On September 11, 2001 my mom and I were on our way home from a long European vacation.
I remember sitting in the terminal at Gatwick Airport re-living the prior two weeks in my head. My mom and I had visited Ireland, Russia, France and England. I had the time of my life and was just disappointed that it was all coming to an end. I was headed back to Atlanta for another week of selling vitamins and gold cards at my GNC store that I managed in Buckhead. I recall wanting to be closer to home. Spending time with her made me realize just how much I missed Tennessee.
We loaded up on our Boeing 777 Delta flight 11 traveling from Gatwick to Atlanta.
As we made our way into the air my mind drifted. I just felt something tugging at my heart. I put my head phones on and fell asleep.
I don’t recall exactly how many hours had passed, but I do know that we were over the ocean coming into United States airspace. The music in my headphones was temporarily interrupted. It was the voice of a noticeably shaken pilot.
What happened next will be etched in my mind for the rest of eternity.
“Ladies and Gentlemen….I need……you… to listen to me very carefully. There has been an attack on the United States. Two commercial planes have flown into the World Trade Center. The United States airspace has been closed and we are being diverted to another location.”
The terror I felt over every inch of my body was intense. I thought I was going to die. I knew we were close to New York because we had the GPS system playing on our screen. He mentioned two planes. Could our plane have hijackers on it? Was this a full scale attack on America and here I was sitting right in the middle of it? If I died what would happen? Could I survive a plane crash? These are not questions that I ask myself every day. A few moments later the pilot came back on and gave us additional information. We were flying to St. Johns Newfoundland until further direction from the United States was given. I was scared.
We landed in Canada. This Canadian airport was an international airport. It serviced one international flight per week. 27 international Jumbo jets were now sitting on her tarmac. How long would we have to be on this plane? The pilot only told us to try and relax. I had my video camera and videotaped fighter jets in the air and soldiers with machine guns guarding each plane. I am sorry but relaxing is not what I was doing. Mom and I were on the phone with my sister Andrea and she was really shook up. We didn’t know what to tell her because we really didn’t know anything.
I was asking myself a lot of questions. I had a long time to answer these questions, because the pilot came on the PA system and told us that they were going to unload one plane at a time. They had to search each plane and each passenger. This would take around an hour per plane from smallest to biggest and we were one of the biggest planes that had been diverted there. Well, 19 hours passed before we greeted Canadian soil. We were carefully brought off the plane. Security was at high alert. We were greeted by armed guards, some with machine guns. After making it through customs they loaded us all on buses where they transported us to the local hockey arena which they were using as the central transportation center for all diverted passengers.
When we walked into the arena it was the first time any of us had seen it. There it was on the jumbotron. You could see the planes slamming into each building. The planes looked eerily similar to our plane. Most Americans watched this horrific tragedy in the comfort of their own home. Mom and I were on uncomfortable seats, had been awake for two days, and had just spent over 20+ hours on a plane. We still had NO idea what was going on. My heart sank for those who were killed. I could not even imagine how horrific it was for the families. My heart aches for them to this day.
Each plane was assigned a section of seats in the arena. We had time to get to know some of our fellow passengers. There was the Director of Communications for Coca Cola UK. There was a VP for a Video Tech company in America. There was a couple that was on their honeymoon. There were so many others but these to just name a few.
Finally we were told that they would transport us to our Hotel. Actually, it was Holy Heart High School. Not really a bed and breakfast. The people were amazing there. The care and love that they showed us made it abundantly clear that God was in control.
We were assigned to the Science room on the second floor. We had about 15 or so people in our room. We were so exhausted so we decided to try and sleep for a few hours. I couldn’t sleep because A) The floor was hard B) The snoring and C) I felt like I had been skinned alive and thrown into the ocean.
The community came together and put their collective arms around us. I was overwhelmed with gratitude for the way we were treated. They brought us food, sang for us and invited us into their homes. They took us on a tour of their beautiful city which we learned was the eastern most city in North America. They even took us on a boat to show us around. I found out that the remains of the Titanic were only a short boat trip away. There was actually a group docked in St. Johns that was shooting a documentary about it. It was the director for the movie Titanic and some other folks.
