Bay Area mortgage broker sees possible leveling-off of soaring

Oakland Tribune, Aug 28, 2005 by Eve Mitchell, BUSINESS WRITER

CORY REID is a mortgage guy to the bone.

In July, he began a one-year stint as president of the East Bay chapter of the California Association of Mortgage Brokers, a nonprofit organization representing more than 4,000 mortgage brokers statewide whose mission is to help potential home buyers hook up with a loan provider that best suits their needs. With a membership of almost 500, the association's East Bay chapter is the state's largest.

Reid also heads Emeryville-based Fountainhead Mortgage Inc., a mortgage brokerage he founded in 2002 that is licensed to do business in California, Utah, Oregon and Colorado. Before that he worked at Emeryville real estate company HomeGain.

Raised in Salt Lake City and in Iowa City, Iowa, Reid studied political science and economics at the University of Utah before becoming regional manager of HealthRider, a company that makes home exercise equipment. In 1996, he co-founded a Washington, D.C.-based discount eyeglasses retailer.

Over the last 11 years, the 36-year-old Moraga resident has bought 15 residential properties -- three homes and a dozen rental properties. But it was the experience of buying his first home in Alexandria, Va., at age 25 that prompted him to enter the mortgage business in 1998 when he joined Velocityloan.com, a Salt Lake City- based online mortgage broker.

The role of a mortgage broker is to "be a trusted adviser ... to make sure you are getting the right loan for you and that you understand more when you're done than when you started," Reid said.

Mortgage brokers and loan officers who work for banks and other retail lenders are loan originators; they help the borrower prepare a home loan application, which the lender accepts or rejects. When a loan closes, mortgage brokers receive fees from the borrower and lender.

Given that he makes his living in real estate, it's no surprise Reid loves the game Monopoly. His favorite property is Park Place.

"When my wife and I first got married, that was the game I always asked to play -- and she wouldn't because I wouldn't loan money interest free," he recalled with a chuckle.

Reid recently sat down to talk about a variety of real estate topics, including predatory lending, interest-only and traditional fixed-rate mortgages, and whether there is a housing bubble.

Q: The Bay Area is one of the country's most expensive housing markets, where housing appreciation has more than doubled since 1999, with the median price now above $600,000. Is there a housing bubble in the Bay Area or is all that talk about the

impending crash of home values just a lot of babble?

A: I do not believe that values will continue to behave in the same manner as they have in the past five years. So is it a bubble? Not sure, but while I believe valuations are a little rich, I don't believe values will drop dramatically during a short period of time. I do think that the trajectory will level out, and could potentially decrease. That said, I've believed this for the past four years, clearly been wrong, and just purchased a home this past March. Again, if a homeowner made a respectable down payment and/or intends to live in the property more than a few years, it's unlikely they will suffer financially because real estate is cyclical -- so it always rebounds.

Q: The high cost of buying a home in the Bay Area has led many home buyers to opt for interest-only loans, which typically let them pay no principal for three to five years before monthly payments start to increase. What do you think of these loans? Who are they right for? Who might they be a problem for?

A: Interest-only instruments can be a great tool for somebody, but with anyone you should select the instrument based on what best fits your financial plan, what best fits your goals, your risk tolerance, that sort of thing. Certain questions should be asked not only by you, the consumer, but by a mortgage broker. How long are you going to be in the home? If it's 10 years, it's sort of foolish to do a five-year adjustable-rate mortgage, or five-year interest only, unless your risk tolerance is such that you can absorb it or you think based on your career trajectory your income is going to be dramatically higher and you really feel that values will be higher and you're willing to take the risk. But the mortgage broker really needs to crunch numbers for that consumer so they understand the risk and benefits and what happens when that fixed rate expires. An interest-only loan can be really good for someone that puts down a large down payment. So if you buy the median-priced home of $600,000 and something, and put down 20 percent, that's $120,000. That's a lot of skin in the game. But the persons that really need to watch out, I think, are those who are doing 100 percent interest only purchases. If (there is a) substantial down payment, it can offset a downward revision in value.

Q: How do you view traditional fixed-rate mortgages compared to less conventional lending products such as interest-only and adjustable-rate loans?