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“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. The uncertainty surrounding average interest rates for 30-year, fixed rate mortgages are causing 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.
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.
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. 30-year mortgage rates have risen steadily since late 2016, and while rates have dipped in the past few weeks, the Federal Reserve has made it clear that an additional rate hike could very well take place this year. Borrowers have no incentive to refinance their homes in a rising interest rate environment, 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.
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, LLC (“Silver Hill”) 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 non-bankable business owners and investors who have the most pressing need for your services.
The uncertainty surrounding interest rates is going to continue to be an issue for originators throughout 2017. Is your business agile enough to make a move now to protect your revenue? 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 you with the resources you need to get started today.
Silver Qualifier Mortgage CalculatorDetermine rate, margin, and estimated monthly payments for your clients' deals
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