Mortgage Lenders Look For Silver Lining in Housing Slump

Many mortgage lenders began feeling the effects of the area’s slowing housing market and growing credit crunch during the second half of 2006. In fact, area lenders closed 5,589 fewer mortgages in 2006 than in 2005.

Most of the firms on the largest mortgage lenders list annually compiled by the Northwest Arkansas Business Journal, closed fewer mortgages in 2006 than in 2005.

(View the list here.)

The top five lenders for 2006 all recorded a negative year-over-year comparison. And five in the top 10 closed at least 25 percent fewer loans during 2006.

The total number of mortgages closed in Benton and Washington counties last year was 28,469, down 16.4 percent from 2005’s list.

However, the total dollar value of all the loans processed by mortgage lenders that made this year’s list was $8.86 billion, a 0.6 percent increase from 2005.

The average dollar value of each loan made in the two-county market during 2006 was $301,530, up from $270,425 in 2005.

This year’s largest mortgage lenders 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 Bentonville-based Arvest Bank Group Inc., supplied the raw data consisting of lenders, dollar values and closing data.

Area mortgage lenders said multiple economic factors contributed to Northwest Arkansas’ slowing mortgage market.

In 2006, home sales began to slow, which led to fewer residents applying for home mortgages.

In the first quarter of 2006 there were nearly 2,100 completed but unoccupied homes in Benton and Washington counties. By the fourth quarter that number increased to just more than 3,100 homes, according to the third quarter Skyline Report compiled by the University of Arkansas’ Center for Business & Economic Research for Arvest Bank Group.

Increasing foreclosure rates coincided with an over abundant home market.

Some banks began taking a second look at applicants and re-evaluating their lending standards.

A total of 600 foreclosures were filed against properties in the two-county area during the first half of 2006. The number of foreclosures increased to 872 during the second half of the year.

With more mortgage holders defaulting on their loans and fewer people applying for mortgages, lenders found themselves losing ground.

Last year’s list included 59 lenders and had a minimum of 75 mortgages closed in the two-county area.

Although the minimum number of mortgages closed in the two-county area was widened to 60 for the 2006 list, only 51 mortgage lenders made the cut, further illustrating the industry’s downturn.

While no mortgage lender is happy to see negative numbers, many insist the 2006 slowdown wasn’t all bad news.

Mortgage lenders said last year’s lending trends have continued into this year and they expect to end 2007 at the same levels as 2006.

Jim Taylor, Northwest Arkansas division president for Searcy-based First Security Bank, said his bank began funding fewer speculative homebuilders in the second half of 2006 in response to slowing home sales.

“We had a good market and we will continue to have a good market,” Taylor said. “We still have a lot of people moving to the area and taking out first mortgages. We are seeing some slowdown in mortgage lending but that’s not necessarily a bad thing. Instead of being in hyper drive we will now be in normal drive.”

Customer Service

Wells Fargo Home Mortgage jumped to second place on this year’s list, up from sixth place in 2005.

Stephan Gerlei, Northwest Arkansas district manager for Wells Fargo, credited his team’s customer service skills and quality of business for helping the national mortgage lender increase its market share despite a 9.6 percent decrease in the number of mortgages it closed in 2006.

Gerlei has doubled his staff at the company’s Springdale and Rogers offices and forecasts the locations to close $100 million in mortgages in 2007 (it closed $180 million in 2006) and to close $140 million in 2008.

The secret to Wells Fargo’s success in the market is not dozens of locations and splashy ads, Gerlei said, it’s the company’s diverse products and ability to service a mortgage on site.

Todd White, Arvest Bank senior vice president and loan production manager for Arvest Mortgage Co., said Arvest’s decision to retain the servicing aspect of the mortgages it closes has helped the bank retain its market share and customer base.

For the past seven years, the bank has focused on creating more value for its customers. Servicing its loans is one way for Arvest to gain more face time with customers.

“If anything, we’ve seen a positive effect on our business,” White said. “Because we retain the servicing on 98 percent of the mortgages we make we can usually solve customers’ issues right here. Our ownership has remained very clear that we make the loans and then we service the loans.”

Rick Anderson, senior vice president for Little Rock-based Metropolitan National Bank, said the bank’s growing presence in the Northwest Arkansas market helped it record the list’s largest year-over-year increase.

MNB had a 210 percent increase in the number of mortgages it closed in 2006 compared to 2005.

A boost in the bank’s Northwest Arkansas mortgage team from two to five loan originators and support staff and multiple locations helped the bank provide greater customer service and increase market share.

White said customer service will continue to be a key component for all mortgage companies as the housing industry continues to slow.

Moving Ahead

In response to the worsening sub-prime credit crisis, many lenders said they have tightened their lending restrictions.

Gerlei said Wells Fargo continues to offer its diverse mortgage product line but has tightened its lending restrictions on many products in an effort to avoid the foreclosure process.

Many lenders are forecasting their lending numbers to remain close to their 2006 levels.

With sub-prime mortgage rates scheduled to reset in 2008 many lenders said they foresee an influx of customers hoping to refinance their home mortgages.

Taylor said the refinancing market will be predicated by residents’ ability to retain the equity in their homes.

But lenders are not overlooking first time homebuyers.

Excess inventory and falling home prices have created a buyer’s market in Northwest Arkansas and many lenders said they still expect to close a strong number of mortgages for first-time homebuyers.

The upside of the credit crunch and rising foreclosure rates, many lenders said, is the lasting impact it will have on the lending community.

“The market will get better and the turmoil will stabilize and the industry will continue to grow,” Gerlei said. “Last year and this year were just the economy weeding out those lenders that don’t need to be doing business.

“That’s the way capitalism works.”