The Psychology Behind the Recovery

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Th e M Rep o RT | 17 cover story A summer 2010 article in Psychology Today was titled "Who's Fairer, Chimpanzees or Mortgage Bankers?" Not to compare apples to oranges—or bananas, for that matter—but many in the mortgage industry during the economic downturn were associated with worse. "A reasonable conclusion, then, is that while chim- panzees are more fair-minded than mortgage bankers, they are also less devious," the piece concludes. Much was made of the defaults and foreclosures during the Great Recession. Bankrupt borrowers, abandoned homes, and a plung- ing stock market told the tale of an economy unhinged, but what about the psychological impact on those in the mortgage industry left to clean up the mess and face the unremitting accusations, as well as those unfortunate souls cast out of the industry and left to wonder how to pay the bills? As we know, the economy is improving, but what kind of mindset does it take to succeed in a market with many more regulations and seemingly similar ups and downs? "To answer this question, we need to address the mentality of the mortgage professional," said Don Iannitti, CEO of DocMagic. "Mortgage professionals by their nature are a special breed. Their makeup is one of resilience, tenaci- ty, and relentless personal strength. Most of us still in the business after 2008 are here because we thrive in what has become the 'new normal,' an environment that is in a constant state of flux. This is not an industry for the faint of heart and the risk averse." Mortgage pros can lose their jobs in an improving economy as seen in the second half of 2013 when decreasing refinance vol- umes due to rising interest rates, as well as fewer troubled loans, led to some 6,400 mortgage-related layoffs at Wells Fargo, 4,200 job cuts at Bank of America, 1,200 pink slips at CitiGroup, and 800 dismissals at SunTrust. "Adjusting to market conditions" and other bank-speak efforts don't explain away the sudden hardship for those without jobs. "When any market contracts, jobs are eliminated and people are laid off," Iannitti said. "As Einstein said, 'Adversity introduces a man to himself.' The true mortgage profes- sional will pick himself up, dust himself off, reinvent himself, and get right back in the market as soon as possible. When great people are laid off, there are great companies ready to seize the opportunity to employ them. The true mortgage professional knows this." And what are financial institu- tions to do about the potential damage to their company culture after waves of negative press or sweeping job cuts? "I think you have seen many lenders and other mortgage-related entities get extremely creative in the use of financial incentives for their employees, be they short- or long-term," said Brian Montgomery, partner and co-founder of the Collingwood Group LLC. "I would add, in particular, with stock options. This helps better align the interests of employees and management by showing a strong desire to better compensate them when times improve." Creativity with employee incen- tives is key. It is common knowl- edge that pre-recession enticements based purely on increased loan volumes led to big problems. Putting a carrot before the horse is no good if it then proceeds to pull the wagon off the economic cliff. "The beauty of incentive compensation is, of course, that people will often do what you incentivize. The downside is the adage, 'Be careful what you wish for,'" said Kevin Wahlen, senior compliance consultant at Wolters Kluwer Financial Services, an international risk management technology provider, about tradi- tional volume rewards programs that came at the expense of credit quality and other key administra- tion responsibilities. Another incentive that both enriches the mortgage com- pany professional and boosts the organization's preparedness and versatility is employee training. "I mean serious, total immersion training almost like a university," Montgomery said. Ensuring both rookie and veteran employees are up to date on all the new mortgage regulations is an inescapable reality in this mortgage era. "In the past, business units may have had more autonomy to provide or not provide additional training, but now we are seeing a greater focus on documenting procedures and training on them," Wahlen said. "Some of these efforts are obviously to improve compli- ance, but one of the impacts of this is better-trained staffs who may feel more supported in their roles." "Additionally, training can help companies avoid reputational or fi- nancial hardship that are too com- mon in today's heavily regulated industry," Montgomery added. Beyond that, the more highly trained employees become, the more valuable they are to man- agement and thus the more their confidence and self-worth grow. "When relationships are forged through teamwork where the individual contribution is truly valued, the entire process benefits and people shine with confidence. Perhaps it's that confidence that en- ables us to reinvent ourselves, that gets us right back in the market as soon as possible," Iannitti said. Perception Is Reality M istrust persists in the mortgage industry, maintains Randy Wussler, VP of product management and marketing at San Diego-based DataQuick. Perception is reality, says Iannitti of DocMagic. If borrowers are happy, then the perception is that those in the mortgage industry are doing things right. We can all agree there are more and more forces tugging on the collective con- sumer view of banks and other financial institutions. "The number of drivers of the perception of the mortgage industry is large and getting larger," Wussler said. "Traditional media, social media, politicians, bank lead- ers, statisticians, economists, and bloggers are all working to shape how the industry is perceived." It's easier to read the paper than a mortgage contract. It's also a good bet that consumers will be more likely to tune in to their fa- vorite 24-hour news network than commit to improving their finan- cial education. Does this mean the mortgage industry is inherently disadvantaged when trying to maintain its public standing and consumer confidence, especially after the perfect storm? "The deck is stacked against most consumers, so to speak, since a large percentage of them do not entirely understand mortgage finance, the loan closing process, RESPA, and household budgeting," said Montgomery, who supports mandating some level of financial training in our schools. "A lot of new homeown- ers will tell you the hard part is keeping the home, not buying it. A good many of them placed their best faith in mortgage professionals they met through business colleagues, friends, fam- ily, and the like. And the vast majority were honest, qualified mortgage professionals." Wussler added, "It's hard to forget many of the questionable practices that transpired during the boom. They still make for great copy. The [media] clearly latched onto the crisis over the past six to seven years as the defining story for the industry, although there has clearly been a shift in emphasis toward the recovery in the housing market over the past 12 months." The result or "byproduct of the bad actors in this industry,"

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