David G. Kittle is CEO of Cypress Mortgage Capital, a correspondent lending company based in the USVI. He began his mortgage banking career in 1978 with American Fletcher Mortgage Company. Kittle moved to the management side in 1986 with Colwell Financial. In 1994, he co-founded Associates Mortgage Group, Inc., the first of his three lending companies, selling AMG in 2006 as President & CEO.
Kittle is past president of both the Louisville and Kentucky Mortgage Bankers Associations. He chaired MBA’s political action committee (2004-2006) MORPAC and served the industry as Chairman of the MBA, in Washington, DC in 2009.
David Kittle testified before Congress 14 times ~ leading the industry during its most tumultuous period.
Kittle is Co-Founder & Partner of The Mortgage Collaborative, the industry’s premier mortgage cooperative, serving as its President and Board Vice Chairman from 2013-2020. He earned his CMB designation in 2004.
Kittle has four children and lives in both St. Croix, U.S. Virgin Islands, and Louisville, KY.
- FHA & VA Loans
- Student Loan Debt
- Mortgage-Backed Securities
Narrator This is the Norris Group’s Real Estate Investor Radio Show the award-winning show dedicated to thought leaders shaping the real estate industry and local experts revealing their insider tips to succeed in an ever changing real estate market hosted by author, investor and hard money lender, Bruce Norris.
Bruce Norris Hi, thank you for joining us. My name is Bruce Norris and with us today is David Kittle. David is CEO of Cyprus Mortgage Capital. A correspondent lending company based in the US-VI, US Virgin Islands. He began his mortgage banking career in 1978 with American Fletcher Mortgage Company, until he moved to the management side in 1986 with Coldwell Financial. In 1994 he co-founded Associates Mortgage Group Inc, the first of his three lending companies selling AMG in 2006 as president and CEO. Kittle is past president of both the Louisville and Kentucky Mortgage Bankers Association. He chaired MBAs political action committee 2004 to 2006 MORPAC and served the industry as Chairman of the MBA in Washington D.C in 2009. Talk about good timing. David testified before Congress 14 times leading the industry during its most tumultuous period and probably had a great deal of impact on maybe what didn’t happen. Kittle is Co-Founder and Partner of the Mortgage Collaborative, the industry’s premier mortgage cooperative, serving as its President, and Board Vice Chairman from 2013 to 2020. He’s earned his CMA designation in 2004. Mr. Kittle has four children and lives in both St. Croix, US Virgin Islands, and Louisville, Kentucky. And in pre conversation, he can’t wait to get that, to get back to Kentucky. So, David, welcome. Welcome to our show.
David Kittle Thank you, Bruce, I’m glad to be back.
Bruce Norris You know, it’s a kind of a historian of cycles, I look at your career. And you have a tendency to be pretty, pretty great with timing, in the sense that in ’78, there was sort of a, in the next two years, there was a there was a change in the marketplace where interest rates went crazy. And if you were in the lending industry at that time, I’m just curious, what, what did that feel like? Because I remember, as a borrower, I became an investor in 1981. And I had to refinance my house at 17 and a half. And that was a fixed loan. And then I got to refi it a couple years later at 12. But those were completely unprecedented time. So, how did you manage to survive during that, that cycle?
David Kittle That’s a great question, Bruce. You know, just getting into the business back in the 70’s. We didn’t know any better. That’s what we had to deal with. And you’re on straight commission. It’s when the FHA at the time was really all we had FHA and VA, there really wasn’t a conventional Fannie, Freddie market back then. And they came out with, believe it or not something they had the FHA 235, FHA 245 program, which was a government subsidy, and the government, actually, depending on your income qualification made half your house payment for you. They tied a second mortgage to your house, and then you had to pay it back when you sold it.
Bruce Norris Wow.
David Kittle And, uh, you know, through paying it back or the equity in the appreciation. So, we did have some help. But, you know, FHA went all the way to 18 and a half percent. And if I could finish on this thought that was also back when the government set the interest rate, the market didn’t set it so well, for the change to happen. And that happened with discount points. So, I remember closing a loan in 1981, at 14 and a half percent interest. And this is the truth with 14 discount points. And the seller had to pay the points.
Bruce Norris Wow.
David Kittle Just to sell the house. So it was…
Bruce Norris I was, well, and especially since you were coming off a couple of things. You know, in the 70s, you had increasing interest rates somewhat, but it was still reasonable. And for whatever reason, housing prices, I remember about 1974, ’75, California and the United States was on par at something around 35 grand. And then off to the races in California, went up about twice as fast and interest rates gradually rose. But we had a very interesting, you know, in 1980-81, foreclosures went up about 1,000%. And you had interest rates that were terrible, and you had high unemployment. And the odd thing about prices is they didn’t go down. And part of the reasoning for that was about 50 or 60% of the transactions were allowed to happen because there was existing financing. They could be taken over.
