BLOG VIEW: The other night, I was clicking around the television channels and came upon a program I never watched before: ‘Master Chef,’ which is a strange combination of gourmet cooking, game show competitiveness and back-stabbing reality television machinations. One segment of the episode I watched had the contestants creating a new version of an old-style comfort food staple: tomato soup and a grilled cheese sandwich. The resulting culinary creations ran the gamut from inventive to egregious – but, ultimately, all the would-be chefs did was try to jazz up a meal that stands quite well on its own.
Of course, there is nothing wrong with the concept of comfort food – but when I watch a cooking program, I am interested in seeing something that is new, different and exciting. Dropping lobster meat and funky vegetables into a bowl of tomato soup and substituting exotic cheeses for the traditional slices of American cheese does not necessarily make this lunchtime staple better – it just makes it different.
In a way, this episode of ‘Master Chef’ reminded me of the problems facing many mortgage banking companies: today's onerous regulatory environment and feeble national economy have forced lenders to severely restrict the menu of products they are able to offer. For most lenders, their product menu is fairly limited, and these companies will get a tighter financial pinch if the atrocious proposed terms for qualified residential mortgages becomes the new normal.
However, the situation is not bleak. Lenders can spice up their product menu by taking a new look at a number of older products that can work around the industry's current obstacles while bringing in a wider variety of borrowers.
For starters, consider reverse mortgages. Yes, I know that a few major players in the sector have recently stopped from originating these loans. But their departure has less to do with the viability of the product and is more focused on their own internal aches and pains.
Reverse mortgages have their own challenges – falling property values and limited secondary market opportunities are currently working against the product. However, there is no reason to believe that property values will be in a perpetual freefall or that the secondary market horizon will not expand. And considering the shifting demographics, reverse mortgages would be an ideal product to have in waiting when recovery is finally stabilized.
Also worth considering are biweekly mortgages. In view of the growing desire by consumers to pay off their debts faster, this product seems like the right offering today. From a lender's perspective, the product's benefits include additional cash from float income, setup fees and either annual or monthly administration fees.
Another timely product is the energy-efficient mortgage. This would seem like a very timely product, considering the nation's energy problems. Besides, common sense would dictate that borrowers could afford a larger home if it costs less to operate.
An extra level of paperwork required to pass the home energy rating system created by the U.S. Department of Energy and the Environment Protection Agency has stymied the progress of the energy-efficient mortgage sector. Many lenders find them time-consuming and costly and, thus, have mostly avoided them. However, going the extra distance with this particular product can ultimately prove profitable.
There is also the Guaranteed Rural Housing Loan Program insured by the U.S. Department of Agriculture through its Rural Development program. Don't be fooled by the word ‘Agriculture’ – a community with a population smaller than 20,000 can be considered for this program if it is located outside a metropolitan statistical area.
Last week, American Financial Resources Inc. and Total Mortgage Services announced their respective entries into this program. Clearly, they recognize the product as a great way to expand their footprint. I expect more lenders will follow their lead.
And for lenders in areas where there is a significant Muslim population, there is the possibility of offering sharia-compliant home loans. Sharia-compliant lending is relatively new to this country and is very different from traditional banking practices, so any financial institution seeking to investigate this product further should devote a good deal of time to this effort.
But, ultimately, time is crucial for any lender that wants to continue growing its business in this rough economic environment. Yes, you can stick with the 30-year fixed-rate mortgage – the industry's equivalent of comfort food – or you can expand the product menu further. I know that it will take money to achieve this. But as the old saying goes, you have to spend money in order to make money.
– Phil Hall, editor, Secondary Marketing Executive
(Please address all comments regarding this opinion column to hallp@sme-online.com.)
(Photograph courtesy GalleryWarhol.com)
