Lending Slow But Steady in 2008

“WE MAKE LOANS.” That’s the message recently displayed on several of Arvest Bank’s marquees and it’s also the message of some of the area’s top lenders, who say it’s business as usual in Northwest Arkansas.

Todd White, senior vice president of Arvest Mortgage Co. in Lowell, said the biggest misconception with the general public is that a perfect credit score and 20 percent down is required to buy a home.

“That’s simply not true,” he said. “Every day, we’re giving loans to people with middle-of-the-road credit and 3 percent down.”

But White admits that lending practices are not as freewheeling as they used to be.

“In 2007, it was very common to apply for and receive a 100 percent loan,” he said. “Those loans have all but gone away at this point.”

Arvest used to offer a loan product that didn’t require the borrower to verify assets or income, as long as the borrower had a decent credit score.

That product is also gone, White said.

The company is more prudent in its lending, he said. “The guidelines have tightened quite a bit.”

Even so, Arvest remains the top mortgage lender in Northwest Arkansas, with 7,244 loans processed in Benton and Washington counties during 2007, according to the Northwest Arkansas Business Journal’s annual list of largest mortgage lenders. The list begins on Page 19.

While the company closed 14.4 percent fewer loans than in 2006, White said overall, 2007 was a good year.

The panic in the market that started in the second half of 2007 might have created a positive trend for Arvest.

“It created what we call a ‘flight to quality,'” he said.

Borrowers who might have been willing to go to any mortgage lender before were now looking for trusted lenders.

Arvest is a brand that is trusted and considered safe, White said.

The main reason customers choose Arvest as their mortgage lender is because their loans are serviced locally, he said.

“We keep the servicing of their loan right here in Northwest Arkansas,” he said. “They can go to the bank and make a payment, and if there’s a problem, they can go to their loan officer.”

For example, Fort Smith customers who experienced storm damage to their homes this spring were able to bring their insurance checks to the bank and get their repairs made much faster than someone getting their loan serviced in another state.

In 2007, the value for commercial and residential lending in Benton and Washington counties was about $7.5 billion, down from $8.8 billion in 2006. The 46 institutions on the list processed a total of 23,408 loans in both counties in 2007, down 16 percent from the 27,975 loans processed by 48 lenders in 2006.

But year-over-year comparisons are not apples to apples because some lenders have dropped off the list, while others closed enough loans to qualify.

The average dollar value of each loan made in the two-county market during 2007 was $257,297.

This year’s list is ranked by number of mortgages processed by a company within the calendar year and deliberately excludes credit unions, family trust transactions or any company processing fewer than 60 total loans in the two-county market within the year. Commercial mortgages and their values were included.

Waco Title Co. of Springdale, owned by Arvest Bank Group Inc., supplied the raw data consisting of lenders, dollar values and closing dates.

Janie Boyce, Bank of America’s senior vice president for Arkansas, said the horror stories told by the national media about the difficulties of getting a home loan are exaggerated.

“What you hear in the media is not the reality, especially not in Arkansas,” she said.

Bank of America, at No. 2 on the list, processed 1,579 loans for a total value of $2.7 billion.

Boyce attributes Bank of America’s success to the strength of the brand.

“We just have great products, a great reputation and great lenders out in the market,” she said.

Boyce said the lending business has changed as guidelines have become more stringent.

“We’re getting back into the habit of credit counseling,” she said. “Our lenders are working with customers to help them improve their credit scores, to help them save for the down payment.”

While lending standards are tighter, Boyce said people are still able to get loans, even with poor credit scores.

The Federal Housing Administration offers 3 percent down, 30-year fixed rate FHA-insured mortgages for those who qualify.

As a result, mortgage lenders are processing a lot more FHA loans.

In 2007, the majority of loans processed by Arvest were conventional, fixed-rate loans, White said. In 2008 more than half of the loans processed by Arvest are FHA-insured, he said.

In fiscal 2008, which ended Sept. 30, FHA insured more than 1.1 million single-family loans, up from 425,000 in 2007.

Chris Morrison, president of the mortgage department at Signature Bank of Arkansas, said FHA loans had nearly faded into obscurity until recently.

“Now they are very much popular again,” she said. “They’re a good fit for a lot of borrowers now.”

Morrison said lending has gone back to the way it used to be.

“We’ve gone back to the basics of underwriting, where everything has to be verified, which I think is a good thing,” she said.

According to the list, Signature processed 14.5 percent more loans in 2007 than in 2006. Morrison attributes the increase to Signature’s new presence in the market.

“Part of that is because we just got started in 2005 and simply because we were still in growth mode,” Morrison said. “People were finding out about us and moving relationships over, that’s why we still had a good year in 2007 and will have a good year in 2008.”

The standards for Signature’s in-house loans haven’t tightened.

“We’ve always had sound underwriting guidelines, those have not changed,” Morrison said.

For secondary loans, she said, guidelines are much tighter. Lenders want to see a strong appraisal with good comparables, she said.

Properties and buyers are undergoing more scrutiny.

According to the Federal Reserve’s October senior loan officer survey, the majority of domestic banks have tightened their lending standards on prime, nontraditional and subprime mortgages over the past three months.

Tighter lending standards have led to reduced borrowing. Fifty percent of banks surveyed reported weaker demand for prime residential mortgages. Seventy percent reported weaker demand for nontraditional mortgage loans.

Boyce said Arkansas has fared a lot better than the rest of the country.

“We haven’t seen the foreclosure rates that the rest of the country has seen,” she said. “We didn’t experience the huge increase in home prices over the past few years like California and Florida.”

White agreed that the housing market in Northwest Arkansas didn’t fluctuate as much as other parts of the country.

“While we saw nice appreciation, compared to the coasts we did not experience the incredible boom period,” he said. “Because of that, we’re not experiencing this incredible bust.”