Foreclosures. Failed lenders. Subprime fallout. It’s enough to give anyone in real estate nightmares.
But several local mortgage brokers and bankers said they’re not panicking.
“It’s still a great market,” said Drake Delich, Branch Manager at First Horizon Home Loans in Vancouver. “There are still good buys, and there are still people looking.”
Delich admitted the mortgage business has slowed, and Jim Slaight, owner of Vancouver-based LoanSource Funding LLC, said his year-to-date loan originations are down about 25 percent over last year’s.
And a few mortgage firms in Vancouver have gone under, including Choice Equities Inc., GMAC Commercial Mortgage, and most recently, U.S. Funding Group.
These figures shouldn’t be a surprise, said Jeff Bannan, branch manager at Vancouver Mortgage.
“Things really haven’t changed,” Bannan said. “Credit is tightening up, and we’re going back to the way I learned how to lend.”
Ivan Jensen, president and chief executive officer of Prestige Mortgage in Vancouver, said “lenders allowed a lot of unqualified people to buy houses.”
And when this tendency to “lend to anyone with a pulse” collided with an overbuilt market, the current fiasco was born, said Meg Foster, a loan officer at HomeStreet Bank.
“We all knew this market was coming – we just didn’t know it would happen overnight,” said Ken Perry, president and CEO of Vancouver-based Broker Knowledge Group, which provides continuing education and marketing seminars for mortgage brokers.
The mortgage market used to boom and bust every six months, Bannan said, but the period since 2000 has been unusual, in that the cycle was extended.
“If all you’ve seen is since 2000, you really haven’t lived the mortgage business,” Bannan said.
Staying strong
There are several strategies that successful mortgage companies have relied on to stay healthy during slower times.
Representatives from such companies weighed in on their approaches.
Minimize risk
Smart mortgage company executives limited their exposure to the subprime market, which turned out to be much riskier than anticipated, Delich said. Identifying and concentrating on strengths is critical, Bannan said.
Build relationships
One of Slaight’s main challenges has been to rebuild clients’ trust in the mortgage industry.
Rich Golze, vice president of Vancouver-based New America Capital, said strategic alliances with Realtors, appraisers, attorneys and financial planners helped his business stay strong.
“Relationships are very important,” Bannan stressed.
Diversify
In addition to simple mortgage brokerage services, Golze’s firm offers reverse mortgages, debt consolidation and builder services, where special financing incentive packages are created for new construction projects.
Similarly, LoanSource Funding offers clients more services than mortgages – such as property management services, buying and selling real estate, and a new mortgage acceleration software product.
“You have to look at the other aspects of the real estate industry that are complementary and best for the customer,” Slaight said.
Offer government-backed loans
Being approved to offer Federal Housing Administration and Veterans Affairs loans is another key point to being successful in the current mortgage environment.
“The FHA was out of favor during the boom, but now it’s back to being king of the hill,” Slaight said – especially for first-time home buyers.
Be informed
“Knowledge will set you apart,” Perry said.
Washington recently implemented testing and continuing education requirements for mortgage brokers, hoping to filter out uneducated, unmotivated brokers.
Jensen, who served on the commission that wrote the new testing law, said in 2007, before the test was required, 13,000 loan originators sent in license requests.
This January, only 5,800 renewed their license, he said.
Golze said the 14 people on his staff either were in the process of getting or had achieved a Certified Mortgage Planning Specialist certification.
Hone your business model
Choosing a business model that works for the company and the client is key, whether that’s a home office or a “net branch” approach like that used by Prestige Mortgage. Prestige’s main office is in Vancouver, with 16 offices in Washington and more than 30 in several other states.
Target your customers
Although overall Clark County shows a decrease in housing sales volume, a region-by-region look at the county paints a different picture, said local appraiser Chris Young.
“If you take out the foreclosed homes, only certain areas are losing value – such as Ridgefield, Camas and Washougal,” he said.
In places like Battle Ground, new homes are being quickly absorbed by a 14 percent population increase, Young said.
Growth despite concerns
“We’re growing like crazy,” Jensen said.
Prestige has added 25 net branches since September, and counting income from the net branches, “this year will be our biggest year ever – and next year will be even bigger.”
Young, who often provides appraisals for pending sales, also was upbeat.
“I don’t see the downturn – my office is very busy,” he said. “It’s only a down market for overbuilt and overpriced areas.”
New America Capital has added three staff members in the last six months, Golze said. “Rates are dynamite, and those companies who build their business and treat people right are doing really well,” Perry said.
The impact
If at least some mortgage companies are prospering in Clark County, what does that mean for the rest of the local real estate and development industry?
“The market is going to go down until a police officer married to a teacher can buy a house without a stated-income loan,” Perry said.
Then it will start to recover.
Perry expects that to take 12 to 18 months.
In the meantime, Foster said residential builders in the first-time buyer market will struggle. Similarly, jumbo loans – above $417,000 – will be somewhat harder to obtain and less cost-effective, Slaight said.
The high-end housing market – homes worth more than $700,000 – continues to be relatively strong, Foster said.
“Subdivision builders must look at the price range, how long the houses will be on the market, what the buying pool is – and think about incentives,” Slaight said.
MORTGAGE INDUSTRY FACES A SLEW OF CHANGES
Besides the recently implemented state regulations, the mortgage industry – which is already regulated by ten federal laws and five federal enforcement agencies – is facing some significant changes on the national level as well.
As it stands, fee disclosure rules differ for mortgage brokers and bankers, and whether that’s a good thing depends on who you ask.
Most brokers, like Slaight, claim mortgage bankers have an unfair advantage in that they don’t have to disclose fees the same way brokers do.
But bankers, like Delich, claim the differing rules exist for a reason.
One thing is for sure – everyone will have new rules to digest in the near future.
Among the proposed reforms are broadening the definition of what constitutes a mortgage broker to include everyone who originates loans, including mortgage bankers, and changing how fees are disclosed to consumers.
The U.S. Department of Housing and Urban Development oversees the Real Estate Settlement Procedures Act, and estimates the new disclosures will save consumers an average of $668 at the closing of a loan – a whopping $8.35 billion per year, mostly by reducing what HUD sees as high-origination fees and yield spread premiums.
In other words, by reducing the loan originator’s income.
Other real estate sectors that would be affected by the changes include third-party settlement service providers, such as title agents, appraisers, surveyors and pest inspectors.
Initial compliance with the new rules is estimated to cost the loan origination industry $407 million, and recurring compliance costs will add almost $100 to every loan made.
“It will make it more interesting for brokers to compete, but it’s really about explaining to the client what costs are associated with the mortgage,” said Rich Golze, vice president of New America Capital who recently took part in a RESPA reform teleconference.
Adding to the confusion, the Board of Governors of the Federal Reserve System has proposed amending Federal Regulation “Z,” which implements the Truth in Lending Act and the Home Ownership and Equity Protection Act.
The proposed changes include requiring brokers – but not bankers – to disclose the specific dollar amount the broker earns from the transaction (which, according to Foster, can be as much as $3,500 on a $200,000 loan). Many brokers, including the National Association of Mortgage Brokers, are not in favor of this proposed change.
“It will limit our ability to access loans,” said Ken Perry, president and CEO of Broker Knowledge Group.
Other changes on the horizon include a proposed federal Mortgage Origination Commission, a national registry of loan originators, national examination and criminal background checks, and possibly laws that make certain types of loans illegal.
Legislation will affect the future of the mortgage broker industry, and the real estate industry as a whole, Perry said.
“Product legislation could delay our recovery,” he warned.
