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   ARTICLE   |   From Scotsman Guide Residential Edition   |   April 2015

Become a Trusted Financial Adviser

Refinancing Federal Housing Administration loans can save clients money and gain their trust

If your goal is to boost your production by showing your clients that you are a trusted financial  adviser, you can find great opportunities in your  customer database. Federal Housing Administration (FHA) loans have helped many homeowners  finance their homes over the years. Low downpayment  and closing costs make these government-backed loans an attractive option, especially for first-time homebuyers.

Even so, mortgage originators need to take a hard look at FHA loans because they may not make the most financial sense for their borrowers over the long term. Five things are driving this change:

  • The FHA recently changed its pricing structure. This past January, it lowered the mortgage insurance premium (MIP) for borrowers.
  • Property values are increasing. The value of a borrower’s property affects the loan-to-value  (LTV) ratio of a new loan. This can effectively lower that borrower’s monthly payments.
  • Interest rates are likely to rise. Rates have  been at historic low levels, but have nowhere to go but up. Now is a great time to refinance an FHA loan.
  • FHA insurance premiums are permanent. The MIP on loans issued by the FHA after June 2, 2013 can never be removed. Those premiums will last for the life of the loan. The only way to remove this  premium is to refinance to a non-FHA loan.
  • Private mortgage insurance (MI) companies have competitive rates. Although the difference in MI rates has narrowed, private MI is still very competitive and may save borrowers who have  permanent premiums through the FHA a lot of money over the life of their loans.

Calculate the difference

If you’re serious about serving the long-term financial needs of your clients, get out your calculator. For refinances, you will first need to estimate your client’s  current LTV ratio based on updated property values and the remaining balance of the loan. Next, determine the difference between the cost of the private  MI at the updated LTV (estimating FICO band) and the cost of the original MI on the FHA loan.

Chances are good that if the borrower has been in the property for more than two years, there could  be a 50 to 100 basis-point gap in the MI payment. If  interest rates increase even slightly, there is a lot of room for your client to save money, even on a “no-cost” refi rate.

All the data points that originators should make these calculations readily available. Most loan officers are busy people, however, and may need help from outside resources. Originators using sophisticated customer-relationship management systems should have this data already in their databases, and  marketing pieces ready to send out to clients who can save money with a refi. If not, another option exists. Many private MI companies have built-in calculators available on their websites that can help perform the calculations.

An internal analysis of $100 billion worth of FHA loans originated before the recent MIP decrease found that 48 percent of those borrowers could save an average of $78 per month. The average rate on those loans was one-eighth of a point higher than the borrower’s current rate, so chances are that many brokers have the ability to boost their refi production of FHA loans immediately.

Reach out to clients

Here are the best steps to follow to capture refinance business and boost production today.

  1. Target the right homeowners. Begin with  your current database of customers who have FHA loans. Complete a detailed analysis for each bor- rower that considers the following elements: property values, loan value and insurance cost.  By comparing these elements to the rate on the homeowner’s loan, you will find many opportunities within your own database.
  2. Train your team. By evaluating current loans  being made, you can quickly see if your team needs additional training on available products. For a long time, the FHA was the path of least resistance for closing a low-downpayment loan. Today, the FHA may still be the easiest but, for many borrowers,  it is not the best option.
  3. Educate your borrowers. Position yourself as  a trusted adviser who is dedicated to providing the most cost-effective mortgage products to your clients. Develop a marketing message that describes this refinance opportunity for your selected borrowers and teaches them that there are more to loans than just interest rates. Especially for first-time FHA homeowners, you may need to educate them about how their overall monthly payment is  affected by many various factors.
  4. Deliver the message. To effectively communicate your message, you will need a strong multimedia marketing campaign that involves a series of e-mail messages, direct-mail pieces and phone calls to select borrowers. Delivering your message through multiple channels makes it more likely that clients will engage with your campaign and reach out to you to complete a refinance.
  5. Measure the results. As with any marketing campaign, you should monitor results to get an  accurate measure of the return on investment (ROI) so that you can determine the effectiveness of your efforts. You can calculate the ROI by analyzing the number of homeowners the campaign reached and comparing that against the number of refinance  applications received.

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Now is a great time to get in touch with your borrowers and fulfill the promise of ensuring that they are  using the best product for their financial situation. Not only can you create new business from old clients, you also will cement your relationship as a trusted financial adviser with those clients, which should continue to pay dividends down the road through continued  business and future referrals. 


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