If you are a loan officer, real estate agent, escrow officer, appraiser or hold any other position in the real estate industry, you have probably noticed some changes in the market over the last few months.
Properties are taking longer to sell and there are more price reductions than we have seen for several years. It was bound to happen at some time or another. Prices have been rising fairly steadily, with a few dips here and there, for the last 10 years. It is only natural for prices to drop at some time.
But don’t get me wrong. I am not a doom and gloom person who is predicting the fall of western civilization or even the collapse of the real estate market. We have a very different situation from the crash of 2008.
At that time, there was a huge percentage of people who had gotten loans that they didn’t qualify for. Lots of them were adjustable rate mortgages and had no plan on what to do when their rate adjusted other than refinance into another adjustable rate loan.
The basic strategy at the time leading up to the crash was poor at best. In many cases, there was no strategy. There was a common idea that prices would just keep going up at the same rate and everything would be fine.
Since that time, mortgage guidelines have changed dramatically. Borrowers have to prove they have sufficient income before they can buy a home to live in. Most of them are getting fixed rate mortgages so if rates go up, they don’t have to worry.
But that doesn’t help loan officers who depend on interest rates for a major portion of their business. Unfortunately, this covers most loan officers.
Anyone who does a lot of refinances depends on interest rates being lower than what their client is already paying. And anyone who does purchases still has to be concerned about interest rates because higher rates reduce the loan amount a borrower can qualify for. This doesn’t even include the biggest error the industry makes as a whole.
As loan officers, we have taught the public that the most important part of a loan is the interest rate. This completely ignores the fact that the rate is not important at all if the borrower cannot qualify for the loan.
The primary aspect of any loan is whether it can be done or not. And if you have a borrower who does not qualify for the loan programs you have, it doesn’t matter what the rate is. It could be zero and still not help anyone if no one can qualify.
This puts loan officers in a tough position when the market gets tighter. Why? Because there are less borrowers for their loan. And there is still the same amount of competition for fewer loans. When a market starts to get tighter, the first thing to go is the borrowers. Next, it is the support staff like loan processors and underwriters.
It takes a while for the number of loan officers to be reduced. And many of them keep at least one foot in the profession while doing something else to make ends meet.
The trick is to figure out a way to keep things going while it is tough for everyone else. The good news is that there are ways to do it.
First, you have to be able to close loans. And to do that, you need the right product. If you have enough clients to stick with the bank loans, that’s great for you and you should keep doing it. But if you don’t, you need to figure out a way to get more clients.
Hard money loans can be a good solution. Because these borrowers are unable to get loans elsewhere and they generally know the rates will be higher, they are less sensitive to rate. The important thing to them is getting the loan done.
And if you are very good at doing these loans and if you are smart enough to know that the loan has to help the borrower (and not just the loan officer) you can do very well with it.
There are a lot of details on exactly what to do and how to get started in brokering hard money loans but that is a subject for another day.