First, I would like to make a clarification in my last blog article (The Acceleration Though the Turn Will Make All the Difference), in that I should have added an “S” to the word Fed (Feds) – relating to both the Treasury and the Federal Reserve.

The President recently signed HR 1424, “Emergency Economic Stability act of 2008”, creating a new office by the government titled, The Office of Financial Stability (OFS). OFS, attached to the hip of the Treasury and the Federal Reserve, will now oversee the Troubled Asset Relief Program, (T.A.R.P.). There are more than a few people that believe the name of the initiative should have been something more like the Captured Rancid Asset Program, (C.R.A.P.). Much of this sentiment is due to a misunderstanding of these assets, how they are valued and what the process will be for managing the $700 billion allocated thus far. Yes, a lot of these assets can be defined as crap, but I, for one, am very happy that the T.A.R.P. initiative has been approved (for the sake of the US and global economy) and now all that we need to do is successfully activate the mechanism – however, this is much easier said than done, of course.

Everyone seems to be a little confused about how the government will ultimately buy these troubled assets at a price that doesn’t “break the bank”. They actually buy them to ensure that the T.A.R.P. initiative is a successful program and ultimately frees-up the frozen credit markets. At the same time they pay a price that will allow the government to sell the assets for a profit at some point in the future. The issue itself is, in fact, price – Mark-To-Market – and that is at the very heart of the matter. The Genesis of the price is the actual piece of real estate, or collateral, that the Mortgage Note is attached to. The Mortgage Backed Security (MBS-Bond), for a lot of people, looks a lot more like a Magically Backed Security with all the media hype and the recent government intervention. However, this isn’t exactly the case and I would like to spend some time on the subject.

Think of it this way. If a Mortgage Note had zero value, that would mean the real estate it was collateralized by had zero value as well. If the government forecloses on a mortgage, then they will then have an opportunity to fix up the property and sell it to the public for a specified price. Whatever the property sells for is what the market price is. So, getting down to the brass-tax, there is a real value tied to each and every Mortgage Note that will be purchased and managed by the OFS.

Now, let’s take this up the chain a bit and start to reflect on the actual value of the Mortgage Note itself. Even beyond the real estate value that is backing the Note, each loan itself is an asset of sorts and has a value based on what the market is willing to pay for it based on the type, performance history, and available liquidity for it in the secondary market to transfer such loan assets around the financial system. As we are clearly aware, the liquidity that allowed for these type of loans to transfer around the globe pretty much dried up – and, in turn, they became stuck on the bank’s books – clogging the kitchen sink so that nothing could flow at all. Now the government is artificially “making the market” and ultimately providing the financial system with new liquidity to allow banks to sell the paper down the line. This does not only start to unclog the drain, it also allows for the market, and the bank, to set the new price, due to the fact that one of the missing components in valuing the asset has now been provided – and that is the liquidity to allow the loan to move into the secondary market – and that artificial market is now the OFS.

The Mortgage Note has a minimum value regardless – there is no question about that. Now, if you have a Mortgage Note that is held up on a bank’s books with a principle balance of $100,000, the home is worth $100,000, it is performing (meaning all payments are being made on-time), and there is no way for the bank to sell the loan into the secondary market – the bank then decides if it will simply keep the loan at an unknown value (due to there not being a secondary market and an unknown real estate factor due to a possible declining real estate market in the area). This, however, is problematic to the bank for a number of reasons. The two most difficult challenges are; first, Mark-To-Market calculations imposed by GAAP accounting regulations (General Accepted Accounting Principles) and the reports that ultimately need to follow to the regulators, etc. and second, the bank cannot tie up the cash and desperately needs it to lend to its customers; freeing up much needed liquidity for the commercial paper market, student loans, car loans, credit cards – you name it. The action taken by the government has literally created an ability for the banks to set the price, and have an outlet to sell the paper to ultimately free up cash. If the government did not create this artificial market, the banks that would be forced to sell the paper at any cost to free up liquidity and would ultimately be forced to sell the paper well under its actual real value. We’ve all been hearing the statements flying around about 65 cents on the dollar. This basically means that, based on the scenario above, the bank would be forced to sell the $100,000 Mortgage Note to someone, or some entity, for $65,000 – or much less depending on the bid. However, even in this scenario, the Mortgage Note, or the Mortgage Backed Security Bond (MBS) still has value – and finding the value has been the essential problem as of late.

