Originators Need To Be Ready For A Mortgage Restart

Originators Need To Be Ready For A Mortgage Restart

AS RATES ROIL THE MARKET OUTLOOK, IT’S TIME TO PREP THE SALES TEAM TO KNOW THE OPTIONS

By ROB CHRISMAN, MORTGAGE BANKER MAGAZINE CONTRIBUTING WRITER

In late February, the bond market threw lender’s rate sheets a major curveball. Namely, the “economics of the restart” took over, and rates shot higher. The rate move was not based on fundamental news to a large degree, but instead on the hopes of an economic recovery, post-pandemic, and fears of inflation from the stimulus packages coming out of Washington DC. Lenders saw floating pipelines evaporate, free extensions vanish, and borrowers no longer benefit from current rates. Most agree that there is more pressure on rates to move higher versus moving lower, but 30- year rates in the 3 percent range is not the end of the world and in fact lenders across the nation are already planning for upward pressure on rates by dusting off programs & training manuals and eyeing picking up market share. Let’s look at a few of the ways this could be accomplished.

BUY, BUY BABY

While many lenders are fretting about total refinance volume in their pipeline dwindling, purchase business remains as strong as ever given inventory constraints. All across America, we are seeing bidding wars for properties, consistently with multiple offers over asking. This is also helping spur the demand for new construction, and purchase pipelines are bursting at the seams for lenders of all sizes. It may be worth devoting some of your resources that were geared toward refinances toward purchases. Remember, there are 70+ million millennials, many of whom are finally moving out of their parents’ homes or costly city apartments, looking to start building home equity. Keep your name in front of local real estate agents and always ask for referrals.

POCKET EQUITY

Even with rate-and-term refinance applications likely dropping off due to the recent rise in rates, cash out refinances remain an attractive option for borrowers given appreciation around the nation. A cash-out refinance replaces a borrower’s existing mortgage with a new loan for more than the current mortgage (provided the borrower has equity built up in the home), with the difference going to the borrower in cash. That can be spent on home improvements, general debt consolidation or other financial needs. Borrowers can usually “cash out” up to 80 percent of their home’s equity, which may be higher than many think due to recent home price appreciation. Usually the transaction must be used to pay off existing mortgages by obtaining a new first mortgage secured by the same property, or be a new mortgage on a property that does not have a mortgage lien against it. Lenders should check investor requirements and be well-versed in them for discussions with previous clients.

PDA FOR DPAS

All 50 states offer some sort of DPA (down payment assistance program) for borrowers. The Biden Administration has made it clear that first-time home buyers and affordable housing initiatives are paramount. A thorough knowledge of these programs is mission critical, as they can vary wildly from payments that are forgiven, those that are deferred, or even those that are subsidized in some manner until eventual resale of the mortgaged property. Loan officers and local lenders can add value over internet lenders by knowing DPA ins and outs.

HELLO HELOCs

Home equity lines of credit (HELOCs) can help borrowers to tap into the equity of their home as an alternative to cash-out refinancing. The HELOC is a second mortgage that provides access to cash based on the value of the home. The line of credit can be drawn from, and then repaid, similar to a credit card. Same as a cash out, one borrows against their equity in the residence. Unfortunately, the home is still pledged as collateral and can go through foreclosure if the borrower does not make payments.

TWICE AT THE WELL

A second mortgage is yet another way to help borrowers tap into the equity of their home. We are talking about home equity loans rather than HELOCs now. While the loan to purchase a home is usually the first mortgage, a second mortgage is another lien taken against a property that is already mortgaged. It is usually a lump-sum loan with a fixed term and rate. Homeowners may use the money from these second mortgages for any purpose. Deciding between a HELOC and a home equity loan for a second mortgage depends on the loan’s purpose and a borrower’s personal spending habits. And loan officers should know the options that their company offers.

THE MORTGAGE PAYS YOU

Finally, let’s look at reverse mortgages. Roughly ten thousand people a day turn 62 in the United States, and many of them are homeowners. A reverse mortgage is only for that age group (and up) and provides another way to tap into equity by once again borrowing against the home. Borrowers receive funds as either a lump sum, a fixed monthly payment, or a line of credit similar to a HELOC. Dissimilar to a forward mortgage, a reverse mortgage does not require the homeowner to make any loan payments. Rather, the entire loan balance becomes due and payable when the borrower dies, moves, or sells the property. The loan amount cannot exceed the home’s value and one benefit is the borrower will not be held responsible for paying the difference if that becomes the case, such as through a drop in the home’s market value or the borrower living a long time.

None of these options should surprise any loan officer. But an MLO who is aware of them and knows the lender’s guidelines will have an advantage over those that don’t, or an internet-based lender. Adding value is critical to an originator, regardless of interest rate environment. And as we know, you can’t control interest rates, but you can control your knowledge of which programs can help your client and be flexible.

ROB CHRISMAN