelines.

I made monthly loan payments perfectly and in about 2 years refinanced to prevailing conforming rates, rolling in the prepayment penalty that was triggered by early payoff. I didn’t like the prepayment penalty but I knew about it and would have gladly accepted forgiveness from it by the lender; nevertheless, it was one of the terms of my loan and I abided by it. (Imagine that – a borrower who knew, accepted and didn’t complain about his loan terms).

The fact that my interest rate was higher (relatively speaking) – making the payments higher – didn’t cause a single late payment. My loan didn’t misbehave. It needed no spanking or “time out.” It continued to lie there as an inanimate object except for its requirement that I consistently make monthly payments.

And there were hundreds of thousands of borrowers who received these types of loans and paid them perfectly, not affected in the least by any feature of their “bad loan.”

But, the real reason that the higher interest rate “bad loan” argument doesn’t work is empirical data from history. Since 2000 (when I first entered the lending industry), 30 year conforming rates have fluctuated between about 7.000% (early on) down to nearly 4.000%. Really, since late 2001, the rates have rarely gone above 6.000%. In the meantime, their subprime loan counterparts commanded rates from 6.000% to 11.000% (depending on numerous factors) with most first liens being more in the range of 7.500% - 9.000%. [This is a very broad but fairly accurate remembrance of rates in that period; but, it serves well enough to make the real point…]

In 1978 when we bought our first house, we used an FHA loan, made a minimum down payment (around 3%) and signed up for a 30 year note at 13%. If you factor FHA mortgage insurance, the effective rate was in the neighborhood of 13.5%. Those were the prevailing “prime” rates. (Conventional, conforming rates were really not that much different from FHA rates). There was no sub-prime industry. And millions of people were paying these rates on their mortgages. Those of you golden oldies remember that 13% was a bargain because by 1982 millions of Americans had signed up for mortgages that commanded upwards of 18% and higher interest rates.

If there was any logic to the notion that the higher interest rates create defaults, we should have seen an absolute avalanche of defaults in the years immediately following 1978 or so. While we do see an uptick in default rates, we are again reminded that it was a period of not only stagflation (where the economy doesn’t grow yet inflation persists) and rising unemployment, the major direct cause of mortgage defaults. And yet, the United States didn’t experience a foreclosure crisis in this period. Grant it, had the savvy politicians of today been around in 1980, they no doubt could have manufactured a crisis, blamed it on rich bankers and rode to power on the wings of class warfare. The ethos was present but the refinement of class warfare into a science would have to wait for the advent of Bill Clinton’s ascension to national politics.

Neither did we see the rise in default rates that we would expect if defaults were a product of higher interest rates. When rates rose from around 7% to over 18%, the simple math would tell us that defaults and foreclosures should have been epidemic if they were linked directly to higher interest rates.

The point is, mortgage defaults in the early 1980’s were caused, more or less, by the same factors that cause them today – job and income loss.

Perhaps the critics mean to say that relatively high rates (in these “bad loans”) created mortgage defaults. That is, sub-prime rates relative to their prime counterparts were high and this disparity created inevitable default on the mortgage. This criticism is the twin cousin to the one that accuses lenders of intentionally making loans which they knew the borrowers could not repay.

There is a simple way to test this hypothesis – first payment default rates. While it is true that all sub-prime mortgages carried an expectation of a slightly higher default rate – due to the increased risk – it is not true that any particular quality of the actual mortgage note created this inevitable default. In other words, there was no hidden trigger in the mortgage note that caused the borrower to make payments late or to not make them at all. And, if the higher relative rate produced a situation wherein the borrowers systemically could not make their payments, it would have shown up on a massive scale in first payment defaults.

Think about it conversely. If new home owners could make their first payment, what would keep them from making their second, third, fourth and so forth? The answer, of course, is the same thing that would cause any home owner to default on their payments – job/income loss.

