Who wants a mortgage these days?

You know what it's going to take to get the mortgage industry back in gear? People who want to buy homes.

I've spoken in this space before about re-building, or earning, trust in our space. That will take a lot of work and it won't be easy. As important as that trust is, desire for homeownership is a prerequisite to getting our industry back on track.

If people feel like they can't qualify for a loan and they don't know what's available and whether they are paying too much or too little, they will simply hesitate and not buy. To me, that's a big concern. If people don't feel like owning a house is meaningful—and we've already seen statistics about a big part of the population that has abandoned their mortgage but will keep up the payments on their cars—if people don't feel like a house is a good long-term investment that's important for their future, we've really got problems.

I saw Doug Duncan speak at the recent Mortgage Bankers Association's annual convention in Atlanta. Doug, who was formerly the chief economist at MBA, has studied the economics of housing for a long time. What he shared with the audience was rather frightening.

According to Duncan, the number of Americans who would be more likely to rent rather than buy their next home if they were going to move increased from 30% in January 2010 to 33% in July 2010. Furthermore, 60% of renters (up by 6 percentage points since January 2010) would be more likely to rent if they were to move, even though 69 percent of renters think it makes more sense to buy a home (they know it makes sense, they just don't believe they can do it!).

Duncan went on to point out that not everyone things buying a home is a safe investment. In fact, during 2010 that number fell 3 more percentage points, that's 16 points below where it was in 2003.

The residential housing market has fueled our economy for years. If that goes away, I don't know if there is a replacement that will impact consumer spending to the same degree. I can't imagine what it could be.

A lot of originators will be spending time, money and effort on rebuilding trust in 2011. Someone better be thinking about how to rekindle the dream of homeownership in the minds of the American consumer or the only thing we'll be able to trust in the near future is the fact that our economy is in trouble.

Where's the collateral

Those of us working in the U.S. Mortgage industry know we've got problems to overcome, but if the testimony of one Linda DiMartini, a supervisor and operational team leader for the litigation management department of BofA Home Loan Servicing, is correct, there may be much bigger problems here than anyone previously thought.

According to DiMartini, it was customary for Countrywide to maintain possession of the original note and the related documents even after the loans were packaged up into bonds and sold off to investors. If this is true, there are a lot of legal problems with this.

Bank of America is denying that DiMartini got her facts right in the New Jersey foreclosure case Bloomberg's Jonathan Weil talks about in the link above. But what if she is right? That would mean that a lot of the collateral behind the mortgage backed securities that powered the mortgage industry and provided liquidity in the days before the crash may simply not exist in a legal sense. I don't think people really understand how big this problem is going to become.

Now I certainly hope this isn't true and that DiMartini has her facts wrong. No one wants to see the country's largest financial institution in trouble. That will not help the economy recover. But if it is true, we must not underestimate the seriousness of this problem.

Ignoring for a moment all of the legal issues raised by Weil and others who have commented on this story, this could have a serious impact on all of us. If the mortgage-backed securities BofA sold investors are, in fact, backed by nothing, BofA could be forced to buy back millions of dollars worth of securities. This will lead to another bailout.

Taxpayers will be on the hook for millions more as the government simply prints out more cash and devalues our currency around the world. The idea that BofA can simply engage in trench warfare and handle this on a case-by-case basis, as some of its executives have suggested, is short-sighted. A pattern of behavior could lead to a class action. Crimes across state lines could lead to charges for more serious financial crimes.

The bad behavior that got us into this mess is not just going to go away. The skeletons in the closet are going to come out and they're going to march and assemble and it's going to be ugly.

Podcast: Confident about the future

Here's another podcast taken from a recent conversation I had with someone in my office.

In this podcast, I'm talking about why I feel optimistic about the future of our industry. This isn't just a gut feeling for me. I see it in our customers' pipelines and in the number of closing packages they are ordering.

There actually is new money coming into the market and it could make for a very different industry in 2011.

Here is the audio. Program length: 2:17.

This explains the Western financial business strategy of breaking every law and paying a fine much less than you earned.

The Donkey

Young Paddy bought a donkey from a farmer for £100.

The farmer agreed to deliver the donkey the next day…

The next day he drove up and said, ‘Sorry son, but I have some bad news. The Donkey has died.’

Paddy replied, ‘Well then just give me my money back.’

The farmer said, ‘Can’t do that. I’ve already spent it.’

Paddy said, ‘OK, then, just bring me the dead donkey.’

The farmer asked, ‘What are you going to do with him?’

Paddy said, ‘I’m going to raffle him off.’

The farmer said, ‘You can’t raffle a dead donkey!’

Paddy said, ‘Sure I can. Watch me. I just won’t tell anybody he’s dead.’

A month later, the farmer met up with Paddy and asked, ‘What happened with that dead donkey?’

Paddy said, ‘I raffled him off. I sold 500 tickets at two pounds a piece and made a profit of £898′

The farmer said, ‘Didn’t anyone complain?’

Paddy said, ‘Just the guy who won. So I gave him his two pounds back.’

Paddy now works for Anglo Irish Bank.

-- Credit to CIGA Giancarlo.

A Wake Up Call

"The world will soon wake up to the reality that everyone is broke and can collect nothing from the bankrupt, who are owed unlimited amounts by the insolvent, who are attempting to make late payments on a bank holiday in the wrong country, with an unacceptable currency, against defaulted collateral, of which nobody is sure who holds title."

