PERSON OF THE WEEK: Although the mortgage banking industry has more than its share of challenges, there are still plenty of opportunities to be found setting up leadership positions within niche markets. This week, MortgageOrb talks with Andrew Peters, CEO of McLean, Va.-based First Guaranty Mortgage Corp. (FGMC), about his company's success in niche-market products and services.
Q: Your company has been active in rehabilitation loan programs. What are the advantages and challenges of these types of programs?
Peters: Rehabilitation loans – such as the Federal Housing Administration (FHA) 203k and 203K(s), and Fannie Mae's HomePath loans – really are the hidden gems of the lending industry, especially given the current climate in the world of REO. For a young family or first-time home buyer to be able to walk into any property knowing they can fully renovate it and have the home of their dreams, as well as built-in equity is something most think is unattainable – outside of a miracle to be seen on HGTV. The challenge is the stigma the products carry with them.
Any time you start to include contractors, extra paperwork and the word "renovation," agents become very wary of the process. The key is to deal with people who have taken the time to become experts with the product. If a person had to have hand surgery, would it be more beneficial to go to a general surgeon who does one or two hand surgeries a year, or a hand specialist who does one or two a week? Every agent should have his or her "renovation lending specialist," and each loan shouldn't be much more complicated than any other loan available.
Let's be realistic: Many lenders are taking 60 days or more to close loans anyway, so if you find a good renovation lender that can close them routinely in 30 to 45 business days, you are ahead of the curve. More importantly, you will have a client for life.
Q: Your company is also involved in manufactured-housing loans. Again, what are the advantages and challenges of originating this type of loan?
Peters: The manufactured-housing channel is one of the last true outlets in our country for affordable new housing. Take a few moments to visit the websites of national builders such as Clayton Homes or Palm Harbor and prepare to be amazed at what some have stigmatized as "rural."
The FHA has a program under which a young family can inherit, be gifted or purchase a piece of land and then go to their local home dealer, pick out a beautiful new home and finance the home, which is then placed permanently onto the land with a very low FHA interest rate. Because of the past stigma, many manufactured-home buyers have had to pay interest rates well above the market rate. But if you find the correct lender, you can achieve the dream of affordable homeownership.
The FHA was built on the concept of serving the underserved segment of buyers in our country. There is no better outlet for those buyers than manufactured housing. The biggest challenge for manufactured homes is the lack of financing available. The average credit score has been ratcheted up to 700 and over.
Unfortunately, many of those buyers are not looking at these types of homes because of the unjustified stigma. Therefore, the answer is a concerted effort to teach first-time home buyers about the benefits of building on their own land and making sure lenders are not penalized for lending in a credit range between 620 and 660.
Q: Your company began its own correspondent lending division late last year. What was the genesis of that division, and how has it been received by the industry?
Peters: FGMC rolled out the "Correspondent's Edge" program four months ago to focus on giving our clients access to niche-based products like 203k, HomePath, and manufactured homes. Many of the companies that now have their own warehouse lines of credit are no longer structured to "broker" loans, although there can be inefficiencies at shops that close 98% of their production in their own name. The access to products such lenders need and the ability to conform to meet their normal business flow was something missing from our industry.
The response has been fantastic, and our channel is growing each month. With Bank of America having a huge market share of 203k's and then closing shop just as the product became a real hot-button product, it was necessary for multiple smaller players to jump into the mix. The key for FGMC has been a controlled growth process. We took six months to structure our flow, website, pricing, and the like. We did that to maintain our service levels. Now a client of FGMC's can send loans to be closed in our name, sell us closed loans, or sell us mini and bulk pools of loans.
Q: One niche product that you are not offering is the reverse mortgage. What is your opinion on reverse mortgages, and is this something that you may consider pursuing?
Peters: The reverse mortgage can be a wonderful product. There are many specialty lenders that do it very well. My mind-set has always been to focus on the niche products we know best and to do them well. We are also committed to managing our growth to ensure that our existing customers don't lose out at the service level as we expand. Considering the number of new lines we have put into the market, and our existing makeup, reverse mortgages really are not on the FGMC agenda right now.
Could we put a platform together and get something rolled out? Of course we could. But it would be a disservice to our clients and their borrowers. For the present and near future, our strengths lie in other products, and we'd like to focus on those first.
