Grant: Hey Craig, how are you doing?
Craig: I'm doing great. How are you doing this morning?
Grant: I'm doing wonderful. Thanks for taking the time for this little zoom interview. Really appreciate it. For all the folks at home watching, we've got Craig Huntington. President of Alliance Association Bank, best HOA bank in the business.
Craig: I think so.
Grant: We agree. We also have Matt Martin on, our CEO.
Martin: Thanks Grant.
Grant: So, I just wanted to take a little bit of time to talk to you. We've got this great management company, CEO interview series we've been doing and in talking to the owners of management companies about their experience on our platform and using credit reporting. I know you've been getting to know us for a number of years now and vetting us throughout the industry. Maybe you can talk a little bit about some of the feedback you've been getting from other management companies that are using the service and sort of the feedback you've been getting industry wide?
Craig: Yes. Well, we've been tracking your progress, Sperlonga, for a long time and it seems like you've really started hitting your stride now. A lot of management companies I've been speaking with are very happy with your service. They're really lowering their delinquency rates, which in the banking world we really like. If someone wants to get a loan from us or something like that, we require a fairly low delinquency and you guys have really helped bring that down in a lot of management companies and a lot of associations. It's been really kind of fun to watch your progress.
Grant: Right. We appreciate it and we appreciate the support. You know, a lot of the changes and formats that we have today was actually due to some of your early input and advice on pricing and the way to structure things. I do really want to thank you for that help in the very beginning,
Craig: want to see anybody succeed in our industry, we're always looking for new out of the box ideas. And yours was one of those, I consider our bank a leader in out of the box thinking. And I think that I kind of wrote a book on doing that kind of stuff. And what you guys have brought to the market is really new and innovative and it's helping a lot.
Grant: Yes, we're super excited. So I know Matt Martin, our CEO comes from sort of that banking side, mortgage side of the world. I know he has a few questions he wanted to ask you on your take on some of these things as it pertains on the banking side.
Craig: Look forward to it. Bring him on.
Matt: Again, Thanks Grant. Appreciate it. So Craig, you had talked about it a little bit, but I guess more globally, how do the late, or nonpayments, affect an association budget and their ability to operate?
Craig: Well, it's always kind of amazed me one of the issues that we have, you know, in the bank, collecting payments on loans and whatnot, it's pure business. It's pure business. There's no personality involved at all. But in the Homeowner's Association world, you get these personalities involved sometimes. And that's to the detriment of most HOAs and associations. I always tell people they're running a business and yes, they have to be neighborly, but at the same time, if you let one neighbor not pay, the other neighbors have to make it up. So you're hurting by helping somebody. So you have to kind of look out for everybody as a board member. So we think it's very important that associations do everything they can to collect their assessments. It just helps as you said, with your budget. As I said at the beginning, it's one person doesn't pay, somebody else has to pay that electric bill or that landscaper, somebody has to pay it. So if everybody doesn't pitch in, those that do pitch, you have to pitch in a little more.
Matt: Sure, sure, sure. And you brought up an interesting point, something that I've been spending time on, just sort of doing research around delinquency levels, and different types of credit. Mortgage defaults right now are hovering around 3.6%, you know, credit card delinquencies about 2.6% or so. But what's been fascinating to me is when we look across the association industry, this includes your early paid defaults as well, but you're at around 10%. It's a sizeable jump. I mean 400% increase over the credit card. Three X the mortgage. So what do you feel like drives that type of behavior or that increased delinquency level because it's just so much higher?
Craig: Well yes, I guess it gets back to the friendship or the personality. It's like everybody tells you never loan money to your relatives or your friends. Which I've done personally myself and every time I do it, I'm not alone. If I get paid back, it’s a plus. And the board members sometimes feel that same way, they don't want to hurt their neighbor by making them pay. But like I said before, it really hurts their other neighbors by not enforcing those assessments and making everybody pay. And so, they don't look at it as a business job. They look at it as more of a neighborly thing and they really need to get past that, Homeowners Associations, they need to get past that.
Matt: Sure, sure, sure. You bring up an interesting point, right? You think about the board members or management company of the bank and their responsibility to shareholders and they're not going to not collect payments for any reason and that structure just sort of makes the credit and credit world work. And so, having that sort of shifted a little bit differently can create some challenges. What have you found that does work well for management companies today in collecting their assessments and what doesn't work as well as it may have in the past?