I had several days in Canada to reflect on my life. What had I accomplished? I was the Region 2 #1 Gold card seller at GNC. I was ranked nationally for my sales per hour and profit margins. But what had I really accomplished. I could feel God tugging at my heart. He had something in store for me which wasn’t completely clear yet.
So after 4 days we were finally given word that we would be going home. I had mixed emotions. I really didn’t want to get back on a plane, but I really wanted to go home to my apartment in Atlanta. A week in the bed and several bags of cheetoes is just what I needed. There was thunderous applause as we lifted off the ground. The trip home was very solemn. I felt relief and terror all at the same time. The last four days felt like four years. We were the first diverted plane to arrive back in to Atlanta. When we touched down we all cheered and whistled as if we had just scored the winning touchdown to beat Florida in overtime. As we taxied back to the terminal the Delta employees clearly wanted us to know just how much they cared. There were hundreds of Airport employees lining our route as we taxied in with flags and banners that said, “WELCOME HOME” and “WE LOVE THE USA.” I could not help but to cry, as did most the passengers on the plane. Seeing those American flags and people cheering made me feel safe. Unfortunately, the victims and their families will never feel safe again. I pray every day for the families.
This was a major moment in American history. It was also a major moment in Kevin’s history. I needed something to change. I had made changes in my life, but there was something more that I needed to do and God was showing me. I believe that God was calling me to come back home to Tennessee. I had lived in Atlanta for over 3 years and I had my Aunt and many friend here. I needed time to collect my thoughts and let God show me the way.
Then something amazing happened.
I received a job opportunity in Knoxville. With the counsel of my Mom, Dad and those around me, I decided to jump on it.
I came home in April 2002. God works in such amazing ways. I started my new job on May 1, 2002 and my future wife, Pam, started two weeks later. We started dating in August and I proposed to her one year to the day after our first date, August 11, 2003. We got married on December 20, 2003 and then found out we were having our first child on October 21, 2004. Olivia was born on June 6, 2005. We found out that we were having a little boy on June 18, 2007. Patrick Callaghan Rhea was born on February 22, 2008.
I owe all of this to God. He had a plan for me. Part of His plan is for me to share with Olivia and Patrick the love and Grace of our Lord. His Grace is so incredible in my life. I have problems like the rest of humanity. I have anxiety, loneliness, fear and times of hopelessness. The difference today is that I have a purpose. That purpose is becoming clearer, but part of it is to share His love with others. I need to get out of my shell and spread the Good News…God has a plan for you too!
September 11 is a day of remembrance for us all. I also use it as a time to reflect on my life. Where have I been and where am I going. I regularly get off track and I constantly need to be reminded that God loves me no matter what. It’s easy to let life take over and I start to forget what is most important in my life.
My prayers are with all of the family members who are still suffering with the events of that day. I pray that they may find peace and understanding from a world that knows not these things. I pray for the salvation of a nation that does not know the Truth. Not the truth about worldly things, but the Truth that God loves them.
To all of my fellow passengers in life: I hope and pray that along this journey I might be able to give something back to you. Maybe a kind word or encouraging smile is what you will need. Whatever that is, I hope that God, not me, is in the middle and you have the window seat.
Host Kevin Rhea shares his personal experience in training and running both a half and a full marathon in the Covenant Health Knoxville Marathon for 2017 and 2018. Kevin walks our listeners through the physical and mental aspects of accomplishing such a personal goal while staying true to his mission statement in life, “To live life to the fullest. I want to listen to God and make treasures of things he sees as treasures. That is people. That means being the best husband, father, co-worker, uncle, friend, and employee that I can be.”
Get in shape join:
Kevin and created a video series chronicling his commitment to a training and the emotions that he goes through.
Check out Kevin’s website for the complete series:
Kevin Rhea is the host of The Housing Hour and Senior Vice President of Mortgage Investors Group. The Housing Hour can be listened to at www.TheHousingHour.com, or you can subscribe to our podcast on iTunes. if you are in East Tennessee you can listen on NewsTalk 98.7 WOKI on Saturday’s from 3-4 pm. You can find out more about Mortgage Investors Group at www.MiGOnline.com
discuss this week on The Housing Hour one of their true passions in life-Weather! John, David and Kevins’ life path has intersected at this East Tennessee crossroad due to a common love of weather. As a result, they have created a Facebook pages for, as their motto reads, ‘Where Weather Fans Live’. They invite all weather enthusiasts to join the daily discussion about the weather regardless of where you live, they want to talk about how weather affects you!
