Western Home Journal meets with four experienced local mortgage brokers to discuss changes, trends, and how they make things work in Aspen’s unique real estate market. By Sarah Chase Shaw We’ve all heard that investing in real estate in Pitkin County is challenging, but just what does it take to make a deal happen? Western Home Journal asked four mortgage brokers with a collective 90 years of experience in the local market between them to weigh in on the details. What does a buyer really need to know in order to get into real estate here?
Three of you represent banks. One of you is an independent broker. Explain the difference. Jimmy Brenner, Blue Sky Mortgage: As an independent
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THE LOCAL ART OF BROKERING
broker, I generally “dial for dollars” at least once a week. I research who has closed loans in our marketplace from other parts of the country, and then I find out what new programs and products they have and if they might be compatible with our clients’ needs. Bottom line? No one bank can be a solution for all the mortgage needs in this valley, and using competing sources always helps to get the customer better rates. As independents, we have more sources of money, but we typically don’t underwrite or fund a file.
Peter Smith, Mortgage Consultant, Alpine Bank: Alpine
Bank has access to a wide variety of conventional fixed- and adjustable-rate mortgage products, and we can find a financing solution that best fits the individual need. Rates and fees are set based on local and national market conditions, and we control all processing, underwriting, and closing functions. In addition, as a locally owned and operated bank in Colorado, we have portfolio mortgage products that we only use in our local communities. The purpose of these products is to provide borrowers an alternative mortgage option where the limitations of the conventional mortgage arena might pose challenges, such as unique properties or unusual personal financial situations.
Jody Cooper, Home Mortgage Consultant, Wells Fargo Home Mortgage: Wells Fargo is dedicated to doing the right thing for
its customers, and we follow all the new regulations. We are always ready for the changes in the mortgage world, and we want to help our customers with their mortgage needs, which may include a new purchase or savings on a refinance. We are able to do business in all 50 states, which gives us an advantage when working with our second-home owners on a property here or in their home state.
Paula Lamberti Bishop, Senior Mortgage Loan Officer, Bank of America Home Loans: Bank of America also offers home
mortgage financing in all 50 states. Our interest rates are extremely competitive, and the available loan programs to suit any buyer are quite extensive. We offer streamlined closing costs and a team of experts for processing specific types of loans efficiently.
How is business? Are you seeing increased activity in the lending arena? [ Jimmy Brenner, Blue Sky Mortgage ]
Smith: For the first time in several years, we are processing more
purchases than refinances. Although refinance business remains strong, it is good to see the purchase market moving at an accelerated pace.
Cooper: The overwhelming sense of worry that was so pervasive is
now gone. Buyers are starting to purchase properties that they have had their eye on for the last couple of years.
Are buyers at the higher end able to get better deals right now? Cooper: In general, yes. Second-home owners are strong borrowers. They have liquidity, they usually have great credit, and they own several homes. Bishop: Jumbo rates are now lower than conforming rates. Traditionally, jumbo loans were priced higher than conforming loans (loans under $625,500). That trend has reversed because the secondary market buys jumbo loans, while Fannie Mae and Freddie Mac control the conforming loans. Now, if you need to borrow more than $625,500, you are eligible for a jumbo loan.
[ Paula Lamberti Bishop, Bank of America ]
Are the stringent requirements on larger loans making it harder to structure a successful mortgage in a reasonable amount of time for buyers in this marketplace? Smith: Alpine has portfolio money that allows us to do something
very quickly when necessary. The speed of a transaction is often a function of what lending arena we are working in. Although we underwrite, process, and fund all of our loans, it makes a difference whether we using internal portfolio money or whether we are
working within the conventional area. If it’s our own portfolio money we are not bound by the conventional underwriting rules and that allows for a more streamlined (i.e. logical) process. Which arena makes the most sense in a particular situation is simply a function of what is best and most important to a particular client.
Cooper: We evaluate what mortgage works best for the buyer, and a lot of that is based on the property in question. It’s our collective expertise that makes that ultimate decision.
Hometown lenders know the local market. Is that key to the success of a transaction? Cooper: Absolutely. Our expertise is invaluable, and we save deals all the time. Bishop: Appraised values scare the out-of-town lenders. We have
high price-per-square-foot numbers that they simply can’t fathom. And, because the numbers are so different, hometown lenders will often request a second appraisal as a result. That won’t happen if local lenders are involved.
[ Jody Cooper, Wells Fargo Home Mortgage ]
Smith: It’s important for investment and second-home buyers to
understand that there are professionals in these communities who are accustomed to working with complicated financial packages and “unique” resort properties. Difficulties frequently arise when buyers bring their hometown bankers into the transaction. While those professionals may be competent and capable in their communities, they may not have experience with the unique characteristics of the resort marketplace. Everyone on this roundtable has access to programs for complicated or unusual resort transactions. Beyond that, for those transactions that don’t require resort expertise, I believe we are all extremely competitive and rarely lose transactions based on rate or terms. At Alpine, we like to keep the business here and price all our programs accordingly.
