Financial expert sheds light on new era in mortgage business

Run Date: December 12, 2009

by Linnea Smith Jessup
Contra Costa Times

It’s been a year when the very word “mortgage” has triggered fearful thoughts and anxiety on the part of homeowners, potential homeowners and all the real estate professionals and the affiliate folks who serve consumers. Yet beyond the hubbub are those in the mortgage industry who are committed to realistic mortgage eligibility requirements and continue to work closely with home buyers.

Chris George, CEO of CMG Mortgage based in San Ramon, describes the current mortgage climate as a “Renaissance of reasonableness.” Discussing his company as well as the industry, he lauded the taking “a sensible view of people’s finances today… it’s different than I’ve seen in my 27 years” in the mortgage business, he said.

There’s a new emphasis on careful evaluation of people’s financial strength and stability. Of consumers, he observes, “we want to get out of debt, and not do things outside of our abilities. Homeownership is not a right. It’s a privilege for which one has to work.”

He continued, “Yes [home buyers] need a job, good credit, savings.” In the past, he said, “It got absurd, it became far too easy to get a loan,” with devastating results for multitudes of
home owners.

As the home mortgage industry collapsed, “There was nothing we could say as things fell apart,” he said. “But now we are in repair and rebuild mode. We can move forward.”

George, currently secretary of the California Mortgage Bankers Association, noted that early on, the attitude of the industry was to “fix it,” and indeed a lot of loans were securitized, “but now, it’s ‘let’s get back to work,’ learn from the industry’s mistakes and move forward firmly grounded in sound financial and lending practices.”

The mortgage industry today, he summarized, is characterized by four H-words. “We are filled with humility. We are honest, more than ever; we have the direct conversation [with the client] and we have to work hard for everything today, not like the late ‘90’s into 2006, “when it sometimes seemed like financial companies couldn’t approve mortgages fast enough.

He added, “we also have to have humor — we have to get through dark, hard times with humor.”

The result: “Today, we’re starting with a blank palette. It’s like when you see scorched earth, then slowly small green sprouts of growth come up… I believe something good is coming out of this,” he said.

What this means for consumers is that they need to be pro-active in any loan process. “A potential buyer must be actively involved” in the process of learning about and applying for a loan. The industry “isn’t buyer beware’, he explained, and clients need to do their own independent research on how mortgage products and pricing work.

“Study and learn,” he encouraged. “Don’t rely on your bank, your bank officer or a loan officer,” he pointed out, adding that sometimes “people take more time to evaluate which car they want to buy than to select a home mortgage.”

The process is, he added, “financial planning, not just home buying.”

George is gratified, however, to see that many more customers today than in the past are educated about mortgages. “An informed customer is a great customer.”

And of his industry as well as of consumers, he said, ”If you make a mistake, learn from it, fix it and don’t repeat the mistake. Learn from each mistake and remember those lessons.”

George commented, “As an industry, if we don’t learn from this, we’ll repeat this situation in 79 more years…” and compared the possible scenario to the Depression. “We can’t forget these lessons,” he said.

Today’s mortgage customer averages age 36 to 39, with an average credit score of 700 and a debt to income level of not more than 40 percent. A big change in the new area of obtaining mortgages is the average buyer still has an average savings after down payment of $30,000. “It’s financial planning, not just home buying,” noted George of the process.

How should someone pick a mortgage company? Most loan choices are nearly identical from company to company, with each offering the same product at nearly the same price. He suggests that prospective buyers call a couple mortgage companies or research a few online. “Usually buyers pick a mortgage company by word of mouth, “but it’s wise to also investigate other companies.

“Compare the capabilities and customer service of your potential loan officer,” he advised. And, “Trust [a company], but verify,”
he advised.

Trilogy club gets hands-on lessons, thanks to active-adult community’s vineyards

Run Date: December 4, 2009

Contra Costa Times

BRENTWOOD – In a dark garage somewhere in Brentwood, five barrels of nature’s bounty slowly sweetens as time works its magic.

The just-harvested table wine is the handiwork of a few Brentwood residents who came together this summer for hands-on lessons in winemaking.

“I wanted to learn more about all the subtleties and vagaries that are involved in making a good wine,” said Gordon Carville, a resident of Trilogy at The Vineyards and president of the active adult community’s home winemaking club.

He and dozens of others joined the fledgling group after hearing that the builder had agreed to donate the first harvest of the development’s 32 acres of vineyards for processing.

“Everybody jumped on it right away,” Carville said.

