Over the last few months, it is hard not to notice all of the gleeful hand-rubbing and “I-told-you-so-ing,” as disgruntled ex-employees, ex-insiders and ex-originators Monday morning quarterback the potential demise of one of the country’s largest lenders. The Implode-o-meter forums froth with idle comments from bored survivors, with a few fantastic exceptions. The fact is that no one hit the meter because Countrywide’s mean old underwriters didn’t accept your trumped up appraisal… the industry hasn’t lost its potency over extended underwriting or closing turntimes… (In fact, many would argue that the push for volume over quality was instrumental in the collapse.) Even the more egregious slights, like the ones they are going to court over, well, they just weren’t the fulcrum either. The reason that we are in trouble is simple: there are many homeowners that cannot pay their mortgage and foreclosure is BAD for business.
There are a thousand reasons why homeowners can’t pay their mortgage: some chose poor loan products, others were coerced into them, many bought houses they couldn’t afford, real income is declining, productivity is increasing causing manufacturing jobs to evaporate, the value of the dollar is falling, Katrina, rising health care costs, Wall Street made some bad calls on the whole underwriting thing. One of the main reasons I would argue: we have not been compelled or incented to save; we are incented to spend. In our consumer climate, if you can’t become an millionaire in America; being a “Visa”nairre is almost as good.
Investors relied on the stability of the American mortgage; real property as collateral, a track record of strong repayment and a well-established rule of law. But, as that same collateral depreciates, the track record erodes into a Cliff’s Notes of bad assumptions and worse performance, and regulators scramble to respond with ham-fisted alacrity, those enticements are gone…leaving a sudden desire to invest in anything that doesn’t have the word mortgage in the title. Without investors, we have less liquidity. Without liquidity, loans must compete for those dollars…and guess which ones are winning…definitely not the wage-earner stated, pay option ARM on a non warrantable igloo in downtown Miami.
I am not an apologist for Countrywide; frankly, I am just a practical, steely-eyed capitalist. There is a true link between the demise of an institution the scope and size of Countrywide and investor confidence in the industry as a whole. Since investor confidence is a key factor in how we are going to rebound, and many of us still in the industry need the rebound sooner than later, I am hoping that they are able to recover and flourish. I finally understand the impulse for bailouts and intervention. Whatever the response, we need action. We need resolve to adapt and respond to our investors. Neither their family nor mine can eat “I told you so.”
