This week the United States witnessed an unprecedented day in the financial markets – it was as if we were witnessing financial events in the 1930s without the total collapse and despair that followed just days later. I’ve been reluctant to write a new article relating to the latest developments in the United States’ financial issues due to a basic inability to predict what is to come. It now seems to me and my closest colleagues that there is a clear idea of what is before us – and that is a proverbial “T in the road”, where the street sign pointing left reads “collapse and despair” and the sign pointing right reads “alignment, money flow and expansion”. Unlike the financial crisis of the 1930s, it appears that in this current era, the wisdom and effective policies to liquidate broken systems has not only been a viable tool but has been deployed with expeditious zeal by the federal government – and they seem to be making all the right moves!  

My ambivalence towards the Fed  and the recent steps taken by the government to aid our nation’s financial struggles has been fading rapidly. Contemplating macro-economics and my personal political bias of the inherent values within free market capitalism, I can’t help but to be concerned with the unknown cost to be paid for current policy to socialize Wall Street and Main Street’s risk, while at the same time expecting profits within a nation to maintain its most valued treasure – capitalism. I can now see clearly  there was no choice but to order government intervention from the menu – and it just happened to be exactly what was needed to fill the United States’ financial appetite – so far as we know at this point.  

The current positive and much needed moves made by the Federal Government has allowed us to witness remarkably negative events on Wall Street – without affecting the masses (almost all of us) still have had the opportunity to come to work today! This suggests to me that first, the worst is over – we’re at the bottom of the “V” due to the relentless action by the Federal Government and its current effectiveness (turn right at the “T” in the road), or second, it has been all for nothing and the worst is yet to come (the left turn at the “T”). Most importantly, is that over the next three months we will have the opportunity to read the final paragraphs in this chapter of the United States financial markets’ story of which way we turned – right or left.  

I, personally, better understand now and have accepted why our nation has acted on such socialistic remedies to increase trust in our financial systems – and that it is due to a simple concept of hindsight and wisdom. These events had already taken place once upon a time, the 1930s – and in that era the US Government handled the financial crisis the wrong way and the outcome was catastrophic. This outcome, if anyone has read the old book Think and Grow Rich by Napoleon Hill, was fear based and threw the nation’s attitude, pride, ingenuity and drive into a cork screw spiral until it hit below bottom. Yet as time has passed and our nation advanced, there are many differences to be proud of: 1- Wisdom, 2- Relentless pride of our freedom 3- Ability 4- Shear passion to not relinquish lifestyle, 5- Size and scope of our nation’s ability to liquefy our financial markets in the name of freedom and the strengthening of our capitalistic society. It all sends chills down the spine.        

I believe, and am willing to predict, that over the next three months our nation will witness a turn for the better – and, in fact, we will have chosen the “right turn” towards improvement and prosperity. There are massive forces at work beyond just a relentless positive attitude (my optimism always comes out), that will ultimately guide us in the right direction.  

What’s the best news? Simple. The US financial markets will rapidly take a turn for the better once we even start “making the turn” – or even just turning the right blinker on to signal the direction we are committed to take. Banks will instantly abandon their “hording-cash” positions as they start to lend and fear will subside among the general public with just the idea that solid ground has been established. You may be asking yourself – why have I made it sound like it is a choice? There is a profoundly simple answer to that question – and that is simply, it is a choice! Forces are at work relentlessly proving to the world that the United States of America can and will survive these current challenges without needing to repeat situations in past eras that set our nation back for decades. All that is needed at this point is for our society to abandon fear itself and continue to (or start to) adopt the mental attitude of sustainability, drive and the power of positive thinking!   

