The Washington, D.C.–Mortgage Bankers Association (MBA) expects mortgage originations to dip by more than 25 percent next year, from an estimated $1.2 trillion in 2011 to just $900 million in 2012.

If the trade group’s assessment proves correct, it would be the lowest level of loan production since 1997. This, despite the lowest mortgage rates in half a century.

Of course, the mortgage market could improve if the moribund economy shows some signs of life. Or, to hear participants tell it at the MBA’s annual convention in Chicago earlier this month, if lawmakers and regulators in Washington would just get out of the way.

Brian Chappelle of Potomac Partners, a Washington-based mortgage industry consulting firm, told the gathering of about 3,300 mortgage professionals that the most important thing government can do is strike a better balance, a suggestion that won approving applause from the audience.

As it stands now, Chappelle said, Congress and regulators are “going after” the entire housing finance system “for problems that no longer exist.” And the result, he added, is “suffocating the whole market.”

SichelmanMBA_3_200“Every lender I talk to is scared to death someone will come in with a fine-tooth comb and find technical problems [with their loans] that have nothing to do with underwriting,” the consultant said. “There has to be balance on both sides, or the only thing lenders can do is tighten up on the front end.”

David Stevens, the former Federal Housing Administration (FHA) commissioner who took over day-to-day operations of the MBA in June, went even further. Against a backdrop of protestors marching and chanting outside the Hyatt Regency, Stevens said it’s time for Uncle Sam to jump out of the mortgage sandbox and let the professionals take over.

“We are the grownups in the room,” the MBA president said. “We can’t wait for policymakers to tell us how to act.”

The ex-FHA commissioner said the lenders who have managed to remain standing despite housing’s nosedive “didn’t participate” in the debacle. Rather, they are the ones who have “spent their lifetimes doing the right thing.”

There’s a “strong desire” among the MBA’s 2,200 member-companies to be “recognized for what we do” and stop being blamed for the catastrophe, he proclaimed.

Mortgage bankers are the first to admit they made mistakes that helped cause the housing market implosion, according to Stevens. But they also “know better than anyone else” about how to police the bad guys.

Housing finance is “way more complicated” than lawmakers and regulators believe, and that it is not as simple as outlawing certain products or micro-managing underwriting guidelines, he said.

In reference to a provision in the Dodd-Frank Financial Reform Act that requires originators to retain a 5 percent share in the mortgages they sell on the secondary market, Stevens also said it is wrong to think lenders don’t already retain some risk. “Tell that to the hundreds of mortgage bankers spending millions to buy back defective loans or defend buyback demands on legitimate loans sold years ago,” he said.

Stevens also said that all markets go through cycles, and after each one there is a correction. “You can’t just outlaw that one bad product or that one market structure and expect there will never be another serious market crisis, because markets always find a way to correct,” he said.

While most in housing finance might concur with the MBA president’s “it’s time to ‘take a stance”’ message,” agreement was not universal. One who dissented was Michael Heid, president of Wells Fargo Home Mortgage, Charlotte, North Carolina, who said it is still too early in the cycle to take the offensive.

Rather, Heid told the conference, the business should continue working on a positive image, develop an even thicker skin and “live with it.”

Picketers marched outside

During the question-and-answer sessions following his remarks, the Wells Fargo executive was the target of two protestors who managed to infiltrate the meeting and make it to a microphone. As picketers marched outside, the ones inside asked Heid what he is doing “to fix the colossal damage done to Chicago families” and “How do you sleep at night?”

“I wish I had an answer to all of the market’s woes,” Heid responded. “All we can do is keep trying.”

Conventioneers applauded the response, but one of his antagonists, who said he paid to get into the meeting “just like everyone else,” was “not at all satisfied.”

The two protestors were said to be a part of a team of five planted inside the conference. The scene was reminiscent of two years ago at the MBA convention in San Francisco, when protestors managed to take the stage and interrupt the proceedings.

This time, against a backdrop of heightened security, there was no disruption. But outside, a crowd—unofficially estimated at 300 by the police—carried signs that said, among other things, “They get rich. We get foreclosed.”

Organized by National People’s Action and several local organizations in an effort “to take back the jobs, homes, and schools stolen from us by the greed of big banks and big business,” the protest fell far short of the 1,500 marchers that were expected. Nonetheless, the group made plenty of noise and drew coverage from all the local media.

Inside the convention hotel, though, it was business as usual. Below is a recap of what some of the other major speakers had to say:

  • Housing Secretary Shaun Donovan said both he and the President understand the frustrations of not just homeowners but also financiers during what he called “a tremendous time of uncertainty.”
  • “I get that, but what I also get is how essential your industry is to the strength of our economy, and the future of this country,” the HUD Secretary said. “And President Obama gets it, too.”
  • White House economic adviser James Parrott also said housing is “extremely important” to the President.
  • “Housing is one of the core causes that got us into this mess, and it is key to getting us out,” said Parrott, a senior adviser to the National Economic Council, the principal forum used by the President to consider economic policy. “It may not lead us out of the recession, but if we don’t get housing going, the recovery will be much slower and more painful.”
  • In the spirit of what he called “participatory regulation,” the de facto head of the fledgling Consumer Finance Protection Bureau (CFPB) invited the MBA to suggest which areas of housing finance need its immediate attention.
  • But Raj Date, the special adviser to the Treasury Secretary at the three-month-old bureau, also challenged audience members to leave their wish lists in their pockets. Instead, he urged them to come forward with a cost-and-benefits analysis on which key areas of regulation should proceed. “If we let the facts speak for themselves,” he told the convention, “we can help ensure that consumer financial markets actually work.”
  • For the CFPB’s part, Date promised “smart regulation” that would be evidence-based, participatory, and precise. The CFPB “doesn’t plan to hide behind closed doors,” he said. “We aim to be an open book.”
  • Rep. Spencer Bachus (R-AL), chairman of the House Financial Services Committee, indicated that the industry can expect less interference from Congress going forward.
  • Bachus, who brought chuckles from the audience when he lifted file after file out of a box marked “Dodd-Frank Regulations” and dropped them to the floor, promised to “stay out of the way and let the private market take over with as little regulation as possible.” Dodd-Frank alone includes 3,700 regulations, he said. And there’s more coming, he added—4,257 regulations in the pipeline, including 219 that will have a net impact of $100 million or more on the particular industry covered. The Republican lawmaker also vowed “not to allow ideology” to block any attempt to get the housing market back on its feet, and said he would work with mortgage bankers to “come up with something that works for you.”