Times, They Are A'Changin'

It is not the strongest of the species that survives, nor the most intelligent, but the one most responsive to change. – Charles Darwin

Welcome to Blown Mortgage’s OriginatorSUCCESS Weekly ezine. If you’re reading this email it means that you are in the business of originating mortgage loans in one capacity or another and you’ve decided that you need a few more arrows in your quiver to make it through the next few years in the market. Good for you! Together we’ll explore strategies and insights that will help you as an originator grow your business (that’s right I said ‘grow’) while others are headed for the aisles.

In this issue we’ll cover some of the major changes and challenges in subprime originations and give you 5 things you can do right now to keep your business moving forward.

Challenge #1 – Guideline changes
Over the past 4 weeks there has been tremendous upheaval in the subprime lending arena. Investors such as New Century Financial and Fremont Investment and Loan have closed their doors along with 40+ other investors. The list grows everyday. In response to the shakeup many investors who are still standing have backed away from the risk of subprime and have made their underwriting guidelines reflective of that shift. Changes in LTV, DTI, appraisal reviews (see below), mortgage lates, elimination of programs and document types, and tougher underwriting all lead to a more difficult loan process. This ongoing change makes your job as an originator extremely difficult; trying to deal with a moving target as you qualify your customer based on the new guidelines.

Challenge #2 – Interest rate increases
Lenders have increased their interest rates in the subprime matricies to mitigate the higher risk inherent in these loans. While subprime rates have historically been higher than prime rates, they are now significantly higher. Further, many borrowers are trying to get out of “teaser rate” ARMs and in to fixed mortgages. Without the teaser rate these loans become prohibitively expensive.

Challenge #3 – Property Values
In the last few years an originator could easily calculate thousands of dollars in property appreciation over the span of a few short months. This made refinance transactions easy. The guaranteed reduction of LTV based on the appreciation meant plenty of room to provide cash out of a refinance transaction. With current markets flat in terms of growth, or even depreciating, cash out refinances are becoming more difficult as there is less equity to be accessed.

Challenge #4 – Bad Publicity
The news media is dominated today by headlines about the mortgage market meltdown, foreclosure rates skyrocketing, large company closures along with analogies to the dot-com crash and junk bond scandal of the 1980’s. This prevailing attitude has borrowers scared, trepid, and unwilling to move for fear of exacerbating their situation. Their fear makes them less likely to work with you – even if there is clear benefit to them.

These challenges all make your job increasingly difficult; however, to an expert loan originator they present opportunities for differentiating yourself from the pack and earning business by being the authority. Being sensitive to these challenges, and the demands they put on your customer and your business is the first step to not only overcoming them, but leveraging them to your advantage.

For example, you may speak to customers who only want a second mortgage because they love the rate on their first. After a review of their credit and equity position it seems most feasible to perform a full refinance on their property – a second mortgage is just not a good option. You can use your insight in to their equity situation (based on existing comp sales, sales trends in MLS, etc.) to explain to them the benefits of a full refinance compared to an equity product. You can also help clarify their first mortgage position. Many people think they have a fixed mortgage, when in fact it is an adjustable with a fixed portion.

5 things you should do right now! (R)

Here are 5 things you should do right now ® to handle these challenges and win business because of them.

1. Review your current banks. Look at their programs and guidelines and schedule time for each bank to come to your office for a presentation. Have account executives highlight the major changes in their products for your team. Do this for each bank. Once you’ve seen what your banks are offering you can determine where you are lacking in your product mix. This will allow you to find additional banks if necessary to ensure your ability to lend to your target customer base.

2. Investigate new loan programs. Many banks are rolling out new program types to help people refinancing out of adjustable rate mortgages mitigate the payment shock. Instead of looking at straight fixed rate mortgage products review temporary buydown products and the new hybrid arm products which have a fixed period and fixed reduced interest rate. These new product types will provide your borrower with more flexibility and a more manageable adjustment from their previous ARM interest rate.

3. Become an expert in the areas you currently market in. Visit Zillow and pull property comps in the neighborhoods where you conduct most of your business. Get a feel for whether home prices in the area have leveled, are dropping or continue to increase. By knowing the market in your area you’ll be able to accurately estimate the value of your borrower’s home early in the process. This will make your quotes more accurate and reduce the headache and stress associated with appraisals that come in “lower than expected.”

4. Promote the positive aspects of the current marketplace. Interest rates are still low, fixed rate products and adjustable rate products are close in interest rate making securing a long-term loan more affordable than ever, home prices are coming down providing new opportunities to purchase, windows to refinance may become even smaller depending on the market in the upcoming months. These are all excellent reasons for borrowers to get off the fence and in to action.

5. Depict yourself as an expert in your industry. Help navigate borrowers through stressful decisions and market conditions to make decisiosn that are beneficial to them and their financial future. By helping them with tough decisions you’ll make a lasting impression in their mind as the person that helped them secure their finances when inaction could have cost them.

Motivation for the Week: Don’t Just Sit There!

Remember, $1.5 trillion of adjustable rate mortgages are set to adjust over the next three years. They will be adjusting to interest rates that will add a large percentage to existing housing expense. Borrowers will need to get in to more manageable products – and you are the one that can help them! Do not buy in to the doom and gloom, there is good business to be had by those that are hungry enough to go get it. But you can’t wait for it to come to you – don’t just sit there!

Originator Resources

Each week we share a few of our favorite links for you to add to your personal collection of online resources.

Scotsman Guide

Housing Wire

Inman News Blog

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