I would like, for a moment, to focus on PRMI – the company that I have built with so many amazing, relentless and passionate partners, colleagues and friends. Without question, the financial markets have had an impact on every type of business that “sells money”. PRMI has not been completely insulated from current financial events – not even close; however, over the last decade we could not have positioned ourselves better for both sustainability and capturing market share in this rapidly consolidating industry. Here are a few PRMI facts to note: 

1. PRMI has increased its volume from 2007 to 2008 almost 25% in a rapidly contracting market.
2. PRMI is currently conducting business with the same warehouse lines that have been in place since its inception. There have been few changes within these lines – all of which due to overall industry trends, not related to issues within the PRMI organization.
3. PRMI can proudly state that it is profitable on a monthly basis and shows positive growth in this capacity going forward.
4. PRMI is a privately held debt-free organization that is not held to the whims of public investors, speculators and short selling practices.
5. PRMI is not a depository that is held to the whims of depositors that can “run on the bank”, leaving the institution crippled at any threat of instability.
6. PRMI has an excellent relationship with its investor conduits, warehouse banks, affiliated businesses (title, MI, evaluation, etc.), Freddie Mac and Gennie Mae - and does not foresee any changes other than continued improvement and expansion of said relationships.
7. PRMI has become an oasis in the industry – constantly attracting new origination partners and business sources as the industry continues to consolidate.
8. PRMI’s greatest challenge is to meet the demands and the management of our expansion. We are constantly evaluating our originating platform, production flow systems, on boarding processes and partner approval criteria - all of which is our highest priority and I am very confident we will achieve all our goals as we have always successfully done in the past.

 Moving forward – I would like to address two questions that are often posed to me relating specifically to the mortgage banking industry: 

1. Is the government’s involvement in stabilizing the GSEs (Freddie and Fannie) a good or a bad move for mid-sized mortgage bankers – and how does it effect specifically “professional mortgage loan originators”?

2. With all of this consolidation, the idea is that the GSEs will be held to massive governmental oversight and a significant reduction in their portfolios. How will this impact mid-size mortgage banking companies that specialize in only mortgage lending (like PRMI) – and ultimately, will this cause mortgage paper only to be originated via bank moratoriums?

 There are two main thoughts that keep bouncing around in my head relating to the first question. If the government did not step in to prop-up the GSEs, I have no idea how bad the situation would have become and/or how our company would fare in such an environment (scary idea for all markets world-wide). I can clearly state emphatically that the government’s involvement in strengthening our GSEs has made it possible for consumers to obtain mortgage loans today and in the future – end of story. In fact, if they did not step in, there was a good possibility that the outcome would have been catastrophic, perhaps even worse than the 1930s.  On the other hand, it is well known that I am not a fan, by any means, of government meddling in free market capitalism and if it continues to happen at this level, ultimately the price for our salvation in the financial markets and the economy will be (at some undefined time in the future) an extended period of reduced freedoms in a capitalistic free market nation that will ultimately hinder expansion, wealth, invention and capitalism itself – hence my previous ambivalent attitude towards the Fed “socializing risk”. What is happening now, I believe, is necessary, but I fear that the public, and more specifically young capitalistic entrepreneurs, do not have the wisdom to understand how great the price will be in the long-term future. At this point in time all that we can do is watch very closely the outcomes and attitudes of our nation’s young businesspeople and try passionately to preserve what our forefathers and patriots fought desperately to create – Free Market Capitalism. Ok – let me jump off that soap box and get back to the subject matter at hand.  

In the end – yes, I truly believe that the government’s actions to place confidence in Fannie and Freddie has helped mortgage bankers that specialize in loan originations and process in more ways than we can currently contemplate – but will become rapidly apparent of this fact as we gain new hindsight and witness what will be known as “The Great Expansion” – instead of the alternative events of the past known as “The Great Depression”.      

Now, to focus on the second question, “What happens to the mortgage bankers and professional mortgage loan originators”? I happen to believe, with a passion, that mid-sized mortgage bankers are in the “cookie-jar”, for the most part in these current events, and will ultimately be the organizations that not only win in the end, but help our entire nation to stabilize the real estate market and the economy as a whole. Bottom-line, without the ability for our nation to buy homes and refinance their current mortgage obligations, within a productive and efficient / scalable business model, the foundation of our economy would be in peril – and the “world money machine”, banks, GSEs and Uncle Sam knows this to be truth!  

