CFO Focus: Mortgage market share will return to healthy credit unions and banks
Lending entities with weak capital and liquidity positions will take the hardest hit in the pandemic fallout.
The U.S. mortgage finance system has a long history or being one of the most efficient and productive engines of economic growth, not only for the U.S. economy but for the global economy as well. While it is true that a stunning combination of greed and stupidity nearly destroyed it in 2008, the system, with massive government intervention, survived and flourished again.
Unfortunately, while we may have learned some of the lessons of 2008 (namely don’t allow Wall Street to create billions of mis-rated bonds and billions of derivatives tied to poorly underwritten loans), the COVID-19 crisis is showing that we didn’t learn everything. While up until February the mortgage financing system was flourishing, we never addressed the problem that much of its “flourishing” was being driven by entities that did not have the capital or liquidity to handle another major crisis. Unfortunately, a major crisis is underway, and it took about a week to expose the weakness.
Before the 2007 mortgage crisis, the bulk of agency-eligible mortgage production and servicing was done by financial institutions like banks and credit unions. After the crisis, many “non-bank” originators rose up, with quite a few becoming as big as the big banks. There are many more smaller ones that, put together, have a very large presence in mortgage lending and servicing.
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