If anything, 2009 has not been a boring year – and 2010 promises to have its share of drama and excitement. This week, MortgageOrb looks back, and ahead, on the state of the industry with Jean Badciong, chief operating officer at Inlanta Mortgage, headquartered in Waukesha, Wis.
Â
Q: As we prepare to bid farewell to 2009, how would you categorize the state of the mortgage banking industry and the state of the housing markets?Â
Badciong: This year has been challenging, interesting, frustrating and profitable all in one!
Q: The federal government has dominated the industry's operations, particularly the secondary markets. Has this been a good thing or a bad thing?
Badciong: Over the short term, it has helped the mortgage banking industry for many participants. There were – and still are – bankers that struggle, not because the government wasn't doing enough, but because of their inability to quickly adapt to the numerous changes we were seeing in a rapidly changing environment.Â
For those who were able to adjust and had solidified relationships before the changes we experienced in 2008, this will be one of their best years. You see that on a large scale with the profitability of JP Morgan Chase versus the continued struggles of CitiMortgage.Â
Q. A growing number of banks have failed during 2009. What impact will this have on the mortgage banking industry and the housing markets?Â
Badciong: It is still too early to tell. The failure of deposit banks has had an impact on the Federal Deposit Insurance Corp. (FDIC) insurance fund. But on the other hand, consumers were protected, unlike the savings and loan bailouts seen in the 1980s.
As a result, while there is concern over inflation rising, I'm feeling optimistic that lessons were learned and that the Federal Reserve will continue working towards managing future inflation, not letting interest rate rise to where houses are no longer affordable for most people.Â
Q: The Federal Housing Administration (FHA) has shown signs of stress during 2009. What do you see for this agency in 2010?
Badciong: The FHA has already taken steps to increase safety and soundness with the insurance fund. The upcoming changes to streamline refinance are a commonsense approach to improving the quality of loans they insure. The lenders who service FHA loans have also helped contribute to the quality of current loans being made.Â
Tightened underwriting guidelines were implemented above and beyond FHA standard guidelines. This created challenges for mortgage bankers who sold their loans to other investors, but at the same time really helped minimize the possibility of future defaults.
Q: What do you see happening to Fannie Mae and Freddie Mac in 2010?Â
Badciong: Until the economy has stabilized and loan defaults are not such a concern, I don't feel the government will be able to exit the control of Fannie & Freddie. I don't see Fannie or Freddie ever being returned to the way they were. Competition is important, so the continued separation of the two entities should be continued.
Q: The FBI recently announced a rising level of reported mortgage fraud cases. Do you think that mortgage fraud will be a major problem in 2010?Â
Badciong: Mortgage fraud seems to continue even with the stepped up levels of due diligence many lenders have implemented. Tricksters always seem to find a new way to deceive lenders and investors.Â
Recognizing loan fraud will always be something we have to keep a keen eye on. Continuing education with underwriters and processors is important for a company. Using national vendors who provide tools to minimize fraud risks is also important.
One of the biggest defenses we employ as a company is the close monitoring of our daily production and who that production is coming from. Working with long-term employees and retail origination gives us a lot of control. When we look at new branch opportunities for our company, we spend a great deal of time and energy learning about the originators who will work for our company.Â
As the economy improves and investment property originations increase, the potential of fraud increasing exists. Continued learning of the schemes and auditing to prevent them will be essential in 2010 and should never diminish in the future either.
Q: Do you agree with Federal Reserve Chairman Ben Bernanke that the recession appears to be over? And if so, what can we expect for the general economy in 2010?Â
Badciong: The improvement in the stock market is truly a good start, but it is only a start. The creation of jobs is the biggest indication that we have exited the period of recession and are entering into a period of growth once again. We aren't at that point, yet.
