The momentum of recovery in our business has shifted. The joy of having survived and seen refi business escalate, coupled with increasingly positive affordability index numbers has waned. The good news is that the competition continues to drop as the few businesses left begin to merge or retract. The bad news is that the pool of business is still insufficient for those left.
The public domain loves to get on the wagon of whatever story is in vogue. Right now it is fear of a double dip in the economy, once again led by weak housing. The stats trotted out are unnerving and hard to ignore:
- Housing cost burdens have more than doubled the last 10 years for moderate and middle income families (Harvard Joint Center for Housing Studies)
- Shadow inventory is over 9 months nationwide with some states are 2-3 years. These homes are already foreclosed but not yet on the market. (Corelogic)
- Another 2 million borrowers are expected to be in foreclosure in the coming year+ since they are more than 50% underwater. (Corelogic)
- 30% of all borrowers in foreclosure haven’t made a payment in over two years. (LPS)
- At the end of February borrowers were delinquent an average of 537 days before being foreclosed upon, compared with 417 days a year earlier. (LPS)
So what does that mean to the mortgage world? First, those who have lived solely off their database potentially have a deeply eroded asset. Those expecting to refi their book at still historically low rates have been deeply frustrated and disappointed. But the numbers above coupled with 9+% unemployment, tighter product guides and depressed values have deeply limited the expected pool of referrals. Before your database grew exponentially and appreciation actually had a compounding affect on your opportunity for business. Now the opposite has occurred.
Second, those who have returned to the block and tackle approach to referrals that got them where they are have found a weak stream of business from builders and Realtors. Even after getting out of the familiarity of their databases and reconnecting to their old Realtor contacts (the few that are left in the business), referrals are few and difficult to service. Many Realtors have given the collective shrug of the shoulders and said, “Hey I like you but I don’t have any referrals to give you!” they then have returned to their part time job at Home Depot.
For most originators today, here they stand. There is that sense that they have done everything they can. They have sent multiple mailers to their database, contacted their old Realtor contacts and even tried to do some networking. The wall is just too high. We have all been there before with multiple dilemmas in our life. It is especially hard when you have done things the same way for a long time and it paid off for you – “but it worked before?!”
So the mortgage business has to shrink even more, adapt the best skills to the new world and find new ways to serve the new needs of a changing market. There are still too many front and back office staff that are unable to adapt and need to move on. Sad but true and we need to face it. At least 20-30% needs to leave. Everyone has to identify what they do best and have it validated by others. They then need to think how those skills apply to the new world. If you can’t adapt then you need to be part of that 20-30%. Lastly new methods of mortgage banking from products, terms, compensation (yes we aren’t done yet), responsibilities, and networking/sales, must occur. There has not been any new blood in 5+ years and it shows. We are tired, un-motivated and stale as an industry. New money and entrepreneurism will positively infect us and is desperately needed. Again, I’m biased, but the right correspondent lender can identify the right model with the right people and adapt quicker than broker or banker.
The wall may be enormously high but the around it, through it and under it haven’t been truly tested yet. Our industry stage reminds me of those times around 150+ years ago when oil was discovered in Pittsburgh, Houston and LA. It was easy to find, riches were made, bad habits were formed, and unrealistic expectations were established. It wasn’t until scarcity occurred that creativity and industriousness were used to maximize the opportunity presented. Over the last hundred years amazing tools and processes have been created in ways never imagined and much wealth and fortune has been spread amongst many.
We need to stop defending and clutching onto the past and apply ourselves to the future today to solve the problems of tomorrow.