VOL. 123 | NO. 58 | Monday, March 24, 2008
Trends & Analysis
Local Banks Ramp Up Lending Services
By Eric Smith
"We're excited about the future. Right now it's a little painful, but we're in it for the long term and we're making an investment in our future."
- Philip Fons
BankTennessee executive vice president, head of home lending team
Philip Fons admits it might sound a little "crazy" for a bank to expand its mortgage division in uncertain economic times such as these, but that's exactly what BankTennessee is doing.
The Collierville-based community bank, where Fons is executive vice president and head of the home-lending team, has added - and will continue to add - mortgage originators while other companies slash payroll in response to a slumping real estate market.
When the nationwide subprime fiasco sent the mortgage industry into a tailspin that began last summer, many lenders reacted by shedding underperforming loan officers to reduce expenses.
For example, First Tennessee Home Loans, a division of Memphis-based First Horizon National Corp., last September cut its mortgage sales force in half. More often, victims of the debacle were lesser-known, smaller mortgage companies that shuttered their offices.
However, that widespread attrition afforded BankTennessee and others the chance to bring on more home loan specialists - sometimes taking them from the very companies that downsized - even as mortgage filings were decreasing.
"Most of those mom-and-pop or fly-by-night mortgage shops have closed shop and lost their ability to do business," Fons said. "Yes, the volume of mortgages has gone down considerably. But it's temporary and we all know that it will come back. When it does, there will be less mortgage shops open, and we'll all benefit from it."
Tightening or disappearing
Industry experts agree most of the companies weathering the storm so far have tightened lending guidelines and significantly cut back - or perhaps altogether eliminated - their subprime lending to reduce exposure.
That marks a 180-degree turn from the lending practices of the mid-2000s up through early 2007.
"The credit standards are much tighter in comparison," Fons said. "If you had a pulse, you could get a mortgage a year ago."
Now it's the mortgage industry whose pulse is barely detectable. Many companies haven't survived. They went under or dissolved their subprime lending divisions, and the demise has been well-documented.
Since late 2006, when the first signs of subprime fallout appeared, 241 mortgage companies have gone under, according to The Mortgage Lender Implode-O-Meter (ml-implode.com), a Web site run by Las Vegas-based Implode-Explode Heavy Industries Inc. (IEHI), which tracks the industry.
Factors such as prolific subprime lending, declining home values and a nationwide credit crisis created a "perfect storm," especially on the East and West coasts.
"The biggest crisis that I'm seeing out there is the falling housing values," said Randall Marquis, senior editor for IEHI. "You've got to look at it from that point of view. There are a lot of great people out there in 'A' paper loans that are upside down."
Marquis said IEHI mainly tracks larger mortgage lenders - those that maintain at least $20 million in loan origination volume. He said if the company lowered its floor, the number of "imploded" companies would rise significantly.
"They're still falling like flies daily," Marquis said. "A lot of them are so small that we don't even mention them."
Good stories to tell
For all the woe in the mortgage industry, there are plenty of success stories. And BankTennessee's expansion isn't the only one.
Virginia Green, president of Evolve Mortgage Services Inc., said her company has the advantage of keeping its underwriting in house, and because of that, her staff of loan officers has increased from eight to 13 in the past few months.
"We're doing nothing but hiring," she said. "I don't have places for anyone to sit. I've filled up all my offices at this point. We're benefiting from the companies that are shrinking."
Green, who has worked in mortgage lending for many years and for many different companies, called it a "volatile business," and this latest mess isn't cause for too much worry.
"It goes up, it goes down - it always has," Green said. "I was in it when the interest rates were 16 percent. I'm not going to tell you that we haven't experienced some turmoil; we have. The main thing we've done is gotten rid of some brokers that were out there making bad loans, making loans to people that they shouldn't have been making, putting people in houses they should not have bought."
The banks and mortgage companies that didn't make all those bad loans likely will be the ones standing once the adjustable-rate mortgages fizzle out and the foreclosures begin to fade. Often, they are the same ones beefing up their mortgage teams for the day things do turn around.
"Our opinion is that the consumer will, in the future, look to banks - especially community banks - for their mortgage needs," Fons said. "We're excited about the future. Right now it's a little painful, but we're in it for the long term and we're making an investment in our future."