Posts Tagged ‘mortgage’

 If you have been following my blog, I am telling you a little bit about myself, my husband, my marriage, my son and my career.  I have had an interesting life and I thought I would share a slice of it.  If you want to start from the beginning, please read my post called Another story begins . . . 

As I indicated in my earlier post, I was in a very unique position.  My husband’s company was closed down.  I was offered a consulting job and moved to Ohio.  I worked for a project manager for about six months and it was obvious he didn’t have a clue.  And I, an outsider to this bank, had to escalate the issue and get the team a new project manager.

Well it all worked out fine.  We got our new project manager and it was obvious he understood the principles of project management.  In addition to the project manager they brought in a team of consultants to help with the project.  Everything seemed to be going along pretty good.  There was a lot of pressure for getting this job done.  The project was late in getting done and it was way over budget.  But we had a great team who were working hard to make it happen. 

As I said it was going fine, at least, until we put together a real project plan and the project manager saw the estimated end date.  There was a lot of work yet to be done.  The first six months were almost a complete waste of time.  We were now focussed for the first time on the real work that needed to be done. 

Keep in mind the goal of this project was to put in a system that managed tasks and time frames with the ultimate goal to reduce or eliminate any penalties or losses due to improper procedures on servicing a delinquent mortgage loan.  To accomplish this, we had to understand all the paths a loan could go as it went through the default process or out of the default process.  This was multiplied by the different investor imposed tasks and time frames.  In the end it meant thousands and thousands of tasks needed to be set up in the system, interlocked together and tested. 

So this new project manager had the brilliant idea that he was going to cut scope on the project which would bring in the timeline and reduce the overage of the budget.  The part he wanted to cut was the specific tasks that related to investor requirements.  He suggested we create one path and not put any of the investor rules into the tasks or their timeframes.  The team was a little shocked to hear this proposition.  He was cutting out the whole purpose of the project.  So to assist the team in defending the original plan, I put together some analysis that compared the savings if we did the project the right way versus the losses the bank would incur if we agreed to the reduced scope.  The difference was hundreds of millions of dollars.

Well the obvious happened, the management of the bank agreed with the rest of the team and this book-smart project manager was taken off of the project.  He knew that I had created the analysis that triggered his dismissal from the project and before he left he tried to take a punch at me.  He recommended that my contract be ended and that the team could do the project without me.  My anxiety went through the roof.  I really could not afford to lose this contract.  I needed time to put into place my plans for permanent employment.  It was a little scary being a contractor because you never knew how long you would have work.  This was too much pressure for me.  Lucky for me the management of the bank stepped in and insisted that I remain on the project.  They recognized my value that I brought to the project and I had skills that they needed.  Once again I risked my own ability to make a paycheck for doing what was right for the company.  In the end the risk paid off.

 

Related topics:

Same company, different job . . . 
Back again . . . 
Swallow my pride and move on . . . 
Worst fears were coming true . . . 
A new business can be rough . . .
It’s a different world . . .
Change in career, another move, and starting something new . . .
Good-bye Chicago, Hello Columbus . . .
Chicago and a time of crisis . . .
A place of prosperity . . .
There are good people in the world . . .
Hard times: a need to relocate . . .
And another story begins .

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Most people don’t realize how the mortgage industry works. There are some complexities that happen behind the scenes which is at the heart of how they make a profit. It also explains some of the funny business and de-regulation issues of banks that most recently was one of the factors that sent our economy spinning.

There are different stages to the life of a mortgage, from a bank’s or a mortgage company’s point of view.  In the beginning a bank makes a mortgage loan with a customer, who had to qualify for the loan.  Qualifications includes credit rating, employment, and other factors.  The bank can decide to keep that loan as their own, but that locks up capital that could be invested.  To sell a loan to an investor the loan has to meet specific criteria.   Some of that criteria specified by the investor include:  quality of the borrower, the loan to value ratio, existence of mortgage insurance and the location of the home.  If a loan is qualified it is sold to an investor. The bank retains a fee and frees up funds for investment.  The bank also has to decide if they want to manage that loan for the investor, creating its own portfolio of loans, or to sell the servicing of that loan to a third-party, such as a mortgage company.  As you can see with a mortgage loan there can be many parties involved, including the borrower, the originating bank, an investor, and a mortgage company for servicing.

Most of the time the investor is the U.S. government.  I am sure in the recent economy crisis, you probably have heard of Fannie Mae, who is the biggest investor in mortgage loans. 

After the investor buys the mortgage, the mortgage companies or banks services the loan for the investor and receives a portion of the interest money paid by the borrower on the loan, which is called a servicing fee.  During the life of the loan the mortgage company services the loan which includes activities like, processing payments, credit reporting, adjusting variable interest rates, determine escrow payments, payment of insurance, and payment of taxes. 

