I'm back! ...option ARMs , growing inventory, slower business, and more
First off, things are much S-L-O-W-E-R in the mortgage business. I have met with several of my friends that are also account executives in the industry. One of them told me that only one person in their region 'commissioned' last month. For a territory that is used to doing 30-50 million per month, they did only 10 million. There was a time not too long ago, where the top rep in this territory was doing more than 10 million a month. I talked to 2 other reps where nobody in their regions hit their numbers. All but one of these reps is about to start looking elsewhere for work.
The mortgage industry, and specifically the subprime industry, has tried to implement the 'outrun things with volume' strategy. They kept rates low to stay competitive. The slashed profit per loan, and tried to drive volume. In the last year at the company I just left, we had 5 different comp plans. The 'last' comp plan was about 'half' of the first comp plan unless you were hitting the highest numbers which only a very few people were doing. To give you an idea, a rep used to make $4000 to $5000 for every million dollars worth of loans funded. Now, the typical rep is probably going to make $2000-$2500 for the same million dollars worth of loans funded. The problem is that the volume isn't there for most people. I know reps there were doing 5-7 million per month consistently...and now they are barely doing 1.5 million. I know it is the 'slow' time of the year to begin with, but I don't see things picking up that much. Some of the reps that have been in the business for a while and that saved money, will be fine. Remember, most companies only had 3-5 reps for a region a few years ago. That grew to 15-25 reps as things were booming. The problem is that there isn't the volume to pay that many reps the money they need to be paid to live. Look at my earlier example. 8-10 reps can all do ok when a territory is doing 30-50 million, not 10 million. (some companies will split a region into territories, that is why a territory will have less reps than a region).
That said, it isn't stopping the companies from hiring people. I have had no less than 6-8 companies that found my resume online, want me to come work for them as an account executive. It doesn't surprise me though, as there are not many barriers to entry in this industry. Since most account executive positions are 100% commission or have a very small draw plus commission, the companies aren't really taking much risk by hiring a new person. They will usually throw a short term comp plan that pays very well for about 3 months until you transition to the regular comp plan. I think that the companies are looking for new people that will have relationships with big accounts they don't know about or have relationships with. I have had another 15-20 companies that wanted me to be a loan officer for them. The funny thing is that when I ask them where they see things headed, they admit that things have been slow for a few months, but that they see things 'taking off' again in 60-90 days. I just don't see a major increase in activity in the near future. You can't have a 5-8 year bull-run in real estate, and NOT have things slow down...especially once people see prices coming down. Over 40% of the job growth in California has been in the real estate/mortgage/related fields industries the past 5 years. I'm not naive enough to think that RE can employ that many people in the long run.
Now lets take a look at my favorite loan...the option ARM. It seems that option ARMs are making up what seems to be a very large part of the business in SoCal. Part of this is due to the fact that it pays well, but I think it mostly deals with the fact that most people cannot afford property using 'conventional' financing, so the option ARM is the only way to get the payment low enough. I was talking to several other account executives that were saying the same thing. They are seeing some offices that are doing option ARMs for 80-90% of their business. I saw this trend a while ago...especially when they started offering the option ARM to people with FICO scores in the high 500's and low 600's. The option ARM started targeting more of a 'subprime' borrower...but it wasn't offered by your true subprime lenders.
Speaking of lowered standards. One major nationwide lender now added a 3-month bank statement program to their arsenal. Not too long ago, most banks wanted 24 months of bank statements, but some would take 12 months. Then most banks added what was called 'lite-doc' or 6-month bank statements. This means the borrower shows their last 6 months of bank statements to 'verify' their income. Now we have a 3 month program?!?!? I don't know the specifics with regards to LTV, FICO scores, etc. but come on. As you can see, this is just another 'lowering of standards' to try and get a few more people who can qualify for a loan. The problem is that there isn't much further you can go. Whats next, the 1 month bank statement program?!?!? Doesn't it sound a little crazy to give somebody a 30 year loan based on only a 3 month history?!?!?
Lets not forget those inventory numbers. I take off for a few days, and the San Diego inventory numbers jump from the low 17,000's to 17,685 per ziprealty.com. It is pretty safe to say that inventories are steadily increasing. Too bad that the sales transactions are not keeping pace.
That is about all for now. I'll be posting periodically as I have good information or analysis to share with you. I have a LOT to learn with my new job and I am VERY excited about it!! I will be spending most of my time working on that, as it pays the bills quite a bit better than the blog ;) I suggest making the FORUMS a regular stop each day. There are now over 300 members, 2200 posts, and 340 topics to read about. There are some very articulate and informative people in the forums.
To everybody who has sent e-mails the past week to 10 days....sorry it took so long to get back to you. I hope this post helps to explain things a bit better. Thanks again to everybody for all of the support. I'll still be around...and I'm looking forward to watching this whole thing unfold.
I look forward to the comments and feedback!
I am going to keep making my posts over here, but most of the comments are happening at the new site. Go to...
...if you would like to see more comments and activity. Don't forgot to check out the activity in the FORUMS!