David Kittle Assumption.
Bruce Norris Yeah, well, and it was called a simple assumption. As I recall, you wrote a $45, check, sent in your name and address and say put my name in the place of the other person’s. I, I wish that policy still existed.
David Kittle Yeah, it would be great. But you’re exactly right. You just had to, you know, say that you were assuming a VA loan, you didn’t. You just assumed that you had to replace your entitlement for the veteran who was selling the house.
Bruce Norris Yeah.
David Kittle Simple assumptions back then. That’s exactly right.
Bruce Norris That was near and dear to my heart, because that’s how I got to buy my first house in about ’74. I took over a guy’s $203 payment, and just happened to be lucky timing with the price went up. And I, when I sold it, I got to make 10 grand, it was the first time my name was attached to a 10 grand check. And it would have never happened.
David Kittle Think about this my first house, I bought FHA. But if you remember the FHA 245 program, it was a NegAm Program. So, the interest rate was actually 14 and a half percent. And it started out in an effective rate that you could qualify it at that time, about 9%. And then it graduated seven and a half percent a year. So, you had an NegAm and for the first four or five years, and being on straight commission, I qualified, but it was the only way I could qualify for the loan back then. On a negative amortization loan.
Bruce Norris Yeah.
David Kittle Nobody even knows what that is.
Bruce Norris Now, I’m just curious, what was your, what was your feeling about owning the home, a home for the first time?
David Kittle Oh!
Bruce Norris Me it was, it was a big deal to me. I’ve just wondered, would they do?
David Kittle Such a big deal to get out of an apartment, have a home and have a yard? You know, enjoy working in the yard, still do. And…
Bruce Norris Yeah.
David Kittle It was everything, it is what it was instilled in me by my parents.
Bruce Norris Yeah, that’s, you know, it’s interesting, kind of having a lot of conflict with the haves and have nots, or this side or that side. And I think housing could play a role. I and I, I know it’s not going to be maybe it’s hard to explain that this could be a non damaging program. But we’re talking about giving $15,000 tax credits, I just wonder why we don’t have a nothing down loan program. Kind of attach it to a qualifying process, like the VA loan, but have one national foreclosure policy, because it was, atleast this is just my opinion, when you have price damage, you usually have tons of foreclosures that go back to the lender that get discounted heavily inside the marketplace. And it affects, it affects all of the comps. So why not have a loan program that has a national foreclosure process? If you don’t pay in six months, the opening bid is the late payments, it gets bought by somebody else that takes over the loan. Simple assumption never becomes an REO. And you maybe, it maybe it raised the percentage of people that own houses by 5%. But what’s your thoughts on that?
David Kittle So, may I answer that with just a quick story?
Bruce Norris Sure.
David Kittle So, during the meltdown year when I was chairman of MBA ’08-’09, testifying in November, I remember it vividly November, the 19th 2008. Senate Judiciary Committee having a heated discussion with Senator Dick Durbin, who was leading that day, and he was screaming at me, I have this on tape about, you know, would you make 100% loans, because back then, we were making 100% conventional loans, you know, ARMs and everything else. And I said, Absolutely, Senator, and I said they’re called VA loans. And I said they’re the best performing loans in the portfolio. And I said, Are you telling me senator, that you want to get rid of the VA home loan program, he wasn’t ready for that one.
Bruce Norris He met somebody more prepared than himself.
David Kittle It was, you know, MBA does a good job preparing you, but I kind of knew about it anyway. But my point is, of all the problems FHA has had, and I, to answer your question simply, yes, let’s do 100% program. But let’s add one thing to the FHA program, that VA has, that makes it so good. And that’s it after you made all your ratios, your income and everything, they have one thing, residual income, money left over after everything every month to qualify for 100% VA loan, and they perform. So, if it’s good enough for the veterans, and it should be they should get that, then let’s try..
Bruce Norris Yes.
David Kittle ..that program for FHA, your point, it should work, but it’s got to be underwritten properly.
Bruce Norris Correct. But do you think, I think what I’m trying to get at to is that I think that changes to somebody’s attitude toward their shot in America. I, it felt that way to me, man. I felt…
David Kittle Can I have one more thing to add, you know…
Bruce Norris Yeah.
David Kittle The student loan debt, right? They’re screaming about giving that back. I don’t think we should give, give away student loan debt and pay that back. I don’t think we should do that at all. I think if you took it out, you have to pay it back. But if on this if they’re having a problem because of student loan debt to qualify for a loan, then what, or they don’t have the downpayment, then give them this 100% loan to your point with residual income, let them get in there and start building some equity. That’s the way to do.
Bruce Norris I agree. I don’t like, I don’t like saying, ‘Okay, well, you guys don’t have to pay back something’. I think it’s a bad lesson to teach.
