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Tennessee Home Values Rise!

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Nashville Housing Market is taking off!

Nashville Housing Market is taking off with home values soaring by over 7% in the last 12 months. Nashville home values bottomed out in October of 2011 when they dropped to $133,000 price average, but since 2011 the values have risen an amazing 7% or $143,000 price average.  The historic home values peaked in August of 2007 when they reached $154,000 which means today average values are only off  a little over 7% from those historic highs! Also, the average list prices of homes on the market are up over 11% in the last 12 months, pushed up by a bidding war and strong buying activity.

Nashville, TNNashville recently  has been in the news for making the Forbes list for the number 2 best place to get a job, but there is other great news for the surrounding markets too:

Homes Values are up the last 12 months for Oak Hill over 8.5%, Brentwood over 7%,  Belle Meade over 6%, Lakewood over 6%.

Knoxville Home Prices are up!

Knoxville Home Prices were up close to 4% in the last 13 months when compared to the bottom that was reached in February of 2012. According to Zillow.com, Knoxville home values hit a low of 103,000 in February 2012 due to the pop of the great bubble, but in just over a year, the market has climbed back to almost 4%  or $107,000 by the end of March. Appreciation rate of anything over 3 % per year is considered excellent. Knoxville home prices hit a historic high in November of 2009 when it reached $114,000, but by the end of March 2013, the values are only off 6%  from that historic high.

Monthly rental prices peeked in July of 2011 at $830 but since that peak, they have  dropped over 15%,  indicating a move from temporary housing to a more permanent home buying opportunity.

Farragut area has seen a little more volatility in its values since hitting its lows 2011, but in the last 12 months their values  have soared to a  little over 7%. Not surprisingly, the average list price of homes have increased almost 10% in the last month, and sales prices overall  are up over 5% since January.

These are great signs, but it gets even better for Tennessee.

Mortgage Investors Group

Areas around Tennessee with MIG offices:

Selected areas around Tennessee with MIG offices:

Cookeville home values are up over 7% in the last year.

Johnson City home values have risen over 7% in the last year.

Nashville home values have risen over 7% in the last year. (Forbes picks Nashville #2 best place to get a job.)

Sevierville home values are up over 6% in the last 12 months.

Pickwick home values are up over 5.5% in last years.

Memphis home values have risen over 1% in the last year.

Crossville home values are up over 5% in last month.

Kingsport home values are up over 3% in last month.

Greeneville home values are over 2% since the beginning of this year.

Chattanooga home values are up over 1%  since December 2012.

Maryville is also just now starting to see home values increase, in the last month their values are up .7%

Data from Zillow

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Timings everything, now’s the time!

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Knoxville Home Prices are up!

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Knoxville Home Prices were up close to 4% in the last 13 months when compared to the bottom that was reached in February of 2012. According to Zillow.com, Knoxville home values hit a low of 103,000 in February 2012 due to the pop of the great bubble, but in just over a year, the market has climbed back to almost 4%  or $107,000 by the end of March. Appreciation rate of anything over 3 % per year is considered excellent. Knoxville home prices hit a historic high in November of 2009 when it reached $114,000, but by the end of March 2013, the values are only off 6%  from that historic high.

Monthly rental prices peeked in July of 2011 at $830 but since that peak, they have  dropped over 15%,  indicating a move from temporary housing to a more permanent home buying opportunity.

Farragut area has seen a little more volatility in its values since hitting its lows 2011, but in the last 12 months their values  have soared to a  little over 7%. Not surprisingly, the average list price of homes have increased almost 10% in the last month, and sales prices overall  are up over 5% since January.

These are great signs, but it gets even better.

Mortgage Investors GroupSelected areas around Tennessee with MIG offices:

Cookeville home values are up over 7% in the last year.

Johnson City home values have risen over 7% in the last year.

Nashville home values have risen over 7% in the last year. (Forbes picks Nashville #2 best place to get a job.)

Sevierville home values are up over 6% in the last 12 months.

Pickwick home values are up over 5.5% in last years.

Memphis home values have risen over 1% in the last year.

Crossville home values are up over 5% in last month.

Kingsport home values are up over 3% in last month.

Greeneville home values are over 2% since the beginning of this year.

Chattanooga home values are up over 1%  since December 2012.

