Points of Interest ©

Interview:

Today we are speaking with Tony Bolding, Mid-Atlantic Wholesale Manager with Washington Mutual Wholesale (WaMu).

Tony, how long have you been in the mortgage business?

It was the summer of 1986 when I started so it’s been more than 20 years.

What was the driving force for entering your career?

A friend and I had bought and sold 3 homes and 2 condos that were in desperate need of repair when purchased.  My job was to qualify the property for the potential opportunity and my partner’s job was to obtain financing.  When our partnership dissolved due to my relocation to the Washington D.C. area, I decided to pursue learning the finance piece so I could continue doing this on my own.

What are your biggest challenges today as a sales manager?

Recruiting knowledgeable, motivated Account Managers that currently have and will maintain high moral standards.

What is your function at WaMu?

I am the Wholesale Regional Sales Manager for the Mid-Atlantic market.  My territory consists of Virginia, Maryland, Delaware, West Virginia and Washington, D.C. I have 14 Accounts Managers covering this area that report directly to me.

WaMu has in-house or retail originators.  Why does it make sense for a borrower to come to MetFund instead of straight to WaMu?

MetFund is a mortgage broker that has the ability to shop many different banks and offer the consumer a product that best suits their needs.  Although we offer a wide variety of products at WaMu to meet the needs of a large segment of the market, one bank can’t meet the needs of every potential borrower.

Is there any difference between going to retail direct to WaMu v broker to WaMu?

As a mortgage broker you have to have greater knowledge of the industry in general because you are working with a number of different lenders and each of their specific requirements.

Any thoughts on the difference in pricing?

You may have an advantage with your business model with the lower overhead and therefore, some flexibility in pricing.

How does WaMu function in the marketplace?

We are one of the largest originators of residential mortgages in the USA.  This enables us to offer products that allow expanded underwriting criteria that other smaller lenders can not offer.  We solicit our business from selected brokers and smaller banks by offering them the opportunity to place their clients with one of our products.

What kind of transactions are you seeing the most today?

As you know, we have just come out of the biggest refinance boom in the history of our nation that lasted more than 3 years ending in late 2005.  During this time we experienced more than 90% of our volume in refinances.  We are now at 59% purchase money transactions.

We continue to see around 70% of all transactions as some type of low doc program.

Interest Only programs are the most popular at this time. We offer a 5/1, 7/1, 10/1 or 30 yr fixed rate with the first 10 yrs being interest only.  It is a close race between our 5/1 and 7/1 due to the current yield curve and the rates not being that different.

Where do you see the market heading?

I think we will continue to see the purchase business increase as the consumer becomes comfortable that housing prices have stabilized and interest rates are still quite attractive.

What changes are on the horizon?

We will continue to see credit policy tighten as the market absorbs the sub-prime debacle of recent months.  This will create the opportunity for innovative new loan programs that will continue to allow the credit worthy borrower to obtain financing.

In your time away from work what are your interests?

I love spending time with my family, working in my yard and playing golf.  We grill almost every weekend.  As my children have gotten older we love to experiment with different recipes.

What do you enjoy the most about your career?

That the mortgage industry is constantly changing and that I have been instrumental in helping people obtain the American Dream of homeownership.

I'd like to personally thank Tony Bolding for speaking with us today.  In his day as an Account Manager he was one of the most respected and knowledgeable wholesale reps we have known.

Fannie Mae's MyCommunityMortgage is "a flexible mortgage product for low- and moderate-income borrowers."  It allowed for 100% financing with no minimum contribution from the borrower and would consider rental income from housemates.  In addtion to allowing interest only loans it also stretched credit guidelines to allow "extra flexibility"... "including nontraditional credit histories."  And it was even more flexible for teachers, police, firefighters, and healthcare workers or those with a disability.  Perhaps the biggest plus is the reduced premiums for mortgage insurance meaning a lower monthly payment for the homeowner.

But very recently Fannie Mae has found it necessary to tighten credit standards and increase the costs of these very popular loans.  They are still available and can be approved through Fannie's automated underwriting system (AUS), Desktop Originator, or they can be manually underwritten for situations that demand a more personal touch and insight.  In some cases, Fannie Mae's AUS will return an "Expanded Approval" with different levels of risk associated with each level.  Typically each of these levels requires additional cost.  We have identified a lender we work with who provides the same cost no matter which risk level the borrower(s) is approved.  That is a considerable savings for a borrower with an Expanded Approval I level loan.

