Fifteen years ago, the country's mortgage bankers were wildcatters, individuals taking high risks in hopes of high gains. But now they have settled down to drilling in known fields and running their businesses like corporations.
This is how Texan James Wooten, the new president of the Mortgage Bankers Association, sees an industry trend -- firms getting bigger and more conservative while staking larger claims to the country's mortgage market. At the same time, he says, the risk-taking of the past has prepared them for the new world of creative financing and innovation.
"Exxon wouldn't be where they are today if it weren't for the wildcatters," Wooten said. "I just think that the majority . . . won't be the wildcatter, and at one time the wildcatter was the majority in our industry."
Wooten, the white-haired, bespeckled president of Lomas & Nettleton Co. of Dallas, is taking over the MBA at a time when sales are rising and interest rates are falling. He doesn't expect the situation to be as positive a year from now when he leaves office, but he does predict that mortgage bankers will have gained a larger share of the home loan market.
This is primarily because mortgage bankers -- even though they may be growing more conservative -- still will not be as gun-shy as the savings and loan industry, which has suffered severely from the low-interest, fixed-rate loans on their books. Mortgage bankers, on the other hand, have served as a conduit for bringing investors' money into the mortgage market and haven't been saddled with unprofitable loans.
Deregulation of the thrift industry has enabled S&Ls to turn away from their traditional mortgage market, he said. Mortgage bankers, meanwhile, went from having a 23 percent share of the market in the second quarter of 1981 to 31 percent in the same period this year, the MBA reports.
"I think it's going to continue because . . . with rate volatility, the thrift institutions are going to be more defensive about the commitment of those funds for any time frame," he said. Mortgage bankers had to roll more with competing markets since they had to cater to investors, unlike the S&Ls, which had a ceiling on the rate they could pay on individuals' accounts.
"The thrift institutions were very comfortable. You take in the money at 5 [percent] and you put it out at 7, and you go home on Thursday and play golf on Saturday. They didn't get that [innovative] kind of management -- they didn't have to, and the mortgage banker then was more trained to get up in the morning, see what had happened and say, 'My God! Well okay, then here's what we'll do.' And [thrifts] were still there saying, 'My God!' "
Mortgage bankers generally are offering slightly lower rates on home loans than S&Ls because S&Ls -- even though they might not admit it to customers -- don't really want to make home loans, Wooten contended. Instead of refusing to make a loan, S&Ls will quote a higher rate than competitors, he said.
Mortgage bankers, in the meantime, will pay more attention to businesslike management with "more balanced" risk-taking, he said.
Wooten welcomes that change and says it will bring more certainty to the industry that eventually will benefit the consumer.
Lowering risk doesn't necessarily mean cutting out large numbers of consumers, particularly since new kinds of mortgage instruments tailored to individual needs are being developed, he contended. But he also pointed out that the consumer is now at the bottom of the heap in the competition for credit and no longer has the advantage of thrifts dedicated specifically to the mortgage market. Therefore, the home buyer soon may find those who do continue to make home loans exhibiting a take-it-or-leave-it attitude.
Mortgage rates probably are about as low as they will go any time soon, with the relatively high demand likely to push them higher, Wooten predicted. Despite the higher demand, builders probably won't be able to gear up fast enough to take maximum advantage of the sales increase, he indicated.
"I would just think that by the time I go out of office it's not going to be quite as rosy."