Mortgage lenders are betting on down-payment assistance programs, buy-down options and renovation products to provide brokers opportunities to win in a market with mortgage rates nearing 8%, a lack of inventory and high home prices.
Meanwhile, in addition to diversifying their portfolios, brokerage firm owners are keeping their cost structure under control to be profitable in a shrinking market. Amid the Federal Reserve’s tightening monetary policy and political instability, they believe the market will shift at least six months from now.
Overall, wholesale lenders and brokers are realistic about the market conditions but focused on things they can control. Some of these professionals spoke to HousingWire during AIME Fuse 2023, an Association of Independent Mortgage Experts conference held Oct. 4-7, in Las Vegas.
“There is too much distraction in the market; there are some negative folks out there. But people need homes,” said Kenny Deen, senior account executive at the independent mortgage banker and residential home lender Paramount Residential Mortgage Group.
“We’re people who have been around for a while. The first mortgage I ever sold was at 16% in 1986,” Ken Boyd, account executive at Windsor Mortgage, said. “I don’t think we will be back to 3%. But once the political environment changes a little bit, we will settle into the 6.5% range, which is a normal mortgage market.”
Christopher Guerin, executive vice president at American Financial Resources (AFR), which focuses on underserved borrowers – usually first-time homebuyers with low down payments – said the market is now “apprehensive.”
Product strategies to meet borrowers’ needs
In the current landscape, Deen said, “Down-payment assistance is our No. 1 product to help first-time homebuyers get their houses. Then, we have all the traditional financing options, including jumbo.”
PRMG offers a comprehensive range of mortgage products, including conventional, FHA, VA, USDA and jumbo loans. But it is also getting creative in a down market. The California-based lender started to market late last year a non-qualified mortgage (non-QM) option to the “underserved population of entrepreneurs in the cannabis business.”
Meanwhile, Windsor Mortgage, which started in the wholesale space in 2020, “do like the state DPA products” and is “coming out with a DSCR [debt-service coverage ratio],” Boyd said. The lender, based in South Dakota, offers conventional, FHA and VA loan products, as well as bridge loans.
“It’s hard for brokers to win deals now. And we are trying to help them navigate it because the market has overcapacity for both Realtors and loan officers right now,” Boyd said. “Brokers need now to control things they can control, like their costs, and give the consumer options.”
Amid the challenging landscape, Guerin, from New Jersey-based AFR, said the company doubled its efforts to do more renovation loans.
“We focus more on manufactured home financing and new-construction home financing instead of maybe fighting against some of those headwinds of a more competitive inventory environment,” Guerin said.
Controlling business costs
Brokerage owner Emmett Dempsey, from Florida-based Treasure Coast Mortgage, said he’s betting on buy-downs to get more loans, which helps mitigate the costs in the initial years of homeownership.
“When people shop for homes, they want to offer a lower price, but they really want a lower payment,” Dempsey said.
Dempsey said he’s an “old school guy” who will get on the phone and make cold calls to get more business with real estate agents, but he’s engaging in online coaching to real estate agents and creating content for social media, as well as building his brand.
“Right now, when it’s slower [the market], you have time to do those videos, this mega outreach,” Dempsey said.
Dempsey claims his business is profitable because of product diversification, which includes reverse mortgages and non-QM products, as well as cost control.
Scott Bowne, chief financial officer and broker at Compass Mortgage based in Florida, has offered more rate buy-downs as buyers are now “reaching a very critical debt-to-income standpoint.”
To win in this market, Bowne said he is controlling costs, as he expects the landscape to improve in six to nine months.