Another election has come and gone. Barack Obama has remained as the 44th President of the United States of America. On a national level, there is much work to be done. Our society is a tug-of-war between opposing and evolving values. Our economy hangs in the balance between progress and utter disaster. The development of our society and economy over the next four years will determine the true caliber of leadership that exists in our most recently elected president.
On a national level, though, the direction of our country over the next four years--for the most part--is now out of our hands … the die has been cast. The decision has been made. We now can only wait to see what happens. It's time to shift our focus back to the foundation of leadership. Let's step back from thinking about our nation's leader and home in on the leaders of our states and communities. We've heard enough about the "trickle-down" effects that national policy has on communities and individuals. Let's talk about the bottom-up effects that individuals and communities can have on the nation. It is now time for a discussion on local leadership.
The more local the political leader, the greater and more diverse the impact he or she is likely going to have on our businesses and organizations. Most of us pay more attention to the issues that are directly in front of us--the ones that influence us on a day-to-day basis. The more local the influencer, then, the more likely he or she is to affect issues that we value. From the perspective of the mortgage industry, there are specific issues at both the state and city level that leaders coming into office need to be prepared to resolve in order to ensure a more productive economy and more prosperous society.
Let us begin with the state. An issue that has existed for some time and has significantly impacted the mortgage industry is centered around foreclosures. Some states require judicial foreclosures while others permit non-judicial foreclosures. While there are other elements involved, the significant distinction between the two types of foreclosures is that judicial foreclosures require court approval whereas non-judicial foreclosures do not.
Many people mistakenly assume that judicial foreclosures favor borrowers while non-judicial foreclosures favor lenders. When we look at the unintended consequences, however, judicial foreclosures harm both lenders and borrowers. Yes, they make it harder for lenders to reclaim properties from borrowers who can no longer pay for them, but the increased risk for these lenders makes it harder for other borrowers to afford mortgages.
Lenders in states that require judicial foreclosures must account for the slow turnaround time embedded in the possibility of foreclosure from their borrowers. In Texas, a state that permits non-judicial foreclosures, both the minimum amount of time for a foreclosure to be completed and the expected amount of time for a foreclosure to be completed is two months. In Illinois, a state requiring judicial foreclosures, the minimum amount of time for a foreclosure to be completed is seven months and the expected amount of time for a foreclosure to be completed is 10 months.
What do these numbers mean? A foreclosed house in Illinois is expected to take five times as long to get back on the market as a foreclosed house in Texas. Lenders are less likely to lend when they know that potential foreclosures will be tied up in the courts for months on end. Political leaders in states that enact judicial foreclosure policies slow down the economies of those states. They are pandering to constituents in order to save a small segment of their states' populations while at the same time making investment decisions harder for everyone else. This position is a clear example of bad leadership at the state level.
Let's go a little bit further, now, and talk about leadership at the city level. Another key issue has been adversely affecting the mortgage industry since the onset of the housing crisis...and that issue has to do with eminent domain. Eminent domain is the right of governments to seize private property for the purpose of creating some sort of public good. Traditionally, it has typically been used to extend highways and set up power lines. Private landowners are paid what is deemed a reasonable sum for their properties and the public benefits from what is done with the land.
Recently, the right of eminent domain has been used wrongly to prevent foreclosures. Certain cities, such as Sacramento, Calif., are buying up "underwater" mortgages under the flag of eminent domain. This activity is another prime example of pandering to small segments of the population at the expense of the whole. There is no public benefit derived from the taxpayer money being used to buy up these private mortgages. Money is simply being wasted.
The bigger problem with using the right of eminent domain to buy up foreclosures is the unintended consequence it will have on the future. Governors and other city officials implementing these policies need to understand that this trend is going to dramatically reduce home ownership in the coming years. If foreclosures continue to be prevented, lenders are simply going to stop lending. It's basic math. If they don't believe that borrowers are going to be able to fully repay their mortgages, they simply aren't going to lend. If they do lend, the rates will dramatically increase and fewer borrowers will be able to afford homes.
The story of homeowners losing their homes is a Hollywood favorite. It is a story often dramatized across all media and it's easy to get people to fall for it. The story people often don't see--the true story--is the one about borrowers who can't get loans because lenders can no longer afford to give them. Bad local leaders are simply destroying the market. They are making it more difficult for reputable lenders to lend and more difficult for reputable borrowers to borrow. If local leaders continue to cater to the few at the expense of the many, this story is going to become more and more prevalent … and our communities are going to become more and more destitute.
Now let's shift the discussion from what we look for in local leaders to what we aspire to be as local leaders. Those of us in the mortgage banking industry have both an opportunity and responsibility to use our voices to sway the legislative decisions being made in our states and communities.
Recently, a group of industry executives flew to San Bernardino to have a discussion with the town council. A proposal had been placed to use eminent domain to fight the mortgage crisis in San Bernardino and these executives took action. They didn't merely sit back and complain. They hopped on a plane and flew to San Bernardino to meet with decision-makers and participate in the discussion. That proactive move is a gesture in positive leadership.
You can do the same thing. There are opportunities to participate on both a state and a city level. Chances are, the very same issues discussed in this article are impacting your business in some way. What are you going to do about it? Are you voting people into office that will eliminate barriers for the industry and boost your local economy? Are you meeting with members of your town council to discuss issues related to mortgage banking, lending, and borrowing? If not, what's stopping you?
It isn't enough to watch the story unfold. You must participate in it. It isn't enough to cheer on good leaders and berate bad ones. You must decide what kind of leader you are going to be. Don't just look for good leadership in the activities of others; exemplify it in your own. The most local leadership that exists is the leadership you have as an individual. How are you setting an example for your industry? How are you setting an example for your employees? How are you setting an example for your family? Are you doing what's popular for the few or are you doing what's right for the many?
This is your time. If you don't stand up and speak out, you aren't just going to ruin the economy for yourself and your business; you are going to do irreparable damage for the entire industry. Inaction is often the greatest offense. Your community needs you. Your state needs you. Even your country needs you. The ripples you make in your community will echo throughout the entire country. We are at a pivotal point in the history of the mortgage banking industry. Now, more than ever, we need good leaders. It's time for you to be that leader. It's time for you to pave the way for progress.
In the end, the most significant election is not who you've elected at a national, state, or local level. The most important electoral decision you will make is whether or not you elect yourself. Vote yourself. Be the leader. We're all waiting on the example you will set for us.
David Lykken is president of mortgage strategies and managing partner with Mortgage Banking Solutions. He has more than 35 years of industry experience and has garnered a national reputation, and has become a frequent guest on FOX Business News with Neil Cavuto, Stuart Varney, Liz Claman and Dave Asman with additional guest appearances on the CBS Evening News, Bloomberg TV and radio. He may be reached by phone at (512) 977-9900, ext. 10, or e-mail
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