What Makes a Good Lender?

Have you ever wondered how you could do your job better as a lender? Do you know what brokers are looking for in lenders? If you’re looking for an honest assessment of what makes a good lender, read on.

It’s easy for lenders to appear like they know what they’re doing when they have the most recent technology at their disposal and a wide range of products to promote. While each lender has a niche to build on, what brokers look for in lenders may not be so expected. Mortgage Professional America conducted a survey which consisted of no-holds-barred feedback from loan originators.

Here’s a look at what brokers are concerned about when it comes to working with lenders:

Service

Even more important than price is the level of service that a lender can provide. Brokers agree that service is the first aspect that they consider when choosing a lender to work with. They know what good client service is because they provide it themselves, so it makes sense that they look for professionalism.

Communication

There’s nothing worse than a broker and their clients being left in the dark about the status of a loan that is processing. Communication is vital for lenders so that timelines can be set. When these timelines cannot be met, they need to communicate this ahead of time to avoid any issues.

Thorough underwriting

Lenders should have an underwriting standard so that it is accurate every single time. You don’t want to find a mistake later on down the line that will result in the denial of the loan. It’s best to understand the underwriting rules from the beginning.

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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.

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A Quick Overview of the New Mortgage Rules

The new mortgage rules require lenders to tighten their underwriting norms. They are designed with the objective of reducing the risks of loan defaults and foreclosures. The new rules apparently promise 'no surprises, no debt traps and no runarounds'.

Lenders now have to comply with 2 new requirements: The Qualified Mortgages and Ability to Repay. Here is how these two new requirements will affect the borrower.

Ability to Repay

Lending institutions are required to verify that the borrower has the assets and income required to afford the monthly payments throughout the entire life of the mortgage. In order to determine this, the lender may assess the borrower's debt-to-income ratio.

To calculate the debt-to-income ratio, you just need to add up your monthly expenses and divide that figure by your monthly income.

Low-Doc loans

Earlier lenders used to offer low-doc or no-doc loans without verifying the financial credentials of the borrower. However, the new mortgage rules require the lender to verify and document the borrower's income, debt, assets and credit history. This will involve more paperwork. It may also prolong the processing times. However, the new rules will ultimately benefit both the borrower and the lender.

Underwriters are also required to approve mortgages on the basis of the maximum monthly payments the borrower will have to make. They are not supposed to approve loans based on the lower teaser interest rates which last only a couple of months or years.

Qualified Mortgages

This rule ensures that the borrower will not buy a bigger home than s/he can afford. The new mortgage rules insist that a borrower's debt-to-income ratio should be less than 43%. There are exceptions to this rule and banks can issue mortgages to people with higher debt-to-income ratio if they are convinced that the borrower has assets that justify the higher loan amount.

The term of a qualified mortgage cannot be longer than thirty years. They also cannot have risky features like interest-only payments and minimum payments that do not cover the whole of the interest cost. If your monthly payments fall short of your interest cost, your mortgage balance will grow. This is called negative amortization.

In addition, the upfront fees that banks charge cannot be more than 3 percentage of the loan balance. That includes origination fees, title insurance and any points paid to reduce mortgage interest rates.

There are also rules that discourage lenders from offering financial incentives to mortgage brokers and loan officers for pushing borrowers into higher-interest mortgages they can't afford. The new rules will offer borrower protection without limiting their access to credit.

Lenders also seem to be happy about the new mortgage rules. The only concern they have is that the new rules might slow loan processing.

Interestingly, the new mortgage rules do not specify a minimum credit score or down payment requirement.

The fact that there is no minimum down payment requirement will benefit most first time homebuyers who might find it difficult to raise that much money. The lack of credit score requirements might enable banks to loosen their underwriting practices sometime in the future. That said, loans still need to be supported by Freddie Mac and Fannie Mae. Since these organizations are unlikely to approve applicants with credit scores below 620, most borrowers need to have a credit score of at least 620 to qualify for a mortgage.