When I was a mortgage loan servicing manager in Texas it was unbelievable how many people didn’t understand  their mortgage.  The most confusing part of it was the portion of the payment that is designated for escrow.  There were many times I had to explain to a customer that the escrow portion of their payment was totally related to the cost of taxes and insurance.  Insurance could include home owners insurance, flood insurance and credit life insurance.  Around property tax time, we usually had many irate customers whose payment went up because their taxes went up. 

On one occasion we had a gentleman complain about his payment being increased.  Eventually his complaint was escalated to my desk, and I invited him to meet with me so we could walk through what was happening with his loan and explain why his payments had increased.  The man was an immigrant from another country.  He had taken out the mortgage loan about three years earlier and his payment was going up a couple hundred dollars.  So that he could understand why his payment increased, I showed him how both his home owners insurance and taxes had increased, which affected the escrow portion of his payment.  In addition he had a three-year adjustable rate loan, which also caused his payment to increase since interest rates were going up at the time. 

The more we talked, the more angry he got.  He just didn’t understand that the bank  didn’t do anything wrong, and he was legally bound to these terms when he took out the mortgage.  Suddenly he said that he was finished with the bank and he wanted to pay off the loan so he could sever his ties with the bank.  I thought this was odd because he was complaining about the payment increase and yet  he had enough money to pay off the loan.  I asked him to wait while I had one of my employees create a payoff quote. 

When my employee gave me the quote, I notices that it included a pre-payment penalty.  Consider the situation , I have an irate customer in my office, who was mad about an increased payment, and now I had to tell him he could pay off the loan but he would have to pay a prepayment penalty.  I told my employee to let security know what was happening.  Good thing I did, when I gave the news to the man he was furious.  He was muttering in his native language.  All of a sudden his English was not so good.  He also said, that when he signed the paperwork for the mortgage he was new in this country and didn’t understand it, nor did he read it.  I told him I was sorry that happened to him, but this was a legal obligation and he had to pay the prepayment penalty.  After cursing at me, he pulled out his checkbook and wrote a check for the entire amount due, which was well over $200,000.  He slammed the check down on my desk and walked out.  The scary part of this story is when we returned to work after the weekend, there were bullet holes in my window and in another window.  I have a feeling it was this guy.  Maybe not, but it is awful coincidental.

Another facet of the mortgage loan servicing business is when a mortgage loan is past due on payments.  If a mortgage loan goes delinquent it needs to be serviced with specific processes and associated timings, which are defined by the investors.  If the mortgage company misses a deadline in the delinquent process the loss goes to the mortgage company, not the investor.  In addition many mortgage loans have  mortgage insurance, paid by the customer, which reduces or eliminates any losses due to delinquency.  If everything is processed correctly by the guidelines of the investor, the investor takes the loss.

Earlier I mentioned the funny business that was a part of the decline of our economy for the last two years.  When I was a manager in the lending department, the guidelines that the investor, specifically Fannie Mae, were very stringent.  The loans had to have a loan to value ratio less than eighty percent.  All of the loans were required to have mortgage insurance. 

A couple of things happened which created a problem with this type of loan.  Property values did not keep rising and instead started to fall.  In addition at the end of the five years the customer could not afford the refinanced loan because it now included principal, interest and escrow in the payment.   These five-year loans were not intended as an easy way for a person to own a home. 

I suspect there were many loans made that should not have been made based on what the payments would be after five years.  As a result of all of this there was a huge number of foreclosures.  The foreclosures meant losses to the investor, the banks, the mortgage insurance companies, and the mortgage companies.  These customers had a mortgage loan on a homes whose values had dropped and were worth less than the principal balance owed on the mortgage.  The banks foreclosed on the borrowers and were stuck with all these homes.  The market for the homes had depreciated and the banks had many losses.  Borrowers were caught in the crisis of a foreclosure, and the mortgage industry could not take on the increased number of foreclosures with depreciated property values.

That pretty much explains why the banks were in trouble.  I also suspect Fannie Mae, a government entity, had reduced their requirements for investing in a loan.  As a result they took more of a loss as the investor. 

I also wonder how all these people qualified for the loans.  They were purchasing a home which was beyond their means.  The five-year interest only loan enticed the people to get the loan without a realistic expectation of what would happen in five years.  I suspect these borrowers were qualified to pay the interest payments for the five years, but were not qualified to make a regular mortgage payment after that five years.

Greed, deregulation and stupidity resulted in a bailout situation where Americans are paying to save these banks and Fannie Mae.  And all of this occurred in an environment that they themselves created. 

If you have been following my blog, I am telling you a little bit about myself, my husband, my marriage, my son and my career.  I have had an interesting life and I thought I would share a slice of it.  If you want to start from the beginning please read my post called Another story begins . . . 

