Springfield, MO

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A Conversation With ... Michael Frerking

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Tell us about Liberty Mortgage.
Liberty Mortgage has been here since the inception of Liberty Bank in 1995. Liberty was very much into the growth of the bank, and saw the opportunity in secondary market mortgages. Right now we have a staff of 24 – 16 loan officers and eight support staff. We do conventional loans. We sell the servicing on our loans, so we don’t handle them in-house. Our average loan amount is probably around $150,000, and probably about 40 percent of our loans are government loans such as (Federal Housing Administration and Veterans Administration). We get a good portion of first-time home buyers, right around 25 percent.

How has loan availability changed?
There’s still plenty of money available for home loans. The criteria has changed, which makes it a little more difficult. As I mentioned, our mix is about 40 percent doing government loans, whereas two or three years ago, they would have done the conventional loans. And it’s because there’s more stringent credit criteria, loan-to-value and down-payment requirements. The days of 100 percent conventional loans or 97 percent conventional loans are gone. You have to have at least 5 percent, if you want to do a conventional loan, of your own funds. So that’s moved the demographic more to FHA buyers.

What kind of homes are available with FHA financing?
The maximum FHA loan limit in this area is $271,000, so a lot of homes in this area will go FHA. FHA’s not a restrictive loan. It’s not a first-time home buyer loan. You need 3 1/2 percent for a down payment to get in. I don’t want to give the impression that it’s free and easy money, but the criteria is more lax than it would be on a conventional loan as far as ... credit scores.

From your perspective, what constitutes a good credit score these days?
For conventional financing, if you’re not putting 20 percent down, you’re going to have to have a score above 680. And that’s where it moves people into FHA. (The Department of Housing and Urban Development) will not come out and say, “We have a minimum credit score” but most lenders want credit scores no lower than 620, and some won’t take a score less than 660. Even on a conventional loan, you may have a 700 credit score and qualify for financing, but because of your credit score being 700, you may pay a slightly higher interest rate than someone who has a 780 credit score. So I would say you’d want to have a credit score in the 700 to 720 range.

Interest rates were at 4.875 percent May 25. What do you think has kept them low?
What kept mortgage rates so low for the first part of this year was that the government was actually buying up mortgage-backed securities (which) kept demand high and in turn kept the yield down. Indirectly it does affect long-term rates, which are always going to be based on the bond market. The reason rates right now are so low is because of everything that’s happened in Europe and the stock market. When the market has horrible days … people flee (it) and go to the bond market. (If) you have all these people coming to you saying, “I want to buy bonds,” you lower what you’re going to pay out … and that actually lowers our long-term rate. And when people run to the stock market and pull money from bonds because stocks are performing well  … it will raise what bonds are paying. And when they raise that yield, it raises long-term interest rates. … Bonds hate inflation, so any inflationary information could spook rates, and the rates will jump up. We’ve been very fortunate for a very long time.

What has kept you interested in mortgage lending?
You’re helping someone obtain a house, and it’s very fulfilling. The thing is to look at it as an actual individual or an actual family. You’re helping them facilitate probably the largest purchase they’ll ever do in their lifetime.
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