What Do the Changing Mortgage Rules Mean for Lenders?

The real estate market in the US has started recovering from the subprime lending crisis. Now mortgage executives are preparing to deal with a new mortgage business model that places special emphasis on protecting the interests of borrowers. In order to deal with the change in the lending landscape, lenders have to modify their business models. This requires making adequate changes in the underwriting process and employing highly advanced information technology. The goal is to improve the borrower's buying experience. The lender also needs to standardize processes and procedures.

New mortgage rules require the lender to comply with stricter regulatory guidelines. That means the lender now has to adhere to the spirit as well as the letter of the law. This requires developing a customer-centric lending model that complies with GSE underwriting guidelines, consumer protection and banking institution safety. This will not be possible if the technological and organizational infrastructure do not evolve, innovate, or compete.

The federal government now expects lending institutions to consider consumer experience when they deliver financial services. Failure to do so may result in hefty fines and penalties.

How to comply

Lenders now need a team of well-qualified risk analysts, legal consultants, process engineers and consumer advocates to ensure that they comply with the guidelines. In order to keep all employees informed, lending institutions may need to conduct comprehensive training programs. This also requires significant investment in IT infrastructures.

Changing underwriting norms

Before making the loan, the lender has to assess the borrower's current and future capacity to repay the loan. In addition, the lender is not allowed to make a loan to a borrower who cannot afford it. It is not hard to see that in its bid to protect consumer interests, the government is effectively denying financing to a section of borrowers who do not have a reliable source of income to qualify for the mortgage.

Refinancing loses demand

Another development is the reduced demand for refinancing. This is forcing lending institutions to change the mix of products they offer. While refinancing products were quite popular in 2012 and 2013, they have fewer takers now.

Refinance volume is likely to drop to around 388 billion USD in 2014. In 2013, the amount was 967 billion USD. To deal with the decreasing demand for refinancing, lenders are shifting their focus to jumbo lending, reverse mortgage lending and money loans.

Lenders now watch consumers and catalog the products they make to ensure that they are prepared to compete in areas where borrowers are seeking financing.

The lender has to change their mix of mortgage products to match the changing market. The market is shifting from refinance business to purchase money transactions. In addition, many purchase money borrowers now seek jumbo financing. The slowly improving economy and Federal government policy changes are driving the demand for jumbo loans. Consumers, too, are seeking larger homes.

Reverse mortgages

The aging population is fuelling the demand for reverse mortgages. These products have matured over the years and consequently older adults are increasingly looking at this option to fund their retirement years. Lenders who do not have a trained staff to originate these new products many either recruit more staff or outsource the origination work.

Conclusion

The biggest changes that lenders face today are the focus on the consumer and the need to offer a new mix of mortgage products driven by a number of economic factors.

Leads Direct provides quality business leads at 40-80% off retail prices so you can grow your business quickly and increase your ROI. Contact Leads Direct today!

How Technology Helps Lenders Comply with New Mortgage Rules

The rules of lending have changed and both lenders and borrowers are aware of that. Less than a few years ago, lenders were mainly concerned about getting good deals that they would ultimately sell in the secondary market. This is no longer possible.

The Consumer Financial Protection Bureau (CFPB) has rewritten the mortgage lending rules. Consequently, mortgage executives have been asking themselves if their processes, systems and people have also changed with the times.

The new rules put a special emphasis on customer satisfaction. The government now wants lenders to listen to and respond to their consumers. CFPB relies heavily on new technology to engage customers. In addition, the bureau has made it easy for borrowers to express their dissatisfaction with the lender by reporting their experiences on the CFPB portal. The bureau's Consumer Complaint Database will store and manage this information.

Consumers are showing great interest in providing feedback. More than half of the 139,000 complaints registered with the bureau by the end of the 3rd quarter of 2013 are related to the home loan industry.

When lenders are flooded with consumer complaints they will definitely need to rely on technology to resolve the issues. 

Here are some reasons why lenders need to invest in automation to serve the borrower better:

The new rules demand it

The CFPB doesn't ask lenders to employ new technology, but lenders have no other choice because the new rules are very complex. The lender can't comply with the new guidelines without the help of technology. The legacy systems that they use at the moment are not designed to meet the specific needs of the borrowers. These systems mainly helped lenders to process home loans for secondary markets.

Executives are also interested in investing in technologies that will provide a better buying experience to their borrowers.

