What will be the story of this decade in the mortgage industry? It will be the return of the market to normalcy (or a new normal). The question is: when?
Previous stories of the decade give some important context for this ten-year period.
The story of the 1980s definitely was the wheels falling off the thrift industry. High interest rates whipsawed these mostly portfolio lenders into large mismatches. Deregulation allowed criminal and incompetent ownership into the business.
There were actually two periods of die-offs for thrifts: via market forces at the beginning of the decade and via government action at the end of the decade.
The 1990s decided who would replace thrifts as specialized mortgage originators. In fact, a secondary market had partially superseded thrifts, with commercial banks and mortgage banks drawing even with thrifts before the end-of-decade debacle.
But in the 1990s the mortgage brokers surged into prominence. Interestingly, they started out as prime mortgage refinance specialists as interest rates dropped. But when the refi boom of 1993 tapered off, brokers had to look around for product.
And what they did was create the subprime mortgage arena, for better and for worse. That was the story of the 1990s, along with the surge in automation in the business that led to automated underwriting and many other tech innovations. (The tech boom collapse of 2000 threw a wrench into this trend, but eventually the niche recovered.)
The story of the 2000s is much more recent and easier to remember. Subprime mortgages boomed, with brokers in the forefront but with mainstream lenders (like Countrywide's Angelo Mozilo but by no means limited to him) getting into the fray and trying to supplant brokers as the kings of subprime. As is always the case in the mortgage business, the big boom was followed by a big bust—the biggest ever.
So far this decade, the mortgage business remains hip deep in the mess made during the 2000s. But by the end of the decade, the story will be the industry's return to normalcy.
The foreclosure and shadow inventory bulge will be absorbed, and originators will loosen the reins (but not too much) on loan approvals.
The third-party niche will again be strong (and that includes mortgage brokers) and there will again be nonconforming and jumbo mortgage lenders.
The real question will be, will it take all the way to 2020 to see these things in place, or will it be sooner? It will be interesting no matter which way it plays out. Stay tuned.
