In the 1990s and early 2000s, there were hundreds of loan products – with thousands of guidelines to remember – and it was brutal!
This was, however, a huge boon for smart loan officers because they were able to keep track of those loan products and guidelines and invariably find better loans for borrowers than less capable loan officers who focused on single products (like payment-option ARMs, for example) way too much.
I knew Ivy League educated loan officers, in fact, who made enormous amounts of money in that era simply because their sheer brain power and academic skills enabled them to keep track of so many loan options—and they built tremendous referral bases as a result.
That all changed very quickly after 2008 when cookie-cutter fixed-rate mortgages (with full income documentation requirements) became the only game in town.
This worried me greatly because borrowers started to perceive mortgages as commodities (like wheat, corn, or oil) and not as sophisticated products that still require much expertise.
As a result, margins and profits get pushed to near zero every time the market slows – as borrowers bounce from lender to lender looking for the lowest rate (often getting burned, but that’s a topic for another blog).
This is changing fast though, and I am delighted because smart lenders are again able to rise above the fray.
New Loan Products Flooding The Market
One of the things that’s changing is all of the new loan products that continually come to market including variations of the following:
- No Income Verification/”No-Ratio” Loans: We now work with at least 8 different investors who buy these loans from us, and each has vastly different rates, down payment requirements, and guidelines.
- Non-Warrantable Condo Loans: We have 7 investors and again, multiple guidelines – and this is turning into a major source of business for us.
- Community Re-Investment Act Loans: We have an investor that offers these loans at over 1/2% under market rates – in “qualified census tracts.”
- Debt Service Coverage Ratio Loans: These loans require no income verification other than the market rent for the property – allowing investors of all stripes to buy or refinance properties. We have over 10 investors who will buy these loans, and the guidelines vary tremendously once again.
- Bank Statement Loans: These loans use bank statement deposits as “income.” These are excellent options for self-employed borrowers, and we again have at least 10 investors who will buy these loans.
- No-PMI Loans With Low Down Payments: We have two investors who specialize in these loans.
- 1% Down Loans: We have two investors that specialize in these.
- Down Payment Assistance Programs: We have dozens of investors and programs that we manage across multiple states.
- Renovation Loans: There are numerous options for these loans, too, including FHA’s 203k loans, Fannie Mae’s HomeStyle renovation loans, and Freddie Mac’s CHOICERenovation loans – and all have very different guidelines.
- Manufactured Home Loans: These are not “new” per se, but the guidelines vary tremendously from investor to investor.
These loans are in addition to the hundreds of guidelines loan officers need to memorize for traditional loans, including FHA, VA, USDA, Fannie Mae, Freddie Mac, and Jumbo.
The other thing that is changing is the realization of buyers and agents alike that chasing “the lowest rate” often does not work, as buyers often get misled, and even supposed “commodity loans” often get screwed up.
Over the last six months, we’ve been much busier than most of our competitors, and one primary reason is that our pre-approval team is so sharp and experienced.
They’re constantly able to make deals work that other lenders can’t, or they’re also often able to find better deals for buyers who’ve been pre-approved elsewhere.
And this is why the difficulty of mortgage lending makes me so happy! Smart lenders can once again set themselves apart.
If agents are referring borrowers to their brother-in-law who just got in the business, or to their buddy because he owns a boat, they’re losing deals – guaranteed.
“But Jay, What About AI?”
“Can’t AI navigate lending guidelines?” That was my other fear, but so far AI is not coming close to doing the job. And we’ve tried every application available.
