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   ARTICLE   |   From Scotsman Guide Residential Edition   |   May 2014

Back to the Future

History is repeating itself for the better in the mortgage industry

The residential real estate market tends to be cyclical. It goes without saying, for instance, that the market’s typical downtime is around the holidays. More broadly, however, it’s been especially slow in the mortgage industry since refinances have subsided. These cycles are worth noting because they illustrate one fundamental reality of the mortgage industry: History has the tendency of repeating itself, and this can bode well for the industry as a whole.

If you look back at the 1980s, you can see how underwriting has come full circle. In the ’80s, a standard debt-to-income (DTI) ratio was just below 40 percent. Then came the fast times of the mid-2000s and their abundance of “No doc” loans. Today, thanks to the ability-to-repay rule, a 43 percent DTI ratio is the standard, and mortgage professionals are now required to provide their borrowers’ two most recent asset statements. Essentially, this is the exact same asset documentation that was required 30 years ago.

On the sales front, loan officers of the 1980s were often told to make weekly sales calls to their local real estate agents. If you talk to a real estate agent today, you’ll likely learn that they’re inundated with mortgage officers looking for business. Loan officers from 30 years ago were attending weekend open houses, meeting borrowers at application and attending every closing that they could. These techniques are being implemented again in 2014 as many loan officers are getting back to basics.

Similarly, many loan officers in the ’80s were told to pick up their sales contracts at the given real estate agent’s office, which in turn gave them an excuse to make a physical sales call. Many mortgage professionals were also told to call clients’ certified public accountants for their tax returns, opening up the possibility of another affinity relationship with the tax preparer. Again, these same techniques are being employed more than 30 years later.

Is the mortgage industry different? Of course. Mortgage brokers and originators can correspond faster with clients via cell phone, e-mail and social media. The basic tenets of underwriting have come full circle, however, and loan officers must now be trained in tax-return analysis, condo guidelines, asset examination and credit history. The originators who are willing to put in the face-to-face sales work will survive and thrive in 2014. History is repeating itself, and for many, that’s nothing but good news. 


 
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