Making Money in Mortgages

One solace that modern mortgage lenders have taken comfort in is the knowledge that if this business was easy, everyone would be doing it and there wouldn’t be any money in it. Modern mortgage lending is hard. It’s like being asked to dance a traditional Russian Prisyadki on a minefield. You never know when you’re going to trip one of those shiny new laws designed to protect consumers from themselves and their bankers. But, on the plus side, you can make a lot of money in the home finance business. Just ask Lloyd Blankfein. A number of Goldman Sachs Group’s shareholders did just that recently, prompting Blankfein to write the longest shareholder letter in history to defend his company’s business practices. Did the company put its own interests ahead of its clients’ interests? Blankfein says no. Did the company lead clients into real estate investments and then bet against the market? Blankfein says no. So what exactly did Goldman Sachs do in 2009? It made money. In what will probably go down in history as the worst year for the residential real estate business since the Great Depression, Goldman Sachs made a lot of money. The company earned $22.13 for every share of common stock held by its stakeholders in 2009. That’s $47.17bn in net earnings on which it earned a profit of $13.39bn. Blankfein himself took home $95.8m in executive compensation. So what do you call a company that does something like this? We used to call it an American success story. We used to call the men who led these companies great American industrialists. Of course, that was a different age. Today, we call them robber barons or worse. Today, you have to be a lot more careful about how you succeed. We’ve developed the “keeping up with the Joneses” game so well in this country that it’s viewed as cheating if you get too far ahead of your neighbor. Whether you cheated or not, there are plenty of conspiracy theorists eager to spend time postulating about how you could have broken the rules. I admit that I’ve had some fun in the past, raising questions about the web of connections linking Goldman Sachs to the people who not only loosened the government’s purse strings but literally ripped them out and tossed them into the garbage, opening the portal to our tax money. But hasn’t business, at least in part, always been about the connections you make, the network you build? Isn’t that why executives in our industry traveled to Dallas last week for a servicing conference and will travel to Chicago in a couple of weeks for a fraud/technology conference? Even with travel budgets decimated by the downturn, executives are still making at least a few conferences each year. Now it is true that you’ve got to be really lucky to have the head of Treasury not only in your rolodex but also a former CEO of your company. You also have to have something going for you to get paid back in full when the government bails out an insurance company that by all rights should have been burned to the ground while your competitors go out of business because they can’t get a dime of government support. But is that cheating? Is there any evidence of wrongdoing here? Former Secretary of the Treasury Henry Paulson says that there’s not in his recent book, which was reviewed in the latest issue of HousingWire print edition. I’m not sure. If someone can prove it, I’ll be happy to show up to throw a few stones. Otherwise, I think we have to hand it to these guys for being the best at the game they’re playing. I think we need to think about this. We need to carefully consider how we’re going to allow the most successful people in our industry to be treated by their clients, their industry peers and the government. We’ve made it plenty hard to make a dime as a mortgage lender. It’s getting pretty hard to make money as a servicer these days as well. I expect we’ll see more legislation that will make it even harder in the days ahead. But since this is America, there will come along some folks who will be very, very good at this game and I expect they’ll make a lot of money. If we really want the home finance industry to come back, I think we all need to get comfortable with that. Otherwise, they’ll just go make money somewhere else and we’ll end up handing the home finance business to the government and start putting our children on waiting lists for future apartments and new FHA homes.