Cover Article

The Ever Changing Face of Lending
by Teri Scharosch, Editor, Builders Magazine

    True or false:  Money is available to lend.  If you answered “true”, you’d be absolutely correct.  However, in today’s world, a more accurate statement would be, “Money is available to lend if you have 10% down for a conventional loan, 30% down for a Jumbo, or if your home is eligible for FHA or VA financing and if you’re willing to wait potentially longer for your loan to be approved and funded and…and…and.”  Sounds as if things have gotten complicated, doesn’t it?
   Brian Havill, Branch Manager of MetLife Home Loans in Reno, correctly gauged the lending climate today when he said, “Today’s home buyers are looking for stability.  They’re shell shocked.  It is critically important for the home buyer to know that the company they’re doing business with will be around in 30 or 60 days when it comes time to fund their loan.”  This need for assurance—and the fallout from those who have poisoned the well by closing up shop—has created a regulatory burden that would have been unheard of just 18 months ago.

Responding to Industry Needs
   Plainly, builders need to be able to sell their homes to consumers who are able to obtain financing for their products.  Representatives at MetLife Home Loans are reporting that conventional conforming loans are available to 90% LTV in Northern Nevada, but some include risk-based pricing due to-loan-to value ratios and consumer FICO scores.  However, those who choose to undertake an FHA loan can do so with just 3.5% down (which can be gifted by a family member).  Currently, these loans carry minimal risk-based pricing, usually on FICO scores below 620.  VA loans are still “no money down” at this time.  Jumbo fixed rates are down from last year’s highs, and Havill of MetLife reports that Jumbo ARM rates are very attractive today and are finally nearing the traditional spread with conforming rates. 
  Homebuilders and other industry leaders are pushing for an extension and expansion of the first time homebuyers credit, currently at $8,000 but slated to expire at 12/1/09.  “There is currently discussion afoot to increase the credit to as much as $15,000 but we don’t know if that will survive congressional debate,” stated Mike Dillon, Executive Director of the Builders Association of Northern Nevada.
   Lenders today have succeeded in finding a number of ways to assist their builders and developers, chief among which is to renew ties with their industry clients.  They are spending more time with them, analyzing their needs and working hand-in-hand with them to find solutions for their projects.  “If I had one piece of advice to offer a builder seeking financial relief, I would advise him to find a lender who is willing to work with him to move his standing inventory of homes,” stated Pam Robinson, Branch Manager of MetLife Home Loans in Reno.  “Too often the builder is forced to pay excessive (deleted word) fees (deleted word) just to get a buyer into one of his homes.  A long-term relationship with a stable lender can result in greater benefits all around:  the borrower gets a better rate, the builder gets the home out of inventory, the bank gets to originate the loan, more is returned to the builder’s bottom line -- and of course one fewer home is on the market.”

Appraisals Becoming More Important
   A lot of regulatory reform has been concentrated on the appraisal industry.  Given the large number of bank-owned-properties in Nevada, low appraisals are nixing some good deals, even when the purchaser is fully qualified and capable of making the loan payments.  For example, just recently, even after the builder lowered the sales price of a home by $20,000 to $219,950, an appraisal of the new home came in even lower at $215,000.  This is painful.  But the appraiser must develop a value based on the best comparable sales available.  Given the looser lending guidelines and abuses of the past by some unscrupulous lenders, it’s not surprising that lenders now face sanctions if they become too involved in the appraisal process.  Additionally, a new provision in the HVCC (Home Valuation Code of Conduct) requires borrowers to receive and review the appraisal three days prior to the signing of documents or closing.  While regulations such as these are one of the reasons the lending process has slowed, it does provide more protection for the consumer and prevents deceptive lending practices.
   Lenders can, however, assist buyers and sellers alike by reviewing their internal policies.  MetLife Home Loans, for example, cognizant of the tremendous need to help the homebuilding industry, has a provision to actually expedite appraisals for new home purchases over those needed for refinancing a home.  “This kind of proactive policy is the kind of out-of-the-box thinking that will help our industry to recover,” pointed out Dillon.  “It’s an undisputed fact that the sale of a home—whether new or resale—is the economic stimulus Northern Nevada needs to pull us out of the doldrums.”  Up-to-the-minute comps (within 90 days), a listing of similar properties to see trends, and current data about our metropolitan area are all actions required by Fannie Mae and Freddie Mac for all appraisals in Northern Nevada.

What’s Coming?
   In an era where economic stability changes day-to-day, where old abuses come back to haunt future generations, where an investment that was once thought to be impervious to loss drops precipitously—it’s difficult to forecast what changes are in store. 
   New lending products will be developed to assist homebuyers—but they will be studied more thoroughly than college trigonometry notes before a final exam.  Builders will seek to cut their cost of doing business in every way that they can, and will burn a lot of midnight oil evaluating their plans—and that includes more than just blueprints. 
   Companies will emphasize not only their products, but their services—services that benefit builders and their building products, such as MetLife’s Builder’s Choice program. 
   One thing is certain…homeownership is still the dream of most every American.  And Northern Nevada’s builders, lenders, and affiliated tradesmen and suppliers will continue to work hard to fulfill it.

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