The word “mortgage” comes from Law French, a dead language popularized by English lawyers who didn’t speak French. While most Law French phrases, such as peine forte et dure, the act of crushing an accused criminal with weights, have been forgotten, “mortgage” endures, both as a word and a legal device.
Whether you want your business to survive the centuries, or simply thrive in the coming years, you’ll need to know what’s buzzing in the mortgage industry and what that buzz means. Chicago Agent has the breakdown from top area mortgage professionals who can identify and explain the most significant industry trends and issues.
The mainstream media gives a lot of play to what writer Nathanael West calls the exploding stove story: “Disaster A could happen because of B!” Potential crises may make for compelling news, but negative messages sent by the media to consumers are as potentially damaging to your commissions as, well, an exploding stove.
Consider the housing bubble hoopla. “Is anyone else sick of this ‘bubble?’” asks Dan Moran, branch manager at mTeam Financial. Moran doubts that the Chicago metro market is experiencing the so-called bubble.
David Kasprisin, VP and Chicago sales manager of National City Mortgage, agrees that bubble talk is misleading. Kasprisin points out that real estate appreciation is tied to employment, and employment numbers in Chicagoland are looking good.
“Real estate prices, like all prices, are set at the corner of supply and demand,” says Kasprisin. “If supply is growing faster than demand, prices won’t continue to escalate.” Instead of the nightly news, Kasprisin advises to “watch inventory numbers closely in 2006” to gauge market conditions.
Put Interest Rates in Perspective
“Rising interest rates are not necessarily a bad thing,” says Dean Vlamis of Perl Mortgage. Vlamis points out that the current 30-year fixed rate of 5.875 percent is nothing compared to rates 10 years ago. “I remind people that in the late-1990s when Chicago’s real estate market was really booming, a 30-year fixed was at 8.5 percent, and no one cared.”
Another example Vlamis cites is the “refinancing boom of 2001,” when homeowners were thrilled to lock in their rates at 7 percent. Taking it into perspective, he says, rising interest rates are simply a sign of a strong economy, and rates remain quite low by historical standards.
“Interest rates do not directly affect appreciation in real estate markets,” says Kasprisin. “The high point in appreciation rates did not come when interest rates were the lowest.”
Chris Knapp, president of Lakeshore Funding LLC, thinks rising rates may actually create a market for investors in rental properties. Also, Knapp says, “I think that the [idea] of rates on the rise will encourage people to buy sooner than they’d originally planned.”
One Bad Apple
One issue that Realtors should not be complacent about is mortgage fraud. “Realtors have to understand that mortgage fraud has the ability to cripple a local housing market,” says Kasprisin. He explains that even isolated reports of fraud can cause people to become disillusioned with the entire real estate industry, similar to the public relations fallout experienced by corporate America during recent fraud scandals.
What can you do to prevent fraud? “Prepare [your clients] to be leery of lenders who offer things that seem unrealistic,” says Kasprisin. Since many companies sell their mortgages on the secondary market, and many get their mortgages from the same companies under similar terms, an unrealistic offer should be a red flag.
“If three of four lenders said there’s a problem, there’s a problem,” says Kasprisin. He explains that some loan officers downplay the difference between stated income and no income mortgages. But clients must know that if they incorrectly state their income, whether by intention or not, they are indeed committing fraud.
“The best thing a Realtor can do to protect clients from mortgage fraud is simply refer their business to me,” says Vlamis.
Moran agrees with the idea of referrals. “A Realtor works in the client’s best interest by making referrals to reputable lenders,” explains Moran. “It is then the lender’s responsibility to make sure the client is educated.” Moran hopes that the attention given to mortgage fraud will deter individuals from such behavior.
Get to Know Ben Bernanke
Anecdotal evidence suggests at least one Realtor tattooed himself with likeness of Alan Greenspan in the 1990s. The head of the Fed’s decisions will affect your business, so you’ll want stay tuned in to new chief Ben Bernanke. He is being portrayed in the media as a wallflower to Greenspan’s social butterfly, though critics have given him another name, “Helicopter Ben,” in reference to a 2002 speech he gave that used the metaphor of the
Fed dropping money on consumers as a last-ditch
protection from deflation. Some worry that Bernanke is not as concerned as he should be about inflation.
“According to industry insiders, there have
initially been some questions about whether [Bernanke] would be as relentless as Greenspan in fighting inflation,” says Kasprisin. “They know he’ll be tough, but ‘How tough’ is the question. Because inflation is one of the largest factors that cause interest rates to rise, it is important to the mortgage industry that he’s considered relentless.”
“He seems to want to move in the same direction as Alan Greenspan, who himself is a strict Monetarist,” says Vlamis. Vlamis predicts the
biggest change in 2006 will relate to the Federal Funds rate, the rate a bank charges another bank for loans between them (that usually happen overnight). If the Federal Funds rate stays low, banks will keep less cash on hand, leaving more money available to borrowers.
Trends and New Products
“Choosing a mortgage based on its popularity is about as wise as choosing a stock based on how much advertising you see for it,” says Kasprisin. “Mortgage products are not intrinsically good or bad.” Kasprisin explains that the best mortgage isn’t necessarily the one offering the best rate. Often, it’s better for a homebuyer to accept a competitive rate in a program that’s suited to his lifestyle, rather than the lowest rate possible in a program that doesn’t work for him.
That said, there are many new products available that may be perfect for your clients. Moran says 40-year fixed amortization loans will be popular this year. “These loans allow for a lower payment,” Moran says, “but also reduce some risks that consumers are concerned about.” Moran says that interest-only loans remain a good option for borrowers who want to qualify for “more home,” but who don’t mind the increased risk.
Knapp also sees 40-year amortization loans gaining in popularity. “I believe trends that will be going away will be interest-only products and negative amortization products,” says Knapp. “I also believe more programs with little or no down payment options will become more plentiful and more competitive.”
New products are also available based on credit history. “We have many programs that reward clients with good credit and a 20 percent down payment,” says Vlamis. “Basically, we can do this loan with a signed application and not require our client to go through the hassle of digging up pay stubs, tax returns or bank statements. We offer this with no hit on the interest rate.”
A Paperless Future?
Technology will continue to be important to the industry. Mortgage Web sites are going from informational to interactive, with many offering clients the ability to schedule appointments, apply for loans and check loan statuses online.
“I can upload all information onto our system and get an approval in minutes,” says Vlamis. “However, I do find that clients still prefer service over the Web.”
The idea that a mortgage will be completely paper- and people-less in 2006 seems unlikely. Most clients still appreciate face-to-face meetings and old-school people skills, such as follow-up and personal attention. This is the most important transaction of their lives, after all.
Forget the Greenspan tattoo. The mortgage officer to whom you refer your clients can help you close a sale and keep your clients happy. He may be your person of the year.
Vice President, Chicago Sales Manager
National City Mortgage
Lakeshore Funding Inc.