Stanley Middleman of Freedom Mortgage: Let’s Use What We Learned from Past Housing Mistakes

Stanley Middleman is founder and CEO of Freedom Mortgage Corp., one of the largest and fastest-growing full-service mortgage companies in the U.S.  He is a nationally recognized business strategist, real estate investor and philanthropist, with more than 30 years of experience in the mortgage banking industry. He is an active member of the Mortgage Bankers Association, a member of the Housing Policy Executive Council and serves on the National Association of Hispanic Real Estate Professionals (NAHREP) Corporate Board of Governors.

We’ve all heard the famous quote or some variation of it, “Those who fail to learn from history are doomed to repeat it.” Luckily, I think we all learned quite a bit from the early 2000s and are determined not go down that path again.

Today, as we witness home values creeping up to record levels, it’s natural for consumers to think we’re on the verge of another crisis. To put their minds at ease, and ours, it’s important to understand why the current market different from 2008’s—but also to focus on the things that make for a strong, healthy market.

Right now, there’s a low inventory of homes and too many buyers hit the market, which has created bidding wars and increasing home values. However, we aren’t seeing inflated home values like we did before the previous meltdown. More regulations, such as ability to repay rules, are now in place to protect consumers from risky loans, too. Eventually, the market will correct itself naturally. The supply of homes will start to rise and then we will see price corrections. We’re beginning to see this in some areas now.

While most of us know and understand these things, we must remember to encourage people to buy homes they can afford and educate them on the costs that go with owning a home. That includes advising consumers not to borrow as much money as they possibly can, lest they become “house poor” and miss out on being able to create a more financially secure future for themselves and their families.

We need to remember that, for the vast majority of Americans, homeownership is one of the keys to building wealth—but the other keys are making smart decisions and living within one’s means. We want borrowers to be able to pay their bills, make their mortgage payments on time, and still have plenty of money left every month. This makes it easier for borrowers to improve their credit profile and later take advantage of the rising equity in their home to achieve other financial or family goals.

Staying away from another housing crisis is simple: Don’t widen the credit funnel. Today’s challenge is a matter of having a supply of homes that borrowers can afford, not expanding credit. If borrowers are having a hard time finding affordable homes, it’s incumbent upon mortgage professionals to advise them to be patient as the market works itself out. Obviously, everyone wants to take advantage of low rates, but rates could fluctuate higher and still remain relatively low.  

It’s also important to advise borrowers of the benefits of fixed rate loans instead of variable products. This allows borrowers to know exactly what their mortgage payment will be every month, budget accordingly and work on building their savings. It’s equally important to teach the value of paying down one’s mortgage over time, since doing so is a crucial part of building a successful retirement—especially as life expectancy continues to rise.

Because the last housing crisis left such a lasting mark on this industry, it’s easy to become uncomfortable with home prices rising as fast as they are. Thankfully, we are in a much better place when it comes to borrower qualifications and expanding credit. We just need to keep it that way.

Those of us who lived through the industry’s past mistakes are invariably much wiser for it. We need to focus our collective wisdom on educating borrowers the right way and provide expert guidance that will help them improve their long-term finances. This will also enable us as an industry to address inequities in household wealth among different segments of our population as well.

For example, my parents were able to use the equity in their home to pay for my college education. I’ve seen the same thing happen to countless friends and relatives and acquaintances throughout my lifetime, where people were able to use their home equity to pay for their children’s education, which enables future generations to become homeowners and create wealth of their own.

Homeownership will always be an important step in building wealth and creating a better life. Our duty as trusted mortgage professionals is simply to place borrowers in the best position possible to achieve it, regardless of what is happening in the market from one year to the next.

(Views expressed in this article do not necessarily reflect policy of the Mortgage Bankers Association, nor do they connote an MBA endorsement of a specific company, product or service. MBA NewsLink welcomes your submissions. Inquiries can be sent to Mike Sorohan, editor, at msorohan@mba.org; or Michael Tucker, editorial manager, at mtucker@mba.org.)