Magazine article Mortgage Banking

Rediscovering Our Roots

Magazine article Mortgage Banking

Rediscovering Our Roots

Article excerpt

As I look back at all the headlines and critical events that made news throughout 2008, I am struck by one word that truly defines the year: unprecedented. We are all very familiar with these unprecedented events:

* Declining home values have left many homeowners owing more than their home is worth;

* A record number of homeowners are defaulting on their mortgages and falling into foreclosure;

* The collapse of long-standing financial companies, along with consolidation across the mortgage industry;

* The U.S. government injecting hundreds of billions of dollars into the financial system;

* A painful recession as the liquidity crisis impacts the real economy; and

* The unemployment rate is rapidly rising across many industries and areas of our country.

All of these events combined to create a perfect storm of conditions for which neither consumers nor seasoned mortgage executives were prepared.


Homeowners and consumers were caught up in a real estate buying frenzy for quite some time. Some regulators and ratings agencies surely wish they had been more proactive. However, we mortgage industry professionals must shoulder our fair share of accountability. Our industry allowed many consumers to purchase homes that they struggled to afford even before rising housing prices came crashing down. No longer was it simply the overheated markets of past cycles that suffered home-price depreciation; the symptoms of this crisis began to show up in all 50 states, across all property types, and across the income and wealth spectrum.

We are now faced with a sobering reality, and we need to remind ourselves of a few old-fashioned rules that many of us learned during our formative years in the mortgage industry:

* We must all save for those things that we need and want.

* We must live within our means and save for a rainy day.

* We as lenders must ensure that borrowers are credit-worthy, able to repay borrowed funds and completely understand the terms of the lending agreement.

While homeownership is the bedrock of the American ownership society, we must now recognize that not every-one is ready for homeownership. Yet, it is still a great investment opportunity for those willing and able to accept the responsibility and financial obligations that come with it.

Financial institutions, and specifically mortgage providers, must also take a back-to-basics approach when it comes to lending. To restore integrity and profitability to our industry, we must adhere to five basic principles:

Knowing thy customer by doing quality underwriting and fraud detection is key to our overall success. Over the past several years, many in our industry have implemented a host of automated programs and systems intended to save time and money. There surely are many parts of the lending process that can be highly and effectively automated--but underwriting is not one of them. We must rely on the knowledge, expertise and experience of our people to determine the credit worthiness of a customer.

Operational excellence involves people, technology and processes. Over the years, we have been able to capitalize on systems that allow us to do more with less. However, today's lending environment is vastly different from that of just a few years ago. The mortgage business is highly cyclical, and aligning the right number of people to manage the volume in any given week remains a highly elusive target. …

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