What’s In Your Origination Toolkit?

Make sure you’ve got expertise in more than standard plain-vanilla mortgages.

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Mary Kay Scully

There’s been a lot of talk already about what to be prepared for this year, but I think there’s a key area that’s missing. We can talk all day about the trends we expect to see in 2022 — what’s going to be more popular and what’s going to go away — but the fact of the matter is, those who want to be successful must be prepared for anything.

With your goals set for the year, it’s time to go back to the basics and brush up on all your products, even the ones that may be less popular, in order to ensure you can deliver for borrowers of all types.

Know Your Products

Sure, you know your popular products up and down, inside and out. While that is good, it is only a start. It’s time to take a look at your entire product inventory and think about ways you can serve unique borrowers or solve for any challenges the industry may be facing.

Adjustable-Rate Mortgages (ARMs): While the MBA reports that only 3.4% of purchase transactions were ARMs in 2021, that may change in 2022 with fixed rates forecasted to increase. So, how much do you really know about adjustable-rate mortgages?

The past several years, less than 10% of mortgage loans were adjustable rates, so you might not have paid these products much attention, but adjustable-rate programs are changing. Do you understand how these new programs work?

We have a new index, secured overnight financing rate (SOFR), that will be commonly used to recast future interest rates. The SOFR ARMs may come with a six-month adjustment period rather than an annual change.

Are you able to communicate to your customers how these ARMs work and how they may be beneficial to them? It may be time to read that Consumer Handbook on Adjustable-Rate Mortgages (CHARM) booklet and refamiliarize yourself with how they work. Also, review the timing of the additional ARM disclosures, as these may differ according to how the application was received. Check in with your Compliance Department for guidance. Whether you see a lot of ARMs or not, it is important to understand them well so you can effectively communicate all options to your borrowers.

Renovation Loans: Another important area of lending that could use some more attention is renovation loans. For years now, we’ve been talking about how there’s an inventory issue. It’s a valid concern, but people forget about the inventory that’s left — what some call the “ugly inventory.”

There are houses out there that just require a little extra TLC. It may not be the traditional homebuying route, but it may be the best one, depending on the borrower’s needs. Are you prepared to explain this option to customers?

Reno programs often get overlooked, but they have the power to help the inventory issue and get borrowers into their dream homes. It just takes a little extra work and a little extra knowledge.

Reno loans also have the added benefit of bringing in repeat business. You may have already put someone in a home years ago, but their needs have changed, possibly due to the pandemic or a growing family. Many homeowners want to love the home they have, it just needs some minor updates or perhaps even a major renovation. Renovation loans can help you serve previous borrowers and help make their homes work for them without having to put their homes up for sale and venturing back out into the homebuying market.

It’s time to go back to the basics and brush up on all your products.

Refinances: We hear it year after year that refis are going away, but somehow, they always find a way to stick around. Cash out refis have recently become more popular due to the state of the market. Historically, homeowners have tended to overvalue their houses, but these days, many families are now undervaluing their homes. With recent home price appreciation, lots of homeowners are sitting on more equity than they thought. Cash out refis are very appealing to them as a way to easily access funds for a large consumer purchase or to pay off costly debt. For many homeowners, cash out refinances are a relatively easy way to obtain money.

This is just one example of how understanding products is crucial for helping present and former borrowers. Refis are not always about locking in a better rate. You must understand the refi options in order to meet each borrower’s unique needs.

Hit The Books

It’s time to start studying. This isn’t just a homework assignment to keep you busy, though. Brushing up on all your products — not just the popular ones — allows you to be able to anticipate your customer’s needs and be prepared to meet those needs, no matter what they are.