The mortgage industry has witnessed record production over the past year due to declining interest rates and high housing demand. When rates inch higher, as they will at some point, demand for refinances will decrease. At this point, an originator’s ability to bring in home-purchase loans will make or break them
How soon will this rate shift occur? As of this past December, the Mortgage Bankers Association (MBA) forecast annual refinance volume to decline by 45% in 2021, with an abrupt slowdown in the second half of this year. Meanwhile, purchase volume will increase by 10% year over year, MBA predicted.
Increasing your purchase volume is essential to maintain and grow your origination business. So, how do you raise your status among prospective homebuyers — and within your business-to-business sphere of influence — to accomplish this goal?
Start by becoming an expert in loan programs that your competitors don’t offer. For instance, nonqualified mortgages have returned to the marketplace, and there is no question that these products serve a host of borrowers who cannot or do not want to use qualified mortgage programs.
You also can find many well-priced, outside-the-box agency products with tremendous benefits for specific types of homebuyers. These products respond to today’s market challenges — including affordability, a lack of turnkey inventory, and high demand for infill and exurban homes.
Three products with great potential for boosting your production are manufactured-home loans, construction-to-permanent (one-time close) loans and renovation loans. Becoming adept with these products not only helps you serve new homebuyers, it allows you to better deliver when your past clients (and their friends and family members) want to buy a home.
Nationwide, there are only a few lenders that target this market. Outside of these companies, few loan officers are familiar with manufactured-home loans.
People used to think of manufactured housing as trailers parked on leased land and hooked up to utilities, such as water and electric service. But contemporary manufactured housing is entirely different. It looks like stick-built homes and has the features buyers want, such as garages and front porches, at affordable prices.
As people migrate from cities to suburbs and rural areas, manufactured housing offers a first step into homeownership. Even before the pandemic, people were migrating out of urban areas to escape traffic and high taxes while finding more outdoor space for children and pets.
Buying a piece of land outside the city and putting up a manufactured home appeals to a subset of these homebuyers. Typically, this involves a double-wide or triple-wide manufactured home with similar amenities as a stick-built home.
You can finance these home purchases via government and conventional loan programs. Fannie Mae, for example, has a newer program (MH Advantage) that offers pricing discounts. HomeReady is another option, thanks to Fannie Mae’s interest in supporting modern manufactured homes.
According to 2020 data from the Manufactured Housing Institute (MHI), 10% of new single-family starts are manufactured homes. MHI reports a variety of market statistics, including the number of manufactured-home starts in each state.
Construction and renovation
Demand for one-time close, or construction-to-permanent, loans has risen. In part, this is due to increased interest in manufactured housing, but it also is because of high demand for infill and custom-home construction. These programs are advantageous because borrowers have only a single loan closing and avoid having to requalify for permanent financing after qualifying for the construction loan at the outset, saving them time and money.
Construction lenders love these loans because they know they have a takeout for their financing. Some companies are beginning to target this sector because it is projected to be one of the fastest-growing segments of purchase mortgage business. These loans also are offered through government and conventional sources.
Renovation loans, meanwhile, appeal to both homebuyers and those seeking to refinance. About 42% of the U.S. workforce is now remote, according to Stanford University research. Harvard Business School suggests that at least 16% of employees will continue to work from home once the pandemic subsides. To accommodate this shift, homeowners are adding office space, finishing basements, remodeling outdated kitchens and even childproofing or soundproofing master bedrooms to preserve privacy. Other homeowners want to upgrade or upsize because they cannot find a larger home that’s affordable.
The answers to these challenges are the same: Fix up your current home or even expand it. And renovation lending appeals to homebuyers who are frustrated with the limited inventory of turnkey properties. The share of aging housing stock varies by geography, but it is especially prevalent in Rust Belt and Great Plains states, according to a Freddie Mac analysis of census data.
Buying and renovating an older property provides multiple benefits to your borrowers. Homes in need of modernization often garner fewer offers, lessening the likelihood that a buyer will be outbid. A buyer who purchases and renovates ends up with a home that has the exact features they desire.
For lenders and originators, renovation loan offerings can be a way to increase business with underserved populations. Freddie Mac’s analysis shows that many of the nation’s aging homes are located in tracts with high proportions of low-income and minority residents. Renovation loans can be secured through government and conventional sources, such as Fannie’s HomeStyle Renovation and Freddie’s CHOICERenovation programs. Note that renovation loans through the U.S. Department of Veterans Affairs were suspended indefinitely in March 2020.
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Each of these lending areas afford tremendous opportunity to grow your client base. Few loan officers understand these products and many companies do not offer them because they are more complex than plain vanilla home loans.
Developing expertise with these products will give people in your sphere of influence a reason to call you. Additionally, clients who are successfully served with these specialty products are more likely to recommend you for traditional loan programs, yet another way to increase your sales volume. ●