Mortgage Industry Has Too Many Doctors
Local expert to address Valley Industrial Association.
The last 12 months have been a pretty interesting time to be Certified Mortgage Consultant Fred Arnold, who recently completed his term as President of the California Association of Mortgage Brokers (CAMB). Arnold's term has seen some big changes in the housing market, including the institution of the Troubled Asset Relief Program (TARP) and the government takeover of lending giants Fannie Mae and Freddie Mac.
One of CAMB's main activities is to keep members informed of current developments in housing legislation and regulation, a tall order this last year with more than 150 mortgage related bills introduced in the House of Representatives alone and a 75 percent cut to the CAMB budget.
On August 18, Arnold will address the Valley Industrial Association (VIA) at their monthly luncheon to speak on the present and future of the mortgage lending industry. He will also touch on the issue of workforce housing availability, a key concern of VIA.
Arnold credits the Fannie and Freddie takeover with saving the industry by providing needed liquidity in the wake of the recession in one of the "pivotal points in our country's history."
At the same time, he says throughout much of the process of rehabilitating the mortgage industry, legislators, regulators, and industry professionals have been working at cross purposes. Well-intentioned remedies from all sides have interfered with one another.
"I liken it to the fact that the mortgage industry's being treated by too many doctors; and in some cases, interns," says Arnold, "And none of the doctors that are trying to fix the mortgage industry are talking to each other about the prescriptions they're writing. So when they write a prescription that they think is going to fix the industry, it either conflicts or has a serious detrimental effect to the consumer. ... They're not really working together to fix the problem."
Many experts believe the housing market remains the front lines of the recession, and full recovery still appears distant. According to Arnold, a major contributing factor to this continued sluggishness is ironically the very loan modifications that have kept people in their homes so far.
One condition of TARP stated that banks receiving funds were obligated to work with homeowners to avoid foreclosure. This meant that many bad loans that could not be repaid would now be reworked based on revaluation of homes, a process that can take 12 months.
The problem arises when the new loans go into effect and there is still the possibility of default. In some cases, borrowers may end up back where they started. The more loans being modified, the fewer houses on the market as homeowners play a waiting game until the market stabilizes, which is less likely during the modification process, which may only delay the inevitable.
"I think if modifications can get through the system at a quicker pace than they are now, we'll recover sooner. Because when people buy homes they put money into the home because it's their love. ... because they know it's a long term investment ... The problem is there's such a low inventory of homes right now because there are so many homes up for modification and those houses would normally have been foreclosed upon. ... Those that would normally sell and move up aren't doing that because they don't know where the bottom's going to be at in this market so they just keep waiting."
CAMB was founded in 1990 and works to provide information and representation to its 4,000 members and seeks to improve industry standards and customer service.
Fred Arnold is the founder and owner of American Family Funding and hosts "The Santa Clarita Business Hour" Mondays on AM 1220 KHTS.