What do you do when the phone stops ringing? When wholesale lenders fold? Guidelines are tightening to unbearable levels? When home prices plummet? When government regulation is agonizing? For the last several years, it has been a broker’s market. If you opened an office and provided good service, the phone rang and you earned a nice living. Well, Mr. and Mrs. Cleaver … Wally and the Beav are losing their home in Mayfield!
There is no “magic bullet” in this article. I am not the late night TV host who will show you the pill to enhance or enlarge you income. Nevertheless, I do hope that I make you turn opportunities into victories. After you implement some of the ideas in this article, the markets may be depressed, but you will not be.
Don’t get too mushy about the past. It’s history. Live in the here and now. Stop whining. Become very realistic about the economy. I have a rule in my office … once your inside the door of my office, I don’t want to hear about how bad the economy is. I don’t want to hear, inside my space and on my time, anything negative. I know what is happening in the economy. There is no sense to dwell on it. This only takes precious time and drains expensive energy. Don’t be a pessimist.
What can you do? Will you try to change the market? This was the perfect storm. The financial markets froze, the real estate prices and sales plummeted, the economy tanked and regulation is overwhelming. You have to deal with the world that the Wall Street financial “experts” left us. You can’t fight the storm. Be realistic.
According to Florida Association of Mortgage Brokers Past President Nelson Locke, “Business is slowing down nationwide and Florida is no exception. In the future, the most successful brokers will be those with the most diversification. Think about what you offer. Consider educating yourself in areas that you might not have experienced in the past.”
The number one thing you can do to insure your financial future is invest in your education. Some educational programs that might be helpful are:
● Loan products;
● Marketing; and
You should understand the details of the loan products you currently offer. Understand the nuances. Become a total expert in your products. Don’t fight about the constant changes in the rules.
Learn new products that accomplish your new prospects’ wants, needs and desires. The products that may make you flourish in this environment are discussed below.
In selling and negotiating, you should concentrate on learning to sell yourself and your product’s benefit. Someone will always have or say they have a “better” product than you.
Learning management skills makes you more valuable to an employer and in your business. Marketing will help develop your image. Marketing items include flyers, brochures and other advertising pieces. Management skills will make you more valuable to your employer. Management will give you a better understanding of business. It will create a more efficient and effective organization.
You can acquire these new skills through course offerings from associations such as the National Association of Mortgage Brokers (NAMB), NAMB’s state affiliates or the Mortgage Bankers Association (MBA). These organizations provide conferences, seminars, books, online programs and trade shows. Visit their Web sites to find out how you can increase your industry knowledge.
When you attend a trade show, review the vendors and exhibitors. Plan to visit the vendors that will help your business grow. Make your time at the trade show productive. Also, you can acquire new skills through books, classes and the Internet.
Realtors, developers and investors are real estate experts. You are the financing expert. If you can add value to their product and get them a fistful of money, they will keep you around. If you can help structure transactions for the real estate experts, you will become the financial expert.
Become famous in your community as a mortgage expert. You can increase your exposure by writing articles for the local newspapers and by presenting seminars. You can get to know the newspaper and magazine business writers and offer to provide quotes on the mortgage market. You can regularly send press releases to the newspapers, TV stations and radio stations. After time, they will accept you as the real estate expert.
You can arrange seminars at condominiums, office complexes for the building employees, schools for the teachers and other employees, libraries for the community, fire stations and police stations.
At Jackson Memorial Hospital, in Miami, an insurance agent provides a monthly seminar with refreshments and music for the doctors. How many hospitals could you arrange a monthly seminar? The doctors and interns who will buy homes in the future love the food and music.
An Alabama mortgage broker has an exclusive contract with a union to present programs to the union’s members. The union pays him $35 per attendee. He has more than 100 attendees at each seminar. How many loans could you close from each seminar?
A mortgage broker should study the local market and see what class of people will continue to need mortgages in these times. Here are some suggested niches to consider:
● Home purchases: Many people will still buy new homes even in this market. A broker may want to develop a strong purchase business by cultivating relationships with realtors.
