Owner-financing option boon to Morelock-Ross

by Maria Hoover and Jill Henry

SBJ Reporters

mhoover@sbj.net and jhenry@sbj.net

With an owner-financing program it has been offering for the past five years, Springfield-based Morelock-Ross Properties Inc. is helping to match homeowners with new houses the company builds.

Of the homes built by the company, Wayne Morelock said about 55 percent are sold through the owner-financing program. While some participants are individuals who might otherwise not be able to obtain home loans, Morelock said many choose the company's owner-financing program for the convenience of one-stop shopping. Homes sold through the program range from $90,000 to $160,000.

"What we've been able to do, obviously, is increase sales volume, and what we've been able to do also is fill a niche in the market for people that want to own homes," Morelock said. " We can sometimes be more flexible than a bank or a finance company with issues such as longevity on a job and things like that. They sell their loans on the secondary market, and the secondary market has some really stringent guidelines, and some people that are really great credit risks fall through the cracks."

Morelock-Ross offers more than one home-financing option, but the owner-financing program was developed by Morelock; Jamie Sivils, CEO of Morelock-Ross Properties Management Inc.; and Russ Marquart, senior vice president commercial lending at Empire Bank.

"What Morelock-Ross is doing is providing owner financing. They have a note and a mortgage on the property and that mortgage is then assigned to the bank and we're providing mortgage warehousing for them. Basically we're assisting them by holding the paper," Marquart said. "From the business owner's perspective, what we've been able to do is design a program for Morelock-Ross that allows them to provide these services on an economical basis, provide them access to lines of credit which enables them to meet the consumers' needs as well as meet the company's needs for continued growth."

For potential homeowners, Marquart said, the program offers the possibility of having a reduced down payment, or no down payment at all.

"So people have more flexibility on down payment. Morelock-Ross might be willing to take more credit risk, where somebody has imperfect credit or not as strong of a cash flow, or perhaps the employment history," he added.

It also might be a welcome option for individuals who have previously been turned down by banks and mortgage companies.

"(Morelock-Ross' program) may be, in the consumer's eye, a less intimidating process, where they're getting basically financing on the spot from the home seller. That may be appealing to them," Marquart said.

Morelock said that what his company is offering is different from programs offered by other home builders.

"Typically what a builder will do is a contract for deed. That's not the instrument we use to transfer title. What we use is a wrap-around deed of trust and have a participating bank. That is a clearer title transfer to the owner, and it really works better for the bank also. Basically, we act as a finance company at that point. We secure secondary financing from different sources," Morelock said.

Marquart added,"Morelock-Ross basically loans the people the money to buy the home, and that mortgage is then wrapped around a bank loan that's on the property, and if and when the homeowner is able to refinance or sell the home, they pay off their loan to Morelock-Ross and the bank, in turn, is paid off at the same time."

The program does present an element of risk for the company, Morelock said, but in all, it has been a good venture for the business.

"In 2003, we had to repossess a total of 11 houses but insomuch as we're a construction company, we're able to take those houses and freshen them up, do what needs to be done, put them back on the market. Basically, our net profit from (repossessing the houses) was close to $50,000," Morelock said. "We made a profit in the first place selling them. We made a profit financing them. And then when we turned around and sold them again, we made another $50,000. From that standpoint, I say it's no risk, and that's historically what's happened to us."

The company is underwriting about $15 million in mortgages, Morelock said.