Mortgage lenders adjust to market changes

Springfield Business Journal’s lists of the area’s largest mortgage lenders bear out those changes.

SBJ compiles two mortgage lists: one for companies dealing with loans governed by the U.S. Department of Housing and Urban Development or the Missouri Division of Finance, Banking Commission, and one for companies dealing with loans governed by the Federal Deposit Insurance Corp.

The biggest change comes at the top of the HUD list. In 2008, the largest company was Mid-Missouri Mortgage Co., which posted $86 million in 2006 mortgage volume.

That company is nowhere to be seen on the 2008 list. Its Springfield-based parent company, Mid-Missouri Bancshares Inc., shut down its mortgage arm in mid-2007, with the bank’s loan processors absorbing some of the lending duties.

The closure, which then-Vice President and Director of Human Resources Thane Kifer called “a more efficient way for us to (operate),” led to the release of 16 loan officers.

The announcement that Mid-Missouri Mortgage would close its doors was unexpected, but bank officials said the closure was unrelated to an ongoing investigation into five former bank employees or the subprime shake-up.

The new top contenders

First Financial Services slid into the top slot on the 2008 list of HUD/state mortgage lenders, with $61.5 million in 2007 mortgage volume, compared to the 2006 volume of $63.4 million that put it at No. 2 on the 2007 list.

First Financial CEO Richard Gammill, CEO of Springfield-based First Financial, said success isn’t easy to find in the current mortgage industry.

“There’s no doubt about it – the mortgage industry right now is tight,” he said. “I talk to banker buddies all over town about it, and they’re crying in their beer. But we can still make hay – we just have to diversify, get a better customer base and work harder.”

The main impact, he said, is tightening credit – the days of homebuyers receiving loans with no money down are going by the wayside.

“It’s going back to the old school – if people don’t have 3 (percent) to 5 percent to put down, they won’t be able to buy a home,” Gammill said. “Personally, I agree with it. If you can’t put 3 percent down on a home, maybe you shouldn’t be buying a home.”

No. 1 on the 2008 FDIC list is BancorpSouth. The bank posted nearly $189 million in 2007 mortgage volume, up more than 4 percent from the 2006 total of The Signature Bank, BancorpSouth’s Springfield predecessor.

Aaron Jernigan, BancorpSouth senior vice president of mortgage banking, said his bank was not as affected by the subprime issues because his bank focuses on conforming loans.

“With a lot of banks and mortgage brokers that did specialize in noncomforming or subprime loans, all of (those options) have been taken away in the last year,” he said.

The No. 1 lender on the 2007 FDIC list was Bank of America, which reported 2006 mortgage loan volume of $200 million. On that list, Empire Bank Mortgage Center reported $339 million in 2006 mortgage volume, which put it at No. 1 on the FDIC list. After the company reported 2007 mortgage volume of $59 million, however, it was discovered that the number reported in 2006 was incorrect. The company’s 2006 total volume was $41 million, which would have placed the company at No. 12.

Effects of subprime

The subprime crisis has impacted nearly every company on the lists, including Ozark-based All Credit Mortgage Inc., which is No. 12 on the 2008 HUD list. All Credit Mortgage posted mortgage volumes of $7 million, down from $8 million posted last year.

President Donna McCallister said the entire mortgage industry has experienced “a tremendous meltdown,” which has made getting loans more difficult and put mortgage companies in a tough spot.

She said companies need to make sure they are licensed to handle loans backed by the Federal Housing Authority, which doesn’t apply the same risk-based interest rates as standard conforming loans that follow Fannie Mae and Freddie Mac guidelines.

“The loan programs that were once available to us are no longer available, and if they are, the guidelines are extremely steep,” McCallister said. “It has forced FHA to be the hot commodity loan program. (Companies without FHA licenses) are the mortgage companies that are either out of business or are hanging on by the skin of their teeth.”

BancorpSouth’s Jernigan said his bank has seen a significant increase in FHA numbers so far in 2008, which he attributes to the attractive nature of those loans.

“FHA loans have taken the place of a lot of the 100 percent financing and low-down-payment loans that have been eliminated by investors,” Jernigan said.

Steve Wagner, vice president of Brown & Wagner Mortgage Bankers-, said that while low-down-payment options exist, the only true 100 percent financed option still available is through the U.S. Department of Agriculture’s Rural Development program. He added that the smaller number of subprime options is positive for the market.

“Twelve or 18 months ago, there were 100 percent financing programs for people with a 580 credit score that were one day out of bankruptcy,” he said. “Those people probably were not going to do real well making their mortgage payments. It was kind of ridiculous.”

Brown & Wagner is No. 3 on the 2008 HUD/state list, with $50 million in 2007 mortgage volume.

Marita Thomas, head of residential lending at Empire Bank, said that because of tightened lending standards, the subprime crisis doesn’t just affect the lenders that have specialized in subprime loans.

“This affects all of us,” she said. “Government-sponsored entities implement these tightened credit standards to every lender.”

Looking ahead

As for what the future holds, All Credit Mortgage’s McCallister said she’s anticipating more of the same conditions for mortgage companies.

“We’re going to see this steady tightening of lending (continue),” she said. “Everyone is very scared and conservative right now, and it’s going to be this way until this time next year.”

Wagner said he thinks lending standards may be overly tight in response to the current credit crunch.

“Somebody with a 680 credit score and 5 percent down right now is considered a somewhat risky borrower,” he said, adding that he anticipates a small correction of that in the coming months. “When we look at the default rates on our loans, those are not where the defaults are happening.”

Gammill anticipates a stronger market overall in coming years due to the shake-up and the resulting fewer numbers of subprime mortgages – and, consequently, fewer foreclosures.

“I don’t think (interest) rates will be as good as they have been, because there won’t be as much competition, and any time you reduce competition, people will try to make more money,” he said. “But we also won’t have the foreclosure crisis we have today because of what’s coming down the pipeline, and that’s good for us all.”

The key to survival, McCallister said, will be having plenty of assets or cash in reserve – and being a good manager.

“You have to be very good at what you do – you better know how to manage your company and you better know your loan programs,” she said. “Assets, customer service and smarts are going to be essential.”

Mortgage Volumes

Shifting market conditions are illustrated by comparing data from Springfield Business Journal’s 2007 and 2008 lists of the area’s largest mortgage companies.

FDIC-governed lenders

2007 total: $1,164,556,799

Average: $83,182,629 among 14 companies

2008 total: $1,032,113,451

Average: $86,009,454 among 12 companies

HUD-governed lenders

2007 total: $367,719,652

Average: $28,286,127 among 13 companies

2008 total: $365,772,313

Average: $33,252,028 among 11 companies

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