Maryville is also just now starting to see home values increase, in the last month their values are up .7%

Data from Zillow

Read our blog:

Timings everything, now’s the time!

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The Liquidity Factor: The Rise of the GSEs, Part IV

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Mortgage Lending: The Liquidity Factor, Part IV

Part I Part II Part III

By Mark Griffith
Mortgage Investors Group
Branch Manager- Oak Ridge
Co-Host of The Housing Hour

The Rise of the GSEs

When the smoke finally cleared from the destruction of the S&L’s in the late 80’s early 90’s, FNMA and Freddie Mac were solidly in place. It took 36 years for Roosevelt’s national liquidity vision to be realized. The ’90s brought the hope of a new mortgage lending era with cutting edge technologies and an internet system that connected the world.  FNMA and Freddie Mac incorporated the national credit scoring system along with property valuation models into their automated underwriting systems (AUS)  to produce a streamlined approval process. This total automated system was intended to take all the guesswork out of analyzing risk, which in turn, would reduce costs of originating and selling loans. These cost savings could be passed through to the consumer in the form of cheaper interest rates and closing costs, as well as eventually finding their way into the profits of lenders, FNMA/Freddie Mac, bond traders and ultimately the end investor. The other important feature was the complete automated nature of the system with its ability to expand or contract its guideline through simple tweaking of the computer models. In the early ’90s, pressure from the Clinton administration for a National Home Ownership Strategy was developed. This complete housing overhaul consisted of over 100 action items and over 50 industry-wide corporate partnerships signing their support.  The new initiative was known as the American Dream Commitment. By 2004, continued expansion of the commitment was evident in FNMA mission statement, “We at Fannie Mae are in the American Dream business. Our mission is to tear down barriers, lower costs, and increase the opportunities for homeownership and affordable rental housing for all Americans”. With this new mantra and fresh momentum, backed by policymakers and trillions of dollars, the housing bubble years were inflating. The most aggressive part of the mission statement from FNMA was, ‘…tear down barriers…’ and ‘…for all Americans.’. The barriers could be easily torn down by simple manipulation of the automated systems resulting in achieving the second point, more Americans becoming eligible for mortgage loans almost overnight.

In the past, FNMA/Freddie Mac were always known as the world supplier of ‘AAA rated’ Mortgage Backed Securities meaning the best loans available for securitization, the cream of the crop. They were referred to in the vernacular as: ‘A’ paper or prime paper. By Y2K,  FNMA/Freddie Mac entered the less than prime business called Alt-A or A minus.  Alt-A is defined as not A paper but better than C through D paper. There were private lenders who did specialize in loans referred to as: non-traditional, ‘C/D’ paper or the popular term, sub-prime, but these loans were considered high risk, niche products. The sub-prime market could charge higher interest rates and more closing costs depending on the degree of risk to the lender.  However, by the late ’90s, credit scoring models gave the sub-prime lenders an easier ability to analyze risk. These lenders were able to expand their origination numbers by creating automated underwriting systems, similar to FNMA/Freddie Mac, based on their own sub-prime risk criteria.

The sub-prime loans were traded much like the prime loans but through Private-Label Mortgage-backed securities (PL-MBS) as created by the 1984  Secondary Mortgage Market Security Act(SMMSA). The SMMSA was a loosely government created policy allowing private institutional investors more freedom to compete in the Government dominated MBS markets. The SMMSA was basically an attempt to supply private liquidity to investors for the national liquidity markets.  In a similar sense, the Private-Label -MBS were what the S&Ls were to the liquidity market before their fall, except for the fact the Private -Label MBS were securitized and traded worldwide. Investors with large appetites for higher interest returns flocked to the sub-prime markets. In 2001, the Private-Label MBS market had a small 20% market share but by 2006 their market share soared to 56%, suggesting the sub-prime primordial world was strongly competing for investment dollars with the conforming loan markets. Pressure for profits and from government policies propelled FNMA/Freddie Mac to review its policy on the purchase of  Private-Label MBS bonds.

As early as 2001, FNMA/Freddie Mac were purchasing sub-prime mortgages from the Private-Label MBS pools. But according to The Financial Crisis Inquiry Report, FNMA’s purchase of sub-prime loans only represented a relatively small  10.5% of total sub-prime loans originated. By 2004, FNMA exposure rose to a 40% high before dropping back to 28% by 2008.


