BLOG VIEW: Homebuyers have been facing a tough market for some time. Until recently, the mortgage industry was content to leave the work of empowering new buyers to their real estate agents, so that Loan Officers (LOs) could spend time focusing on the flood of refinancing activity that led to a $4 trillion mortgage market in 2021.
However, the 2022 market will only be a fraction of that, according to the latest estimates. With interest rates rising, the easy refinance activity has now disappeared and lenders are working on buying leads to shore up the lost volume.
With such fierce competition, the question becomes: who will win this case? In short, LOs that can help agents sell more homes will be winners. In a market where a seller can choose between 20 different offers and where inventory levels amount to weeks instead of months, this can be a difficult task.
Here are three ways LOs can do just that, by helping their referral partners close more deals and get more deals themselves in the process.
Don’t pre-qualify, pre-approve
Gone are the days of handing a loan applicant or real estate agent a letter suggesting that a lender would likely approve a loan. Today, buyers and their agents want to know that the borrower can not only qualify for the loan, but also obtain the financing before accepting the offer.
For the typical pre-qualification letter, someone has ordered the applicant’s credit report, checked to make sure they meet study loan program guidelines, verified assets, and noted any contingencies.
A pre-approval, on the other hand, was given to an actual insurer who reviewed the file on the borrower’s side, with ownership yet to be determined, and approved the deal. This tells the borrower that if the property verifies, the transaction will proceed.
It also allows the agent to reduce the typical 21-day wait time on the third-party financing endorsement to zero days. Suddenly, this potential buyer jumped to the top of the list.
Pass the assessment if required, but not the inspection
In today’s market, speed is key. Evaluation is an area that can significantly streamline the process. This is the most time-consuming part for many lenders, and bidders who can close faster by removing the possibility of an appraisal will likely be seen better by sellers.
However, this carries some risk, much less if Fannie Mae or Freddie Mac have issued a valuation waiver, but this can rarely be determined at the contract stage. Although the buyer can waive the possibility of closing more quickly, the lender will not. This means that if the home is worth less, the buyer may have to make up the difference to maintain the correct loan-to-value ratio.
Nonetheless, for established neighborhoods where values are comparable to or higher than the property in question, and/or where the buyer has access to additional funds if needed, this tactic may win the case.
It is much more risky to waive the inspection, especially for the real estate agent who could be legally liable for undisclosed issues. Adding this to the list of all the other issues that could arise, buyers shouldn’t be advised to forgo an inspection.
Make a habit of being creative
When the market gets tough and loans are harder to come by, good LOs get creative. They look for ways to make the deals work, working with agents and potential buyers to find a solution to fund the deal and benefit all parties.
Many times the answer will be the loan programs themselves. Although knowledgeable LOs are not underwriters, so few, if any, will have memorized all of the guidelines for each loan program. But knowing a lot about even a few programs can make all the difference.
For example, a USDA loan can help a borrower who may not have a lot of cash available for a down payment. However, if the borrower fails to qualify, an FHA loan could help, as long as they have enough money to pay a 3.5% down payment (and don’t have any spent to repay his revolving debt in order to improve his credit rating).
However, sometimes it is to help the borrower increase their credit rating in a short period of time. This can be done, but at the expense of cash that might be needed to make up a shortfall due to low valuation.
Often it’s just to help an agent negotiate with the seller to get a good deal. This is especially true in today’s market where we’ve seen borrowers come to the table ready to borrow against a 401K, only to find on the 11th hour that the value of that account is no longer sufficient.
Safeguarding these cases takes creativity, which comes from experience but also from working with a good team that has faced these challenges and obstacles in the past and learned how best to overcome them.
It’s certainly the kind of market that requires creative and tenacious mortgage professionals, those who will do whatever they can to help their trusted agents and partners close more deals.
Whatever loan solution may ultimately be the right solution, it is good advice for every borrower to save their money before sitting down to consider home financing. It might make sense to spend that money to reduce debt or improve credit rating, but it might also make more sense to use it as a safety net for a canceled appraisal or to buy out an interest rate. Often the borrower will not know what will be best until they are seated across the table or screen from their mortgage LO. When they do, it’s essential that they work with someone who can give them the tools and knowledge they need to stand out and succeed.
Nicole Solari is branch manager in Houston, Texas for Homespire Mortgage.