Lessons From Tiger Woods and Rocco Mediate

With the U. S. Open Golf Championship in San Diego
this past week, there were many stories about how
the golf course had been prepared to challenge the
golfers and to identify the champion.

Tiger Woods and Rocco Mediate battled over 91 holes
with Tiger persevering for the Championship. If you
follow sports at all, you now know that he was
competing with a torn ACL in his left knee, and had
two stress fractures in his tibia and played through
the pain to win.

The drama of the golf tournament provides an analogy
to the mortgage business in today's environment.

**The USGA took the Torrey Pines Golf Course from a
forgiving layout that allowed the players to achieve
low scores, and created a new layout that challenged
the players on every decision for every shot on every
hole.

Over the last year in the mortgage business we have
seen the underwriting standards go from a lenient
approach that allowed most borrowers to be approved
on their loan requests, to a restrictive environment
that challenges borrowers and mortgage originators to
strategize every step of the process.

Because the underwriting changes have "toughened up"
the course, borrowers and originators can no longer
only rely on techniques that worked in the past. A
fresh approach to the process is required: doing new
research of underwriting guidelines and changes,
talking with the lenders' representatives and our
peers about what tactics can be successful, and dev-
eloping a new experience base in this new lending
world.

**Rocco Mediate was quoted as saying that there were
many ways to be successful on the golf course. Even
though Tiger Woods was able to hit the ball farther
than Mediate, Rocco was still able to compete by
executing the shots in his arsenal extremely well.

When we consider that the goal for the borrower and the
originator is to have a lender approve the loan request
with acceptable terms and conditions, we must also
realize that there are many ways to accomplish this goal.

As a mortgage broker, we have access to over 50 lenders,
and they each compete in many categories of lending.
Some of these lenders may be more concerned with the
property, others less so. Some lenders may be more
concerned with credit histories, others less so. Some
lenders may be more concerned with the debt-to-income
analysis, others less so. Some lenders may be focusing
on the amount of money borrowers have in checking, savings,
investment and retirement funds, others less so.

A golfer is allowed 14 clubs in their bag to be used as
tools for different situations. An old saying is that if
your only tool is a hammer, you will treat everything like
a nail.

This is always what has differentiated us as mortgage
brokers from direct lenders. When you walk into a bank
branch, as an example, they will have a limited menu
of loan choices and they will try to fit you into one of
their loan products, whether it is the best thing for you
or not. If they are even aware of a better choice for you
that the bank does not offer, it would be the rare case
for them to recommend that you seek the better loan else-
where.

As a broker, we start with understanding your goals, your
risk tolerance, your time horizons, and your priorities.
We serve as an advocate for you to the lenders. Because
we have access to so many more lenders and lending programs
than the direct lender has, we do a better job of finding
custom solutions to fit your needs.

**Tiger Woods is probably the most gifted athlete of our
time when it comes to mental toughness. One of the traits
that is so admirable is that he focuses on what he needs
to do to get the ball into the hole from where the ball
lies, and does not carry a lot of mental baggage about the
quality of the last shot that put him into that position.

He understands that he may hit the "perfect" golf shot,
but the result may not be what he wanted. He can only
try to hit the next "perfect" shot to get him closer to
his goal.

In our business right now, we have to develop that same
mental toughness.

We can develop a game plan based on your priorities and
what is important to you. We can make sure that the lender
we have chosen offers the best program for you, and
research the guidelines to develop a sense of confidence
that your loan request is compatible with what they are
offering. We can strategize about the best way to package
your loan request to show all the favorable reasons why
the lender should approve it for you.

But we can't always know if we are going to get the
"bad bounce". The underwriter may have received a
directive that morning saying that guidelines were
tightening, and it may be something that specifically
applied to your request. All our best efforts to put
together the "perfect" package did not give us the
immediate result we wanted.

That's is where we need to focus on how to get the loan
request from where it now stands to an approved status.
It takes patience, research, knowledge, experience, and
the willingness not to give up when confronted with a
new obstacle that was not able to be anticipated.

When you pick the right person to work with, you know
that they are using their best efforts to help you get
what you want. Obstacles will arise, and it may put
our hearts in our throats, just like Tiger Woods faced
repeatedly.

We are measured by our honesty, integrity, communication
skills and our tenacity to do everything we possibly
can to achieve the final goal for you. We want to put
that Championship trophy on the shelf for you!

The Shape Of Things To Come?

As the ripples continue to extend from the "mortgage
meltdown", lenders, investors, rating agencies and
legislators are all trying to come up with solutions
so that this does not happen again.

The lenders, investors and rating agencies have all
become more conservative as a response to the bad
policies and judgments that had crept into their
systems.