However, between 2001 and 2008 FNMA/Freddie Mac significantly dropped their guidelines to allow riskier loans to be purchased and securitized by the GSEs. In a 2 year span between 2005 and 2007, FNMA/Freddie Mac had purchased close to a trillion dollars in Alt-A and sub-prime loans; a level that could not be sustained.  Private-Label MBS had decreased to less than 10% market share in 2008 but by that time, the worlds financial markets were flooded with assets that would soon turn toxic.

As reported in the Inquiry, FNMA and Freddie Mac were motivated by a need, “to meet stock market analysts’ and investors’ expectations for growth, to regain market share, and to ensure generous compensation for their executives and employees—justifying their activities on the broad and sustained public policy support for homeownership.”

By 2008, the GSEs and the Private-Labels MBS were collapsing.

Part V: The Fall of Fannie and Freddie and the Private Labels

Click:  The Liquidity Factor Series

Forbes picks Nashville #2: Best place to get a job!

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Forbes picks Nashville #2 best place to get a job!

Nicole Kidman described Nashville this way, “It’s the warmest, loveliest community I’ve ever set foot in. For me, it’s the perfect place to live. It’s the best part of America.”

Now the ‘best part of America’ is the second best place to get a job according to a recent report from Forbes magazine. Their calculation methods are somewhat complex, but the bottom line is simple:

Downtown Nashville

“Affordab ility + Quality of Life = Success”

Some other cities that are growing stronger, since the Great Recession, have Technology and Energy to help push the forward but according to Forbes, “… you don’t have to be a huge tech hub or energy capital to generate new jobs. The No. 2-ranked place in our big metro ranking, Nashville-Davidson-Murfreesboro-Franklin, Tenn., reflects the power of economic diversity coupled with ample cultural amenities, pro-business policies and a mild climate. Nashville’s 3.8% expansion in employment last year, and 7% growth since 2008, has been propelled by business services, education and health. There’s also been a recent recovery in manufacturing, up over 9% last year, as well as retail and wholesale trade. Like the Texas cities, Nashville has registered long-term growth as well, with 112,000 jobs added since 2001, a nice 16.6% increase.”

Nashville has it all with a seemingly never ending supply of restaurants, music, theaters, shopping and streams of celebrities walking freely around town. Sport fans can get their fill with Nashville’s professional teams in football and hockey not to mention great college sport venues from Vanderbilt, Belmont and Tennessee State. Also, a financial attraction to Nashville has to be what the great state of Tennessee always boast about, no state tax!

There are many reasons to visit and consider moving to Nashville, but once you experience their great Southern Hospitality, you will understand exactly what Nichole Kidman meant when she said, “…For me, it’s the perfect place to live.

Air Date 5/11/13: Sears Catalog Homes

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Special Guest:  Rosemary Thornton Author and Authority on Sears Catalog Homes

Do you live in a Sears Home? Learn how to identify a Sears home! We want to hear from You! Mark.Griffith@migonline.com

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Click to buy book!

Sears Catalog Homes:

For more than 10 years, Rose Thornton has traveled throughout the country, seeking and finding Sears Homes. In that time, she’s written countless newspaper and magazine articles, in addition to several books.

Rose is the author of The Houses That Sears Built (2002,) Finding the Houses That Sears Built (2004) and she’s the co-author of California’s Kit Homes (2004) and Montgomery Wards Mail-Order Homes (2010). Rose’s newest book – The Sears Homes of Illinois – was published in December 2010.

Rose has traveled to 24 states to give 200 lectures on Sears Homes, from Bungalow Heaven in Los Angeles to The Smithsonian in Washington, DC. She has addressed a wide variety of audiences from architectural preservationists in Boston, St. Louis and Chicago to kit home enthusiasts in small towns across America.

Rose has appeared on PBS (History Detectives), A&E (Biography), CBS (Sunday Morning News) and her book was featured in its own category on Jeopardy. She is considered the country’s #1 authority on kit homes. Her work has been featured in the Wall Street Journal, New York Times, Christian Science Monitor, Washington Post, L. A. Times, Dallas Morning News, Old House Journal, American Bungalow, Blue Ridge Country and about 100 other publications. Twice in the last three years, the story of her unique career was picked up by the AP and in May 2009, she was interviewed on BBC Radio.

