Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Shmuel has over two decades of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. Shmuel provides a uniquely holistic approach to comprehensive real estate and financial matters that goes well beyond any single transaction. Shmuel is an award-winning financier recognized for maximizing the short-term and long-term objectives of his client. As a contributing writer to many local and regional newspapers and publications, his insights have been featured in the media for many topics, including mortgages, personal finance, appraisals, and real estate trends.
Around this time a decade ago, the financial markets were rattled when Lehman Brothers collapsed without a suitor. They certainly weren’t the first lender to fail, and were not the last – but Lehman’s size and market capitalization was significant, and it was the first entity of that magnitude to be allowed to fail without a lifeline or bailout.
I vividly remember when each of the failed wall street mortgage lenders collapsed, but Lehman Brothers stood out the most. There was a website quickly created to report all of the imploded lenders – so many familiar names were being posted on a daily basis. Lehman was one of the most active “buyers” in the secondary mortgage market, where they had an Alternative-Loan product offering that was one of the most vibrant in the marketplace.
Ironically enough, months before they closed-down, because of increased competition and to attract new business, Lehman create a new, more aggressive product offering called “Mortgage Maker” which pretty much did any loan – offering 100% financing, credit scores as low as 500, and of course no income verification. By design, we didn’t do too many Mortgage Maker loans, but what could have been done was limitless.
Lehman was not bailed out or taken over like some of the other failed lenders. They merely sent out an “effective immediately” email stating they would no longer buy any loans. This was unlike many of the previous lenders who gave us some notice before pulling the plug. This one hit home in many ways, of which was that we had a bunch of loans we closed and were still “holding on our books” with the intention of selling it to Lehman.
Fortunately, we were always more conservative than what “the street” would permit, but once Lehman went down many others followed quickly and curtailed or closed their platform down immediately. We were able to redirect most of the loans, but a few of them cost us “a pretty penny” to get off our books. We didn’t want to take the risk of holding any non-conventional loans as their price was dropping by the minute.
If you saw the movie, “The Big Short,” you can get the idea. For me, it was as excruciating to watch the movie, as it was to live it in real life the first time around. The next few months were the most challenging of my career. The people, the market, the outlook, the exposure, the industry – it all changed from there. It will be years that I will never forget and years that helped give me so much perspective on business and life.
A decade later in the industry and so much has changed – but in some ways not much at all. Yes, new regulations were implemented that helped curtail harmful mortgage lending, but in spite of that, there are still plenty of rotten apples out there that have figured out ways to exploit even the safest of products. Some non-conventional lenders have resurfaced to offer aggressive alternative programs, very similar to the ones being offered a decade ago to people with poor credit or limited income. Over the past few months I starting to see a few things “out there” that are very reminiscent of a decade ago.
That’s not to say that all non-conventional loans are toxic. In fact, Approved Funding has maintained its three decades of legacy on offering suitable programs to suitable applicants. Our business model has always been “Relationship Lending” where we take the time to get to know our clients so that we can offer them safe, sound, and suitable solutions to meet their financial needs. Be careful out there; it’s going to get complicated.
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