Yet, we do not see a massive increase in first payment defaults. And everyone who analyzes the mortgage-housing crisis needs to understand something about first payment defaults. They are the absolute bane of the mortgage industry – nobody, but nobody, wants to see them. And here’s why – from the lowly loan officer who took the application to the broker or branch manager to the originating lender – first payment defaulted loans are universally considered fraudulent and require that the originator re-purchase the loan – no appeal or question about it. Originators and brokers don’t have the money to do this. Banks who sell to the secondary market do so because they do not want to hold the loan and are not in the business of keeping loans. No one wants to repurchase a loan – it creates loss. But, even more importantly, first payment defaulted loans universally trigger an audit with the implicit suspicion that someone on the originator level committed fraud. Everyone in the process comes under this suspicion and innocence, rather than guilt, must be proved.

But again, if a borrower truly could not repay the loan (as uninformed critics of subprime mortgages charge) then they would be unable to make even the first payment. It simply doesn’t make any sense that such a borrower would make the first few payments and then default on the payments thereafter solely because they couldn’t afford the payments in the first place.

So, the notion that banks intentionally made loans to borrowers whom the banks knew (in their infinite knowledge) could not repay them fails the empirical data test.

It also fails the logic test. Why would a lender make a loan they knew in advance could not be repaid? Some analysts say that the lenders bundled these loans (a common practice for many years and one of the ways mortgage loans are fantastic deals – they are sold wholesale not piece by piece which would make them very expensive) and sold them to investors who didn’t know that hidden within these large caches of loans were “bad” ones that had no chance of repayment. Again, such loans usually come back to haunt the originating lender. Not only are they required to repurchase first payment defaulted loans, they may be required to repurchase many loans that default for a great variety of reasons. Bank of America has been repurchasing billions of dollars of loans each quarter from Fannie Mae and Freddie Mac.

The criticism that banks knew in advance that their loans had no chance of repayments fails another very important test – the underwriting conundrum test. Think about it. If banks know in advance which of their loans will not be repaid, they also know (by simple elimination) which loans will surely be repaid. In other words, they would have solved the age old question of credit underwriting – what is the risk associated with this loan? Uninformed critics like Dick Morris and Gretchen Morgensen have unwittingly ascribed omniscience to these sub-prime lenders. In their convoluted thinking, lenders knew in advance and with precision how their loans would perform.

If any bank could have predicted defaults as simply as critics have charged, the actuaries for these lenders would have received Nobel prizes in economics and been hailed as having discovered a secret that has eluded lenders for centuries – the credit underwriting evaluation.

The answer is too simple – when borrowers lose their income, they don’t have money to repay their debts. But for those who are by nature bound to blame big banks and faceless entities for crises, this common sense explanation escapes them. And, they come up with storybook fancies about loans that have the moral capacity of good or evil.

While my argument tactic may be a bit facetious, let's get some sanity into the discourse about the financial meltdown and quit referring to loans as "bad" personalities; and, let's start with reasoned use of language. Loans cannot misbehave as if they were animated creatures capable of moral judgments. A mortgage loan is values-neutral. It’s impossible that it would be good or bad. It is either repaid or it is not. And nothing internal to it determines which course the borrower takes.

Personal responsibility. Now, there's a fresh thought.

