You don't need Steve Hops to tell you things are rough in today's mortgage banking market. However, Hops, the senior vice president and national production manager for Guild Mortgage Co., noted there is more than a little deja vu under way.
‘This is the largest credit crunch I've ever seen in my career,’ said Hops, speaking at the recent Western Secondary Market Conference sponsored by the California Mortgage Bankers Association (CMBA). ‘I used to hear that there was a credit crunch back in the 1970s, and the warehouse lenders would call you up and say, 'Hey, can you please clear out your warehouse line?' I couldn't even relate to that – how could they be so shortsighted?’
‘Well,’ he continued, ‘that's what is going on these days. People are saying, 'We're exiting the warehouse business – clear out your warehouse line.' And unless your company has a good, solid relationship with warehouse lenders, you are in trouble.’
Addressing a CMBA conference session titled ‘Niche Products,’ Hops pointed out there was at least one area of origination activity. ‘What's hot right now?’ he asked rhetorically. ‘Branch managers tell me that anywhere from 20 to 80 of the listings are real estate owned (REO). They get multiple offers on them – up to 20 – because they are priced to sell.’
Hops added that the REO offerings can provide originators with a ‘new base’ of potential borrowers. ‘What we need for that new base are first-time home-buyer programs and creative financing vehicles.’
Two California entities – a state-run agency and a private-sector correspondent lender – are already full-speed-ahead with that notion. For the California Housing Finance Agency (CalHFA), there is no shortage of new business opportunities. And for the CitiMortgage program associated with the California Public Employees' Retirement System (CalPERS), a special niche relationship is enabling a steady flow of revenue.
Welcoming new borrowers
CalHFA was created in 1975 as the state's affordable housing bank to make low-interest-rate loans through the sale of tax-exempt bonds. CalHFA is financially self-sufficient and is supported by revenues generated through mortgage loans, not by taxpayer input.
According to Sherri Kerth, CalHFA lender account manager, affordable housing has become a new niche market to plumb – or at least in California, where she sees ample opportunity for loan origination amid the state's troubled market.
‘It is the return to the first-time home-buyer market,’ she said. ‘We have been experiencing a phenomenal number of loan reservations, and that is very exciting to us. There is business out there to be made.’
{OPENADS=zone=7}As an affordable housing entity, CalHFA has been working with federal government loan programs. The evaporation of the private-label market has made these programs increasingly popular – and CalHFA's cred has also seen a boost.
‘We buy conventional Federal Housing Administration (FHA), Veterans Administration and U.S. Department of Agriculture rural home loans, both at a wholesale and retail level,’ she added. ‘If you are a wholesaler, there are ways for you to get loans to us.’
Kerth noted that CalHFA has been ‘experiencing record loan reservations’ and credited 100% financing as the power behind this activity. Based on her agency's experience, she urged lenders to actively consider pursuing this niche.
‘The first-time home-buyer market is largely untapped,’ she said. ‘It is sitting there waiting for somebody to come and do business. Our lenders that have been doing it are swamped with business right now.’
Correspondent niche
Most people may not associate correspondent lending with niche products, but CitiMortgage has found a lucrative exception. The company is the manager of the CalPERS Member Home Loan Program, and in this capacity, it sets interest rates, designs and coordinates program guidelines, and provides training and final approval for participating lenders. According to Steve Justice, regional manager for CitiMortgage's CalPERS operation, this has been a win-win situation.
‘We have a number of loan officers who specialize in the program and consistently fund in excess of 100 CalPERS loans each and every year,’ he said. ‘We have about 32 approved lenders, and we are always looking for lenders who would like to get approved and like to get involved.’
Reaching a wide audience of potential customers within the state's retirement system, CitiMortgage has aggressively marketed the program. The result has been strong.
‘We advertise to all of the CalPERS members in the state constantly, on a regular basis,’ he said. ‘They call our office in Sacramento, and we turn these into leads. Literally, tens of thousands of leads are sent out to loan officers."
Justice added that one of the key factors in bringing in new borrowers is the diversity of product offerings. Unlike the CalHFA experience, CitiMortgage is reaching the full span of today's socioeconomic spectrum.
‘Keep in mind that the program isn't just for first-time home buyers,’ he continued. ‘It is for people who would like to refinance. We do jumbo loans of up to $1.6 million-plus. It is not just a program for a first-time home buyer that only does FHA or conforming loans. Many CalPERS members just happen to be married to somebody who might make enough money to qualify for that million-dollar loan.’
Justice also noted that CitiMortgage was uncommonly prescient by insisting on a certain aspect of its loan process. ‘Our loans are full-doc loans,’ he said. ‘Over the past five years, up until about a year ago, this was hurting us. Everybody said that if we just offered stated-income loans, we could get more production. We said that CalPERS members were kind of unique – my gosh, they have jobs, and they can document their incomes.’
Justice observed that this decision ultimately proved correct when the state of the industry chagned. ‘Towards the end of 2007, we saw commitments triple in the last six months of the year,’ he said.
Even better for CitiMortgage, he concluded, the program has not seen the foreclosure chaos that has damaged much of California's housing market.
‘A couple of weeks ago, CalPERS asked to run a report on how many of the loans in the last five years had to be repurchased,’ he said. ‘We ran a report…and came up with nothing.’