The Housing Hour Host-Kevin Rhea has been a weather enthusiast since the Tennessee Blizzard of 1993. He’s has been known to set out to all parts of the East Tennessee region hunting the perfect snow storm. John Lindsay has had a similar experience since he was a young boy, finding himself in total awe of weather events and a drive to be able to predict future storms. David Manuel is the newest member, adding great knowledge of the technical and scientific side of weather coupled with excellent communication skills.
All three of these talented men build the perfect forum “Where Weather Fans Live”!
So join the discussion this week- where we talk about the weather but can’t do a thing about it!
In 1921, it was considered the most horrifying, gruesome murder in East Tennessee history.
Starting in Knoxville, with a sickening murder in Robertsville, Tennessee (pre-Oak Ridge), to an attempted bank robbery in Oakdale-this story has it all- ending with four men executed in Tennessee’s electric chair on the same day (a dark state record).
It seems like every 100 years, or so a sensational trial occurs in communities across the country. Most of them maintain only a local level of interest but occasionally some reach the attention of the national media. The story of George Lewis and Andrew Crumley reached a national audience; its horrific tale of a brutally cruel murder and attempted murder caught the ire and sympathy of the nation. After the sensational trial, verdict and death sentence, the country seemed to wait in anticipation for the execution. On March 1, 1922, Tennessee executed four men; national news headlines exploded with the news.
In the trials closing augments, prosecuting attorney W. H. Buttram predicted the trial would be, ‘….remembered a hundred years hence.’ But in reality, with justice being served quickly and inexorably, memories of the horror soon faded.
Murder Will Out rekindles some of the emotions undoubtedly felt at the time and attempts to honor the memories of two innocent lives that fell victim to such a despicable plot.
For more than 25 years, Mortgage Investors Group (MIG) has been committed to helping Tennesseans fulfill their dreams of homeownership. The company has served more than 97,500 clients in excess of $14.5 billion since co-founders Chuck Tonkin II and Chrissi Rhea opened a modest lending office in Knoxville, Tennessee, in 1989 with five colleagues. Today, with more than 275 employees in 23 branch locations from Memphis to the Tri-Cities, MIG is the largest independent provider of single-family residential mortgages in the state of Tennessee.
As the Tennessee Housing Development Agency’s (THDA) top lender for 13 successive years, MIG also enjoys a reputation for delivering unparalleled service to first-time homebuyers. The firm’s experienced mortgage experts take pride in providing personalized service aimed at helping borrowers find the best solution for their home financing needs when they need it. In addition to offering competitive rates and a diversified line of residential mortgage products, including government and conventional loans, MIG houses on-site underwriting, processing and appraisal services and employs state-of-the-art technology to ensure a swift and professional lending experience.
-a 25 year weather veteran- has pretty much experienced all types of weather events; from the East Tennessee Blizzard of ’93 to the tornadic storms of 2012, Matt has weathered it all. There have been many weekends Matt made WATE’s, Greystone Mansion, his home while keeping watch over the area’s changing weather conditions.
Listen to Matt’s story this week on The Housing Hour!
Also in studio, the Co-Founder of the East Tennessee Weather Page, John Lindsay. John and Kevin Rhea started the popular Facebook page last year, sharing their passion for weather with all the other East Tennessee weather fans!
Lori Tucker: “He’s going to take you through those wild weather experiences,” said Lori. “He’s going to tell you and he’s going to get it right.”
Ken Weathers: “There is nobody in this business that works harder than Matt Hinkin. You literally have to make him go home during winter weather or severe weather event.”
Kristin Farley: “Each and everyone of us know that he really has an open door policy in the Storm Center. We come down to him with any problem, from something at home, something at work, from something at school, whatever, and Matt is going to be there to listen and to be a friend.”
is special guest this week on The Housing Hour. Scott just recently completed a Home Energy Audit on the home of the President of Mortgage Investors Group, Chrissi Rhea. We will discuss the findings of that audit plus the incredible benefits of having a Home Energy Audit.