Now that the government has made a commitment to create a market for the banks to sell the paper to – what will happen next? I think there is something very interesting and unpredicted in the near future that could stall the process a bit and not allow money to flow as fast as I, and everyone involved, would like. Think about this for just a minute – if the bank now can effectively mark the value – what happens if the value is high enough for the bank to balance its books, raise capital, and ultimately hold onto the Mortgage Note without selling it to the OFS for a loss? I don’t have the answer to that question – and, in fact, I’m still trying to figure out if that is a good thing or a bad thing.

On the good side, I would imagine that it makes it possible to double the effectiveness of the $700 billion pile of funds that the OFS will use to free up the markets. Or, it could cause a delay in the freeing up of liquidity due to banks not being able to give up that newly captured value on the books. You could argue that it is a good problem to have. I would guess that the media is going to flip from statements such as, “banks are in trouble due to not being able to value certain loans on their books”, to, “banks are troubled now that they can, in fact, value certain loans on their books”. I hope this does not slow the process of getting money flowing around the world to stabilize the economy and get all businesses in a stronger position to financially manage their going concerns with much needed bank lending support. If it does slow the process it may only be temporary – but, again, I hope that the delay doesn’t make us all a day late and a dollar short. Small businesses are being strangled by this whole mess and can’t wait much longer for a breath.

At the end of the day, mortgages do have value and a MBS is not necessarily a Magically Backed Security. I predict that the next set of challenges in this whole mess will be that these loans in question will now actually have marked value and then the tough decisions and bidding wars will begin to take root. No one really knows how long it will take for this to stabilize and what new challenges will arise – but I assure you there will be new and unforeseen potholes in the road ahead simply due to the fact that we have not exactly been here before and there is no effective way to deploy foresight in an artificial market. It is essential, however, that the government gets this right – which I believe they can. But for this market to ever be real again, the OFS needs to get in, help set the price, buy a bunch of these loans, clean them up and sell them back into the market – then GET OUT. The faster this can happen, the more stable the “real market” will become. The public and the business world need to be able to feel that it is on solid ground when relating to value. That is just not going to happen as long as an artificial secondary market is in place. However, as soon as the OFS steps out and all Mortgage Notes are being sold in the public market – at that time I think we will be headed down the right path.

I am pleased to see that the Senate has passed the Financial Crisis Bill. I will be bold and suggest a prediction that the House vote is already a foregone conclusion – done and done. This just has to happen.    

Once we have the green light, the Fed can do this the right way with the competency to mange this properly by bringing in the business acumen from the private sector to ultimately aid in what will be a very elaborate auction system. The assets that will be purchased from the government need to be purchased in a way to allow it to sell into the markets, once stabilized, at a profit – and that is the opportunity for the Fed in tandem with the challenge.  

Mark-to-Market is a tricky issue – but we can deploy the proper intelligence to act – and act in time. Can the Fed accomplish this? Yes, I believe it can. In decades past, the government had very sophisticated national asset auctions that took into consideration every variable relating to geographic values, credit model characteristics, asset types, socioeconomic issues – you name it. As a nation we have the competency to do this right and we have the experience from the past that can be pulled out, dusted off, and deployed yet again.  

Moving forward, we need to accelerate faster into “the right turn” (emphasized in a previous post, My Ten Cents). The commercial paper market is the key to getting the ball rolling.  Made up of money from Main Street and global markets, the commercial paper market keep money flowing into institutions with investment vehicles which is then lent back out into the business world. When a Goldman Sachs stands up and says, “We need $100 million to do X”, due to its size, reputation and ability; the commercial paper market steps in and provides the needed liquidity. In addition, when a small business steps up and makes the same request, it also has the ability, based on its credentials, to borrower from this ocean of funds to operate on a daily basis.  