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Changes to the Dodd Frank Act are Impacting Buyers

The Dodd Frank Act was signed into law back in 2010, but many of the changes that were implemented in January of 2014. This act has the potential to change a lot about the lending process. The idea behind the act was to prevent predatory lending and to hold lenders accountable for their loans, making them liable and subject to lawsuits, if they were not offering qualified mortgages. While this sounds like great legislation, the result is stricter lending practices that will keep many buyers out of the home buying market.

A few key pieces of the legislation that went into effect in January 2014 include the following:

The FHA loan maximum was decreased to $625,500. This is significant because borrowers who qualify for an FHA loan are only required to put down 3.5%. If borrowers do not qualify for an FHA loan they will be required to get a jumbo loan which requires at least 20% down. While some markets may not be greatly impacted by this decrease, markets with high property values like Washington DC and California, will be significantly impacted for a large number of buyers.

Rules for a Qualified Mortgage will need to meet new “Ability to Pay” rules. This includes stricter requirements around verifying income, credit, employment, and assets. The maximum for the debt to income ratio is set at 43%. This will hurt self-employed borrowers, who do not have a w-2 to prove income. It will hurt borrowers with less than perfect credit and with assets that are hard to verify and establish a value for. All these factors will impact lending.

Higher fees will arise. The new regulation has placed a cap on origination fees, where there was no cap prior to 2014. The 3% limit has generally not been met because of the competitive lending market. The other fees that may have a greater impact on mortgage costs is the increase in guarantee fees charged by Fannie Mae and Freddie Mac. These servicing fees will almost definitely be passed onto the customer. Add higher fees, with the anticipated increase in interest rates, and the costs could price millions of borrowers out of the market, or into lower priced homes.

The foreclosure process cannot be started until after 120 days from the last payment made by the borrower. This is very important to note. This will make it more difficult for the banks to foreclose on borrowers, but could be very expensive for the lender or loan servicing company.

These changes are bringing about a new lending environment. Banks have spent the last few years preparing for these changes, but most borrowers are unaware of the changes. There will certainly be a period of consumer education that will be required. The concern is that the stricter lending policies will turn more buyers away. This legislation has the potential to slow down the housing recovery.

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Adjustable Rate Mortgages Made Simpler

An ARM or adjustable rate mortgage is often sought by homebuyers over fixed rate loans. Understanding ARM can be quite difficult, particularly for first time homebuyers. ARM mortgage has variable interest rates. Here the interest rate and your loan payments can change periodically in accordance with the economic index. The economic index refers to a standard followed by lenders. There are many sub-divisions within the economic index. Each lender follows a particular index. When you are shopping for home loans, compare the indexes used by different lenders. Try to identify an index that has remained largely stable in the recent past.

You will certainly come across many more terms when exploring adjustable rate mortgages. To make this easier for you, we are explaining some more terms that will help you understand and compare ARMs.

Adjustment Period

The period between two interest rate adjustments is called the adjustment period. ARMs are often compared on the basis of adjustment periods. This is usually mentioned in the form of single digit numbers separated by hyphens. Here, the initial period of the loan is mentioned. This is the fixed-rate period. The rate that was offered to you on the day you were granted the loan is applicable here. This is followed by the adjustment period. This follows the initial period, during which the rate can be altered by the lender. Most ARMs have annual adjustments.

Margin

This is the mark-up added by the lender. It includes the lender’s profit and the overall cost of doing business. The margin directly impacts the interest rate offered to the borrower. The sum of the margin and index rate is the total interest rate, i.e. the rate offered by the lender to you.

Amortization

Amortization is usually seen in larger payments. Here the lender pays the monthly interest and a part of the principal amount. However, negative amortization presents a problem. If you are not able to pay the interest amount, the unpaid sum is added to your total loan. Thus, your future interest payments are further raised.

