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Foreign nationals: The oldest emerging market

National Mortgage Professional
Jan 31, 2006

Selling the option loanBrian L. Peartoption ARMs One of the fastest and most popular types of loan programs on the market today is the option loan, which is also known by many different titles including option ARMs or choice loans. It is a loan now offered by most wholesalers and provides four types of payments: a minimum payment (usually around one percent), an interest-only payment, a 30-year and a 15-year payment - the customer can choose which payment to make each month. I am not going to outline the pluses and minuses of this loan or explain the product in detail. Your wholesale representatives can do that. However, I will explain how to sell this type of loan, who to sell it to and how to add it to your arsenal of loans. When selling the option ARM, you must remember that it is a consultative sale. At this time, you may not get many requests for this loan; more often it will be something you segue to from an interest-only loan. At the most, you may get someone calling up asking for the one percent rate they saw in the paper. Nonetheless, the way to sell an option loan is to ask questions, educate your borrower, determine what is best for them and allow them to buy. Your customers should be buying this loan from you, rather than you hard-selling it to them. If you have to hard sell the customer, then you are selling them the wrong product. The ideal customers for this loan are people who handle their money well, do not max out their credit cards and who think about their home as an investment vehicle as much as a place to live. This product is ideal for investors! Then the aim of your questions should be to determine how astute they are regarding money. Helpful questions to ask your client include: how do you pay your credit card bills each month? What types of investments do you have right now? What are your financial goals for the next five years? Remember, although they are generally tied to safe indexes, option loans will go up over the next few years and the longer time frame the person has in mind, the less attractive this loan can potentially be. Someone who is 50 years old, has very little money saved and wants to die in their house is probably not a good candidate for an option loan. These loans free up cash flow - that is their main purpose. They give you the option of paying as little or as much as you want. However, as loan officers, the onus is on us to determine if this product is best for them. To sell an option loan, begin with their interest-only question or inquiry about the one percent rate and then follow up with something like this: "Yes, we have a full array of great products designed to free up cash flow. What we need to do is determine if they are right for you and if so, which product is the best. Tell me, how much do you have invested now and in what? Do you pay your credit cards in full every month or just the minimums? How long do you plan on staying in this home?" As you ask these questions, you are positioning yourself as the expert and you can get a feel for whether this loan is the best for your prospect. I would then explain some aspects of the loan and gauge their financial literacy by the questions they ask. If they just don't get it at all, then steer them away by sharing with them the danger of these ARMs - the rates adjust and are likely to go up and you can have negative amortization if you don't handle them correctly. That will usually work to sell them away from the product. Remember, it is your responsibility to determine the right program for the customer. If they seem literate, then tell them you will shop for the best product for their needs and call them back in a few hours. Meanwhile, e-mail or mail them some educational materials (such as our special report on option loans, which you can obtain by e-mailing nexusfinance@minspring.com) so they can have a better understanding of the loan. This combination of concern and informative reports should prove to be unbeatable. The options you present them with will almost always be bought and you will have an applicant. If you have done it correctly, you should hear the customer telling you how great it sounds and that they want to get going. Some sample questions that can help you introduce the option loan are as follows: - "Would it help you if you could use your existing mortgage to help build your retirement nest egg?" (This question could help you get some refis, even if the prospect just refinanced.) - "Are you satisfied with the assets youve accumulated thus far for retirement?" - "Are you trying to get the lowest possible payment?" (This question is good for purchases.) Next, introduce the program by asking, "We have a hot new product called an option loan that can help you achieve this; would you like me to explain how it works?" What you say here is critical! By offering to explain the product, you were setting yourself up as the expert. You now have control of the call. When explaining the loan, start with the payment and example. Calculate their minimum monthly payment on the low start rate with their proposed loan amount. Let the prospect know how much their minimum payment would be for the first year. Then calculate the additional 7.5 percent payment for their second year. On a $1,000 minimum payment ($310,000 loan amortization at a one percent start rate), their payment in year two will only go up to $1,075. It is important to actually calculate the increase for the prospect, instead of telling them it goes up 7.5 percent because this will confuse them and they will think their rate is going up to 7.5 percent, which is not the case. Their payment is going up by 7.5 percent. There's a big difference. Wrap up your sales pitch with, "Does that sound like something you might be interested in?" If the prospect says yes, set the appointment - never wait to set an appointment. They may have questions, which you'll answer. Remember, because the customer still has the option of paying the 30-year fixed, 15-year fixed or interest-only, besides the minimum payment, they stay in control of the loan. Upon application, counsel them on ways to put the extra money they save into investments. This is part of being a concerned consultant, though I would stop short of specific recommendations. If they ask a lot of questions or you get stuck, just mention that you have some informative materials that explain the program in depth, and you would like to get it out to them by e-mail or mail. Send them our report or some other information about the loan, and then follow up with a phone call. You will have a great chance of booking them during that follow-up call. Keep in mind that some people will be scared by this loan. If so, do not push it! Remember, the key is for the right people to buy this loan, not for you to hard sell it. If you present the program as I've described, you will find a lot of people going for it. The stage is set for this product to take off this year, after years of real estate agents pushing interest-only loans. You can either be in front of this one or behind it. But one year from now, people will be calling you up and asking for it. This program is hot and growing but it is not for everyone. It is up to you to sell it correctly and if you do, you will reap the rewards! Brian L. Peart is president of Nexus Financial Group Inc. and publisher of the Top Producer training course. He may be reached at (866) 355-1244 or e-mail nexusfinance@mindspring.com.
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