It was a great ride for capitalizing on refinance volume during the latter half of 2020. In fact, many originators were so busy with refinances that purchase business became secondary — especially purchase business with the potential to be a challenge.
There is a new reality coming up quickly, however, which is that purchase mortgage originations are forecast to set a new record high of $1.54 trillion next year. Nationwide refinance volume is set to be cut in half to $946 billion, according to the Mortgage Bankers Association (MBA).
With that in mind, does it still make sense to keep the focus on refinance volume? If so, what is your plan to capture the increased purchase business in 2021 when the refi market cools? The purchase market has proven its resilience despite concerns about the economy and the pandemic. It’s time to prepare now, and here’s how.
With the upcoming purchase-market conditions, it is clear that the originators who have a more balanced product mix will be better prepared. If you are set to be a top originator in 2020 due to refinance volume, how do you ensure being a top originator again this year?
The answer is to be proactive and add more purchase business now. It’s one thing to know where business is right now, but it’s an entirely different thing to know where it will be and how to get there first. Counting on conventional loans to get you there? Think again, many borrowers’ circumstances have changed since the pandemic hit.
They will want to purchase now to take advantage of lower rates, but they may not qualify under traditional guidelines. Nonqualified, or non-QM, mortgages can fill the pipeline when business from government programs or the government-sponsored enterprises (GSEs) aren’t enough alone to grow your volume.
Non-QM loans don’t meet the qualifying standards set by the Consumer Financial Protection Bureau for government loans or GSE loans (also known as agency loans). Non-QM borrowers do, however, have to meet ability-to-repay requirements. The good news is that non-QM can be as easy to close as agency business. It’s just a matter of choosing the right lender.
The key is to choose a lending partner that has non-QM loan options, fast technology, and in-house underwriting and resources. Sometimes, there are small obstacles that hinder borrowers from qualifying for a home loan.
Self-employed borrowers, for example, typically have the income to afford a higher-priced home and have good-to-excellent credit. They just don’t have tax returns to satisfy the ability-to-repay rule and need bank statements to determine income. Don’t turn them away. Turn the deal over to a lender with experience in bank-statement loans that works with self-employed borrowers.
Ask the lender if they have the capacity to review, analyze and calculate income upfront so that you know the income you have to work with. Non-QM options can make the difference when it comes to growing your volume beyond refinance business. There is a significant population of self-employed people, jumbo loan borrowers, those with credit blemishes and real estate investors who require non-QM to qualify.
Prepare now by creating new partnerships and increasing referrals from sources you didn’t have before. Network through accountants, loan officers at larger institutions and financial-services partners. Stand out and tell them how you can make a difference for their clients.
Explain that you should be the first call made the next time a self-employed borrower laments that they can’t qualify for a home loan. They might qualify with a non-QM bank-statement loan, and you can get it done easily and quickly. Share stories about real people, their challenging loan scenarios and how you saved the deal. These people have probably heard similar sentiments from their clients many times but didn’t know the options to help them.
Telling them how you get deals done is how you differentiate yourself. Educate them on non-QM solutions and explain the importance of a resource that specializes in challenging loan scenarios. Over time, the word gets out and referrals increase.
Let your Realtors and other referral partners know that you not only understand the market but that you have a plan already in place to help them with high purchase volume. Realtors are thrilled about the upcoming purchase market. Their homebuyers, however, may come to them with changed circumstances. Lower credit scores, being newly self-employed, using a 1099 form due to a layoff or many other obstacles might mean they can’t qualify for an agency loan.
“The greatest strength in housing demand and applications activity has come from borrowers at the upper end of the market seeking higher-balance loans,” said Joel Kan, MBA’s associate vice president for economic and industry forecasting. “The expectation is that credit availability will slowly improve across the spectrum as the economy does over the next year, but some low-income borrowers and first-time buyers will likely face difficulties getting approved for a mortgage.”
Should these situations arise, don’t let your Realtor partners try to find someone else who might be able to help. Get these referrals now. Not an expert on non-QM? Have a lender that is an expert join you and present on your behalf. It’s a great way to confirm that you have the resources you claim.
Non-QM lenders, especially those that work exclusively with these programs, see the need in the market every day. They can expand on challenging loan scenarios and explain how they helped to close them easily and quickly. Saying it is one thing, but having a recognized leader in non-QM back you up adds credibility.
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Waiting until the refinance boom ends is too late. Anyone who helps to successfully close purchase business will be the go-to option and will lead the competition. Make sure that is you and start preparing now for 2021 business growth. ●