When December rolls around, we inevitably pause to look back at where the year has taken us, while we simultaneously scan the near horizon for clues of what the new year will bring. This week, MortgageOrb calls on Thomas J. Pinkowish, president of Community Lending Associates in Essex, Conn., and a quarter-century veteran of the mortgage banking industry, to offer his input on the current and future state of affairs.
Q: How would you categorize 2009 in mortgage banking?
Pinkowish: The mortgage banking industry has been dysfunctional since 2008. Even when functioning ‘well,’ there were core issues with it that centered around enforcement, quality control, compensation, and risk assessment. The ‘mortgage meltdown’ just highlighted systemic issues for mortgage banking that were glossed over by collateral values rising and a relatively liquid housing market.
Now, the mortgage banking industry is paralyzed with all the recent and pending changes in federal and state regulations, federal/state government programs and multiple revisions, and lack of leadership from Fannie and Freddie who made the market work (such as it did). Today, secondary market private investors are afraid to enter a business and lenders are afraid to commit to a strategy, when they have no idea what it will look like.
Q: Did the federal government help or hinder the industry?
Pinkowish: The federal government is adopting the same misguided, political tactics as it has in prior financial crises: the approach of shooting the survivors instead of focusing on more effective enforcement of current regulations. There are good regulations and experienced, well-qualified examination professionals now. Sadly, for years they have been denied sufficient resources and support from Congress to complete their mandate.
When our country's mortgage volume doubled and tripled, did the federal government double and triple their examination resources? No. Creating new agencies is a political tactic, not the best solution to this problem. The current system and people can work effectively and immediately with more funding and support from the federal government – both Congress and the administration, both Democrat and Republican.
Building another federal consumer protection agency from scratch to resolve the ‘mortgage issue’ will take too much time and too much investment. With a lag of several years to fully develop and implement and after a huge investment, it only has a chance of being successful a few years from now. How is this a good solution for our nation?
Q: Why do you think this is such a bad idea? Can you please be more specific?
Pinkowish: The result – after all this time and expense – will be the federal government building another dysfunctional Department of Housing and Urban Development (HUD). HUD's people try hard, but what HUD has been trying to do for years with limited success, is the same thing this new consumer protection agency will try to do: federalize and regulate effectively industries which are very state-specific in practice: the real estate, housing, and mortgage lending industries.
HUD has to deal with too many players in too many states to work promptly and responsively. How will this new agency be different?Â In its final form the new agency will be ineffective because of the many exemptions carved out of it and political compromises made just to push it through. We see this happening already – early in the process.
Lenders are very different in their business forms and states are just as different. Wells Fargo and Bank of America (nee Countrywide) do not resemble your local mortgage bank, mortgage broker, thrift, or credit union. The real estate market in California and Florida does not resemble North Dakota, North Carolina, or New York. Instead of building another palace, the federal government should provide more resources to the regulatory agencies specifically designed to monitor their business forms and provide more resources to the states to address their specific issues.
Q: What are your thoughts on the rising number of bank failures during 2009? Did this impact mortgage banking?
Pinkowish: I do not think that a significant increase in bank failures will hurt the mortgage banking industry directly. Other lenders will step in to provide programs and funding. Of more importance is why there are more bank failures and if that is a result of a worsening economy, which will affect the mortgage industry directly.
Q: Where do you see Fannie Mae and Freddie Mac going in 2010?
Pinkowish: Everyone thought – based on the federal government's direct comments – that Fannie and Freddie were fine before the federal government took them over. That manner of communication and action was a dangerous precedent for the government to take. Now how will anyone know how well the Federal Deposit Insurance Corp. and the Federal Housing Administration are doing and what the government plans?
Fannie and Freddie are the federal government's Vietnam. How can it exit those companies gracefully, without disruption, or without changing them completely?
Q: Where do you see the national economy in 2010? And do you agree with Federal Reserve Chairman Ben Bernanke that the recession appears to be fading?
Pinkowish: In my view, much depends on employment levels and the resulting consumer confidence. Certainly, some areas of the country have seen improvement, but is that offsetting in aggregate the areas that are worsening? I do not know.