Broker has 'literally lost loans' as credit unions ramp up efforts to bring in business
National housing headlines have painted an improving picture across the United States. Home prices in many areas are slowing, if not retreating, while inventory has increased.
Combine those two factors with falling mortgage rates, as Freddie Mac reported the lowest rates in three years on Thursday, and this all sets up for what could be a much stronger spring buying season nationwide.
Of course, reality in every market may not match up with generalized headlines. Lower rates are helpful, but if an area remains constrained by limited inventory and rising prices, that creates a different situation. One broker in the Northeast is working to compete with local credit unions for customers.
PJ Byron (pictured top), president of South County Mortgage Corporation, said competition in Rhode Island and Massachusetts has been fierce.
“It's credit unions that are being aggressive,” Byron told Mortgage Professional America. “They're lending their own clients’ money, so they can do things that some of the other banks can't do. Right now, they are making an aggressive push. They usually do that around this time of year to bring up a little bit of market value, because they realize in the spring that more people are looking, and they tend to go back towards their relationships.”
Getting the right products
Byron said one of the big challenges of going head-to-head with local credit unions is that they may be offering products that aren't the right ones for customers. He tries to make sure he is recommending products that are right for the long term, not just the ones with the lowest rate right now.
However, with home prices remaining high, customers are being tempted by products that may not be in their long-term best interest.
“There's a lot of 7/1 ARMs right now being pushed, which I don't necessarily agree with,” Byron said. “But home prices in the Northeast are still rising. People start to get spooked when they say, ‘I'm going to buy this $769,000 house.’ Next thing you know, you give them the payment, and they go, ‘Well, is there anything we could do about that?’”
Because his goal is to help the customer in the long run, and not just to close a loan, Byron said sometimes customers go elsewhere because they see the short-term benefit and chase it instead.
“I've literally lost loans,” he said. “I'm like, ‘Listen, you're our state trooper, and I don't think it's a good idea to put you into an ARM because your job only lets you work 20 years. So if you get hurt on that job, how are you going to refinance it? Or if you have a dramatic loss of income, how are we going to get you out of that seven-year ARM?’
“On the other hand, they have personal goals. They have a wife and kids, and they want to buy this house. So I’m like, ‘All right, we'll do it for you,’ but I try to talk them out of it. Credit unions are being very aggressive with ARM products. Home prices are still rising, which is a good thing for most people, except for the people trying to get over that entry-level barrier to get into houses.”
Sticker shock
As home values continue to rise in Byron’s area, it becomes increasingly difficult to find affordable housing.
“We were looking for a couple the other day, and the cheapest home that we could find that they were able to live in was $375,000,” he said. “We found a double-wide trailer for $275,000. I said, ‘I wouldn't live there for $275,000. I'd keep renting.’ It's unfortunate, especially in Rhode Island, which is very condensed. It's a small area, so there's a lot of competition. Massachusetts is a little bit different, but the home prices there are so much higher as well.”
Because prices are so high and loan payments are elevated as well, products like credit union ARMs are especially attractive. Byron said he encourages buyers to explore other ways to make a payment fit within their budget rather than choosing a loan type that might be worse for them in the future.
“I was telling the state trooper that one night less out a month would be the difference,” he said. “It would be better security to have a fixed rate. And you know me. I own the company, so if rates drop, I'll call you, and we'll get you into something lower. But if you take this 7/1 ARM and rates go up, there's nothing I can do for you except give you that higher rate.”
He said sometimes it comes down to common sense, which might mean letting a borrower walk away if he doesn’t believe that doing a certain type of loan is the best thing for them.
“I try to be the best advocate that I can for them,” Byron said. “But that payment shock really dictates that even the people with the most common sense will say, ‘No, I want the house. I need the payment to be this.’ I lost one loan to a bank because it just wasn't the right product. And I said, ‘I'm not going to do this for you.’
“I own the place, so I can go as low as I need to go to win the deal, because I want that referral later, or I want repeat business. I want them in my database, not in somebody else's. But in this case, the situation was just not the right one, and they talked him into doing it. And I just said, ‘Go with God,’ because I didn't want to be the reason why they wound up losing this house in the future.”
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