Editor’s Note: This is the fifth installment in the “Industry Warriors” series, a collection of profiles on veteran real estate professionals and lenders who produced high volumes pre-9/11 and pre-2008, weathered those economic downturns and rebounded even stronger.
After two stints in retail lending and a mission to support the independent wholesale channel, Andy Harris opened his mortgage broker company in 2007.
“There are a lot of things I didn’t support in the market like subprime lending, the pay option ARMs — the writing we saw on the wall, essentially,” Harris said. “So people thought we were crazy because I was starting a business when everybody essentially was running the other direction, especially away from wholesale.”
Thirteen years later, his company, Vantage Mortgage Group — serving Oregon and Washington — has been profitable every quarter since 2007, Harris said. A supporter of originator independence, he also has gone on to serve as president of the Oregon Association of Mortgage Professionals and executive director and treasurer of the National Association of Mortgage Brokers.
HousingWire spoke to Harris about his advice for navigating today’s market.
This interview has been edited for length and clarity.
HousingWire: What are you doing within your lending business to adapt to the current market situation?
Andy Harris: I would say that the difficult one that we hadn’t dealt with before, even in the financial crisis, was forward locking. In my opinion, a lock makes a loan primarily, if it’s a refinance or purchase. Of course a refinance, the benefit is determined by the actual rate. So if you are speculative or assumptive, and you’re submitting a bunch of loans that are floating that aren’t locked, well, those loans aren’t really loans yet until they’re locked. It would clog up our company, it would also clog up the lender if you’re just submitting things to submit them that aren’t even loans. That’s a concern. That’s why forward locking is vital.
Now, about 20% to 30% of our lenders, maybe 40%, just as of today, are not forward locking, but the majority are. So we’re not even looking at the investors that aren’t forward locking because of all the issues not only compliance-wise, but all the issues where there’s just too many unknowns and your client’s going to be in a difficult position because there’s no terms solidified.
Same goes for a home purchase. You could imagine getting in contract at a home purchase, and if you can’t lock your loan, if you have to close it in 30 days or less, you still have to close. It’s unlikely that rates are going to make a huge drop in 30 days. So find a window of time, you can get a great rate. But if you can’t lock until it’s underwritten, or until it’s clear to close, rates are changing thousands of dollars per day, each individual rate that we’re analyzing each one.
Our thing is really prepping the team for if forward locking continues to be canceled, or on hold by many more lenders, in addition to overlays. Those are the things we have to react to because it’s changing on a daily basis. And that’s where it’s just you know, setting expectations with our team, preparing for that as well as our clients. And that’s what people just have to do is pay attention to what’s happening, be prepared for anything and just make sure your clients are informed. For us, the biggest one right now is locking, forward locking versus delayed locking.
HW: How are you encouraging your team to stay positive during this time? How are you staying positive?
AH: I don’t really feel any negativity right now. It’s about understanding what’s going on and what’s not. I think what happened is a lot of originators might have waited for some reason because right now there’s still a lot of people buying homes. Those that are impacted, we feel for them and we feel for the families; we’re trying to do what we can to help there. But there’s still a lot of people buying homes, we’ve got a very high level of TBD or to be determined applications for pre-approval this week.
In addition, prior to that, when we hit historic lows on the 30-year conforming specifically, as well as some of the government stuff … if your borrower likes it and they benefit, you locked that loan and so we locked a huge amount of loans, and now they’re all closing, everyone’s happy and they’re saving a lot of money.
Those windows come and go, and a lot of people I think floated for some reason. Even though rates might drop again lower in the year, you can’t miss those windows of opportunity as a reactive thing in a refi climate.
If you don’t set that client expectation, it can come with stress if a client is being difficult to work with or they’re applying pressure to you. I think that all comes to being a leader and being confident in how you communicate to your entire company, as well as all their consumers are dealing with.
HW: Are you seeing a coronavirus impact in any way, whether it is spurring people to make decisions or whether it’s keeping people on the fence?
Yes, primarily on the home purchase side. Right when it happened, I’d say about a week ago, we had maybe half of our applications fall out. They could have fallen out for (different reasons). A lot of them just said, ‘Hey, my business is directly impacted by this, and my wife and I aren’t comfortable’ or whatever it may be … they’ve just cancelled the application. So we have seen that.
The other issue is that we’re seeing issues like if you can’t have open houses, or people can’t view the properties. Right now we have a shortage of inventory in the Northwest, so it’s still a seller’s market. Sometimes we’re still seeing bidding wars; it’s still out there.
But it’s only those that have not been impacted directly; those that have, they just have a fear of the unknown, ‘Hey, if I’m committing to this new debt, and I’m entering this contract, I’m getting to the point where I’m not comfortable.’ We’re seeing about half of those fall out, and that’s unfortunate, but we’re also seeing a lot of new people who want to be pre-approved.