Emphasis on consumer satisfaction

The federal government now insists that lenders provide a better buying experience to their borrowers. Lenders have never employed people to provide customer service. Since the profit per loan is low, they will probably not be able to afford it either. In this case, automation is the only available solution.

The key is investing in technology which will help the lender use their smaller staff to deliver a better buying experience to their borrowers.

New technology helps it possible for lenders to serve more customers faster.

When profit per loan is falling and the cost of compliance is rising, having happy customers alone will not help the lender to operate profitably. Lenders also need to use technology which will help them serve more borrowers in less time. The lender will receive applications from both qualified and non-qualified borrowers. It is crucial to eliminate those applications that are unlikely to qualify early in the loan approval process. This will save time for you.

Technology also allows the lender to decide how the application should be processed.  This allows the lender to immediately alert the borrower. When the borrower knows the outcome early enough, it will increase their overall satisfaction. This is true even when the lender's decision isn't good for the borrower. Technology also helps the lender provide timely status updates.

Struggling to find buyers that qualify? RealTAG gives you the real estate content that drives consumers to your site, and gives you an inside look at their financial situation. Close more real estate deals and generate qualified leads by contacting RealTAG today!

A Comparative Analysis of Asset-Based and Cash Flow-Based Loans

When a company gets an asset-based loan (ABL), it is putting its assets at risk. An ABL uses a company's assets as collateral. These loans are much more expensive than regular bank loans. However, they are a boon for companies that don't have a huge cash flow.   

Let’s say there is a business owner trying to get a loan. He has got more than one option. He can, for example, get a loan on the basis of his company's cash flow. If his company makes huge profits, this is the only option he needs to consider. Banks prefer this kind of lending because cash flow based loans are less risky.

What if his company doesn't make huge profits? He may still require funding. In that case, his only option is to obtain an ABL. Traditional banks don't prefer this kind of loans. Most of them don't even offer these loans. However, there are several lenders who make asset-based loans.

An ABL is based on the value of the assets. That means if a company has assets of substantial value, getting an ABL is relatively easier. The lender might still consider your cash flow, but it comes only second.

Collateral

Different lenders accept different kinds of assets as collateral, but they all insist that the assets have to be salable. Lenders will not accept assets that cannot be sold quickly. The assets that are typically accepted by lenders include equipment, machinery, real estate, accounts receivable and inventory.

When the borrower gets the loan, it gives the lender the first security interest in the collateralized assets. So if the borrower fails to make the payments, the lender can seize the collateral, sell it and recover its investment. When a borrower gets a cash flow-based loan, they don't have to offer collateral. These loans are based on the company's credit rating and expected income.

Suitability

ABLs are suitable for some businesses. In the same way, cash-flow based loans are suitable for some other companies. ABLs are usually obtained by companies that don't have a good credit rating or surplus cash flow. However, its assets should be of substantial value. Otherwise, the lender will not approve the loan.

If the company has a sizable amount of cash flow and a decent credit rating, it should consider getting a regular bank loan which carries lower interest rates.

Assessment

Both kinds of loans have their advantages and disadvantages and it is hard to say whether one kind of loan is better than the other. It depends on the credit requirements and financial situations of the borrower.

It is true that asset-based loans are more expensive because they carry a higher risk. On the other hand, they help small businesses get financing even if they don't have sufficient income to justify the amount of cash they need.

ABLs have higher interest rates and processing fees. The borrowers should be able to use the loan amount to make profits. They can, for example, use the money to buy more machinery and increase their productivity. They may also use the loan amount to make acquisitions. If they fail to use it profitably, getting an asset-based loan would be a mistake.

Struggling to find buyers that qualify? RealTAG gives you the real estate content that drives consumers to your site, and gives you an inside look at their financial situation. Close more real estate deals and generate qualified leads by contacting RealTAG today!

What to Do Before and After Setting up your Mortgage Business

Plenty of people are interested in setting up their own mortgage business. They believe that by being a mortgage broker, they can make loads of money. The truth is that successful mortgage brokers make six figures in a year. But all brokers aren't successful. This is a highly competitive field where only the fittest can survive.

Don't get disheartened. The first thing you need to establish yourself as a successful broker is the motivation to succeed. And to stay motivated, you need to do a few things. Remember that many brokers quit within months because they lacked either the right skills or the motivation.

Here we will show you what you need to do to become a successful mortgage broker.

