THE HOUSING CRISIS IS ON ITS WAY

THERE’S AT LEAST ONE COMPANY SET UP TO PROFIT FROM CLEANING UP THE MESS.

These are not good times for many in the $18 trillion US residential mortgage trade. Home sales have been declining for over six months. Wells Fargo, once the leader in the residential mortgage business, is reducing its purchases of new home loans and cutting back on doing “servicing” (billing and collecting) for other lenders.

It appears that post-pandemic accelerated monetary and fiscal stimulus may have only pulled housing demand from the near future, at the cost of excessive price rises that decreased labor mobility. People who could not or did not want to buy expensive houses were left with high (and sticky) rents.

Despite the obvious political importance of a well functioning housing finance system, its legislative framework has often been carelessly drafted. Housing finance regulation is haphazard, often based inappropriately on commercial banking rules, and scattered over ill-coordinated agencies.

Most of the independent mortgage banks (IMBs) that underwrite two thirds of the home mortgages in the US are now reporting losses on their core business of lending or refinancing housing. There have been mass layoffs of loan officers and support staff. Not surprisingly, equity investors are checking out of IMB shares.

With one notable exception. The management of the Mr. Cooper Group (COOP), based in Plano, TX , has been preparing for this turn in the housing market for years. While the group includes a significant lending operation, COOP’s competitive edge is in the very back-office servicing business that Wells Fargo no longer finds attractive.