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Ranking the US mortgage lending industry

You probably saw the news that the federal government has released homeownership information gathered during the most recent census. We’re down to 66.5% in the fourth quarter of 2010, the lowest level we’ve seen since the fourth quarter of 1998 when the industry’s marketing machine kicked into high gear and stayed that way for half a dozen years. We had just slipped below 67% in the third quarter of last year, down from its peak in 2004 of 69% (over 84% of all married couples were homeowners at that time, as well). In the past, this was the primary measure the government used to determine how well our industry was doing. If the numbers were down, the president made a speech. The president has other things on his mind these days. I guess I’m supposed to feel bad about these falling numbers. I mean, I am an industry booster. Never pretended to be otherwise. But it seems to me that 65% of 300 million people is enough of a market for most of our industry to make a good living if they’re willing to hone their customer service and sales skills. I think we can live with this. Apparently, the folks on the Financial Crisis Inquiry Commission agree, at least in part. When it came to the aggressive goals the federal government had put on the industry to increase homeownership to traditionally underserved markets, the FCIC said, “We make the following observation about government housing policies — they failed in this respect: As a nation, we set aggressive homeownership goals with the desire to extend credit to families previously denied access to the financial markets. Yet the government failed to ensure that the philosophy of opportunity was being matched by the practical realities on the ground.” Effective use of understatement in federal reports is an art form, well demonstrated here. Later in the report, the FCIC makes up for it with this clear statement on HUD’s “revolution” in affordable lending. “This turned out to be an immense error of policy.” Well said! (With that level of conciseness, one wonders how the report came to be 633 pages long—minus the index). Clearly, we took the homeownership level and industry gauge too far. So, what level of homeownership is acceptable in a country that believes every kid in public school should be mainstreamed, unemployment benefits should last for years and everyone deserves a home of their own? Maybe I didn’t ask that right. What should our target for homeownership be going forward? I suggest we first put this into perspective. Instead of looking at unemployment lines and the homeless shelters, which tell heartbreaking stories, to be sure, we should be looking at our neighbors around the world. At 67% homeownership in the U.S., we rank 17 among the world’s richest 26 countries. We’re one point below England, Canada and Sweden, three countries that we have a lot in common with (and New Zealand, where we shoot films like Lord of the Rings and Xena Warrior Princess). Australia is only at 70% and Ireland, Chile, Italy and Israel are all less than 75%. We’re well ahead of Japan (61%), France (57%) and Germany (46%). It seems to me like we’re doing OK. We might do a bit better with the right loan programs and a lot of consumer financial education. I doubt we’ll ever do better than Singapore, with a reported homeownership in the high 80s, but then I think they classify cardboard dwellings as homes and most folks can afford those. In my mind, homeownership shouldn’t be the measure at all. Instead, we should look at the other end and measure our success against early payment default, which is often a pretty clear indicator that the deal shouldn’t have happened. Using that yardstick, it would have been abundantly clear to everyone that the closer we got to 70% homeownership, the further we got from industry success. Rick Grant is veteran journalist covering mortgage technology and the financial industry. Follow him on Twitter: @NYRickGrant

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