IMBs Rethink Product Offerings

PALM SPRINGS, CALIF.–With the Mortgage Bankers Association forecasting a drop in mortgage originations in 2017 ($1.6 trillion, compared to $1.9 trillion in 2016), and shifts from a refinance market to a purchase market, it’s time for independent mortgage banks to regroup and re-strategize.

“With the markets changing, you’re going to have to rethink what products you offer and how you offer them,” said Tamara King, MBA vice president of residential policy and member engagement here at the MBA Independent Mortgage Bankers Conference.

For example: “There’s nothing new about an FHA 203(k) renovation loan, but it’s worth a new look,” said James Bopp, national correspondent sales manager with Platinum Home Mortgage Corp., Clifton Park, N.Y.

A recent Joint Center for Housing Studies at Harvard University study forecast 8 percent growth in 2017 and beyond. “The home improvement industry is a $321 billion a year business in the United States,” Bopp said. “Here you have a segment of the economy that is growing faster than the economy at a time where traditional loan programs are declining.”

Bopp noted the TILA/RESPA Integrated Disclosure rule, also known as “Know Before You Owe,” has resulted in fewer people in the market and more lending opportunities. “We see opportunity in lenders finishing off partially completed new construction, adding features that make these new neighborhoods more attractive,” Bopp said.

Other opportunities target older neighborhoods that have foreclosed homes, also known as “zombie” properties. “People, particularly Millennials, are looking for bargain properties,” Bopp said. “When you have a lot of student debt and with rents rising, Millennials are going to embrace these properties.”

Bopp added that these types of loans allow lenders to differentiate themselves from the competition–even eliminating competition. “There has always been a market for renovation lending programs,” he said. “You have to take advantage of it. Once you ensure your reputation in your market, you will get referrals and repeat business.”

Sherrie Koehler, FHA credit policy manager with New American Funding, Tustin, Calif., said the low-to-moderate income borrower market, while risky, can generate strong returns.

“Know what you’re talking about; know where to go and know your resources,” Koehler said.

New American defines low-to-moderate income households as those on average between $60,950 (single) to $145,350 for a family of four. This represents 61 percent of the population of Los Angeles, or nearly 2.250 million people. Even in posh Palm Springs, the location of this conference, 48 percent of the population (21,500) meet this threshold.

“Many of these potential borrowers are from multi-generational households,” Koehler said. “We work hard to make sure that there is a documented paper trail and clear guidelines regarding income, gifts and credit. We see a lot of families where everyone is contributing to the purchase.”

“Our default rate on these borrowers is surprisingly low,” Koehler added.

Dan Perl, CEO of Citadel Servicing Corp., Irvine, Calif., said in this “ultra-cyclical” market, it’s time for lenders to dig in to a product that’s always been out there–the non-prime/non-Qualified Mortgage market. He said done right, the non-prime market can be very profitable.

Citadel offers three loan products–Non-Prime; Maggi Plus (Alt-A); and Outside Dodd-Frank, with loan amounts ranging from $75,000 to $3 million, with FICO scores as low as 500, for full 30-year terms.

Perl estimates the non-prime market at $120 billion. “And that might be low,” he said. “The higher rates go up, the less people qualify for Fannie and Freddie loans. If you can pay your bills, we can offer you a loan. What you need to be thinking about is how you can access this market.”

One way to manage risk in this market, Perl said, is no automated underwriting. “You have to take the time to learn about your borrower; you can’t do this with automated underwriting,” he said. “It’s a time-intensive process designed to minimize risk.”

Perl said he has “plenty” of competition. “There are five or six others out there,” he said, “but there’s a home for these loans. You can it and ignore this product, and I’m fine with that. I have 3,600 brokers who are willing to take on the business–and take money out of your pocket.”