The housing bubble and the credit crisis which followed have forced us to re-examine the banking, and more specifically, the mortgage industry from the ground up. Such a review requires us to revisit the basic premises on which our housing finance system is built. At the very foundation of the system are the two principal “stores of value” that attract and enable investors to make capital available for housing finance: the real estate and the note.
A store of value is defined as a form of economic exchange that must be able to be saved and retrieved at a later time, and be predictably useful when it is retrieved. To simplify, before we go too deep in the weeds of financial theory, a store of value is something that can be bought, sold or exchanged and retains its value in a predictable manner over time. Money is the most basic store of value, but things like gold, real estate, stocks and bonds are also stores of value. Each different store of value carries its own level of risk based on the stability of value it provides.
For a period of 40-50 years, from roughly the 1880s-1930s, many currencies issued by sovereign countries around the world were backed by holdings of silver and/or gold. This period was known as the “gold standard period.” One of the gold standard’s purposes was to provide a backstop for the currencies—to ensure that they retained consistent value over time. While the gold standard for currencies proved unworkable in the long run due to the complexities of international finance, the general concept of a “gold standard” or the strongest, most stable form of something has endured.
Residential mortgages exist because private investors are able to exchange (loan) the funds needed to purchase a home for both an interest in the property being purchased and a note requiring principal and interest payments on a set schedule over a set period of time. When the system functions properly, these two stores of value received by investors carry very little risk and represent a “gold standard investment.” Yet as we all learned, when complexities (we all know what they were) were allowed to enter the housing finance system, the gold standard was abandoned and the system came crashing down.
Our firm has committed to producing “gold standard mortgage loans.” This means we produce loans that are appropriate for consumers and represent unparalleled stores of value for investors. This requires that we hold ourselves and our partners accountable for the quality of the work we do and the loans we originate. Accepting errors or slipshod efforts is not something that we as an industry can or should tolerate.
Producing gold standard mortgage loans begins with hiring the best employees and ensuring that they have the necessary tools and support to accomplish this. The quality (defined by experience and proven capabilities) of the professionals currently working in our industry is unmatched by any previous period in my 30-year career. Yet attracting quality personnel that are new to the industry is much more difficult given the media’s treatment of the industry over the past five years. It is imperative that all of us in the industry pledge to not only implement and maintain a gold standard for mortgage production that will help improve the perception of our industry, but also to maintain our commitment to train and recruit personnel that are fully capable of meeting this high standard indefinitely.
Al Crisanty is vice president of national wholesale production for 360 Mortgage Group and is responsible for overseeing regional sales managers as the company seeks to expand operations to all 50 states. Formerly the national wholesale director for Caliber Funding, Al was responsible for the development and expansion of Caliber’s wholesale production channel. Additionally, Al served as executive vice president of national production for American Home Mortgage, successfully transitioning the 500-member production team from Capital Commerce Mortgage Company. Al may be reached by phone at (916) 761-1624 or e-mail
[email protected].