Craig: Well, I think it's very important that a good management company and the association follow their policies. It's very important to have a good strong collection policy and follow it to the letter across the board. If you let one person slide and you might let five people slide. So you just need to follow your policy and do the lanes when you need to do them. And I think that using something like Sperlonga is a very good asset. It's a great, would I say arrow to have in your quiver nowadays besides liens and foreclosures, that stuff gets very expensive, especially in states that don't allow non judicial foreclosure, to foreclosure in someone is very very expensive for both. And that's what people don't seem to understand. It's expensive for the homeowner if you let it go to foreclosure, it's very expensive. So doing something like what you do by credit reporting and people respond to that much quicker, it's much less expensive than paying an attorney $200 an hour and having a homeowner have to pay that because the association is not going to pay the attorney, the homeowner that's delinquent is going to end up paying the attorney.
So I believe doing something like what you do in credit reporting is actually a service to the homeowner that is delinquent. It's helping them take responsibility.
Matt: Sure, sure. We absolutely agree.
Grant: Totally agree.
Matt: So you brought up a point earlier, I am just wanting to see if you could expand on a little bit more. So when the lending to a community, what are the key factors you're looking for in making your underwriting decision?
Craig: Well, the very first thing we look at is delinquency. If the delinquencies are high, we don't go any farther than that. That is the association pays back the bank by their assessments and that's the only really thing that we have. We can't take the elevator, we can't take their swimming pool, we can't take their front gate. So the only collateral we have is those assessments. So the very first thing the bank looks at is their delinquency rate. And if it's over 10 they can pretty much forget any bank loaning them any money. The more below 10 it is, the better chances they're going to have to get a loan. And the lower interest rates you're going to pay if they have lower delinquencies.
Grant: Sure. That's a big...
Matt: Go on [inaudible 09:32].
Grant: No, I was just going to say, you know, that's another big, big piece, you know? Let's say they're under 10% and they get approved, but the farther down 10% the lower the interest rate is. So really, you know?
Craig: That has a big impact. You think of the FICO score for an individual, if you have a 780 or 800 FICO score, your interest rates going to be much, much lower than if you have a 650 or a 620. And it's the same thing for a Homeowner's Association. The delinquency is their FICO score to the bank. And if it's high, you are going to pay a very high interest rate. If it's lower, you're going to pay a lower interest rate.
Grant: I mean, and that's one of the things that a lot of people overlook I think too. We get, you know, really focused on the reduction to the delinquent account. And you know, how much we are helping the association reduce the delinquencies, recover money. But we're also, you know, the companies that get really successful with our service are focused on 95% of their homeowners are going to be getting those positive points every single month, you know, 50 to 100 point increase on your FICO score. They're reaping the rewards or they're paying lower auto loan rates, lower credit card rates, lower mortgage rates. So that's something we really are, you know, I personally loved the idea that we're helping out so many people through that. And they're finally getting rewarded, right?
Craig: You are correct [inaudible 11:00] You know, back in the old days when I owned my own management company, we actually did a little credit reporting ourselves, but only to the delinquent, only to the people delinquent. But by reporting those that are paying timely, it's just another boost. You're right, it's another little cherry for their own FICO score. So the reality is if 95% of your homeowners are paying on time, you're helping 95% of your homeowners get a higher FICO score. I don't know what your percentage are, but if it raises as high as you say, that's a tremendous boost.
Grant: Its Huge. That's something we're really proud of. I mean that, that piece often goes unlooked.
Craig: Yes. I can imagine.
Matt: Just want to get your view on it again. As Grant mentioned, my background in the mortgage finance world. And so one of the things that we would see happen sometimes is where if a condominium association’s delinquency rate goes too high, the condominium would be considered unwarrantable, which means no lender on the mortgage side would lend to anyone wanting to buy a property in that community. And obviously that's because the delinquencies are so high now, it looks like the liquidity of that condominium has just you know, dropped precipitously. And so it leaves it to the, or the only person who is able to buy a unit in that condominium as a cash buyer. And cash buyers simply, supply and demand, generally going to pay less.
And so, just another sort of point that I bring up is around ensuring people's property values. It's so important to make sure that their condominium fees and association fees are paid current. Because, it's going to have devastating effects to the valuation itself.
