It’s an interesting time to be a mortgage originator.
The year started off with a bang, with solid housing sales numbers coupled with improving construction figures. Many thought that 2020 could be a banner year in the mortgage industry — but that was before the coronavirus pandemic became the biggest story of the young year on a global scale, wreaking havoc on people’s daily lives as well as on the economy.
Still, as the year goes on, every day brings us one step closer to the light at the end of the tunnel, and potentially, to a dormant market just waiting to reawaken. And with the big reveal of Scotsman Guide’s newest Top Originators rankings, we thought it would be the perfect time to pick the brains of some of the industry’s pinnacle producers and thought leaders for insights, observations, and best practices for 2020. We spoke to many of our highest ranking originators, consistent contenders and rising stars alike, to hear from the about their three P’s of 2020: perspectives on what’s going on in their markets, predictions on what’s to come, and pointers on not only surviving these turbulent times, but also differentiating your business, leveraging new opportunities and finding ways to maximize the lending landscape.
Each week, a new originator will be featured here, as well as on The Originator, Scotsman Guide’s daily email newsletter for leading mortgage professionals. As the weeks go on, we’ll be compiling a knowledge base straight from the experts, so be sure to watch this space — and subscribe to The Originator — for more insight from our Top Originators!
This week: Hear from Larry Gonzales of Aligned Mortgage, the #1 Top Veteran Originator of 2019.
“You may not hear it mentioned a lot, but there’s a big, big [military] presence here [in Hawaii]. In fact, one of the things that has helped our housing market lately is that military is such a big part of the economy here.
“Tourism is a very important, integral part, obviously, but with everything shutting down [due to the COVID-19 pandemic], we’ve got something like the third-highest unemployment in the country here, because so many of our tourism people can’t work. Fortunately, our military presence here is so strong that I have more people who are preapproved and looking for a home than I’ve ever had. I have clients that put in an offer and they’re competing against 10 people. It’s super competitive. Really, anything under a million dollars, it’s going at or above asking price right now.”
“The recovery of the economy in Hawaii — it’s going take some time. Because, uh, there’s no way that, you know, once shelter-in-place is lifted that we’re just going to open up the airports and say, ‘Hey, come on in. Bring everybody from all over the world,’ like it was before. That’s just not going to happen. The recovery is just going to be, I think, very slow economically for certain industries, and tourism will likely be one of those.
“That’s going to slow things down a little bit here. But really, again, in this area, there’s such a huge military presence that it’s just going to be more opportunity for folks to buy homes using their VA benefits. Buyers are still out there, and there are people who are going to take advantage of this opportunity with the low rates. And if you’re a seller, because the inventory is so low, talk to any lender or Realtor out there and they’ll tell you now is the perfect time to sell your home.”
[O]ur military presence here is so strong that I have more people who are preapproved and looking for a home than I’ve ever had.
“I’m doing what I’ve always done, and that’s staying in touch with my past clients and people I work with. I don’t ask them for business. I just see how they’re doing. Stay engaged in the community. Engage with Realtors and get them pumped up. It’s a hard time right now for a lot of people, so this is a time when you get out there and show your worth. Positivity is big with me, and now is the time for it if it ever is. You can’t do this all alone, you know? It takes people listening and working together for all of us to be successful.
“So I call. I email. I do Facebook ads to them and it’s not selling anything. Just putting content out there — mental health, positivity, inspiration. … I meditate every morning, and after I’ll put my thoughts down, and I’ll put it out there. And my clients, not all of them see it, but some of them do. It makes a difference, and you know, people remember that.”
And check out 3 P’s from originators featured in previous weeks:
New American Funding
“Anybody that’s a producer can tell you that the jumbo stuff’s just about impossible right now. Non-QM is impossible. And steady Freddie [Mac and Fannie Mae] is where the money’s being made. Right now, if you’re a loan officer and you’re not adapting — which means becoming a Fannie Mae and Freddie Mac loan specialist — you are old news.
“Out of the hundred-[million]-whatever [dollars in origination volume] that I do a year, about 80% of it is non-QM jumbo lending. And that’s dried up because the investors have run scared, because they’re worried about the equity in the homes, the job market, and the stock portfolios. Those private investors have bailed the market for now. There are still some, but you’re going to get crucified to get the money.”
“It’s going to come back in the next few months, because the stock market is the underlying factor. The stock market creates downpayment and spending confidence. If that stock market stays high, people will go out and shop. The restaurants are coming back. The casinos are opening. [People] are going to go out and go on vacation. If that happens and consumer confidence goes up, the housing market will follow, the downpayments will be there and everybody will start getting back to the non-QM stuff again. That’s not for sure, but that’s what I see happening towards the end of the year.
