The question in the title is one all of us are currently facing. The news keeps telling us that even though rates are at an all-time low, they are likely to drop even further. News like this is causing our clients to delay refinancing and purchasing. So, here is a solution and a script to work with in situations such as these.
First … the solution
It will do you no good to argue with people, since no one really knows what will happen. But, it is important to point out what a chaotic period we are in and how so many unexpected things have been happening in the financial world. The reality here is that you have an opportunity to separate yourself from everyone else in your marketplace. Ready for my solution?
What if you were to offer your clients a free refinance if rates drop (more than one percent) any time in the next year. Of course you will need to check the ever-changing guidelines to determine if there are any restrictions.
For example: Your borrower is going to lock in today at 5.125 percent. In seven months, the rates drop to 4.125 percent with a 101 price (meaning there are no points and you are getting one percent back). The loan is for $400,000, so you would be getting back $4,000. That should be more than enough to cover closing costs. Your buyer will have to start a new escrow account for taxes and insurance, but they will put the money in their current escrow account back from their current lender (you must put all of those terms on a form and let them know about them).
I would create a certificate on a parchment-type paper (available at any office supply store) and state the terms as I mentioned above.
● How much rates must drop
● The creation of a new escrow account and get their funds back from their current lender
● The headline up top would say “Certificate for a FREE Refinance”
● State that they and the property must qualify, so if their value decreased or their income or credit is different, they may not qualify
You should actually go out and advertise this offer to your past clients and new prospects. It’s a great opportunity for free publicity! You could call it the “You Win Either Way Loan” or “You Can’t Lose Loan.” Of course I am not giving you any legal advice here, but I think you should try this and make sure what you are doing is in compliance.
Secondly …the script
“You know Mr./Ms. Client, I certainly understand how you feel. But you know we are living in crazy financial times. Who would have thought gas would near $4 per gallon and return back to $1.50. Who would have thought that Merrill Lynch, Lehman Brothers, Countrywide and so many others would no longer be in business.
“Things are crazy … don’t you agree? So, my suggestion would be to go ahead with the transaction right now since it meets your needs. If you are wrong and the rates don’t drop, in fact they may even increase, you have the confidence of knowing that you made a great decision. If you are right and the rates do drop, here is a certificate that entitles you to a ‘Free Refinance.’
“Think about the stock market … most people have lost 50 percent of their savings. Who would’ve thought you could buy Citibank stock for the same price as a McDonald’s Value Menu Meal or a Starbucks Grande Latte?
“You can never pick the top or bottom of rates or stocks.
“In terms of this transaction … you win either way … so let’s get started!”
If they ask you what you think rates will do, I would simply tell them there is no crystal ball. Who would’ve thought that what has happened in 2008 and 2009 would have occurred at all?
Now, here is another big idea … change the entire conversation and compare apples to tomatoes!
Let me further explain. This just happened to me yesterday. An old client called and someone had sent her a message through Facebook about a refinance at 4.75 percent.
The rate I could offer was five percent.
If I argued with her I would lose … so I simply changed the subject, and here’s how …
First, she is in the 13th month of a 30-year loan. So, I offered her a 25-year loan which would keep her payments about the same. This basically saved her $86,400 ($1800.00 X 48 months).
I asked her: “What if you could keep your payments the same and save $86,400? “Of course she said yes and so will your clients.
Give it a try and let me know how it works out for you!
Brian Sacks is CEO of www.loanofficerformula.com/mp. He has been an industry expert for more than 24 years, closing 6,000-plus loans totaling $1 billion. You can read Brian’s 32-page special report entitled “The Death of Mortgage Origination as We Know It” at www.loanofficerformula.com/mp.