Protect your bottom line from new challenges in 2017
“The party is over.” It’s a sentiment lenders across the nation are hearing from brokers who have experienced recent success within the residential refi market. Average interest rates for 30-year, fixed rate mortgages have steadily increased since the presidential election, which have in turn caused home refinances to decline at an alarming pace. The Mortgage Bankers Association believes this trend will continue – they estimate that the number of home refinances will fall by 46% in 2017.
2016 US 30-Year Mortgage Rates from January to Dec 1
Instead of waiting to see how the market behaves in the coming months, you can take a proactive stance now and protect your bottom line against any challenges that may arise in this new interest rate environment.
Want to know if you’re prepared to succeed in a changing market this coming year? Ask yourself these 3 key questions.
1. Will your business be affected by rising rates?
If you’re a mortgage broker who primarily closes residential loans, you could be in danger of losing a significant portion of your business in 2017. The MBA reported that 30-year fixed rate conforming mortgages in early December averaged an interest rate of 4.27% — the highest average rate in over a year. Borrowers have no incentive to refinance their homes as long as rates continue to rise, which leaves residential brokers with fewer services to provide.
Are residential refinances an important part of your business? If so, now is the time to consider other opportunities you may have to grow your business in 2017.
2. Do you have a diversification strategy in place to protect your bottom line?
Savvy residential brokers are taking this time to evaluate their options and look for ways to offset any loss in revenue this rate change might bring in the new year.
One proven strategy is to diversify your product offering with small-balance commercial mortgages. This niche, which can generally be defined as commercial loans under $5 Million, is popular with residential originators because it allows them to make a relatively quick and painless transition to commercial lending — the deals and borrowers often resemble those found in the residential side, while the smaller loan amounts and shorter transaction length make it easier for newcomers to break into the business.
History has shown that commercial mortgages make sense for originators facing a rising interest rate environment. For one, commercial lending isn’t nearly as rate-driven of an industry when compared to the residential side. 5-year term loans are very common in small-balance commercial lending, meaning that borrowers must transact regardless of market activity. In addition, commercial borrowers often have a purpose for their loan request that goes beyond the wish for a lower rate – such as taking cash out of their existing mortgage to improve their business.
That being said, commercial and residential borrowers typically have much in common – in fact, they are often the same person! The borrower who needs a broker to help her refinance her home is the same one who needs a broker to help her purchase a larger warehouse for her small business. Residential brokers can find commercial leads within their existing database – a time-saving benefit not found in other types of business diversification.
Silver Hill Funding is an example of a small-balance lender that makes it easy for residential originators to break into commercial mortgages. We offer a variety of loan programs that give you the opportunity to work with a wide range borrower types, including those unbankable business owners and investors who have the most pressing need for your services.
3. Do you have the resources necessary to get started now?
Climbing interest rates aren’t just a possibility in the future – it’s a reality brokers are facing today. Is your business agile enough to make a move now to protect your revenue in 2017? Diversification takes time and resources, so evaluate your schedule in the coming weeks and make any necessary changes to give yourself time to prepare your business.
If you do plan to diversify with small-balance commercial mortgages, a lender like Silver Hill can save you serious time by providing the marketing material and scripts you need to begin promoting your new offerings. The Silver Hill Marketing Toolkit also includes tips and insight regarding lead generation and the most relevant marketing channels in the small-balance industry today. If you’re thinking about making the transition, download your free toolkit today and get a leg up on those trying to get started on their own.
Silver Hill also provides an online mortgage payment calculator to help you price your commercial deals. It’s a great way to run scenarios and gain familiarity with the structure of small-balance commercial loans.
Small-balance commercial lenders know that their niche attracts residential originators – especially when mortgage interest rates increase. They can help you break into the business and will work with you to ensure your transactions go smoothly.
The residential refinance “party” may indeed be over for the time being, but residential brokers shouldn’t accept a decline in business as a foregone conclusion in the coming year. Ask yourself the important questions about your business and take action now to set yourself up for success in 2017.