Although for years he had belonged to a wine club on the Peninsula in which members met each month to taste and rate different varietals and labels, Carville wanted to know more about the steps of getting grapes from vine to bottle.

“It isn’t just crushing them, sticking them in a barrel and fermenting them,” he said.

And so one day in early October a team of professionals picked about two tons of Aglianico and Mourvè dre — two of the vineyard’s five varieties of grapes — and club members got to work.

Under the supervision of a local vineyard manager, they stripped off the stems and separated those from the juice, seeds and skins.

Adding yeast to ensure the complete conversion of the fruit’s sugar into alcohol, participants then poured the pulpy mixture into plastic fermentation bins.

Over the next week, they took turns stirring the unfermented juice three times a day to extract the flavor and color as well as tannin, the substances that make wine tart.

Then it was time to separate out the skins and seeds and let the juice ferment for 10 days.

At the suggestion of a St. Helena laboratory that analyzed samples from each varietal, the amateur winemakers blended the two to get the right alcohol content and bring the pH down to a level that would reduce the chances of bacteria spoiling the wine.

After that, club members transferred the approximately 300 gallons of wine into French oak barrels to age until it’s bottled in August or September.

The complexity of the process surprised Dan O’Brien, Trilogy area president for Shea Homes who, as a resident himself, joined the club to learn more about wine in a setting that didn’t require members to be connoisseurs already.

“There’s an awful lot of science,” he said, referring to the chemistry involved in changing fruit juice to delicately flavored alcohol.

Vineyard manager Randy Taylor is predicting the club will end up with about 125 cases of red table wine, enough for its approximately 55 members to have a couple dozen bottles each.

“It was better than I thought,” Carville said of his reaction upon tasting the product early in its metamorphosis.

And he really enjoys what it’s becoming — a dark red, full-bodied wine with a soupçon of black cherries and currants.

At the start of the undertaking, Fredo Gouveia was among those whose experience with wine was limited to uncorking a bottle and pouring.

“It was an eye opener. I didn’t realize there was so much to it,” he said.

Carville was struck by the marked differences between the Aglianico and Mourvè dre varietals in acidity, the amount of juice they produced, and how easily they could be separated from the stems.

“We kind of thought grapes are grapes,” he said.

After holding a contest for the best label design, club members plan to serve some of the first batch at Trilogy functions and hope eventually to sell wine to the clubhouse’s restaurant.

As far as Carville is concerned, however, the fruits of his labor are staying right at home to enjoy.

“There’s no question about that!” he said.

Fort Ord project comes back to life

Run Date: September 20, 2009

By Jim Johnson
Monterey County Herald/Salinas Bureau

EAST GARRISON PROPERTY CHANGES HANDS AFTER DEFAULT

A new developer is gearing up to start work at the stalled East Garrison community development.

And, according to county Redevelopment Director Jim Cook, “the project is much more alive today.”

While officials for the San Jose-based Union Community Partners are working with county housing officials to secure financing for the first phase of affordable housing on the site, a big chunk of the project will likely be delayed until the area’s housing market rebounds.

Cook said Union Community Partners has indicated it intends to move forward with the project under the existing development agreement previously approved by the county with another developer.

The new company paid $22.5million for the East Garrison site in a recent trustee’s sale after the previous developer, East Garrison Partners, defaulted on about $62million in loans on the proposal.

Union Community immediately covered about $400,000 in payments owed to both the county and the Fort Ord Redevelopment Authority after completing the purchase.

“That’s a really good sign that these developers are serious about moving forward,” he said.

In the works since the 1990s, the $145million, 1,400-unit mixed-use project has earned plenty of praise for its “smart-growth, new-urbanist” design.

But the project — on 244 acres of Fort Ord land on a bluff overlooking the Salinas Valley — has been stalled since last summer as a result of the housing slump, and the original developer eventually defaulted.

The original development group included Urban Community Partners and Woodman Development Company, both of Monterey, as well as William Lyon Homes of Newport Beach.

Since taking over the project, Union Community Partners has indicated that work will proceed on the project’s infrastructure, some of which has already been finished, in preparation for construction of the first phase of home building on the site. Work still to be completed includes installing utility lines and housing pads, Cook said, while most of the grading has already been completed.

“(Union Community Partners) said they believe the market has recovered to the point where they can proceed with the infrastructure,” Cook said.

Developer representatives were not available for comment.

Phase I of the three-phase project includes 470 homes, as well as 66 affordable rental housing units dubbed Manzanita Place, along with parks and a fire station. The town center, including more than 30,000 square feet of stores, shops and restaurants, was originally supposed to begin construction during the first phase of development.