David Kittle Horrible.
Bruce Norris And I. Yeah, and what do you do with the people that work two jobs and paid off theirs? Do you get, did they get a check back? I mean, it’s just, it seems like it’s fraught with problems, especially the one that we just taught you. Wow. You know, you don’t have to pay what you said you would pay. I think that’s a bad lesson to learn.
David Kittle Very bad lesson.
Bruce Norris So, when you went into these, these companies in 1994, that was almost perfect timing again, because about, within two years, most of the bad stuff was over. And then the country went on a 10-year housing boom.
David Kittle Right.
Bruce Norris And during that cycle, lending policies got very interesting. And, and I didn’t, I didn’t understand a lot of it, to be honest with you. I pay attention to statistics. And I thought we peaked out in price that I could accept in the first quarter of ’05. And then there was a price. It was really aggressively still going up. And I was confused. And so, I actually had a seminar, we had several 100 people in the audience, and I asked a lender that we had brought up to the front. I, it was a very brief interview, because I basically started with this question. stated income loans, where does the stated income number come from? And without batting an eye in front of hundreds of people? She said, Oh, we just make it up. Exactly. And there was, yeah, there was that moment of pause for I went, ‘Okay, I get it. I get how we got to this price. But now the problem is, we’re going to have a problem’. You know, that’s going to be given back some point.
David Kittle Truly the liar loan.
Bruce Norris Yeah. But it wasn’t. See, that’s what happens when you get used to something. What, she said that in front of hundreds of people, basically saying, ‘Yeah, we commit fraud on every loan, and it wasn’t a problem’. Because it was the norm, that’s, that’s the danger of changing the norm.
David Kittle It became the norm, none of them were really…. sorry about that. Sorry, didn’t mean that to come in there.
Bruce Norris Oh, that’s okay.
David Kittle So, it’s just really, really a problem. That was the liar loan back then. And nobody was held accountable during those times, Bruce, at all.
Bruce Norris Or after, correct?
David Kittle Or after, you know, they, they held the industry, they went after dislike, if you really want to get down to the weeds, you know, Bank of America was forced to buy countrywide. And then they went after them seven or eight times for hundreds of millions of dollars, on bad loans, they forced them to take over. The borrower was never held accountable. And the realtor or the mortgage banker, the individual person on that wire loan that encouraged them to do that, and why was never held accountable.
Bruce Norris We had, had an interesting transaction, I was selling my last property that I had at the time in California, and I was doing an exchange and I was going to borrow one loan for half of the value of the property. And I, I’ve had filled out the application and there was quite a delay. And finally my exchange time table got kind of close. And the lady says, you know, we have to get this thing done. So, I put some pressure on the lender. So, I finally got loan docs back. And I was looking at it, it was connected to a loan. What.. Are you still here?
David Kittle I’m still here. Yeah.
Bruce Norris Okay, it was connected to a loan application that was completely different than the one I submitted.
David Kittle Oh, my gosh.
Bruce Norris And I said, I called her up. I said, ‘I can’t sign this because it’s all different than my, it’s not, it’s not my stuff’. She said, ‘Yeah, yours is really confusing, corporations and properties. So I just simplified it. We do this for all our clients’. Yeah. And I said, ‘You know what, I think that’s called lender fraud. I’m gonna pass’ and she was so offended that I use that word, because again, it had become the norm. And when it becomes the norm, it becomes acceptable somehow. So, now, what’s very interesting, because you paid the big price for the industry sitting in front of Congress, who conveniently forgot that some of their policies put us in this, in the seat, and I always get entertained by okay. Dodd Frank Bill has Barney Frank’s part in it.
David Kittle And Chris Dodd.
Bruce Norris Yeah. And I mean, I know Barney Frank was, I mean, he was promoting homeownership and had right out to…
David Kittle Promoting homeownership, promoting the zero down, and promoting the option ARMs all the way back to, actually in my opinion, it started with CRA loans. You know, when when you tell a market or a company or a bank or a group of mortgage people that they have to go lend in a certain area, regardless of whether or not they’re good
Bruce Norris Yeah. Yeah.
David Kittle And that market is going to go there. And it did.
Joey Romero David, before we get too far, I have a question. Now, you mentioned that even the, the borrower, you know, didn’t have to, you know, they were never held responsible. Now, do you mean from a, like a fining, or, or jail or anything like that? Because losing houses is accountability, isn’t it?
