Magazine article Mortgage Banking

Achieving Actualization in the Residential Finance Industry

Magazine article Mortgage Banking

Achieving Actualization in the Residential Finance Industry

Article excerpt

"One's only rival is one's own potentialities. One's only failure is failing to live up to one's own possibilities."--Abraham Maslow

Purchase volumes are up. Profitability is improving. Default activity is negligible. Our industry has regained its footing and confidence in 2015 to reach a new normal.

Of course, no one knows what we don't know about the Truth in Lending Act (TILA)-Real Estate Settlement Procedures Act (RESPA) Integrated Disclosure (TRID) rule, and the 2016 election cycle is sure to muddy issues related to the Consumer Financial Protection Bureau (CFPB). Still, most would agree that conditions indicate positive momentum in 2016 for the mortgage industry.

That said, there is now a meaningful opportunity to refine and elevate our vision for the mortgage community. Doing so could both improve rewards to market participants and contribute to the vitality of our national economy. If there were ever any doubts as to the housing market's impact on the macro economic picture, they were quashed by the widespread repercussions of the housing crisis.

With the crisis behind us, we should focus on our highest aspirations for the industry and how to move in that direction. For guidance, we can look to psychologist Abraham Maslow's hierarchy of needs. The CliffsNotes[R] refresher is that Maslow visualized and described the progressive platforms for human advancement, the pinnacle of which is commonly known in pop psychology as self-actualization. His hierarchy was later illustrated as a pyramid to help visualize the theory.

Adapting Maslow's vernacular to our industry, we can map the hierarchy of needs into a meaningful context for mortgage bankers (see accompanying illustration).

Building on basic survival

The basic physiological human survival needs of food and shelter are at the hierarchy's foundation. That basic need for housing and the opportunity of homeownership is also the mortgage industry's foundation. We serve the legitimate market demand of private homebuyers for residential real estate finance. For as long as people need a place to live and are free to sell and buy residential properties, the mortgage industry's basic survival needs are in place.

The question posed by this model is: How do we build upon these basics with the goal of achieving a greater good? We'll apply the balance of the model in a post-crisis mindset because we have learned and changed so much since 2007.

Achieving safety through quality

Maslow's next ascending step is safety. Safety--the opposite of causing or being victim of harm--ensures continuity and secures the possibility of even greater achievement. To achieve safety, we must identify and correct the processes that contributed to the severe repercussions of widespread loan default and loss of value.

Chief among these has been the inability or unwillingness to promote true valuation transparency. Second among these has been the failure to assess valuation risk at an appropriate point in the loan life cycle (i.e., not too late).

Curing these conditions is necessary to avoid the otherwise inevitable mortgage cycles. However, any cure must add vitality to our marketplace without destabilization. The cure must reduce operating risk and ensure the safety of fellow stakeholders.

In the initial wake of the crisis, there was a tsunami of regulations stemming from enactment of the Dodd-Frank Wall Street Reform and Consumer Protection Act. A storm within that storm is the CFPB.

Although the regulations have played a role in calming some political concerns and perhaps correcting some gaps in borrower communications, by and large the regulations have done little to stabilize the industry. Instead, the most effective risk reforms have come from nonregulatory changes.

For example, the government-sponsored enterprises' (GSEs') creation of the Uniform Appraisal Dataset (UAD) and its adoption by the Federal Housing Administration (FHA) and others, in tandem with the development of the GSE Uniform Collateral Data Portal[R] (UCDP), and FHA's Electronic Appraisal Delivery (EAD) portal, combine to create the greatest cumulative source of safety and confidence in the post-crisis mortgage industry. …

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