Taking Advantage Of A Competitive Marketplace
If you’re interested in buying real estate in the US, the most important point to remember is that the mortgage lending market is extremely competitive. The overall interest rates are similar to those found in many European countries, but there is a lot of competition between different banks and brokers. That’s why it’s vital to shop around before you settle on a lender.
One of the easiest ways to obtain a mortgage loan is to work with your existing bank. If you already have a relationship with a bank in the US, the process of applying for a mortgage is relatively painless. However, you may find that your bank can’t provide you with the best possible deal. It can pay off to speak with underwriters at different financial institutions. In addition to mortgage rates, you should also ask them about their origination fees and various closing costs and fees.
Mortgage brokers deal with many different lenders, so they can often find the best deals. However, it’s sometimes less expensive to deal directly with a bank. When dealing with an underwriter at a mortgage brokerage, it’s especially important to ask about the additional fees they charge.
Lending Standards Remain Tight
If banks do loosen their lending standards, it would mean that the labor market has returned and liquidity and profitability fears have dissipated. As a result, property prices will likely continue higher.
There is certainly a scenario where we could see the mother of all bidding wars in the second half of the year and beyond given there are months of pent-up demand. You know what? Its happening now.
Strategically, I believe investors are wise to buy the following before there is herd immunity:
- Big city real estate as people come rushing back to where there is the most opportunity
- Multifamily properties due to the massive increase in rental income as rates have collapsed
Hopefully, most buyers will be OK since the average ownership duration is over nine years. However, as always, some people are going to get hurt at the margin.
The Amazon Effect Is Taking Over Mortgage Lending
Put simply, the Amazon effect is the ongoing digital disruption of markets ranging from retail, real-estate, and even the mortgage industry at the hands of tech-savvy service providers who value customer satisfaction first and foremost. The term is a nod to how Amazon disrupted the retail industry years ago and now dominates the online retail space which has taken many customers away from traditional brick-and-mortar offline stores.
The manifestation of this effect can be seen in how customers today are becoming more tech savvy and choosing their options carefully whether it is before buying a car or taking a home mortgage. The internet has made it extremely simple to find things without looking too hard, and a mortgage lender who does not have a website or favorable online reviews might as well as kiss his business goodbye in today’s world. On top of that you have companies such as Redfin and Zillow which are eating up complementary businesses while creating one-stop-shops for their customers and offering better customer service. Today, a modern mortgage company controls the top of the sales funnel, ensuring transactions flow as per how they want them to flow since they are the first ones to come in touch with new, potential buyers.
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Automating Workflows With Machine Learning
Machine learning models enables better decision making at every point of the lenders workflow. It helps to automate the end-to-end loan processing, from pricing approval to loan monitoring. Accordingly, there is a decrease in business costs and time consumed during internal loan processing.
Multiple data sources and tons of data to analyze necessitates data warehouses or data lakes with relevant analytics tools. An organization goes like a herd of sheep without a shepherd without data analytics on its side. This is very true for the mortgage industry too. The lending institutions need to keep up to the pace by integrating data analytics into their business processes.
How To Start In The Mortgage Industry
Asked by: Glenna Lindgren
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Are Loan Officers Happy
Loan officers are one of the least happy careers in the United States. As it turns out, loan officers rate their career happiness 2.5 out of 5 stars which puts them in the bottom 5% of careers.
Do loan officers have a base salary? Well, take note that most loan officers do not receive a base salary, only commission, so they are paid for performance.
Is loan officer a stressful job?
You deal with stress well. Like any job working with the public, the position of a loan officer can sometimes be stressful. If you can deal with that stress in a calm manner, your career as a loan officer is likely to be lucrative.
Do loan officers work from home? Loan Officers work from home more in todays work environment than ever before. This will set you up for a fulfilling career as a remote loan officer. In todays day and age, working from home is becoming more acceptable. In 2021, 55% of companies offer work from home options.
Recognize Mortgage Industry Trends And Mobilize Your Business For Growth With Flatworld Solutions
At FWS, we understand that technology has a big role to play in the mortgage industry, as it will help devise the means with which your customers can play a more fulfilling role in the transaction. Significant changes such as the ones we see nowadays can only happen when the perspective changes from your needs to paying more attention to the borrower experience. With our help, you can begin modernizing your traditional processes while paying attention to customer satisfaction. We are the ideal technology partner for mortgage lenders since our full stack experience will help you create delightful user experiences without hampering security and experience.
