Lending, the foundation of banking, is a cyclical business. In the early 1980s, I interviewed mortgage bankers about market trends, and the response of one executive stuck with me as a cautionary tale about predictions. At the time, interest rates were hovering around 20% and this banker declared, "We'll never see single-digit mortgage rates again." As we know, history proved him wrong.
[Banks continue to face challenges in growing their mortgage businesses: Tough Hill To Climb For Mortgage Industry In 2014]
However, the fact that rates did, in fact, drop into single digits -- and have stayed there for many years -- helped create the business with which banks are dealing today. Low mortgage rates helped fuel the real estate boom of the 2000s, as well as the subprime market and resulting financial crisis. The entire lending business, including mortgage, is in flux right now, putting new pressures on banks to find innovative ways to find and engage with customers, better manage credit risk, improve efficiency and cut costs -- the themes of our recent according to SNL Financial, which says commercial and industrial loans and consumer loans have been "bright spots for the industry, while real estate loans have fallen."
Perhaps even more important, customers are happier with the mortgage experience than they have been in years, according to new J.D. Power research. The firm's 2013 U.S. Primary Mortgage Origination Satisfaction Study measures customer satisfaction in four factors: application/approval process; loan representative; closing; and contact. Overall customer satisfaction improved for the third year in a row, according to J.D. Power, averaging 771 (on a 1,000-point scale) in 2013, up from 761 in 2012 and 747 in 2011. Five lenders ranked above the industry average: Quicken Loans (841), BB&T (798), U.S. Bank (783), PNC Mortgage (778) and Chase (773).
The fact that JPMorgan Chase is in the top five is reassuring or eyebrow-raising, depending on your perspective. After all, the bank recent agreed to a $5.1 billion settlement with the Federal Housing Finance Agency regarding claims it misled the agency over the quality of mortgage securities and home loans it sold during the boom. It's part of $13 billion the bank is expected to pay to resolve a variety of government claims relating to the mortgage crisis.
JPMorgan will pay for the mortgage crisis for a long time -- not just in settlements, but in reputation. As one tweeter commented during a recent -- and quickly aborted -- online forum, "Can I have my house back?" There will have to be a big mortgage rebound before the industry no longer has to field those kinds of questions.