Importance of Interest Rate Caps

Caps or limitations have been created to ensure that interest rates aren’t hiked beyond a reasonable limit. Periodic rate caps present the limit to which your interest rate can be hiked between two adjustment periods. Please note that all ARMs might not offer such caps. The overall cap defines the extent to which the interest rate can be raised through the total period of a loan. It is best to check the rate cap before going for an ARM.

Importance of Payment Caps

Since ARMs expose the borrower to changing monthly payments, regulations have been put in place to ensure that payments aren’t increased beyond a limit. Some ARMs have payment caps and don’t offer periodic rate caps.

Importance of Carryovers

With interest rate caps in place, lenders need a tool to spread the total, intended hike across the future adjustment period. This is called a carryover. You need to talk to your agent to understand things better.

Jumbo Loans are Becoming Easier to Get

Jumbo loan rates have dropped to level at or below those of conventional mortgages for the first time in more than 20 years. Typically, a jumbo rate will generally run about one quarter to one half of a point higher than the current rate for a conventional loan. Lenders are changing their way of thinking however, as they begin searching for business from the nation’s wealthier customers.

Wells Fargo began this trend in 2013 when they dropped the typical minimum down-payment from 20% to just 15. Competitors have begun to follow suit with some experts noting that it was a good time to e a jumbo loan borrower. The big banks are the ones who will have the best rates, and borrowers are going to need a minimum 720 credit score to qualify for the money.

Jumbo mortgage rates are averaging right around 4.25% as compared to the typical 4.35% being sought for the 30-year-fixed conventional loan. Those who are seeking a ARM loan can find rates around 2.875%, but borrowers should do so only if they expect to move from the property during the 5-year-fixed period.

Because of the rebound of the housing market, loan origination and approval rates are on the rise, and investors are starting to turn their eyes to the jumbo mortgage sector.

Jumbo Loans are Easier to Obtain

According to financial experts, people that had less than a 740 credit score could not get a jumbo loan, but that’s all changing now as opportunities for obtaining jumbo loans are starting to crop up for credit scores at the 720 level or in some cases, even lower. That doesn’t mean that jumbo loans are extremely easy to get these days, but rather the borrower must have a credit record that is fairly clean as well as a significant savings accounts that are perhaps larger than what would be required of the borrower looking for a conforming loan.

While a jumbo loan is considered one that is larger than $417,000 in most areas, they may start above $625,000 in areas where costs are high. To help entice borrowers to seek these loans, banks like Wells Fargo have lowered the 20% requirement to just 15%, and it doesn’t hurt of course that the interest rate is a bit lower than the typical conventional loan. Another plus for the borrower, is that while most loans with less than 20% down require mortgage insurance, those at 15% under the new terms do not.

Second homes are Easier to Buy

Let’s not forget about the terms surrounding the buying of second homes that have eased as well, so there is a lot of incentive for a borrower to look more closely at the jumbo loan packages that are available to them. Because of the expansion of the guidelines, loans that were once amounting to 70 or 75 percent loan-to-value are now being granted at the 80 percent level up to and including $2 million on second homes.

To put things into perspective, only 16 percent of the total number of borrowers who applied for a jumbo loan in 2012 have been denied access to that money according to LendingPatterns.com while previous to that the denial rate was as much as 30% or more. It seems that the reason behind the trend of more approvals in the jumbo sector is that lenders are now more confident about the values of homes. This is especially true for the houses at the upper-end of values.

It’s the stability of the real estate market that is now driving up the desire of borrowers to buy move-up homes. Because of that, lenders feel more comfortable in loosening up the purse strings.

 

How to Choose Between a Fixed-Rate Mortgage and an Adjustable-Rate Mortgage

Now that interest rates on fixed rate home loans are beginning to increase, more and more homebuyers are showing renewed interest in adjustable rate mortgages. ARMs are riskier, but the lower rates in the initial years are tempting more borrowers to commit to this kind of mortgage.

Can't decide between fixed-rate mortgages and ARMs? We have got all the information you need to make an informed decision.

