Mortgage Market Share Report – May 2010

The definition of insanity is doing the same thing over and over and expecting different results. ~ Benjamin Franklin

Monroe County mortgage originations in May continued at ten year low levels. The national media reports that despite a few signs of improvement, foreclosures continue to be a problem and the housing market is in danger of slipping back into a downturn. Credit is hard to come by unless you don?t need any. Mortgage fraud continues to make headlines. After several years of living through the mortgage crisis, what?s really different?

Well, for starters, there?s a lot more regulatory overhead. I don?t need to tell you that. But for all the new rules and procedures, there?s one characteristic of the mid?2000?s mortgage boom that hasn?t changed. That would be absentee lending?loans both originated and funded by persons and entities with no physical presence in the community. In fact, the increasing use of the Internet is probably accelerating the growth of this mortgage distribution channel.

Is anyone surprised that many problem and fraudulent loans were originated and processed by community outsiders without local concern or knowledge of the viability of the transaction or the parties involved? Think about it. The originator is in a call center cube farm in California. The appraiser is from Muncie and her name is drawn from a hat by a vendor manager in Pennsylvania. The lender is in North Carolina and the investor is on Wall Street. The title and closing agent is in Florida and the notary signing agent drove one hundred miles to meet the borrower at the north side McDonald?s. Is it any wonder then that no one can smell out an otherwise fishy deal? Fortunately, the incident of fraud in Bloomington is minimal. But up the road in Indianapolis, it?s all too prevalent.

Maybe the mortgage business futurists are correct. Someday all mortgages will be originated without a local connection. I just don?t see it happening; especially with pending regulations requiring the originator to retain some of the lender?s risk. The long terms costs (both actual and lost opportunity) of managing risk coupled with defaults and fraud will, in my opinion, exceed any short term benefit of economies of scale this form of distribution brings to the originating process. Some absentee lenders and their service providers will continue tweaking this business model in hopes of achieving a different result.

That?s insanity!

~John Bethell