“The housing recovery will start in three to six months”.  “Housing prices will bottom out by the third quarter of next year”.  “Existing home sales have increased this month, the first sign of recovery”.  Blah Blah Blah!!

Since January of 2007, almost every “expert” I read or listened to would echo similar verbiage to the quotes listed above.  From every respected independent Economic Study Group, to Government Accounting Offices,  to Chief Financial Officers of every major financial institution……WERE ALL WRONG!!!

Every month for two years now, we’re “3 to 6 months away” from the housing/banking recovery.  From the Wall Street Journal, to the Economist, to MSNBC Business wonks, to the Bloomberg , Forbes and Kiplinger folks.  No one predicted this.  The brightest business minds in the world, smarter than most of us when it comes to the market variables and where they will lead us, can take credit for their forecasts or predictions.  That said, I can confidently spout my own prediction, since the worst I can do is mirror the “experts”.

AS SOON AS BANKS START LOOSEN UP LENDING GUIDELINES, THE HOUSING RECOVERY WILL BEGIN.  Slowly but surely.  I’ve been saying this since March of 2007:  housing will continue it’s downward spiral as long as the supply of lending keeps decreasing.  It was the supply of easy and cheap money that created this bubble, and it’s the lack of easy money—literally any money—causing our housing prices to further cascade at levels not seen since the Great Depression.

MARCH 2007: Sub-prime Mortgages Gone (20% of all loans in 2004 & 2005)

SEPTEMBER 2007: Alternative (“Alt-A”) Mortgages Gone (65% of all loans in 2004 & 2005)

OCT ‘07—TODAY: Tightening up on guidelines-daily- on the only loans left—> FHA & Conv 30 year fixed.

Being on the front line of lending (the supply side of real estate — the buyers), it didn’t take a Rocket Scientist to figure that if you cut out 85% of the buyers, your housing market tanks!!  Add the 90,000 homes for sale in the valley (double what is normal) and you get—presto—housing implosion.

Think about it, ironically, the banks probably doubled their potential losses last September by the cutting off lending, in the effort to shield themselves from those vary losses.  So when anyone says to me, “we should be OK in a few months”, I ask, “what do you base this on?”  Their answer is usually based on either optimism, or some expert they heard in the media.  So many of my real estate associates echoed their National Association of Realtor economists, who up until a couple of months ago, were as wrong as any entity out there.  I pray for a quick recovery, but since I’m allowed my own opinion, I’m entitled to this prediction:  we bottom out between August and October 2009. 

LICENSING FOR LOAN OFFICERS BY 2010

Well, it’s a start!!  Finally, effective January 1, 2010, loan originators must pass a test, background check and work for a licensed Banker or Broker.  I hope this will lay the groundwork for more stringent testing and higher standards for what our starting point is. 

Good things about the bill are:  mandatory background check to see if the loan officer has any criminal records, fraudulent history or judgements pending.  It also puts the burden of fraud / mis-doings onto the L.O., not just it’s employer.  It should also eliminate many of the out of state lenders that do business here illegally.

The shortcomings of the bill are:  The bill EXEMPTS institutions at the FEDERAL level.  This is a joke.  It means the loan officers at Wells Fargo, Bank of America, Wachovia etc. do not have to be licensed.  All in all, these direct employees already meet higher screening standards that brokers don’t necessarily have to meet.  I have no issue with these peers.  In fact, most legitimate Federal Bank employees will take the tests and get certified just to have the accreditation.  My objection is that is still gives a green light to the “bulk”banks of the world, all who employ illiterate call-center loan officers, the ones that slam many consumers into products or loans that are unsuitable.  These “call center banks” are all owned by Federal Banks.  

In an ideal world, I’d love to see loan officers bonded, along with having a credit report history that proves the individual is not in financial difficulty.  Too often we see loan officers (along with similar realtors) making a transaction just for the sake of commission, only because they are in such dire need for the commission—at the expense of their client.

THESE DAYS’ WILD MARKET RIDE

The Dow Jones has dropped almost 900 points over the past few weeks.  Our 30 year fixed rates, creeping into the high 6%s just a few weeks ago after the FED basically announced the rate cuts are over, have come back down to the low 6%s.  This is due to investors moving their money from an unstable stock market into our bond and mortgage back security market, which is where we get our mortgage money.  Lots of factors, but one of those factors is the major bank earnings—er, uh, I mean losses.  Until the banks, known as ‘the financials’ in Wall Street talk, stop losing money—the stock market will suffer, house loans will be in short supply, and this will keep our housing market either suppressed, or in further decline.  Ouchie !!!!