If you see a mortgage banker sweating, don’t blame the weather. Low interest rates and a hot real estate market have local mortgage lenders feeling the heat.

And with home sales up in July, most are working feverishly to meet closing dates amid a high volume of new loans.

Despite tighter lending standards imposed after the housing bust, it’s a good time to be a Middle Tennessee mortgage lender. More importantly, it’s a good place. With sustained population growth projected for the next 20 years, home lending is growing in one of the nation’s hottest expansion markets.

Stump

At First Bank in Murfreesboro, mortgage banker Matthew Stump says his group posted a record month for closings in June on the strength of higher inventory in the housing market.

“It seems like the department grows every week,” he says. “Once construction keeps up with demand, we’ll see even more growth.”

Jim McCann, director of mortgage lending for Avenue Bank, says he’s looking to double his group of seven loan officers and hopes to add satellite offices in Hendersonville, Murfreesboro and Mount Juliet within the next year.

McCann

“We are busy, and it’s exciting. A lot of good things are happening,” he adds. “The challenge is recruiting the right people.”

Dianne Payne, Tennessee area manager for Cunningham & Company Mortgage Bankers, a North Carolina-based independent lender, says she is seeing great success after opening its Brentwood office in October.

“Cunningham loves Tennessee and had wanted to break in for several years,” she says.

“Really, I think our biggest challenge is continuing to deliver a good customer service experience and educate people through the process and put buyers in a home.

“We’re still delivering 10-day closings when we need to. If the borrower’s prepared and has everything in place, we can do that.”

For those in a position to buy a house, interest rates are at or near historic lows. Last week, the rate was 4.125 percent for a 30-year conventional, fixed-rate loan – still the most common. The National Association of Realtors forecasts rates will rise to 6.25 percent by 2016.

“People who can afford a home, have stable employment and good credit, can buy a home at an incredible interest rate right now,” McCann says.

But that may be easier said than done.

Middle Tennessee does not have a large enough inventory of homes to meet demand. As veteran Realtor Richard Courtney noted in a recent column for the Nashville Ledger, this summer may be the most difficult time to buy a home in Nashville’s history.

Part of that is due to homebuilders exiting the market during the recession, although national and out-of-state homebuilders like D.R. Horton and Meritage Homes moved into the market last year, and developers are snapping up available land.

Home sales in Middle Tennessee did jump last month as homeowners decided to cash in on their equity and sales are over last year’s levels, though inventory is still below optimal levels.

“Inventory certainly is gaining. We’re in a better position than we were first quarter,” Payne says.

“Now the seller is realizing, ‘Wow, my value has come back,’ so Realtors are busy listing a lot of properties. That’s helped.

“But we have a new set of challenges as we navigate the process. We see more competing contracts, multiple offers. We’re trying to educate borrowers to get pre-approved so they’re in more of a bargaining position.”

Another driver of mortgage activity is the rising cost of rent in Nashville. It’s now the seventh toughest city in the nation in which to find a rental, according to a recent study by Axiometrics.

Despite new apartment stock, monthly rents in the market averaged $912 at the end of the first quarter of 2014, and central Nashville rents averaged $1,388, according to Colliers International.

“It’s the first time you can get a house for much less than you’d be paying in rent,” Stump explains.

“Right now building is 10 years behind, and we’re also getting an influx of population, so we’re going to be short on supply here for some time. It’s a great chance to build equity.”

Stump says some clients in multiple bidding situations are now competing with cash buyers from out of state and national real estate investment trusts (REITs). That’s resulting in some having to bring additional cash to the table to cover the difference between the appraised value and the sale price.

“Middle Tennessee has seen an influx of out-of-area money buying up properties,” Stump says. “It’s definitely helping the housing values, which is good if you’re a homeowner.”

Not so much for the buyer.

Tougher underwriting standards also are complicating some homebuyers’ purchasing experience.

When newlyweds Joe and Keri Pagetta started shopping for a home, they were prequalified by Regions for a mortgage and began looking in East Nashville, close to friends and family live.

Joe and Keri Pagetta with Realtor Rick Schell, who found them their Donelson home.

-- Michelle Morrow | Nashville Ledger

Finding few affordable homes that met their needs, they broadened their search to Donelson, where Crye-Leike agent Rick Schell found a well-priced home in a charming neighborhood before it went on the market.

Joe, director of media relations and online strategies for Nashville Public Television, and Keri, an actor and voice over artist, had no problems with credit or income. And the house appraised at $20,000 over the sales price. But underwriters at Regions required them to fix a few things before they would sign off on the loan.

“They made us jump through some hoops in order to be fully approved for the mortgage insurance,” Pagetta says.

That included minor fixes.

“We were like, ‘Of course we’re going to put downspouts on the house when we move in. Why would we not?’ But they wouldn’t approve the mortgage until we put the downspouts on. Which was odd, because even if it was just $100, it was $100 we had to pay before we actually closed on the house.”

And even when a foundation expert verified that some cracking on the side of the house posed no danger to the structure, the bank wanted it caulked – something Schell helped with to make sure the loan closed on time.

“These days, banks seem a lot more cautious about what they’re investing in,” Pagetta notes.

“I think it’s a sign of the times. From what I’ve heard from other people going through the process, our experience was relatively delightful.”

Schell says while credit has been loosening up in the past two years, he’s had issues with buyers going through large national banks that are bound to rigid underwriting guidelines tied to the secondary market.

“I know people who are financially solvent, but something in their credit history will prevent them from getting a loan,” he says. “People with a lot of money in the bank. I had a client who couldn’t get anyone to give him a loan so he just ended up paying cash for a $150,000 house.”

His solution: Establish relationships with smaller banks and independent lenders that will work hard to meet his buyers’ closing dates and can be less rigid on underwriting because they know the market.

That flexibility differentiates local lenders, Avenue Bank’s McCann says.

“We’ve tried to take a common sense approach. You don’t want to put someone in a house they can’t afford. But by the same token, you don’t want to be silly about some of the guidelines that are out there.”

When the market was slow, McCann says, large lenders would deny loans because the appraiser could not find a comparable sale within a mile, or would throw out a comp if it was located on the opposite side of Hillsboro Road from the home being purchased.

“Things happened that defied common sense, and we’ve tried to be the answer to that,” McCann adds.

Even with tightened lending standards, there are still programs to help encourage homeownership, such as Tennessee Housing Development Agency down payment assistance, USDA rural housing loans that require no money down and FHA loans that require a much smaller down payment.

“There are programs that will help with the down payment and closing costs. There are programs that allow 100 percent financing,” Stump says.

“Many potential clients don’t know the full range of mortgage options and might think they have to have 10 or 20 percent or think their credit score isn’t high enough.”

Payne says additional mortgage reforms will be implemented after the first of the year, when she becomes president of the Tennessee Mortgage Bankers Association.

They’re mandated by the Dodd–Frank Wall Street Reform and Consumer Protection Act, a package of financial regulatory reforms signed into law in 2010, and disproportionately affect the mortgage industry.

But they’re not likely to slow growth in the mortgage sector.

“I get calls every month from somebody trying to recruit and asking about the market – national companies coming into Tennessee,” Payne says.

“They’re making their foray into the Southeast and a lot will start in Tennessee because of the economy. It’s a great place to do business.”