These market forces are part of the ebb and flow of
business markets. When companies suffer losses, they
make changes to get healthy again and improve on their
products for the future.

As their balance sheets improve in the future, we can
fully expect them to become less conservative, but I
think that they have learned their lessons about letting
the pendulum swing too far toward the excesses that
they allowed in the past.

The legislature, however, will put new laws and new
restrictions in place that will not be as elastic. Once
these laws are established, it seems like they will never
be removed, only new layers will be added.

This will make the process more cumbersome, it will
institutionalize oversight that will add new
administrative costs to the process.

I am a firm believer that the bad characters need to
be removed from the system. There were many
mortgage lenders that abused their clients, took
advantage of the clients' lack of knowledge to unjustly
enrich themselves, and cared more about their welfare
that caring about matching suitable products to the
clients' needs.

The best way to get those unscrupulous mortgage
originators out of the business is to avoid them if
possible by doing your homework up front.

If you are in the middle of a transaction, give yourself
an exit strategy if you get bad feelings about how things
are going by having a backup lender in place.

And if you are forced to close your transaction because
of timing circumstances and you were taken advantage
of at the last minute, complain loudly and aggressively
until you get some satisfaction.

With that being said, let's take a look at what the
lawmakers have in mind for the future of the mortgage
business.

Senate Bill 2452, The Homeownership Preservation
and Protection Act, is designed to curb the predatory
lending that occurred with borrowers being placed in
less-favorable or most costly loans than the borrowers
were qualified for, and for fraud-related activity.

A couple of items in this bill may reach much farther
than the original intention.

The bill proposes to eliminate yield-spread premium
on the pricing of loans. You may recall from a few
newsletters ago, that yield spread premium is money
that a lender makes available in exchange for receiving
a higher-than-normal interest rate on a loan.

It is a tool that lenders and mortgage originators use
to offer no-point and no-closing-cost transactions for
borrowers. The borrower makes a choice to accept
slightly higher mortgage payments in exchange for
saving thousands of dollars in costs.

The reason this is proposed in the bill is because
the unscrupulous mortgage originators would charge
loan fees to the borrower, place the borrower in a
higher interest rate loan, and then accept the payment
from the lender for the yield spread premium. The
mortgage originator would make excessive income for
placing the borrower in a less favorable loan.

If the borrower is properly informed and they feel that
the value of the originator's expertise warranted the
income they earned, then that is a market force at
work, and no one is being treated unfairly.

However, if the borrower is in the dark about
competitive interest rates and fees, and they are taken
advantage of, that is a different story.

But, the problem is that the borrower has not done
their homework, researched loan options, and expanded
their search wide enough to know the range of options
that they should expect to hear. If they work with
one person, and don't have their paperwork reviewed by
a trusted advisor before they close, they are opening
up the possibility of being victimized.

The problem is not that yield spread premium could be
used in a loan transaction. And it seems that the
proposed legislation will be more restrictive without
really getting to the root of the problem.

Another provision of this bill are some proposed new
requirements for appraisers.

Part of this "mortgage meltdown" is that there was
conscious, systematic fraud exercised by some very
devious teams of real estate agents, title companies,
lenders, appraisers, notary persons, settlement
agents, buyers and sellers.

Appraisals were inflated to induce lenders to create
loans that were higher than the true value of the
property in some cases. Money was then distributed
to all the team members, and the lenders were stuck
with a property to foreclose upon that wasn't worth
what was owed against it.

The remedy should be to identify those appraisers,
prosecute them when possible, and get them out of
the business by rescinding their licenses otherwise.
There are plenty of laws on the books dealing with
real estate fraud.

The bill wants appraisers provide a bond for a
specified percentage of the appraised value of the
home. If there is an incident where the borrower
suffers a loss due to an inflated appraisal, and
in turn receives a financial settlement from the
lender, the lender can then use the bond that was
provided to offset some of that settlement cost.

What this means is that the appraisers will now have
a new cost of doing business to factor into their
fee structure.

I have been told by one appraiser that this would
double the cost of a residential appraisal, from
approximately $400 to $800 to be able to pay for
this new bond requirement.

So, in order to help protect borrowers from the bad
guys, new legislation will now throw a net over the
entire industry.

It will eliminate useful tools to provide choices to
the borrower, it will create new layers of oversight
and protections, and the costs will pass through to
the consumers.

It will make getting home loans a more ponderous
process (is that possible?) and more expensive.

Despite the best intentions of our lawmakers, we need
the emphasis to be on enforcement of existing statutes
and less on new legislation that throws the baby out
with the bathwater.

Your best protection, as always, is work with reputable
originators. Hold them accountable, make sure you
understand the paperwork, programs and fees, and you
will have as good an experience as possible going through
the mortgage process.