Featured
news & tips — posted August 17, 2004
Untapped markets
could be key money makers in rough refi times
Many mortgage brokers know that they will have to work harder to keep
the record volume of business they've enjoyed over the past few years
now that interest rates seemed to be on their way up.
In fact, according to a forecast from the National Association of
Mortgage Brokers, the volume of mortgage lending is expected to drop
35 percent to $2.5 trillion this year, as refinances slow to about 42
percent of all loans, down from 66 percent in 2003. That's due to
mortgage rates that have continued to move up after hitting a 41-year
low of 5.23 percent in June 2003.
The result? Finding customers with top-quality credit eager to
refinance may not be so easy anymore and mortgage brokers may need to
look to different markets than they're used to.
Mexican-American market
The Mexican-American market is now the nation's fastest-growing market
– and many are in the market for a new home. An estimated 2.2 million
Hispanic households, most of them of Mexican descent, could become
homeowners by the end of the decade if real estate and lending
professionals reach out to them, according to new research by the
Tomas Rivera Policy Institute at the University of Southern
California.
The study of 1,400 renters and recent first-time buyers in the Los
Angeles, Houston and Atlanta areas highlighted the obstacles that
stand in the way for Latino home buyers and the opportunities for real
estate professionals who venture into this market.
For example, although the majority of those surveyed have lived
continuously in the United States for more than a decade, many are
confused about the legal requirements for establishing credit and
obtaining financing, and believe they must be either naturalized
citizens or legal and permanent residents to buy a house.
Another barrier for Mexican-Americans is a lack of information. "For
immigrants who speak little English, it is a daunting task to acquire
information and to understand the complexity of the home buying
process," the study said. "We found that prospective home buyers
either have no information, or even worse, misinformation."
The participants indicated they considered real estate professionals
such as mortgage brokers, lenders and real estate agents trustworthy
advisors in the homebuying process, opening the door for mortgage
brokers to implement outreach programs for potential buyers. To foster
ownership among Latinos, the study calls on real estate professionals
to serve as trusted intermediaries by becoming part of the Latino
community's support system.
To help educate the large and growing Latino market, it recommends the
creation of bi-lingual home buying and financial literacy programs and
innovative mortgage products that ensure equal access to financing and
protect unknowing borrowers from abusive lending practices.
Mortgage XSite users have an added advantage in this area as each Site has 60
pre-built content pages translated by experts into Spanish. This feature allows you to create an immediate
rapport with Mexican-American prospects.
If real estate professionals follow researchers' recommendations, the
report predicted that the ownership rate among Latinos could reach 53
percent by 2010, an increase of 2.2 million households.
Native-American market
The Native-American market is another often underserved real estate
market – and one that could prove to be quite profitable for mortgage
brokers. At the NAMB annual convention in Salt Lake City in June,
now-former President A.W. Pickel III told attendees they had a
responsibility to help certain underserved communities, particularly
Native Americans, rural America and the colonias along the border with
Mexico.
Pickel cited a General Accounting Office study that showed that in the
years 1992 to 1996, just 91 mortgages were made on trust lands. That
number had increased to 1,269 loans in 2002.
"Are [trust land mortgages] hard to do? Yes. Do they need to be done?
Yes. We as brokers, with our great power need to forge ahead and make
the effort," Pickel said. "A major lending opportunity awaits every
one of us and not only that, it can be profitable."
Riskiest homeowners ARMed and ready
to refi again
Adjustable-rate loans (ARMs) are more popular than ever, even
though today's low rates have almost nowhere to go but up, but
homeowners who opted for this type of loan may be in for more mortgage
than they can handle in the next few years.
In effort to prevent homebuyers from making choices that could put
them in the poor house in a few years, the National Association of
Mortgage Brokers and the Consumer Federation of America are urging
brokers and lenders to fully disclose those risks and potential costs
of ARMs and to avoid marketing them to consumers with low incomes, low
wealth or low credit scores.
Traditionally, the more affluent borrower was attracted to an ARM,
and typically, ARMs were most popular during times of high mortgage
rates. After all, you're betting your payment will go down, not up;
and you have the wherewithal to lose that bet.
And while an adjustable rate mortgage can be a good choice for some
homebuyers when fixed rate loan rates begin to rise, a new survey
commissioned by the CFA reveals that 25 percent of Americans prefer
ARMs over fixed-rate mortgages. However, the survey of 1,015
representative adult Americans also indicated that while "young
adults, minorities and people with lower-incomes and less education"
are most likely to prefer ARMs, they don't always understand the
interest rate risks of these types of loans.
