Is the Mortgage Industry Obsolete?

by Ted Cornwell

Globalization and demographic trends are likely to drive even more dramatic changes to the industry in the coming years, according to one controversial industry expert. And she thinks servicing executives should be the ones leading the charge to transform the industry going forward.

Toni Moss, CEO of AmeriCatalyst and EuroCatalyst, said an increasingly “neo-feudal” society, in which people change jobs and move more frequently with significantly less income security than in the past, may threaten the traditional, 30-year fixed-rate mortgage.

The shrinking of the middle class threatens the traditional U.S. mortgage industry; industry leaders will need to think big and reimagine what a sustainable housing finance system will look like in a globalized world. With income growth failing to keep up with rising prices, fewer households are able to own a home. And that means more and more people will rent rather than own their homes.

Moss believes that mortgage servicing executives should play a greater role in the leadership of the housing finance business.

“The way that people in the industry view themselves is relatively powerless,” Moss said. “When you treat servicers like the fat kid on the soccer team long enough, they learn to believe it, and their behavior follows.”

Servicers have a responsibility to acquire, distribute, protect and manage information, but they often don’t view themselves as being in the information services business. Transforming servicing into an effective information services business will require new technology and resources, she said.

“I think servicing is where you are going to see the most dramatic changes coming up, because servicers are so important – they actually pose a systemic risk to the economy.”

One problem that emerged in the run up to the housing implosion was that all the people who had financial incentives to generate business were on the origination side of the industry.

“We incented the guys to give the money away. We did not incent or provide enough funding for the guys collecting the payment.”

A big misperception about servicing is that it’s the “back office” of the origination business, according to Moss. Servicing is actually the front office for borrowers and investors, and she hopes that compensation and investment will go toward strengthening the servicing side of the industry, though she said the prospects for that happening are dim within the existing structure of the industry.

Instead, she said entrepreneurial firms, such as Wingspan Portfolio Advisors, that have ditched legacy systems and created new servicing technology are the ones that are likely to drive change.

The economic dislocation and economic fallout from the globalization of capital has no easy cure, she said. Businesses, jobs and the tax base are difficult to anchor to one place in a world where capital can move easily across borders. “The most frightening thing is to know that at all levels of power, whether it’s the International Monetary Fund, the World Bank, the White House, the Federal Reserve or central banks around the world, no one knows how to fix this.”



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