“And just a little bit of good news would really take it a long way. I think you’ll start to see the investors in the private markets jump back in and that would circulate the lending better.”
Right now, if you’re a loan officer and you’re not adapting — which means becoming a Fannie Mae and Freddie Mac loan specialist — you are old news.
“[Non-QM and jumbo are] still doable. I closed three of them this month. But the way that they verify things now, they’re looking really hard at your March and April bank statements to see if your deposits are still flowing due to the effects of COVID. I just forewarn [jumbo and non-QM borrowers] upfront and I say, ‘Hey, look, you’re going to get to know me and vice versa. So let’s get this. Let’s just get it on the table and start dissecting it.
“You’ve got to have 25% down. You still have to have good credit. You have to have good reserves. You have to have cash flow. You have to have current good credentials that aren’t going to knock you down due to COVID. In the meantime, when people call me, I’m basically telling them, ‘Hey, if your loan is not adjusting but you can wait, just give it a couple of months.’ I’m putting them on my prospect list and I’m telling them to take a breather until things get better. The markets are hitting low interest rates in the high-end space, but not really much lower, because there’s not enough players there.”
“Some of the suburb markets have done a little bit better. I think some people have, because of this, wanted to move out of smaller spaces [like condos] where there’s more chance of contact and move into suburbs. We’re seeing some move out of the city right now, for sure. I think those suburban markets will actually do really well.
“And, you know, it may just carry over [post-coronavirus]. We know that people generally, as they get older, move further out, right? I think people are making that big move faster than they would have before — giving up the shorter commute in order to do that. I bet you there’s going to be some parts of this work-from-home movement that will carry on going forward. And if that’s the case, then there’s really no reason to be living in an 800-square-foot condo when you could have a four-bedroom, two-and-a-half-bath house further out for the same price. We’re definitely seeing some people go right from that initial starter condo right to their house in the suburbs, as opposed to doing that intermediate second level condo. And we’re seeing that a lot, perhaps partially because of what’s happening.”
“Honestly, none of us can be 100% certain anymore of just about anything, just based on what’s happened. But my gut says that we see the spring market just delayed into the fall. I’d be surprised to see it in the summer. I wouldn’t be totally shocked. But I would be very surprised if we didn’t see a very robust fall market. Almost like a combination of the spring and fall at once in the purchase world.”
Lenders better gear up, have their processes in order and make sure they hire properly, because I’m not seeing refinance activity slowing down after this.
“Lenders better gear up, have their processes in order and make sure they hire properly, because I’m not seeing refinance activity slowing down after this. And in combination with the purchase world bouncing back, that would be a ridiculous volume coming in. I’m preparing for it: We’re hiring ahead of this to make sure that we’re prepared for the fall.
“This [crisis] has kind of tested people’s processes and communication more than anything that could have tested things before. We weren’t given really much of a warning — it just happened. The lenders that are able to push through this, you’ve got to be ready for the fall. I mean, if we can communicate and provide good service through these crazy times and challenging environment, I think once everybody’s back in an office, I expect to be really producing at a high gear. We had a strong market before this, and I think we could be in for a very strong market after it. But I do think that you need to make sure you’re staffed properly come September.”
“We had a deal that was supposed to close on April 30 for $17 million, with a $10 million loan. The buyer basically, through his real estate broker just sent us cancellation instructions because of COVID-19. The guy was heavy into real estate. His tenants couldn’t pay him, so he just didn’t feel comfortable buying that kind of house. This is affecting everybody, though obviously to varying degrees. Even our jumbo market feels the impact.
“I think it’s best to look at it in the context of comparing what’s happening here to another recent struggle like 2008 in that, in 2008, people were still working. … This specific crisis is affecting not just people who were overleveraged on their loan. A lot of the people I deal with are business owners, and they’re trying to navigate their businesses through these tough times. Back to that big purchase — here’s someone who now has to decide if they want to buy a house or if they want to keep that $7 million around for their business. For him, obviously it was the right move to back out of that escrow given the difficulty he was having in collecting rents and with the loss of revenue.”
“I think we’ve learned that you can stagger in your people, at least on the broker side. Maybe [after coronavirus has passed], you can have some people come in three times a week and some people come in twice a week. Maybe you still just have a couple of people working from home or remotely, which will probably lead to less space needed. Maybe less fixed cost, maybe get the business a little bit more efficient.
