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   ARTICLE   |   From Scotsman Guide Residential Edition   |   August 2017

Tune Up Your Product Knowledge

You can grow your business in a rising-rate environment

Key Points

Mortgage originator tools

Mortgage originators have a range of tools available to help them put creditworthy borrowers into sustainable mortgages. None of that matters, however, if borrowers can’t find them. Following are some ways originators can build their business as rates creep upward.

Be accessible online: Millennials – adults in their mid-30s or younger – prefer to shop online, and these automated online processes can lower the cost of producing mortgages. Independent originators should consider partnering with a wholesaler that has robust financial technology offerings.

Build a network: Homebuyers often reach out to a mortgage originator recommended by family, friends or co-workers who have done business with the originators in the past. Loan originators should actively and regularly network with past clients and find opportunities to meet new people.

Inspire trust: Mortgage can be complicated. Mortgage originators who can answer borrowers’ queries about downpayments, rate locks, points, closing costs and other questions may hold an advantage over competitors.

Provide personalized service: Mortgage originators specialize in mortgages while banks have many lines of business. Originators who provide specialized attention to each client will set themselves apart.

Educate potential customers: Many borrowers and would-be borrowers don’t know that nonbank mortgage originators may have access to a wider variety of pricing and product options than traditional banks. Seek out ways to educate potential customers about the benefits of this arrangement. 

Mortgage interest rates are on the rise. This is presenting a new set of challenges for mortgage originators and home-buyers who have become accustomed to historically low rates.

Although rising rates might slow home sales, a growing economy and a healthy housing market should provide some relief. Experts predict mortgage rates will inch upward to about 4.5 percent or possibly near 5 percent by year’s end.

This rising-rate environment is expected to have a negative impact on refinance volume. But mortgage originators who prepare now for the changes will be able to provide their customers with great opportunities to fund residential property purchases.

Strong signals

The Federal Reserve, as expected, bumped rates in December of last year and again this past March and June. The Fed’s policymaking body, the Federal Open Market Committee, was scheduled to meet again in July, after the deadline for this article. Analysts expect the Fed to raise rates once more this year.

When the benchmark interest rate is raised, it generally is a signal that mortgage rates also are headed upward. Rising mortgage rates can spur homebuyers to act in an effort to lock in rates before they rise any further, but constrained inventory and rising home prices could dampen this incentive to act.

Housing prices posted strong gains this past March, rising 7.1 percent year over year, according to the most recent data available from CoreLogic. This included double-digit growth in Washington state (12.8 percent) and strong growth in Utah (9.9 percent) and Oregon (9.4 percent). Prices in 27 states as of this past March had surpassed peaks reached prior to the housing crisis, and 10 states were within 5 percent of their pre-crisis peaks. CoreLogic predicts that home prices will rise another 4.9 percent over the 12 months ending in March 2018. 

Although rising mortgage rates are a concern, low unemployment, improved wage growth and generally strong consumer confidence are working in the mortgage industry’s favor. Unemployment this past May dropped to 4.3 percent, the lowest level in a decade and a mark that most economists consider to be near full employment. Low unemployment fuels wage growth as employers raise pay to attract workers, a positive indicator for housing demand and affordability. The potential for tax reform and reduced regulation also bodes well for small businesses, which employ the majority of Americans.

Loan-product offerings

Although there are challenges ahead, the housing industry’s big picture still looks bright in the year ahead. For the greatest advantage in that market, however, loan originators should be well-versed in the many new mortgage products available today that could benefit a wide variety of borrowers, even in a rising-rate environment.

Housing and mortgage lending, now 10 years out from the crisis, has a lot going for it. 

Following are a few products originators should be aware of:

  • Low-downpayment mortgages: Mort-gages with loan-to-value ratios as high as 97 percent made a comeback about three years ago. Originators should learn what’s available because there are differences in qualifications and pricing among products.
  • Government-backed loans: U.S. government-guaranteed loans are viable options for low- to moderate-income home-buyers who meet the qualifications. Originators need to know these programs inside and out and be able to tout their benefits — such as zero downpayment requirements for U.S. Department of Agriculture and U.S. Department of Veteran Affairs loans — as well as the negatives, such as the mortgage insurance requirement for the life of a Federal Housing Administration loan.
  • ARMs: Adjustable-rate mortgages, which feature lower rates on the front end of the loan, likely will gain in popularity as interest rates rise. Originators should be prepared to offer this option to clients and to explain how ARMs work. Potential customers include those who expect to sell their homes before the higher ARM rate kicks in and buyers who want to invest their house-payment savings elsewhere during the lower-rate period of the ARM. These have been underutilized since the housing crash, partly because of low rates. If rates do rise, originators should be ready with several ARM options.
  • Unconventional products: Lenders are offering a variety of products apart from 15-year and 30-year fixed-rate mortgages and conventional ARMs. A loan from a crowdfunded real estate lending website could be a viable option for a borrower wanting to invest in residential properties, for example. This type of asset-based loan was virtually unavailable just five years ago. Other unconventional products on the market today include interest-only loans, stated-income loans and 1 percent downpayments. These products may fit the needs of a real estate investor or home flipper. 
  • Downpayment-assistance programs: Mortgage originators should know how to find downpayment-assistance programs in their area and help borrowers determine whether they qualify. They also should learn about flexibilities that allow borrowers to gather resources for their down-payments from a variety of sources, including family, employers and secondary financing.
  • Condo-lending flexibilities: Condo loans are now more accessible than in the past because of requirement changes made a couple of years ago by Freddie Mac and Fannie Mae Originators who serve metro areas where condos are common should make sure they are well versed in these loans and their requirements. Downpayment requirements also have declined, making these loans more available to a wider group of borrowers.
  • Investor loans: Interest in single-family rental investing has blossomed over the past few years as investors saw opportunities to diversify their financial holdings through portfolios of nonowner-occupied properties. That trend is being bolstered by strong demand for single-family rentals. Partnering with the right lender can help mortgage originators gain expertise in investment-property financing, a skill set that can definitely set them apart in the market.

Startup help

Finally, there could be options for originators who left independent shops for the big retail banks to once again become independent operators. NAMB, The Association of Mortgage Professionals’ KickStart program aims to help originators take control of their own destinies in the mortgage industry.

Launched this past September, KickStart has provided 47 grants at $10,000 each (as of this past July). The program’s goal is to grow the mortgage originator channel by providing interested and qualified loan originators with a startup grants to open their own shops.

•  •  •

Housing and mortgage lending, now 10 years out from the crisis, has a lot going for it. Rising rates and a projected decline in refinance volume, although concerning, come amid the backdrop of a growing economy, housing-price growth, rising wages and widespread economic optimism.

Rising mortgage rates should provide originators with an incentive to step up their game by increasing their industry and product knowledge. This will ultimately help them increase their business while simultaneously providing a better customer experience.


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