The last time the U.S. economy suffered such a severe decline was in 2008 during the Great Financial Crisis. This calamity came from the financial sector, and in particular from the housing industry. Because millions of Americans have not paid their mortgages, the American financial system was called into question when several financial institutions went bankrupt.
During and after the crisis, I held a leadership position as CEO of CitiMortgage and helped lead the response of my business. Here we are 12 years later, and a public health crisis is metastasizing into trouble in the housing sector as millions of Americans are once again unable to make their mortgage payments. Here are three lessons that we can learn from the 2008 crisis, in order to get out of today's problems faster and stronger:
1. Losing a job doesn't have to mean losing a house: More … than 860,000 families lost their homes
When I was at CitiMortgage, we knew that entering clients when they were not employed was not responsible. An entry is not optimal for the owner or the lender. Instead, we saw ourselves as partners where we worked with the owners to develop a path that would help them recover. During the 2020 pandemic, there have already been more than 3.5 million leniency applications
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, and the firm that i lead It has received and processed tens of thousands of requests. Tolerance is a better solution than foreclosure because homeowners must be able to keep their home. It is imperative that lenders work with borrowers to develop a responsible and reasonable payment plan. In my business, I focus not only on generating new loans, but also on the number of customers we help keep them at home.
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2. Practice responsible finance: One of the main causes of the 2008 crisis is that many financial institutions have not acted responsibly or prudently. After the collapse, at CitiMortgage, we implemented a "responsible finance initiative", in which we defined guiding principles for our business. Before taking action, we consider three questions: (1) Does what I do create value? (2) Do my interests match those of clients? (3) What do I do that adds additional systemic risk to the financial system?
Although the current crisis is not caused by irresponsible lending, the time has come for employees of all financial institutions to ask these same questions. As we move towards a recovery from the 2020 pandemic, let us make sure that financial institutions do not adopt irresponsible lending practices. In addition, companies can implement customer-focused programs. For example, my business has seen an increase in the volume of calls from people with questions about their mortgage. We take this opportunity to strengthen service capacity and explore how to leverage artificial intelligence to provide faster service.
3. Promote communication between banks and real estate lenders: More … than 50% of all new mortgages They come from the major mortgage lenders, which means that the risk profile of the housing sector is different in 2020 than in 2008. The large financial institutions that issue loans generally have a certain type of credit risk, the possibility that a borrower cannot repay a loan. Although major mortgage lenders also have some measure of credit risk, they also carry liquidity risk. Since major mortgage lenders have no customer deposits, these institutions do not have immediate access to finance.
During the current crisis, the liquidity positions of the main housing companies have become more targeted and federal government assesses possible solutions. It is important that the leaders of large housing companies have meaningful conversations with their banking counterparts. In fact, banks provide warehouse lending services to major mortgage lenders, and it is essential that these facilities remain available. By working together, bankers and mortgage lender leaders can anticipate what could make the housing industry worse.
Sanjiv Das is the CEO of Caliber home loans. Previously, he was CEO of CitiMortgage from 2008 to 2013.
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