It’s been quite a ride for folks in the mortgage industry over the last several years.
For the most part, rates for a 30-year-fixed mortgage loan stayed between 3.5 percent and 4.5 percent from the middle of 2013 to the first couple of months in 2020, providing relative stability for homebuyers and those seeking to refinance existing loans.
And when the COVID pandemic ushered in about 18 months of shrinking rates that sunk to historic lows of nearly 2.5 percent and home sales soared, mortgage lenders and brokers could barely keep up with the booming business.
Now that boom has gone bust in a hurry, as rates rocketed from under 3 percent less than a year and a half ago to around 7 percent today. The resulting whiplash caused loan applications to plunge, and with refinancing almost nonexistent, mortgage lenders must rely on home sales, which have also declined significantly.
In 2022, existing U.S. home sales fell 17.8 percent from 2021, the weakest year for home sales since 2014 and the biggest annual decline since the housing crisis began in 2008, according to the National Association of Realtors.
The situation is forcing those in the residential mortgage industry to find ways to shore up their bottom lines. Some have come up with new loan products, many have stepped up marketing and others are returning to networking and banging the phones.
For Jesse Sasso, branch manager and loan officer at Contour Mortgage in Huntington, the new challenging environment has pushed him and his colleagues to get back to basics.
“We were spoiled for so long during COVID, with low-hanging fruit and ridiculously absurd, abnormal rates that we were dealing with. We were so busy churning out refinances that we lost touch with the way that we did business,” Sasso told LIBN. “Our business model went out the window because we were so busy. We couldn’t even meet with people.”
Now, however, Sasso is returning to an old-school, tried-and-true strategy.
“What I’m doing now as a loan officer, I’m taking this time to get out there again and meet with people, toes-to-toes, nose-to-nose, see people, real estate agents, attorneys, and really plant my seeds again,” he said.
Andrew Russell, owner and founder of RCG Mortgage in Hauppauge, says his firm is navigating the new reality with a similar strategy.
“Now with the business a little bit harder and you don’t know when the next client is coming, we’re going back to basics,” Russell said. “We’re making a more aggressive attempt at networking, making sure we’re getting out there at events. Going back to old-school calling, like dialing for dollars, calling current realtors or realtors that are prospecting that do business and asking them to break bread or have a cup of coffee, or sit in our office in Hauppauge to see what we can do for their business and become a preferred partner of theirs.”
RCG will also expand its reach. While about 90 percent of its business currently originates in New York State, Russell says they are taking the firm’s act on the road, seeking to arrange loans in places like Texas, Florida, New Jersey and Pennsylvania.
“My goal is by the fourth quarter, if not next year at the latest, that 50 percent of our production is from out of state,” Russell said.
To help ease the pain of higher rates, Julian Giaquinto, branch manager of Advisors Mortgage Group’s Wantagh office, is offering customers something called a “two-for-one buy-down,” which lowers payments on a fixed-rate mortgage for the first two years.
The way it works is home sellers agree to a 2 percent concession on paper that doesn’t affect their net proceeds but serves to reduce the buyer’s rate. For example, if the rate is 7 percent, it will be reduced to 5 percent for the first year and the rate goes to 6 percent the following year. In year three it goes back to 7 percent and that’s the rate for the rest of the term.
“It’s like a step-up mortgage,” Giaquinto says. “On a $500,000 loan, it’s probably about $800-per-month difference between 5 percent and 7 percent.”
Giaquinto’s firm is also doing more FHA mortgage loans, because they’re about a half-point to three-quarters of a point lower and they have a lower down payment, allowing for a higher debt-to-income ratio. In addition, the dreaded mortgage insurance premium that adds a monthly payment to FHA loans, is going down from .85 percent to .55 percent on March 20. On a $500,000 loan, Giaquinto says that’s an MIP savings of about $1,500 for the year.
Some lenders are offering programs to assist first-time homebuyers, like the closing-cost credit called the “Dream. Home. Plan.” program from Wells Fargo, which was recently expanded for qualifying customers in Nassau and Suffolk counties.
“It’s as little as 3 percent down for a primary residence, purchase or refinance. It’s a conventional fixed-rate mortgage and the guidelines are fairly flexible, even with less than perfect credit,” said Eric Gotsch, New York City and Long Island market manager for Wells Fargo. “We’re trying to help everybody we can in underserved communities.”
Despite “right-sizing” some of its loan staff, Gotsch says Wells Fargo is still well positioned with 27 home mortgage consultants with boots on the ground on Long Island and a network of 14 bank branches here.
“We’re all feeling the same headwinds. The refinance volume is limited, and the only other business is purchase transactions and how many contracts get written every week determines your ability to capture some of that market share,” he said. “Right now, it’s about getting the word out. We are using everything in our arsenal to educate customers are getting them the information they need, making sure we’re doing that through real estate professionals in the marketplace.”
Gotsch says Wells Fargo is in the midst of a big push to educate, including email marketing, home-buying seminars, and social media.
“We’re doing a ton of posting on Facebook and LinkedIn to make sure people realize there are options and financing available,” he said. “We want to arm the consumer with everything possible to help them to attain and retain home ownership.”
With rates rising, Vittorio Scafidi, vice president of lending at Jovia Financial Credit Union, said his organization is offering its members a few products to ease the increasing financial costs of home ownership.
“We offer a true no-bank closing cost loan where on a refinance or purchase you save about $4,000 to $5,000 of real closing costs to help the affordability of the mortgage,” Scafidi said. “We also rolled out a 15/1R mortgage product so that rate right now is around 5.875 percent to 6 percent, depending on the day, which is cheaper than the current 30-year fixed rate.”
Jovia members can also take advantage of a generous home-equity loan program, which allows a homeowner to borrow up to 100 percent of their home’s value.
“Your typical bank or credit union will go 70 percent or 80 percent loan-to-value,” Scafidi said. “This product can access up to 100 percent.”
Despite the sharp rise in rates, Great Neck-based Bayport Funding has been holding its own. The company primarily lends to investors who build or buy one- to four-family homes, though it will now finance a borrower who builds or buys a property that’s up to 25 units.
“Our business hasn’t slowed. Investors have to buy properties to fix and flip and there is always that opportunity,” said Bayport Funding CEO Marcia Kaufman. “What’s carrying our business is we’ve increased the loan amount that we put on our balance sheet and we’ve increased the number of units that we’ll finance.”
Meanwhile, as Federal Reserve officials threatened to raise interest rates even further, those in the mortgage business are hoping for some relief or just some certainty.
“We hope for the best and we prepare for the worst,” said Scafidi. “If you asked me last year, everyone was optimistic that the rate hikes would stop, but as you’ve seen recently, that’s not happening.”
Giaquinto is hoping that something finally breaks, and the core inflation numbers start to trend down. “Once that happens and the unemployment rate goes up or inflation starts to go down that’s when the Fed will pump the brakes and we’ll get some normalcy.”
Russell says he doesn’t care if rates go up or down.
“But it’s hard for lenders to offer pricing and rates when they don’t know what the rate’s going to be tomorrow,” he said. “The volatility flows downstream to affect the consumer, so all I would hope for is some sort of rate stabilization and I think a lot will be fixed if we get some form of normalcy.”
Sasso said he’s always optimistic about the future.
“I’m also realistic about the present,” he said. “It’s an insane wave that we ride in this business.”