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Smart Marketing Campaign
Marketing is (or should be) all about generosity: How can you add value, for your client and the world at large, that goes beyond your actual product? Here's a great example: An e-learning company is distributing video clips that explain the financial crisis in clear, concise (and even funny) story-based learning. Cool.
Posted by Keith Ferrazzi on November 13, 2008 | Permalink
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Comments
Can you direct me to the homepage of the original video poster?
Posted by: Ken Krausman | Nov 14, 2008 12:17:25 PM
I found it thanks!
Posted by: Ken Krausman | Nov 14, 2008 12:21:14 PM
I didn't realize that brokers could be the middlemen.
Posted by: Emilee | Nov 14, 2008 2:21:59 PM
This video is not accurate.
Most of the mortgage in this country are 30 yr fixed mortgages and don't balloon in 2 years.
The video is focusing on subprime mortgages and even there, the mortgages were 2 or 3 Year ARMs which don't balloon at the end of 2 or 3 years. The interest rates are tied to an Index. At the end of 2 or 3 years, a margin is added to the index and that becomes the new rate for the next 6 months or year and then the payment is calculated all over again. On most of these mortgages the interest rates for the first 2 or 3 years were between 6 1/2 and 10%. The sad thing is that at the end of 2 to 3 years the new rates frequently jumped to 11 to 15%. That's where the problem comes in. People could not make the new payments.
The video pushes blame on mortgage brokers. Yet the banks originated the same mortgages.
Real blame lies with with the Homebuyer who bought more house than they could afford, the mortgage brokers and banks for originating them, the lenders for buying the mortgages and the investment firms on Wall St for selling interests in them in the form of bonds to investors.
Posted by: Bob Paroski | Nov 14, 2008 6:48:14 PM
No the blame doesn't lie with the homeowner 100%. It isn't so simple. The greatest part of the blame (in the U.S.) lies with George Bush Jr.'s administration and members of Congress who allowed banks and other financial institutions to offer "teaser" rates. They gave out mortgages to people without proper screening. They allowed this because of huge campaign contributions over the past few elections. The government of George Bush was not only failing to do their job, they were getting benefits from not doing their job.
Posted by: Warren | Nov 15, 2008 8:22:37 AM
Hi,
First of all, thanks Keith, for posting our video in you forums!
As one of the creators of the video, I have to apologize if it came off like we were blaming any particular party. The intent of the film is to show the series of events that led to the current crisis. What occurred seems to have been a sort of perfect storm caused by many factors, but a large part of it based on the desire to make the most money possible out of a given situation.
The government adjustment of the "default timeframe" from 2 years to as little as 3 months prompted a shift in the strategy of mortgage brokers. They saw an opportunity to increase their cashflow when the risk of taking on more mortgages diminished, as most business will try to do. A gap in accountability occurred at this time.
Brokers did then try to sell to as many people as possible because they knew that by the time the interest rate shifted to the higher amount, they would be absolved of responsibility, having already made their fees.
It's true that homeowners probably SHOULD have known better, but at the same time, unless you're a cynic, you may not peer too deeply into the intents of a good salesman. Most likely, the salesman had also been trained on how to most effectively package the deal to look as attractive as possible. Even the salesman probably didn't really understand the scope of what was happening.
Although the Bush administration SHOULD have seen this coming, and it did occur during his term, I suspect there's a good chance the wheels actually started turning during the end of Clinton's administration.
Keep in mind, the INTENT was good... to help people purchase homes, to put their money towards something that, traditionally, has increased in value... a more stable investment than buying the new huge TV... all in hopes of stimulating the economy.
Unfortunately, there was a loophole and loopholes always get used. This is how I understand the situation, anyway, based on our research for the video. Lots of finger pointing to be done, lots of blame to shift around, no single perpetrator.
Thanks for posting and stimulating discussion on this piece!
Posted by: Daniel Fu | Nov 16, 2008 9:58:38 AM
The YouTube video you posted regarding the mortgage crisis is a naive and inaccurate depiction of the problem.
You should do your homework before distributing such an simplistic portrayal of mortgage brokers involvement, and the crisis in general. All lenders, brokers and direct lenders, make money in basically the same way. Very few lenders hold their paper. Most of these loans were packaged, whether broker or lender, and sold on the secondary market.
