Q&A with the Banker Panel at the National Auctioneers Association
Here are my notes from yesterday’s Mortgage Industry Panel from the National Auctioneers Association’s Convention in Denver. When known, the name of the panelist answering the question is noted.
Panelists
A. Wesley Schuneman
Founder, Ultimate Funding Group Mortgage Brokerage
Kevin Feakes
Mortgage Banker, First National Bank; Residential Mortgage Lending
Ken West
VP Commercial Lending Mountain Plains Farm Credit Services
Q: Are lending standards currently too tight or not tight enough compared to 1985?
A: (Kevin) Contrary to what you’re hearing in the media, it’s still relatively easy to get a mortgage loan right now.
A: (Wes) Underwriting guidelines will continue to get tighter. We have a few more years of tightening. The industry will overcorrect before the pendulum will swing back the other way.
A: (Ken) Agriculture loans are underwritten in a much different way than residential. Loans are still widely available for agricultural buyers.
Q: What is your firm doing to prepare for another significant drop in home values?
A: (Ken) Requiring more downpayment. The lenders I work with learned from the S&L bailout.
A: (Wes) We’re close to the bottom here in Denver. We have a decent market. I’m not expecting further, drastic price declines.
A: (Kevin) We’re preparing for more LTV changes from lenders.
Q for Wes: What does the future look like for the mortgage broker?
A: from Wes: Higher standards and raising the barrier to entry will be good for the industry. The mortgage brokerage industry needs a cleansing. I anticipate further erosion in the number of licensed mortgage loan originators.
A: from Kevin: I’m more hopeful than Wes. Competition is good for the industry. Fewer players isn’t necessarily a good thing for the consumer. You may see some former brokers shifting to a bank during these times, and then back to being a broker in the future.
Q: On short sales, Kevin, why are banks taking so long approving short sales and is there any hope for getting answers faster from loan servicing?
A: Loan servicing does not have an efficient system in place to process the overwhelming number of requests for a short sale. It’s going to take time to work out all the short sales and foreclosures.
A: It would be better if all the foreclosures right now were HUD REOs because HUD has a good system of disposing of their REOs.
Q: Why haven’t banks embraced auctions as a way to dispose of their REO inventory?
A: The systems in place right now are for the banks/asset management companies to reach for a Realtor first, and to try and sell REOs using systems that are already in place (MLS) to reach potential buyers.
Follow up Q: Why aren’t banks wanting to move their REOs? Why list the home for month after month? Why are banks holding on to their REOS?
Panelists did not know. Jillayne’s answer: It is possible that the banks are trying like mad to spread out their losses over many months/quarters. It is also possible that if a bank quickly disposed of their REO inventory and had to claim the losses, that a bank’s insolvency would become more transparent to regulators. It is also possible that there is such a huge backlog of inventory, that it’s a time/resource backlog issue.
Q: Should FICO scores be completely tossed out, returning us to a world where real humans touch each file?
A: (Wes) The idea of using any kind of scoring system at all isn’t inherently “bad.” It’s when we use ONLY the score to make a lending decision. A borrower’s entire picture must be taken into consideration. Credit, Capacity, Character, Collateral.
A: (Kevin) Some of the loans with growing default rates are the loans with GOOD credit scores, but the homeowner went “stated income.” Stated should go away forever. Well, maybe not forever. If it comes back, then it should come back with a much lower loan to value.
Q for Ken: Are land values falling and if so, how is your firm preparing for this?
A: We’re just now seeing the bubble start to top out in land values. The value of corn is dropping now because gas prices have gone down. (Jillayne here. At lunch, there was talk about many ethanol companies recently filing bankruptcy.) The average age of the farmer is getting up there and it’s difficult to attract young people to a life of farming. A young person can’t buy into a farm when land values were climbing. When we see the land bubble start to pop, watch for much higher downpayment requirements; 30 to 35% down.
Q: I’m hearing stories of homeowners who have not made a mortgage payment in 5,6, 7+ months and have not heard anything from their bank.
A: Unanimous in that these must be isolated incidents. Foreclosures are proceeding forthwith from their vantage point.
Q: What is your company doing to help your employees with ethical dilemmas such as when personal self interests conflict with duties to the client?
A: (Ken) We offer group bonuses (no individual bonuses) and bonuses are not driven based on volume. No one is on commission.
A: (Kevin) We have a very diligent compliance department and compliance systems in place with an extremely rigorous interview and hiring process which includes background checks and full body cavity searches. (That last part was just a joke from me.)
A: (Wes) We have a strict code of conduct at our company that all employees are required to abide by.
Q: As a fiduciary, how are you counseling an FHA, 3.5% down homebuyer when faced with continual falling home values:
A: (Wes) I am completely honest as to what’s going on in the market and I let the client decide.
Jillayne here. Note, Wes believes the Denver market is near the bottom.
Q: When do you foresee a recovery?
A: 2013
A: It’s too soon to call the bottom
Interesting story: Ken said that a farm was recently purchased at an auction by a hedge fund. There were other high bidders who were farmers but the hedge fund came in high bidder. They speculated that the hedge fund was trying to diversify assets into commodities and bought the land for the value of the corn.
Thanks to Wendy and Matt from the National Auctioneers Association/Marknet Alliance for having me out to their convention today!
About the Author: Jillayne Schlicke
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No comments about “walk-aways” then? I was curious to find out if they see this phenomena in their own businesses.
It’s interesting that these folks seem to be mainly optimistic. Either we have hit bottom, or the lenders are well cushioned against a greater decline.
Very interesting…
Sniglet, bankers might not know that. Non-judicial foreclosure is so favorable to lenders that they probably don’t even typically look at the financial condition of the buyer in default. And absent actually suing them and getting a judgment, they’d have no way of knowing, unless the buyer gave them the information, which would be unlikely in a walk away situation.
I have no doubt some people are doing walk aways, because some people do stupid things. On the flip side of this, KOMO recently did a story on a class people are presumably taking on how to buy from people in foreclosure:
http://www.komonews.com/news/35175759.html
I’d consider part of what’s described in that story as being very risky behavior, given the distressed property law.
Hi Sniglet,
No comments from the panel, however I AM hearing the following in the classroom this week:
homeowners calling their lenders and Realtors asking for their bailout…..”I hear that the government is bailing everyone out. Can you help me get a bailout, too?”
and stories about homeowners weighing all their options, and chosing to walk away instead of continuing to pay on a declining asset.
Hi Kary,
Thanks for the link. The nice thing about the KOMO article was that they exposed the ‘get rich quick’ scheme for what it really is: a sham.
Speaking of bailouts, I liked the first panel of the last “Bad Reporter.”
http://www.sfgate.com/columnists/asmussen/
As to the class, the sad thing is that people get taken in by these scams, and then basically scam other people not necessarily realizing what they’re doing is wrong. The distressed property laws should have gone after the teachers.
‘ Buying land for the value of the corn.’
I wonder how that has worked out for the hedge fund, seeing that corn prices have been cut in half this year.
It’s probably one of their best performing assets this year!