BRIERCRIER
April 25, 2014 at The Briar's Restaurant, 512 N. State Rd.
of Briarcliff Manor Rotary Club Meeting
TODAY IN HISTORY
1507: A world map produced by a German cartographer contained the first recorded use of the term "America" in honor of the Italian navigator Amerigo Vespucci.
MEETING LEADER: President Anne Cargill
PLEDGE: Anne SONG: Sy PRAYER: Bishop John
ROTARIANS PRESENT AND HAPPY THOUGHTS: 23 Rotarians present. Many re condolences for the passing of Rachel's dad; Beth, re her son's 3rd birthday; Ken, has new grandson with his name.
ANNOUNCEMENTS: Positive vote for Eric's slate of the 2014-2015 Board
GUESTS: Future Rotarians Mark Johnson and Jim Lupfer; Also Stephanie Rossi and John Gallagher.
SPEAKER AND SUBJECT: Scott Lanoff on Mortgage Update.
SUMMARY OF TALK
History of the Mortgage: Mort-gage = Death Pledge
Knight Errant, came home from the crusades
Knight Errant, came home from the crusades
It’s a Wonderful Life (George Bailey and Building & Loan & Mr. Potter)
In America, prior to the 2nd World War purchasing of homes/ the buying real estate was pleasantly characterized in the wonderful Jimmy Stewart movie, It’s a Wonderful Life
George Bailey’s family owned Building & Loan Society and Mr. Potter’s Grey – heartless Bank were both lending their communities their own savings back out to them – in order for families to buy their piece of the American Dream – the family home. This is the way it was always done.
George Bailey’s family owned Building & Loan Society and Mr. Potter’s Grey – heartless Bank were both lending their communities their own savings back out to them – in order for families to buy their piece of the American Dream – the family home. This is the way it was always done.
With today’s perspective it’s easy to see on the one hand how things could get jammed up and limit growth if there was not enough local money to lend out. On the other hand the banker’s knew their borrowers and new the collateral.
They were dealing with a very limited pool of funds to lend – NO LIQUIDITY
The Secondary Mortgage Market
- Fanny Mae in 1938 out of FDR’s New Deal
o Bought loans for cash from community based banks all over the country – went public
§ Established uniform underwriting Criteria
- Freddie Mac in 1970 established by a league of community based savings banks – to eat away at Fannie Mae’s monopoly – ie: Fannie Mae Competition
The Mortgage Backed Securities:
- At Salomon Bros there was a fellow named Lewis Ranieri – Mail Room to Trading Floor
- God-Father of Mortgage Backed … Brought in Mathematicians from MIT & CAL Tech to manipulate the payment stream to create new financial products – low rate = long hold & high return = shorter hold [Tranches] & CMO – Collateralized Mortgage Obligations
- Ranieri was beautifully depicted in Michael Lewis’s Book “Liar’s Poker”
By contract, originators cannot encourage prepayments
Ranieri was Business Week’s “ONE OF THE GREATEST INNOVATORS OF THE PAST 75 YEARS” & MORE RECENTLY ON TIME MAGAZINE’s List of the TOP 25 PEOPLE to BLAME for the FINANCIAL CRISIS
During the same period we have a Tech revolution: Artificial Intelligence in Underwriting, Credit Scoring, and access to seemingly limitless data on valuations.
CRA??? /// income tax in 1913
These new financial products and unprecedented availably of mortgage money fueled our economy and real estate values everywhere. With a few bumps & disasters in the road [ S&L crisis, oil embargo, Long Term Capital Bail – even 9/11 – didn’t slow the market for more than 60 days --- the mega-boom lasted for 30 years. Look at Bedford falls (It’s a Wonderful life) in 2006 - they have 2 Malls, an amusement park, tons of grade “A” housing. Every house has a center island kitchen, cushioned lawn furniture and stainless steel outdoor barbeques.
We had so much liquidity that we almost drowned.
My story: with WaMu and Chase
Story: Bear Sterns Selling Negative Amortization AND onerous prepayment penalty
Story: Summer of 2007, docs went out for closing but wire never hit – American Home Mortgage.
This was the sound of first gun fire.
This was the sound of first gun fire.
2008: We saw the whole calamity play out on TV: Lehman, Bear Sterns, Merrill, Solomon Smith Barney, and Countrywide Mtg.
The regulatory big swing of the pendulum
Airplane style safety check lists implemented
No Room for Common Sense: paying high rate on time …
No income check GONE
Auto Loan story in late 1989/90 @ GMAC
What is available today: lots of money if you qualify – 97% from FHA
Some flexibility is coming back: “all gift” is okay --- without generational wealth the home-buying world stops
This Friday at The Briar's: Sup't James Kaishan on Briarcliff Schools.
Elinor Yuter, Reporter
Rachel Leihbacher, Expediter