It was partially the greed of Wall Street, Pension Funds and Insurance Companies that DESIGNED and PROMOTED these loan programs to satisfy shareholders demand for a greater ROI. Mortgage brokers do not establish lending established guidelines. We follow them.
Add to that, Acorn (Association of Community Organizations for Reform Now) basically used Jesse Jackson's old extortion tactics of pulling out the race card and threatening lawsuits if lenders standards weren't lowered. Large lenders bowed under this pressure, and created loan programs that would allow these unqualified people to obtain mortgages.
I recall seeing this same radical organization, Acorn, protesting in front of many large lender's headquarters claiming that under served minorities and low income citizens had a "right" to own a home, and lenders were discriminating by turning them down for home loans. Standards were lowered under the pressure of bad publicity and lawsuits. Then, when the chickens came home to roost, this same organization, Acorn, had the hypocrisy to protest in front of these same lenders claiming "Predatory Lending." As an interesting side note, Obama was a part of the same organization, Acorn, that contributed to this mess.
To be fair, some bad players in the mortgage industry had a role in this crisis. There were unethical brokers AND unethical direct lenders who were more interested in closing loans than in the ability of their borrowers to repay these loans. But, using the same brush to paint mortgage brokers is irresponsible, shortsighted and unfair. However, I suppose it is politically correct, and therefore, acceptable.
What ever happened to personal responsibility for one's actions and decisions?
Posted by: Michael Mandis | Nov 16, 2008 12:01:34 PM
As the producer and executive sponsor of this video, I except full responsibility for its contents. If it has caused offense to any mortgage brokers like Mr. Mandis, please accept my apologies.
There is an excellent article in slate today about mortgage brokerages specializing in subprime mortgages who nonetheless managed risk carefully even as they served low-income homebuyers. Consequently, they have remained profitable.
Our video is the second in what may become a series. Naturally, it has simplified many aspects and ignored others entirely. Please feel free to contact me with feedback: we are interested in turning other under-reported stories into videos such as this one, and would be delighted to interview further experts.
Finally, I would like to state unequivocally that I believe that unethical mortgage brokers are very, very rare. The purpose of this video has been to shine a light on the incentive structures in which decent people with decent objectives can lead to unhappy outcomes. It's very hard to identify these structures when the harmful consequences aren't apparent, and even when the structures are recognized, they are very hard to change while the good times are rolling.
Looking forward to other feedback.
Posted by: Nathan Kracklauer | Nov 17, 2008 6:41:01 AM
Thank you for posting such an excellent video. Thank you for sharing your knowledge and inspire others to do so as well.
Gonzalo
Posted by: Gonzalo | Nov 18, 2008 11:12:41 AM
A message from NAMB President Marc S. Savitt, CRMS to Barack Obama, President of the United States
BY: Marc S. Savitt
The Banks and Lenders that "prey" together, stay together
Dear Mr. President:
I represent tens of thousands of small business mortgage professionals who are being forced out of business by some of the nation's largest national banks, lenders and mortgage insurance companies.
As you are well aware, this country is experiencing the worst financial crisis since the Great Depression. While your Administration and Congress search to find a solution to our economic troubles, others are conducting a campaign of blame, with the goal of eliminating competition and controlling all aspects of mortgage financing.
From the very moment mainstream media first used the words "mortgage meltdown," mortgage brokers were labeled as the group that inflicted the predatory practices that gave rise to record foreclosures. As a result, mortgage brokers have been subjected to intense scrutiny and consequently overregulation. Moreover, some of our former wholesale lenders and private mortgage insurance outlets have cut off our source of funds to operate, all under the guise of consumer protection. Make no mistake about it; this campaign to eliminate our profession has absolutely nothing to do with consumer protection. It's all about market share!
Let's examine the facts. Brokers have been blamed for putting consumers into predatory loan programs. False! Mortgage brokers never developed one single loan product or program. However, some lenders and banks did, aided by Fannie Mae, Freddie Mac and Wall Street. These same institutions set the guidelines for such programs, without any broker input. Most importantly, mortgage brokers did not underwrite or approve any of these loans. The responsibility for approving loans was that of the banks and lenders. If we didn't develop the programs, set the guidelines or approve loans, how could this be our fault?
