The mortgage financing business has always been a bit of a quandary for big banks: Customers demand it, but the profit benefits aren't as good as many other parts of the business.
With the landscape shifting and the current atmosphere in Washington decidedly hostile to large financial institutions, many might simply quit the business and move on to other, less volatile areas.
While limiting consumer choice, it opens the door for other institutions to step into the breach.
"There certainly is an opportunity for different, smaller banks to enter into different parts of the market for all types of financing," said Jason Auerbach, divisional manager for First Choice Loan Services in Morganville, N.J. "Smaller banks have stepped up and have been able to insure that the housing market can continue to grow."
Auerbach's company is a subsidiary of First Choice Bank, which has just under $1 billion in assets. It ranked 680th in total assets at the end of 2013, according to usbanklocations.com. Yet the company is finding opportunity in the mortgage marketplace.
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"Large banks—they're not going too far outside the box," Auerbach said. "We are willing to offer niche products. You're going to see more banks turning into that marketplace."
Among the company's finance offerings: construction and renovation for jumbo borrowers, planned development communities, and condominiums and cooperatives that don't meet Fannie and Freddie guidelines. In fact, most of what the company offers falls outside the normal government guarantees, making it well positioned once the new structure takes effect in the coming years.
The $138 billion industry for Veterans Affairs loans offers another opportunity for the future of financing.
Grant Moon, founder and president of VA Loan Captain, said there will be a big market for finding homes as the U.S. unwinds its foreign entanglements.
"You have a lot of young people integrating back into society after fighting two decade-long wars. Then you have a reduction in forces going on from a military capacity point of view," Moon said. "What we've been seeing is continuous growth within the veteran loan industry, which is a unique mortgage in and of itself."
On the undercurrent of the sea change, though, is a sense of foreboding.
After all, the government is entering uncharted waters in trying to unwind a system that has prevailed for 80 years, so it's probably unrealistic to imagine that the new way of doing things will go off without some pretty significant hitches.
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High-profile banking analyst Dick Bove, the vice president for equity research at Rafferty Capital Markets, has been raising his voice loudly in defense of the current system. He has been painting a dystopian picture of a government that frees itself of the unpopular dual-mortgage guarantors and replaces it with a nation of renters, where housing is unaffordable and inaccessible.
In one of his recent treatises on the subject, Bove had this to say:
The decision to tear apart the financial structures that were created over the past 80 years carries significant risk. The risk is that slums will be created across the nation as low- income households live together in ghettos, where the ownership of housing may be in large financial conglomerates far removed from the neighborhoods being impacted.
Moreover, housing subsidies, this well-used tool to stimulate economic growth in recessions, will be gone. Further, the transition from a subsidized industry to a privately driven real estate business carries with it the risk that the value of every home in the United States will decline in value, causing a recession.
Extreme? Time will tell. Many Washington political insiders doubt the current proposal to unwind Fannie and Freddie will succeed in its current form.
Those who subscribe to Bove's point of view certainly hope not. Others, it seems, will be left to sort through what's left over and find opportunities if the reform plan becomes law.
A final view on what Bove sees for the future:
The basic fact remains, the system of home finance created by this nation has served its people unusually well for 80 years, and I do not believe that it is about to be scrapped. (Former Federal Reserve Chairman) Alan Greenspan said in a CNBC interview that the Dodd Frank Act (to reform the banking system) was put in place by people who never sought to discover the reason of the Great Recession and that Dodd Frank is harming the economy.
I cannot believe that Congress is going to do this again in housing. This time, they will feel the brunt of the American people's anger as housing prices tumble across the country as ill-advised poorly-thought-out populist legislation is once again put in place.