Bill James, Jr.

by Bill James, CMC
Residential Bancorp
Canton, Ohio

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JULY 2007

POTPOURRI by W H James, Jr., CMC, Board Chairman-Residential Bancorp, Canton, Ohio,  June 12, 2007.

I hope everyone noticed . . . I received an email a few weeks ago.  It was addressed to “THE ANN LANDERS OF OHIO MORTGAGE PRESS”.  For a moment I thought it was just a strange compliment.  Then I read further.  The writer was taking me to task claiming the picture used for the column was probably 30 years old and didn’t I think truth would be better served with a current picture?  Well, here it is and you can plainly see I have hardly changed at all, and the picture was only 16 years old thank you!

Last month (June) Mortgage Press contained a well written article by Ian Wright.  THE MORTGAGE BROKER TO BANKER EVOLUTION article spoke to the differences and responsibility level of the two operations.  Our company Residential Bancorp, and its predecessor company have always been Mortgage Bankers and a year or so ago we actually assessed the “risk/reward” scenario of continuing as a Mortgage Banker or becoming licensed as a Mortgage Broker . . .We consider the incredible changes in mortgage programs available add multiple layers of risk to a Banker.  As a true Mortgage Banker you must set your menu of mortgage offerings with the understanding that your underwriting/appraisal process must meet acceptability in the secondary market.  In different words, you better not offer and close mortgages that you can’t sell.  As a Banker/Correspondent lender, most lenders won’t pre-approve your loans, it’s up to the Banker to get it right, approve, close, and deliver the loan to an investor who offers the type/quality and terms of your offering.  Big risk, especially as lenders changed their parameters sometimes overnight.  Another area Ian hit on that deserves a little deeper explanation is the “real” warehouse line.  Even the smallest “Banker” will need at least one top notch accountant/controller whose full time is devoted to controlling and over-seeing the process . . . expensive.  A loan delivery department that ensures all DOCS, special requirements, and conditions of the mortgage are in the delivery package.  You must have a quality control department or use independent 3^rd party company.  The cost of a true warehouse line can be anywhere from a wash, to a profit center but more likely a net loss/overhead department.  A few years ago we were closing loans at 5 ½% or more and paying 4% for our warehouse funds.  Today we are closing loans at 5.75% and paying 8 ¼% for our closing funds.  As a Mortgage Banker there used to be a better profit premium we could expect when selling our loans in the secondary market. . . The difference today is not very significant.  In the end we decided to maintain our Mortgage Banker/lenders status and the main reason?  Control of our business!  I can honestly say that today – The Mortgage Broker has a significantly lower cost of operations than a Banker and enjoys an incredibly lower risk factor. 

National & World conditions are setting the stage for significant increases in interest rates. Conditions are right for mortgage rates to make a move upward toward 7% in the next few months . . . NOT GOOD.  If past history taught us anything, when mortgage rates pass 7% the lights are dimmed and a blanket settles over the real estate and mortgage market.  There are several reasons for the interest rate increases, some are valid and beyond our control (world wide increases) others like our “learned economists” who tell us business is booming is pure horse hockey.  I believe a clearer picture of our true flagging economy will become clearer as we get deeper into summer and fall.  Ask your neighbor how things are going . . . Mortgage Rates at or around 6 ½% will sell.  Existing homes are selling . . . New construction is still moving only by price slashing, but they are starting to move.

A few days ago I had a mathematical epiphany/flash back.  I had just turned 16 (1956) and I bought a 48 Dodge 2 door for $50.  First thing you do when you get your first car is wash and wax it.  A friend of mine was helping and I asked him to get the bugs off the hood face . .. he used a steel wool pad! . . . none of my friends went to Harvard!  While I was lamenting the damage the man from next door came over and reviewed the scratches.  As if to make me feel better he said “Don’t worry about those scratches, with gas @ 29 cents a gallon you won’t be able to afford to drive it anyway”.  Flash forward. A few days ago gas sold at $3.499 in Canton.  My car gets 12 miles to the gallon . . . Guess what?  That computes to 29 cents a mile!

About a year ago Potpourri questioned the management intelligence (or lack of ) of Wal-Mart when they announced to the public they would no longer prosecute a specific list of shop lifting offenders.  Anyone stealing $25 or less would not be prosecuted if caught as long as they “promised never to do it again”!  Also there were other levels of theft they would forgive.  Wal-Mart just announced “shrinkage” (shoplifting) has nearly doubled and now stands at $3 billion dollars annually.

Their experts think “last year’s announcement may have been a factor in the increase”.  If Sam Walton were alive the grounds around Wal-Mart Corporate offices in Bentonville, GA would be littered with the heads and arses of the bumbling incompetents of present Wal-Mart management.

Bill James is Board Chairman of Residential Bancorp in Canton, Ohio and can be reached @ 330-495-6041.  Want to comment on Potpourri?  Email me Bill James, Jr.

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