So I think, again, it’s still a seller’s market. I’m not concerned on home values right now. I think that because of the demand right now, and the lack of inventory, especially with spring coming, I think it’s still going to be a strong housing market, at least in the Northwest where we’re at. And every market’s a little different. When it comes to refinance, it’s all just about benefits. So if someone shows a benefit, they show a benefit, you just have to find those windows of opportunity.
My concern would be if we see that stabilization with rates, we could potentially, depending on what lenders in what category, we could see a potential clog again, if a lot of people jump into lock and refinance at the same time. But I think what’s gonna happen this time, lenders will come in, in pockets, and some lenders will start pricing aggressively.
I don’t think we’ll see that same problem we just saw, but we’re just hoping that this virus issue lifts where businesses can flow and operate because when businesses can, it’s not going to just impact the business economics but also the consumers that go back to work.
HW: What did you do in past economic downturns to successfully navigate that period?
AH: The biggest one is mindset, not being baited into the fear, not being baited into the rhetoric. There was a huge level of rhetoric that came from retail (in the last recession) because they wanted to recruit a lot of the independents. You have to remember that mortgage brokers were the majority of the market, they were over 50% market share and we went down to 7%, 10% market share. The primary reason for that was the retail recruiting and net branching, all these companies used the financial crisis against us saying, ‘You’re going to be out of business. Wholesale is dead. Wholesale is dead.’
And instead of listening to the rhetoric, I stepped back, and I said, ‘I’m going to analyze facts.’ I always look to the same things: facts and math. They’re non-debatable and so everything I kept researching and everything I knew was wholesale is not dead. Yeah, it’s gone through challenges, just like every other channel. So the biggest thing that made us successful was my mindset, was my focus and determination on ‘I only believe in this channel and I’m only going to support this channel.’
As a result, I know I’ll be successful. I had people come into my office, saying, ‘Oh you’re going to be out of business in six months; you got a net branch.’ There’s a lot of different reasons, but I think what happened back then is the fear basically pressed the majority of everybody, if they weren’t getting out of the business, to jump over and give up their entire business and database and join either in a net branch or retail lender.
It’s a little different today because things are going the other direction. So, unfortunately, the only thing about telling people today advice is that it was much worse then than it is now. So just know, the lenders are going through a nightmare right now and they were also back then. The difference is that originators have been doing very well in closing a lot of loans, and they still are closing a lot of loans; our rates are still historically low.
This wasn’t the case back in 2008. There were people losing their homes. There were originators losing their business. There were a lot of terrible things that happened back then. It’s nowhere even close now. So there’s no excuse for anybody, in my opinion to be complaining right now unless for some reason they’re under a captive umbrella where they cannot control where they send their loans. That will be a problem.
You have to be able to analyze and control what lenders you partner with. Because every lender is going to be different in this climate, if you all of a sudden have one source, and now you can’t send to that source, yeah, that’s a problem. If you can’t afford to lock to that one source, that’s a problem. But if you have multiple sources, there’s nothing to complain about.
HW: Given your history in those past economic downturns, what do you think LOs need to know now that they might not be thinking about?
AH: The biggest thing is self-education. All the content that everyone’s putting out through video, all the professional interviews people are doing with those that get this stuff more than a lot of us, whether it’s secondary market stuff, all the forbearance issues. There’s a lot you need to self-educate on right now.
A lot of people are working from home, or they have some downtime. Now’s the time to invest in that and be aware because if you’re ignorant to any of this, you’re not gonna be able to explain it to yourself, let alone a consumer. I think the biggest thing is to take all this information in, adapt the way you need to and just be prepared for anything that happens.
I think they also really need to respect their lending partners because lenders are going through a really tough time right now. If you’re in a position with a company that limits you, it’s a little different. There might be some challenges there you have to address, maybe later once things lift, but the biggest thing is having respect because of what lenders are going through.
It’s a very difficult time for a lot of them, and we need to understand that originators, although we should be working for the consumer, we rely on these lenders. A majority of these are agency loans either way, but just know what’s going on with the agencies, with each individual lender, and then respect that and instead of being negative or complaining, see what you can do to help and actually be part of finding solutions just to get these loans in and get them done.
HW: What piece of advice from your history in downturns would you give to others in your field trying to navigate COVID-19?
AH: The number one advice I’ll give to people right now is to control your balance sheet and control your finances. What I mean by that is, if you make emotional decisions, it’s usually because of money. If you don’t have leverage, if you don’t have the reserves, both saved as an individual for your own family as well as a business, then you’re going to make emotional decisions.
You have to be liquid. You need to make cash. Don’t buy anything unless you can pay cash, with the exception of real estate; I know people have mortgages. But the biggest thing is to prepare for the unknown because we don’t know how long this is going to last.
Just put your head down. Have a good mindset. Close as many loans as you can in your pipeline. Get as many more customers in your pipeline because now is still a great time. Just remain liquid, have reserves, and control your balance sheet or it’s going to control you. That’s the most important thing you can do right now.