Tuesday, January 31, 2006

Easy money never lasts forever!

There has been a lot of talk here and on the other blogs about the consumer spending that has been financed through the equity extracted from real estate. But what about the people that make the industry possible? What kind of money have many of these people been making, and what is in store for them?

To answer that question, let's look at the growth in the mortgage industry. Take a look at this chart from the Mortgage Bankers Association which shows the amount of mortgage originations by quarter. An origination is a purchase or refinance loan. I went ahead and added up the quarters to give an 'annual' picture of things.

1990 - 459 billion
1991 - 563 billion
1992 - 893 billion
1993 - 1.020 TRILLION
1994 - 769 billion
1995 - 640 billion
1996 - 785 billion
1997 - 833 billion
1998 - 1.656 TRILLION
1999 - 1.379 TRILLION
2000 - 1.139 TRILLION
2001 - 2.243 TRILLION
2002 - 2.854 TRILLION
2003 - 3.812 TRILLION
2004 - 2.773 TRILLION - 2.92 trillion per IMF Pubs
2005 - 3.120 TRILLION - only 2 quarters data from MBAA so IMF Pubs provided the 2005 data

If you look at this data it is pretty easy to see that as the stock market started cranking in the late 90's so did mortgage originations. Things tailed off in 2000 as interest rates were at their highest point in years. As you can see, 2003 was the largest year on record. Almost 4 trillion dollars worth of loan originations. Your interest only loans started becoming popular in 2002 and they took off in 2003 and beyond. There were almost more mortgage originations in 2002-2005 than there were from 1990-2001.

But what does all this mean?!?!? Let me ask you this (especially the people in California): how many people do you know that could do a loan for you? How many people did you know 3-5 years ago?

I couldn't find the article at the moment to provide a link, but something like 40-50% of the job growth in CA has been in the real estate/mortgage/construction industry since 2000. When you see an industry flooded with money like that, what happens. People run into the business for the money!

The whole point of the above data is to show you the size of the mortgage business. Now that you have seen the amount of money that is out there, you know that there were lots of people making good money.

During the boom times, it was not uncommon for somebody with little to no mortgage experience to make 5-10k in their first month...and some people made much more. You had people making 20, 50, 100k+ a month. Yeah, it was mostly the top dogs making 100k+ a month, but there were lots of them. From what I saw, it was pretty safe to say that most people were making 15-30k a month. I don't have stats or anything to prove this, just what I saw on the 'tracking' boards in offices, and from knowing how much people were making on the loans I was doing for them.

It's funny, I had loan officers that wouldn't "do loan amounts less than 500k". They would pass them on to somebody else because it wasn't worth their time to do anything smaller. But do you want to know what is REALLY funny, I was getting calls from some of these same people a few weeks ago for 150k loans in Florida. I said, "I thought you didn't do the small loans". They said, "very funny...in this market, I'll take what I can get".

I'm also seeing a bit more stress on some people's faces. After several good months in the business, many of these people realized they could get a mortgage, and they were making good money, so why not?!?!? The only problem is that that mortgage is a 30 year commitment. 6-12-18 months of good income doesn't mean you can afford that in the long run. When the 20k a month isn't rolling in so fast, that 4000-6000 a month mortgage starts looming large in some people's eyes. I even had one office where the other loan officers pointed to a guy who was stressing out...and I just watched as he was burning up the phones, dialing for dollars. You could tell he was on a mission. I asked one of the guys "what's up?". He said that the loan officer in question had a $4000 a month mortgage and the holidays were pretty rough for him. Rough in the sense that mortgage production slowed down, and there wasn't a big paycheck at the end of the month.

You could only imagine the stories I would hear from the 5000-10,000 dollar weekends in Vegas. The clothes, the cars, the jewelry...it was everywhere in some of my offices. There were 20-25 yr olds rolling in 745 BMW's, Hummers, 500SL Mercedes, Escalades, etc. You name it. The phones were ringing and there was an energy you felt when you walked in. People were making money, and life was good.

