THE MORTGAGE ISSUE
By K.K. Snyder
It’s a whole new world out there in many sectors in 2009, including that of the mortgage industry and the outlook for the coming year. Still feeling the ripple effects of last year’s unraveling of the industry, today’s homebuyers and home sellers will be looking to you, the professional real estate agent, for guidance and reassurance in these unprecedented times.
Fortunately, according to experts in the Chicagoland mortgage field, this year is full of possibilities for those agents willing to move forward under stricter lending regulations and requirements.
“Finally, we are going back to the basics in this business,” says David Kasprisin, AVP, home loan manager for Countrywide Bank. “When I first came in, Realtors worked hand in hand with their lending partner; working together on joint marketing and by making sure that borrowers who could get a loan got the one they deserved. Having an established lending partner is probably the most important thing that an agent can do in 2009.”
In these times, it is imperative that your lending partner have a wide array of products to offer. In addition, working with an experienced and well-qualified originator and processing team will go a long way in clearing some of the challenges faced by today’s borrowers, as will working with a lender with control of the underwriting. Recommending such a lender to your client will prove invaluable to your return and referral business, says Howard Ackerman, SRVP mortgage division, Fifth Third Bank Chicago.
“I think the theme in our business today is full disclosure and suitability. Clients should be prepared for lenders to be much more deliberate and thorough in the underwriting process,” Ackerman says. “Encourage your clients to organize their information prior to meeting with your [lender] so that the process goes faster and smoother for them.”
As always, requiring that your clients be pre-approved and getting a commitment from a direct lender up front will save valuable time for both agents and clients, adds Ackerman, who sees the mortgage industry across the board returning to earlier philosophies of protecting clients from entering into loans that are not well-suited for them.
Also, you shouldn’t just accept a basic pre-approval nod, says Victor Ciardelli, CEO/president of Guaranteed Rate. Insist on a full approval process, with credit reports, income verification and other detailed documentation being pulled up front.
Marc Churchill, VP of National City Mortgage, a division of National City Bank, agrees that the industry is returning to old school routines of requiring borrowers to show basic documentation such as pay stubs, tax forms and bank or asset statements up front.
“There are some situations when all that documentation is not called for, but the industry is reverting back to a full documentation world,” he explains. “That’s the way it was when I got in the business. As lenders started to roll out the low income and no income verification loans, documentation went down the drain. Obviously, we’ve seen how those loans have not performed well so we’re collecting everything up front. The days of no documentation are done.”
Among the tips Churchill offers is a special note to self-employed borrowers, for whom he says the days of having their cake and eating it too are also done. He says that because a lot of self-employed people don’t show their accurate income on tax forms, those in the market for a house need to understand that the amount they show on their taxes is what the lender will consider as income verification when writing a loan.
“So if they want to qualify for more house, they’re going to have to show more on their taxes,” he says.
Ciardelli says his company focuses on doing business with the top-producing Realtors in the city. He says last year’s fiasco hasn’t hurt his company’s business in the least. In fact, they wrote over $500 million in loans in Chicago during the first week of January and are looking at possibly topping $2 billion companywide for the month of January.
“We have the ability to get financing with three percent down with as low as a 580 credit score,” Ciardelli says. “The assumption is that there is no product out there and it’s completely false …This is the time for every licensed real estate agent to call everybody they know and say, ‘This is it. We’ve hit the bottom, let’s go. Prices are low, there are a ton of products available and interest rates are at a historic low.’”
According to experts, there are no new laws negatively affecting homebuyers that resulted from the troubled industry of the past year. If anything, adds Ciardelli, the government is getting more involved now to loosen things up and offer buyers more options than ever.
“It’s been a positive change. The government, instead of being more restrictive, is being more progressive to get buyers into homes,” he says.
Other changes which do affect the homeowner, however, are the risk-based pricing as it pertains to credit scores and property types, adds Churchill, noting that lending guidelines have changed dramatically with regard to loan to value guidelines, credit report guidelines and value changes.
Also under more scrutiny in today’s mortgage industry is the appraisal process, which now calls for more distance between the loan originator and the appraiser, continues Churchill.
When an originator and an appraiser are too closely connected, “studies show an area that could lead to misinformation,” Churchill says. “It’s better to have independent appraisals of property. That’s going to affect us further into ’09 and Fannie Mae and Freddie Mac changes along those lines will happen in May 2009.”
As this article was being prepared to go to press, 30-year fixed interest rates were at 4.75 percent, according to Ciardelli. As to how much lower they would go, he couldn’t say, noting that agencies such as Fannie Mae and Freddie Mac have reported rates that are within the lowest range now.
“Don’t wait for the bottom,” warns Ciardelli. “It’s hard to pick the bottom with interest rates where they are. We’re at historic lows now so it’s important to get [clients] off the couch and buying. If they think they’re going to wait for some magic number to appear, it’s more important to get people buying now.”
Other ways to get your clients motivated to buy in this market include special incentives that many lenders offer, including low down payment loans and incentive loans offering a one-eighth lower interest rates for borrowers purchasing a home.
“I honestly think this is the year more buyers are going to be able to find approval. With the new administration coming in, they’ll be putting a bit of money in a massive public works program and putting more money into our economy, which means more jobs and more approval for buyers,” says Ciardelli, noting that the government continues to come up with innovative ways to help buyers find financing. “We’re moving in the right direction.”
Obviously, with interest rates at their lowest in 50 or 60 years and real estate values continuing to drop, those with the credit rating and income to do so would be smart to buy now. Make your clients aware so that they can take advantage of today’s market and these advantages. As to how the industry will be different in 2009 following last year’s mortgage debacle, an increase in regulations is clear, says Kasprisin. Changes also affect the qualifications of a preferred lender.
“Partnerships and preferred lender relationships need to evolve with the new environment,” says Kasprisin. “Previously, a lot of [preferred lender rules] were set up by whoever was the highest bidder since most deals would get approved by most lenders. Now, that has changed. The most deals will be approved by the most knowledgeable lenders. Knowledge is power and currently we are getting deals done that other lenders have not had the expertise to close. A year ago that might have been unheard of. Being able to close isn’t something that just anybody can do in this environment.”
Ciardelli agrees, adding that the top lenders are taking advantage of pricing and products whereas others in the industry just aren’t. “Those big lenders are being selective of who they are giving that better pricing to,” he says.
Another change agents will find in 2009 is the number of lenders still in business, following a significant number of closings and consolidations in the past 12 months. “It’s the natural progression as weaker companies get purchased by stronger ones,” says Kasprisin, whose company was purchased last year by Bank of America.
Among those out of business are American Home Mortgage and Washington Mutual, as well as other big players in the financial industry, such as Bear Sterns and Lehman Brothers, while other companies have merged, such as the National City and PNC merge and Wachovia to Wells Fargo. As to the future of the mortgage industry, Ackerman is hopeful about the upcoming market.
“I truly believe that 2009 will be the year in which we begin the turnaround,” says Ackerman. “I expect the purchase market to be much more vibrant than many people predict. All of the elements are in place for a solid 2009, leading to a full recovery in 2010 and beyond.” C.A.
SRVP, Mortgage Division
Fifth Third Bank Chicago
National City Mortgage
AVP, Home Loan Manager
Countrywide Home Loans