Among those in attendance at the Mortgage Bankers Association’s 94th annual Convention and Expo are: (from left) Brian Montgomery, commissioner of the Federal Housing Administration; Thomas P. Cronin, vice chairman of Shelton-based Clayton Fixed Income Services; and Michael McQuiggan, chief executive officer of Lake Forest, Calif.-based Tri-Emerald Financial Group. The MBA event was held last week in Boston.
Back to basics.
That was the message on everyone’s lips at the Washington, D.C.-based Mortgage Bankers Association’s 94th annual Convention and Expo. The event, held earlier last week in Boston, was attended by about 4,000 bankers, consultants and government officials from around the country.
“The reason we are in this place is we got away from the basics,” David Lowman, chief executive officer of the Global Mortgage division at Chase Bank, told a crowd of at least 1,000 at Boston’s Hynes Convention Center on Monday.
Until the confidence of investors who once bought subprime loans from mortgage companies is restored, which won’t happen until the loans stop defaulting, “it’s going to take a long time before the next deal gets done,” he said.
Lowman and others predicted the reeling national housing market won’t recover until at least 2009.
“Patience is a virtue,” said panelist Steve Nadon, president and chief operating officer of the struggling, former top 10 subprime lender Option One. Subprime lending never will return to its former heyday, which peaked during the housing boom of 2003-2005, he said.
That may be in part because laws and regulations meant to help stem the tide of foreclosures resulting from inappropriate or predatory loans and encourage more consumer-friendly lending practices are being proposed from every corner, suggested Michael McQuiggan, chief executive officer of Lake Forest, Calif.-based lending and loan processing company Tri-Emerald Financial Group.
Congress and regulators are coming down hard, McQuiggan said, noting, “It’s going to be big. Be concerned.”
The concept of more regulation got little applause at a general convention session Tuesday following the announcement by U.S. Conference of Mayors President Douglas Palmer – the mayor of Trenton, N.J. – that the conference officially called for “increased federal protection for consumers in lending” at a meeting in June.
But during an earlier session, Lowman said, “It feels good that the rest of the world may be regulated the way we are,” referring to stricter oversight of bank-owned lending companies.
At the same session, Paul E. “Buck” Bibb, chief executive officer of National City Mortgage Co., which is owned by National City Bank, added, “We all need to be held to the same standard.”
Nadon said FHA-backed loans will be virtually the only product available to subprime borrowers in the near term.
Bankers should make FHA loans a “robust” part of their portfolios, he suggested. Option One, he noted, plans to roll out its own FHA product next month.
Meanwhile, FHA Commissioner Brian Montgomery called his agency an “island of stability” in an unstable subprime market.
Montgomery said that since Sept. 4, when the new FHASecure insurance product – aimed at subprime borrowers whose interest rates have reset – was introduced, the agency has helped 45,000 borrowers refinance. It expects to help another 80,000 delinquent borrowers, plus 160,000 beyond that, during this fiscal year.
“Our role is to assist lenders in making loans to borrowers who have a riskier credit profile,” he said.
Asked for comment on an opinion piece in Monday’s Wall Street Journal that argued that FHA loans have higher delinquency rates than private-label subprime loans, Montgomery said his agency’s foreclosure rate “actually dropped [by 0.3 percent] in the last two quarters.”
The opinion column, written by John Berleau of the Competitive Enterprise Institute, said the FHA delinquencies were higher than those of subprime loans, but acknowledged that foreclosures were lower.
McQuiggan suggested that “the five worst words in business,” which he said are “everyone else is doing it,” offer a lesson about the problems the mortgage lending industry is facing today.
Major subprime lenders relied on that principle even though they knew better, he and others said.
“The three C’s: credit, capacity and collateral,” always should be used to qualify borrowers, McQuiggan said, adding that it’s no surprise that 100 percent financing, no-income-verification loans made to people with marginal credit in the past two years have led to rising repayment delinquency rates and more foreclosure activity. When housing prices started falling in hot markets, those types of loans began to fail at a rapid clip.
As far back as 2005, many companies recognized their loans were priced too low for the risk they posed, Nadon said. But they feared that if they raised prices, they would lose loan deals.
“People were sitting in conference rooms saying, ‘I think we need to raise rates 40-50 [basis] points to compensate,'” he recalled. “But then they said, ‘What do you think [competitor] XYZ is going to do?'”
As much of a problem as the subprime mortgage market meltdown has been – and as much as it permeated talk at the convention – some regions of the nation remain relatively untouched.
“Our economy in the Carolinas is strong and home prices are stable or going up,” noted Timothy C. Dale, executive vice president and mortgage lending manager at Branch Banking & Trust Co., a $127 billion bank based in Wilson, N.C. “We had our problems in 2000-2001,” he said, “but now, our jobs are growing.”
Mortgage industry analyst Sam Rogers of the Center for Responsible Lending in Durham, N.C., agreed that foreclosures are less of a problem in North Carolina than elsewhere.
North Carolina has a “strong” predatory lending law – it was the first in the nation when it was introduced in 1999, Rogers noted – and was revamped to become even stronger this summer.
It’s important to put the nation’s subprime loan delinquency problem in perspective, added Thomas P. Cronin, vice chairman of Shelton-based credit risk management firm Clayton Fixed Income Services.
About 35 percent of U.S. homes are owned outright, he said, and of the 65 percent that are mortgaged, 95 percent are paying on time.
However, for that relatively small percentage of problem loans, Cronin said, every lender bears responsibility.
“We all got complacent” during the hot housing market when anyone could refinance, he noted. “The truth is, most of us have some stuff on our shoes.”
Patricia Cook, chief business officer of government loan guarantor Freddie Mac, said she was “amazed at how the tables have turned” so rapidly, in recent months, back toward government-backed loans. U.S. Rep. Barney Frank, D-Mass., among others, has advocated raising both the $417,000 maximum loan limit currently allowed to government-sponsored entities like Freddie Mac and fellow loan guarantor Fannie Mae, as well as FHA’s current $363,000 limit.
“It feels kind of good to be part of the solution,” Cook said.