Question: I don't know if I should choose a fixed-rate home loan or an ARM. How can I find out which one is the best for me?

Answer: It depends on your unique situation. Ask yourself how long you intend to live in the house.

ARM is a smart choice for buyers who intend to move out in the next few years. These mortgages have lower interest rates during the initial period which can last up to ten years. During this period, your monthly payment will not change. The loan will reset after the initial period and then the monthly payments can rise significantly. It is hard to predict what the rates will be like when the fixed period ends. It is this unpredictability that makes ARMs riskier.

On the bright side, this kind of mortgage also offers substantial benefits for a borrower who intends to sell the home or who is going to inherit a huge sum before the initial period expires.

Because the initial monthly payments on an ARM are significantly lower than the monthly payments on a fixed-rate home loan, you will be able to qualify for a bigger loan. In addition, lower monthly payments will allow you to save more money.

The biggest downside is that borrowers who do not sell their home before the expiry of the initial period will be in for a totally unpleasant surprise when the loan adjusts. That is why it is important for buyers not to overextend themselves. If you choose an ARM, you will be able to qualify for a bigger loan, but that doesn't necessarily mean that you should have it.

By contrast, fixed-rate home loans are the best option for those borrowers who intend to live in the house for a long period. Irrespective of what happens to mortgage rates or the economy, your monthly payments will remain the same throughout the life of your loan. This kind of mortgage is ideal for people who have a fixed monthly income. People who do not have a high risk appetite, too, should opt for a fixed-rate home loan.

Playing it safe has its own downsides. If the rates fall to even lower levels in the future, you will not be able to take advantage of them. You will have to be content with the interest rate which was in force on the day you signed up for the loan.

In this case, refinancing your mortgage will be the only option you have to get a lower rate. Unfortunately, this can be a long and arduous process.

Another negative with fixed rate home loans is that during the initial years, you will be paying much more interest than principal.

So here is the verdict: If you intend to sell the home after a few years, an adjustable mortgage should be your choice.  Just make sure that you sell the property before the rates adjust. However, if you intend to live in the house for the rest of your life, a fixed-rate home loan is the most appropriate option.

 

5 Practices to Become a Highly Efficient Mortgage Broker

We have come up with a few top practices that teach mortgage brokers to leverage their brands and stand out in the crowd. There are also certain other practices that charm new agents to grow dynamically and earn handsome commissions. These best policies include engaging the consumer audience comprising the buyers and sellers to operate digitally, producing premium leads, optimizing lead responses, cultivating and raising hot prospects until the closing, and then finally, tending to recurring and referral dealings.

While every individual mortgage broker is distinctive, these practices are followed and coveted even by the thoroughly seasoned mortgage brokers of today. Thus, each of these values driven practices when optimized, the result not only with a deep and compounding effect on the bottom line, but also enable mortgage brokers to draw, nurture, and preserve top agents.

The best practices to become highly effective mortgage brokers are as follows:

1.  Engage the audience

As nearly 92% customers begin exploring about homes online, it makes sense to build a good impression about mortgage brokers and agents well in advance.  By creating the right listing and branding, you can get better consumer research options. This can help you build recognition and credibility, and have customers at your disposal all 24/7.

2.   Generate leads

Mortgage brokers must remember that quantity and quality are two imperative aspects of lead generation. Thus to attract new agents to your mortgage brokerage, you must follow these two aspects consistently.

3.   Optimize response

Having the generated leads in one place becomes easy for mortgage brokers to be accounted for, managed, and also optimized for quick response. Also, with the right optimization plan, mortgage brokers can have better control and visibility on lead investments. Thus good lead management skills and routing solutions can enable mortgage brokers and their teams to fight the odds against any quick response challenges.

4.  Communicate

Studies have shown that customers prefer agents who are easily reachable through phone calls, messages, or emails. Thus mortgage brokers who arm their agents with customer relationship managing tools are able to gain a lot. If you don’t have agents, it is a good idea to be easily accessible via phone or emails.