Prudent Energy: Home Energy Audit
These are the considerations that a home performance contractor sets out to address, while taking into account the interconnectedness of homes, and the relationships between each of the home’s components. In accord with this holistic approach, a home performance contractor will assess, and then address, any of these potential problems within a home.
As mentioned above, home performance is based upon what we call the 5 pillars of home performance:
1) Safety: Assessing the safety of a home is an important part (maybe the most important) of a home performance contractor’s job. Back-drafting appliances that may be sending carbon monoxide into the home, unsafe levels of formaldehyde from building materials, are all potential safety issues that a home performance contractor is trained to address.
2) Health: Indoor air quality is listed by the EPA as one of the top environmental threats to human health. A home performance contractor’s job is to ensure that your home’s indoor air quality is not a threat to you or your family’s health.
3) Comfort: Our home is our refuge. It should be comfortable. Drafty rooms, cold spots, unpleasant humidity and heat in the summer, poor quality lighting or incandescent lighting that creates unnecessary excess heat in the summer, are all avoidable unpleasantries. A home performance contractor can help.
4) Durability: Imperfections within a building, in addition to causing discomfort raising health concerns, can also have long term repercussions. Moisture problems causing rot in framing, or insufficient insulation causing ice dams, are among the durability concerns that a home performance contractor will pinpoint, then tackle.
5) Efficiency: Last but not least, home performance is about ensuring that a home is cost effective to live in. If a mechanic told you that a few simple improvements could drastically improve the fuel efficiency of your car, that’s something most of us would jump on. That’s what a home performance contractor does for your house.
Since starting my career with Mortgage Investors Group I have become a husband and a father. My beautiful wife Pam and I have a daughter, Olivia, and a son Patrick. I started my career with MIG as a Loan Officer Assistant in 2001 and became a Loan Officer beginning in 2003. I excelled in my first year, closing more loans in Tennessee than any other rookie. My accomplishments as a rookie have been recognized by the Knoxville Mortgage Bankers Association (KMBA), and Mortgage Originator Magazine. In 2011, I was promoted into management at MIG as Vice President, Director of Business Development. This is a very exciting move for me and I have hit the ground running. We have developed a new social media strategy, a new radio campaign and many other very exciting things!
My faith and my family are the most important things in my life.
Kevin is available to talk to your organization , club or your child’s birthday party.
Mark Griffith- Co-Host:
Mark has been a part of the Mortgage Investors Group management team for over 18 years. He opened the Oak Ridge office for MIG in 1994 and has assembled one of the most productive sales and support teams in the business. The Oak Ridge office has produced, on the average, over 80 million dollars of loans per year for the last 15 years. Two of his Loan officers have earned repeated Top Producer Awards recognitions in the Knoxville and surrounding markets as well as Top National Honors. The Oak Ridge office has been #1 Lender in Anderson County for several years.
Mark got into the Real Estate business in 1983 and became a Mortgage Loan Officer in 1985. From interest rates in the teens to the market collapse of 2008, Mark has experienced a wide range of market and guideline fluctuations that make him one of the top managers in his field.
Mark gladly joined The Housing Hour, as C0-Host, in December of 2011; his main role is programming/website content/scheduling and community service initiative.
You can reach Mark with your questions at: Mark.Griffith@migonline.com
Mark is available to talk to your organization or club.
Facebook: The Housing Hour
In Mortgage Lending, it has always been said that the two largest purchases families will ever make are homes and cars. Since the 1900s, those two items have not only revolutionized the way we live but also the way we spend. In 1901, the Oldsmobile sold for $650 which works out to be approximately $16,000 in today’s dollars. Home prices were on an average of $5000. In 2019, the average home price peaked to a historic high of $227,000. New car prices hit highs of roughly $35,000 in 2018.
What helped the values soar so high?
The Housing Hour points to its own terminology, The Liquidity Factor. The Liquidity Factor is the ready availability of loanable funds made possible by the Federal Government, through varied techniques of government policies and created business entities, which help individuals and companies purchase goods and services that they otherwise would not be able to afford. Simply put, without liquidity in the marketplace buyers only options are to pay with cash. No liquidity means values stay at the levels of what consumers can afford to pay in cash.
