Stevens intriguing choice to head up Mortgage Bankers Association
The national Mortgage Bankers Association last month named former Federal Housing Administration (FHA) head David H. Stevens as its chief executive officer – an intriguing choice on at least a few levels.
As the head of the FHA, one of Stevens’ duties was to deal with an issue that has been tossed around a lot over the past few years – risk. In short, is a lender making a good bet a home buyer will pay off a mortgage if that loan is written?
Stevens ought to know a thing or two about risk as the FHA assumed about a third of all the mortgages written in 2009.
Why has risk become a big issue? If lenders take on too much of it, you wind up with a high default rate, a lot of foreclosures and, well, the problems that developed and hit the real estate industry hard around 2007.
While a good number of lenders that assumed too much risk were thinned out during the subprime lending crisis four years ago, the mess they created still lingers and is being cleaned up slowly. Stevens addressed the risk issue at a conference in New York on May 2.
He said some lenders approved mortgages they shouldn’t have and his industry must both acknowledge those practices and take steps to make sure they don’t happen again. The commitment to reducing risk – to provide mortgages to people who will likely pay them back – develops trust in the mortgage industry.
Most lenders did take on an appropriate amount of risk even when it appeared that just about anyone with a job and a pulse could take out a mortgage. Indeed, the overwhelming majority of people who took out mortgages turned out to be good risks as close to 90 percent of them are still current on their payments and meeting their obligations.
However, Stevens pointed out that mortgage industry has taken a reputational hit due to reports of delinquency rates that are higher than historical norms. A commitment to taking care of the risk end of the proposition builds trust in the industry – if a lender does a solid risk analysis and tells a potential buyer that purchasing a home makes sense, then that borrower will take the lender at his or her word.
That trust is essential as there are a lot of home buyers who are understandably nervous about committing to a 30-year mortgage. The public will trust the products offered and advice given by a competent lender who has done a solid risk analysis, whereas borrowers will simply be intimidated if they’re dealing with a mortgage lender of which they are uncertain.
In other words, if a mortgage banker tells a borrower that he or she is likely to pay back a loan due to income, credit history, etc., it’s in everyone’s best interest for the borrower to take that opinion at face value. Trust, then, can lead to more mortgages being taken out by confident consumers, whereas a lack of trust can produce just the opposite.
Stevens’ realm in the public sector should also help him in his new job. He has seen the value of educating the public as to how the lending process works so they understand what, exactly, they’re getting into with a mortgage and what their obligations are. He’s also seen the effect of a healthy, thriving mortgage credit system on the overall economy.
The mortgage industry is still on the mend and faces a number of challenges. Here’s hoping Stevens’ experience with the FHA will help lenders clear the hurdles they face in the months to come.
Benton resident. Rogue journalist. Recovering attorney. Email = Ethan@FirstArkansasNews.net.