There are two sides to this issue – businesses need to borrow money at interval times to operate, and in addition to that they need to take cash on hand and invest it in ways that will provide the best yield – which are investment vehicles beyond a regular checking account providing FDIC insurance coverage. With that said, if a business is not comfortable putting their money into a fund outside of a FDIC insured account, it ultimately chokes off liquidity flowing into the commercial paper market. The problem now is that the ocean has turned into a pond. 

As you can imagine, if money is not coming into the commercial paper market it cannot go out to businesses and provide the essential short term liquidity to cash-flow operations. Without the Fed’s intervention and Congress finally agreeing to approve the initiative, the commercial paper market would be completely frozen shrinking the pond into a puddle or simply drying up all together. In this scenario, only the businesses that have enough cash on hand to operate without short-term financing survive. Even this minority will eventually fall onto massive problems simply due to the fact that the entire economic supply chain is disrupted and the smaller business down the line that supplied the minority with cash on hand, with raw materials, or endless other necessities, is not able to stay in business due to the small businesses’ inability to cash-flow operations. There is no escaping the catastrophic negatives that would be imposed on the world economy if we did not support the latest initiative to support the flow of financing for all businesses — large and small.  

Now that we have hit the gas pedal as we make the turn, it is essential that we are not timid in the process. Before businesses, public, or world markets will start to place their money into uninsured financial vehicles (money flowing into the commercial paper ocean, pond or puddle); they will watch to see when the Fed starts to pump money into the mechanism first. If this goes as planned, the Fed will have a BIG pile of money sitting around and it is essential that they act fast to show a commitment to expeditious action to provide liquidity to flow into the commercial paper market. 

So, who acts first? It is essential that the Fed jump starts the process and fast. Main Street needs to feel comfortable and confident that money is flowing properly. Once a large or small business sees that liquidity is flowing, they will ultimately jump into the equation and the pump will be primed and money will flow accordingly.  

On another note, but obviously connected, I like the idea of creating a higher FDIC insurance cap to $250,000 – who doesn’t? However, this does create motivation to reduce money flowing into the commercial paper market – but to what extent? Who knows – we shall see.  

I believe that the Fed can make a profit on this package and that the housing prices will stabilize as we properly adopt current action and help support the liquidity that is so essential to capitalism. As businesses are stabilized and money is flowing properly; businesses will become stable and successful, hire additional employees, and provide higher pay.  

It’s simple. If people have money to spend, they will spend it. And they will spend it on real estate. There are amazing bargains to be enjoyed and demands will begin to increase. With these demands, prices will inevitably start to climb at some point. I predict this will occur (if current plans are executed properly) by the end of 2009. As prices climb the government will have an opportunity to bleed these same assets off at greater yields – and this will come back to all of us as tax payers.  

The next steps are essential – but more important is the timing and commitment by the Fed and the entirety of world markets to adopt new confidence and invest into the great ocean of money that makes the world go around.        

I have had a number of friends, colleagues and critics make the comment; “Dave, it’s obvious why you want the recent proposed bail-out by the Fed and Treasury to take place – you are the CEO of a national mortgage lending platform”.  Such a simplistic assessment of my position in the current financial markets is troubling and I truly believe that we should educate ourselves on the markets and more specifically the multi-trillion dollar global money-supply-chain that makes up the whole of the mortgage lending and financial industry.  

I would respectfully ask my readers to allow me to spend a little time on this topic to point out and defend the company I manage, PRMI, and the amazing people that it employs.  

First and foremost, PRMI will only stand to benefit indirectly from the proposed 700 billion dollar government mortgage asset bail-out as all Americans will, if Congress can accomplish this much needed action. Furthermore, PRMI is, and always will be, a Retail Mortgage Platform – not a Wall Street Wholesale Platform making and designing risky mortgage securities. PRMI chose to abandon Sub-Prime lending and banking two and a half years prior to the collapse of this product line (over three and a half years ago). Even when our organization did provide such products, PRMI did so following the beliefs of two chief disciplines. First, regardless of relaxed market guidelines, PRMI did, in fact, properly underwrite and deployed “best lending practices” relating to the decision making of all approved and completed loans. Second, PRMI always maintained, at that time, a very small volume budget for said products, which fell below 10% of our overall lending volume.  