So just as a brief review, within a few years after getting my Master’s degree, my husband and I moved to Dallas, Texas.  I started out doing some temporary work, and within five months had a permanent job at a bank.  This bank gave me many opportunities to learn new skills.  I had a knack for technology and applications.  As a result of this I was put on many special projects such as converting a system to a new system,  enhancing the systems, being a supervisor which led to being a manager, and managing financials and budgets.

After Dallas, we moved to Chicago and I once again worked for a bank in their technology department.  My main responsibilities were business analysis and project management.  My stay there was short before I moved into contract employment with a consulting company.  While being a contract employee I specialized in technology quality engineering, business analysis, and project management. Besides testing an application, I defined their project management procedures, and set up a technology help desk  system.

After about four years I left the consulting business and my husband and I started our own company.  I ran a processing plant which prepared, packaged and shipped products to West Africa.  This experience was very exciting and I got a glimpse of a new perspective of business.  It gave me an opportunity to be in charge of most facets of a business. Unfortunately, the business did not go so well, and I got a chance to experience a crushing failure too.

That brings us to where I left off in a previous post.  As you know if you have been following my posts, I was contacted by a bank in Ohio and they wanted to hire me as an independent consultant.  This was a pretty good offer because by being independent, there was no third-party taking their share of the payment.  In this situation I was making 100% of the fee paid by the bank. 

My husband was finally out of the hospital  and we were no longer quarantined.   I could finally begin work and my husband could take care of our son.

I have always been nervous about starting a new job. That is probably true for most people.  I don’t think it is due to lack of confidence in my skills, but I think it may be because of the uncertainty of everything. New people. New boss. New location. New software application. New procedures.

This time the situation was a little different. I knew the VP who hired me and I knew a little about the company’s software applications. I am not sure if that knowledge gave me any comfort. All I cared about is that it was a great way to bring in money for our family.

For this job I reported to a project manager. I also worked closely with a couple of developers and several team leads from the mortgage default department.  The application I was going to work on, which was owned by a third-party company, was designed to assist with the servicing activities once mortgage loans went into default. The project consisted of getting the application installed, setting it up to automate workflows, and converting data from the old application for the new application. The biggest aspect of the project was setting up its configuration and all of the templates that drove business processes for servicing delinquent mortgage loans.  It involved working with four departments:  Loss Mitigation, Bankruptcy, Foreclosure, and Real Estate Owned.  This company had one of the biggest portfolios of mortgage loans in the U.S.  It serviced loans for Fannie Mae, Freddie Mac, FHA and other investors.   Each processing template was differentiated by the investor’s guidelines, the type of loan, and what state it was in.  Due to these differences it meant a couple of thousand templates.

Within about six months I had a pretty good perspective of what we needed to accomplish. Your probably thinking, “Six months, and you’re not done yet?” That is correct. It was a big project. It also had to be right or there would be huge losses. What made it complicated was that we had to set up all the procedures prescribed by all of the investors, all of the loan types and all of the states.  These templates needed to cover every possible ‘if/then’ scenario for a loan to go. We also had to ensure all of the handoffs between each of the departments were perfect. One missed step in the process, or a wrong duration would result in penalties to the bank. The goal was to implement this system which would, if used properly, tremendously reduce or eliminate the penalties the bank had been paying had been paying.  We were talking about millions of dollars.

After about six months it was pretty obvious that the project manager did not have a clue. He didn’t understand the project and he didn’t know how to be a project manager. Normally as a contractor I would not get involved with this situation. I would do my job as instructed and what happens, just happens. Obviously I was not a typical contractor. Since this bank had reached out to me and offered me this opportunity, I felt obligated to make sure they got what they needed.

I decided to escalate the issue. Luckily I was not doing this alone. I had been keeping the VP who hired me apprised of all the issues. The lead developer was also in agreement with me. Finally we had an audience with the Executive Vice President. He listened to the issues we were having and he came to the same conclusion that we had, which was to get rid of this project manager, and replace him with one that at least could handle project management activities. The Executive VP was glad we had brought this to his attention. He knew this project could not fail, and if it did he probably would not be the Executive VP any more.

Well that was six months of misguided work, resulting in one bad project manager eliminated. After straightening this out you would expect more forward progress. Well this assumption was proven to be wrong.

To be continued . . .

 

 

Related topics:

Back again . . .
Swallow my pride and move on . . .
Worst fears were coming true . . .

A new business can be rough . . .
It’s a different world . . .
Change in career, another move, and starting something new . . .
Good-bye Chicago, Hello Columbus . . .
Chicago and a time of crisis . . .
A place of prosperity . . .
There are good people in the world . . .
Hard times: a need to relocate . . .
And another story begins .