5.  Repeat and get recommendations

Staying in touch with past customers is a great way to broaden relationships. Top mortgage brokers use many methods to put this into practice and gain. You can call them on major holidays, but make sure you don’t call them too often.

To make sure that your lead management is optimized, ask yourself these questions:

·         Which leads have arrived from which sources, and what’s the best source of leads?

·         Do you have agents working on all leads?

·         What is the overall conversion rate?

Success in the field of real estate depends a lot on your desire to sell. There are many methods of becoming a successful mortgage broker, but being organized is something that will make sure that you stay successful. Also, always try to be helpful towards your customers. Your service should be such that whenever a customer thinks of real estate transactions, they should think about you.

Mortgage Rates Fall to a Two-Month Low

Mortgage rates took a dip recently, falling into a two-month low. According to an article on the Bloomberg website, the average rate for a 30-year fixed mortgage was 4.32 percent this week, which was down from 4.39 percent. Additionally, the average 15-year rate dropped to 3.40 percent from 3.44 percent.

The drop in mortgage rates resulted lower borrowing costs for homebuyers before a Federal Reserve move that further scales back stimulus measures. These measure have helped keep home loans inexpensive.

The outlook is bright due to an improvement in the labor market and a recent drop in the unemployment. The labor market has a direct affect on the housing market, so the future seems promising. Any increase should be modest, though.

Marketing Tips for Mortgage Professionals

Marketing opportunities for mortgage professionals are plentiful, thanks to websites, blogs, and social media strategies. There are numerous ways for you to personally interact with prospective clients, but maybe you only have so much time to devote to marketing. In order to get the best ROI, you need to decide how much time to spend on marketing.

 

Here are some useful marketing tips you can use to introduce your brand and gain clients:

Make use of social media. Social media marketing is one of the most effective ways to build your online presence and engage current and future clients. A business page on Facebook, Twitter, YouTube, and other social media channels is a great way to position you as an expert on the mortgage world. Post links that visitors will find relevant and helpful, and share news on interest rates, housing information, etc.

Introduce your brand through email marketing. This is a wonderful way to get the word out about your company and services to potential clients using minimal contact info. The key is to make your email messages stand out. Grab the potential homebuyer’s attention with a captivating subject line, and customize your message. Don’t forget a call to action!

Create a blog and post regularly. These days, blogs are essential for mortgage professionals and virtually any kind of business. Blogging can drive more traffic to your website, which in turn can generate more leads. Content is king, so be sure to post interesting and pertinent information regarding your mortgage business. Also, make certain you post local market and loan information, and post on a consistent basis.

Get active in your community. Put yourself in front of your clients by getting involved with local organizations and functions. You can establish your credibility as a mortgage professional by becoming the local expert. Get to know the area’s inventory, prices, trends, and other details about the market.

 

 

Existing Home Sales Reached a 7-Year High in 2013

Mortgage professionals may be interested to know that existing home sales reached a seven year high in 2013. Also, the total sales for existing homes were the highest they had been since eight years ago in 2006.

December of 2013 also found that completed transactions that included single-family homes, townhomes, condominiums and co-ops, increased 1.0 percent to a seasonally adjusted annual rate of 4.87 million, according to an article in the National Mortgage Professional online magazine and the National Association of Realtors.

All in all, 2013 saw existing home sales of over five million, a figure that is over 9 percent higher than 2012. This surge in sales was the strongest performance since 2006 when sales reached a high of over six million at the end of the housing boom. Another interesting fact: First-time buyers accounted for 27 percent of purchases in December, down from 30 percent in December of 2012.

These existing home sales should hold, according to Steve Brown, NAR President and co-owner of Irongate, Inc., Realtors in Dayton, Ohio. The sales should hold this year in 2014 with jobs improving, even though the prices of homes are going up along with mortgage rates. The median existing single-family home price was $197,900 in December of 2013, up over 9 percent from last year.