That energy is gone from my best offices. Many of the cubicles that used to be full, are empty. The top people are still around, but they are having to work much harder. Some have been in the business for a while, and knew it would slow down some. Some have never known anything other than the 'boom times'. Of the 'mom and pop' shops that worked out of their homes, or had small offices, some of them have closed their doors, or taken the step towards home office.

I will say this, at the same time when these people were making lots of money...and letting everybody know it. There were the quiet people (I really enjoyed talking with these people). The ones driving an older Honda Civics or pickup trucks. These people usually owned the shop, or had been in the business for a while. I think they knew this wouldn't last, or maybe they just weren't the 'flashy' types. Some of these people are probably set for life after the money they made...and the money they saved.

None of the above is scientific, or applies to every loan officer or broker shop. Everybody is different. There are all sorts of people that are in the business. Some are flashy, some big spenders, some are savers. Some care only about the dollar and nothing else. Some will do a loan that pays less because it is he right thing for the client. Some are a combination of the two depending on the situation.

One thing is for sure, there are 3 things that are going to affect the amount of originations the next few years.

1. interest rates
2. lending standards
3. property values.

If interest rates go up, then there will be less refinancing. If lending standards tighten, there will be less people able to qualify for a loan. If property values decline then the loans will be smaller. Smaller loans mean less commission. Higher rates and tighter lending standards will also affect property values. If the mortgage originations decline, so do a lot of people's paychecks.

Don't get me wrong, there is still plenty of business out there as a whole, but we are returning to a more normal market. I think we are returning to a more normal market that is not going to be able to pay everybody what they are used to being paid. If the market goes back to a 2 trillion dollar market, that is about a 33% cut. That cut is going to have to come out of paychecks, the number of people in the business, or a combination of the two. The established people will stay, some will stick it out, many will leave. I don't know when this will happen exactly, but I think the next 6-24 months are going to be very interesting.

What do you think??

I look forward to the comments and feedback!



Blogger Larry Walker said...

I have seen many insiders, mortgage people and realtors, parlaying their easy money by buying and flipping pre-construction condos here in Florida. Many of them made tons of easy money doing this over the last few years but some got greedy and are sitting on multiple units right now that aren't moving. The forced closings just at the time that the big income comes to a halt will bury many of these people. Easy come, easy go. Can you say JDSU, 2001?

2/01/2006 3:43 AM  
Anonymous Anonymous said...

Fools always buy at the top. In march of 2000 NASDAQQ's peak, margin debt was at a record $275 Billion. Then we know what happended. The greed got them all in now they will be selling or going bankrupt as prices plunge.

2/01/2006 5:55 AM  
Anonymous Anonymous said...

Whoa - talk about a dot-com flashback. I was one of the fools in the middle of that bubble, and it was amazing to see how many people with *no* qualifications jumped in (myself included) just to get while the getting was good. The parallels are so strong, I can't help but think it's inevitable that this will end very, very badly.

2/01/2006 6:12 AM  
Anonymous Anonymous said...

2 trilliom mortgage market?
i would tjink more like 1-1.2 trillion..
HAlf of the present..Just like housing values are deemed to fall be half..
By the way how much does mobssmumZiprealty cost?

2/01/2006 6:32 AM  
Anonymous Anonymous said...

A lot of mortgage people are crooked. One of my friend who makes about 65k a year wanted a 365k mortgage (no money down). The mortgage guy stated her income at 95k to get the loan.

My friend was okay with it because it got her the loan.

2/01/2006 6:41 AM  
Blogger lisoosh said...

Am I the only one who wishes I had worked in the business the past few years? (I'd have been the one with the crappy car and the full bank account).

2/01/2006 7:00 AM  
Blogger Lou Minatti said...

Am I the only one who wishes I had worked in the business the past few years?

No, reading this blog I wish I had gone into the business as well. The difference is if I was making $20k/month I'd continue to live in my current (almost paid off) house and continue driving my (paid off) 1999 Toyota, and save a shitpile of money over 2-3 years.