Rosemary Thornton
Order your copy today!

Rosemary explains how to identify a Sears Home:

Do you live in a Sears Home? We want to hear from You!  Mark.Griffith@migonline.com

Click here  to see dozens of extant photos of Sears Homes!

The number one question I’m asked again and again – How do you identify a Sears Kit Home?

First, begin by eliminating the obvious. Sears sold these homes between 1908-1940. If your home was built outside of that time frame, it can not be a Sears catalog home. Period. Exclamation mark!

The nine easy signs follow:

1) Look for stamped lumber in the basement or attic. Sears Modern Homes were kit homes and the framing members were stamped with a letter and a number to help facilitate construction. Today, those marks can help prove that you have a kit home.

2) Look for shipping labels. These are often found on the back of millwork (baseboard molding, door and window trim, etc).

3) Check house design using a book with good quality photos and original catalog images. For Sears, I recommend, “The Sears Homes of Illinois” (all color photos). For Wardway, there’s “The Mail-Order Homes of Montgomery Ward.”

4) Look in the attic and basement for any paperwork (original blueprints, letters, etc). that might reveal that you have a Sears home.

5) Courthouse records. From 1911 to 1933, Sears offered home mortgages. Using grantor records, you may find a few Sears mortgages and thus, a few Sears homes.

6) Hardware fixtures. Sears homes built during the 1930s often have a small circled “SR” cast into the bathtub in the lower corner (furthest from the tub spout and near the floor) and on the underside of the kitchen or bathroom sink.

7) Goodwall sheet plaster. This was an early quasi-sheetrock product offered by Sears, and can be a clue that you have a kit home.

8 ) Unique column arrangement on front porch and five-piece eave brackets (see pictures below).

9) Original building permits. In cities that have retained original building permits, you’ll often find “Sears” listed as the home’s original architect.

To buy Rose’s book, click here.
To read another article, click here.
Lumber was numbered to facilitate construction

Lumber was numbered to facilitate construction

Numbers

The numbers are usually less than an inch tall and will be found near the edge of the board.

The Sears Magnolia was also known as Model #2089

See the faint markings on this lumber? This mark was made in blue grease pencil and reads, “2089” and was scribbled on the board when the lumber left Cairo, Illinois. This was a photo taken in a Sears Magnolia in North Carolina. The Sears Magnolia was also known as Model #2089

Sears Magnolia was also known as #2089

Sears Magnolia was also known as Model #2089.

Shipping labels can also be a clue that you have a Sears Homes

Shipping labels can also be a clue that you have a Sears Home.

“The Sears Homes of Illinois” has more than 200 color photos of the most popular designs that Sears offered and can be very helpful in identifying Sears Homes.

Ephemera can help identify a house as a Sears Home

Ephemera can help identify a house as a Sears Home. This picture came from an original set of Sears “Honor Bilt” blueprints.

Ephemera

Ephemera and paperwork can provide proof that you do indeed have a Sears Home.

Goodwall Sheet Plaster

Goodwall Sheet Plaster was sold in the pages of the Sears Modern Homes catalogs. This was a “fireproof” product that was much like modern sheetrock.

About two dozen of Sears most popular designs had a unique column arrangement that makes identification easier. The Vallonia was one of those 24 Sears Homes with that unique column arrangement.

About two dozen of Sears most popular designs had a unique column arrangement that makes identification easier. The Vallonia was one of those 24 Sears Homes with that unique column arrangement.

Close-up of the columns.

Close-up of the columns.

And in the flesh...

And in the flesh…

Houses should be a perfect match to original drawings found in the Sears Modern Homes catalog.

Houses should be a perfect match to original drawings found in the Sears Modern Homes catalog. This is where people get into trouble. They ignore the details.

Sears Mitchell in Elgin, Illinois.

Sears “Mitchell” in Elgin, Illinois.

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The Sears Winona, as featured in the 1921 Sears Modern Homes catalog. The house in Raleigh (see below) is just a spot-on match, a rarity in a house of this age!

The Sears Winona, as featured in the 1921 Sears Modern Homes catalog. The house in Raleigh (see below) is just a spot-on match, a rarity in a house of this age!

