While there has been much discussion about the current home mortgage and credit crisis, only limited comments have come from the mortgage industry itself. Inside Tucson Business asked one of the area’s leading mortgage companies—Nova Home Loans—to address questions about the crisis.

Print this story Email this story Post a Comment Paul Volpe, vice president, loan officer and “assistant coach” at Nova Home Loans. ADVERTISEMENT

Founded in 1980, Nova Home Loans has six offices in Tucson, plus two in the Phoenix area, and offices in Yuma and Sierra Vista. In addition, it makes loans in California, Colorado, Idaho, Louisiana, Oklahoma, Oregon, Utah, Montana, New Mexico, Wyoming, Washington State, Texas and Virginia.

Paul Volpe is a vice president, loan officer and "assistant coach" at Nova. After graduating from the University of Arizona in 2000, he was mentored by his brother, Jon, who is chief executive officer at Nova Home Loans. Since 2001, the company has ranked five times as America’s No. 1 loan originator by Mortgage Originator Magazine, Broker Magazine, and Origination News.

Volpe has achieved his own mark of success in the mortgage industry by thinking "outside the box" with difficult-to-place loans that other lenders simply couldn’t put together. He names "integrity" as the single most important gift he can offer his clients in representing their needs.

Q. Probably a lot of people figure that right now nobody is going to give them a home loan. What’s the real situation? For example, out of 10 applications you get, how many do you approve? 

Our qualified buyer’s pool certainly has shrunk since the subprime and Alt A melt down, the tightening of Fannie Mae and Freddie Mac guidelines, and the lack of liquidity in the secondary market for jumbo loans. However, thanks to the FHA loan products, we are able to qualify most buyers who are borrowing $316,250 or less in Pima County. I’m not sure of the real number here, but it seems like we have a lot of qualified To Be Determined (TBD)  buyers that are just sitting on the fence. I’d say out of 10 borrowers we speak with, we can still approve seven of them.  

Q. And what are your criteria now for approving a loan?  What kind of income must the applicants have? Do they need a down payment? How much in debt can they be? Are there some simple parameters for people to evaluate whether they are good candidates for a loan?

A. Overly loose underwriting guidelines were a major driving force behind our housing boom. Just a year or two ago, as long as a buyer had only one of the following—excellent credit, a down payment, or income documentation—they could be approved for a loan. Back then, if buyers had no down payment, and couldn’t even provide proof of their stated income on their applications, as long as they had excellent credit, they would be approved for a home loan. These loose guidelines lead to speculative buying and eventually caused the housing bubble to pop.

Today, lenders generally want to see two out of the three criteria—income, credit or cash. If you have good credit, and income documentation, but very little money to put towards a down payment, you can still be approved for a home loan today.  Our government products (FHA/VA), allow for little to no down payment as long as borrowers have a relatively clean 12-month credit history, and can provide documentation to support their stated income on their credit application.  Even if borrowers aren’t qualified to buy a home on their own, if a family member is willing to co-sign, often times we can approve them for a home loan based on the strength of the co-signer.    

Q. Do you agree with what many of the builders and realtors are saying right now—that this is a great time to be buying a home? Why or why not?

A. It is very difficult to predict a bottom in any market, whether it is the stock market, the bond market, or the housing market. Whether or not we have hit "bottom," with interest rates as low as they are now, it is a great time to buy. As soon as this economy starts to recover, the Fed will be forced to start hiking rates again to keep inflation in check, and we could see interest rates rise substantially. A 1 percent difference in interest rates on an average loan amount of $200,000 means a difference of roughly $130/month. This means that if interest rates rose by 1 percent, house prices would have to fall 10 percent from these levels, or $22,000, to keep the payments affordable for many buyers out there.  We are starting to see many buyers come off the fence and multiple offers on properties. This pick up in demand is typically a good sign of a housing recovery.  

Q. What is your take on what is happening with all of the furor over Freddie Mac, Fannie Mae, Lehman Brothers, AIG, etc.? Whose fault is this mess?  How could it have been avoided? What will it take to end it

A. I don’t think it would be fair to point the finger at one entity, agency, or company for the financial crisis that we are in today. Everyone took part in this mess, but "greed" certainly comes to mind. 

The start of the housing boom came shortly after the collapse of the equity markets and recession in 2001. This boom was ignited by loan products designed to approve more buyers to purchase homes. 

The government allowed the markets to operate freely with very little monitoring or regulation. Underwriting guidelines became looser in lock step with the pace of home price appreciation. All of the flaws in some of the exotic products that were being offered by Wall Street firms were being covered up by the rise in home prices. Even if buyers could not afford to make the payments on the home, and lied on their application in order to be approved, they could flip the property before it was foreclosed on and make a hefty return without a dime invested. 

The investors buying these mortgages still made a nice return and the rating agencies were happy to give a AAA rating on these mortgage-backed securities that were being sold on Wall Street. Everyone was making a ton of money until the housing bubble popped, and home prices started to decline. 

This is when the underwriting flaws started to be uncovered and the subprime market melted down, then the Alt A market (a type of U.S. mortgage that, for various reasons, is considered riskier than "prime" and less risky than "subprime"), and ultimately Fannie Mae and Freddie Mac. 

Those borrowers could no longer sell their homes for a profit and large write downs of mortgages created a spiral effect which has caused the financial liquidity crisis we are in today.  As the financial institutions take more write downs, their credit rating is downgraded, their stock prices tumble, which creates a need to raise more capital or file for bankruptcy.  

Q. Many of us remember 20-30 years ago when you needed 25 percent to 30 percent for a down payment to buy a home. But most recently, people could buy with no down payment. How did this happen? Who started it? And was this part of the subprime problem?

A. I’ve included a link for you to take a look at http://query.nytimes.com/gst/fullpage.html?res=9C0DE7DB153EF933A0575AC0A96F958260

It started 8-10 years ago with both the Clinton and Bush administrations pushing for affordable housing among low- and moderate-income households. With this expansion of credit, Fannie Mae and Freddie Mac eased on their credit guidelines to open more financing opportunities to a larger pool of borrowers. With this expansion and relaxing of credit guidelines, investors over the following years came out with more and more exotic programs to feed their need to satisfy their returns for shareholders.

Q. Did you make subprime loans and if not, why not? If you did, have you changed your approach to considering applicants?

A. I can count on both hands personally the number of subprime loans I originated. I did not specialize in subprime lending. If I had a client who had credit issues, I always believed in credit counseling first and getting things straight and applying for an FHA loan once they could establish the credit requirements for an approval.

Many times these clients would rather buy now then later and go with another lender who would provide them with a subprime loan. If wouldn’t do it, someone else would be willing. In addition, those who have been approved with a FHA loan were pushed into a subprime loan, mostly due to the fact that their broker or lender was not FHA approved. I saw this many times.  

Q If there is one thing you would like to say to those who are thinking about buying a home and getting a loan, what would it be right now? Words of caution? Words of encouragement?  Both?

A. Buyers/borrowers need to realize the game has changed. You cannot treat a home like a stock. A home has always been a long-term investment and over the years, we were spoiled with double-digit appreciation.

Prior to 2002, homes conservatively appreciated at 3 percent to 5 percent. The market will settle down and will return to a normal market prior to the one we have experienced in the past few years. People always need a roof over their heads and as growth continues, homes prices will appreciate.

It is a great time to buy. You do not need perfect A+ credit, you do not need 20 percent to put down. Beware and look at all of your options before entering into new financing. Buying a home will be the biggest financial decision during your life. Be prepared; if you have credit issues, address them early. There are still plenty of good loan programs out there.