John Robbins, the veteran mortgage executive who retired from Wachovia Corp. last week, said there are plenty of "little things" that can be done to restore public confidence in the industry — including several it has opposed.
For example, he advocates requiring mortgage brokers and loan officers to sign a code of ethics saying they must act in borrowers' best interests.
"We lenders have a fiduciary responsibility. It's not a law, but it is implicit, and it should be," Mr. Robbins said in an interview Friday. "If lenders had always put their customers' well-being first, they never would have ended up in this situation."
(The Mortgage Bankers Association, which he chaired for a year beginning in October 2006, has fought legislation that would have created a "suitability" standard for mortgage originators.)
Mr. Robbins suggested other changes to make the industry more accountable to borrowers. He said some of the changes are being debated by various committees of the MBA, where he remains active.
He advocates the creation of competency requirements for loan officers; a national loan-tagging system to trace fraud; and changes to broker compensation that would discourage high-risk, high-commission loans. He also said appraisers should be barred from communicating with loan officers.
"Nobody who earns a commission on a loan — a broker, a realtor, or a mortgage originator — should have contact with an appraiser, so there can be no influence for the appraiser to increase the value of a home," he said. "That's got to stop."
Mr. Robbins, 61, said that when he sold the San Diego wholesale lender American Mortgage Network to Wachovia for $83 million in 2005, he planned to retire in December 2008. He retired as the co-head and special counsel of the wholesale lender, now called Vertice Lending.
A 36-year veteran of the industry, Mr. Robbins also founded American Residential Mortgage Corp., which grew to become one of the nation's largest independent mortgage banks before Chase Manhattan Corp. bought it in 1994.
With the market in a downturn and his background as an entrepreneur, Mr. Robbins said, now is a good time "to sit back and look at the opportunities which always happens in a vacuum." He said he plans to take a few months off until his noncompete agreement with Wachovia ends in December.
As a former wholesale lender, he predicted that the wholesale broker business will come back — with some changes. Brokers will face "a pricing disparity" in the secondary market until they can produce quality loans that match those from the retail channel. "They have to produce a product that is viewed by the secondary market as either less or of equal risk to the retail side."
Mr. Robbins said that he supported the Sept. 7 regulatory takeover of Fannie Mae and Freddie Mac, and that the government-sponsored enterprises should not be dismantled.
Hopefully, Treasury Secretary Henry Paulson "will take a step back and invite industry participants to look at Fannie and Freddie and the long term for the secondary market," Mr. Robbins said.
"What do we really want these two GSEs to do long term? What is their primary mission, and how do we structure them to make sure they add liquidity and stimulate markets of the future?"
Addressing reports last week that the Treasury Department and the Federal Reserve Board were trying to engineer a sale of Lehman Brothers, Mr. Robbins said the federal government should not try save more investment banks from failing.
"The U.S. government can't backstop everything, and there's a limit to what the American taxpayer can insure and guarantee," he said.
"The government is acting like an insurance company, and when these companies start to fail, that they should bail them out is a very difficult call."
He also criticized investment banks for "taking highly speculative positions that banks' regulators would criticize any bank for," as well as for having a "caveat emptor" attitude.
"Investment banks are a bit like gunslingers, and I don't think it's wise to signal that every time an investment bank gets into trouble, they should be bailed out, because it encourages speculation in the future," he said.
Mr. Robbins said he spent his year as the MBA's chairman "in full defensive mode" at a time when the liquidity crisis gripped the industry and 250 mortgage lenders went out of business.
The toughest part of that job, he said, was explaining to members of Congress why mortgage lenders had made so many "no income, no asset" loans.
"I had more than one senator look at me and very nicely ask, 'John, please explain why the industry made these loans,' " he said.
During the lending boom, the industry developed products that were "extremely risky that were pushed by everybody up and down the food chain," Mr. Robbins said.
"We forgot about our customers, and making money and our commission checks were more important," he said.