Renovation products are more widely available now than ever before, and not seen as being nearly as niche as they were years ago. To some originators, however, they’re still a big unknown.
“I’ve always kind of labeled them as Bigfoot or a nightmare,” said Greg Campbell, director of wholesale lending at Michigan Mutual, Inc. “Bigfoot being, no one has ever seen one or done one; they heard them howling in the office and stayed away. Nightmare being, an originator’s never been trained, never done the product before and it became a nightmare for them.”
Those aren’t the two choices that Campbell wants originators to think they have.
Michigan Mutual started out as a retail outlet that specialized in construction lending. They started doing 203ks almost a decade ago and now offer five different renovation products.
Renovation products can be the answer when the problem isn’t the borrower, and instead is the collateral or the home. But they’re not always the right answer, obviously, and Michigan Mutual approaches business in a manner that reflects those gray areas.
“Our pitch is really about purchases, and we allow fully underwritten applications to be determined, we’ve already disclosed the loan and given a credit decision. When it comes back, you really know when you have a loan or not. A lot of the time we find out we don’t need the renovation loan, we just do an escrow holdback for minor repairs,” Campbell said. “So in those hot markets, with multiple bids, escrow repairs allows them to fix the missing carbon monoxide detectors, and trying to save as many purchases as possible. That way, it’s just a change of circumstances.”
Campbell’s a big advocate for renovation loans not because of low inventory or because people want to renovate in order to get the house of their dreams at a lower price. He’s a big fan of the loans because it they can be a savior for deals that would otherwise fall apart.
In addition to helping someone purchase a home, originators who offer renovation products are also helping their realtor partners be different as well. How many times, Campbell said, has a lender told a realtor that everything’s good to go, only to have things fall apart when an appraisal goes sideways.
“A realtor doesn’t get paid twice to do their job, so if they’re told to go shopping again, there’s only so many houses in the neighborhood, you’re really limiting opportunity to find or buy. Give them the renovation loan, there may be a problem with the house, but [you can say] ‘I have a product that can save the day.’”
Renovation loans are an avenue that most people don’t consider, nor do they consider the training necessary to effectively add these loans to their product offering. Campbell said. He equates jumping into renovation loans with jumping into the deep end of a pool with lead weights on; you’ll drown.
To counter that possible eventuality, Michigan Mutual provides training specifically on renovation products. Their training covers topics such as the products, processes, how to complete the maximum mortgage worksheet, as well as things like how to do the workarounds for LOSs that aren’t easily compatible with renovation products. They also help mortgage brokers tailor-make a presentation to realtors in order to pitch the product successfully. This attention to training is really the thing that makes Michigan Mutual a friend to originators who are looking for renovation products, and distinguishes them from other lenders who offer renovation products.
“We’re all serving vanilla ice cream, it’s the sprinkles that make you different,” Campbell said.