Speaking My Mind About The Financial Crisis

I’m going to speak my mind and let the chips fall where they may. I know that in business, one avoids talk of politics and religion. But, this is only so that one might not erect barriers to the flow of income to one’s own wallet. Without telling you exactly where I stand on politics and religion (you can always visit my blog “Quantum Faith” at http://noelcookman.blogspot.com if you care to read what I write about religion and politics) I will leave to your speculation my political ideology. Recently, I didn’t know whether to be complimented or insulted when a paralegal told me that he had always pegged me as a liberal. I took it to mean that I didn’t fit the (inaccurate, I believe) stereotype of a judgmental, condescending, homophobic, hate-mongering conservative. In other words, he thought me a nice guy . . . I think. But, this is not an exercise in punditry. As always, it’s an attempt to give relevant information about how divorcing clients are affected by mortgage finance realities. Obviously, this has ramifications for nearly all settlements, especially for those wherein a house is in need of purchasing or refinancing. The Financial Landscape In America – It’s-A-Changin’ Charlie Gasparino was interviewing a hedge fund expert several days ago on Fox Business Channel. The $2 Trillion industry is set to come under new regulations from the Dodd-Frank Bill and they will be devastating, so says the interviewee. Average people don’t care because they are generally uninformed and imagine that since it only affects people with a lot of money (which is sort of the truth) they shouldn’t be worried – after all, let those damned rich people get what’s coming to them, so goes the popular ethos. The astounding quote to come out of that interview was what dawned upon Gasparino at the end. “We are about to experience a total transformation of the entire financial landscape in America.” The words alone are astounding enough. What caught my attention was the look on his face and the tone in his voice. Here, one of the highly informed people in America was just now (late March 2011) coming to this realization – and he was worried. Even stunned. The Fundamental Transformation of This Country I must remind you that Barack Obama promised a “fundamental transformation.” It’s easy to pass this off as political pandering or sloganeering. You do so to your own peril. I do not know how talented Obama really is. But, if you cannot recognize the fundamental-ness of the changes taking place, you have your head in the sand. You might agree with the changes or not. Their merits are debated 24/7 on television, radio and in print media. But one thing is virtually indisputable – those changes ARE fundamentally changing this country and every system and institution within it. These changes are evident for now only to those within the various industries being affected. Loan Officer Compensation (Federal Reserve Rule beginning April 1), for example, affects me but isn’t much of a concern to the great majority of Americans. Not yet. Make no mistake. These changes have already affected every consumer and will continue to do so as they gradually work their way through society. The effect of regulatory changes over the past 3 years has been to raise the cost of doing business for mortgage lenders. Closing costs are about 37% higher as of September 2010 than they were at the end of 2009. And anecdotal evidence points to even higher costs ahead. As far as we know there is not a single cost reduction in sight, only increases. This means several things for divorcing clients. 1) Obviously, there are greater costs to financing that effectively diminish equity values in homes, leaving less to split between parties. 2) It will be more difficult to qualify for mortgage financing. Here’s how this works. Higher Costs = Higher Loan Amounts = Higher LTV (Loan To Value) Ratios = Reduced Likelihood of Qualifying. Sometimes the slightest change in numbers can tip the scales in favor of an approval or against it. 3) Divorcing parties need to understand that disagreement over perceived values of homes can be useless and pointless; these higher costs coupled with declining real estate values mean that there will be less room for negotiating buyouts in marital residences. Most importantly, 4) Pre-Planning with me (972-724-2881; mailto:noel@themortgageinstitute.com) is more important than ever. Nothing can serve family law attorneys and their clients as much as up-to-date and accurate information. Who’s To Blame? It’s complicated. And to blame the big banks, “corporate greed” and “risky lending practices” is convenient and easy for amateurs. Thoughtful folks should know intuitively that such analysis is sophomoric and really, irresponsible. For those who care to be informed, I recommend Thomas Sowell’s The Housing Boom and Bust. It’s classic Sowellian cogency and clarity. In the year since I’ve read it, I have found no material fact to assail his thesis. Here are the factors Sowell counts as the causes of the current real estate and financial malaise: 1. Government initiated land-use restrictions. These drove real estate prices up. 2. The Community Reinvestment Act and specifically how it was wielded, more than a decade after its enactment, by activists and ultimately the Clinton Justice Department. 3. Real, tangible pressure from the government on banks to create certain loans that are now being labeled as “risky” and “unable to be repaid” (as if banks intentionally make loans which they know in advance will not be repaid) produced this pariah-turned-scapegoat known as subprime mortgages. 