You are right, most people who visit this site know what’s really going on. But I can tell you, that 90% of the RE community and the general public doesn’t get it. They now know that things are getting ugly because of the surge in inventory and the recent price reductions, but before August 2005, they had no idea that we were in a bubble. Honestly, it was very frustrating because I couldn’t talk to my coworkers, friends or in some cases, family about it. They either didn’t get it or would think I was nuts. My in laws thought I was crazy. I told my sister in law, to be careful about buying a house. They bought in April of this year. I told them to negotiate and get the seller to pay closing costs. I also told them to prepare themselves mentally that prices could fall after they buy. Of course, they didn’t really believe me. I put them on a 30 year fixed rate first loan that is interest only for the first 15 years and a 30 year fixed rate 2nd loan. They put 5% down. There’s no doubt that prices in their neighborhood will fall and they will owe more than the house is worth. However, they have the protection of 30 year fixed rate loans. They will just have to ride out the downturn.

I noticed the bubble in early 2003. It was just starting to get some publicity. When the multiple offers, escalation clauses started picking up, I knew people were being irrational and a bubble was forming. Also, when I started in 1994, I will never forget sellers bringing money to the table to sell their homes/condos, that they bought in the previous peak around 1989-1990 or so. I knew that RE goes in cycles, unfortuantely, a huge amount of new realtors, lenders, buyers, didn’t understand the cyclicality of the business. Angelo Mozilo, CEO of Countrywide, is quoted as recently saying, “I’ve never seen a soft landing in 53 years in the business”. He’s just pointing out that RE goes in cycles. The problem is this cycle got so out of control that the downside could be much, much uglier than ever before.

I just left the business, not because I couldn’t survive, but because I never liked it. The money could be incredible, but it was mindless work. I also did not like being tied to one area of the country. Once you build your book of business, its hard to relocate without having to start all over. Basically, as a mortgage lender one does the same thing over, and over and over. How many loans can I do this week, this month, this year. It’s the same process everytime, although its been streamlined dramatically since 1994. Now, don’t get me wrong, this year has been very ugly for many lenders, including myself. I saw the latest numbers for my company, everyone’s numbers are off 20-40%. And, we are a very strong mortgage company, because all of our loan officers work in real estate offices and do a large amount of purchase business. Lenders who focused on Refis are finished. If lenders do not have a strong base of builders or real estate agents referring them business they are in big trouble. Basically, lenders can get their business from realtors, builders, accountants, financial planners or past clients. The best source of course is builders or realtors. However, most builders will have their in house lenders which they can steer loans to because they can pay closing costs or offer reduced points. Once a lender has been in the business for a long time, if they are smart, they will build a database of past clients who they will email, mail, etc. to bring new business in. They will also have a loyal following of real estate agents. So the longer one has beeen in the business, the more sustainable their business becomes assuming they are any good. Now, that doesn’t mean that they won’t have huge ups and downs during the cycles. I know many people who were making $300-500k just because they had been in the business a long time. I always considered a loan officer to be very close to a used car salesman. There are almost no barriers to entry, most states don’t require licensing or a test of any kind and no education is required. I also hated being on call 24 hours a day. It just wasn’t worth it to me.

I always tried to steer my clients to the safest loans possible. For example if someone wanted an ARM, I tried to push them into a 10/1, 7/1 or 5/1 at the shortest. Even the 5/1 ARMS are at risk. Our 5/1 has an initial interest rate cap of 5%! So if someone starts at 4%, they can adjust to 9% at the first adjustment. I also, never offered Neg Am arms, I lost a bunch of deals because of that.