DS News - U.S. Bank

60 e lead-up to and result of the collapse of the housing industry in 2008 has been documented and discussed by industry pundits, politi- cians, regulators, and technologists for years now. Even Hollywood has chimed in with films like e Big Short. But as the industry now marks a full decade since the beginning of the Great Recession, what are some key takeaways and tangible, valuable lessons learned for lenders, borrowers, service providers, and others as we move forward? One significant effect of the recession is many of the mortgage professionals working in 2008 are simply no longer part of the industry today, which isn't surprising considering the sheer volume of mortgage businesses that was forced to shut down. e scale of this industry attrition was perhaps most clearly illustrated through the now infamous "Implode-o-Meter," which documented the closing of more than 380 mortgage lenders between 2006 and 2012 on ML-Implode.com. In many ways, the industry experienced a massive "brain drain" over the past 10 years that it has yet to fully overcome. To truly understand where the mortgage industry has been and where it's headed, it's important to understand what the environment was like before the collapse. THE REAR VIEW e early 2000s was a time of consistently falling mortgage interest rates, which fueled a wave of refinance volume. Many homeowners became—in essence—serial refinancers, always chasing the lower rate. is led to increased levels of competition among lenders to secure these deals, and the introduction of new loan products like no-cost refinance loans. is, in turn, appealed to borrowers as a "free refinance" option, and cash-out refinances boomed also. Some thought of their homes as a limitless ATM. One problem that developed during this time was the way many lenders managed this huge volume and the existence of a "front door" and "back door" delivery channel, which were often at odds with each other. Amy Crews Cutts, now a Chief Economist at Equifax, worked in a similar capacity at Freddie Mac at the time and explained it this way: "A borrower might go directly to their existing lender for a no-cost refinance only to be told that the lender did not offer that product. e borrower would then approach a mortgage broker, who would put the deal together. At closing, the borrower would learn that very same lender who initially said the no-cost option was not available was funding the refinance deal through the broker, paying the broker a large fee." "Many lenders had both a 'front door' and a 'backdoor,' and they were competing against each other, which led to a race to the bottom A retrospective on the lessons learned over the last 10 years and a look at what lies ahead. I N D U S T R Y I N S I G H T / C R A I G C R A B T R E E

• Cover