Sears Winona in Raleigh, looking PERFECT!

Sears Winona in Raleigh, looking PERFECT!

Sears Auburn in Halifax, NC

Sears Auburn

And a dazzling Auburn in Halifax, NC.

And a dazzling Auburn in Halifax, NC.

Sears Pheonix from the 1919 Modern Homes catalog.

Sears Pheonix from the 1919 Modern Homes catalog.

And a lovely Sears Pheonix in Newman, IL. Photo is courtesy Rebecca Hunter.

And a lovely Sears Pheonix in Newman, IL. Photo is courtesy Rebecca Hunter.

To buy Rose’s book, click here.
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Send Rose an email at thorntonrose@hotmail.com
To read more about Sears Homes, click here.
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Mortgage Delinquency Rates Fall!

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Remember how Bob Newhart’s last show called  Newhart ended? Bob’s character, Dick Loudon, had bought a small Vermont Inn full of zany characters. Newhart became so frustrated with everything going on at the inn, that he stormed outside where he was struck in the head with a golf ball and  knocked unconscious. When he finally awoke, he was in bed with TV wife Susan Pleshette from the original Bob Newhart Show that ran 12 years earlier. This TV history making scene stunned America and brought back the fond memories of a previous time. Watch the full scene:


The Housing crisis that began in 2007 is one of those  dreams everyone wishes they could wake up from. But there is great news in recent reports suggesting, at least in one regard, that one aspect of the housing crisis may be back to pre-2007 levels. Our national nightmare could be coming to an end.

New mortgage payment delinquency data released from  Lender Processing Services (LPS) gives reasons to hope. The LPS reports that new problem loan rates in March (seriously delinquent mortgages that were current six months ago) have fallen below 1%  for the first time since 2007. This means that these delinquency levels have reverted to levels that have not been seen since the Great Debacle  began. The key factors for the decline in delinquencies are: home equity increases which are rising due to the improving housing  market, increasing home values, and over all improvement in the economy.

A new report from Corelogic states, “Home prices nationwide, including distressed sales, increased 10.5 percent on a year-over-year basis in March 2013 compared to March 2012. This change represents the biggest year-over-year increase since March 2006 and the 13th consecutive monthly increase in home prices nationally. On a month-over-month basis, including distressed sales, home prices increased by 1.9 percent in March 2013 compared to February 2013.” Corelogic also reports that April will see excellent home value increases. Delinquencies and foreclosures, which were once the nemesis for our country and the housing market, may be a thing of the past.

These are wonderful signs that point to a housing recovery in full swing. But unlike Hollywood, where the scene can magically take us back to a happier place and time; our happy place will not be facts and figures that point us to the past, but an economic recovery that points us to an exciting future.

Tennessee #1 State for Retirees!

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If you have never visited Tennessee, you most likely have no idea why Bankrate, picked Tennessee the number 1 state for retirees. But if you ask anyone who lives here, they can tell you about the mild winters with occasional snows, perfect golden falls with crisp cool mornings, the wonderful fragrant filled springs with colorful blooming Dogwoods and the hazy warm summers that buzz alive with crickets and cicadas. Tennessee is not just a place, it’s a sensation.

There are wonderful financial advantages as well, according to Council for Community and Economic Research, the cost of living is the second lowest in the nation and the Tax Foundation put Tennessee in the third lowest tax burden category, in the country.

There are plenty of fun things to do in Tennessee, from amusement parks and historical attractions  to wonderful lakes  and some of the greatest hiking trails in the world. Grand-kids will love to visit you in Tennessee.

Also, being known as the Volunteer State, there are a host of opportunities to continue giving back to your community through charitable organizations and community events  to wonderful children hospitals that love the warmth of caring seniors.

Mortgage Investors GroupSo if you are planning to move to Tennessee know this, for the past 23 years, Mortgage Investors Group (MIG) has been committed to helping Tennesseans fulfill their dreams of home ownership. The company has served more than 75,000 clients since co-founders Chuck Tonkin II and Chrissi Rhea opened a modest lending office in Knoxville, Tennessee, in 1989 with five colleagues. Today, with 250 employees in 18 branch locations from Memphis to the Tri-Cities, MIG is the largest independent provider of single-family residential mortgages in the state of Tennessee.

