The Market Relationship Gap
by: Deborah Aydelotte
Although not out of the woods, a handful of leading economic indicators are pointing to a slow, anemic recovery over the next several months. At the time of this writing, inventory/sales ratios continue to improve although slightly and the S&P has been on a positive trend. Global economic statistics vary but are moving in a positive direction; Euro indices typically mask individual country challenges, so caution to take a deeper look if you’re interested.
The US mortgage industry however, has yet to exhale, and alas that may not occur until mid 2010. The recent demise of a large SE mortgage banker and a substantial warehouse lending conduit, albeit not completely unexpected, provided an added dose of reality. Stating the obvious, warehouse lines are tight and although a few firms may be expanding slightly, the terms of some of the captives are stunting true growth and expansion. The strangle hold on the market needs to and will eventually break, but more on that later.
From the consumers perspective retail sales should pick a bit with the new school year, dip a little and then end the year on an upturn for December. Nothing dramatic, but positive. Cash is king, as credit cards are already maxed-out and the days of “buy now/no payment until 2011” easy credit are gone. Holiday employment will pick up a bit, however not enough to counter the impact of diminishing summer and seasonal work.
For the housing market and market investors Q4 will hold tight, while a few companies prepare to re-enter the secondary market. Warehouse line offerings will expand, but not enough to make up for the past 18 months of lost capacity. Credit policy restrictions are continuing, beyond agency requirements depending on investor. The industry is still in the fear driven cycle, regardless of the vanilla product and the investor credit overlays, the pendulum has swung and stuck. We are driving today’s production standards from yesterday’s credit sins. Jarring it loose will take some time and a few new players to realign basic supply/demand.
With liquidity gaps and limited product exit strategies, the time is ripe for capitalized players to step back into the secondary market. Whether this means additional warehouse lines or closed loan purchase, the most fruitful strategy would be to enter the market with long term presence in mind. Highly captive warehouse lines, restrictive fees and over zealous investor requirements have more than strained some relationships. A prudent approach is obviously needed for success, but the real gap created over the past 18 months is a relationship gap.
The opportunity to gain market share with a relationship gap strategy is tremendous.
Those firms which can step into the space and provide a secondary outlet or warehouse facilities with their eye on long term business relationships rather than short term fee income will establish a new level of integrity and leadership within the market place. Potential business partners will flock to their door.