The liquidity factor is the key to mortgage lending and home ownership.
The History of Mortgage Lending and The Liquidity Factor.
In the1900′s, homes generally had to paid for in cash.
Mortgage Lending has several historic moments worth noting since the 1900s. The most remarkable pieces of information revolve around long term financing options available in the 1900s, there weren’t any. Mortgage Banks were formed in the 1870s to help finance the expanding western territories, but they never offered ‘long term’ financing. It trended to be in the 5 to 10-year term range. But unsound underwriting guidelines caused high default rates which led to the demise of these Mortgage Banks by the 1900s, resulting in homes having to be purchased with cash.
The Great Depression: Unemployment exceeds 20%
It wasn’t until the roaring 20’s that expanding credit markets created enough liquidity to spur a mini real estate boom. Insurance Companies saw an opportunity to capitalize on the housing market bubble and got into the home lending field. But whatever a robust market giveth, a declining market taketh away. Black Tuesday struck, leading to The Great Depression. High unemployment and acute deflation caused high foreclosure rates, which collapsed the home lending market for a second time in 30 years. Facing a country wide crisis, the Federal Government created its own 1929 version of TARP, Troubled Asset Relief Program with the creation of The Home Owners’ Loan Corporation and Reconstruction Finance Corporation (RFC). These entities (like TARP) sole jobs were to liquidate non-performing loans and remove them from the Banks ledgers keeping the banks from insolvency. They were toxic assets. Interestingly enough, homeowners took advantage of this bailout opportunity and intentionally defaulted on their loan. These created government entities are estimated to have purchased over one million mortgages from banks.
The government buying toxic assets may keep the banks from insolvency but it doesn’t cure the lack of liquidity in the market place. No liquidity means no lending, so the Hoover administration started to form (Roosevelt signed into law) the Federal Home Loan Bank. The main goal of the FHLB was to supply the needed liquidity to banks and Savings and Loans, as well as requiring specific lending guidelines, such as mortgage term limits of 10-15 years, as well as other stringent policies. The main lending institutions benefiting were the Savings and Loans. The S&L’s grew rapidly across the country, serving small community areas, creating a small town ‘good ole’ boy feel. Each S&L were owned and managed privately by individuals or groups, giving great control to the board of directors and president. But the expanding S&L’s demanded more flexibility from the government. The S&L’s were not full-service banks. They could not offer checking accounts and other typical banking products. As a result of Banks and S&L’s waging a savings rate war, Congress, in 1966, regulated and limited the amount that banks and S&L’s could pay to customers. However, as a carrot to preserve their savings and lending, the S&L’s were given an award by the Federal Government with permission to increase the savings rate paid to customers in the amount 50 basis points over what traditional banks could offer their saving account customers. This regulation was known as Regulation Q. But the intentions of the regulation were more than just an award for the S&L’s; it also served as a back door liquidity technique. Regulation Q created a cash-rich environment for the S&L’s and helped secure them as the leading mortgage lending institution in the nation, supplying the market with the necessary liquidity until the collapse of the S&L’s in the ’80s, paving the way for the expansion of FNMA and Freddie Mac.
The history of Mortgage Lending and The Liquidity Factor.
At the peak of the Great Depression, the Hoover administration realized the importance of the liquidity factor. Their policies bolstered the S&L’s, securing them as the main channel to provide the necessary liquidity to the mortgage market. The Federal Home Loan Bank supplied millions of dollars to the local banks and Savings and Loans for lending.
The importance of the S&L’s was, unintentionally, immortalized in the holiday classic,It’s A Wonderful Life. George Bailey was struggling to save his father’s Building and Loan business (essentially a Savings and Loan) from being taken over by the evil Henry Potter. George Bailey’s father built the business around the principle that the common worker needed the ability to borrow money for a better home and quality of life rather than living in the horrid conditions of Henry Potter’s slumlord developments. Mr. Potter, being a significant shareholder in the Bailey family Building and Loan, admonishes the board for lending money to the ‘rabble’ types (or the lower classes; the common people) that live in Bedford Falls.
