We have all heard that a quick and easy test to determine a person’s general outlook is to show them a glass half filled with water and ask them to describe whether the glass is half empty or half full. It seems that those with an upbeat and optimistic outlook generally tend to describe the glass as half full, and those with a darker and more pessimistic view tend to describe the glass as half empty.
Just how accurate this test is remains to be seen, but perhaps it is time for us in the mortgage industry to assess our present situation with a hopeful eye to the future. This may be difficult, given the surge of proposed legislation and expansion of regulations on both the state and national level, but the fundamentals of the industry have not changed.
When I began my career in the mortgage industry, rates were in the double digits and the nation was in the grips of a recession fueled by rampant inflation in the late 1970s compounded by high unemployment. However, in the midst of these market conditions, people were still buying homes. It was also during this period that the mortgage broker channel began to develop in earnest, ultimately becoming the primary channel of origination throughout the country.
Today, the industry is facing different challenges. While the country is experiencing high unemployment, both inflation and the rate environment remain low. We have a president who is calling on banks to lend, while his regulators are applying the brakes. No responsible originator wants to see a return to the lending policies that precipitated the housing and economic crisis, but there is a balance that needs to be achieved between the mortgage industry and its regulators.
The housing industry has led the United States out of more than one recession and our industry is well-positioned to assist now in that regard. Unfortunately, originators are facing an unrestrained and enthusiastic legislative and regulatory atmosphere which is robbing the system of badly needed capacity. Let’s face it, regulators need to regulate and they have not escaped the crisis unscathed. Products and programs came into the marketplace that should have never seen the light of day because some regulators failed to identify the market risk associated with the “originate to distribute” model adopted by large financial institutions and Wall Street. They have been called to testify about their shortcomings on this issue and the response has been to support a complex system of overregulation.
Now the pendulum has swung too far in the other direction, leaving “Joe Six Pack” and other Americans like him with little or no access to credit, further exacerbating the problem. Regulators continue to demonize originators for delivering products that we had every reason to believe had been vetted by industry watchdogs. While it is apparent that a small contingent of bad actors originated inappropriate products, by and large, the crisis was precipitated by faulty programs. This was a crisis of product, not producers.
The real question is when will a responsible regulator or legislator stand up and say, “Clearly we have overcompensated and our constituents are suffering because of this?” While we have never been unregulated, there is such a thing as too much regulation and it appears that we are well past the tipping point in that regard. The rise of the non-depository origination channel was based on service and choice. There is little evidence that banks and non-profits are ramping up production capacity to serve the mortgage needs of Americans. Instead, service has declined and depository lenders are eager to serve the top of the mortgage chain with little concern for the faltering middle class.
At one time, seven out of every 10 loans was originated by an independent originator. That number is closer to two out of 10 loans today. Is there a continuing role for the non-depository mortgage loan originator? To quote Sarah Palin, “You betcha.” The quality of the current product will hasten the day when mortgage-backed securities (MBS) will not be considered toxic assets and the depository lenders will once again recognize the value that independent originators can and do provide. Effective and efficient service is prized by every industry, and that is what we do by giving our customers what they expect and deserve. Our size makes us nimble in the marketplace, allowing us to react more rapidly to changes and our knowledge base creates value for depositories looking to grow a production and servicing platform.
I heard an airline pilot give a talk to a civic group years ago, and he ended by taking questions from the group. One member asked him about flying in bad weather that dictated instrument flight rules. His response was this, “It may sound strange, but I am more comfortable in those conditions than a clear sunny day when everyone is out flying. When the weather turns bad, you know that you are up there with professionals … seasoned men and women with the skill it takes to fly and land a plane in all kinds of conditions.”
The weather has turned bad in the mortgage arena and many have turned back, but today, I am proud to be flying with professionals … men and women who give their best to serve their customers. These professionals share a commitment to the industry who serve their customers with integrity. We are not asking for a pass. We don’t want an atmosphere of zero regulation. We just want the opportunity to help our borrowers, neighbors and friends make the right choice when it comes to the largest financial decision they are likely to make in their lives.
Is the glass half full? Is the glass half empty? You have to decide, but I encourage you to drink deeply from the well of optimism and confidence.
Donald E. Fader, CRMS of Kinston, N.C.-based SMC Home Finance. He has served on the board of directors of the National Association of Mortgage Brokers, and has served the North Carolina Association of Mortgage Professionals as president.