PRMI simply read the writing on the wall. We felt that the product did not fit our estimation of responsible lending practices and we ultimately chose to abandon the product on a lending basis as it became way too aggressive. Our business has always been predominately focused on “A paper” lending with a strong competency and practice in government and agency lending programs. At the time, it was very obvious to us that we simply needed to focus on our core business practices and competencies – Retail Prime Lending.   

PRMI will not directly benefit from the proposed bail-out, as we do not have loans on our books to be sold into this new “government pool of money” that will ultimately be temporarily funded by the American tax payers. Being that PRMI has always followed proper lending practices, rules, guidelines, warrants and regulations of its oversight entities, including the Federal Housing Administration (FHA), Veteran’s Administration (VA), Fannie Mae, Freddie Mac, Gennie Mae and major mortgage investors (such as Citi, GMAC, SunTrust, Chase, Wells Fargo, etc.), a request will not be made to the government by any PRMI executive for any sort of aid or release of stuck mortgage assets. In addition, PRMI is made up of professional mortgage loan originators that have the ability to originate, process, approve, and fund mortgages utilizing our warehouse banking capabilities – then sell the “payment ready” mortgages into the Secondary Markets.  We only choose certain product types and take certain lending risks when we consider its value proposition to our customers. 

It is essential that Congress acts fast to adopt the proposals made by the Fed and the Treasury. This is not simply a bail-out that will result in an altruistic sacrifice by the great citizens of America with no return or trade in its mechanism; one that will only benefit Wall Street “fat cats”, banks and their CEOs, and special interest groups. The proposal is to utilize tax payer dollars to “un-clog the pipe”, stabilize the banking industry and ultimately allow money through lending to flow more freely to stabilize American households and businesses that are being choked off by the limited lending options available to them.  

In addition, the proposal calls for the very banks that essentially benefit from the bail-out to suffer redemptions by diluting their stock equal to the “net-loss” recognized by the Treasury. In turn the Treasury will return the money to the American citizens after it succeeds in its effort to stabilize said banking platform. It is much more like a huge loan made by the public – and it is designed and intended to save the public. 

We need to stop pointing fingers and act immediately! We are all in this together. Every single citizen of the United States of America has an interest in the stabilization of our economy, banking system, GDP and property asset values. A catastrophic meltdown in our financial systems can only result in massive unemployment and the one-two punch of deflation / inflation in all the wrong places. Every citizen in every class will be affected in numerous ways, from losing value in some areas of life and paying more for essentials. We’re at the “T in the road”, the blinker is signaling a “right hand turn”, but we now seem reluctant to accelerated into the turn. Fear and uncertainty are dangerous enemies that must be stomped out and we need to make the “right turn” – now.  

  Well – that happened a bit faster than I had anticipated, but nonetheless a very bold and positive statement made by Treasury Secretary Hank Paulson suggests that the blinker is on and it is clearly signaling a “right turn” at the “T in the road” – great news!  

I would encourage my readers to take the time to listen to his speech that was broadcasted live this morning around 10:15 AM EST. To sum it up for you all - here is my brief analogy of what was said this morning: 

Think of the current financial systems as if you have a clogged drain in the kitchen sink (the clog is mortgage assets that have zero liquidity on the banks’ balance sheet – and the sink itself is the bank). This clogged pipe is making it extremely difficult for banks to extend all types of lending – including mortgage options or the support of our industry.  Now, the Fed is a Roto-Rooter (plumber) on their way to unclog the pipe!  

When the clog is released, water (money) will flow rapidly and we will start to see the financial system regain stability and normalize faster than you may think. Once that occurs – we have “made the right turn” and the expansion of our country’s economy will be headed in the right direction. 

Yes; this will cost the tax payers money – without question. However, it is extraordinarily necessary that without it the great citizens of the United States would have far greater worries to contemplate if the clog was not released.  

I am confident that I will have the opportunity to heavily debate this with my readers and colleagues in the near future, but I for one believe that we are making the “right turn”.  

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