Mortgage Industry Trends

Let’s face it, the conditions of the financial and mortgage markets are deplorable. There is no apparent easy fix or wizard that can wave a wand to rescue the market from their needed unwindings and previous risky positions taken. The pain is severe and not contained to simply the risk-taking PE firms, hedge funds or investment bankers. The impact will be lasting as the duration of torment will be measured in years – not months. Nevertheless, there is still another chapter to be written surrounding the euphoric hangover of unbridled financial lending practices and complex, illiquid trading assets – “the forced M&A.”

This type of “Shotgun” or “Survival” induced M&A transaction is not about growth, but viability of operations resulting from poor decision making, creating an inability to sustain required capital ratios and needed cash flows. Tantalizing tidbits have briefly appeared in the newspaper headlines in the last several months only to be denied or retracted by CEO’s who were professionally embarrassed or feared losing their existing positions. In essence, a internally reflective hostile takeover mindset is taking place among those fatally or significantly wounded by risk taking positions that have drained liquidity from their balance sheets – the terms will be most unpleasant for their survival.

Underpinning these actions is a decidedly negative investment and capital tone where some noted pundits are incessantly using the “R” word, while others are now intermittently using the “D” word when it comes to the health and recovery of the financial markets. It is a substantial understatement to say the markets and sentiment have unraveled in just a few short months. As with most industry-induced watershed events, a single incident acts as the catalyst. Once triggered, the multi-faceted built-up of corporate risks are exposed creating system-wide chaos and uncertainty until a new equilibrium is achieved.

Although before accepting this premise as a truism, we need to ask, what is compelling different with today’s markets which would force a survival merger? How will the liabilities of the past influence decision making in 2008 and beyond as politicians, legislative overseers, and the public become extraordinarily determined? What new adaptations and insights are market entrants or players utilizing to change the existing operational landscape?

The Takeaways -- Change and sustainable innovation will come not at the point of a spear as some advocate, but as a mandate of global market customers that demand transparency and structural integrity.

Look for the complete dialogue in 2008...