4. This pressure was accompanied with tacit guarantees from Fannie Mae and Freddie Mac which effectively meant tacit guarantees from the government which, of course, means a real guarantee from the tax payers. It was a vicious cycle that was denied by Barney Frank in 2006 when he declared Fannie Mae “sound” and all those who were blowing the whistle on his scam were marginalized as “extreme.” 5. The general heading for this pressure from government, politicians and activists was “affordable housing” and it was championed by Republicans and Democrats alike. It is the typical euphemism for a socialism impressed upon an otherwise free market. Now this is my opinion. Mass psychology was as much to blame for the widespread default in mortgages as anything. When the news of British banks failing in early 2007 hit airwaves, subprime mortgages were not in massive default. Their default rate was somewhere around 5%, barely above their normal average default rate. Consider the following quotations from 3 of the world’s foremost experts on finance and economics: “There is always a prevailing bias [in markets]. I’ll call it . . . optimism/pessimism. And sometimes those moods actually can reinforce themselves so that there are these initially self-reinforcing but eventually unsustainable and self-defeating boom/bust sequences or bubbles. And this is what has happened now.” George Soros (October 10, 2008) “. . . a significant driver of stock prices is the innate human propensity to swing between euphoria and fear, which, while heavily influenced by economic events, has a life of its own. In my experience, such episodes are often not mere forecasts of future business activity, but major causes of it.” Alan Greenspan (2009) “Value is what a designated person or group of people thinks it is. And they are likely to think something different a minute earlier or later.” Noel Cookman (2010) Okay, I slipped in one pretender . . . George Soros. In my view he is the devil. Greenspan is obviously a putz and the third “expert” is the only one who might be trusted. [We might as well enjoy a bit of levity here.] These are astounding statements. Read them again if it didn't sink in the first time. What these men (some would say they are manipulators on the grandest of scales) are saying is the the stock market, the real estate market, the currency market, all markets - everything that can be bought or sold - is subject to being "spooked." It's not rational. It's not a simple matter of intrinsic values. It's mostly the neurons firing between millions of peoples' ears that drive values. The greatest minds have not plumbed the mysteries of the human mind and we are no closer to understanding why people do what they do than we were millennia ago, modern bio-chemical sciences notwithstanding. Obviously, it’s important to me to assign blame. This is not the body of work magnanimous men are given to. But, it’s important if we are to solve the problem. Equally obvious is the fact that our congress (in 2009) did not understand who was at fault for they have given us a cure that is worse than the disease. The Dodd-Frank Bill addressed none of the abuses that led to the crisis nor does it provide the first bit of reform for Fannie or Freddie; and, it shackles the very industry that had brought competition, better pricing and superior service to the mortgage industry – the independent mortgage broker. And, Thursday March 31, a court granted a stay to stop the implementation of the Fed Rule on Loan Officer Compensation. The Fed is required by law to provide a clear definition of what non-compliance looks like. They have not done this and steadfastly refuse to do so. Nevertheless, the stay was lifted Tuesday April 5 and the rule is in effect. The Dirty Little Fed Scam The Fed relied on 4 reports to guide them in their creation and implementation of this new compensation rule. Two reports recommended the new rule change but used flawed data and methods to support their contention. The two which supported brokers and would have resisted changing compensation rules were ignored; but, MOST SIGNIFICANTLY, their authors were placed on the payroll. I deal with these a couple paragraphs down. One report from the Center for Responsible Lending, a partisan, non-profit activist group (with a biased agenda in my view) weighed in to state that brokers were bad for consumers. No data supported this claim and the report centered on the subprime industry and inaccurately equated subprime loans with brokers. Even if subprime mortgages were in themselves flawed and harmful products – a contention that I steadfastly resist – brokers are in no way responsible for the quality of these products; most importantly, brokers are hardly responsible for the poor credit rating their potential customers had when said customers called the broker asking for help in obtaining a mortgage for them. Nevertheless, the Center for Responsible Lending frames their scholarly-appearing papers in flawed premises. For example, their paper on the effect of foreclosures nationwide upon the various racial populations (“FORECLOSURES BY RACE AND ETHNICITY: THE DEMOGRAPHICS OF A CRISIS”) portrays homeowners as victims to predatory lenders that seek them out because of their race and puts them at risk. Rather than conclude that blacks as a group pay their mortgages more poorly than Hispanics and that Hispanics likewise pay their mortgages more poorly than whites and that whites pay their mortgages more poorly than Asians as the data suggests, the CRL’s assumption is that mortgages are animated beings that seek out and swoop down upon groups of people because of their racial makeup. The more accurate analysis is politically incorrect while the other one is permissible in our tip-toe-through-the-daisies world