● Senior citizens: Senior citizens will continue to need reverse mortgages. The demand for them will increase as they become more known. Baby Boomers will soon be senior citizens, which could create a large market for reverse mortgages. By the year 2030, there will be more than 72 million people, like me, over the age of 65 with grandchildren on my knee, Vera, Chuck and Dave.
● First time homebuyers: Newlyweds and other first-time homebuyers need a place to live. Many will buy homes, regardless of the economy. Many new college graduates will buy homes. A tax credit of up to $8,000 is available for qualified first-time homebuyers that purchase a principal residence on or after Jan. 1, 2009 and before Dec. 1, 2009.
● Relocations: Executives relocate from city to city usually without regard to housing market conditions. Ingratiate yourself with realtors who handle this market.
● Foreign nationals: Guten Morgen mein Liebhaber, buenas tarde mi amiga, bonsoir madam. Foreign nations, especially Europeans, are interested in U.S. housing. Develop relationships with your European friends.
● Investors: As prices decline, more investors will speculate on property purchases. Prices have declined to levels that allow the rent to cover the costs to maintain rental property.
The loan products that may make you flourish in this environment include:
● Mortgage purchase plans;
● Cash flow purchases;
● Reverse mortgages;
● FHA programs;
● USDA programs
● Downpayment assistance; and
● Short sales.
The commercial market
Commercial real estate values remain relatively stable. There are many areas of commercial mortgages that mortgage brokers could learn and specialize. Some of these areas include:
● Large commercial loans;
● Small commercial loans;
● Church loans;
● Office buildings;
● Apartment buildings;
● Condominium association;
● Hotel (chains and non-chains);
● Gas stations;
● Funeral homes; and
● Convenience stores.
Mortgage purchase plans
In a tight mortgage market, less home purchases qualify for mortgages. Therefore, there is more owner or seller financing. Owner financing is when the seller sells real property and takes back a mortgage deed and note from the buyer. The seller has stepped into the shoes of the bank. Some sellers do this willingly; however, most sellers would rather receive all cash from the sale of real estate and not be involved with the borrower.
How can a mortgage broker earn income and help a client when a home seller provides “owner financing?” Creative mortgage brokers can suggest to the owners of the mortgage (the mortgagee) many ways that they can sell all or part of their purchase money mortgage for immediate cash. A purchase money mortgage is a mortgage created with the purchase of the real property.
Fees for this valuable service can be very lucrative and processing is limited to gathering a few documents and submitting them to a mortgage note purchaser.
The selling of a mortgage is a Mortgage Purchase Plan (MPP). An MPP is also known as a cash flow purchase, an existing mortgage purchase plan, an owner-held mortgage purchase plan, an owner-financed mortgage purchase plan or discounting a mortgage.
An example of this is based on the owner taking back a first mortgage; however, the principles are the same whether the purchase money mortgage is a first or second mortgage. The names have been changed to add some humor.
Sally Seller sells her home for the following:
Purchase Money First Mortgage: 80,000
Sales Price: $100,000
To sell the home, Sally takes back a mortgage she does not want. The buyers have only $20,000 in cash. The terms Sally and the homebuyer negotiate for the $80,000 first mortgage are seven percent interest for a 30-year amortization period with a balloon of approximately $75,305.27 due in five years. The monthly payments are $532.24.
Since Sally wants all cash, Sally contacts Mort Broker. Mort has a note buyer ready to buy the mortgage at the time of closing or anytime after that. Mort offers to purchase the mortgage deed and note for $70,000 that includes a $3,700 commission to Mort. The actual price paid for the mortgage would be adjusted to reflect the remaining payments.
Sally accepts the offer since she would rather have the cash. Therefore, Sally has received the following in cash:
Cash From Sale of Mortgage: 70,000
Amount Realized: $90,000
Real estate property sold using MPPs generally sell closer to the listing price. Listings are sold quicker since affordable financing is available. Many closing costs and time delays are eliminated. Some costs include surveys, termite inspections and such, as required by traditional lenders.