How is it possible to burn through $15k/month? I guess that's a dumb question. A better question is WHY would someone do that WHEN THEY DON'T HAVE ANY MONEY SAVED UP???

2/01/2006 8:04 AM  
Blogger Silver Lightning said...

One things for sure. The party is over but the RE agents are still spinning their fantasy and Joe SixPack still believes there's gold at the end of the rainbow. Everything seems rosy for now but 6 months of an empty spec house with 3 price reductions will bring a few gray hairs.

2/01/2006 8:07 AM  
Blogger Wes D said...

I wonder how many of these mortgage bankers are transient employees, i.e. people that float around trying to hop onto the next big thing?

98-99-00 the same thing happened in my field (technology). I ended up working with some of the most incompotent people around after they learned some key words and got a job. I even worked with a guy who had driven a beer truck, read a book, and got a job making 70K in the IT field. He didn't know his head from his ass, the company folded, and I sometimes wonder where he wound up. I haven't yet seen him behind the counter at our local Circle K but probably will someday. Oh yeah, he also had the shiny SUV.

Where will these mortgage people wind up?

I might have been able to make some extra $$ if I had jumped into the mortgage market a few years ago when they were hiring anyone with a pulse, but when the house of cards collapses (which is underway) I would also been competiting for the remaining jobs with those idiots who are willing to say anything/do anything to get a job. Its' a cut-throat world out here.

2/01/2006 8:10 AM  
Blogger Wes D said...

This comment has been removed by a blog administrator.

2/01/2006 8:29 AM  
Anonymous Anonymous said...

can you give a breakdown of the takedown?
on a 500k loan who typically makes what
e.g. loan company and
% to officer, mortgage brokerage and % to broker; and
any others
who gt a cut of the

2/01/2006 8:33 AM  
Anonymous Anonymous said...

People are the same everywhere. I worked for a while in resort real estate sales in the mid-80s. Guys would join the sales force, make a few sales, and then mentally annualize that income...and would adjust their spending upward accordingly. They never stopped to realize that our business was cyclical. Once they got themselves loaded up with fixed monthly expenses, they'd start sweating when things slowed down.

Same thing with the idiots you describe...after a couple of months of high income, it never occurs to them that the gravy train could end.

2/01/2006 8:52 AM  
Anonymous Anonymous said...

Upset about missing the big payday by sticking with your old gig instead of going into the mortgage biz?


There is always money to be made in this world if you are unethical. A lot of these cats made money by helping their neighbor down the path to bankruptcy. Can't afford the mortgage? No Problem! "We Work Miracles!"

Just focus on ways to make money off the ignorance and misfortune of others.

Work for a bankruptcy attorney...a repo man...or how about starting your own bill collection agency?
All it takes is an 800 number and call yourself "Mr. Smith."

Start some sort of MLM pyramid scheme, or consider pharmaceutical sales. Convince doctors to use your meds and get a cut of the Big Pharma racket. Sales meetings in Hawaii,performance bonuses, fancy cars-just for selling grandma something she desperately needs but can't afford thanks to all the middlemen getting their cut.

Seriously folks...While you're kicking yourself for not cashing in on the stupidity of others, your liver is thanking you for not drowning it in alcohol to help qwell your ill conscience.

2/01/2006 9:16 AM  
Anonymous Anonymous said...

Sadly, my brother in law is a 'bandwagoner' loon-officer. He got in the biz about a year ago after being laid off as a 'mechanic'. He called an ad in the paper promising income5-10k a month instantly as a LO.
First thing he did is trade up to a 700k new home on an interest only, 'pick your payment' ARM using his old homes equity. WTF? I guess he fell for that same BS loan he pushed on innocent people.
Same time he took the loan out, he maxed out a HELOC, bought all new furniture, new Escalade. He boasted about the good life and how we were all suckers working for the man. He just got back from a European vacation to see the news of the market slowing down. His wife bragged about what a great time they had and that they already booked the next vacation because after all "my husband will be making so much $ in the years to come, its practically paid for!" Idiot.