In the later phases, the remainder of the homes will be built, including about 400 units designated as low-cost or work force housing. In addition, the project is designed to include a new public library, a historic live-work arts district, a sheriff’s substation, an elementary school and, eventually, a community center.

The county is working with affordable housing developer Mid-Peninsula Housing to seek stimulus funds for the Manzanita Place rental housing in the project’s first phase, according to county Housing Program Manager Jane Barr. An application for $10million has been submitted to the state; if received, it would make up for money lost when the overall project stalled.

The timeline for the rest of the project will depend on how quickly the housing market comes back, Cook said.

While the development agreement included an explicit timeline for the project, it also included a provision for delaying construction if the housing market dipped dramatically. The previous developer invoked that provision to stall progress in the hopes things would get better quickly. The timeline will kick back in when the market regains its footing, Cook said, although he acknowledged it may be some time before that occurs.

Under the original timeline, construction of the first model homes was to begin in August 2007, followed by the first round of homes and the town center. The first 400-plus homes were supposed to go on sale last summer.

The entire project was scheduled to be finished by 2014.

Bay Area executives see rebound

Run Date: September 18, 2009

By Mark Calvey
San Francisco Business Times

BUT LEADERS DIFFER ON HOW BIG, HOW SOON

An economic recovery is gathering momentum in the Bay Area, even as unemployment remains high.

Signs of better days ahead remain purely anecdotal. But dealmakers say transactions are finally coming together, while home sales are rising and new mortgage products are returning to the market — with more stringent underwriting, of course. An increasing number of economists say the region’s economy has turned the corner, but that it will feel like a downturn for a good while longer.

“Buyers and sellers are finally coming together,” says Brodie Cobb.

“The reality is we’re in that transition period where the economy has turned, but not conditions in the labor market,” said Dana Johnson, chief economist for Comerica Bank. The bank recently created a Comerica California Economic Activity Index to track the state’s economic outlook. The bank’s index on the state’s economy — representing 13 percent of the national economy — has been steadily improving since March. So has the stock market.

But unemployment, traditionally a lagging indicator, has been moving higher. California’s unemployment stood at 11.9 percent in July, and Beacon Economics predicts it will peak at 12 percent at the end of the year as job losses continue. In the Bay Area, unemployment is running at 10.4 percent, and Beacon Economics forecasts it will peak in the fourth quarter at 10.8 percent.

From a national perspective, most Federal Reserve districts reported this month that business conditions in their regions were improving. This week, Fed Chairman Ben Bernanke made his strongest statement yet that the recession has ended.

Any talk of an economic rebound may come as a surprise given the depths of the Great Recession — the worst downturn most Americans have ever experienced. And the recovery is likely to be rocky.

“We have a fair amount of pain and suffering to come,” said John Conover, president and CEO of Borel Private Bank & Trust Co. He’s concerned with the economic impact of interest rates eventually moving higher, as well as the difficulty owners of commercial real estate will have in refinancing at lower property valuations in the next few years.

But it’s not all bad news for Conover, a self-described optimist. His San Mateo bank expanded its payroll 6 percent, or by 11 people, this year to handle growth in loans and deposits.

M&A on the rise

Merger activity also shows signs of picking up.

“In the past 30 days, buyers and sellers are finally coming together on price,” said Brodie Cobb, CEO of San Francisco-based Presidio Financial Partners, which advises middle-market companies selling for $300 million or less. In that arena, Cobb said credit availability has been less of a hindrance than the more difficult challenge of getting parties on opposite sides of the table to agree on what a business is worth.

Another Bay Area M&A adviser working primarily with companies generating annual sales of $10 million to $50 million, also has seen signals of a pickup since late July.

“We gauge the temperature of the economy, or the propensity to take risks, by the number of calls my firm receives from private equity groups. We received a call a day two or three years ago. Then six to 12 months ago, it was a call a month. Since late July, early August, we’re getting three to four calls a week,” said John Simpson, a managing director at investment bank Onyx Associates.

He also notes that these private equity groups are hiring MBA graduates and ponying up more equity capital to pursue deals.

“These private equity groups are gearing up for an economic recovery,” Simpson said. “But their due diligence is way up and their negotiating pencils are very sharp.”

Those observations suggest that the M&A activity grabbing the national headlines, such as Adobe Systems buying web analytics company Omniture for $1.8 billion or Kraft Foods’ $16.7 billion bid for Cadbury, is also occurring at the lower levels of corporate America.

