It’s no secret that mortgage rates are at record lows. But many so-called “gurus” are discouraging consumers from taking action. Just recently, a report was widely circulated suggesting that a whopping 62 percent of homeowners would NOT benefit by refinancing in spite of mortgage rates being at all-time lows. Don’t let all of the guru noise or Internet-babble fool you or your clients. Your mission, should you choose to accept it, is to cut through all the noise and motivate people to get moving before it’s too late! Here are four simple ways to do just that.
#1. Illustrate how small changes make a BIG difference
Consider someone who just purchased a home or refinanced their $200,000 mortgage several months ago. They might have a mortgage rate of 5.5 percent. Many “experts” would say it’s not worth it to refinance unless they can lower their rate by a full one percent without paying points. However, what if they paid $4,000 in points and closing costs and bumped up their mortgage balance to $204,000? Here’s what their situation might look like:
►Old payment $1,135.58
►New payment $1,033.64
►Payment savings $101.94
If they save the $101 at 4.5 % they will have
If they save the $101 at 6% they will have
$6,782 in five years
$7,047 in five years
$15,271 in 10 years
$16,552 in 10 years
$25,897 in 15 years
$29,373 in 15 years
$39,210 in 20 years
$46,666 in 20 years
$76,698 in 30 years
$101,456 in 30 years
Wow!!
What if this represents an old borrower in your database, or a client of a Realtor or financial advisor referral partner? If this consumer listens to all the “gurus” telling them not to bother refinancing, they would actually lose up to $101,456! You need to communicate this to consumers and referral partners. Tell them to do themselves a favor and put that $101,456 back in their pocket by calling you today! Remember, people are often more motivated by the fear of loss than the hope of gain. This means it may be better for you to focus on helping the client avoid losing $101,000 instead of focusing on helping them save $101 per month. Dynamic resources provided by the CMPS Institute help you paint a crystal clear picture of exactly how much money clients and prospects will lose by not doing business with you.
#2. Promote the biggest clearance sale of the century
Everybody loves a good sale. In fact, clearance sales get people really excited. Here’s the deal: Houses are on sale right now! In fact, in some neighborhoods, there is a huge clearance sale going on. Not only that, but the last time houses were on sale (in the 1980s), mortgages were being marked up. This time around, there is also a huge clearance sale going on in the mortgage market. Most fence-sitting consumers don’t understand the dynamics of the housing and mortgage markets. However, most fence-sitting consumers completely understand the dynamics of clearance sales. Many of them will get off that fence if you can show them how the giant clearance sale in the housing and mortgage markets benefits them.
#3. Illustrate how the mortgage market is schizophrenic
Mortgage rates fluctuate based on the price fluctuations and trading patterns of mortgage-backed securities (MBS) that trade on the bond market. The traders that manage billions of dollars of MBS and pull the trigger on the trades are human beings. This means that they are emotional beings just like you and me. When these money managers are fearful, they sell out of their riskier stock market investments and buy safer investments like MBS. This drives mortgage rates down. When these money managers are feeling good about life, they get greedy, sell out of their safer MBS investments and put their money into riskier investments. This drives mortgage rates up. Remember the fear and market panic when Lehman Brothers went bankrupt in September 2008? The fear only lasted a few short months and the traders started getting greedy, driving the stock market up over 30 percent in 2009. Now, the traders are fearful again because of the lousy economic reports and the European debt crisis. Here is a chart illustrating the volatility of the MBS market and the emotional schizophrenia of the bond traders.
Pay special attention to the Greed displayed in the spring of 2009 and how this quickly drove down bond prices (mortgage rates quickly went up at that time). Also pay special attention to the Fear being displayed right now and how this is driving up bond prices (mortgage rates have gone down in response). Always keep in mind that market emotion is very fickle and can change in an instant. That’s why it’s so important to keep updated with real-time MBS info. You can motivate fence-sitters by showing them a picture of what’s happening in the market and why they need to get off the fence now, before it’s too late.
#4. Illustrate how financial reform will drive up mortgage rates
There are two sections of the new financial reform law that will cause mortgage rates to increase in the future. First of all, the new law requires lenders to keep a five percent stake in the mortgages that they originate unless the loans meet a certain criteria. Impacted loans include adjustable-rate mortgages (ARMs), interest-only mortgages, alt-A loans, many types of jumbo loans, etc. This means that lenders won’t be able to offload some of the higher risk associated with these loans, and interest rates on these types of loans will rise.
Secondly, the new law failed to address the issues Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), and their future remains uncertain. The market doesn’t like uncertainty, and rates on all mortgages could rise in the future depending on when and how the issue of Fannie and Freddie is resolved.
Think about it this way: 95 percent of all loans currently being originated are insured by the FHA or sold to Fannie and Freddie. This means that the federal government is essentially subsidizing 95 percent of the entire U.S. mortgage market. The government does not want to be in the mortgage business. At some point, the government subsidy will wind down and mortgage rates will go higher. This is yet another reason why fence-sitters should jump off that fence and get moving.
Gibran Nicholas is the founder and chairman of the CMPS Institute (NMLS Provider ID# 1400384). The CMPS Institute administers the Certified Mortgage Planning Specialist (CMPS) designation and has enrolled more than 5,500 members since 2005. Through CMPS, Gibran empowers mortgage professionals with confidence, unique knowledge, and dynamic marketing resources to simplify compliance, increase their competitive advantage, and generate more business. Visit Gibran’s blog and Web site at http://gibrannicholas.com.