Mortgage Investors Group understands there are a lot of choices when it comes to financing the purchase of a new home or refinancing an existing one. Our licensed and experienced loan officers are here to help you gain a better understanding of those options and answer your questions about the loan process, qualifying and the different features of each loan program. We offer everything from conventional mortgages to government loans.

Call us today and become a proud Tennessean!

Jobs continue to grow!

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Jobs continue to grow last month. Labor Department reports that non-farm payroll increased by 165,000 jobs in April and unemployment went down to 7.5%. With many experts speculating  that the economy could be heading the wrong way, these numbers are another great sign for the country. The 7.5% unemployment rate is at a four year low. There is more  great news; past employment numbers were revised upward signally positive steps for our economy.

Now’s a great time to buy!

Mortgage Investors Group understands there are a lot of choices when it comes to financing the purchase of a new home or refinancing an existing one. Our licensed and experienced loan officers are here to help you gain a better understanding of those options and answer your questions about the loan process, qualifying and the different features of each loan program. We offer everything from conventional mortgages to government loans.

Call us today and take advantage of these incredible market conditions!

Mortgage Investors Group
Mortgage Investors Group

Mortgage Lending:The Liquidity Factor, Part III

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Read Part 1 and Part 2

By Mark Griffith
Mortgage Investors Group
Branch Manager- Oak Ridge
Co-Host of The Housing Hour

The collapse of the S&L’s

levitt townThe strength of the S&L’s and their mortgage lending market share soared from post-World War II until 1965. The National Housing Act was a crucial first step to turning the Liquidity Factor from local markets to national markets, but the transition was extremely slow. When WWII ended, and millions of servicemen returned home, a housing boom ensued, caused mainly by a baby boom. The post-war housing expansion was primarily funded by the S&Ls.  S&L’s continued to grow in numbers and worth by offering saving rates that typically were higher than banks.  By 1965, the S&L’s had over 26% of the savings customers and a historic high of 46% of the mortgage lending market. Banks and S&L’s were battling for savings account customers, but the S&L’s were winning the rate war.  Customers took advantage of the fight until the government thought it necessary to step in and end the rate war in 1966. Regulation Q was passed to limit the rate of returns these institutions could pay to their customers. But, as stated in Part I, the government gave the S&L’s a 50 basis points rate advantage over the banks. This advantage enabled the S&L’s to maintain their dominance, particularly in the mortgage lending market. Yet, there was a deliberate limiting feature to Regulation Q and it had an effect on the number of S&L’s from 1965-1979, dropping the actual numbers of institutions from approximately 6000 to 4700. However, innovative business practices caused the assets of the S&L’s to grow.

But change was coming. Inflation was on the rise, causing stress in the S&L’s by the mid-’70s. Inflation erodes the interest returns on fixed savings accounts and other fixed investments, like the below-market fixed rate mortgages that the S&L’s were holding. Those savings customers, for whom the S&L’s had fought so hard for during the rate wars, were now looking for other methods of interest income. The locked in nature of the Certificates of Deposits which were the bread and butter of the S&L’s for the past 20 years were now prison cells to consumers, as high inflation rates stripped them of interest income and Regulation Q prevented the S&L’s to renegotiate the savings rates.  The S&L’s found themselves, for the first time in their history, trapped by the very regulation that they had profited from in the past.

Additionally, there was more distressing news on the horizon for the S&Ls.  As inflation started to appear, so did a new type of investment institution, the investment bank. A new investment product came to the attention of savings customers, the Money Market Mutual Funds (MMMF). The MMMF’s were highly liquid, paying current market rates with no early withdrawal penalties and they were all outside the control of Regulation Q. The S&L’s were caught flat-footed. The investment banks were now able to offer market-rate returns to their customers by taking full advantage of the high-interest rate market caused by inflation. When asked the question, ‘What, in your opinion, caused the collapse of the S&L’s?’ Stephen (Steve) R. Smith, CMB, Executive Vice President, Retail Sales & Production with Mortgage Investors Group and former top executive of an S&L in the ’80s replied, “In a word, disintermediation.”  Smith went on to explain what disintermediation meant, “….saving account customers poured out of the S&L’s and into the investment banks. The effects were devastating and in the end, insurmountable.”