David Kittle Well, it is. But I mean it from both sides. And here’s why. All right, they lost that house. But investor lost a lot of money on that house, they knew when they were putting down on their application, if they were a gardener making 1500 a month if they really weren’t a nursery owner making $15,000 a month. So, they were maybe coerced by the realtor or the mortgage company, but they also signed the docs. And so, they should have been held accountable for it because somebody had to pay that loan. Some investor got it. And you know, in ’08 and ’09, the thing that I fought most while I was chairman, was something called bankruptcy cramdown. And to your point, and to your question, what Congress wanted to come back and do is say, ‘Okay, in this security in this strip in this tranche, we’ll just take that $200,000 loan and make it 175. And we’ll lower the interest rate from six to four and three quarters. And let’s just do that. So we can keep people in their houses’, even though they lied on their loan application to begin with, well, who got hurt on that? Now, it didn’t go through because we defeated it. But who would have gotten hurt on that? The investor and the mortgage. Okay?
Bruce Norris Yeah.
David Kittle And they just arbitrarily picked winners and losers, you know, to heck with the guy that invested in the mortgage, we’re just going to lower your rate, and we’re going to lower your principal and take it away from you. And that was totally wrong. And we fought it. And we won.
Bruce Norris Well, you know, that had to be the most difficult seat to sit in. I’m trying to think of a interview that I did, there was a, I wish I didn’t think about bringing this up. But there was some, a gentlemen that was in charge of how mortgages were not funded. You know, what I’ll probably have to recycle, it will come to my mind, he sat in front of the Congress, and, and got grilled. And he had submitted something in writing to them. And we interviewed the gentleman a couple days after he had done that. Because they were, there was sort of like a new system and how you prove ownership of a loan. And I again, I forget what I’m trying to get to, but I interviewed him after reading what he submitted to Congress. And it was obvious to me that no one in Congress read his, read what he gave them.
David Kittle Well, they don’t.
Bruce Norris No, that, I don’t even know if they could comprehend it. And so that’s, that was your job is, first of all, naturally, you’re the bad guy because you’re connected to the industry. But if you hadn’t gotten in the way of that, what, what do you think some of the results would have been? What would…
David Kittle What would have been worse today, it would have been worse, would have been much, much longer before anybody would have, as an investor had the confidence to come back in and invest in mortgage backed securities, it would have killed the MBS market totally. I mean, who’s going to go put their money up when Congress can walk in and reduce your principal on the return on your investment. And that’s exactly what bankruptcy cram down was, they want to take care of the borrower without ever holding the borrower accountable, or holding themselves accountable to your earlier point through their own policies that helped create that.
Bruce Norris Right.
David Kittle And they just do it blanket. That’s how they do it. Instead of waiting and taking the patience to make sure that each one of those loans, maybe somebody did get totally screwed on the loan, that borrower deserve what they wanted, what they were promoted. Okay. What about the ones who didn’t? Well, we don’t have time to go through it that way. Take the time to it, do it, right.
Bruce Norris Mortgage-Backed Securities got invented when? And why were they, why were they necessary or a good invention?
David Kittle Well, they were a good invention because it brought liquidity to the marketplace. I can’t give you the exact date when it was, but if you know, the secondary market Mortgage-Backed Securities, it was a way to sell and regenerate cash instead of just going to your savings and loan and making shelf products right because they only had so many loans and you have to keep your ratios of deposits to loans to your risk, right and mediate your risk. So, it brought liquidity I would say in the late 70s, sometime mid-70s to the mortgage market and allowed the mortgage market the whole market to explode. And it brought, brought the home market to where it is today.
Bruce Norris Okay. What, what went wrong with the with the leverage portion of it, say, in 2000, you know, ’05 and ’06 where we ended up having that day you go, ‘Oh, this is, this is dangerous’.
David Kittle Well, you go back, you know, my politics certainly lean to the right. But this is when George W. Bush was President and you know, they want to set, Fannie Mae wants to set a homeownership rate, or the government does. And again, back to my earlier comment, when you tell the market that it has to achieve a certain percentage, then it’s going to get there by hook or by crook, and it ended up being by crook. And they wanted to 60 plus 5% or whatever was homeownership percent right. And if everybody deserves, you know, I’ve got a great friend who’s a former chairman of MBA before me, Mike Petri, and Mike was on the multifamily side. And you know, that’s for rent, and that’s okay. Everybody deserves a roof over their head, but not everybody deserves to be a homeowner. We shouldn’t be and we tried to make everybody a home owner. And the multifamily side of our business spoke up about it, and they were right at the time.
Joey Romero That’s gonna do it for an interview with David Kittel this week. Please be sure to catch Part Two next week. Thank you.
Narrator For more information on hard money, loans and upcoming events with The Norris Group, check out thenorrisgroup.com. For information on passive investing with trust deeds, visit tngtrustdeeds.com.
Aaron Norris The Norris Group originates and services loans in California and Florida under California DRE License 01219911, Florida Mortgage Lender License 1577, and NMLS License 1623669. For more information on hard money lending, go www.thenorrisgroup.com and click the Hard Money tab.