THE THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks V THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacksv THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks V TRUTH BEHIND Buybacks

By Smaney, Michael | Mortgage Banking, March 2012 | Go to article overview

THE THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks V THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacksv THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks V TRUTH BEHIND Buybacks


Smaney, Michael, Mortgage Banking


All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident.

- ARTHUR SCHOPENHAUER, GERMAN PHILOSOPHER (1788-1860)

For those of you who have been in the mortgage industry for longer than we all care to remember, you, too, have experienced the various stages of "truths." This is true when it comes to industry performance, as well as how new ideas are regarded before they become the norm. For those with less experience, you may have been surprised by the recent credit crisis. However, in some ways, it is just history repeating itself. * It is from this historical perspective - over the last 30 years - that I would like to explore the three stages of truth in the lending industry, and why today's investor repurchases are yet another link in ^ie circje of lending. * My first exposure to a "lending crisis" happened in 1990 as our organization (a previous employer) was one of the top-producing mortgage lenders in the country and part of one of the world's top global banks. * Our operation was supported by a stateof-the-art process, with well-trained staff and a powerful, automated lending platform. Most of the loans that were produced through this origination machine were sold to one of the government-sponsored enterprises (GSEs).

To spare you a complete history lesson, I will list what transpired in a 12-month period, from mid-i99i through mid-1992: 1} spurred by a U.S. real estate market meltdown, our lending organization became the nemesis that almost broke a global bank; 2) our chief executive officer had to meet with the president of the United States to explain how we were too big to fail and how we were going to get out of the non-performing loan mess (sound familiar?); and 3) our organization was close to putting our main GSE investor out of business because it held most of our non-performing loans. At this point, things like self-insured loans, repurchases and layoffs were not a pleasant experience. However, there was a transformation that occurred as a result of the mortgage mess: the creation of mortgage credit scoring to help reduce the risk of producing loans that would not perform.

As the mortgage storm grew within our organization, some of our sister organizations had provided us with a number of suggestions to help us recover from our errant ways. One suggestion that stands out came from our credit-card group. The group shared with us its unique credit-scoring capabilities and suggested that since we now had a portfolio of non-performing loans, we had the perfect environment to create the "scorecard" to reduce poor mortgage decisions in the future.

So it was off to the races to create a scoring system that would keep our organization out of mortgage trouble. It should be noted that in the early stages of creating the scorecard, there were some who were violently opposed to the option. Underwriters felt that their roles were more art than science, and that scoring would not work.

My thinking at the time was that if people could walk into a car dealership and purchase a $100,000 car and drive off the lot in 6o minutes, why couldn't they potentially purchase a house in the same amount of time if a scorecard justified that they could?

Fast-forward 20 years to the recent global credit crisis. Not only did U.S. homeowners collectively lose an estimated $7 trillion in home-equity value, but lenders are now seeing billions in repurchases that either puts them out of business or significantly impacts any chance of a profitable year(s).

While I would love to be able to solve world hunger and shepherd worìd peace to fruition, I will focus on a couple of transformations I am suggesting as the industry moves forward. I believe these could help minimize the chance of this type of event happening again.

Ridicule

While we can't go back in time and fix the current onslaught of repurchases, we can instead look forward to see how we can reduce investor repurchase risk due to errors in the process. …

The rest of this article is only available to active members of Questia

Sign up now for a free, 1-day trial and receive full access to:

  • Questia's entire collection
  • Automatic bibliography creation
  • More helpful research tools like notes, citations, and highlights
  • Ad-free environment

Already a member? Log in now.

Notes for this article

Add a new note
If you are trying to select text to create highlights or citations, remember that you must now click or tap on the first word, and then click or tap on the last word.
One moment ...
Default project is now your active project.
Project items

Items saved from this article

This article has been saved
Highlights (0)
Some of your highlights are legacy items.

Highlights saved before July 30, 2012 will not be displayed on their respective source pages.

You can easily re-create the highlights by opening the book page or article, selecting the text, and clicking “Highlight.”

Citations (0)
Some of your citations are legacy items.

Any citation created before July 30, 2012 will labeled as a “Cited page.” New citations will be saved as cited passages, pages or articles.

We also added the ability to view new citations from your projects or the book or article where you created them.

Notes (0)
Bookmarks (0)

You have no saved items from this article

Project items include:
  • Saved book/article
  • Highlights
  • Quotes/citations
  • Notes
  • Bookmarks
Notes
Cite this article

Cited article

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

(Einhorn, 1992, p. 25)

(Einhorn 25)

1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited article

THE THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks V THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacksv THE TRUTH BEHIND Buybacks THE TRUTH BEHIND Buybacks V TRUTH BEHIND Buybacks
Settings

Settings

Typeface
Text size Smaller Larger Reset View mode
Search within

Search within this article

Look up

Look up a word

  • Dictionary
  • Thesaurus
Please submit a word or phrase above.
Print this page

Print this page

Why can't I print more than one page at a time?

Full screen

matching results for page

Cited passage

Style
Citations are available only to our active members.
Sign up now to cite pages or passages in MLA, APA and Chicago citation styles.

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn, 1992, p. 25).

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences." (Einhorn 25)

"Portraying himself as an honest, ordinary person helped Lincoln identify with his audiences."1

1. Lois J. Einhorn, Abraham Lincoln, the Orator: Penetrating the Lincoln Legend (Westport, CT: Greenwood Press, 1992), 25, http://www.questia.com/read/27419298.

Cited passage

Welcome to the new Questia Reader

The Questia Reader has been updated to provide you with an even better online reading experience.  It is now 100% Responsive, which means you can read our books and articles on any sized device you wish.  All of your favorite tools like notes, highlights, and citations are still here, but the way you select text has been updated to be easier to use, especially on touchscreen devices.  Here's how:

1. Click or tap the first word you want to select.
2. Click or tap the last word you want to select.

OK, got it!

Thanks for trying Questia!

Please continue trying out our research tools, but please note, full functionality is available only to our active members.

Your work will be lost once you leave this Web page.

For full access in an ad-free environment, sign up now for a FREE, 1-day trial.

Already a member? Log in now.