Future of Commercial Mortgage Lending

From training, technology, and the next big challenge, these guys — panelists at the Commercial Real Estate Finance/Multifamily Housing Convention & Expo (CREF) — shared table microphones and sipped water while offering their expert opinions.

The moderator was Brian Stoffers, CEO of L.J. Melody & Company in Houston. He and audience members peppered “The Future of Mortgage Bankers” panelists for comments on industry issues, such as servicing.

Jody Thornton, executive managing director of the Dallas office of Holliday Fenoglio Fowler, L.P., adamantly said servicing is a reward of production.

“I think it’s great, and we do have a lot of our money tied up in servicing. Servicing helps us pay for our platform. We encourage it and pursue it every chance we get,” he said in a light Texas accent. “I will tell you that we’re real focused and we don’t pay our people different for doing a service deal. I would never want a borrower to accuse me of pushing a deal that didn’t have his interest at heart.”

Kenneth Stockton, executive vice president of NorthMarq Capital, Inc. in Houston said servicing helps generate more business and that his company offers incentives for scoring servicing deals. Daniel J. Phelan, CEO of Pacific Southwest Realty Services here in San Diego, agreed. His company aggressively services loans, although it doesn’t take servicing lightly, he said.

The discussion headed toward customer expectations. Fees and speed have and will continue to concern borrowers and lenders, but it’s execution that’s crucial, Phelan said.

“We can all offer a rate, but they want surety of execution,” he said. “That’s the most important thing we can bring to the table.”

The panelists were asked if they use the latest information processing methods. Stoffers said keeping up with technological advances was driving his company’s costs up and was expensive to implement. However, Phelan said his company has been using an increasing amount of digital photography, and that advanced technology has kept costs down.

Technology talk led to the question of who offers Web-based packages. Stockton said his company doesn’t presently offer them, but that NorthMarq would head in that direction in the future. Phelan said his company tried Web-based packages, and determined that Adobe Acrobat packages work better for his customers. Thornton said Web packaging drives up costs, so his company sticks to electronic packaging.

Phelan, the session’s leader in loquaciousness, warned against solely relying on technology and conjured up remembrances of the dot-com frenzy.

“The day you think electronics will make the deal, that’s the day you’re out of business,” the certified mortgage banker said. “We’re a people business.”

The main advantage that large businesses have over small ones is that they can offer more in-house training, which is crucial, Phelan added.

“But you can’t teach experience,” he said. “That allows you to say, ‘We have to underwrite this differently.’ That can only come from experience, and you have to be willing to pass it down.

Thornton agreed and said the future of mortgage banking is bright, but it will take local expertise to weather the more immediate bumps.

Stoffers asked the panelists what difficult times are coming upon the commercial mortgage banker.

Michael R. Meents, president of Towle Financial Services, Inc. in Minneapolis, said in a Great Lakes lilt that production would be the toughest challenge in the near future. Phelan said the commercial sector won’t see many more refinancings until 2005, and that all the empty lease spaces are vacancies waiting to happen. Gary W. Nelson, president of Churchill Mortgage Corporation in Los Angeles, said the biggest challenge would be juggling and satisfying customers’ appetites. Thornton agreed, saying that the expectations between lender and borrower will continue to be a balancing act in the near future.

The perhaps sagest piece of advice for succeeding as a mortgage banker came from Stockton.

“Mortgage bankers have to put in 120% in every deal,” — make both sides think they’re getting 60% and the other side is getting 40%.

CREF is the Mortgage Bankers Association of America (MBA)‘s annual convention for the commercial sector and runs through Wednesday at the San Diego Convention Center.