This morning,his wife just called my wife to say if we were still going to have our yard sale because they were a tad low on funds. Hmmmm.. MUAHAHAHAHAHA

2/01/2006 10:31 AM  
Blogger SoCalMtgGuy said...


Use the search functions to find property. If you know a property is 300k, then do a search from 250-350 and find it. If you have the MLS number, then try that. You could be inputting things different from their database, so it won't find it.

Is the property on the MLS? ...or is it being sold FSBO (for sale by owner)?

Also, is the price being lowered on the MLS, or just in the paper/on the sign at the house? If they are not changing the MLS, it won't show up.

It will not give you the past history of properties, just what is on the market now.

All I know is that it works great for San Diego/Orange County and has more info than realtor.com. I don't see why it wouldn't be the same for other areas.


2/01/2006 10:56 AM  
Anonymous Anonymous said...


Slightly OT, but:

On one hand, why would someone offer this?:


Luxury home in the Spanish Trails development. Home sits on the golf course.

Lien Position: 1st
Property Type: Luxury home on golf course
Location: Las Vegas, NV
Loan Amount: $2,100,000
Remaining Investment Amount: $170,000
Appraised Value: $3,300,000
Loan To Value (LTV): 63.64%
Investor Rate: 9.0
Minimum Investment: $20,000

On the other , why would someone invest in this?



2/01/2006 12:25 PM  
Anonymous Anonymous said...

Time targets for a "bottom" of a RE market? I give it 7-10 years for the cascading to take effect.

2/01/2006 1:29 PM  
Blogger SoCalMtgGuy said...

Bubble Butt...

Subprime is not as rate sensitive as a-paper is.

Most subprime companies will get a new rate sheet 1-2 times per month...maybe more if special occasions.

We got a new one Feb 1st...and it had increases in some areas, but not all.

That is why a-paper is big with electronic rate locks. Contrary to popular belief, it is the bond trading that determine the rates...not the 10yr treasury.


2/01/2006 2:33 PM  
Anonymous Anonymous said...

FROM Today's OCregister.com in the money section...

Argent Mortgage cuts 15% of jobs, citing consolidation

Argent Mortgage Co. said it laid off 15 percent of its work force, or about 660 people, on Monday, citing "a more challenging economic environment." Irvine-based Argent is a sister company of Ameriquest Mortgage Co. that focuses on lending through independent mortgage brokers.

"In cyclical industries such as mortgage lending, periodic work-force reductions are not uncommon," Argent said. "This consolidation increases our efficiency so that we remain competitive for the long term."

Company spokesman Chris Orlando declined to say how many of the Argent job cuts were in Orange County. Leonard Barrales of the Orange County Business Services Center, which assists laid-off workers, said the number was about 200.

The news comes after other local mortgage firms, including Greenlight Financial and Aurora Loan Services, also reduced their work forces in recent weeks.

Ameriquest laid off 10 percent of its staff, or about 1,500 people, in November. Ameriquest lends directly to consumers.

2/01/2006 2:58 PM  
Anonymous Anonymous said...

Now that I think about it, I don't recall seeing any of those "Lost another loan to DITECH" ads in a while.

Even if they're the only casualty of this new environment, we've already come out ahead.

2/01/2006 3:54 PM  
Anonymous Anonymous said...

I know a Guy in St. George UTah big in real estate. He owns Golds Gym drives a yellow hummer. Something fishy has happened the gym had its power shut off for the 2 time by the utility company, all the Gold Gym members now come to the gym i attend.

Everyone in St. George thought this guy has to be doing well, he was opening a new gym with an in door track next month, nice car, growing business in growing town. It looks like he is in the F--d borrower boat.

2/01/2006 7:11 PM  
Anonymous Anonymous said...

Those of you who regret having missed out on the housing boom, fear not. A new boom is developing in gold mining and energy stocks. I made 40% last month!

If you don't know anything about this, try:


He posts a free article every Friday and you can sign up for his newsletter. I'm a very satisfied customer.

2/01/2006 7:39 PM  
Blogger SoCalMtgGuy said...

The inspector...


