When I began this blog in 2009, I vowed to not devote it to monologues about underwriting rules or my latest listings for sale. BORING!!! Consequently, when I take the time to write one such as this, one with a topic that goes against the grain of the very spirit of MattsMemos.com, then I must be doing it for a darn good reason.
Indeed, the reason and timing of this post are quite significant. For the first time in a decade, the mortgage industry is expanding its options to consumers, and with it will come a healthier real estate market. This pendulum swing is long overdue, and it makes working with a mortgage broker like us an even smarter decision than ever before. How? Let me explain.
Back in 2007, nearly 75% of mortgages were originated by mortgage banks (think Wells Fargo, Bank of America, etc.). For many years, the mortgage market was very homogenous; varied loan options just simply didn’t exist. Last year, the banker’s market share was less than 50%; industry analysts have been calling it an exodus of large banks. Why? The reasons are many, but a significant one is banks don’t have the wide array of options that the mortgage marketplace now offers, so consumers find brokers a better option.
There are more options to offer consumers nowadays, and brokers like us are simply better at providing the options of today’s market. Let me give you a brief overview of some of the more significant finance options that we can offer our clients that you may not find at your traditional bank.
Reverse Mortgages – These are gaining tremendous popularity for homeowners over 62 years old, and we offer them! In short, you no longer make a mortgage payment ever again by using the equity in your home to cover the payments. While these loans were traditionally designed for seniors on a low, fixed- income and high equity trapped in their home, they are being utilized by high net-worth baby boomers who are approaching retirement. They can be used as a diversified financial tool by giving retirees the option to withdraw equity from their home (which is not taxed) rather than assets from their retirement accounts (which typically is a taxable event), or as a way to continue their lifestyle while simultaneously living mortgage-payment free.
Home Remodeling Loans – FHA and Fannie Mae have fixed rate loans that allow homeowners to significantly remodel their homes, using the post-renovation value of their home to access borrowed money. These are being used to build an addition, put in a pool, or redo a kitchen. In prior years, the only way to get a mortgage for a remodel was to already have the equity in the home prior to the improvements. These programs allow you to leverage the future value of the home, thus making it easier to borrow for that needed home makeover.
“Piggyback” Loans – They went by many names in the 2000s; “80/10/10,” “Simo Seconds” & “Piggyback Financing.” It was a method used to split up the total amount borrowed into two mortgages, possibly to avoid paying PMI or to borrow more than the maximum allowed on a single loan. We have a bank who is offering these up to 90% loan-to-value; I don’t know of any traditional banks offering such a program.
Jumbo Loans – These are big loans; amounts over $475,000 in the Sacramento area. We have a number of lenders offering competitive fixed rates nearly as low as regular sized loans!
Alternative Documentation Loans – Many people have been squeezed out of getting a new mortgage because it is difficult to fully document their income (think business owners). New lenders are allowing these types of borrowers to submit bank statements or profit & loss statements to document their income; a very sound alternative that went away after the Mortgage Meltdown.
The bottom line is this: creative financing alternatives are back and no one is better at offering and executing these options than a mortgage broker. While we will continue to be a price leader for the more “vanilla” loans, these other options simply expand our loan “tool box” in order to help as many of our clients in the community as possible.