Fort Lauderdale Poised For Unprecedented Growth This Decade
For mortgage originators in the Boomsday scenario, scalability becomes the critical success factor as transaction volume goes through the roof. Lenders that can handle this volume will be those that have not just retained the technology-enabled processes they rushed to put in place during the pandemic, but that also built on this foundation incrementally and iteratively over the second half of 2020. The companies that slide back into the old ways of handling transactions those that assumed that their proof of concept technological processes implemented in the face of Covid-19 were just a temporary crisis response wont be able to take on the high demand and will likely fade away as they steadily lose market share to companies that have stayed the course and can take advantage of the boom. As every mortgage lender knows, the competition in this space is fierce, and the margins can be thin. And when you get caught on the wrong end of the demand curve, its lights out.
The ability to work remotely isnt the only result of that fast, digital shift. Consumers now have a taste of what is possible in our industry. Instant has become synonymous with convenience and the rapidly improving customer experience for everything from virtual healthcare visits to online grocery delivery means that customers expect instant when closing a loan transaction, too.
Prediction #: There Will Be A Renewed Focus On Housing Affordability
That includes home equity, pulling cash out for renovations, and more sustainable homes such as manufactured housing.
The U.S. has long grappled with its housing affordability crisis, and 2022 will see renewed effort towards combating this pressing issue. Strategies will likely include a focus on down payment assistance, low-down money programs, and increased community outreach to underserved communities.
The impact of these actions remains to be seen. Solving the housing shortage has historically been tricky, and recent trends dont look promising. National homeownership, in fact, is at its lowest level since 2013. To make progress in closing the gap, borrowers will need to grapple with barriers to entry in terms of available funds along with the fundamental shortage of affordable homes throughout the U.S.
While policy changes will be a necessary component of tackling this issue, lenders can still play an important part in addressing underserved communities. Here, lenders should focus on leveraging affinity relationships to make in-roads with potential borrowers they may not traditionally connect with. In many cases, the most effective strategies will involve simple people-first interactions. You might send dedicated loan officers into underserved communities, for instance, and educate those audiences on loan offerings catered to their needs.
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Greatest Generation To Baby Boomers
By the end of World War II in 1945, banks were the prime source for home mortgages. Most buyers obtained a long-term, fixed-rate mortgage. Two government agenciesthe VA and Federal Housing Administration introduced loan guarantees that enabled more people to buy a home. By 1970, 64% of households owned a home.
In 1968, the federal government created a quasi-governmental mortgage finance agency, now known as Fannie Mae. A second agency, now known as Freddie Mac, was established in 1970.
Fannie and Freddie dont directly originate mortgages. Instead, they purchase mortgages from lenders and either keep them in their portfolio or resell them to investors in the form of mortgage-backed securities. By the year 2000, Fannie and Freddie were behind 50% of home mortgages, with the FHA and VA also still involved in the mortgage market .
Base Market Rates And The Federal Reserve
Dating back to its original mandate from Congress, the Federal Reserve is the central bank of the United States. This means it has a variety of responsibilities, including overseeing banks as a whole and setting certain financial policy regulations. But perhaps the most important role it plays from a consumer perspective is in the setting of short-term interest rates.
When the Feds Open Market Committee meets to determine what the Fed Funds Rate should be at any given time, it has a couple of key goals:
- Achieving maximum employment
- Maintaining stable prices
The Fed has a bit of a balancing act here, because those goals sometimes run in competition with each other. To achieve the highest possible rate of employment, you might choose to keep interest rates low, because cheaper borrowing can stimulate businesses to invest. This can lead to more hiring as well as more money spent on goods and services, which can have a knock-on effect and help still more businesses prosper.
However, if the cost of borrowing funds is too low, this also tends to mean that the money you have saved in the past is worth less than if higher borrowing costs made funds scarcer. If your money isnt worth as much, prices can go up quickly, as you need to part with more money to receive the same value.
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Key Trends That Have Caused Serious Disruption In The Mortgage Industry
Even a couple of years ago, most companies operating in the mortgage industry would have hardly recognized terms such as machine learning, blockchain, big data, and artificial intelligence. But today, these are more than buzzwords, as technology in all its various forms is taking over the mortgage landscape and leaving behind foreclosed businesses which could not innovate in its wake. In fact, the rate at which technology is evolving today is making it increasingly difficult for lenders to keep up and compete with disruptive new start-ups and fintech companies.
There are three important factors that are behind this disruption in the mortgage industry, which include –
- Economic pressure
- Completely new business models
- Convergence of the mortgage and real estate business
These mortgage trends together are single-handedly responsible for changing the entire outlook of the mortgage industry. A decade ago, the real estate agent was at the center of all home transactions being performed in the US, but today, it’s the customers who are most important by a far margin.
How Much Do Lenders Make Per Originated Loan
Loan production expenses have increased significantly due to tigher regulation after the 2008-2009 financial crisis. The MBA stated loan production expenses rose to $8,278 in 2018 from $8,028 in 2017. Lenders have averaged around $1000 of profit per loan over the past decade, with tighter margins recently as net income fell from 31 basis points in 2017 to 14 basis points in 2018.