Loan Information:

In an article on CBS MarketWatch the author suggests five tips to keep your mortgage broker from shortchanging you.  Some have suggested that as a licensed mortgage broker we should be incensed.

And while this particular author makes no qualifying statement that not all brokers act in the same woeful manner as the few, we understand that there are those individual loan officers who are shameless.  It’s unfortunate, but every industry has their share of bad apples.

How do you skip the apples with worms?  The five “tips” that she reviews in the article are valuable in their own right.  But the suggestions seem to be wrapped in cynicism and a cynical borrower may not find the best loan, worm or not.

So, at the risk of sounding self serving we offer our own prescriptive advice:

1. Ask the prospective loan officer where most of their business originates from.  It could be direct mail, internet, purchased leads or referrals.  As a consumer you want the broker’s business to be built around referrals.  Happy customers return and do more business in the future and refer other potential business.

2. Ask the broker to fully explain the concept of accrual.

3. Ask your friends and family who they have used and felt gave them more than adequate service.

4. Don’t be afraid to ask any question.  It doesn’t matter how many times the broker has tried to explain it.  If you don’t understand, then it doesn’t do you any good.

5. Ask them to detail how they will be compensated.  This can be complicated but doesn’t have to be.  Some of it will depend on your needs and choices as a borrower.

6. Have them describe a transaction that didn’t work out.  If they say they don’t have one or suggest it hasn’t happened there are two possible reasons.  They are not telling the truth or they aren’t doing enough business.

7. Ask them to fully explain the APR and why it can be a vague measure.

8. And finally, ask them if they will commit to their total compensation at that point.  If they have reviewed your credit and pre-qualified you it should not be difficult.

When it is all said and done there must be a level of trust and understanding shared by all parties.

Several weeks ago the syndicated columnist Ken Harney in his weekly Washington Post column covered the area of title insurance.  In the column he asks the following question, “is the price too high for what you actually get?”  He also questions the widespread referral relationships among real estate companies, title agencies and lenders and how those relationships may stifle price competition.  In fact he quotes a Government Accountability Office (GAO) study which suggests “that normal competitive forces may not be working properly”.

In addition, Harney notes the following:

The GAO report did go on to note that title insurance “can provide real benefits to consumers and lenders by protecting them from undiscovered claims”, but that most consumers are “vulnerable” when they are required to buy coverage.  In a not surprising note, Ed Miller of the American Land Title Association which represents insurers and agents nationwide disagreed with the report’s findings.  He does support efforts to weed out illegal kickback schemes, “if they are not set up within the law that can negatively affect competition.”

We, as a company have chosen not to engage in affiliated business arrangements or kickback schemes whether they were “set up within the law” or not.  We do mortgages, plain and simple.  And we want to find “the Mortgage that Works for You.”

Loan Information:

We can not recall the last time we’ve heard so many in our industry and outside complain about the level of difficulty in getting loans to the settlement table be they purchases or refis.  The only other time that comes to mind is 1994, right after the initial refi boom of ’92 and ’93.

Now, as then, rates have risen to new highs after a prolonged period of very favorable and accommodating money costs.  The difference is the many types of exotic, high loan-to-value (LTV) loans that were done over the past several years.  Not only were these loans closed with very little equity but they were done with very little if any income verification and too many with the middle credit scores below 600.  And as housing values are correcting this becomes a recipe for some individual disasters.

This combination of events has lenders of all shapes and sizes “nervous”.  Loans are being scrutinized more closely, underwriting and loan guidelines are changing daily and loans that may have sailed through before are now meeting resistance.

April was the 25^th consecutive month in a row in which households spent more than their take-home pay.  With incomes declining and spending up, the personal savings rate fell to a negative (my emphasis) 1.3% from a negative 0.7% in March.

A negative savings rate is possible when consumers buy on credit or sell assets to fund purchases.  There are those that say many are using the equity in their homes to fund their lifestyles.  We have, in fact, seen that in some of the borrowers.  But it’s been the minority.

One of the problems we are seeing is the appraised value of homes not reaching borrower expectations.  Some say the appraisers are being too conservative.  Others suggest that it is the number of distressed sellers in certain neighborhoods.  Of course, one could lead to the other.  If you are considering refinancing be sure to understand how recent sale, not listing prices, will affect your appraisal and financial goals.