Note from the Founder

by 01 Aug 2008
This month we decided to open up this spot to Aaron Krowne, Founder of As you may have seen over the past few weeks, Aaron has been interviewed by several mainstream news media outlets about his company and his views on the current and future mortgage markets. Aaron and his team certainly have their collective finger on the pulse of the mortgage industry and we welcome his insight below to The Niche Report. Aaron Krowne - A year and a half on from when we at ML-Implode helped break the story about the housing market crisis, the financial sector remains in turmoil. As we predicted, the economy is tipping into recession. Many fundamental questions about how the market will repair itself and function going forward, and what the new public policies will be, remain unanswered. We don't pretend to have all, or even many of the answers to these questions, but I'll share a little bit below about a few things we think we /have/ figured out. The first is that the crisis isn't over. Indeed, while it seems we have passed the "hump" in the big wave of subprime ARM resets, most of the Pay Option ARM problem has not been dealt with. Contrary to early predictions that placed the brunt of this problem out in 2010 or 2011, recent modeling suggests that the peak may come as early as winter 2009 and last for nearly a year (at a level of $8B/mo in resets or higher). This is due to borrowers hitting negative amortization ceilings early, which follows logically from the near-maximal use of neg-am clauses out there in the market. In addition, there remains the large background problem of income curtailment as recession-driven job loss and cutbacks begin to gain steam. Headline unemployment nationwide recently reached 5.5%, and California startled observers by leaping suddenly to almost 7%. Unfortunately, this appears to be just the beginning of this trend for the current economic cycle. Finally, mass loan workout initiatives such as Hope Now seem to be falling short on the promise of providing long-term solutions -- figures recently out suggest that as many as 40% of these workouts have already re-entered default (because most did not involve principal or interest reduction). In light of all this, one thing we can say almost for sure is that the burgeoning field of loan modifications is likely to continue to be a "hot area" for the mortgage industry, if not a critical one for the health of the housing market and the economy. We believe loan modifications also properly direct the consequences of bubble home price appreciation towards the originators and bank investors that fuelled the phenomenon. At ML-Implode we have joined up with the folks at Green Credit Solutions to bring best-in-class loan modification services to the public. In addition to retail leads, we have connected many brokers to GCS to handle their critically needed loan workouts for clients. And we have also helped place staff doing loan mods full time to handle the acute capacity shortfall presently -- a need that seems likely to rise over the coming years, as discussed above. So we think loan modifications as an integral tool in the mortgage origination sector is one of the most constructive ways to handle the challenges in the market today, and hope you all will consider becoming involved. Aaron Krowne



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