The home equity industry has experienced tremendous growth in the 1990s. The growth has provided a critical service to millions of Americans- a service of which we in the industry can be justly proud.
Home equity lenders provide financing for many individuals who would otherwise not have access to credit. We provide a way for them to unlock the value of their homes, and to obtain loans at reasonable rates when the conforming market will not lend to them.
Our loans help borrowers consolidate their debts and reduce their total monthly obligations, get back on their feet after experiencing financial problems, pursue an education, build a business, or otherwise realize their dreams.
Unfortunately, a growing number of community organizers and politicians, looking for a cause that resonates well with their constituents, recently have turned up the volume of their attacks on home equity lending companies as "predatory" lenders.
One of their favorite accusations is that lenders profit when they foreclose on borrowers' homes and therefore there is a strong incentive for lenders to originate loans they believe will be foreclosed. While we in the industry know this to be false, even ludicrous, the idea has gained widespread acceptance through relentless repetition.
As lenders, we need to redouble our efforts to dispel this myth. We all need to be active in attacking the big lies about our industry.
We need to show clearly that all lenders, whether conforming or nonconforming, lose thousands of dollars on almost every foreclosure. We must drive home the point that lenders want to originate good loans to borrowers who are able to pay and that the longer a loan stays on a lender's books and the longer a borrower remains up-to-date in payments, the more profitable the loan will be.
Everybody-the borrower, the lender, the investor-wins with a good loan, and everybody loses with a bad loan. Therefore, our interests are aligned with the borrower's.
Other accusations we have heard are that subprime lenders prey on the elderly and make loans to people who cannot afford them. We need to remind our critics and their audiences that the facts show otherwise. In a study conducted in 1997, it was found that the median age of the home equity borrower is 48, compared to 51 for all U.S. homeowners. The median income of all subprime borrowers was $34,000 compared to $37,000 for all homeowners. In fact, 25% of all subprime borrowers have annual household incomes exceeding $50,000.
It is not enough for us to know ourselves that the industry is misunderstood. We must actively demonstrate that we are on the side of customers. In addition to serving their financing needs in a legal and ethical manner, we must stand alongside those who are genuinely seeking to stamp out lending abuses while at the same time keeping this valuable source of financing available.
Delta is a strong proponent of such initiatives.
In addition to effectively dealing with false accusations regarding how we source our loans, we must look inward and make sure that we have truly learned what I call the Three Key Lessons of 1998: Be conservative. Be conservative. And be conservative.
Obviously, 1998 was a year when the sector went through quite a bit of turmoil. Those who came out of the crisis in good shape, including Delta, did so largely because they made conservative choices in the face of the tremendous opportunities for growth over the past decade.
At Delta, we maintained a strong balance sheet, had strong credit quality and sound collateral performance, stuck to our knitting by not originating unproven products, and continued to conservatively manage our business by not sacrificing credit quality for the sake of growth.
These things are what drew the confidence of investors to continue to buy Delta's asset-backed securities and for the company's lenders to continue to provide-and offer more-warehouse facilities. If not for our focus on originating good loans, we would not have been able to survive the turmoil as well as remaining profitable.
We at Delta truly believe that the future for this industry remains bright. Our 17 years of success through thick and thin shows that a conservative business model, with strict underwriting and a strong focus on credit quality, indeed makes sense. We believe we will profit, and so will our customers and investors. Working with the regulators and legislators in good faith to improve the business will only facilitate the continued success that we believe is in store for this industry.