Riding Out A Recession

BY MELANIE ROBITAILLE, SR. STAFF WRITER & GRAPHIC DESIGNER

The near zero interest rates enjoyed across North America have jumped several basis points now, some of the fastest hikes seen since the 1980’s, making affordability now one of the greatest hurdles for many homeowners across the continent.

While a mortgage is already easily one of the largest debts most homeowners carry, industry experts suggest these moves were more of a rate correction. Arrears issues haven’t been as bad as some initially predicted due to the selling power homeowners had during the recent market frenzy; power which provided equity in the form of extra cash, an opportunity that’s now shifting with the market.

“You hear the phrase, ‘marry the home, and date the rate’ a lot right now. The rates aren’t going to be forever. And honestly, during the spring and summer things start to pick back up. It's not like it was before where you had to settle for the home because you just wanted the rates and the payments,” explained Branch Manager for PRMI Mortgage Company and Co-Franchisee, Jim Hyatt Jr., of EXIT Results Realty in Maryland. He sees how many regret what they had to do in order to compete mere years ago, and how they feel they’re overpaying for it now.

Canadian clients had the benefit of being able to port their mortgages, meaning those who locked in at a fixed lower rate, had the flexibility to move and take their portable mortgage and rate with them to their new home, something Jim said isn’t unfortunately available south of the border. Another major difference in the U.S. is the length of time you lock in for, 15- or 30-year terms to be exact, whereas in Canada, terms are much shorter for three or five years, similar to the American commercial sector. Either way, Jim believes everyone will be paying more in the short term, it’s just a question of when, not if. “What goes up must come down. It's timing. Eventually it'll adjust, though no one knows if it will return to where it was, but [rates] will fluctuate,” he said. Jim is personally dealing with an adjustablerate home equity line of credit, or HELOC as they’re known, where his payments can fluctuate anywhere between $900 to $1700 per month. Many aren’t fans of this fluctuation, but some are choosing adjustable-rate mortgages (ARMs), hoping to take advantage of any rate decreases no matter how small or short lived.

“It's probably not as attractive as porting because if you had a 2.5% percent interest rate, you won't get a rate like that even on an ARM right now. But it’s a way to hedge the affordability for a given timeframe,” he noted. “You’ll see a lot of three-year ARMs and they'll be fixed for a certain time. Then depending on the product, it can adjust up or down by 1% per year, for so many years. It's a good option that helps those who just want to get into the property and have affordability monthly, in the beginning. If during that three-year time, or even thereafter, the rate comes down to an attractive position where [customers] want to lock in at that point, or refinance for 15 or 30 years, then at least they have the property. Hopefully, it's gained a little bit of equity over that time and can be refinanced.”

With over 24 years in real estate, 17 of those with EXIT, Jim and his business partner Tina Hyatt, are no strangers to tough times. They opened their first two offices just after the 2008 recession, and their third most recently just before the pandemic. After years of outsourcing the mortgage aspect of the business, and seeing the increasing uncertainty of clients, Jim and Tina decided to bring both the title and mortgage side of things in-house. They also partner with a local pre-licensing school, which hosts trainings out of their office.

“It just made sense. We've had really close relationships with our mortgage lenders for many years, and the real estate agent is the point of sale. Typically, the customer comes to us, and usually relies on the agent to point them in the right direction as far as real estate associated businesses like mortgage, closing, and home inspection services,” he explained. “What we've done is bring those services in to help teach our agents how to do the business. Like what mortgages are a better fit for certain clients, and how to explain the financing piece of it, or how to fill out the financing addendum on the contract. We bring in our title people, and they talk about the closing process, how to read the settlement sheet, what title insurance means, and why it’s important. We educate the agents from the very beginning, and it's been working very well. When they go to a client, they feel more comfortable when referring business.” teach how do business. what mortgages are a better fit for certain clients, and how to explain the financing piece of it, or how to fill out the financing addendum on the contract. We bring in our title people, and they talk about the closing process, how to read the settlement sheet, what title insurance means, and why it’s important. We educate the agents from the very beginning, and it's been working very well.”

Jim Hyatt Jr., Co-Franchisee - EXIT Results Realty

Jim and Tina picked a brand of mortgage company that could service their clients well, that their mortgage officers and loan originators could plug into, and had an attorney that they did business with already and just basically joined forces with to open a standalone title company.

“I recommend, even for new brokers, trying to incubate in a system that's already working and learn from that. We incubated within another title company for a little bit to get things going and our processes setup before we actually worked on building some startup capital to launch our own," he said. "Without that partnership, it would’ve been really tough.”

With mortgage companies advertised all over, Jim said they have a higher capture rate and thus cash rate on the title side, since most clients aren’t familiar with many title company options. This has seen their office through some of the harder times and filled in the gaps, and he admits it’s something he wished they’d done earlier saying, “When you open a brokerage, you have so many things going on. I know it's hard to even think about or consider the cash to open another business, but it really helped financially. Getting those things going and building those relationships early on is almost easier than everybody going off to build their own separate relationships then trying to later re-engage agents into your company.”

In hindsight, Jim admitted not knowing where to start held him back. Realizing this need he saw an opportunity while working through the processes with each entity, eventually creating a system of templates that would work with other brokerages so, “If other owners wanted to plug into what we've built, it’s easier to jump right in. It’s kind of a plug and play system we helped each entity build,” he shared, and when it comes to giving other owners advice, he says he’s “more than happy to help.”