Point of View: Opportunities Shift For Mortgage Execs
Mr. Glass has served the mortgage banking industry since 1983. Before opening his own firm, specializing in nonprime mortgage sector executive search, he led the mortgage division of the nation's largest executive search firm.
Today's tighter mortgage market has created new and complex conditions for every company and its leaders.
Firms that have survived the downturn are focused on safety, soundness and execution. They are carefully testing and repositioning platforms for future capacity and efficiencies while seeking safe havens in GSE programs. Most were forced to significantly improvise their infrastructures. On the servicing side, platforms are challenged to address the onslaught of delinquency and loss risks in the face of skyrocketing costs.
Leadership in this environment requires dedicated, high-performance "athletes" who can adjust and engage in a more transparent, risk conscious and uncertain environment - one made even more uncertain as scarce liquidity sources are still thawing and a new landscape is forming.
Loan servicing platforms are squeezed by turmoil. Today's executives perform in this evolving landscape. They are faced with unprecedented change, different expectations, more data and new best practices. Success is a tall order in an industry that been accustomed to relatively high margins and predictable availability of credit on an asset whose value previously was "certain" to rise.
We have seen a deflation of the classic credit inflated asset, as described by Alex Pollock, resident fellow at the American Enterprise Institute and former president/CEO of the Federal Home Loan Bank of Chicago. In the aftermath, fingers were pointed in all directions. Legislators, especially, have been quick to blame lenders, mostly ignoring the impact of cyclical market forces. The structured finance model had some glitches, and the markets lacked transparency. Today, all are being repaired.
Going forward in each mortgage discipline, leaders are both savvy and selective, with eyes wide open to the realities of a ravaged landscape, one that is currently evolving from the ashes of this sector's greatest downturn. Some say the nonconforming market may never return. Those liberal underwriting practices that prevailed in the years leading to this recent downturn, weak labor markets, falling home values, overleveraged borrowers are driving record levels of defaults (up some 75%) and foreclosures.
The cost to service these nonprime mortgages has skyrocketed. Consider the unprecedented amount of advances; the requisite growing attention to at-risk borrowers (to contact, counsel, assist, pre-qualify modify, etc.); the escalating inventory of unsold, foreclosed, REO properties in already saturated markets; the cost of increasing timelines and the impact on home prices.
Most industry professionals understand that a risk-based mortgage lending premise enables consumers who require unique credit solutions to access the widest array of specialty mortgage products. When this is done in a fair, informed and ethical manner, there is increasing opportunity for more Americans to share in the American dream of homeownership, responsibly. The traditionally underserved also gain access to credit under practical terms. Today, those avenues are temporarily under repair undermining the weakened housing markets.
In the meantime, those who survived this correction are investing in infrastructure, building state-of-the-art transparency through modeling, analytics, predictive performance controls, etc., and are positioning their platforms to thrive when the capital markets begin to thaw.
This is good news for those firms seeking quality personnel. Recent engagements for our firm from a leading hedge fund, private equity firm and top Wall Street firm have resulted in searches for leadership talent in loan servicing, default management, risk management, analytics and modeling. Other clients remain interested in key leadership for retail sales, accounting, finance and loan servicing.
The latter is an area of particular challenge as troubles abound, particularly for nonconforming servicers. They are scrambling to manage significant increases in the number of delinquent borrowers and loss severity on REO product in saturated markets for their own investors.
In addition, the new government program to freeze some rates that would otherwise reset in 2008 has put servicers and their systems to the test. The Asset Securitization Forum recommends servicers modify as many as 1.8 million ARMs scheduled to reset (with a concentration of much higher LTVs than in the past).
Many of the smaller buyers of distressed assets are looking for nonprime mortgage servicing platforms to manage performance and protect their investments. These smaller investors are discovering that no platform has the "silver bullet." How can their assets receive the requisite attention and discipline to optimize performance when today's servicing platforms are stressed and struggling to preserve existing assets? It is a catalyst to an exciting opportunity.
Hypothetically speaking, what if a superior high-performance platform were devised (without the legacies)? What if you handpicked an "all-star" team of proven experts, comprised of the highest caliber "performance athletes" in each servicing discipline for this asset class, from boarding through REO and reporting (including IT and delinquency software)? What if the platform were devised to service your product and provide you optimization, an unprecedented level of performance transparency, improved cure rates, lower severity, etc.? The market is ripe for all this.
All this would make it possible to connect with stressed borrowers, effectively assessing their situations, and collateral, while helping them manage resources to continue to make loan payments and keep their homes.
The concept fills a void and produces leading cure rates, higher levels of performance, and lowers severity.
The mortgage lending business is bracing for a sharp drop in originations this year (down 18%) and next (another 6%), but home purchase and refinance activity will remain at historically high levels, driven by low interest rates. Despite the GSEs' newfound optimism, agency product will not fill the loan desires of the nonconforming market.
The housing recession should end by the third quarter of 2008, according to the Mortgage Bankers Association, which estimates that mortgage volume returning to more normal levels by 2009 as home sales begin to rebound. When the current shakeout ends and the mortgage business begins its next upswing, I believe nonconforming mortgages will be an important part of that new growth cycle. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/