Rising Rates, Rising Foreclosures: A Fresh Perspective

By Jim Lewis, Chairman of the Board

 

When it comes to perspective, most of you are probably familiar with the question “Is the glass half full or half empty?” With concerns over the health of our industry in the face of rising interest rates, rising foreclosures, and slowing home starts, many have started to see the glass as not just half empty, but completely empty. I believe it’s time to put the current situation into perspective and start seeing the glass half full.

No matter what, you can always find a problem – or a less-than-full glass. Take a quick trip with me back to 2003 when pipelines were bursting, everyone wanted to refinance because rates were at 40-year lows, and the phone would not stop ringing day and night. We had problems then – the main one was trying to keep up with demand and the constant barrage of phone calls. Outside of that ‘problem’, those low mortgage rates produced records in many areas - and as volume dictates taking care of funding loans, there was precious little time to perform other necessary tasks such as prefunding QC and technology upgrades - and some are paying the price now for the lack of time to attend to those issues then. For a record number of years, our industry was on the feast side of the ‘feast or famine’ syndrome – perhaps a good ‘problem’ to have.

 

Restriction of products, terms not the answer

As a businessman and as the leader of the CMLA, I am proud to note that the industry has responded to the call by some to restrict products and programs by noting that our business – the business of helping people achieve homeownership – will not in any way be aided by reactive decisions based on statistics. I am somewhat shocked to read reports that some institutional investors are announcing withdrawal from and elimination of certain loan programs. In the wake of inventing programs and loan products such as 50-year financing terms, pick-a-pay loans, interest only loans, ARMs, and a host of other innovative products aimed at stimulating volume, this seems diametrically opposed to the notion that we have been challenging. On top of that trend, the media often directly ties “creative loan programs” to higher foreclosure rates in our state and across the country.

The need to meet consumer demand has been great – and still is! People deserve to have the opportunity to own a piece of the American dream and I applaud investors for making business decisions based on responsible lending practices. I also believe that educating consumers about mortgage products is the responsibility of industry professionals - and of our association. Any mortgage banker or broker who truly has their client’s needs first will take the time to work through a loan with his or her prospective borrowers to ensure that they are fully aware of the loan options available to them. Then, armed with information, those borrower(s) are able to make an intelligent decision based on their desires and what they want for their future. And a home, being for most the largest asset they will ever own, is definitely part of that future picture. It is frustrating to me to know that, on one hand, we want to expand the opportunity for homeownership, yet on the other hand, some would wish to handcuff us by limiting the options we have to offer potential home owners. Ask yourself honestly: what would happen to homeownership in America if we only had a handful of products to offer? Some suggest that we need to set down payment amounts for all loans. Some of you may remember (way back) when 50% down payment on a home was the norm. How many people would own homes if that were the case today? Education is the answer, not product and loan term restrictions.

 

 

Putting the Foreclosure Picture into Perspective

Recent headlines like “Colorado at forefront of foreclosures” or “Weld County ranks No.1 in foreclosures” scream panic. In fact, The Denver Post began a series called “Foreclosing on the American Dream” that chronicles people who, for various reasons, are facing foreclosure – and why they are facing foreclosure. For the record, and despite what is often reported in the media, funding lenders and banks are not on a mission to force consumers into foreclosure. A case in point can be found in a Denver Post story that featured a homeowner faced with unaffordable house payments due to an adjustable rate loan and no equity in the home. A little research would have uncovered the fact that the homeowner had refinanced several times over a period of five years of appreciating property values. Each refinance released equity based on appreciation of the home, and resulted in a larger loan than had originally been negotiated. The homeowner ended up - after all the refinances - with close to $200,000 in “spent” equity. In this case, as in many cases, it was the borrower’s decisions, not the loan product, that led to the higher payments and unfortunate predicament.

While some may disagree about how the figures the media have been using to support the ‘foreclosure crisis’ in Colorado have been reached, no one will disagree that rising foreclosures are a problem for our state. The CMLA recently released a foreclosure analysis that compares foreclosure rates in 1989, the worst foreclosure year on record for our state, with the ‘record’ foreclosures in the state today. Interestingly enough, while the number of foreclosures is higher, relative to population, the number of homes, and the number of mortgage loans, the percentage of loans in foreclosure is actually lower than in 1989. The Rocky Mountain News reported this information on October 26. (Click here to view the RMN article.)

At CMLA, we remain committed to our mission statement that notes first and foremost that we are an organization committed to a world of homeownership achieved through the practice of integrity based lending. Foreclosures are not just a problem for the homeowners going through them – they are a cost to entire communities, and certainly for funding lenders. I am thankful that the state of Colorado has taken a major step in helping those unfortunate enough to be faced with economic hardship through the new foreclosure hotline, which allows those who may be in danger of foreclosure to talk directly with a trained, professional housing counselor. The product of a consortium of private sector and government organizations that have come together to address foreclosures in Colorado, the foreclosure hotline is the first statewide foreclosure hotline tailored specifically to the legal realities of Colorado. The CMLA commends Kathi Williams, Director, Colorado Division of Housing, and other initial contributors for this outreach effort and we pledge to join in their efforts through our own contributions.

While the media will constantly try to sensationalize news about foreclosures, keep in mind that not all is doom and gloom. In fact, I’m optimistic about our current state of affairs: employment is strong, the economy is healthy, interest rates are still very reasonable, and our country’s population continues to grow. Each of those major economic indicators is positive! Be careful, when reading the “sky is falling” headlines and when considering a particular angle on a subject to look at the big picture too. While we are experiencing changes in our business climate, there is a lot of good news. It’s up to you and I to promote consumer and lender education and to find solutions so that Americans can continue to enjoy the benefits of homeownership. And it’s up to us as the leaders of this industry to focus not on the glass half empty, but on the reality of the glass half full.