In Northwest Arkansas, Mortgage Lending Still Hot

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There may be an oversupply of residential and commercial space in Benton and Washington counties, but that didn’t slow mortgage lending much in 2005.
In fact, some people blame “the banks” for the current glut of unoccupied space. Despite what side of the fence you’re on, one thing is certain: mortgage lenders are upbeat about the market being able to absorb the oversupply and they’re sure it’ll mean more business for them through the end of 2006 and into 2007.
The dollar value of processed commercial and residential loans in Benton and Washington counties was down slightly for calendar 2005 from a banner year in 2004.
In 2005, the value for commercial and residential lending in both counties was about $13.81 billion with 42,366 total loans closed, down from 2004’s $14.26 billion according to data collected and tabulated by the Northwest Arkansas Business Journal.
Of the two county’s totals, 36,019 loans with a value of $9.74 billion were made by 59 unique institutions on the Business Journal’s 2005 list of Northwest Arkansas’ largest mortgage lenders.
The number of processed loans tracked by the Business Journal was up, from 2004’s 30,833, but the value was down slightly from $10 billion that year.
The average dollar value of each loan made in the two-county market during 2005 was $270,425.
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 75 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.
Both the 2003 list and the 2004 list ranked 40 lenders, but the 2005 list jumped to 59 qualifying companies, indicating that competition for commercial business has become more fierce for both local and out-of-market lenders.
Many area lenders said that Internet lending is increasingly taking a larger bite out of the residential business on a national scale. But those same lenders said they haven’t seen their business affected much.
In fact, 20 of the 59 lenders on the list did not have a local address and 19 of the top 20 firms have offices in the two-county area. Fifteen of the top 20 lenders are banks with full-service offices in the area, proof that the business is still “rates and relationships.”

Bank LPOs
There are at least two loan-production offices (LPOs) tied to banks from outside the market on this year’s list, and at least one that entered the market this year.
LPOs are typically a way for a bank to enter a market without major investments in full-service offices. Sometimes, as in the case of Little Rock-based Bank of the Ozarks and Metropolitan National Bank, those LPOs are the vanguard of a bank’s future retail operations. But in other instances, an LPO is an affordable way for a bank to generate business away from home base with no intention of building branches.
ANB Financial N.A. of Bentonville (the No. 2 lender in Northwest Arkansas) has branched outside the market the last two years by opening an LPO in St. George, Utah, and another in Jackson, Wyo.
ENG Lending is a subsidiary of the Bank of England (Ark.) and opened an office in Rogers in August of 2004.
Tim McClung, manager of the Northwest Arkansas office, said the Internet is a big part of the bank’s overall lending strategy. The bank closed loans in 19 different states in October, he said.
But in Northwest Arkansas, it’s mostly about relationships.
Not all the loans generated by ENG close as ENG loans. Some loans close under the secondary market lender’s name (such as Countrywide), McClung said. But ENG closes between 20 and 25 loans per month in the Bentonville office. ENG is No. 33 on the mortgage lenders list.
The Bank of England had $167.9 million in assets and $146 million in deposits as of June 30. ENG’s average market loan value for 2005 was $178,927.
Great Southern Bank, chartered in Reeds Spring, Mo., has operated an LPO in Rogers since 2003. It came in at No. 40 on the mortgage lenders list.
Ron Pender, a vice president with GSB, said the office is about 1,500 SF and employs five people.
The bank’s primary business in Northwest Arkansas is commercial. In 2005, the office closed on 136 loans valued at $91.4 million, as tracked by the Business Journal.
Pender thinks the value was closer to $108 million, but noted that some loans may have closed outside the two-county area.
GSB has three other LPOs outside of its main coverage area around Springfield. The bank had total assets of $2.24 billion as of June 30.
GSB is financing the construction of the 40,000-SF University of Arkansas for Medical Sciences Northwest Arkansas Center for Children in Lowell. The building is owned by The Pinnacle Group of Rogers and is valued at $10 million. The bank’s average loan in the two-county market during 2005 was $627,205.
James Oldham is a senior vice president for Moline, Ill.-chartered Valley Bank. The bank opened an LPO each in Tontitown and Rogers this year, and has one loan originator in Siloam Springs.
Valley Bank’s total volume since May has been about 100 loans with a dollar value of about $25 million, Oldham said, making an average of about $250,000 per loan.
Valley Bank had assets of $556 million as of June 30.

Outlook
Ross Mallioux is the chief lending officer and president of First Federal Bank of Arkansas’ northwest division, which was the No. 4 lender on this year’s list. He said the bank’s lending in 2006 is probably down some from 2005, but the outlook for mortgage lending is good — in the long term.
Mallioux cited the oversupply of residential property in the market, but said that it could be good for the lending business as the supply is absorbed.
McClung said 2006 has been incredible to his business, which is primarily residential purchase mortgages.
“July, August and September were the three biggest months I’ve had out of this shop,” he said. “And I see no slow down in sight.”
In fact, ENG is opening another office in Fayetteville in early December.
People looking to refinance out of adjustable-rate mortgages into fixed-rate mortgages will probably provide a mini-boom, McClung said.
“My biggest obstacles are the appraisals,” he said.
Underwriters are requiring more “science” as to why a property is worth what the appraisal says it’s worth, McClung said.
And the competition for the mini-boom will be hot. Borrowers are more rate and deal savvy than they were 10 years ago Oldham said.
“Everything’s Monty Hall — it’s ‘Let’s Make a Deal,'” he said.