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| WASHINGTON — Nonprime mortgage bankers opened a conference in the nation’s capital this week by discussing issues ranging from the “normalizing” of the housing market to one leading industry player’s plans to shake up its organization from top to bottom.H.R. Block’s Consumer Financial Services Group, composed of H.R Block Financial Advisors, H.R. Block Bank and Option One Mortgage Corp.-subsidiary H.R. Block Mortgage, will be undergoing more changes in the next 18 months than it has seen in the last 10 , the company’s President Steve Nadon told attendees of the Non-Prime Lending and Alternative Products Conference held in Washington, D.C. Everything from sales to back end operating processes will be redefined.
“We think it is critical to the long-term success of our operations,” he said at the Mortgage Bankers Association-sponsored event. Noting that it is much more difficult to earn income in the nonprime sector these days, the executive of the Missouri-based company said lenders that can’t compete on costs will not be able to compete in the marketplace. He also said the next 12-24 months will determine whether currently-profitable nonprime companies are “lucky” or “talented.” Nadon said that, because the company is convinced that the that the operating models in place for the last 10 years are not the operating models that are going to work in the future, the company is taking a critical look at everything from the use of titles to the utilization of technology. H.R. Block has already started examining the skills required of a particular part of the mortgage process and aligning people around the required skill set in the interest of increasing productivity and offering more and varied product, he said. He also said the company is shifting from a “heavy fixed cost structure” to a variable cost structure. He suggested that other companies undergo an introspective process by determining whether tasks can be eliminated, automated our outsourced and, if not, investigating whether there some way to make it more efficient. Nadon said he’s optimistic about the future of the nonprime sector, telling the audience that if the sector can do the same things that prime sector companies have done, the non-prime sector can achieve “tremendous volumes” and will see “great success stories.” Kurt Pfotenhauer, MBA’s senior vice president, government affairs, addressed the impact of politics upon the real estate finance industry. Noting expected volatility in Congress, Pfotenhaur said that “with a whole different regime in place,” the industry could be facing pragmatic legislators who bring a definite point of view to bear upon the industry. He also said the real estate finance industry could be facing a concept applied to stockbrokers: suitability. Suitability means that when a stockbroker recommends an investment to a potential investor, that the investment must be suitable for the individual. For example, stockbrokers are not supposed to recommend highly-risky investments to the elderly unless the risks are fully explained because it is felt that such investments would not be appropriate for their investment portfolio. Pfotenhauer said policymakers are asking whether the real estate finance industry should be subjected to the suitability standard in order to assure consumers they are getting a good deal on the mortgage product they select. The details of such an application have yet to be worked out and Pfotenhaur said the industry needs to determine whether it will take a strong stand that the market can regulate itself or take a more progressive stance on the topic. He also said he expects a national predatory lending bill to be passed in two years. MBA Senior Vice President of Research and Business Development Doug Duncan said the housing market is returning to a more normal state where the national average price will rise but housing prices in some markets will fall. Delinquencies and foreclosures are expected to undergo a modest increase but working against this is an expected increase in the number of jobs added to the national economy, he said. Duncan noted the “big substitution of nonprime lenders for FHA loans.” Twenty-four percent of the loans originated in the second half of 2005 were non-prime, he said. Borrowers are also increasingly practicing “balance sheet debt management” with more and more households obtaining cash-out refinancings, he explained — noting many consumers have recognized that the cost to refinance their home loans has decreased, leading to a willingness to take a good loan deal if it is offered. Duncan said nonprime cashout refinances performed better than “catch-up” refinance loans on the prime side. In the nonprime sector, 88 percent of the refinance loans obtained contained a cash-out component, on the prime side the number is at 72 percent. Adjustable rate mortgages represent 73 percent of nonprime loans, while they make up just 53 percent on the prime side. Duncan mentioned a “big shift” taking place as consumers move away from adjustable rate mortgages into fixed rate mortgages as interest rates rise, while an increasing number of consumers are obtaining interest-only loans. Savvy consumers are also matching their loan terms to the number of years in which they expect to live in their houses, Duncan said. |
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Lisa D. Burden is a legal analyst for MortgageDaily.com and holds a law degree from the University of Maryland. She is currently a freelance journalist who previously wrote for Institutional Investor publications and the Baltimore Daily Record. e-mail Lisa at: burdenlisa@yahoo.com |