Now ask the question – who comes to the rescue?  The major banks, at least the ones that are left in the aftermath of our current financial crisis, will no doubt be summoned to the cause – but now we must ask the question of capacity. These same institutions, the banking sector or the GSEs, need desperately to amass new armies, troops, and ground patrols by the legions to fill this gargantuan need. However, they will find that it will simply not be possible to revamp fast enough or consolidate companies that do have the business acumen to make such accomplishments in time to catch the wave of demand on the other side of this cycle – or at the very moment we “turn right at the T” – and in turn, if they miss “the wave”, a massive opportunity to strengthen our nation and its economy will pass by with it.  

Furthermore, large banking organizations in the past have filled their back-rooms to capacity with scores of talented staff members that know, very well, how to fulfill paperwork and manage an arbitrage, but not actually act in a sales capacity to successfully originate a mortgage loan - and I am not referring to depositor customers that just happen to walk into the bank. What we are talking about here is something that has become an essential and proven need to the US economy – “the Professional Mortgage Loan Originator” and the businesses that ultimately house these individuals in a specific business offering, competency and focus – Mortgage Lending. It is a simple and very well known fact that most US citizens have a great need for special attention, patience, care and effort deployed in their mortgage process – and that can only be truly provided and achieved in grand-scale by the “professional loan originators”. These same banking institutions, the GSEs, and Uncle Sam know clearly that bank capacities and competencies that have been designed and utilized, over the last decade, to “push paper” and the building and managing of hedge-funds, cannot be simply retrofitted into mortgage origination, creation and processes paramount in a properly executed mortgage platform. In addition, they are also clearly aware of the extraordinary efforts and risks associated with trying to revamp their business to become mortgage originators – when all they have to do is “buy the paper” from a market that is already established and then simply shift the paper-management and arbitrage talents from one massive financial “ditch-box” (hedge-funds) to another (mortgage). Why would a banking institution want to replace its talented workforce that can do the “new-job”, with a new workforce that has no proven efficiencies or abilities to hit the objective – and that is to successfully originate, process, underwrite and fund massive mortgage volume straight from the street?  

I believe that all the banking institutions and mortgage conduits that are left in the end, know the value of the current origination markets / businesses and the efficiencies that have been established in the secondary market trade over the last fifteen years. I doubt very much that the fundamentals will be thrown out – and, in fact, it is my belief that business similar to PRMI will be embraced vigorously in an effort to provide the mid-sized and large mortgage banking operations the platforms and money conduits necessary to ensure the future of the home buyer and ultimately the strength of the US economy. But more importantly, this will not happen simply due to its great need and strengthening of our nation’s economy. This will happen due to the massive amounts of “profit” that can be made, or would be passed by; if, in fact, mortgage bankers were not respected and ultimately vigorously supported when we ultimately “make the turn”.  There is something very special about a free market enterprise where ingenuity and ideas flourish – it is simply much more efficient, effective and productive – and in the end everyone wins - the consumer, the strength of our economy and the banking sector. 

In closing, only time will tell the actual story of our industry and the US financial markets, but it is becoming clearer what the simplest of all predictions and explanations will be. Reality is defined as the totality of all things possessing actuality, existence, or essence of that which exists objectively and in fact. Reality currently dictates that mortgage bankers are an essential characteristic of our nation’s financial markets, we are “in business” today and there are forces at work that obviously want and need this industry to succeed and thrive. Let us all enjoy our important role in the essential need that we fill in our nation and ask ourselves how we can become more productive and efficient to prove to all financial conglomerates that they need not look any further than the exceptionally well built platforms of the mid-size and large professional mortgage bankers to save this nation. 

Dave Zitting
CEO

PRMI
www.PrimaryResidentialMortgage.com