The dominoes of the S&L’s slowly began to fall. In Part II, the point was made that the S&L’s did not participate in selling their mortgage loans to FNMA but chose to keep them, as assets, on their books. If they needed to free up money or liquidity, they sold to other S&L’s. But as a result of disintermediation, no S&L had any cash to buy, they were suffering the same fate: the threat of insolvency.

The only thing to stem the tide was deregulation, but it came too late and it came in pieces. There were numerous attempts by the government to help supply ballast for the listing S&Ls. In the early to mid-1970s, the S&L’s were allowed to offer checking accounts, engage in commercial lending, make limited investments in land development and construction as well as educational type loans. These changes helped the S&L’s to develop diversified business practices, but Regulation Q was still the governing burden. The main source of their solvency continued to be the savings account customers and mortgage holdings, and by 1979, double-digit inflation was wreaking havoc on these fixed-rate investments.

Renewed hope appeared in March of 1980 with the first deregulation attempt to save the S&L’s, Deregulation and Money Control Act. The Act allowed the S&L’s to pay market interest rates to their savings customers in hopes to curb their moving to the investment banks.  The act restored some confidence, but it only addressed half the issue, it did not address all those millions of dollars of under-performing fixed-rate loans that were still on the S&L’s books. There was certainly no hurry for homeowners to pay off these low-interest rate loans and there were no commercial buyers to purchase the mortgage paper from the S&Ls.  Steve Smith supplies an anecdotal example of the dilemma the S&L’s faced, “…we used to joke that our business plan was based on 3-2-1, we loan money at a rate of 3, we pay savers at a rate of 2 and go play golf at 1, but when inflation hit and then deregulation, our model changed to 3-9-0, we were bleeding badly and couldn’t afford to play golf.”

It took 2 years for the government to deregulate the lending restrictions for the S&Ls. Reagan signed a new law giving the S&L’s additional flexibilities, namely the much needed adjustable rate mortgage. This type of mortgage allows the lender to move the interest rate to match market conditions, such as inflationary pressures, protecting the lender from a below-market fixed rate investment. However, there was still no help for thousands of fixed-rate loans that were trapped on the S&L’s books. But the new law gave the S&L’s ability to expand into more speculative business enterprises. By the mid ’80s, the speculative nature of the S&L’s along with poor business decisions and fraud sealed the inevitable collapse of the S&Ls. “The fraud was symptomatic of an existing systemic problem….” explains Smith, “…by the early to mid ’80’s we were trying to create revenue given the new advantages offered by deregulation. Certainly, some didn’t play by the rules, but there was desperation throughout the industry. Inflation and the inability to react to it was an unintended consequence of government regulation and ultimately, in my opinion, the cause of the collapse. ”

Although the S&L collapse caused great financial hardships, including the use of US taxpayer’s money for bailouts, it did not create liquidity void for mortgage lending markets. The expansion of the GSE’s, FNMA and the newly created Freddie Mac in 1970s, allowed the vision of Roosevelt to finally be realized, the switch from local liquidity markets to a nationally controlled market.

Next: Mortgage Lending: Part IV, The rise of the GSE’s

Read Part 1 and Part 2

Air Date 4/20/13: John Burns, Direct Lending-MIG

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Special Guest: John Burns, Direct Lending

director-lending-div

John Burns

Director, Direct Lending Division

John Burns joined Mortgage Investors Group in January 1998. John’s experience includes over 20 years of outside sales and management. He manages all aspects of sales and production for Direct Lending. Direct Lending’s focus is the secondary market lending needs of Community Banks and Credit Unions. John’s responsibilities include staffing, product development, marketing, training, recruitment, and market expansion. In addition, John is a past President of the Knoxville Mortgage Bankers Association and has served as the East Tennessee Advisory Director for Tennessee Mortgage Bankers Association.

John also shares his scary story  that ALL parents must here. It’s about a fire that almost burned his home down and what you can do to prevent it!

WARNING:

The Housing Hour has learned that under certain conditions the smoke detector in your home could fail to go off.

Common home Smoke Detectors Failing:

Also, we have discovered another study regarding Children under 10 and smoke alarms…we discuss this study and will be posting a video on the study. Every parent with small children must see this video!

Learn more from our Protect your Family Series

Also: Check out The Housing Hour’s latest blogs: Edutorials

Our thoughts and prayers are with you Boston!