Housing market finds pulse

A modest improvement in the housing market is another sign of a turnaround underway in the Bay Area. The latest findings by the S&P/Case-Shiller Home Price Index found that the Bay Area had one of the biggest monthly gains in June, up 3.8 percent from May but still down 22 percent from June 2008.

Pioneering mortgage products squeezed out of the market amid the turmoil are clawing their way back. San Ramon-based CMG Mortgage — once one of the Bay Area’s fastest-growing private companies, based on Business Times research — this month brought back its Home Ownership Accelerator loan program, which combines a mortgage and household checking account in an effort to build equity faster by temporarily reducing the mortgage balance by money flowing through the checking account. But the maximum loan-to-value on most HOA loans is now 75 percent, down from as much as 90 percent during the days of easy credit. CMG says it’s confident that the HOA mortgage, popular with sales professionals and others earning good, but volatile paychecks will eventually move to 80 percent loan to value as the housing market stabilizes.

CMG offered the mortgage program from 2005 to 2008, when the financial crisis shut off funding for the mortgages. It’s a sign of credit markets improving slightly that CMG found a lender, Ameriprise Financial, willing to purchase and service the loans. Of course, with the federal government backing more than 90 percent of the nation’s mortgages, key sectors of the national economy remain on life support.

To be sure, there’s still plenty to worry about. High unemployment and tight-fisted consumers are likely to continue as drags on economic growth.

Janet Yellen, president and CEO of the San Francisco Federal Reserve Bank, warned this week that the recovery might prove “tepid.” Although Bank of America CEO Ken Lewis, speaking in Tokyo Sept. 15, said the economy might recover at a faster clip than many anticipate.

Comerica’s Johnson falls closer to Yellen’s outlook, but doesn’t count himself among the more pessimistic forecasters.

“The economic outlook isn’t as pathetic as some people fear,” he said.

Photo credit: SFBT File photo

CMG Re-Introduces Interest-Saving Home Ownership Accelerator® Mortgage

Run Date: September 12, 2009

The Daily News/On the Market

SAN RAMON — CMG Mortgage, a leading wholesale mortgage lender, is re-introducing an innovative home loan that the company developed and marketed successfully between 2005 and 2008. Called the Home Ownership Accelerator, it is modeled on loans popular in Australia and Great Britain that have a proven record of helping borrowers save interest and pay off their home loans years faster. The new home loan works by combining a first-lien line of credit and a full-service checking account into an “all-in-one” instrument. The substantial efficiencies produced can enable a borrower to generate large interest savings and loan payoffs in as little as half the time, without a change to spending habits. The re-launch is particularly timely because a large group of Americans, especially Baby Boomers, are realizing that they can no longer count on home appreciation to fund retirement and must aggressively reduce their debt if they wish to retire without burdensome mortgage payments.

With the Accelerator, homeowners deposit their paychecks directly into the loan, instead of into a traditional bank account, reducing the loan balance on which interest is computed. The borrower can access their funds to pay expenses via the integrated checking features that include unlimited checks, an ATM/debit card and online bill-pay. The key difference is that until funds are needed, the lower principal balance can save a substantial amount of interest — often amounting to thousands of dollars over the life of the loan — compared to a traditional loan. The interest saved essentially allows a borrower to pay off faster without changing their spending habits.

“This is a huge win for homeowners,” said Chris George, president and CEO of CMG Mortgage. “In today’s uncertain economy, consumers are keenly aware that paying off debt is essential to securing a healthy financial future. Finally, here’s an opportunity to shift the focus from just minimizing payments to actually paying off — efficiently, quickly and with no change to lifestyle. And it’s not magic, it’s just math. You’re simply paying interest on a lower principal balance more of the time — thanks to your own money.”

After a year- long hiatus that began in August 2008 driven by the disappearance of non- agency mortgage investors during the finance industry crisis, the Home Ownership Accelerator loan is now being reintroduced in five rollout states: California, Washington, Arizona, Colorado and Minnesota. It will be offered exclusively through mortgage brokers who have been certified by CMG to sell it. CMG plans to add additional states in the coming months.

CMG has aligned with Ameriprise Bank, FSB, part of Ameriprise Financial (NYSE: AMP), to purchase and service the loans once they are funded by CMG.

At the product Web site, www.homeownershipaccelerator. com, existing and prospective loan clients and mortgage professionals can access a broad range of product information and tools, including a powerful online simulator that allows a user to model the loan against conventional loans using their own unique financial situation.