With the increase in interest rates, more seller-held mortgages will be produced because borrowers will demand and get a lower interest rate from the seller and less people will qualify for mortgages with higher interest rates.
Other cash flows
Other cash flows work similar to mortgage purchase plans. Basically, investors purchase cash flows on structured settlements getting a discount. Other cash flow activity will increase as a way of cash out, since refinancing a mortgage seems more expensive. In this market niche, almost any cash flow could be purchased, including:
● Structured settlements;
● Office leases;
● Equipment leases;
● Workers’ compensation settlement claims
● Lottery winnings;
● NFL pension annuities;
● Death benefits;
● Personal injury awards;
● Medical malpractice awards;
● Product liability awards;
● Motor vehicle collision awards;
● Contest awards;
● Credit card receivables;
● Business receivables;
● Delinquent mortgages;
● Law firm settlements;
● Mortgage deeds and notes on real property;
● Land mortgages;
● Time share mortgages;
● Business notes with or without real property; and
● Mobile home notes with or without the land.
There are FHA programs that you should be able to provide your clients. You should explore becoming FHA approved. The NAMB provides education programs for you to learn FHA.
The folks who grade your meat make loans. One program is Rural Housing Section 502 Direct Loans are loans that are directly funded by the government. These loans are available for low- and very low-income households to obtain homeownership. Applicants may obtain 100 percent financing to purchase an existing dwelling, purchase a site and construct a dwelling or purchase newly constructed dwellings located in rural areas. You definition of rural may not be Department of Agriculture definition of rural.
Florida administers the State Housing Initiatives Partnership program (SHIP), which provides funds to local governments for homeownership and multifamily housing. The program was designed to serve very low-, low- and moderate-income families. Generally, mortgage payments do not exceed 30 percent of the area median income limits, unless authorized by the mortgage lender.
SHIP dollars may be used to fund emergency repairs, new construction, rehabilitation, down payment and closing cost assistance, impact fees, construction and gap financing, mortgage buy-downs, acquisition of property for affordable housing, matching dollars for federal housing grants and programs and homeownership counseling. Various state, county, city and other organizations offer downpayment assistance.
It is important to be the right size; so you won’t capsize. It is important to write a formal complete business plan. You will never get to where you are going if don’t know where that is. Review all of your expenses for two cycles, i.e. two months. Review all checks, credit card payment and automatic debits. Reduce or eliminate what you can. If you are primarily a service business, review you financial statement monthly. If you are primarily asset-based business, review your financial weekly.
● Real estate-owned (REO): REO has become a growth industry. Work with realtors who specialize in REO and help them structure transactions that close. Work with companies that auction off properties.
● Foreclosures: Work with attorneys, realtors and other professionals to structure beneficial loan modifications and short sales.
● Banking: As the mortgage brokering industry downsizes, there are still opportunities in banking.
Leaving the business
There is no shame in leaving the industry. Now may be the time to go back to college. Now may be the time to become a diplomat and see the world. Now may be the time to retire. Investigate the opportunities. Go to job fairs, visit Workforce One and go online.
When is it going to end?
There are small signs of optimism everyday. The end will come when there is confidence in financing property, when property values stabilize and stop continuing to fall and consumer confidence returns.
None of these ideas should surprise you. Hopefully, you do some of them now. To compete in this market you need to be lean, flexible, creative and tight-fisted. You need to formulate and formalize a formal written business plan now, so you will know what to do.
With formal preparation you can turn opportunities into victory after victory.
Gary Opper is president of Weston, Fla.-based Approved Financial Corporation. Gary has been a mortgage lender and note buyer since 1984, in addition to mortgage consulting. He has a CPA and a CFP license. Opper is past president of the Florida Association of Mortgage Brokers Miami Chapter and the Florida Institute of CPAs Gold Coast Chapter. He may be reached by phone at (954) 384-4557.