LAS VEGAS–Although this market has a well-earned reputation as a depressed real estate market crushed by a glut of unsold housing, at least one CEO believes already strong mortgage volume would be even better if there were more homes to sell.
“We are seeing pretty decent quality of applicants,” said Wayne Tew, president and CEO of $483-million Clark County CU. “The problem is even if people have 20% down they are having to fight the cash buyers–so there is not a quality problem, there is an inventory problem. That applies to buyers rather than those looking to refinance. Those people have to fight a lack of equity.”
According to Tew, potential borrowers are “definitely” able to get financed in the current market, but they have to be prepared for more paperwork, more “back and forth” communications with underwriters, and explanations of any employment gaps. He said underwriters are looking “much more thoroughly” at every aspect of an application.
“The going back and forth on an application can seem onerous to those who never had it that way, but there are definitely people getting loans,” he observed. “FHA loans have increased the mortgage insurance premium, so those loans are more expensive than they used to be.”
Selling On The Secondary Market
For the loans Clark County CU sells on the secondary market, there is a 50/50 split in purchase loans and refi’s. For loans it portfolios, two-thirds are purchases and one-third are refinances.
“We separate mortgages this way because the ones we do in house are ones we can get a rate premium on,” he explained. “We sell all long-term loans, those of more than 15 years, because we don’t want the interest rate risk of low-rate, long-term loans on our books.”
CCCU sells its 30-year mortgages, Tew said, to reduce its interest rate risk exposure. But it is taking a risk on one segment many lenders are avoiding: people in the market who had a short sale in the last year or two but otherwise have good credit, and also have a 30% to 40% down payment available.
“We are able to charge them a higher rate and there is very little risk, because they made such a large downpayment,” he said. “These people have a lot of cash, because they lived in a house for a year or a year-and-a-half before they got foreclosed or short-sold. Other lenders won’t lend to someone with a short sale, but we look at those as a low-risk product, and probably for a short term, because in a few years they will refinance to get a lower rate.”
Another market factor that has changed: Tew said there is “a lot less” competition for mortgage loans due to industry consolidation and increased regulations. He said current competition comes more from mortgage bankers rather than mortgage brokers, because the mortgage bankers do their own underwriting rather than using a third party. Wells Fargo and Bank of America, as well as U.S. Bank, are the CCCU’s main competition, he said.
As for getting accurate appraisals, Tew said the rapid churn means most properties that are put up for sale are getting bid up, as there is an inventory shortage and buyers are looking to buy.
“The definition of 'accurate’ is a moving target based on what is going on in the market,” he said. “It is more difficult getting an appraisal for new construction than resale, because construction costs are still higher than comparable resales.”
Clark County CU has done more real estate lending in 2012 than it has in any year since 2007. Tew said mortgages “definitely are helping keep our loan volume up. Car loans are about even–we get as many new ones as ones get paid off. Mortgages are a positive for our portfolio and they fill a need for our members.”