Small Business takes another hit by the Corporatist State

February 7, 2009

The following story was submitted by the owner of a local mortgage company in Arizona.  I’ll let the story speak for itself, but it serves as yet another outstanding example of the corporate takeover of small business well underway in our country today, previously discussed here and here.  Yet another example of the very corporations that caused the problems the state is now looking to ‘solve’, through their lobbyists and access to government, drafting regulations that are anti-competitive, serve as barriers to entry and adversely effect local and regional business:



The Story of your Hometown Mortgage Lender

The story of Keyworth Mortgage Funding is not like those of the typical mortgage company that has been in the news lately. It is not the story of inexperienced loan officers trying to make a quick buck. It doesn’t include the peddling of Pay-Options Arms. You won’t find any liar’s loans at Keyworth Mortgage either. In fact, Keyworth Mortgage has never funded a Subprime or Stated Income loan. But unfortunately, Keyworth Mortgage Funding, like many other mortgage lenders are slowly being muscled out of their business.

Keyworth Mortgage Funding’s story starts in April 1992 in Albuquerque New Mexico, when Manny Garcia, a mortgage veteran since 1966, decided to set up shop as a hometown mortgage lender. After working as a Manager and Regional Vice President for several nationwide mortgage bankers, Manny felt it was time for him and his family to use their expertise and strike out on their own. Being a mortgage lender back in 1992 was not the same as it we know it today. There were basically three types of loans to originate then; FHA, VA and Conventional. Subprime, as we knew it, didn’t exist and stated-income loans were almost unheard of. Borrowers had to be credit worthy (although credit scores were not used back then), fully document their income and, in most cases, invest a down payment.

Being well known in Albuquerque, the Garcia family had developed a big customer base of previous customers and real estate agents. Almost all of our business was referral based, as it continues to be today. Keyworth eventually began to fund their own loans and sold them in the secondary mortgage market. Correspondent lending relationships were formed with such companies as Countrywide Funding, Wells Fargo Bank and Citimortgage. After becoming a Fannie Mae Seller/Servicer in 1994, Keyworth also began to build a small servicing portfolio.

Keyworth Mortgage is a true family business. Every member of the Garcia family is employed by Keyworth Mortgage Funding. Founders, Manny and JoAnn Garcia, have mortgage experience going back to the 1960s and three of their children have over 21 years of mortgage experience filling roles in the company as underwriters, originators, and managers. Their two other children and spouses have over 10+ years of mortgage experience. Keyworth now has branches in Albuquerque New Mexico and Tempe Arizona.

In the early 2000s, the Subprime Mortgage party began. It was hosted by big lenders such as Wells Fargo, Countrywide, Citifinancial and Washington Mutual (listed as some of the top 10 originators of Subprime mortgages in 2005). Keyworth was invited to the party, but decided not to attend. The host lenders put thousands of Account Executives on the streets pushing their latest and greatest Subprime and Alternative Lending programs to every mortgage broker and correspondent lender they could find. It wasn’t unheard of to get cold-call visits from five to six account executives a day each asking “Would you like to originate Subprime Loans?”

At Keyworth Mortgage, we stuck to originating loans that made sense. All of our production since our founding has been Conforming Conventional, FHA or VA loans. Every loan that we have ever funded has met underwriting rules established by either the Federal National Mortgage Association (Fannie Mae), the Federal Housing Administration (FHA) or the Department of Veteran’s Affairs (VA). Keyworth Mortgage has never had to repurchase a loan from any of these agencies or any lender that it has had a correspondent relationship with. Keyworth Mortgage continues to follow the rules today.
However today, a new wave has hit the mortgage landscape. The blame game. Who is to blame for the mess created by our industry in recent years? We all know there is plenty of blame to go around, but unfortunately the blame (or at least the punishment) is being placed on lenders like Keyworth Mortgage Funding.

Fannie Mae announced late last year that they are changing the minimum net worth requirements for lenders who wish to do business with them. Effective December 31st 2008, the minimum lender adjusted net worth required to be maintained by a lender must be at least $1.65million for approved seller/servicers and $2.5million for new lenders seeking Fannie Mae approval. By December 31st 2009, all lenders must have a minimum net worth of $2.5million. Fannie Mae’s previous net worth requirement was $250,000. Unfortunately, Keyworth Mortgage Funding’s adjusted net worth does not meet these new requirements. We are now faced with the challenge of raising an additional $1million of capital by June 30 2009 to comply with Fannie Mae’s new requirements. After June, Keyworth Mortgage Funding and other lenders like ourselves, will have to raise our net worth to $2.5million by year’s end just to stay in business.

Even though Keyworth Mortgage and most other experienced hometown lenders have followed the rules, we are on the verge of being wiped out. It appears Fannie Mae only wants to the do business with the big boys. Presumably, Fannie Mae thinks big companies do no wrong and are at less risk to fail. It makes us wonder if they have watched the news lately. Small hometown mortgage lenders have been the industry mainstays. Big lenders have come and gone, but the hometown lender has remained.

Other big banks have followed Fannie Mae and are increasing their net worth requirements also. Wells Fargo just increased their minimum net worth requirement for most correspondent lenders by $1million, giving just weeks to comply. Is bigger better? Are the smaller lenders like Keyworth Mortgage Funding responsible for the mortgage mess just because they don’t have a $2.5million net worth? Is a $2.5million net worth the main characteristic needed to be a responsible mortgage originator?

It is not right that Keyworth Mortgage Funding’s livelihood is literally being cut off by Fannie Mae. Our company has been our family’s sole source of income since 1992. A new generation of our family has hopes for our company to continue serving our customers. It has been hard to watch big banks get government bail-outs while we struggle to raise capital to meet unrealistic rule changes. The innocent are being punished and the guilty are being rewarded. Is this reverse capitalism?

Keyworth Mortgage Funding is telling this story to make those people of influence aware of the hypocrisy that is occurring in our industry. We are hoping to raise the $2.5million in capital to remain in compliance with Fannie Mae’s new rules. Please pass our story on to others. We will accept any help we can get. Thank you.

Your Hometown Mortgage Lender,

Mark Allen Garcia
Vice President, Keyworth Mortgage Funding Corp, Tempe Arizona


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