I also want to agree with the other posters about the lack of integrity. I'm not the type of person that can screw somebody financially to make a buck...or even lots of bucks.

The option-ARM loan is a perfect example of that. Lots of brokers sell the low payment, and that is it. They stuff the borrower in the loan with a pre-pay and make 3 points on the back...that is 15,000 on a 500k loan. That also doesn't include any origination fee, or other fees charged.

With my financial background, I would have been a terrible loan officer the past few years. I couldn't put people in loans they would not be able to afford. Or put them into option ARMS without making sure they understood how they worked.

Some brokers are very careful with those loans, some just chase the bucks.

Stay tuned to see how it all pans out!


2/01/2006 9:05 PM  
Anonymous Anonymous said...

$20K to $30K a month is a lot of money, folks! Yet, the FED and the economists can't recognize that this is distorting the economy. I mean who wants to produce or invent anything when you can make this kind of easy money by just pushing paperwork.
No wonder, we are losing our manufacturing basis. I don't know when all this will end, but when it does, I think our nation will be in for a rude wakening.

2/01/2006 10:23 PM  
Blogger SoCalMtgGuy said...


There is a difference between paying point...and a broker making points on the back.

If you pay points, you are 'buying' the rate down. Makes sense if you plan on staying put for a while and are getting a fixed rate loan.

On the option-ARMs that is how the broker could get 3 points rebate on the back end from the lender...by selling the 3 year pre-pay penalty.

Sure, they could do it with no pre-pay or 1 year, but that eliminated the fat 3% they would make on the back end.

Hope this clears things up.


2/01/2006 11:04 PM  
Blogger SoCalMtgGuy said...

Short answer...

lower rates...and that is what they were 'sold'.


2/02/2006 1:39 PM  
Anonymous Anonymous said...

billy said...

Fact 5: It not a very good idea to sell, rent and invest the difference in stocks because a widespread and steep decline in prices in real estate will likely result in a recession and lot of red ink on wall street.

Maybe, maybe not. Stock market decline in 2000 - 2002 was followed by a steep rise in real estate prices. The opposite may happen when the RE market declines. Stocks are first and foremost businesses. If the business is recession-proof (think consumer staples, utilities) and the price of the stock is reasonable, there is not reason to believe the investors in those types of companies will suffer even if the broad stock market declines.

It seems to me that trying to find an good hedge against the coming bubble bursting will be difficult in light of the following:

Fact 6: Investing in short term CD or bond will likely not to be a good alternative either because FED may lower short term rate in the aftermath of widespread and steep decline in prices in RE.
EXTREMELY false. IF you plan on investing in short-term CDs and keep rolling them every three to six months (which is a bad strategy in ANY environment), then you lose when interest rates go down. If you do the intelligent thing and ladder your CDs, you won't be investing short-term. Also, smart people will get back in real estate from CDs after home prices get walloped.

By the way does anybody know what happen to the tenants when an investor-owned house is foreclosed by the bank?
If the tenants signed a lease, they will more than likely be protected for the duration of the lease. If month to month, they may have to move out.

And how many people who are on the sidelines (renting) have the discipline to systematically put their positive cash flows into mid-term government bonds every month?

Not many have that discipline, but I would think someone would be rather stupid to invest in mid-term government bonds right now. Take a look at the yield curve right now. Anyone going out longer than three to four years is not getting any compensation for tying up their money for that time period (and in reality, the sweet spot is the 6-month treasury, but you still need to ladder your bonds).
What might make more sense is to spread your money around in liquid or semi-liquid investments that hedge against inflation (metals, commodities, non-US currencies/bonds) in addition to US conservative stocks and short-term treasuries and online savings accounts.

There is no easy answer on where to put your money right now, but spreading it around will help protect you in the event that a recession which includes inflation hits.

2/02/2006 1:46 PM

2/02/2006 2:39 PM  

Thats what everyone thought.

3/08/2013 7:40 PM  
Blogger Unknown said...

oh! lots of comments about Mortgage :) . inetresting in reading and collecting people's mind :)

2/20/2017 10:57 PM  

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