LAS VEGAS-Although there still are risks to be accounted for, Wayne Tew believes this is a good time to be in the mortgage business.
But it's also a good time, said Tew, president and CEO of $480.8-million Clark County Credit Union, to define "risk." "Default risk and devaluation risk are as low as they've been in probably 10 years," he assessed. "The risk I see being an issue is interest rate risk. This is a real problem that we need to evaluate closely."
Clark County CU does not portfolio 30-year loans unless it is non-prime mortgage that is priced accordingly, meaning there is no interest rate risk, Tew said. It writes 30-year, prime paper loans to secondary market standards and sells them.
Las Vegas has been vying with Stockton, Calif., for the dubious title of "Foreclosure Capital of the U.S." Accordingly, Clark County CU has developed a program to write in-house first mortgages for people who have defaulted due to devaluation in the market-as long as they have a job with strong income.
Not 'Going Crazy'
"Many people have short sold or defaulted," said Tew. "We will do mortgages for them above market rate because we know they will refinance in a few years. We think this is a great short-term mortgage, especially if they can put down 20%, or even 30% or 40% of the purchase price. These are people who have good credit, they just bought when the market was high. If there is a good down payment when the market price is below construction cost, we think this is a great loan and we are doing well with it."
CCCU, which had a net income of $3 million last year and is privately insured, is "not going crazy" with these short sale/foreclosure mortgages, therefore Tew does not believe it has concentration risk. The program is limited to $10 million.
Although the credit scores of potential borrowers have been lower during the past few years, Tew said lately "better borrowers" are emerging because they are attracted by good interest rates.
Comps A Challenge
Getting comps is a challenge in Las Vegas given the substantial plunge in home prices. CCCU performs a regular appraisal on an applicant's property, which includes the prices of all the foreclosed homes in the area. "The number of foreclosed homes is high, which depreciates values, but that is what people are buying," said Tew. "Construction costs would be higher than what homes are selling for these days."
According to Tew, Clark County CU has not had to add income verification to the mortgage process, because it has "always been thorough." What has changed, he said, is the "fickleness" of underwriters for secondary market loans.
"They are so fearful of what has come down from Dodd-Frank and other regulations they are constantly asking for more information," he said. "Another problem is the Nevada State Supreme Court now controls the foreclosure process, and it has been bottlenecked to the point there is a virtual moratorium on foreclosures. This has made lenders hesitant to lend in Nevada because they can't foreclose if someone defaults. Bank bashing is so popular right now, politicians are unwilling to address the fact foreclosure certificates are so difficult to obtain."
Still, it's a good time to write mortgages, with one caveat, he said. "As long as [CUs] evaluate the interest rate risks, and sell loans to the secondary market, it is a good opportunity."