Will the Mortgage Industry Follow the Likes of the Airline Industry?

With all of the lenders falling apart right now and the troubles that have shown their ugly head at Countrywide, I fall back to my first career as an airline pilot for guidance.  Yes, troubles have been nothing new to either industry and the cycle of turmoil that affected airlines over the last two decades have similarities to that of the mortgage market meltdown.

Since the late 1980s, airlines had been both down, up, and down again with them now returning an upward trend.  During this time frame, multiple "big name" airlines, as well as smaller air carriers, have gone under or merged into other airlines.  Names like Pan Am and Eastern disappeared from the airways.  Others like TWA and USAirways have been bought out and merged into other airlines.  A few, like United, Northwest and Delta have gone through the bankruptcy process, reorganizing into smaller, more competitive carriers. 

American Airlines arose as the only legacy carrier to avoid the bankruptcy process.  Meanwhile, Southwest Airlines and many newer "low-cost" carriers like Jet Blue gained ground on the heels of 9/11.  The most interesting correlation between the two industries can be found in the recovery of the airlines from such a disaster as 9/11.

After 9/11, the airline industry came to a screeching halt (basically no flights for several days).  After several days, flights began again, but fear kept passengers from traveling and so planes flew empty.  It took months before the fears of traveling by air subsided and passengers began to return.  So many changes happened in record time, not even the governing agencies could keep up with them.

Time passed, forward several years later, and what has happened?  A few more airlines are gone, consolidation has occurred, major cost cutting has developed and the industry adapted.  Now, we are seeing record numbers of passengers traveling, load factors are through the roof, and even profits can be seen again.

So, how similar is it to what is happening in the mortgage industry.  The similarities are amazing.  While it isn't a 9/11 type event, the current liquidity crisis is having major impacts on the industry.  We have already seen many "big name" lenders fall and many others are rushing to protect themselves just like happened in the airlines.  We will likely see more lenders fall in the future as well.

But look again at what happened to the airline industry.  Several airlines stepped up to fill the gaps as the dynamics of the marketplace changed.  Those that were not well prepared for the change faced bankruptcy or went under.  Some were lucky enough to get merged with someone else saving many jobs in the process.

We will likely see the same things, or at least similar changes, happen over the next few years, but rest assured, other lenders will fill in the gaps, new lenders will form and the industry will recover, just like the airlines did.