Primary marketWelcome to K-mart, Borrowers
Is the day coming when discount loans are announced as Blue Light Specials over a loudspeaker at K-mart?
Perhaps, says Ronald Rosenfeld, president of the Government National Mortgage Association, or Ginnie Mae, who believes mortgage bankers and brokers could easily be replaced by consumer-savvy retailers if they don"t soon come up with a lending process that is far simpler to navigate.
The "next major iteration" in the mortgage sector will be a move to a more consumer-friendly way for people to secure financing, and it might not be everyday lenders who lead the charge, Rosenfeld said at meeting of secondary mortgage market executive here recently.
"There are people out there who are very, very effective at meeting consumer demand," the Ginnie Mae official said during a panel session which featured officials from the various institutions which bundle loans made by local lenders into securities and sell them to investors worldwide.
Mortgage bankers and correspondent brokers originate the lion"s share of home loans and are backing an attempt by Sec. Mel Martinez of the Department of Housing and Urban Development to streamline the lending process. But the effort is being challenged by others who have a stake in the process, and some key federal lawmakers are questioning the wisdom of HUD"s proposals.
Calling the current lending system "somewhat archaic," Rosenfeld said the "process is enormously complex, perhaps more complex than it needs to be. But things don"t have to be the way they have been for the last 30 years."
Ginnie Mae is a government-owned corporation within HUD that guarantees the timely payment on government-backed mortgages that have been pooled into securities that are a favorite of investors worldwide.
Rosenfeld"s colleagues agreed that the lending process could stand to be overhauled, but they argued that mortgage bankers will remain central to the system.
"Mortgage bankers are always going to be needed," said Al Dellibovi, president of the Federal Home Loan Bank of New York.
"They may operate a little bit differently. They may operate out of a Wal-Mart, for example. But they will still operate."
Jamie Gorelick of Fannie Mae, the nation"s largest supplier of mortgage money, concurred, saying that mortgage bankers have learned a lot about their customers from their colleagues would deal with borrowers with less-than-sterling credit records.
"They"ve had a wake-up call from the subprime market," said Gorelick, who is leaving her post in July after six years at the secondary market giant. "They"re much more able to put themselves in their customers" shoes."
Dellibovi maintained that retailers like Sears and Pennys would run up against the same obstacles the prevent mortgage bankers from improving the process, namely the mountain of government regulations.
The reams of rules foisted upon lenders in the name of consumer protection "start at the Village Mall," he said. But for the most part, "they"re not dreamed up at the local level" but come instead from well-intention legislators and regulators at the national level in Washington.
But whether the stack of closing documents borrowers are required to sign or initial at closing stem from City Hall or the halls of Congress, he added, borrowers aren"t always better off because of them.
Gorelick, the Fannie Mae executive, said rookie home buyers, especially minorities and immigrants. find the "unbelievably complex" process intimidating. And Rosenfeld called the process "a little bit scarey."
"The only thing that"s not disclosed," the Ginnie Mae President quipped, "is the number of disclosures."
He also said he is not certain whether the mound of papers are meaningful to consumers or that they even protect borrowwers. But he is sure, he added, that they make people uncomfortable.
Rosenfeld compared borrowers" discontent with the cumbersome lending process to their dissatisfaction with the annoying lines and delays that have become the norm in airline travel, and said that consumers will jump at the chance at alternatives, just as they have when it comes to choosing an airline or a different mode of travel.
When someone comes along to offer a borrowing experience that is more palatable, "then you have some serious competition," Rosenfeld told an estimated 2,000 secondary market participants from throughout the country.
And that someone, he warned, could be a giant retailer that is "more effective" at meeting demand and shifting to market changes. Retailers "come to the table with a different mind set," he said. "I can see the industry being served by others outside of mortgage bankers."