- Anonymous

Originators can never go back again

I was proud to see my article in the premier issue of Tomorrow's Mortgage Executive, the new publication of the Progress in Lending Association. In my article I said some things that might be tough for many traditional mortgage loan originators to hear. The truth can be hard to take, sometimes.

Everyone who wants to succeed in this new world has to come to the realization that there is a profound shift going on that points to the need for everyone to focus on offering the best consumer experience possible. I wrote those words in my article and I stand by them. Sadly, this is not traditionally how the mortgage lending business has operated.

There is a reason why our customer satisfaction scores are always one step above (or below) the Department of Motor Vehicle's rating. The good news is that modern enterprise lending systems can change all of that, if lenders embrace them.

Check out my article. It's available online. I would love to get your feedback here.

Not Another Stimulus!

Bet you didn't know the US government is about to do ANOTHER stimulus (as they call it) TODAY.

I like this article as it hints to the unsustainability of this economic model. The markets will rise in the short term, but long term this will destroy the value of the dollar and in turn continue to supress consumer spending which will continue to supress new job creation and employment.

Where will it end....feel free to opine.

Was Technology responsible for the Crash?

A lot of people are trying to find out what caused the financial crisis that led to this historic downturn. Some of those folks are pointing fingers at the technology we used. Rick Grant asked me about this recently and we captured my response.

I'm a technology vendor, sure, but I don't think you can argue with my logic on this one. Here is the audio. Program length: 1:30

Strategic Default is No Joke

I understand that misdirection is a classic formula for a joke or gag and no one on television is as good at this as the writers at The Daily Show, but I wonder if this is taking it too far. Confusion in the marketplace is one of the factors that is making it so difficult for the U.S. economy to recover.

While I love a good joke as much as the next guy, this bit by John Stewart is not in the best interest of the financial recovery.

The Daily Show With Jon Stewart	Mon - Thurs 11p / 10c
Mortgage Bankers Association Strategic Default
www.thedailyshow.com
Daily Show Full Episodes Political Humor Rally to Restore Sanity

Strategic default is a term that relates to those borrowers who could repay their loans but decide not to do so. It has not been applied to borrowers who have been negatively impacted by the financial downturn, who have lost their jobs or had health challenges in their family. These things do happen and the foreclosure process allows them to get out from under a debt they can no longer ever hope to repay.

Strategic default is different.

So can we apply this term to a national non-profit organization like the Mortgage Bankers Association, an organization that in 2008 and 2009 lost nearly 70% of its membership and revenue? There is nothing strategic about having your revenue stream dry up. This is not the same thing and should not have been used as the basis of a joke that only served to confuse Americans, many of whom think The Daily Show is real news.

Like many organizations during the downturn, the MBA faced hardship. The people who lost their jobs or got sick faced hardship. Strategic default has nothing to do with hardship. Strategic defaulting is lying, cheating, and stealing.

This is just another example of the media misinforming the public, creating confusion and delaying the recovery. Even worse, when the media spreads misinformation like this, it makes people think that making a decision to walk away from an obligation is socially acceptable, something that we should feel fine about doing. I don't agree with that.

And for those of you who think this won't negatively impact our industry and our country, pay close attention to those state attorneys general who are demanding principal forgiveness. If that happens, you can forget about foreign investment providing future liquidity for the U.S. mortgage business. How are we ever going to get the world to invest in US-originated mortgage-backed securities when the world knows that at any moment someone from the state can come in and say, “We understand that there’s a billion dollar commitment tied up in an appropriate security instrument backed by loans that were originated in compliance with law, but we’re going to force you to forgive a hundred million of that, so now your portfolio is only worth $900 million.”

Would you invest in that or do you agree that it’s just ridiculous?

Podcast: How we started MortgageCadence

Here's another podcast taken from that conversation I mentioned in an earlier post.

This time, I talk about starting MortgageCadence. It was a great time to be in the mortgage industry, just before the biggest refinance boom in history. Lenders needed better tools and we had an idea that we just knew would work.

Here is the audio. Program length: 2:11

Podcast: Early influences and thoughts on technology

Recently, I had a conversation with Rick Grant about how I got started in this business, why it means so much to me and where I think it's going from here. We captured some of that conversation and I'd like to share it with you here.

In this first short podcast, I talk about one of my most important influences and what he taught me about the realities of the manufacturing business.

Program length: 1:22

A Place to Share some Ideas

Being CEO of a technology firm that caters to the US mortgage lending industry is probably not where a lot of today's business leaders would want to be. We're working our way through the third year of a devastating economic downturn and our leaders don't seem to know how to get us out of it. There are solutions available and success stories to build on even in these times. For our part, we've been working hard to develop technology that allows our customers to make clear the value of owning a home, and it's helping.

It's when things get tough that we really find out what we're made of. I can't tell you how proud I am of the team I lead at Mortgage Cadence. These are people who don't shy away from adversity, who won't lay down just because someone else tells them the business is getting hard. They inspire me to work harder every day because they believe there are better days ahead. I believe that, too.

But we won't inherit a better tomorrow by making the same mistakes we made yesterday. It's going to take some new thinking, some tough decision making and some real dedication to seeing innovation through at all costs. In this space, I'll share some ideas we're working on and give you our view of what the future will hold, for our business and yours. Thanks for joining me.