Plaza Home Loans CEO Kevin Parra is one of the few executives who ran a third-party lender through the financial crisis and continues to do so.
So he tends to view the market a little differently than some other mortgage lending executives.
For example: Certain products like loans made outside the boundaries of the qualified-mortgage safe harbor might not seem like they’re worth the trouble for some companies given that lower rates made refinancing more accessible this year, but Parra welcomes them so long as their risk is made manageable by mitigating factors like lower loan-to-value ratios.
And while others think mortgage lending is closer than ever to having a truly paperless process, Parra thinks the percentage of loans that are done entirely online is relatively small and will continue to be.
Below is a discussion with Parra about these business strategies and how they fit in with his view of where the market may be headed. His responses are excerpted and edited for length.
I know you just recently added a proprietary reverse jumbo mortgage to your product line-up. What other types of loans do you ask the third-party originators you work with to source for you?
We like purchase loans. Overall, purchase is a much more stable business than refinances and we’re a good purchase lender. We and the loan officers that we are working with make sure the loans get done on time.
We originate more government than conventional. We try to have a very broad product menu so we can serve the range of borrowers out there. For example, in this economy there are a lot more self-employed people, so we also fund non-QM, often using bank statements to qualify borrowers with high FICOs and low LTVs.
We also fund high-balance conforming in a way that’s not restricted to any particular ZIP code or geocode. These loans are underwritten through Fannie Mae’s Desktop Underwriter but they are DU-ineligible due to loan amount only. They have fewer conditions than a typical jumbo loan and better pricing.
Renovation loans are big for us. I think renovation is an underutilized product because the loans are more work and a lot of lenders go for the low-hanging fruit instead. There is a ton of housing stock out there that needs renovation. I think originators are going to start figuring out that they can and should be doing these loans.
As the CEO of a nonbank mortgage company, what’s one developing trend you hear about a lot in the business?
For years people have said, “It’s all going to go online. People are going to get their loans online and this whole game is going to change because of technology.”
However, I think the percentage of loans that are done entirely online today is relatively small and I think it will continue to be. Even millennials, who can be very tech savvy, want to talk to somebody about the biggest investment of their life the first time they get a loan. They don’t want to just go online. They want to talk to someone and get advice from an experienced loan officer. So, I don’t think there’s going to be as much change as people think or at least in the foreseeable future.
I try not to opine too much on what’s going to happen because things generally take longer than we expect in this business. At least that’s been my experience, and I’ve been in this business since 1984.
What about business-to-business automation — how important is it for you to focus on that today?
One of our priorities in our broker channel is technology. It has to be top notch. I think we’re getting there. Our technology is good today, and we have a lot of things we are going to do over the next year to make it even better. It’s really important to make it easy to do business with us and the technological piece is part of that.
Also we have things like guaranteed fees on our closing disclosures. We have vendors that make sure the fees that are in there are the actual fees that borrowers are going to be charged at closing. Things like that are really important. Those are some of the things we do to make it easier to do business with us on the broker side.
Do you think the third-party origination market has growth potential?
TPO is all we’ve ever done since 2000. We’re 20 years into TPO. We survived everything and came out as a strong company. I’m extremely bullish on third party originations and I feel that the broker side is going to continue to grow.
During the meltdown, a lot of loan originators were thinking, “I’m going to work with a direct lender.” But now some of them are starting to have more confidence in wholesale and are thinking, “I can be a broker and offer my customers a much wider variety of products and pricing.”
On the correspondent side, we have really strong ties with community banks, regional banks, credit unions and the smaller mortgage companies. They do a good job at what they’re doing. A lot of their loan officers work for them because they like working for them. But there is a subset of loan officers that went to those companies who were brokers. I think some of those folks are going back to being brokers.
Speaking of going back, what’s Plaza’s origin story?
My business partner, James Cutri, and I started it from scratch. We were both loan officers right out of college. All I’ve ever done was mortgage. Then in 2000, we decided to do our own thing. We started with four people in one office and grew it organically from there.
There was an original Plaza that we both worked for. The company was started by Jack French and it was based in Santa Ana. They were nationwide and I ran their correspondent division. Then they got sold to Fleet.
When our company was getting started, we were thinking about all using all these other goofy names but then one of the people who came to work for us said, “Why don’t you just use Plaza?” Initially, I thought, “There’s no way that’s available.” But I checked and it was. Fleet gave it up. So I called Jack and said, “Do you care if I revive the name?” He said, “Just send me some golf balls with the name on it.” So I did.