Ten years of manipulated interest rates held at record lows and a refinance atmosphere that settled most into a secure environment of consistent production has led to a comfortable but risky complacency.
The television has been saturated with commercials touting the fastest ways to refinance and begs our Veteran population to borrow up to 100% of their home’s value to eliminate consumer debt created during the past 10 years of mediocre economic growth.
Much of our loan officer population has less than 10 years’ experience. They’re extremely tech savvy, but can they sell in a rising interest rate market when purchase, not refinance, is order of the day?
If asked, can your origination staff define index or margin? Most are too inexperienced to know what an Adjustable Rate Mortgage is and how it works. ARMs will return because the homebuyer is used to interest rates in the 3% range and will demand a low rate with an affordable payment.
The media will gasp as lenders promote ARMs, remembering only those programs that were interest-only with little to no underwriting required. The 3/1 – 5/1 - 5/5 and 7/1 adjustable rate programs, fully amortizing with solid caps and solid underwriting will be an attractive alternative to a higher fixed rate offering. Let’s not forget caps and fully indexed rate, something else the LO will have to learn about in order to intelligently discuss and explain to the borrower exactly how the adjustable rate mortgage works.
Dust off your ARM disclosures, search for a quality portfolio investor and begin to train your sales staff to sell. ARMS, when sold to the right borrower, are a great way to diversify your product offering.
Keeping interest rates at record lows assisted our industry, but hurt the over 62 population. There’s been no gain on fixed income assets and very small increases in their Social Security check.
Rates will rise, but it’s not the time to panic. It’s time to think, to train and prepare to offer and sell a viable alternative to the fixed rate loan, ARMS!
TMC - Chief Operating Officer