In the famous scene, George Bailey rallies the board with the inspiring lines directed toward Mr. Potter, “You… you said… They had to wait and save their money before they even ought to think of a decent home. Wait? Wait for what? Until their children grow up and leave them? Until they’re so old and broken down that they… Do you know how long it takes a working man to save $5,000? Just remember this, Mr. Potter, that this rabble you’re talking about… they do most of the working and paying and living and dying in this community. Well, is it too much to have them work and pay and live and die in a couple of decent rooms and a bath?” Watch the full scene:
This scene typifies the great American dream that everyone should have the same opportunity to own their own home. George even points out what current research has verified when he asks the board a simple question “…doesn’t it make them better citizens?”Home ownership has social benefits and every president from Herbert Hoover to present has tried to further that sentiment.
But the scene also points out, inadvertently, the weakness of the Savings and Loan. That weakness was its localized business philosophy: meaning the small town, ‘good ol boy ‘ way of doing business. In every community across the country, S&L’s were the dominant player in the savings and lending business. Decisions were often based on who you knew or a set of standards and dynamics that was specific to a particular area or community.
When Roosevelt was elected in 1933, policies regarding how to supply the mortgage lending market with liquidity changed. Roosevelt saw the disadvantages of the small town, local S&L’s and opted for a nationally standardized way of supplying liquidity. In 1934, The National Housing Act was authorized which created three particularly significant changes to the housing market. First, the Federal Housing Administration (FHA) was formed to improve housing standards and to insure the mortgages against default to the lenders, bringing stability to the financing market. Fixed rate loans were introduced with terms in excess of 20 years and smaller down payment requirements. Lastly, a government-sponsored enterprise (GSE) was authorized to purchase originated mortgages from lenders and securitization of those loans in the form of Mortgage Backed Securities (MBS).
In 1937, the Federal National Mortgage Association (FNMA or Fannie Mae, a GSE) was created to provide liquidity to the mortgage market by buying the newly originated FHA loans from lenders. This technique gave the lender the ability to replenish their cash assets so they could continue to provide additional FHA loans. FNMA, at that time, only bought FHA loans and did not enter the conventional financing market until 1970 when her younger brother, Federal Home Loan Mortgage Corporation (FHLMC or Freddie Mac), another GSE, was formed. As a result of the expansion of the GSE’s role in the liquidity market, Fannie Mae and Freddie Mac became the largest private mortgage companies in the country. Although the GSE’s are publicly traded and non-government owned, the US government gives its full backing to the loan products they purchase. The full backing of the US makes these mortgage bond investments one of the best investment choices in the domestic and foreign markets.
It is essential to note, the commercial banks were generally the only lending institution participating in the newly created FHA loans. The majority of the S&L’s continued with their long developed business practice of keeping originated mortgage products on their books. If they needed to create liquidity, they just sold their portfolio loans to other S&Ls across the country. This decision to not participate in government loans and the diversified liquidity it would provide them would play a future key role in the collapse of the S&Ls.
“…millions of servicemen returned home, a housing boom ensued….”
The 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&Ls 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.
“….saving account customers poured out of the S&L’s…”
But change was coming. Inflation was on the rise, causing stress in the S&L’s by the mid 70′s. 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&L’s. 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 ’80′s 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-1970′s, 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.”
Smith, “… fraud was symptomatic of an existing systemic problem…”
It took 2 years for the government to deregulate the lending restrictions for the S&Ls. Reagan signed a new law giving the S&Ls 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 80′s, 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 1970′s, allowed the vision of Roosevelt to finally be realized, the switch from local liquidity markets to a nationally controlled market.
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 90′s 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 90′s, 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.
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.
This is one of the most important shows The Housing Hour has done:
….it could save you and your family’s lives!
Fire Prevention and Awareness: Will your Smoke detector work?
Did you know that Thanksgiving Day is the number one day for cooking fires?
Knoxville City Fire Department Captain DJ Corcoran joins our show and discusses everything from the top things that can cause fires during the holiday season to smoke alarm detectors.
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!
Also, on a lighter note….we will be posting video a comical video regarding fires caused by Turkey Fryers.