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The Upside of Interest Rate Increases

MAR 4, 2014 10:43am ET
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Most analysts agree mortgage interest rates are likely to creep up slowly over the next year, and close out 2014 somewhere in the 5% to 5.5% range. While the threat of higher interest rates strikes fear in many mortgage lenders, there are unseen rewards to rising rates, such as:

1. A stronger economy. Rising interest rates are often the tell-tale sign of an improving economy. Not only is your personal portfolio now worth more (stocks, investments, retirement savings, etc.) but your business should be picking up.

A healthier economy with stronger consumer confidence and lower unemployment means more people are entering the market to make major purchases, like buying a home.

The forecast for this year is over five million home sales and more than one million new housing starts, up a total of more than 250,000 units from 2013. Regardless of rising rates, more people are now buying and building homes, and that’s good for all of us.

2. Product diversity. During the last three years of heavy refinance activity and record low rates, most people chose the benefits and safety of a 15-year or 30-year fixed-rate mortgage.

As we migrate to a predominately purchase-loan market, the ability to promote new and different loan products (10/1 adjustable-rate mortgages, portfolio loans, construction financing) will create new opportunities for originators who have a good product line and understand how to position it.

This shift to purchase loans will provide you with a chance to distinguish yourself and your company from the “plain vanilla” banks, lenders and credit unions in your area that offer a limited product line and separate you from the majority of mortgage originators who only know and sell simple fixed-rate loans.

3. More shoppers. In a refinance market where rates are abnormally low, people don’t shop as much.

They know that by refinancing their mortgage into a 3% loan they’re already saving a bunch, and spending time and energy searching for a lower eighth in rate isn’t that big of a deal.

In a rising rate purchase mortgage loan origination market, the game changes and people become more price-sensitive. Moving forward, those buying or building a home will spend more time shopping around to see if they can score a lower rate.

At first, more borrowers shopping for the best rate may seem like a big negative, and it can be if those shoppers are people you have already pre-qualified, pre-approved or already have in process.

But what about all those borrowers who have been pre-qualified by your competition and are now out shopping? What about those buyers whose real estate agent recommended another lender yet are still searching to find a better deal?

Hey, they might find you! If you are an originator who is well-positioned in your local community through ongoing advertising, marketing and networking activities, you’ll catch some calls from these shoppers.

And if you have attractive rates, good product options to offer and great phone skills, you’ll have a chance to steal away that business.

4. Less competition. We’ve already seen thousands (and I mean thousands) of loan originators exit the industry in the last six months.

When business is booming and the loans are falling in your lap, this looks like a pretty good gig. But when the gravy train slows down, the refinances fade and the business shifts back to a proactive “sales” job, those originators who are more order-takers than salespeople typically decide to opt out for a different career that requires lower risk and less effort.

Let’s be real: Who can’t sell money at 3%? Rising rates will continue to reduce the number of lenders in your local market month by month, thus opening doors to abandoned Realtor relationships and yielding more potential prospects and buyer opportunities for you.

5. More fun. Let’s face it: Did you get into this business to sit at a desk, stare into a computer screen and push paper? For the last few years during the low interest rate refi blitz, that’s what many originators have been doing with most of their time.

The real “fun” in this business comes from meeting people, forming new alliances with great real estate agents, networking among your peers and business partners, contributing to the growth of your local economy, and above all helping people realize the American dream of owning a home of their own.

One top producer I recently talked with closed $34 million last year, most of it in Home Affordable Refinance Program loans.

“I made a lot of money last year. But loans took too long to close, people weren’t very appreciative of what I did for them and it was very, very stressful,” he told me.

“Now that we’re back in a purchase market and it’s all about helping home buyers, I’m ready to start having fun again.”

Rather than lament the impending rise of interest rates, look at the opportunities this movement will create.

In every market there are hidden advantages. Capitalize on the upsides this change affords you, and let it play in your favor.

Doug Smith is a nationally known industry speaker, author and sales trainer. For more information, please visit www.DougSmithOnline.com or call Douglas Smith & Associates at 877-430-2329.

Comments (3)
Going broke is a blast! QM, HVCC, Dodd-Frank, and real estate agents that can't wait to throw you under a bus. It's so much fun! Nothing like it -
Posted by | Tuesday, March 04 2014 at 2:19PM ET
Best article I've read in a very long time! Thanks, it's what this industry needs to get us out of the complacency and the mud that we have been stuck in while anticipating QM!
Thanks for sharing
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