Brad Smith on Renovation Loans

BRIDGET: Welcome to CCM Talks. I am Bridget Linton and I am so honored to be joined by our SVP and Director of Renovation Lending, Brad Smith. Brad, how are you? 

BRAD: I’m doing great. Thanks. It’s a pleasure to be here. 

BRIDGET: Oh, it’s so good to see you. And I appreciate you taking the time to have a little fun chat with me. 

BRAD: Yeah, I look, I look forward to it. And anytime we can talk about renovation, I’m highly motivated. 

BRIDGET: Oh, great. Well, that’s what we’re here to talk about because you truly have helped define renovation lending at CrossCountry Mortgage. So why is it such a passion of yours? 

BRAD: Well, for me, it goes back decades. So I originally entered the mortgage business in ‘86 and worked in various operations jobs and got licensed to originate in ‘89. And my very first purchase transaction was for a childhood friend, and we got him qualified for an FHA loan. But it turned out the house had termite damage and structural damage, and he was heartbroken. 

And similar to how I deployed kind of a mentor program here, I had people at that time take me under their wing and describe the utilization of FHA 203(k), which is the rehabilitation loan, and knew nothing about it at the time and it saved the transaction and my friend bought the house. Not only did we make the repairs for the termite damage, but we put a new roof on, which would have been an out-of-pocket expense, and that, you know, first 3 to 5 years. So, it’s it’s just such a game changer when you utilize renovation loans. 

That stuck with me through the years, and haven’t always worked for lenders that offered renovation lending. But I always remember that first story, the difference it made for my, my buddy to be able to put him in the house that he wanted, regardless of its current condition. 

BRIDGET: And when it hits home, it always makes it a little bit more passionate for you to want to continue. You helped a friend, but now you can help so many other people, which is amazing. I know there’s a lot of myths about renovation lending, so can you talk about some of those and what do you say to break those? 

BRAD: Yeah, it’s, there are some myths surrounding it. I would say probably that the two most prevalent myths regarding renovation is it’s too complicated and they take too long. And, and so at CrossCountry we’ve, you know, we’ve, we’ve worked tirelessly to put together a support team. So you could be a brand new loan officer to the industry and your first loan, like me, on my first purchase is a renovation loan. We have support for you every step of the way, helping you communicate with the borrower, helping you locate HUD consultants, helping you structure the file and put the file together, moving the file into processing. 

And then the complicated part is really a that truly, that’s to me, the biggest myth, because if you currently originate FHA, VA, conventional loans, Fannie, Freddie, USDA, you’re 80% trained to originate renovation loans. 

BRIDGET: Wow. 

BRAD: They’re really a conforming loan with a construction rider, is how I refer to them with a renovation rider. And everything to do with the renovation, we can guide you whether you’re an experienced, seasoned originator or new or new to originations in general. 

BRIDGET: Well, I love that you just broke the myth for everybody. There you have it. So how do you make renovation loans approachable for clients and agents? 

BRAD: Well, that’s a great question because agents really and historically renovation loans have, have always been about 90% purchase, 10% refinance for, you know, odd reasons. And so real estate agents are the real key to driving borrowers into homes that are distressed. Or, you know, maybe it’s not quite a move-in ready home. We call them the “but homes” as everything but this, but that. It doesn’t have the walk in, you know, shower to en suite or it doesn’t have a two-car garage and all of those things can be addressed with renovation lending. 

So, I think education is a key. And, and we spend a lot of time both educating internal to our loan originators, weekly training calls and on, on very specific topics that help, you know, gain knowledge and confidence to be able to originate and communicate outwardly to your agents. And then we also do, realtor trainings. And, you know, we train hundreds of agents a year, via web or in person. I still do trainings, and I love doing realtor trainings. You see, the eyes of agents open up when they realize they can use our renovation products to leverage not only a wider property venue for their buyers, but also to gain new listings. So, yeah, it’s it’s education would be the key there. 

