Cover story: The latest on mortgage lending, according to Miami lenders

by Andrew Morrell

Tony Farias doesn’t pay attention to negative news about the mortgage lending industry. As a loan officer with Fairway Independent Mortgage Corporation with 20 years of experience under his belt, this is less a coping strategy and more a product of market wisdom.

Along with the rest of Miami’s seasoned lending professionals, Farias stood at the epicenter of the housing boom and subsequent crash that is still being analyzed in countless books, movies, news articles and academic papers. Now a decade removed from the beginning of that meltdown, the mortgage industry as a whole remains cautious of what awaits at the other end of the recovery. But Farias refuses to be discouraged.

“As soon as when you start to see this job as money and commission, that’s when you’re not going to make money,” Farias says. “If you’re not a people person and you don’t love what you do as a lender, you shouldn’t be doing it.”

Facts and figures are at the heart of the mortgage lending business, but few realize how crucial personality, communication and on-the-ground wisdom are in the makings of a successful lender. So much like real estate agents are accustomed to, loan officers and mortgage executives play to their strengths and all but ignore the obstacles in the way of success. Pervading the industry, at least in Miami, is a sense of optimism, ingenuity and determination, no matter the negative press on the past and future.

“I’m bullish on this industry,” Marc Halpern says, a sentiment he echoes throughout our conversation about his 25 years of experience as a loan originator for Halpern and Associates in Miami Beach. That’s despite his acknowledgement of the pressures of the job and the industry’s reputation.

“Younger people aren’t flocking to this industry,” he says. After all, “it’s not an easy business. It’s always stressful.” With so many moving parts to the mortgage origination process, and multiple people involved — buyers, sellers, agents, the title company, the appraiser — “you’re herding cats.”

Still, lenders throughout Miami who spoke with Miami Agent expressed no reservations on their business outlook, and no regrets for having chosen a job that’s equal parts rewarding, nerve-wracking, numbers-based and people-focused.

Bouncing back

Miami is among the largest housing markets in the U.S., but it rarely follows national trends. That’s true from multiple angles when analyzing the area’s housing market and its behavior before, during and after the pivotal 2008 recession. As the American housing bubble expanded in the mid-2000s, Miami and Florida were home to some of the hottest markets for subprime loans, many of which faltered and contributed to the global financial panic. By 2010, Florida had some of the highest rates of mortgage delinquency and foreclosure activity in the nation. The Miami area is still at the top of that unfortunate ranking, thanks in part to the recession’s legacy as well as more recent shocks like the damage inflicted by Hurricane Irma last year. While delinquency and foreclosure rates fell back to pre-crisis levels nationally as of May 2018, the Miami area still reported almost double the U.S. average delinquency rate, with 7.8 percent of active mortgages in Miami considered either behind on payments or in foreclosure.

With this in mind, it’s easy to assume that Miami’s mortgage lenders would be far from “bullish,” as Halpern suggests. But again, the city isn’t one to follow conventional wisdom. As U.S. home sales began to slow in the second half of summer, those in Miami and Florida continued rising. At a macro scale, economists and analysts are increasingly of the opinion that the U.S. housing market is near the end of its most recent growth cycle.

While the warnings are nowhere near as dire as they were a decade ago, this could contribute deflating profit expectations among many real estate professionals, including lenders. And like the rest of the home sales business, mortgage lending has been the scene of fierce competition, the victim of rising interest rates and a testing ground for new technology, all of which poses a threat to the bottom-line, let alone any sense of optimism among staff. Farias, though, is unfazed.

“As rates are going up, it’s easy to assume the industry is going to slow down. I don’t see it that way,” he says. “I don’t pay attention to negative news. As long as I’m doing my job the right way, the industry can be slow — I’ll always be busy.”

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That’s not to say that he ignores any red flags that come through in reports on mortgage lending. Interest rate hikes are an inevitable outcome from a bustling economy, but so far they have yet to put a serious damper on home sales, mortgage originations or the sentiment of people like Farias or Halpern.

Much of that is due to the power of referrals. Mortgage originators rely on referrals from former clients, real estate agents and their social networks for the bulk of their business. This is a familiar tactic for brokers who represent homebuyers and sellers, but it contributes to price pressure like what the broader industry is now seeing. The largest lenders, divisions of name-brand banks and investment firms, prefer refinancing over originating because its profit margins are larger.

But in the current economic climate, refinancing isn’t a popular move: Many homeowners took advantage of record-low interest rates in 2016 and 2017 by refinancing, but those easy opportunities are no longer available in today’s rising-rate climate. Along with a middling prognosis for home sales in the next year or two, this is what contributes to negative sentiment among the bulk of mortgage executives in the third quarter of 2018.

“The times that I’m slow, they’re busy, and vice versa,” says Halpern, who also focuses on originating new mortgages rather than refinancing existing ones.

Even in a higher-rate environment, South Florida and Miami holds plenty of promise. The tropical climate has always been a strong selling point for tourists and homebuyers, but other factors are combining to make Miami a permanent destination rather than just a vacation spot. The new federal tax laws which took effect this year are already prompting many homeowners to move from high-tax (and generally colder) states like New York and Illinois to Miami. They aren’t retiring there or simply buying second homes — more are taking the opportunity to make the area their only city of residence.

Market opportunity

Miami is also unique among large U.S. cities for its abundance of foreign national homebuyers. According to a study by the Miami Herald and Bendixen & Amandi International, home transactions involving international buyers made up 26 percent of sales in the last year. As recently as 2015, more than half of Miami home sales were purchased by noncitizens, often hailing from Colombia, Brazil and other parts of Central and South America.

According to Robert Barthelmess, managing partner at BGI Capital, foreign national buyers flock to Miami for many of the same reasons that Americans do, but also come from much different situations. They often purchase homes as both a refuge and an investment, with some coming from countries with an unstable political or economic climate.

Meeting the needs of any niche market requires creativity. Barthelmess has helped BGI grow into a favored lender among international buyers by fine-tuning its credit requirements while also expanding its marketing efforts to real estate agents, not just consumers. BGI recently hosted the first of what will become regular seminars on the particulars of home financing in Miami and the international homebuyer market.

“What we try to do during these seminars is arm them with the right questions, and come away better prepared to submit their loan request,” Barthelmess says. The first seminar, hosted by real estate attorney Carlos Marin on Sept. 25 at BGI Capital’s offices, presented a high-level overview of Miami’s real estate market. Marin also delved into more technical developments, like the recently enacted restrictions on all-cash home purchases in Miami that could adversely affect foreign buyers.

“This was the first seminar we did on a large scale,” Barthelmess says, finding it to be a major success. “It was standing room only. We were booked to the rafters.”

To attract clients and referrals, these seminars aimed at real estate professionals are a key ingredient in BGI’s marketing strategy. To better serve its residential borrowers, who are primarily foreign nationals, Barthelmess said BGI has the ability to engineer mortgages that split the purchase 50/50 between a cash down payment and financing.

Government-mandated credit restrictions and an uneasiness among lenders in general are one other example of the housing bubble’s lingering aftertaste. But as the market has improved and underwriting has benefitted from better analytics technology, more lenders say they are able to serve a broader range of clients. Business owners represent a significant share of Barthelmess’ and Halpern’s clientele, but they can have trouble being approved for mortgages thanks to their nontraditional income source. Still, Halpern acknowledges that many in the industry remain conscious of what happened the last time credit restrictions were loosened.

“History is repeating itself, but I do think lenders are being more responsible today,” he says.

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