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A Fundamental C-Suite Shift

A fundamental sea change/shift in our world has occurred –not just personally and as a US citizen, but clearly as a mortgage banker. Many people have been rocked one way or the other by our recent election. But given how the election process played out over the months and what had been said throughout, there was no going back. After electing the first black president on a Hope and Change platform, it is ironic that now the other side (and in some cases the same side) is riding their candidate in on their white horse with a strong message of Hope and Change; bottom-line, anyone but the one we have. “He” that needs to be removed represents Washington/bureaucracy/diplomacy and all the reasons why you can’t do the thing-you-want and move quickly.

Well in theory “we” finally got what we wanted with the ultimate non-DC president maybe ever. Like being an employer who passes on the most over-qualified person just because it’s more of the same and you go with the rogue candidate just to shake things up-- because they are a blank slate you can imagine all that you wish them to be. At some point this Spring it will become apparent he can’t do all that we wants or that we want without outside support from the Swamp. Then how will the Court of Public Opinion and the Markets handle it? How will he react to being grilled, excoriated, and blamed? Will it be fair to judge so quickly, of course not, but neither is it fair to be given such an open Pass and endless optimistic expectations. No one could meet that role of Magic Man as Obama and his supporters soon learned after a year in the big chair.

I will tell you I’ve never felt as conflicted as I was election night. I had one the one hand the ultimate status quo candidate with the best paper resume for the Presidency the nation has seen. Her hatred for mortgage bankers and her embracing of the Warren agenda was a threat to our industry and the home buying public. Her ignorance to her husband’s firm hand print on the aggressive need to house America at any cost that caused our crisis is astounding.  The costs of pursuing a regulate-at-all-cost platform against the big bad lenders and letting off the hook the public who took the loans and the legislators/regulators who allowed it has created bigger banks, more government involvement and risk, and a $9000/loan cost that has made virtually all loans under $250K unprofitable. That shame is that cost was so unnecessary if Dodd Frank has just been implemented without such vitriol and righteousness. If they had just listened to the lenders voices who begged for clarity so they weren’t guessing and assuming the worst and therefore building internal processes and bureaucracy to torture every loan while in fear of an overzealous  implementation by a dictatorial czar. Having 40% of loans being written at a loss consciously everyday forces more costs on the borrower eventually and eliminates small lenders as we see small lenders, banks and credit unions leave the lower middle class they serve best and sell out to the TBTF banks that government says they hate so much (but they know while pay the big fines that pay their jobs). 

On the other hand I had a candidate that was the anathema of everything I have told my daughters to be and the kind of man to avoid in their lives. A borrower I would not lend to because I knew he would screw me at any turn. A leader that when I looked back 20 years from now in the history books would I be proud? When travelling overseas will we be the laughingstock? Will my grandchild be reciting his speeches in school? As a father of daughters how do I say it’s ok to talk to women and treat women like that? Is he successful because of his birthright? Is he just good at running a brand of fame but not a functioning business? Sure he is successful but can he run the business of the United States—only time will tell—and the employees have to keep faith during the learning curve and the counterparties who have all our bonds have to exhibit patience as he rattles their cage about renegotiating terms, maybe not paying etc.

Either way this change is “HUGE”! We have mortgage bankers all over the cabinet—Mnuchin a king of private MBS running treasury and driving the future of GSEs and reopening of private MBS market, Wilbur Ross who until recently owned sizable banks and mortgage companies, and Trump himself who backed an eponymous mortgage company as a sign of the top of the market—per CNBC:

Quoted from: http://money.cnn.com/2016/03/14/pf/trump-mortgage/

Trump wasn't too concerned

Despite the warning signs, Trump was still upbeat about the real estate market.

During an April 2006 interview on CNBC, Trump said he thought it was "a great time to start a mortgage company," according to a transcript of the interview.

"I've been hearing about this bubble for so many years from you and everybody else in your world, but I haven't seen it. I will let you know when I see it."

He also said during the interview that the company was "swamped" with customers seeking out financing and that "the real estate market is going to be very strong for a long time to come."

Sadly, it wasn't.

Ok so as the King of Bankruptcy we know he isn’t always right. He brags about smartly maximizing the US laws to his advantage. The problem is bankruptcy is how we lose money as an industry—so what could that mean for us? I don’t know but we have lots of conflict wrapped up in this Hope and Change.

We have a potentially booming economy buying houses and less regulation making it easier to build, but with that comes inflation and higher rates. But they had to go up sometime, right? We have less regulation and a lower cost to produce which keeps more lenders of all sizes in the business driving more customer choice and therefore lower cost, but that also allows those cowboys to flourish and drag the industry down. But wait a minute, there are still plenty of cowboys out there who may be paying a fine but still playing the game in today’s world and just the good guys pay the high price of compliance. Will trade wars and lack of immigration grow US rust belt jobs but cause rapid inflation that throws rates to 6 or 7%? Or will the angered international markets dump our bonds (like China) and drive our rates sky high?

As I said in my last blog, we have already reached a tipping point on cost and pain where the GSEs have opened the gates towards newer/faster/cheaper. The new regime is the second piece to the puzzle that will allow the new GSE changes to flourish and find a way to support a rebuilding of the lending industry that allows private markets to share the burden more while working under the best and most clear parts of regulation. Hopefully he can restore confidence so builders can easily build and home owners will want to buy.

Hopefully “orange” is the new “green” for everyone!