Craig: Oh, that's absolutely correct. If an Association's delinquency gets too high, then they're not warrantable as you pointed out. And then they can't get Freddie Mac and Fannie May pricing on their loans. And there are some lenders out there, but man, they're going to pay a really high rate for those loans. And it does, it devalues the property. If I can buy one condo that's 2000 square feet for 200 grand and another one that's 2000 square feet is going to cost me 250 grand, I'm going to go for the $200,000 one. You know, that's going to be less interest. It's a no brainer. And if you let your condo become unwarranted, you're really doing a disservice to your homeowners. A real disservice.
Matt: Sure. I mean, why do you feel like banks and lenders and other financial institutions, and why do you feel like they understand and value credit reporting so much more than maybe some other industries? Why are they utilizing it?
Craig: Well, I think that's where our world is. As I always tell people, "Our dollars are our widgets and we go out to sell those widgets." We want to make sure we're getting it paid for them. And FICO scores really kind of tell us how a person's doing. Now, a lot of times people have a low FICO score and they got into something, you know, a health problem or something that is not their fault, but it's still, they haven't paid back the loans. And as I said, it's pretty cut and dry in the banking world. We give you money, we want you to pay us back. And the FICO score tells us exactly what's going on and your credit score tells us where they stand in and where they've been. And anything anybody can do to help improve that FICO score is doing very, very well.
And I think that's one of the things, as we talked about before, your customers and management companies and homeowners associations don't realize that they don't only use this process to kind of gain the person that doesn't pay, but it's more like encouraging them to pay. But you're really helping those that do pay. So it's a double edged sword. It's a great thing. It's a win-win for the homeowner's association. They encourage those that aren't paying to pay and they reward those that are paying with a higher credit score. It's really the up and coming thing. And I think you guys have done a real service for the HOA world.
Matt: Well, we appreciate that. And again, I guess to add on to that. How do you see the importance of someone's credit score in today's environment than maybe 20 years ago?
Craig: Oh, I mean, it was important 20 years ago, but it's even more important now. And I'll tell you and I'll give you an example for myself that maybe 30 years ago I can walk into the local bank where I did business and say I need 10,000 bucks. And they'd put it in my account just with a smile and a signature. I remember going to the bank about maybe 15 years ago. I wanted to buy a couple of jet-skis to tell you the truth. And I was a little cash poor at the time. I had some investments to coming due. So I went to bank. I said, "I want $15,000." And they said, "Well, we want, you know, your house. We want your firstborn son. We want the world." And I'm looking at them and go, "What are you talking about? It me. Just give me the $15,000." But the Federal Government has pushed back so hard on us banks and they've made all the rules. So the rules are, if they gave me the $15,000, they would have to give just about anybody that walked in the door the $15,000 bucks on a smile.
So banks now are even more and more focused on FICO scores. It gives them some measurement of what a person can - whether they're going to pay it back or not. And you'll find a lot of times you walk in and get a credit card or something. They're going to look at your credit score and that's it. Nothing else. They're not going to look at what kind of assets you have or anything. Your credit score is really, really important.
Matt: And to echo that, it's interesting now, you know, there are mortgage lending products that solely look at the loan to value and the credit score. They don't underwrite anything else because they feel like those two factors are enough to under write and offer a mortgage to someone, it's a really good rate. So, yes, we've definitely seen that across the board. The credit score is becoming so much more important as there's more visibility and transparency into consumer's behavior and things along those lines.
So, I guess, to sort up sum up, is there any reason why an association shouldn't utilize credit reporting. And I guess the second part of the question is, would you recommend that associations utilize credit reporting?
Craig: I strongly recommended that. I can't see any reason why an association would not use credit reporting. I can't think of one and I haven't had anybody tell me one yet at all. That's pretty easy question. They should do it.
Matt: Well Craig, that's all I have. I really appreciate you taking time today. Grant, if you have anything else you want to add?
Grant: Yes, no, that's really great. I mean just thank you so much again for all the help from the beginning. And your advice has been invaluable and your knowledge of the industry is the best...
Grant: Thank you again so much.
Craig: It's just because I'm an old guy Grant, that's why. I've been around longer than anybody else.
Grant: You're very wise. "I'm not old, I'm wise."
Craig: There you go. I like that. Well thanks fellas. Good luck, you keep growing and doing a great job for the industry.
Grant: Appreciate it. Thank you so much.
Craig: All right. Bye now.