and makes for political fodder and, unfortunately, bad policy. Another flawed report was authored by Michael LaCour-Little of California State University, Fullerton who stated in the abstract that “Results suggest loans originated by brokers cost borrowers about 20 basis points more, on average, than retail loans…” When asked by Brian Stevens of www.thinkbigworksmall.com where he obtained his data, he responded that he had talked with a few banks which names he could not disclose for confidentiality purposes, that the information was “out there” (man is it ever “out there”) and that he checked on a couple “rate sheets.” To a mortgage professional this is code for he didn’t do his due diligence, that his conclusions were reached before he examined any data if indeed he actually looked at data but he nevertheless cash the check he received from our taxes to fund his report. I will not bore you with all of the problems with LaCour-Little’s statements except to say that one cannot tell any more about broker’s prices (rates and fees) from a rate sheet any more than one could tell which hardware store gave the best price on screwdrivers by examining a couple of screwdriver manufacturers’ wholesale price lists. Home Depot might buy the screwdriver for $1 and sell it for $2 while Mom-n-Pop might buy the same screwdriver for $1.25 but sell it for $1.75. But, the wholesale price list might falsely lead to the conclusion that Mom-n-Pop’s Hardware was charging more for the same product. The more reliable research was done by the other two reports and by a gentleman whose work isn’t as readily available (it costs $5,000 for each annual report), Tom LaMalfa of Wholesale Access. But, Mr. LaMalfa has consistently discovered that independent mortgage brokers have given consumers better deals than the big banks and that their customers are more satisfied with their service than customers of big banks are. One report’s author was Gregory Elliehausen who, at the time, was with George Washington University. His conclusion was that “the results provide little evidence that most consumers obtaining mortgages through brokers pay higher prices than consumers obtaining mortgages directly from lenders.” He goes on to say that “this finding does not support the hypothesis that brokers generally steer customers into more costly than those they could obtain from lenders.” In other words, brokers create competition and an environment that saves consumers money. Rational people might conclude that since it ain’t broke we ought not fix it. But, the Federal Reserve isn’t satisfied with this simple data and has forged ahead to restrict, regulate and stifle the broker and independent loan originator. Why isn’t Mr. Elliehausen screaming at the top of his lungs, you ask, insisting that the Fed not institute its broker-hostile rule? *Since he released his paper, the Fed has hired him as, get this, an economist in their Household and Real Estate Finance Section Division of Research and Statistics. Now just ain’t that cherry! When interviewed about the matter, he simply replied “that’s for Mr. Bernanke to decide.” * (http://www.federalreserve.gov/research/staff/elliehausengregoryx.htm) his new job. The last study was conducted by Morris Kleiner Richard M. Todd. Their report entitled “Mortgage Broker Regulations That Matter: Analyzing Earnings, Employment, and Outcomes for Consumers” (http://www.ftc.gov/be/workshops/mortgage/articles/kleinertodd2008.pdf) is profoundly complimentary of the broker industry and conclude that the free market in which brokers and independent originators work yield lower costs and more benefits for consumers. Now, this is beginning to sound stranger than fiction. Where are these guys now? Why are they not screaming objections to the new Federal Reserve rule? Did you guess? They were hired by the Fed as well, Mr. Kleiner as a “visiting scholar” even though he has another job at the University of Minnesota. Hmmmm. I wonder how that works. And what about his co-scholar, Mr. Todd? Well, he was likewise hired by the Fed. Check it out for yourself. http://www.minneapolisfed.org/research/economists/staff_display.cfm?id=397 http://www.minneapolisfed.org/research/economists/staff_display.cfm?id=320 How outspoken do we think these gentlemen will be about the Federal Reserve’s new compensation rule and its deleterious effect upon the consumer? I’m not suggesting that any of these authors are evil or indigent. I am charging the Federal Reserve with improperly manipulating the market to the detriment of consumers not to mention an entire industry of mortgage professionals who ushered in an era of unprecedented competition and access for these consumers; and, the result inures to the benefit of the large banks while edging out the stealth competitors. Afraid, Prepared or Both? The good news is that I can say without equivocation that a financial collapse is not coming. The bad news is that it’s already here. Do you really think that if a tsunami takes out half of the homes in your neighborhood but leaves yours standing that your life and home value will not be affected? You cannot be unaffected. And neither can divorcing clients. The real issue is our response. I am not one to be motivated by fear. But rational fears are good if one is able to respond properly. It’s the irrational ones that do us in. In my next article, I will outline steps that we must take in order to save the financial system from sure implosion. And I will show you the road map to the future of home-ownership. As always on this blog, my solutions and strategies center on those affected by divorce. But, many of the principles will be helpful to every citizen. So, pass it on and get the word out. Peace.