Grab your blanket roll, call out the posse and mount up, Funny Money fans. We ride at dawn to head off the latest varmint aimin’ to derail the American economy.
It’s dastardly and wily and deadly and it’s ... a mobile phone app?
Whoa, hold up, pardner. I think it’s safe to head back to the bunkhouse.
Yes, that hue and cry you heard right after the Super Bowl was aimed at Rocket Mortgages, a new Web and smartphone app from Detroit’s very own Quicken Loans that allows people to apply for a mortgage. The app is designed to cut down on paperwork, verify borrower information directly from online databases and banks, and then let applicants know in a few minutes if they’re qualified to borrow, how much, at what rate and what it’ll cost.
The ad touted the economic benefits that come when people buy houses, such as increased spending to furnish, decorate and maintain their homes. To some analysts, the high-tech loan application equals destruction and mayhem.
Sound the ‘economic alarm bells’
Neil Irwin of The New York Times called it “The Super Bowl ad that set off economic alarm bells.” A Washington Post writer tweeted, “Rocket Mortgage: Let’s do the financial crisis again, but with apps!” Ben Shapiro, editor-in-chief of DailyWire.com, posted, “This commercial is making an excellent case for a massive real estate bubble. It worked awesome in 2007.”
All this hooting and hollering is overblown. It’s also well-deserved.
Quicken is right on the economics — getting a house does help the economy. According to the National Association of Realtors, each individual home sale generates more than $52,000 in economic activity. And anyone who’s been through the mortgage wringer will admit the process really ought to be easier and faster.
At the same time, Rocket Mortgage checks borrowers’ credit, confirms their employment and salary, looks at bank accounts and doesn’t change any of the new, stricter underwriting processes for loans. And after the initial loan approval, borrowers still will need to sift through the multiple cost disclosures, warnings and three-day waiting period to review terms and costs mandated by law.
“The message of the ad was let’s take away some of the hurdles that cause people not to proceed with a mortgage,” said Quicken Loans President Jay Farner, “so that more people who qualify might refinance their homes and save money or think about buying a home.”
So we won’t be riding out “The Great Mortgage Bubble: II” anytime soon, at least not on account of Rocket Mortgage.
Bubble, bubble, foreclosure trouble
Where the critics are right is in their anger, which isn’t aimed solely at Quicken but also at the failures of regulators to protect borrowers before, during and after the housing implosion.
While Quicken didn’t write the worst kind of junk subprime mortgages at the height of the mortgage lunacy, the company offered plenty of dangerous and irresponsible loans, hawking some of them in an unrelenting stream of TV and radio spots. Those included “liar loans,” for which borrowers simply wrote down an income that never was verified, and Quicken’s “Secure Advantage” loan, for which borrowers could make payments so minimal that the balance of the loan actually increased each month.
We all know what happened next: The foreclosure crisis led to a financial crisis that caused layoffs and more foreclosures, even for the most responsible borrowers in sensible loans. The lenders kept all their billions in fees, while regulators and politicians bailed out the banks and left homeowners to drown.
Today, we’re still paying the price. There are 6.4 million homeowners who still owe at least 25 percent more than their homes are worth, and the percentage of Americans who own homes not only dropped during 2015 but is stuck at the lowest level in 21 years. Meanwhile, the people who helped create it all appear mostly unscathed, including Quicken Loans Chairman Dan Gilbert, whose net worth of $3.3 billion keeps him safely ensconced on the Forbe’s billionaires list.
So you can’t fault the people who blanch when Rocket Mortgage shows up at the Super Bowl to promise that, “A tidal wave of ownership floods the country with new homeowners who now must own other things.” We’ve been through that before. The difference this time is that if there is a wave of new home ownership, new rules and regulations mean it won’t come from a rising tide of lousy loans.
For the credit-worthy borrowers out there who want and can afford homes but are understandably daunted by the mortgage application process, Rocket Mortgage could be a good product, and getting those folks into a home really will boost the economy in ways we need.
Quicken isn’t doing that out of any corporate sense of guilt or goodwill, but to make money. But at least this time, it won’t come at the expense of the rest of us.