BRIDGET: I love it, and I love hearing the personal stories. So you talked about it earlier when we were chatting about your friend. Do you have another story that really just changed a homeowner’s life because they used renovation lending? 

BRAD: I do, and, and this is a recent closing that we had, and we were just shooting emails and messages around on it. Can I read you? 

BRIDGET: I would love that. Yes. 

BRAD: Let me, let me read you the response from this borrower. 

BRIDGET: This is from a homeowner? 

BRAD: This is, this is the homeowner, single mom, two daughters, a schoolteacher. And the program we use, which is, again, we offer every program. It’s the FHA 203(k), $100 down Good Neighbor Next Door program. So for qualified employees, fire rescue police, teachers, nurses, doctors, they can purchase a home in a community designated by HUD and pay 50% of the listing price. 

BRIDGET: Wow. 

BRAD: And then in addition to that, put a renovation loan on and make all the necessary repairs. So this was an email from her to the loan originator, Sandee Lutz, who’s our National Renovation Sales Manager, and Denise Collazo, who is her processor. And it just reads, I’m sure you’re both very busy today helping other families secure their dreams, but I would be remiss if, if I did not take the opportunity to tell you how much my family appreciates the level of exceptionality at which you tirelessly work to ensure we made it to close. I’m honored to be the recipient of the Good Neighbor Next Door program, and will continue to consciously model exemplary citizenship, service, and compassion within my community. I will be a good steward over my finances and teach my children and grandchildren to be homeowners, not renters. This is the first home I’ve owned, and I understand the value is not in the potential for equity, but the promise of being our forever home. Thank you from my soul. 

BRIDGET: I literally have goosebumps. That was beautiful. 

BRAD: That’s our why. 

BRIDGET: Oh my gosh. 

BRAD: When you talk about passion and it’s that we see stories like that and she’s very articulate in her email. And, you know, we had another home recently where the mother, we fought really hard to help them get into this renovation. And, and when she would sit down at night and do her prayers with her little daughter and her mom would say, if we move into the house, what do you want? And all she wanted was a rabbit. She wanted a rabbit. So we called it the rabbit loan, and we got that loan closed too. And we have really sweet emails and pictures of the little girl with her little new pet rabbit in the rabbit house. 

So, yeah, just there’s great stories. I mean, it’s, it’s a product that when, when utilized properly, it does, it changes lives as you can as you can see. 

BRIDGET: I mean, we talked about why this is a passion of yours. Getting emails like that, it has to make you just want to get up and keep doing this for people because you are you’re changing people’s lives, which is so amazing. And we talk about your division. I guess you would say it’s more of a niche division. So how do you create a culture of shared goals in a division like yours? 

BRAD: Well, I mean, internally we share emails like this with our ops team. And so, you know, we all kind of have, one common goal to, you know, to, to drive the business into the point where we’re helping and aiding families. 

And then from a sales perspective, across the company, we’ve set the structure of the renovation division up where if you want to originate renovation loans yourself and you want to get trained and you want to dive deep and you want to become a certified renovation subject matter expert, you can, or if you, you know, prefer just to talk about renovation, but you don’t want to get your hands into the mix, we have all 50 states covered with licensed renovation referral specialist. 

And so you can either get certified, originate on your own using our support team to help you every step along the way. Or you can refer to a specialist. So and, and we refer to both the loan officers that get certified and the ones that refer to our specialist as part of the renovation team. So you know, as, as you know, it’s not uncommon to see loan originators walking around with our Reno swag on. And like, we go, who is that person? Oh yes, we’re in Montana, you know, or we’re in Hawaii, we’re in Alaska. 

So I think, you know, the energy that the team emits, and the openness and the willingness to train and mentor, like my first experience is so important to me that, you know, I say, look, guys, we’re creating the next generation of passionate renovation originators. And so we love seeing the young people come in and get involved in so many ways to leverage renovation financing to grow your business. You know, whether you’re experienced and seasoned and producing at a high level or if you’re, you know, new to the business and just looking to get your base started. 

