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   ARTICLE   |   From Scotsman Guide Residential Edition   |   January 2018

Venture Out of the Credit Box

Work with Realtor partners to tap the underserved-homebuyer market

Just 0.64 percent of all home-purchase loans went to borrowers with credit scores below 600 this past October, according to Ellie Mae. Some 20 percent of consumers, however, had FICO credit scores below 600 in April 2017, according to the Fair Isaac Corp.

Of course, not all of these consumers are in a position to buy a home, but it’s clear that a fair amount of them could become homeowners — if they knew that getting a mortgage was within their reach. Working with individuals who have low credit scores means first making them aware they actually have the potential to secure a home loan.

Marketing to this underserved niche is important and ripe with opportunity. One of the best ways to reach new clients in this segment is to work in tandem with Realtor partners.

Bring the business

Mortgage originators and real estate agents are two critical components of the homebuying process. All too often, however, they don’t work together as much, or as well, as they should. When networking with new or established Realtor partners, originators should make sure they’re contributing to relationship building — not just benefitting from the great mortgage leads agents may provide.

By providing information about new and largely untapped markets, originators can help their agent partners build their business. Originators should pursue relationships with Realtors who are already working in markets that encompass the underserved: first-time homebuyers, or homes within a certain price range. These agents will be particularly receptive to the knowledge of mortgage products that a good originator can provide on a wide range of credit scores and downpayment options.

Don’t stop there. With the strength of the current real estate market, some Realtors may shy away from working with clients who have lower credit scores and smaller downpayments because they think they have enough clients with great credit.

This is an opportunity for originators to prove their strength and educate their Realtor partners about the programs and products available to this niche, which can open a whole new avenue for their business. In pursuing this segment, real estate agents can not only increase their business, but also get a head start on the competition for what will likely be a growing market.

There is a significant population of underserved clients who think they are shut out of the market and thus are sitting on the sidelines waiting to buy a home until some unknown future “better time.” That time can be now for agents and originators who are willing to work with these prospective borrowers and know what it takes to help them become homeowners.

Know the market

To educate their real estate partners on this market, originators must first be up to date on the latest developments, loan products and programs available to the underserved-homebuyer market. The most widely used and consistent products for borrowers with lower credit scores and small downpayments typically come from the Federal Housing Administration (FHA) and the U.S. Department of Veterans Affairs (VA).

In fact, this past October, FHA loans comprised 20 percent of all loans originated and VA loans made up 10 percent, according to Ellie Mae. In the same time frame, the average FICO credit score for FHA purchase loans was 681, compared to a significantly higher score of 752 for conventional purchase loans. Working with lenders experienced with these government loan programs is critical for anyone serving the underserved market.

In your excitement over new business opportunities, don’t lose sight of the building blocks of any good partner relationship. 

Even within these loan programs, however, borrowers with lower credit scores can struggle to secure financing. This past September, just 4.4 percent of all closed FHA loans went to borrowers with credit scores in the 550-599 range, while a miniscule 1.62 percent had scores in the 500-549 range, making it only 6.02 percent of FHA borrowers who had scores below 600. Although the FHA allows for scores down to 500, not all lenders have opted to follow this guideline, leaving many potential homebuyers unable to find a resource for securing the mortgages they need.

Originators who work with this market segment — and are working to encourage their real estate agent partners to join them — should connect with lenders that offer loans to borrowers with a wide range of credit scores, from just below 600 all the way down to 500, or they will leave a significant amount of business behind. Make certain to know the eligibility requirements of your lending partners thoroughly to provide the best and most current information to your real estate agent partners.

Be a good partner

In addition to educating their partners on new business opportunities and avenues for expansion of their clientele, mortgage originators should always strive to bring substance to their relationships with real estate agents. Providing guidance on potential strategies and tactics to build their business and reach more buyers by working with the underserved market is one way to be a valuable partner to Realtors.

Although you want to encourage agents to try working with a new market, you must be honest about what that will mean: How many lenders do you work with that offer these types of loans? How many of these loans have you originated? What are the parameters that potential homebuyers need to work within?

Being upfront and direct about the realities of working with this market will further cement the trust between you and your Realtor partners. If your partners are willing to take on a market that is unfamiliar to them, you also must be prepared to answer their questions, ranging from the typical length to close on these kinds of loans to how small of a downpayment is possible.

Finally, in your excitement over new business opportunities, don’t lose sight of the building blocks of any good partner relationship. Always be responsive and set appropriate expectations for these clients, especially with regard to timing. It may take longer than a typical closing cycle to get a borrower with a low credit score into a home, and preparing all parties for this eventuality will make it easier to get through the process.

This will be especially critical with the first couple of deals an originator does with a Realtor in this market segment, because the agent may be hypersensitive to delays or stumbling blocks. Be available to explain any issues or answer any new questions. If there aren’t any issues, continue to stay in contact with agent partners to update them about any major milestones. Communication is vital to building and maintaining all good referral partnerships.

•  •  •

Real estate agents are an important part of any mortgage originator’s referral network. This is especially true now as the home-purchase business is starting to dominate the industry. This past October, purchases accounted for 61 percent of all loan originations, and purchases made up as much as 68 percent in May and June, according to Ellie Mae. As real estate agents seek ways to increase their clientele, mortgage originators can help their partners by educating them on working with the underserved market and the tangible value it could create for their business.


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