PERSON OF THE WEEK: No one ever said that mortgage origination was an easy job, and the problems facing the industry have made it even more challenging. This week, MortgageOrb talks with Tyler Osby, branch manager and certified mortgage planner with Fairway Independent Mortgage in Urbandale, Iowa, and editor/publisher of the WealthWithMortgage.com blog, about issues and concerns facing today's originators.
Q: What do you see as the greatest business challenges facing today's mortgage originators?
Osby: I think the largest challenge for loan originators right now is being adaptable. The rules have changed and continue to evolve. Loan programs are changing, legislation is adding layers to the process and things aren't what we know and have become comfortable with.
Loan originators that aren't willing to change their old way of doing business will become irrelevant and leave the business. It's too bad, but it also shows who's passionate about what they're doing.
Q: You recently commented on your blog that new housing starts are good for buyers and bad for sellers. Please explain what you mean by that.
Osby: Determining if a market is good for buyers or sellers is pretty easy. If there's more inventory on the market than there are buyers, it's a good market for home buyers. They're in a better position to negotiate the terms of the real estate offer – things such as the purchase price, seller paid closing costs, etc.
If there is less inventory on the market, it's good for sellers, because there's less competition. They can demand a premium for their home.
To expand on this, a ‘balanced’ market is six months of inventory. This means that if no additional inventory came on the market, it would take six months of sales (based on the current number of monthly sales) to absorb the number of homes currently on the market.
If there is less than six months of inventory, it's a seller's market. If there is more than six months of inventory on the market, it's a buyer's market.
Currently, I can say with a pretty high level of confidence that most of the U.S. is in a buyer's market. But remember, real estate is local. Des Moines, Iowa, is currently a much more balanced market than, say, markets in California or Florida.
Q: The economy in general, and unemployment in particular, continue to be problematic. What effects will this have on the recovery of the housing markets?
Osby: I think that unemployment is a serious issue for the economy. With Americans not sure if they'll have continued employment, it makes it tough to make larger purchasing decisions. I've personally had clients that decided against buying a home simply because they're afraid of losing their job.
Fortunately (for a loan originator, at least), there are always buyers and sellers. People have to relocate because of work, upgrade due to a growing family or even downsize because kids are moving out. There's always a market – you just have to look for it.
Q: The Federal Housing Administration (FHA) showed signs of financial strain throughout much of 2009. What is your view on the agency's stability, and do you see its health recovering or getting worse in 2010?
Osby: I'm going to make a very unpopular statement here: I think that the FHA needs to change their ways quickly. I don't think its down-payment requirements are a problem, but they are extremely lax when it comes to debt-to-income ratios and credit scores. Raising the minimum credit score to 640 would get rid of a lot of its problem loans.
I'm not sure how ugly it will look in the third quarter of 2010, but I assure you that it will be ugly. With all of the guideline-tightening from Fannie Mae and Freddie Mac, the trouble loans were going to FHA. Up until the second quarter of 2009, FHA was doing cash-out refinances up to 95% loan-to-value. If that doesn't spell trouble, I don't know what does.
Again, it's not popular – but it is true. FHA is a great program, but it's never been meant for everyone. Originators will be reminded of that later on in 2010. I'd start preparing for those changes now, because they are coming.
No worries, though, because FHA will get the money it needs to continue originating loans. It will just have a very abrupt and painful change in guidelines in the process. This is another reason why I think holding off on getting a loan as a consumer is a bad choice. You very well could qualify for a loan today and no longer be eligible later on in 2010.
Q: What are the key areas of focus for your business this year?
Osby: I'm a big believer in education. The more I can teach consumers that are willing to listen, the better business will be. First-time home buyers have a lot of unanswered questions and, more importantly, are convinced the world's falling apart. As long as they are making an informed decision and have a strong foundation financially, they'll be completely capable of owning a home.
Move-up buyers are also going to be moving in droves. I've found there is a lot of misinformation on the new $6,500 tax credit. I'll be spending a lot of time talking about this with Iowans who need the direction.
Bottom line: I'm going to focus on talking with consumers who both have the financial capacity to own a home and are looking at making responsible decisions. If they're skeptical, they're probably a good prospect. If they're knocking down your door and calling every five minutes, they're likely to become a contributing factor of the collapse of FHA.
Ask any originator. We would rather take one skeptic over five phone re-dialers. Questions are a sign of savvy and motivated consumers, and I plan on making 2010 a year for serving the skeptics.