Origination News Feature Story

Texas Continues to Be a Hot Spot for Some

By Jennifer Harmon

PLANO, TX-The Texas market appears to be continuing to do relatively and somewhat anomalously well compared to the rest of the country, and not just because of refinancing.

At least that's the case for one top-ranked mortgage originator here who as of January had seen application volume and closing volume go up 600% since November.

Rodney Anderson, executive director and senior managing partner of Rodney Anderson Lending Services, who handles FHA and VA loans, closed between 900 and 1,000 mortgages in 2008 and doubled his volume in December. In addition, he estimated 70% of his new mortgage loans in December were to borrowers purchasing homes. He foresees an additional 50% higher production this year.

"Our housing values have only dropped 2.8% year-over-year. Our home-equity loan loss limits the amount of people who could take out cash refinances. In Texas, you can only go up to 80% in the appraisal value where many states were 100%, 120%," said Mr. Anderson. "Texas is a flatland area. You can build everywhere. In the Dallas-Forth Worth area, you can build north, you can build east, west and south. There is always room for growth. And our cost of living has also been really good."

Based on loans he originated in December 2008, new mortgage activity doubled when compared to loan activity from December 2007. Mr. Anderson originated 331 pre-approvals in December of 2007 and 683 in December of 2008. "Despite the stagnation we're hearing about in the retail and automotive sector, there are still individuals out there who are buying homes and taking advantage of lower rates in this buyer's market," he said.

With seven of the 10 applications he took when rates dropped most dramatically at the end of 2008 and the beginning of 2009 being purchase mortgages rather than refis, Mr. Anderson found his business experiencing a purchase-to-refi ratio that was the reverse of what the Mortgage Bankers Association index recorded at the national level.

Dennis Hedlund, president of iEmergent, a Des Moines company that provides market-specific data to the mortgage banking industry, said he wasn't surprised that Mr. Anderson experienced a high number of purchase loans rather than refis in Texas during a period of low rates, especially given that Mr. Anderson has done FHA for so long in the Texas market. As far as whether this points to an opportunity, Mr. Hedlund said it might depending on a particular company's or originator's individual circumstance and product mix. He said that, the right strategic purchase vs. refi mix "comes down to really your lending strategies in communities, and where those opportunities are to get you through this. If you have over 4 million purchases, where is it distributed within your footprint? Should they be FHA or something else?"

Mr. Hedlund said this is "a significant leadership issue. We are seeing a lot of small lenders and banks actually doing loans. The largest lenders in a lot of ways are not getting the revenue they had previously. It's about those who know a lot about their markets."

According to Mr. Anderson, Texas didn't take the same hit as the rest of the country or see the gigantic price appreciation spikes as other states.

If a particular market, like Texas, has loan sizes that have been fairly stable, which have not ballooned up in previous years as part of the housing bubble, that part of the country might still have good loan availability, according to Mr. Hedlund. FHA originators like Mr. Anderson may have strong fundamentals, good sources, and use their personal book of business to make loans to past customers plus get new ones, he said.

"Texas ... affordability was fairly decent, especially for middle income to maybe lower income borrowers," he said. "Go farther north, through parts of the Midwest, and it's fairly stable. The places in the country with the biggest problems, metro areas around the Great Lakes, they have the triple whammy. Employment is plunging, and they have very little household growth. People got into [risky] mortgages ... and, as they default, there is no household growth to be able to buy those properties."

Mr. Hedlund forecasts there will be 130,000 FHA loans originated across the 254 counties located in Texas, totaling $15.9 billion. "The interesting thing is that 50 of those counties will generate 124,000 loans," he said. "Texas has a lot of counties that don't have many people in them. The largest of the originations will be concentrated in Harris County with 27,000 loans."

In today's market, Mr. Hedlund says some wholesale aggregators might see the loans as simply a transaction to make money. In these instances, he said the market could see people push programs like FHA, and as a result, the documentation would have less quality to it. "The first problems show up in early delinquency. That is part of the issue with expanding too fast in any program," he said.

In places like North Carolina and Texas, there is a great deal of experience working with FHA, but in other states in the Midwest, for instance, there is a lot of volume and no FHA experience. "National lenders need to be aware of where the possibilities are for having quality loans."

Around Austin and Houston, business has been fairly resilient, he added. The greatest risk in employment could come in the oil industry in the Houston area. "Unemployment will trigger what happens in these communities. Texas has some unemployment occurring in the electronics field. If the economy continues to be negative, it could make good places start to struggle."

Lenders have had a tendency to chase transactions rather than form them, he added. For 2009, he said loan originators need to better position themselves by keenly studying where their volume will come from and building relationships from the bottom up in local communities. "Because investors can only buy this very narrow band of product, it changes to be a local issue, heavy in relationships. Be careful if you are in the place of just chasing transactions, how many will really close? Make sure borrowers are meeting lending criteria and lending standards. Make sure you are balanced right across all markets. Texas will remain more stable than a lot of other places, it's a place where still have household growth, migration opportunities, and lenders have things going for them."

This may be why Mr. Anderson has been relatively optimistic. In January alone, which he says is normally the worst month of the year, Mr. Anderson predicted that he would close 170 loans. "I do a tremendous amount of advertising here. I have two radio shows. I'm also on TV every week," he said. "I invest about $2 million a year in advertising."

He said the market should see some stability in 2009 if builders get their inventory under control. "They could continue to see trouble, though." He predicted, "The first six months will see tougher times but the second half of 2009 will see some increase in numbers."

Mr. Anderson predicts that if rates continue to decline, the country will see an increase in purchases as well as refis. However, he cautions against any attempts to time the market, saying that "should not be the primary factor in deciding whether or not to purchase a home. [Recently rates have been] at their lowest point in nearly four decades, and despite what you may hear, lenders are still loaning money in the housing market. There's definitely still purchase and refinance money available for qualified borrowers."

Mr. Anderson added that, today borrowers are "interested in ... rates, not the closing cost" but they should really look at both. "For instance a home for $133,000 has $14,000 in closing costs and a 4.5% interest rate. It's better to take a rate of 5% and have $5,000 in closing costs."