Have sufficient savings

Mortgage brokers don't earn fixed monthly salaries. Their income is their commission. You will earn a commission only if you close a deal. This is something you need to remember all the time. You can't expect to receive a salary at the end of the month. Therefore, before you start out, you should have some money in your bank savings account. New mortgage brokers will have to find clients. This might take a while. If you don't have enough money in your bank account, you will find it difficult to make both ends meet until you start earning commission.

Many new mortgage brokers have no savings. Consequently, they lose their motivation if they fail to close any loans during the first month. By having enough cash reserves, you can keep your morale intact.

Promote yourself

You might be working for another person, but you still need to promote yourself. Every business needs marketing. Your mortgage business is no different. Don't sit at your desk all day waiting for the telephone to ring. Instead, reach out to clients. Use every available opportunity to promote yourself.  Set aside some money for advertising every month.  It doesn't have to be a huge amount. Many new brokers quit in less than one year because of their inability to promote themselves. Remember that you cannot become a successful broker without marketing your service.

Acquire new skills and knowledge

If you stop learning, you will stop earning. You need to be knowledgeable. You should have enough knowledge about your industry. You should know how the mortgage business works. Polish your skills. Attend seminars, buy books, training programs, and DVDs. Do whatever you can to give yourself an edge over your competitors.

Learn from top mortgage brokers in your neighborhood. Ask them what their trade secret is. When you learn from the experts, you too, will become an expert. Never stop learning. If you want to earn lots of money, you will need the right skill sets. Set higher income goals every month and learn whatever skills you need to achieve those goals.

Mortgage brokers can work flexible hours and successful mortgage brokers make insane amounts of money. That's the main reason many people enter this industry. However, they don't get the basics right and give up within months. While this is a highly competitive sector, with some patience and perseverance, everybody can succeed as a mortgage broker.

Struggling to find buyers that qualify? RealTAG gives you the real estate content that drives consumers to your site, and gives you an inside look at their financial situation. Close more real estate deals and generate qualified leads by contacting RealTAG today!

Why Lenders Should Fund Green Homes

Green building practices are becoming the norm, but that is hardly surprising. Green buildings are healthier and more energy efficient. Since the quality of air present in these buildings is better, people living or working here fall ill less often. They also seem to possess a better attitude towards life and work.

In addition, green building techniques lead to reduced energy bills. Commercial establishments that have adopted green building standards witness an overall reduction in expenses. This leads to higher profits.

Adopting green building standards is relatively easy because most green building products do not cost much more than traditional products.

Companies are constantly looking for newer ways to manage their property more effectively. Consequently, they are adopting green building standards in a big way.

Health benefits of green building

Green building improves indoor air quality. Studies have also revealed that children living in green homes are less susceptible to allergy attacks and asthma. Better still, buildings that have adopted green technologies tend to command higher prices. Although benefits are quite clear, developers are still struggling to undertake green improvements. This is probably because many green products that we use today are relatively newer products and hence there is no reliable usage data. It is not exactly clear whether they possess the qualities they are said to have.

Getting financing is another big problem that developers face. Banks simply don't understand how green building creates more valuable homes. As a result, they fail to properly assess the value of these buildings. Since more and more builders will adopt green building standards in the coming years, builders need to educate themselves about the benefits of this new building standard. Appraisers also need to understand how green features increase the value of a property.

Many people believe that creating awareness is essential to change lending policies about green building.

Why lenders should embrace green homes

More and more builders will start adopting green building strategies in the immediate future. This will increase the need for funding. Lenders need to realize that besides the owner of the property and the environment, green building is profitable for them as well.

Green construction amounts to several billion dollars now. Currently over 100 million homes require energy improvement. As a result, there is huge demand for green remodeling.  Lenders who heed the call will reward themselves with a great business opportunity.

Lenders who go green can 'future-proof' their lending practices while at the same time contributing towards conserving our precious resources.

The fact that green buildings are selling faster is pretty evident. They also command higher prices. As far as the lender is concerned, green homes are safer investments because of improved collateral. They also require less cost to operate. Green homes tend to sell for a 7.5 percent price premium.

Green homes consume less energy. They are also healthier because of the improved air quality. Although they cost more than traditional homes, many buyers don't mind paying a price premium when benefits are clearly evident.

Green homes are here to stay. It is high time the lenders changed their policies and embraced these eco-friendly building practices.

 

Need lead product solutions? iLeads delivers results that fits your needs! We are a lead solutions provider with lead generation covering Insurance, Lending, Real Estate, Direct Marketing, as well as Lead and Data Analytics. Contact iLeads today!