In retrospect, consumers, investors, central bankers, and now regulators all wonder what caused the once ethical mortgage banking to lose its sanity, while pursuing profits and pipeline deals. Members of the media have lynched industry leaders, consumers have filed lawsuits, attorney generals have brought forth criminal reviews, and others have sought to defend the perpetrators as icons of leadership.
Regardless of what we personally feel, the facts must speak for themselves; national foreclosures exceed 2% of all loans, total delinquencies are nearly 6%[i] not including foreclosures, and housing prices have burst with an on-going correction exceeding 15%[ii]. The indisputable negative implications of irrational actions are undeniable.
Yet, it is precisely these facts and responses that will increasingly inflict longer-term draconian oversight on a once storied group of originators and servicing personnel. Whereas, the politicians and legal teams will continue to focus on the “who-done-its,” a better question is why? As the saying goes, just because we can do something, doesn’t mean we should.
Indeed, where was our ethical common sense in originating and securitizing loans that many of us knew were a ticking time bomb? What ethical standards did we not only hold the borrowers to, but ourselves and our organizations? Ethical behavior is not just something for business schools and corporate public relation campaigns. How soon we forget the ethical legislative impacts of the post-Enron era and the costs it demanded from everyone. Here we are again at the “edge of the cliff of uncertainty” as regulators debate imposing ethical behavior into the boardrooms and against operating procedures.
Rest-assured, the crisis of ethical behavior was not singularly a mortgage banking liability – without an outlet for risky products they would have died an early death. There are many willing parties that contributed to a breakdown of ethical behaviors – Wall Street, Main Street, investors, consumers, and even those politicians now seeking to turn the regulatory screws. However, it will be the mortgage banking industry that pays the biggest tab. We must learn from our greed and not let others goad us into downstream actions much like high-school students behave during prom – we need to just say no.
So talk about technology. Advocate legal retribution. Streamline the processes while instituting fraud controls. Site the facts, state the percentages, add outsourcing vendors, and implement new solution sets. They are all good things – but not the core problem. We all know that without ethical behavior within our industry from the boardroom to the mail clerk, we can never sustain success and growth at the hands of legislation. It starts with us and our ethical behavior – and for the last several years we have not behaved very well.
Mark Dangelo
[i] Mortgage Bankers Associations, Q4 data.
[ii] Standard & Poors / Case-Shiller housing indices
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