Recovery or no recovery??? For the US or for the MBA....as a whole I think it's the same for both, BUT the separation between those who have and have not is growing exponentially on both sides. Let's quickly look at what the US consumer is doing. They are cutting debt at a furious rate slashing non-mortgage borrowing by $17.5B just in November. Total credit shrunk 8.5% while revolving debt shrunk 18.5%! Now is that because their credit was pulled or shut off? I don't know, but its buying power gone.
Why is America shrinking back? December jobs shrunk 589K. The headline of flat unemployment at 10% is BS because the labor force shrunk 661K thus skewing the %. A much more disturbing number was the 840K people who simply dropped out of the labor force all together -- lost hope. The actual number when you take out seasonality adjustments is closer to One Million people who went missing from the payrolls as long-term discouraged. Think they were cutting plastic? All I've been hearing from folks during the last year is that if I can't pay cash I wont buy. Store owners back those stats up. How does that bode for us?
Well our industry is matching those payroll numbers and then some. Frankly, we wanted to see the cleansing, and since we didn't do it ourselves, the government at all levels has been gunning for us like rabid Elmer Fudds looking for wabbits. Lets look at some of these numbers in my home state of Massachusetts to give you a feel.
Registered mortgage lenders were over 500 in 2007 and now are 258 as of 12/1. Registered brokers in late 2007 were 151, in December 2008 1006, and as of 12/1/09 600 brokers total. Having looked at the books, credit and hearts of many small bankers, brokerage shops and individuals the last few months I can safely say that this number will drop significantly again. These licensing hurdles and net worth requirements have been a gut check for all. Yet many late-to-the-party bureaucrats are standing over our roadkill as if they bagged a 10 point buck. Hopefully it won't feed their desire for more blood...(the new FED Reserve proposal to eliminate any thing but flat comp is an example...keep an eye on that...)
So it seems that by the end of this year our industry capacity will be close to matching the credit appetite of the US consumer. The question is what does it take to not just survive but succeed going forward. Clearly scale and focus is necessary if you are a mortgage banker. As a broker, you need low cost, single location, focused/disciplined approach. Either way little equity will be built unless you can find a desperate bank with a hole in their structure or impatient VC money looking for a flip. Mortgage Business will be like any financial professional business; a nice income stream for those who do well, maybe 30-40%, superstar status and irrational pay for the top 10% and the rest will constantly turnover. Take a hard look at your talents and those of your firm now and see how you fit in the new world. Opportunities are out there but only if you are in the right place at the right time.
The other good news buried in the bad news is that it looks like inflation and growth are pushed farther away and the Fed's punch bowl will stay right where it is. The announcement hidden in the Christmas holidays stating that the cap was removed from Fannie and Freddie will be the back door way for the government to buy MBS and keep mortgage rates down. This way it doesn't go on "the tab" of paying for the recovery...beautiful..hey wait don't we own F&F? Smooth...I'm hearing "Back Door Man" by the great Blues-man Howlin' Wolf when I see a move like that:
When everybody's sound asleep,
I'm somewhere making my midnight creep.
Yes in the morning, the rooster crow.
Something tell me, I got to go.
I am a back door man.
I am a back door man.
Well the men don't know, but little girls understand
Lord knows "the men don't know"! Well, we will take it now but pay for it later.....How's that 2010 plan going? Feel free to forward if you want a second opinion!