In light of the current high rate environment, the mortgage industry is going through some long overdue changes.
Low interest rates and plenty of business to go around have fostered complacency and greed in the past few years. When mortgage rates were low and most loan officers were busy and unresponsive, borrowers had no other choice than to go along with it. Paying 0.5% to 1% higher interest rate easily went unnoticed when most people were getting rates in the 3’s. The money kept rolling in for anyone connected to lending, as other industries were worried about their jobs, or about the end of the world.
The mortgage industry probably had the best 2 years in history since the 2012 refinance boom. And then it stopped. And interest rates started climbing. And denial set in. Then desperation.
As home prices declined and uncertainty loomed, it didn’t deter many from shouting from the roof tops how it was still a great time to buy a home. 2-1 and 3-1 temporary buy downs are the new shiny thing to distract people from what now look like outrageous mortgage payments.
Fortunately for industry professionals, as well as current homeowners in Utah, our real estate industry has held strong. We’ve lost a good chunk of the inflated home values, but it’s been a steady decline, and most still have plenty of equity left – in addition to being locked into 30 year record low mortgage rates.
Current homeowners are for the most part doing just fine. If they do need to sell, it will be for much less than they could have a year ago. And they will likely have their homes on the market for 30 to 60 days, maybe even longer if time is not of the essence. Most however, are not selling any time soon.
First time homebuyers are currently the most active group of buyers. They’re having to navigate between rising rent prices, potential job layoffs, and high mortgage rates. But they’re not without help. Conventional mortgages have adjusted to remove pricing adjustments for first time homebuyers under 100% of the area median income, effectively giving them better interest rates. FHA loans are increasing in popularity and have lowered the monthly mortgage insurance premiums to help with affordability. Utah is also working on passing a bill offering a $20,000 first time homebuyer grant for new construction only (income limits and other restrictions will apply).
And of course, there is no better match for a first time homebuyer with no contingency to sell an existing home than a seller that needs to sell fast – that is where the really good deals are made.
Despite how grim things may look on the news or on your social media, one is monetizing your attention, and the other is often insufficiently educated. And I say insufficiently educated because there are a lot of smart people out there that see a lot more than most of us do. But even they can’t possibly anticipate how other factors (war, other industries, consumer sentiment and venture capitalists protecting their investments) play into the actual outcome of the overall economy.
Nobody really knows how this particular turn of events will end, or how it will affect the real estate market in Utah in particular. The good thing is that we don’t need to know what the future is in order to live our daily lives. Being cautious in your decision making is always a good practice, but being paralyzed by fear is not.
Which brings me to what got me to share my thoughts with you today.
After a fairly quiet January, and a February full of mortgage inquiries but far fewer actual contracts, the bank developments in March seem to be kicking off the purchase season.
Three of my first time homebuyers went under contract over this past weekend, and while they are all different people with different stories, they have one things in common. All of them initially reached out or started the process with a different loan officer and were disappointed in the attitude and communication of those loan officers.
Not that I’m terribly surprised, because this has long been a complaint about the industry. But it does blow my mind that with business being scarce, loan officers still think they can get away with minimal effort.
Borrower #1 is an FHA purchase that found my website. After being denied by other loan officers, I was apparently the only one that took the time to ask questions and figure out an alternative route. She opened up with “I have credit issues and we’re looking for a no down payment loan”, and we ended up qualifying her fiancé. It turns out she also had a down payment, but she just wanted to see if there were options with 100% financing on the table.
Borrower #2 is a real estate agent referal.
She’s a bit of an over communicator which apparently rubbed the loan officer wrong, because in her own words, her mortgage professional was getting “snippy” with her. After complaining a few times, her agent gave her my info, and gently nudged her to reach out. Not only did we hit it off, but I saved her a good chunk of money on the interest rate she would have gotten with this other mortgage company.
Borrower #3 is also a real estate agent referal
His buyer was working with a loan officer that has a policy of not being available after 5pm or on the weekends. This person is also not very responsive during work hours, and had to be asked multiple times to provide a rate quote after the pre-qualification took place. The worse possible match for a client with a mind for numbers and a set budget. We ran a bunch of numbers over the weekend to where the buyer was comfortable making an offer. Then her agent got her a crazy good deal over the weekend, beating a cash offer in the process. I want to say that having a loan officer that can guarantee a 2 week closing played a roll in that victory as well..
So what’s happening with in the real estate industry?
People are still buying homes, particularly renters that are fed up with rent price increases. And despite the annoyingly high interest rates, buyers have more power than they’ve had in a long time. Not only on the negotiating side, but also in how they are treated when applying for a mortgage loan, the interest rate they get, and the kind of expectations they can have in regards to timelines and communication levels.
It’s time for overpriced big lenders to exit the industry, and for local mortgage broker shops to thrive and shine in servicing their clients and their communities. And who knows, maybe this is the state of other industries as well, so we can all benefit from better capitalism.
Hope you enjoyed my monologue. Always happy to turn it into a conversation, and to answer all of your mortgage questions. You can reach me by email at [email protected] or by phone call/text at 801-473-3154.