âSince the inception of the Annual Performance Report in 2008, net production income by year has averaged 49 bps .â â¦ âIn basis points, the average production profit was 14 basis points in 2018, compared to 31 basis points in 2017. In the first half of 2018, net production income averaged 18 basis points, then dropped to 9 basis points in the second half of 2018,â reports Marina Walsh of the MBA.
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How Much Equity Do Homeowners Have
The IMF estimated the GDP of the world at $86.927 trillion in 2018, or $134.981 trillion on a purchasing power parity basis.
The global real estate market accounts for about 60% of all mainstream assets& was worth $280.6 trillion at the end of 2017. Residential property represents $220.6 trillion of that market according to a study done by Savills World Research. At the end of 2016 the median global home value was $82,000 across the 2.05 billion households in the world.
After the Great Recession many United States homeowners were in negative equity, with 26% of mortgaged properties having negative equity in the third quarter of 2009. As of the end of the second quarter of 2018 only 2.2 million homes, or 4.3% of mortgaged properties remained in negative equity. CoreLogic estimated that in the second quarter of 2018 U.S. homeowners saw an average increase of equity of $16,200 for the past 12 months, while key states like California increased by as much as $48,000.
Over the past 12 months homeowners saw an average equity increase of 12.3%, for a total increase of $980.9 billion. Key metro areas appreciated faster than the broader market, leaving nearly half of the nation’s largest 50 markets overvalued. The 63% of homes across the United States with active mortgages now have around $8.956 trillion in equity. The other 37% of homes are owned outright. The US residential real estate market was valued at $31.8 trillion at the end of 2017.
Mortgage Industry: How Data Analytics Plays A Vital Role Everyday
- How Data Analytics is influencing the Mortgage Industry
Data is always available in abundance, and it is up to every company to make the best use of it. More and more organizations are realizing this point and becoming data driven. And companies in the mortgage industry are also utilizing data analytics services to determine if a loan should be sanctioned.
The loan lenders should be able to determine a customers financial background and intention to repay. Lenders in the past used limited data combined with a set of policies and processes to answer those questions. Today, companies use all types of data, ranging from transaction data to social media behaviors to make lending decisions. Besides, data analytics tools help to understand data better and use it in extensive ways. Here is an article on how data analytics is improving the mortgage industry.
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Real Estate Deal Volume & Appreciation
- Fannie Mae anticipates home sales which were at 6 million units in both 2018 and 2019 will end 2020 with 6.2 million transactions and will see 6.1 million transactions in 2021.
- Real estate appreciation in the United States during 2018 and 2019 ran at 5.1% and 4.2%. In 2020 Fannie Mae anticipates home prices to increase 5.5% and increase a further 2.6% in 2022.
What Credit Score Is Considered Good
A credit score of 720 or above is considered good, while a score of 760 or above is considered excellent. Generally buyers who are considering a conventional mortgage should have a credit score of at least 620. VA loans typically require a 620 credit score, though some lenders will loan to borrowers as low as 580. Home buyers who have scores as low as 580 may qualify for FHA loans with a 3.5% down payment. Credit scores as low as 500 can qualify for some FHA loans if they put 10% down. USDA loans typically require a minimum credit score of 640. Borrowers with lower credit scores are typically charged higher interest rates to compensate for the additional credit risk. The term for this is “loan-level pricing.” A credit score difference of 100 points can lead to a quarter percent different interest rate. Meaning if your credit score improved 100 points you would be likely to get a discount on the loan APR of 0.25%.
The following graphics show a breakdown of recent mortgages by credit score & the scores associated with various percentiles.
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Mortgage Markets Response To The Covid
The COVID-19 pandemic has driven financial lenders to tighten their standards with respect to credit. There is nothing unusual about it as financial institutions, especially lenders, are known to turn risk-averse in a crisis situation.
What is atypical, however, is the way mortgage lenders have responded to the unique crisis situation we are dealing with currently. Prodded by government policies, lenders have been empathetic towards their consumers and have considered a number of corrective measures in a short time to assist borrowers adversely impacted by COVID-19. They have proactively considered essential measures, including extension of payment due dates, allowing deferred payments, waiving off late payment fees, to help borrowers avoid delinquencies and negate impact on credit agency rating.
Large mortgage players surely have the financial strength and resilience to make their consumers feel at ease, while also withstanding any near-term disruption in mortgage payments.
The outbreak of the pandemic is turning out to be a great teacher for the mortgage market. In retrospect, we are most likely to see a number of changes in the way lenders operate and assess risk.
In the last three months, I have interacted with various business leaders, SMEs and service providers at several lending organizations, and have tried to understand how their businesses will evolve amidst the new crisis situation that has emerged.
Here are a few of my observations: