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.