Unfortunately, these borrowers are most at risk when their mortgage
payments spike after a year, or three, or five. According to one
report cited by the CFA, subprime borrowers are more than twice as
likely as those with high credit scores to purchase ARMs.
"Lenders who aggressively market ARMs to lower-income consumers and
those with low credit scores are acting irresponsibly," said CFA
Executive Director Stephen Brobeck. "Given the high probability of
interest rate increases, an adjustable rate loan made to a family
which can barely afford the initial monthly payments represents a
ticking time bomb."
Homeowners who opt for ARMs in order to get "more house for their
money" could risk paying increasingly higher interest rates in the
near future, and if rates jump up drastically, it could be devastating
to their finances. Some will need to sell out from under their new
payments, if they have enough equity; some will be foreclosed upon.
But there will be thousands, perhaps millions, who refinance their way
out from under a mortgage payment that's just "adjusted" upward to
maybe double what they'd been paying.
And they're apt to be taken by surprise. "Lower-income and minority
Americans are not only those most likely to prefer ARMS but also those
with the poorest understanding of their risks," Brobeck said.
So when is a good time to advise homebuyers to get an ARM? The CFA
says ARMs can be beneficial if the buyers plan on staying in the home
five years or less. In those circumstances, five-year ARMs are a good
choice for homebuyers and offer them the opportunity to save money
without the risk of being hit with significantly increasing interest
rates.
"There is a loan program that makes the most sense in each
individual case, and it is important for the borrower and the
originator to take the time to make sure the program is a fit for the
consumer now and in the future," commented Bob Armbruster, President
of NAMB.
Mortgage broker group defines predatory lending– but
some say it's vague
At its 2004 Annual Convention last week, the California Association of
Mortgage Brokers introduced the first definition for predatory lending
that could become the model for the rest of the U.S.
CAMB has defined predatory lending as "intentionally placing consumers
in loan products with significantly worse terms and/or higher costs
than loans offered to similarly qualified consumers in the region for
the primary purpose of enriching the originator and with little or no
regard for the costs to the consumer."
A clear, universal definition of the practice may be the right conduit
for stronger regulation and stricter penalties for predatory lending
practices across the nation. Previous attempts to codify
anti-predatory lending laws at the state level have been sporadic. In
Georgia, mortgage lenders left the state in droves rather than face
arcane penalties until the state legislature changed the law last
year. However, Massachusetts was able to enact its Predatory Home Loan
Practices Act (House Bill 4880) on Aug. 9.
On the national level, five federal anti-predatory lending bills have
meandered through Congress over the past two years and none of them
have made it to the President's desk. Even the Office of the
Comptroller of Currency has attempted to preempt state laws to prevent
a patchwork of differing standards among banks.
Whether or not the rest of the U.S. adopts the definition, CAMB seems
to be taking a street-level approach to solving the problem that has
plagued the mortgage industry for years and recently wiggled its way
into the 2004 presidential campaign with both camps vowing to fight
"unscrupulous real estate practices."
The group hopes that by pinning a description of such practices,
consumers will be able to recognize it when applying for loans. In
addition, to champion the highest standards of industry
professionalism, CAMB also provides mortgage originator "Best
Practices" manuals that provides brokers with guidelines on how to
educated consumers as well as how to report predatory practices.
"We expect members of our industry to conduct themselves with the
highest levels of integrity and to educate consumers about the lending
process and how it should be wisely to help people achieve their
financial goals," CAMB President Jon Eberhardt said.
However, many of California's fair lending groups oppose CAMB's new
definition of predatory lending, calling it "too narrow and harmful to
efforts to meaningfully address the problem."
Specifically, groups such as the National Fair Housing Alliance,
Inland Fair Housing and Mediation Board, the National Housing Law
Project and 15 others, say, "neither the discriminatory intent nor the
primary purpose of the originator is required for a fair housing
violation to have occurred, and these subjective standards are not
prerequisites for predatory lending."
The groups argue that CAMB "appears to legitimize" abusive loans made
by originators who discriminate equally against all borrowers and that
identifying only "originators" fails to acknowledge others involved in
the transaction whose actions may make a loan predatory, including
brokers, appraisers, lenders, loan officers, real estate agents,
escrow agents, and title company workers.
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