At the 2010 Mortgage Bankers Association’s annual convention I attended in Atlanta, some saw an attitude in the participants that had been absent in the past few years—confidence about the industry’s future.
Even though Bank of America had just announced its exit from wholesale and “robo-signing-gate” was just gaining steam, attendees, including the members of our roundtable panel, expressed a positive view that had been absent at the three previous conventions in Boston, San Francisco and San Diego.
But even that view was tempered by realism regarding the marketplace.
An earlier part of the discussion covered how panelists viewed the third-party origination business as well as how the issues involving appraisals were having an impact on mortgage originators.
In this segment, panelists explored issues like the purchase mortgage market, the side of the business that traditionally provides a strong foundation for the refinance side, which tends to booms and busts.
The purchase market has been depressed this year while refis led the business. However, with rates inching up, refi business is starting to slow, making the purchase market even more important in 2011.
Participants include Bill Adamowski, senior vice president, corporate development, Ellie Mae; Vladimir Bien-Aime, president and chief executive, Global DMS; A.W. Pickel III, chief executive, LeaderOne Financial and a past president of the National Association of Mortgage Brokers; Lisa Schreiber, chief strategy officer, NetMore America; Scott Stern, chief executive, Lenders One; and Dan Thoms, executive vice president, chief strategy officer, AllRegs; along with myself and National Mortgage News associate editor Brad Finkelstein.
FOGARTY: We have seen the purchase market being depressed and the refinance market being robust. But year-over-year it is the purchase market that sustains the mortgage business. When will the purchase market recover?
THOMS: At dinner last night, it was the topic of conversation with a lot of the lenders there. With rates at around 4%, is anybody going to refinance next year? How can it be 80% of the business next year? To get to Mark’s point, the purchase business is going to have to sustain. But you also start looking at how big is the business? Three, four, five years ago, it was a $3.2 trillion business. The projections now are for less than $1 trillion. It is a different market place. One of the cool things is we all survived, we made it, we’re all hear. It’s a big deal, right. I say “hoorah” for anybody at this table, anybody reading the magazine.
SCHREIBER: Even at that number, it is still an outrageous number. I think there is a market, and I would say the midsized mortgage banker has a real opportunity here to get share.
ADAMOWSKI: We as an industry have to start talking more about—at the opening session, they talked about is homeownership good? So how do we get it back to the American public and start changing the perception of homeownership is good and having people start buying homes. Even though it does make news, the foreclosure pieces and the default pieces, yes they are important so I’m not going to say let’s ignore them and not talk about it. But please don’t take this wrong, but as well as we do on the foreclosure/default/loss mitigation side, that’s not really going to cause the recovery. It is going to be the belief on the origination side of putting in homes they can afford, putting quality mortgages together so everyone start bidding on them again bringing other investors to the table. I would like to see more people talking about that kind of stuff as opposed to robo-signing. That is not to say ignore it, it’s news. But robo-signing scares people off from originating because for some reason we’re tainted as the bad guy for originating these kinds of things. We’ve survived, that’s great, but the question becomes how do we move forward? Start talking about originations more and get into we are originating quality now.
THOMS: Does this make you think that you move from being in mortgage banking to more that we are in the housing industry and that there are other things besides mortgages? Does it mean there needs to be a shift in business thinking?
STERN: To me this is a really big issue and while legislation may or may not occur, rates are going to go up, no doubt. So we better hope the optimism coincides with when rates go up, because when rates go up and there isn’t optimism, it is going to be really bad. The way I describe the real estate market right now is that homes are on sale, not for sale. Rates are historically, properties have seen double-digit depreciation, homes are on sale and nobody’s buying. There are two reasons why people aren’t buying. One is the macroeconomic fears, employment being a good one. Fear of continued home price depreciation is making people wait to see if they could time the bottom. Something that is going to emerge is “lock-in,” which is people’s rates are so low that people who would traditionally buy every X number of years won’t move because their rates are so low, so that they are going to keep their current house. So we’re starting to talk about loan portability. I think the MBA should really start a dialogue with the National Association of Realtors in this regard. Even if there is optimism and you have a 4% interest rate, are you going to move into a bigger house and raise your rate by 50%? To me this is a very big deal, this combination of unemployment and macro-economic fears, lock-in and rising rates. To me this could make for lean times. We can make up the story here in terms of optimism. What the car dealers did with “Cash for Clunkers,” we’ve never done. We didn’t do it with the tax credit. We’ve been very bad at marketing the fact that homes are on sale to the American public.