BRIDGET: I mean, it speaks to your leadership, too. The fact that your team does want to wear their swag and they want to work together and share those goals. It’s amazing what you’ve been able to do with your team. So what’s the next big opportunity in renovation? 

BRAD: Well, you know, I think I already mentioned that, you know, historically renovation products are about 90% purchase transactions. And within, you know, about 10% of refinance. And, and where we’ve sat post-Covid after, you know, the, the sub 3%, 30-year fixed-rate and, you know, the 400 million homeowners that have, you know, rates at below four and in the threes, equity has built up to the highest level we’ve ever seen. 

So with homeowners sitting on so much equity and the rates beginning to trend down, we feel like it could be, for the first time ever in renovation lending an opportunity for a refi boom. We call it the don’t move improve renovation refi boom. For people, you know, their mindsets of change. Two people want to age in place. They, you know, they don’t want to move somewhere else. 

So, you know, like with our VA renovation loans, we, you know, we see ADA compliant changes widening hallways to make, you know, accessibility for wheelchairs. And we see the same thing with people that want to age in place, you know, they’re coming in and making changes today on the home they currently live. They obviously love, you know, the home when they first got it, but maybe they’ve outgrown it. You know, they have two children or three children since, you know, they first bought the home. And they’re looking around. You have affordability issues for other move in ready homes. 

So we feel like that’s probably one of the biggest opportunities. That would be a, a unique market for renovation lending, to see it excel and possibly catch where you’re at 50/50 or even higher. With the opportunity to refi your existing home using the after improved appraised value. So adding bedrooms, there’s, there’s lots of improvements you can do to homes that will give you a positive return on investment of the dollars spent for the renovations. 

BRIDGET: I mean, I’ve learned so much just sitting here talking to you. I feel like now I know all about renovation lending. 

BRAD: We’ll get you Reno certified. 

BRIDGET: There we go. There we go. I feel like I can do it, but for LOs that are trying to cross-sell renovation, what would you tell them so they can make it a solution rather than look at it as an obstacle? 

BRAD: It is a solution for numerous, you know, obstacles that you face, but it’s also an opportunity to use as a leverage tool to grow your traditional business. And we have numerous examples of loan officers that have gotten renovation certified, leveraged our team to help train their agents. And you guys need to originate more renovation loans. Don’t forget about us. But they grow their regular business. And we’re used to that, and that’s truly a value add for renovation that everybody or anybody could take advantage of. 

BRIDGET: When we talk about your team, obviously you’re a great leader and mentor and you’ve been able to create this amazing team. So what does leadership look like in a specialized product line like yours? 

BRAD: Well, I feel blessed with the team that we’ve assembled here. So I always beat the drum that, you know, we all have one common goal. One common goal. It’s on my LinkedIn profile, it’s everywhere. And this team just, there was there was no integrating it. They just took to the concept. And we have so many … I should have added the years of experience we have with our operations team. It is decades and decades. Seasoned veterans that have been at executive levels that we’ve put into a role that some might in the, in the, you know, outside of mortgage banking, think, well, that’s that’s a lesser role than you had before. But the impact that they make is monumental. 

You know, my ops manager, my, you know, renovation service sales support manager, he was a national underwriting manager. So he’s a liaison between the loan originator and credit risk. So, you know, you have access at your fingertips to these people that are subject matter experts. And I’m passionate about renovation lending, but there’s people on the team that are even more passionate than I am. They adore and love this product. 

It’s, it’s so cool to see a staff get up in the morning invigorated to come to work in, in an industry that can pose some challenges. You know, there are some complications in renovation lending and everybody faces it head on and with optimism and with strength and camaraderie. So for me, I just all I do is plant the seed and vision and, and let this wonderful operations team in the renovation division run with and fulfill the dream. 

BRIDGET: Well, you’ve created an incredible culture, and that is why your team is so successful. So thank you for sharing all this information. Like I said, I learned so much and I hope that you all learned something as well. If you would like more information about a career at CrossCountry Mortgage, make sure you visit CCM.com.