Sunday, April 29, 2007

Ranieri: Subprime loans could have gone to FHA and agencies

Lew Ranieri was quoted yesterday by Calculated Risk as stating that "as much as 50 percent of (subprime) production could have gone to the agencies, meaning, Fannie, Freddie and FHA" over the last five or six quarters. Ranieri, who is credited as the father of mortgage securitization, seems to believe that the subprime "mess" is a symptom of a broken MBS system.

Without knowing where Ranieri is getting his data, the comment still provocatively gut-checks to origination insiders. But why? Both Fannie and Freddie have psuedo subprime programs that will qualify lower FICO borrowers with only modest rate premiums. FHA programs have always allowed for borrowers with expanded FICOs.

Focusing on mortgage broker production (which makes up the lion share of US residential loan production), the issue was more one of accessibility and ease of process than necessarily one of pure greed.

Subprime lenders such as Option One, New Century, Argent had a cadre of Account Executives pushing products that granted almost instant approval and no documentation requirements. A process that could take months via an FHA product. Yet the FHA loan will drive an affordable product to the consumer, priced substantially lower, making it a win-win for both parties if it weren't for the unnecessary obstacles: minimum loan amount, broker approval.

The agency subprime products are also less possible for similar reasons. Although they have less process hurdles than the FHA product, the pricing is still not significantly better enough to justify the extra effort.

The focus on enhancing FHA is long overdue. According to NAMB testimony, 38.6% of all FHA loans were originated by mortgage brokers. However, they state that prohibitive audit and net worth requirements for mortgage brokers substantially reduce public access to this product, as many mortgage brokers are unable or unwilling to offer the product as a result of HUD hurdles and hassle.

OnState: Build Your Own Skype Virtual Call Center

I'm not sure why I've resisted the VOIP revolution for so long. Skype - which I never considered as a contender for enterprise use - has gained some serious functionality and now deserves another look.

OnState for Skype is simply a plug-in or "Extra" which is installed effortlessly on the Skype website.

It's promise is nothing short amazing and possibly disruptive to an entire industry. For around $20 per user monthly it delivers an enterprise-class call management system which includes automatic call distribution (ACD), skills-based routing, chat and click to call web integration, interactive voice response (IVR) and reporting. Whether or not it really delivers (yet) on the promise remains to be seen, but I'm super excited about the concept. From only a review of the tutorials on the OnState website and an install of the trial version, it is immediately clear their are limitations - "Skypein" (land-line) integration must be manually configured, and the skill based routing is largely limited to click-to-call traffic or must be specific to each land-line. Advanced features like database and CLI (caller line identity) driven call routing are still a dream.

The cost per seat of a fully functional call center has been over a hundred dollars a seat, plus hardware, installation and other costs. Now literally anyone with $20 and a skype account can enter the game, with - at least - the fundamentals in place.

OnState is one of several recent third-party companies that have developed innovative Extras for Skype over the last few months.

Thursday, April 26, 2007

Mortgage Accelerator Loans

I find mortgage and other financial service products offered in foreign countries fascinating. The "Mortgage Accelerator" product offered in Australia and the UK is a great example.

With this product, a borrower deposits each paycheck against his home equity line of credit. He then withdraws from his line of credit all living expenses. The advantage is in the fact that interest on a HELOC (Home Equity Line of Credit) is calculated daily, so any reduction in the balance, even a temporary one, equals less interest.


You have a 30yr fixed rate mortgage at $4000 monthly payment. Your monthly paycheck is $10000. Even if you spend all of the $6000 difference, your average monthly balance is $3000 for the month than it was with a regular mortgage. At 7.75% that is a savings of $20 per month. $20 monthly savings alone may not be impressive enough. The real power of the product comes when you actually earn more money than you spend each month, ie. positive monthly cashflow. Apply that to your monthly balance automatically and shorten or "accelerate" the reduction of your mortgage balance.

CMG Financial Services offers the product in the US and provides a similator of the accelerator benefit.

Tuesday, April 10, 2007 prepares to upset the mortgage lead generation model

Forget the mysterious landing page you encounter at, or the lofty goals. The most interesting thing about this new Web 2.0 real estate play is that it addresses the mortgage space in a way that others have not attempted to.

In a recent blog post JeffX, the "X Broker" and founder of argues that his proposed solution will return anonymity to the user and give the user access to a wholesale pricing engine. From his blog profile, he intends to build a

"wholesale lender automated Pre-Qualification engine crawler/bot for consumer direct access. Think of, but for correspondent pricing mortgage rate sheets and feeds."

I think he's got half the equation right. Today's internet more than ever is all about the consumer, and is - as David Armano or Joseph Jaffe put it - moreover a conversation with the consumer. The existing model of lead generation needs to evolve, the consumer needs to be given more control and a voice. Allowing for customer anonymous retrieval of consumer pricing information is the right direction.

However, giving consumers access to wholesale pricing information is not the solution.

This will confuse and frustrate the consumer at least, as any such system is inherently tied to the willingness of many commercially interested lenders and brokers to cooperate, introduces a new layer of pricing variables, and does not deliver lockable pricing.

Yet going down the path of lockable pricing online is a path even more perilous that has been lost by greater aspirants (FreddieMac, Microsoft Homeadvisor anyone?).

XBroker is correct in principle, and I believe incorrect in execution. A correct execution is perhaps one that comes directly from the shared wisdom of the consumer, and built off a system that presumes wholesale lenders will co-operate and lenders will understand, and brokers will honor.

Mortgage Lead Conversion Rates Revealed

Compare Mortgage Rates at, the lead management software firm, released the above chart recently on their site. Great move on two levels.

1. It got me back to their site and considering their product for the first time in 6 months.

2. Even if it is a parlor trick, and you question the reliability of the data, it is the direction that the mortgage/lead gen industry needs to move in. Regardless of the motives of Root, Leadpoint and others seeking to create an exchange for mortgage leads, the industry is still distributed by brand, as evidenced in this chart. This type of competitive intelligence must be developed to the point that it is reliable. Is greatly needed and appreciated.

Monday, April 02, 2007

New Century Files for Bankrupcy

The New York Times reports, a significant fall.

Meanwhile a UCLA Report continues to hold the line that we're not in for a recession. Its logic - a recession requires weakness in the manufacturing sector. New construction and real estate will stay weak they argue, and the Fed is likely to drop the rates before the end of the year. This however will not be enough help recover the housing sector, which is simply over saturated. To do that would require that loans be granted to people who can't afford to pay them. Imagine that?

Recession indeed will come, and the Washington Post reports last week, that our industrial hearland is among the hardest hit.