QUESTION
On Thursday, we will celebrate Thanksgiving – everywhere else in this country but not at my company. We are still having hard times, even if the news says otherwise. Sometimes, I need some perspective on why we get up each morning and do what we do, even when times are rough. I have always felt the mortgage industry is essential to the country's economy. However, I have friends who have been laid off. I am worried about my future and theirs.
Still, I am committed to my work. I am thrilled every time an applicant is approved for a loan. It makes my dedication all the more meaningful. I'm nearing retirement, and I want to believe that the next generation will feel as I do about the importance of our work. I want them to have hope. We may need some coaching from you about why our work is so important.
You can be our Morrie the Mortgage Mavin!
Please give us some hope on this Thanksgiving.
Why is the mortgage industry important to the country?
SOLUTION
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RESPONSE
I have been called many things, but never Morrie the Mortgage Mavin. I laughed heartily when I read my new title. Our column goes back almost 20 years, and it has been a labor of love. I am grateful that it is embraced by so many thousands of readers and subscribers.
Albert Einstein once said that we should 'strive not to be a success, but rather to be of value.' The mortgage industry consists of two main markets: the primary market, where loans are originated by residential financial institutions and issued by lenders like institutional investors, banks, and credit unions, and the secondary market, where these loans are sold to investors. Professionals in this industry perform tasks like underwriting, loan origination, and loan servicing to facilitate property ownership and investment. And, these market participants strive to be of value.
Think of it! You are part of an immense economic endeavor encompassing, among other things, the primary and secondary mortgage markets, GSEs, loan origination and underwriting, loan servicing, and specialized lenders. If that is not a major financial sector that influences broad economic conditions and government policies, I don't know what is.
Let me put it this way:
You would like the next generation to have hope about their importance.
I believe you need not worry about them, because their
hope for the future will lead them to develop new ways to grow the mortgage
market, whatever the challenges. The same human nature that moved you to seek
value also moves them.
It’s best to appreciate what you have
rather than wanting what you do not have. The future is theirs to shape!
As Epicurus said, 'Do not belittle what you have by desiring what you have not; remember that what you now have was once among the things you only hoped for.' (My translation.)
If your colleagues want to know the important of the mortgage industry, tell them that it enables homeownership. Mortgages allow individuals to purchase homes without paying the full price up front, which is essential for most people to become homeowners.
Tell them that the mortgage market and the broader housing market it supports are a major financial sector in the U.S. Activity in the housing market, such as new home sales and construction, has ripple effects throughout the economy, influencing household spending and employment. Thus, the work they do drives economic activity.
The U.S. mortgage market, with over $13.5 trillion in debt, is the largest and most important credit market for American households, accounting for over 70% of total consumer debt.
As demonstrated by the 2008 financial crisis, the mortgage industry's stability is vital for the overall financial system. Instability in the mortgage market can have severe, widespread economic consequences. Kick away that pillar, and the entire edifice of financial stability collapses. Indeed, the 2008 financial crisis devastated the U.S. mortgage market, causing a collapse in housing prices, a surge in defaults and foreclosures, and a sharp contraction in mortgage lending.
The crisis was rooted in the mortgage market's expansion, with many homeowners unable to refinance or meet payments as house values dropped and interest rates on adjustable-rate mortgages (ARMs) reset to higher levels. This led to a domino effect that severely damaged financial institutions and crippled the broader economy.
Many lessons have been learned – and still must be learned! – and the mortgage industry should lead the way. So, the next generation must be especially attuned to preventing price declines and defaults, credit contraction, institutional collapse, and a slowed housing market.
Also, please tell them that they make wealth building possible through home equity. And they make community development possible by facilitating homeownership, stabilizing communities, and fulfilling a central part of the "American Dream".
I sympathize with your company's finding the current market difficult. However, at this time, the mortgage industry is showing some resilience despite a lack of substantial activity. There has been recent growth in originations, but unfortunately, affordability challenges persist for many buyers. Mortgage rates have been gradually decreasing from a year ago, yet remain too high for some to overcome affordability issues, leading to a continued market standstill.
I have been through many real estate cycles, and I have seen the tops and bottoms. Currently, the industry is developing new means to attract high-quality borrowers, delinquency rates are declining, and lenders are focusing on cost-cutting and efficiency.
This is happening as the industry undergoes a transformation marked by increased digital integration, the implementation of artificial intelligence, a focus on inclusivity, and evolving consumer expectations, all of which underscore its continued relevance and importance.
Happy Thanksgiving!
