Two Sides to Every Story--Including Mortgage Lending
The year 2007 was different for everyone in the mortgage industry. Much has already been reported in the media, but there is probably a lot more that could have--and should have--been said.
Central States Mortgage, a CUSO owned by 25 credit unions in Wisconsin and Illinois, survived 2007. The company faced challenges never experienced in our 24-year history, but we feel we are poised for an exciting 2008. Real estate cycles may come and go, and there can be some wild swings, but there is always a center; there must always be a balance. The trouble is, sometimes it's hard to see that balancing for the natural thing it is when attention is being drawn to the fringes so often.
The media spent so much time pointing out all the negatives involving the housing industry that it literally shut down buyers before they even went house hunting. Our 24/7, 365-days-a-year media loves to dwell on such things because of their drama. The mundane, tried-and-true business of home buying and real estate transactions is boring compared to all of the screaming--especially given our attention-shortened, buzz-kill appetite for shocking news. The simple fact is that potential buyers with jobs still had a variety of loan programs to choose from--including FHA, VA, and state housing programs, not to mention portfolio loans held by credit unions. The news media also failed to share some other telling statistics that constitute a big chunk of the rest of the story.
Did you read anywhere, for instance, that approximately one-third of homes in the country have no mortgage on them? None whatsoever. Meanwhile, of the two-thirds that do have a mortgage, 92% of homeowners are making their mortgage payments on time. It's been said jokingly that you'll never read the following headline: "Plane Lands Safely."
"It's not news," is the reason given. And while that's true, doesn't it occur to you that far too much attention is given time and again to the negatives? If we were just talking about celebrities and their bad habits it would be less objectionable. But we're talking about the American economy.
If potential homebuyers believed the media stories, they would probably think they didn't stand a chance of getting a mortgage loan. Not true! Credit unions have a large role to play, I think, in helping to bring the pendulum back a bit and restoring a sense of balance. Credit unions never made predatory home loans and maintained good underwriting standards. They need to shout that from the mountain tops!
The other real estate story that existed during the second half of 2007 and continued into the New Year involves the large inventory of homes and prices that moderated or fell.
As a mortgage executive and mortgage lender with over 90 loan originators, it was very frustrating for me to keep everyone focused and motivated, and to help keep faith in our industry. I needed to be believed when I said, "this is not all about bad lenders." People also needed to take some responsibility for their actions. If certain borrowers took out inappropriate loans for their circumstances, they had to accept some consequences. After all, isn't it a precept of credit union philosophy that we are part of a cooperative and depend on each other to keep our word and to pay our loans?
Without question, some lenders got naive borrowers to take out the wrong loan, but it was hardly the whole industry at fault. States like Michigan and Ohio faced economic challenges due to automobile industry problems, and states like Florida, Arizona, Nevada, and California--where hyper-values have now tumbled--have distorted how bad it really is in the rest of the country. In Wisconsin, real estate sales are down approximately 15%, but prices of closed homes are actually up from 2006.
So where does all this leave us in 2008? The recent Federal Reserve rate drops will certainly help borrowers to refinance into new loans. That should restore some consumer confidence and get people house hunting again. The lifeblood of the real estate industry is new, first-time buyers. If the first-time buyer disappears, no one else moves up or on to that next home.
Central States Mortgage will spend a large part of 2008 helping construction loan borrowers get their permanent loans; helping borrowers with ARMs to refinance to a fixed rate, and telling everyone who will listen that now is a good time to buy.
In 2007 Central States Mortgage closed $707,000,000 versus $986,000,000 in 2006. In anyone's book, helping to finance $700 million of loans in a "down" market is a job to be proud of. And we have more work to do.