Mortgage Industry Goes Back To Basics– But With A Few New Tricks

By Robb Magley

Steve Bighaus has been in the mortgage industry long enough to see a lot that looks familiar about today’s market.

“I tell people, as far as qualifying, we’re back to lending as it was 20 years ago,” said Bighaus, senior loan officer for SecurityNational Mortgage Company. “I mean obviously we have a few tools we didn’t have back then — credit reports are instantaneous, we’ve got the automated underwriting system, and so on. But as far as documentation type, we’re back to that full-doc loan.”

After last July’s bump in interest rates, things are settling back into a more comfortable area that Bighaus says a lot of his investors still find attractive. “I still see a lot of people who want to get into investment properties obtaining financing, because it’s a great time right now to do it,” said Bighaus. “Terms are still great, you know — 30- year money, getting high 4’s and low 5’s, that’s still pretty cheap money when you’re looking at investment properties.”

As more people enter the market, Bighaus said he’s seeing investors follow the lenders’ lead as far as trending toward more traditional investment models — 20-25% down payments, for example, and buy-and-hold investments outnumbering fix-and-flip plans.

“I’ve only seen a handful of people in the last couple of years who have bought their properties and turned around and sold them right away,” said Bighaus. “Everything I see with my clients right now is portfolio building, because they’re all thinking about retirement.”

One of the results of that is the increased popularity among investors of 15-year mortgages, especially for loan amounts associated with smaller properties; Bighaus said savvy borrowers are looking at the small difference in payments and seeing big advantages to shorter terms.

“Where I really see it is in those loan amounts below $50,000,” said Bighaus. “When you look at the difference between 30-year and 15-year terms on a loan of that size, for $50 or $100 difference in the payment every month, you’ve got a better rate, you’ve got more money being applied to principal every month, and you’ve cut your term in half. They’re thinking long term; if they can get it paid off in 15 years, then they’re that much farther ahead of the game.”

And the game is growing; Bighaus’ company continues to expand its footprint, operating today in a dozen states with more being added by the end of this year. That can mean a lot of traveling, but Bighaus sees it as part of what differentiates his service from the competition. “Wherever investors are buying property, that’s where we’re focusing our business,” he said. “I like to visit the markets that I loan in, because I like to actually see the inventory and meet the people.”

Bighaus is seeing a lot of his customers come back withnew investments they want to finance, partly due to rates, but also due to a relatively new program put in place by Fannie Mae. Bighaus estimates fully one quarter of his business right now is driven by the so-called “delayed financing exception.”

“I get a lot of customers who pay cash for their properties,” said Bighaus. “They’ll buy a property with cash, and then they’ll want to get that money back so they can keep utilizing it.”

Just a few years ago, refinancing with a cash-out option (so you could re-invest with that cash) through Fannie Mae wasn’t available to investors with more than four financed properties; the new program targets small investors who hold five or more, and has other attractive benefits as well.

“It allows an investor to pay cash for a property, immediately turn around and re-finance it, and get their original purchase price back — plus they can roll in the closing costs,” said Bighaus. And, he added, lenders can utilize the appraised value to drive the loan-to-value ratio. “That obviously maximizes things for the borrower, because when they’re out there looking at property with cash in hand, they’re going to get a little better deal in a lot of cases.”

By being able to utilize the appraised value, if there’s a little equity in the property — if they buy it, say, for $50,000 and it’s worth $80,000 — Bighaus said they can capitalize on that and minimize what they personally have invested in the property.

“Theoretically they can continue to keep turning their money,” said Bighaus.

Part of the industry’s “new traditionalism” means going back to lending fundamentals; that’s an arena where seasoned mortgage professionals like Bighaus truly help their customers invest, playing to their own strengths.

“In today’s climate, people need to show they have money, they have income, and they have credit,” said Bighaus. “I tell new customers, before you commit to anything let’s gather your documentation. Let’s make sure you’ve got income to support your existing debt; you’ve got cash reserves to support down payment and closing costs; and that the credit score is there, because that’s going to affect your rate.”

Having that work done in advance helps investors know exactly where they stand before getting too deep into an investment that’s not quite right for them — and since Bighaus stores everything electronically, when investors return for another loan for another property they want to purchase, they don’t have to send a lot of the same information over and over.

And, Bighaus says, investors return again and again.

“I was just back in Memphis last week, one of the first markets where I expanded after the Northwest, and I was talking to one of my clients,” said Bighaus. “Between him, his wife, and another family member, over the past three years I’ve done 26 loans for these folks.” He laughed. “They must be pretty happy with me.”

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