After Half Century in Mortgages, He’s Looking Forward, Not Back


The grand old man of the mortgage industry has been in the business for more than 50 years, but he doesnt spend much time talking about what happened back in the day. Instead, he is very focused on whats still coming down the road.

Dale Dykema says the business is still a few years away from getting back to normal, and home prices probably wont increase over that time. And he expects to still be on the job then, shepherding his company to a soft landing when the foreclosure boom ends.

Its going to take at least a few years before we get back to what I would consider to be a normal real estate finance market, says Dykema, chairman and CEO of TD Service Financial Corp., Orange, Calif., the firm he started back in 1964, seven years after he began working in the business.

Now 83, Dykema still works more than full time, dividing his days between TD as well as several other business ventures and charities hes involved with. He says his goal is to outlive his mother, who lived until 104 (his father died at 92). I plan to be around for a while, he says.

Regarding home prices, Dykema expects that two years from now there will have been very little change in real estate prices from today. He notes that the 2006 peak in home prices was an unnatural peak; prices went up far too rapidly. Its going to be a lot longer than that before we go up to the previous peak.

While home prices have jumped about 18% in the past year and a half or so, according to the SP/Case-Shiller U.S. National Home Price Index, theyre still 23% below the June 2006 peak. At the same time, mortgage industry volume has plunged more than 50% from $3.8 trillion in 2003 to $1.8 trillion last year, according to the Mortgage Bankers Association.

The demand for housing and for real estate finance is going to continue at a low ebb, Dykema says. We havent even seen yet the total decrease in refinance activity, and if interest rates continue to climb refinance activity will continue to decrease. The MBA expects volume to drop further to $1.6 trillion this year and to just $1.1 trillion in 2014, mainly due to a collapse in refis.

As for the home purchase market, that too will be restrained by a variety of things, foremost among them regulatory changes and higher interest rates. Dykema also says student loans will diminish the demand, as people will either not form families as early, or if they do form families but they still have the debt, its going to make it harder for them to borrow, and that will definitely have some impact on the demand for real estate loans.

I dont think too many people have decided to abandon the American Dream of homeownership, he says. I think that is still there. But all of these other elements make it that much more difficult or will force a delay in accomplishing that.

As for his companys main businessforeclosuresthat business is just as bad if not worse than the originations business, having peaked three years ago. He says the 2009-2011 period was by far the busiest years weve encountered, but it was an unreal situation.

Since 2009, foreclosure volume has dropped more than 50% and is still falling. Dykema expects that three or four years from now the volume of foreclosure activity will be less than 10% of what it was at the peak.

How do you adjust to that if thats your only business? You go out of business, he says.

Instead, Dykema and his firm made a decision to reinvent the company. After looking at various options, it decided to provide IT-related services to the mortgage industry.

With all of the changes taking place from a regulatory standpoint, theres going to be a substantial need for lenders to change their systems and implement new systems, and the opportunities in that area will be pretty substantial, he says.

TD Service Financial Corp., the parent, includes three subsidiaries: TD Service Co., which specializes in nonjudicial foreclosures and other services; Security Connections Inc., which provides document imaging, storage and post-closing services; and Trustee’s Assistance Corp., which performs a variety of services related to trustee’s sales. Dykema has actually started more than 20 companies during his career.

Dykema has certainly seen a lot in his 56 years in the business, but he doesnt hesitate in naming the single biggest change to the industry hes seen in that time: The Dodd-Frank financial reform law, whose main mortgage-related requirements go into effect next year.

The biggest change really is Dodd-Frank, he says. Many other big changes took place over his career, of course, but many of those took place gradually over several decades and werent noticeable. But Dodd-Frank, he says, is very noticeable.

The financial reform law has both good and bad aspects, he says. On the positive side, it is forcing lenders to go back to what I would call rational way of lending to people. The bad part is because of all the regulations, its going to have a disparate impact on who can borrow and who can buy a house. The government on the one hand wants lenders to lend more to minorities and lower-income people, but if theyre not going to be able to qualify as readily, lenders are going to be subject to lawsuits. On the one hand you have agencies concerned about disparate impact, and on the other hand you have the CFPB that doesnt want you to lend to someone unless they can afford to pay you back. You cant have both things. Some way or other the government is going to have to recognize that.

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