At the Mortgage Bankers Association's (MBA) National Secondary Conference & Expo third general session last week, the focus turned to coping with the post-refinance boom environment. While volume is not exactly in a downward spiral, Marc Hochstein, mortgage editor at ASR's sister publication American Banker, described it as "going down, up, down."
"There is no easy answer," said Jason Bohrer, executive vice president at SunTrust Mortgage, Inc., adding that in this cyclical business, people just have to be "fast on their toes."
The challenge is to create a working balance between permanent employees who sometimes have to put in extra hours and contract or temporary workers, who pick up the slack when things heat up.
Robert Broeksmit, president and chief operating officer of B.F. Saul Mortgage Company, said that at a certain point his firm realized it had too few permanents and were overpaying temps. At that point, B.F. Saul had to view the situation as balancing variable costs and fixed costs. The firm's robust business was more sustainable than executives had initially thought.
He added that when the lending business is not as hot, his company offsets this situation by taking profits from its servicing portfolio and yields from the loans that they own.
Diminishing volumes are not as much of an issue in the non-prime sector. Steve Nadon, chief operating officer at Option One Mortgage Corp., noted that his firm hasn't had to lay off any of its staff yet. "The pressure is just on the margins," he said. "Our volumes are just going to continue to grow."
He added that rising interest rates might actually be beneficial for Option One because "we have more flexibility in what we do."
Aside from staffing issues, lenders are under pressure to keep pace with the current variety of mortgage products - such as stated income, stated asset and interest-only loans - to maintain volume. The challenge is maintaining volume without letting credit slide. Good underwriting becomes key here.
For example, for stated income loans, where borrowers do not report their actual income in the application process, it might make sense to exclude low FICO or high LTV borrowers, said Saul Mortgage's Broeksmit.
There should be offsetting factors, such as accumulated equity, good credit and valid reasons why borrowers refuse to disclose their incomes. Examples of these are self-employed individuals or those who are paid in cash.
Panelists said that in terms of interest-only loans, for instance, they only offer these mortgages at relatively higher interest rates and only to borrowers who are not using IO loans as a qualifying vehicle.
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