Another favorite target of the media is the "Yield Spread Premium" (YSP). This form of legal and legitimate industry compensation has been labeled a kickback and a bribe. YSP has been vilified when it should be praised for helping homeowners. For example, most consumers today seek financing without "points." YSP allows them to finance all or part of their origination costs. This practice has existed for years and is used by many State Housing Agencies, as well as by banks, lenders, credit unions and others who call it a "Service Release Premium" (SRP). It's the exact same type of compensation, other than having a different name. The only difference between a broker's YSP and a lender's SRP is that brokers fully disclose this compensation to consumers. Besides not having the same disclosure requirement as brokers, lenders have often denied receiving this payment.
The media has often depicted YSP as a fee brokers receive for increasing a consumer's interest rate. The truth is consumers are always given a choice with rates and points. They may elect to pay a discount point(s) and receive a lower rate, or pay no points and finance their origination costs by a slightly higher interest rate. Most consumers choose the latter.
In this climate of full disclosure and transparency, Congress should replace the terms YSP and SRP with "indirect compensation" and require all originators to disclose this compensation to consumers. Brokers have been disclosing every dime of compensation for the past 17 years. It's time for lenders and banks to do the same and level the playing field for consumers.
It has also been reported that brokers are unregulated. Once again, false! Brokers are regulated in every state. Furthermore, we supported passage of the SAFE Act as contained in the Housing Economic Recovery Act (HR 3221) in July 2008. This Act establishes uniform federal licensing standards for mortgage originators and a national registry of originators. The National Association of Mortgage Brokers first proposed these standards in 2001. Unlike brokers, loan officers that originate for banks and lenders are unregulated. It's time to regulate bank employees too.
The final push to eliminate competition and control the entire housing market is now underway. Lenders and banks are exiting wholesale lending; claiming brokered loans perform worse than their retail branches. Again, who developed the programs, set the guidelines and APPROVED every loan?
Mortgage insurance (MI) companies are now joining the banks and lenders. Some have completely cut off brokers, while others have set different guidelines for banks and brokers. The reason is simple: Banks and lenders call the shots. For years, some banks and lenders have intimidated mortgage insurance companies to insure loans they knew would eventually have a high default rate. The MI companies had a choice: insure the loans or risk being cut off.
Until approximately ten years ago, brokers and other originators would submit loans for underwriting (approval), to both a wholesale lender and a mortgage insurance company. This long established practice gave every file with less than a 20 percent downpayment a second set of eyes. Having two underwriters independently examine every submission for approval protected both consumers and industry. In my opinion, this practice was eliminated out of greed. Some banks and lenders saw an opportunity to increase their profits at the expense of quality control. Some banks and lenders made "deals" with mortgage insurance companies. The agreements called for the lenders to take control of underwriting. Once a lender approved a file, that file was also considered approved with an MI company. The second part of the deal consisted of a kickback. Since lenders and banks were in control of who ordered the private mortgage insurance, they could steer business and demand a percentage of the consumer's premium. These kickbacks averaged 25 percent of the premiums. They were also never disclosed to the consumer.
This type of lender control is also taking place with appraisals. Lenders have established their own Appraisal Management Companies (AMCs), which allow them to have complete authority over all aspects of the "independent" appraisal process.
It's important to note that not all banks and lenders have engaged in these practices. Many are honest and reputable institutions. However, the fact remains that many are preying on the consumer and small business.
Mr. President, if the actions outlined in this letter are permitted to continue, the costs of mortgage financing will increase as a result of less competition. State shortfalls will increase, as well. Furthermore, the country will see a continuation of sharp and prolonged unemployment and foreclosures, due to the elimination of our profession.
Every day, more and more small business brokers and their support staff are going out of business. We urgently require your guidance and support. I would appreciate meeting with you as soon as possible to discuss this ongoing tragedy and means by which improvements can be made.
Respectfully,
Marc S. Savitt, CRMS President
National Association of Mortgage Brokers
https://www.namb.org/Forms.asp?MODE=NEW&Forms_FormTypeID=-24
Posted by: Dana Bain | Feb 16, 2009 9:38:56 AM