BIEN-AIME: There are also a lot of fears. You look around the strategic defaults. How can we believe in optimism when people who can afford to pay are walking out? That is a big part of the problem. And when that makes the news, that’s sizzle; that sells. And we’ve all seen that piece on the “Daily Show” (regarding MBA’s issues with its own headquarters). So when you talk about these kinds of things, how do we inspire confidence in the American people about homeownership?
ADAMOWSKI: But just think of yourselves right now. If you didn’t have a home, wouldn’t it be a really cool market to buy a home right now?
PICKEL: We focus on the purchase business, and all year we’ve seen a good purchase market. We are primarily located in the Midwest. Values have remained remarkably stable. I would venture to say that you are going to see refinances continue for some time, and I’ll tell you why. You have value overlays and credit overlays. Credit overlays, that’s tough. But as values come back in various markets, I think you’re going to see small refinance booms by geographical region. Rates eventually will go up, but I don’t see them going up very far. I think the economy has more underlying stability in it than we want to give it credit. I’d like to see it create more jobs, which would then, I think, give people more overall confidence. Maybe that is because I am in Kansas, and we have Dorothy and Toto. We see a strong market in Texas, we see it in Missouri. It is not as bad as the news wants to make it; it is not as good as it should be.
THOMS: I would say, A.W., some of that is Kansas. I am in Kissimmee, Fla., just south of Orlando, and I can tell you, I am way underwater. I have a good job, but I can tell my neighbor on the left, my neighbor on the right, my neighbor across the street, they aren’t the same neighbors. There is still some tough times coming. But I do think you are right about the strength and I think Scott’s right on the idea we’re going to have some tough times. But you also had a great idea about the portability thing. We can keep business flowing.
SCHREIBER: FHA loans are assumable; that is something to promote but we don’t do a good enough job of that. Thinking about credit overlays, the mortgage insurance companies, they are loosening up the product as well and I think that will help us get the message out. When the tax credit ended in June, at that point, we were 50% purchase. So the tax credit did do good things for the purchase market, there’s no doubt.
PICKEL: We can encourage investor purchases. And that is a dirty word in our industry right now. That is one of the ways you are going to turn around some of the major metropolitan cities is to encourage investor loans. Investors could come in, buy that property, rehab it and resell it. There are things we can do. The situation is not hopeless by any means.
SCHREIBER: Let’s promote it with the public. I think that is the part where we do not do a good job. The real estate association does a nice job. Every time I see a real estate commercial I think, “Why aren’t we doing commercials?” Why aren’t we talking about brokers and quality and what we do as bankers in a positive way? Not just be the guys in suits who want to take everybody’s money. That’s really the media perception of us. We’re missing big opportunities, there is no doubt about that.
FOGARTY: What are the biggest changes in the business that you have seen?
ADAMOWSKI: One of the biggest changes is the move to quality. We’ve gone from stated “I’ll take anything” to “I don’t care what you have, we’re going to have to do all this.” If you are in the third-party market, we are actually we are verifying and redoing those loans several times during the process, from the broker to Lisa’s organization to Wells Fargo.
THOMS: I think one of the biggest ideas is that home values don’t have to appreciate. We’re seeing people whom have to think about that and because of that there is a thing going against us that had been working in our favor. It is not the safe place to put money anymore.
PICKEL: I don’t think servicing values have gone up in respect to the amount of quality loans that have been done and the amount of due diligence that has been done on those loans.
ADAMOWSKI: There is the potential long-term piece of that because people are going to stay in their home longer, that is not built into that equation either.