The realtors are saying that there are a lot of cash purchases in our market. How does that work? Brenner: In Pitkin and Eagle Counties, 60 percent of sales are cash, and 40 percent are financed. There’s simply a lot of cash out there.
Cooper: It might look like a cash transaction up front, but I think
there’s a lot going on behind the scenes to make those transactions happen. More often than not, there’s a loan somewhere that isn’t widely talked about.
Smith: Many people mortgage their primary residence or leverage
other assets as a means of paying cash on their purchase here, particularly if they are having problems getting their hometown bank to finance a purchase in Colorado. I, of course, suggest they
[ Peter Smith, Alpine Bank ]
contact a local lender before encumbering other assets. We are all very responsive, fast, and capable.
Bishop: Others cross-collateralize their stock account and borrow against that asset, as well.
Cooper: The overwhelming sense of worry that was so pervasive is now
gone. Buyers are starting to purchase properties that they have had their eye on for the last couple of years.
Do you think cash offers facilitate the ease of a transaction? Cooper: Cash is always a stronger offer. There are no loan contingencies. That is very appealing to a seller.
Are we seeing accurate appraisals and realistic pricing now? Bishop: We continue to see situations where the buyer and the seller agree to a sales price that they believe is a fair market value only to find that the appraisal has come in at a lower number. The buyer then must decide if he needs to renegotiate that price again and risk losing the property, or put down more money. The lender will only lend the maximum loan-to-value on the appraisal or sales price, whichever is less. If someone is buying a home for $1 million, and the appraisal comes in at $950,000, we lend 80 percent on $950,000.
Interest rates are up. Refinances are slowing down. Isn’t it ironic that the people who are trying to buy lower-priced homes are having to jump through the most hoops? Bishop: That is due to the new regulations that are part of the Dodd-Frank Act. That act, passed by Congress in 2010, created more regulations for lenders and more stringent oversight by regulators to ensure that all lending institutions are following the new rules. New layers of underwriting and harsher scrutiny can really affect a lower-end borrower’s credit application. Income, assets, and credit must be strong for a loan to be approved these days.
A new round of regulations related to the Dodd-Frank Act are due out in January. Are these meant to correct the market even further, and how will that affect your business? Brenner: Unfortunately, all those years of loose regulations have caught up
with us, and we are now faced with the opposite problem: too many rules that are changing all the time. Yes, it is a little harder for the smaller companies to manage the costs of software, training, and maintaining a compliance department that covers all scenarios. But since the burden generally falls on the bank that is buying our loan, we remain a little more flexible than the bank that sets its rules according to its interpretation and then sticks to it. If we disagree with an interpretation, we simply change banks or find another institution with a different set of rules. We have to be flexible and creative at all times.
Bishop: The consumer doesn’t get the same choices now, and it’s all in the name of regulation and protection. I believe that a correction in lending was overdue. But, if you protect the consumer on a level that the government says is appropriate to ensure no future harm comes the consumer’s way, you’re actually harming the consumer who should be able to get a loan.
Smith: Alpine Bank continues to process, underwrite, and fund our own
loans. The broker model where those tasks/decisions are made externally just seems too painful for all involved – most importantly the client.
How has your job changed in the aftermath of the mortgage crisis?
Cooper: In the bigger picture, you’re harming the
Cooper: Those of us who have been in the business a long time recognize that we are becoming mortgage lenders again. For a while, there were a lot of people in our industry who were simply order-takers. Our job now is to lend money. That means that we look at the credit and the income, and we make sure we’re making a good loan. I love that part, and that’s the part that has been missing for the last several years.
Are all of these regulations leading to an industry consolidation?
Bishop: Bank of America’s motto is “We will always be a responsible lender.”
entire housing industry because you’ve created a roadblock for any progress.
Brenner: I get calls from brokers in other
communities wondering how I continue to survive through all of the compliance issues related to the Dodd-Frank Act. The fact is that we don’t do loans through our system any more because we simply can’t afford to hire a $100,000/year compliance officer and buy the software. However, each bank does its own compliance and they come with their own very consistent and typical rules. I can go online and input my information to their system, and it works very smoothly. In the end, the compliance is actually being handled by the lender, and they aren’t in the game unless they are in compliance.
That came directly out of the mortgage crisis to give assurance to all borrowers that we are going to be responsible about lending you this money because we want you to be responsible about paying it back. Borrowers get the added bonus that we all know one another, and we can recommend specialists for certain types of lending.
Brenner: We all have a lot of volume, so we don’t live and die on each
transaction. If someone else can do it better, I don’t mind sharing. In the end, we all benefit.
Smith: The upside of all of this is that I like working with the people who are left standing today. They have high integrity and a history of performing in all conditions, even the most difficult. The professionals that have withstood the trials of the mortgage crisis have proven their merit and that should provide new borrowers a level of comfort that they may have had prior to the crisis.