Succeeding in Any Rate Environment

Findings from the 2022 NextGen Homebuyer Report

By Norm Fitzgerald National MI

It’s no secret that mortgage originators face a challenging market today. Many potential homebuyers are sitting on the fence, concerned about increasing rates and what direction they will be heading in the future. The dearth of available homes to sell isn’t making things any easier.

But industry veterans know that the mortgage market is cyclical. To be successful, credit union mortgage originators need to not only enjoy the good times when rates are low, but weather the down cycles as well. Fortunately, there are tactics you can use to develop business during any cycle, even when interest rates are rising.

BE TRUSTWORTHY

Are you doing enough to inspire trust in potential homebuyers? Recent research shows that consumers are looking for experts to share their knowledge and help them make the best financial decision when buying a home—yet many aren’t finding it.

The 2022 NextGen Homebuyer Report — researched and written by Kristin Messerli and sponsored by National MI — surveyed 1,000 people between the ages of 18 and 44 in October 2022. The report found that only 56% of respondents said they have the financial advice and support they need to achieve their financial goals. And more than one in three NextGen consumers said they did not feel confident in their knowledge of personal finance.

However, many did not feel they were getting that knowledge from their loan officer. In fact, one in three respondents said they did not trust their loan officer to help them make smart decisions about their mortgage.

To make sure your mortgage customers are wellinformed, be sure that someone from your team is consistently in touch with them. Let them know immediately if you need more information from them and provide regular updates on the status of their loan and when they can expect to close. Also, find out how your customer prefers to communicate, whether by phone, email or texting, and then be sure to use the method that they prefer.

EDUCATE YOUR MEMBERS

According to the NextGen Homebuyer Report, 77% of NextGen homebuyers and homeowners believe they need to have a 20% down payment to purchase a home. You can help dispel this myth by making members aware of all the loan options available to them, from conventional loans that require 3% to 5% down, to FHA loans with a minimum 3.5% down, to VA and USDA loans, which often have no down payment.

You can educate members through webinars, seminars, informational brochures or e-brochures, and blogs or articles published in consumer publications or on social media. But don’t forget the most effective way to build trust with your customers—simply taking the time to talk to them in person or on the phone to explain their loan options, how each one works, and what it will mean for them in the short and long terms.

FOCUS ON RELATIONSHIPS

While refinances are driven by interest rates, purchase loans usually center on customer and referral partner relationships. Now is a great time to work on cultivating and enhancing those relationships. The fact is, there are homebuyers looking to purchase in any market. People will always need a place to live and life events like a job change, a growing family or a divorce will still drive the need to find a new home.

The key is to reach homebuyers early in their search with the right messaging. Refocus the conversation away from rates to the value of homeownership and building long term wealth. Emphasize that homeowners can always refinance in the future if rates go down.

Don’t forget your referral partners, either. Real estate agents, financial advisors and builders tend to work with mortgage professionals they’re familiar with and like, and who they know will take good care of their clients by making the loan process as smooth as possible. If you’ve neglected those sources over the past couple of years, take the time to reach out to them with emails, phone calls, via social media, or even with a quick in-person visit.

TAP EMAIL AND SOCIAL MEDIA

Email and social media are two great, affordable ways to communicate with borrowers and referral partners, but they are rarely used wisely or consistently enough to make an impact.

With email, think outside the box and get creative. For example, rather than sending an email to real estate agents that’s all about interest rates, send them something educational that they can easily share with their clients. Consider creating a video that grabs their attention — perhaps an explanation of how waiting to purchase a home may impact homebuyers, both in the short term and the long term.

When emailing borrowers and referral partners, consistency is key. Don’t simply reach out one time and give up if you don’t hear back. As long as you’re sending fresh, informative and educational messages, your email campaigns can go a long way to instill trust in customers and referral sources.

Social media can also be an effective, non-intrusive way to reach borrowers and referral sources and promote your brand to both. For example, real estate agents will be pleased to see you’ve shared one of their listings. Also consider publishing blogs on Facebook or other social media platforms that borrowers or agents will find helpful and informative. Provide helpful feedback or answers to questions posted on social media, too, or ask engaging questions that others will respond to.

However, be targeted in how you approach potential customers on social media. The NextGen Report found that older Millennials were significantly more likely to use Facebook, YouTube, Pinterest, and LinkedIn in comparison with Gen Z. The report also found that Latinx respondents were most active on Instagram, and Black respondents were more active than any other race or ethnicity on YouTube, Instagram, TikTok and Twitter.

MAKE BORROWERS AWARE OF ALL FINANCING OPTIONS

While a fixed-rate 30-year mortgage works well for borrowers with good credit when interest rates are low, today another option might make sense for some homebuyers. Use social media, blogs, advertising and other marketing to make potential homebuyers aware that there are ways to keep their monthly mortgage payments manageable, even in a higher interest rate environment.

Two options that weren’t widely used in the past few years when rates were at record lows are adjustable-rate mortgages (ARMs) and rate buydowns. Both are now coming back. In fact, ARMs made up 9% of mortgage applications in late November 2022, up from 3% a year previously, according to the Mortgage Bankers Association Weekly Mortgage Applications Survey.

For homebuyers who may be moving in five to seven years, an ARM could be a way to keep monthly payments affordable until then. Or, if a homebuyer knows their income will increase in the next few years, an ARM can give them more purchasing power. Still, it’s important to make sure that borrowers fully understand how an ARM works and what the potential scenarios are for their monthly payments.

A rate buydown is another alternative for some homebuyers. Buydowns can be permanent or temporary and may be offered by the home seller, a builder, a real estate agent or lender. A homebuyer can also opt to buy down the rate themselves.

A 3-2-1 buydown means that the borrower’s rate drops by 3 percentage points in the first year of the mortgage, 2 percentage points in the second year and 1 point in the third year. In the fourth year, the interest rate reverts to the initial note rate. With temporary buydowns, the borrower must still qualify at the full rate on the mortgage note.

While all of this advice may seem like common sense, many originators aren’t doing all they can to win over borrowers and referral sources. But that’s good news, too, since the strategies outlined above will set you apart from the pack as long as you execute them. As the Irish proverb goes, “you’ll never plough a field by turning it over in your mind.”

Norm Fitzgerald is executive vice president and chief sales officer of National Mortgage Insurance Corporation (National MI), a subsidiary of NMI Holdings, Inc., a U.S.-based, private mortgage insurance company. To learn more, please visit www.nationalmi.com.