“The mortgage broker side has been pretty well-equipped to handle the move to working remotely. The technology will only get better, and we’ll get better at using it. Maybe working apart won’t be such a big deal as I maybe thought prior to COVID-19. I never thought I’d be able to keep production numbers going with everybody working remotely. As far as silver linings go, our business is seeing where we can evolve, and the office paradigm all the time might be one of those places.”
We’re getting deep into the financials to ensure that the bank can get comfortable with the deal, because that’s what this environment calls for.
“It’s funny. I was listening to a hedge fund manager talk about what he’s doing on his equity investments. He says, ‘It’s really quite boring work right now. We’re rolling up our sleeves and we’re digging into every single financial of every company we want to invest in. It’s not exciting work.’
“And I thought a lot about that. Not that we’re a hedge fund, but I thought, ‘You know what? That’s what we’re doing. We’re digging in upfront to ensure that our client can get their loan now more than we have in a long time — even beyond what we’ve normally done, and we normally do terrific due diligence. We’re getting deep into the financials to ensure that the bank can get comfortable with the deal, because that’s what this environment calls for. These are the things we have to do going into a loan so we can properly convey that to the lender and still get these loans done, because the big question lenders are having right now is, ‘How have you been affected by COVID-19?’”
Finance of America Mortgage
“We’re going to see a stall in the next wave of buyers because 50% of them are probably going to be unemployed for a little bit. We’re going to see our buyer pool shrink. We’ve already seen it here in southern California. We have seen our buyer pool shrink, but you know what? It’s had some interesting effects, combined with the social distancing.
“On the one hand, there’s less competition. But take this house in Long Beach. There was a house listed for $700,000. They had 20 offers. If we get back to the normal market and people can feel and touch homes and you know their restrictions are listed, maybe that home sells for $680,000 and there’s only three offers. The market’s so different because you can’t go feel, touch and get inside of a home, and we’re seeing some interesting things.”
“In southern California, there is no land, unless we’re going New York-style and building straight up, which we are seeing. In downtown L.A., they are following that pattern. But there are no single-family type areas where you can just go level fields and build new housing tracts, unless you move to the Inland Empire. And so at least here, I still think value’s going to hold, just because of that. We will see a little bit of a dip. I just don’t know how much of a dip. Obviously, the longer this drags out and the longer that people can’t work, the longer effect it’s going to have on real estate for sure.”
We have seen our buyer pool shrink, but you know what? It’s had some interesting effects, combined with the social distancing.
“The thing with mortgage is we are pretty adaptable. In my business, I don’t meet any clients. Everything is already done by phone, email, texts, Facebook Live, [and] Zoom meetings. I’ve been using Zoom for the last three years. People used to say, ‘What’s that?’ I’m like, ‘Don’t worry. I’ll send you a link.’
“So that’s the thing for mortgage: We’re ready for this. Real estate’s going to struggle until people can start showing homes again. But in mortgage, we may all be working from home now, but we can do this. And now’s the time more than ever to really get into that technology, because once this is over — hopefully soon — everybody’s going to be more used to it. If you’re not already, get good at making it smoother for all your clients now through all this tech. They’re going to remember it forever, especially during a tough time like this might be. It’s an opportunity.”
NJ Lenders Corp.
“As of today, I think the biggest thing is just going to be what we can salvage. I think the housing market’s come along so far since ’08 [and] ’09. Hopefully, what we’re going through right now is not going to damage it too much because I think it’s really on the right track. It’s really headed in the right direction and I really hope that this setback isn’t going to be something that really paralyzes housing again for the next five to 10 years to come. I don’t think it will — I do think if we can get through this quick enough, I think the housing market may be one of the leading driving forces of recovery.”
“The momentum we built from Jan. 1 until [right before the pandemic hit] is very, very good momentum for this time of year. I think the momentum is going to drive us through the next quarter. I think the third quarter will be slow based on originations being down as we speak right now, especially purchases. But I do feel that if this is short-lived, the fourth quarter will be a very strong quarter, because I feel that you’re still going to have a lot of people looking to buy homes. And you’ll maybe have a lot of people that are going to be selling just because of their situations changing in life. That could possibly continue to fuel that first-time home buyer.”
I do think if we can get through this quick enough, I think the housing market may be one of the leading driving forces of recovery.
“Even now — especially now — I stick to the basics. Stick to the core of what I believe in: customer service. And just use all the knowledge given to you. I just feel that being educated — overly educated — on the changing programs and and guidelines is extremely important right now. I know it’s simple. It’s not rocket science. But it’s so important just to be on top of everything in such a difficult time, and combine that with that customer service aspect. That’s going to lead to you giving [clients] the best experience, and it’s going to allow them to remember you and call you back in the future.”