To Be Frank: The Mortgage Industry, Mission or Maintenance?
I was handed a book on the way home from Christmas Mass at my church this year titled "The 4 Signs of a Dynamic Catholic". About halfway through the book, there was some discussion about the present day struggle to affect any meaningful change in this world because we have become far more oriented towards maintenance, rather than mission. It got me thinking about the mortgage industry. Are we collectively on a mission, or simply in a perpetual state of maintenance?
If you haven't guessed by now I am a hopeless movie addict, and since the only way I can discuss anything mortgage related with my wife is to extract the eye glazing finance language out of it, I often find myself drawing analogies to my favorite scenes so I can talk about how things are in my world.
When I think mission, I see bold coordinated and purposeful action taken by small groups of very well organized and expert players with a specific goal in mind: stop the nuclear timer on the bomb, save the damsel in distress before the chip in your brain blows up, or save the world without anyone even knowing what you're doing.
When I think maintenance, I flash back to my high school summer work days, scraping peeling paint from an investor's rental property, or weeding a yard in 110 degree heat. The $10/hour was good money considering how many miles per gallon my weekend party ride-a 7 passenger station wagon-got on a good day. My role was always to just keep the property looking good enough to rent to another tenant, not to make any massive curbside appeal changes. The investor didn't really care if I made it look like the Taj Majal, and I had more than enough gas money.
As the CFPB proudly furthers their consumer protection mission by beginning to reveal their QM definition, and the media spins our perceived reactions, the housing industry is showing some signs of recovery.
Does the mortgage industry have a consumer protection mission? If not, why not?
The reactionary comments I have read from the MBA, the NAFCU, the CRL and the NAHB applaud the goal of the regulations to ensure borrower receive a loan they can repay. It is still difficult for me to believe that 1500 pages and a new regulatory agency were needed to set that goal.
It begs the question though: what was our goal before these rules were set? Just make the loan and don't worry about the ability to repay? Amazingly the Qualified Mortgage/Ability to Repay rule still does not speak to the ability to repay if the price or value of the asset is too high.
I have already seen a number of conversations in the MBS chats and on various blogs pointing out the multiple offer environment that is beginning to evolve as the housing market turns the corner. Preapproved borrowers are getting frustrated that they have to offer $10,000 or $20,000 above the sales price, only to have the appraisal come in lower. In many cases, they are paying the cash to close the loans anyway. Does this meet the Safe Harbor rule? It doesn't even apply. It is a high cost way to close a loan that reduces the borrowers liquid assets by $10,000 to $20,000, but it doesn't affect their ability to repay the loan.
Or does it?
I have written often in the last 6 months about the number of HARP 2.0 refinances I continue to close where the borrowers put down 20% during the housing boom heyday. These were all QM mortgages by today's standards-30 yr fixed conventional fully amortizing loans.
After four years of non stop housing price depreciation they were months away from turning in their keys. With house rentals running $200 to $300 lower than what they were paying on their mortgage, it was easy to see why the debt reducing idea of rational default was beginning to seduce them. Why sink money into a declining value asset with no payment reduction relief in sight?
Many of the people I spoke to at Foreclosure Prevention workshops I volunteered at in 2008 & 2009 said they could probably make the payments, but that they had been told their values would be going up, and that was why they took out mortgages without much concern for their ability to repay to begin with.
Has that problem been solved with QM?
The NAR noted in an article in Newswire this week "that appraisals continue to be a problem because values are not keeping pace with the appreciation in market values. Realtors complain that appraisers continue to use foreclosures as comps." Realtors have also expressed concerns about "unreasonably tight credit conditions." How does the mortgage industry reconcile its need to maintain adherence to the regulatory guidelines being imposed on it by the CFPB, while maintaining productive alliances with Realtors who use their media mouthpiece to push the mortgage industry to do more to make the sale?
Maybe the answer lies in deciding whether we are an industry on a mission, or in a state of maintenance. Maintenance is obviously the easy path.
We can maintain our composure while more regulations are designed that will force more legal and QC hiring to interpret the rules and guard against violations. We can maintain our hold on our respective business models and lending channels and hope that it is the other guy's channel that takes the hit from this round of changes and allows us to gain from his losses. We can maintain a status quo relationship with business partners that are pushing us to do the impossible, while they enjoy relative freedom from the regulatory forces microscopically scrutinizing the decisions we make to finance homes.
Or we can develop a mission. I have one to suggest: Let's restore investment value to homeownership.
The execution of this mission requires a coalition engaged in respectful action among all of the respective mortgage financing experts and business partners-the title experts, the appraisal experts, the secondary market experts, the underwriting experts, etc. It will require an honest assessment of how to make this mission possible. We can choose to accept this mission or stay in maintenance mode.
For four years now I have written about the need for a unified voice, a counteroffensive of active intelligent moves to end our retreat amid the awful mess of the last four years. Incredible minds and passionate words have been the inspiration for much of what I have written. Up until now, I have chosen the path of maintenance. It is safer, and I have rationalized that fighting the good fight for my little microcosm of customers with a tremendous amount of guidance from the amazing community that exists here on MND is good enough. But it isn't enough. I want to fight a bigger fight. Challenge the home value wrecking forces that have decimated the neighborhoods of so many friends, neighbors and family members and build an industry designed protective wall to guard against a similar future attack.
Next week I will begin outlining a new mission that the industry can rally around, that I believe will show our love and passion for the American homeowners that we serve every day. I've even come up with an acronym for it: THRIVE (The Homeownership Return on Investment Value Experiment).
I look forward to joining forces with any and all of you, for a new industry driven mission.