Monday, July 31, 2017

99% Financing = 100% Hype... Always Experience Challenged

If only one or two Companies in a universe of thousands offers a "Special Mortgage Product" and the rest of the Industry does not follow, is it because everyone else is off the reservation or is that company playing the hype game or worst does not understand risk / sustainable lending practices. 

During the late 1990s and early 2000s until 2007, the beginning of the collapse of subprime lending, the mortgage industry saw a massive proliferation of alternative unsustainable product that, in the beginning, were created to answer a congressional mandate from the 1990s to grant more access to home ownership, specifically for low and moderate income families. We all know what happened when the house of cards began to weaken at the base. The worst financial crisis since the Great Depression ensued because of the collapse of risky usustainable mortgage products that, because of greed, transformed from a design to help the underserved to mortgage products that, at the height of insanity, allowed mortgages with no down payments and no income, asset or even job verification. 

Typical Hype Advertising
Fast forward only a few years to 2014 and Fannie Mae and Freddie Mac, still in government conservatorship, roll out a 3% down payment program to compete with FHA's minimum 3.5% down payment. As if 2007 were a distant memory, a few large lenders begin to negotiate with Fannie and Freddie in late 2015 through early 2017 to offer "grants or gifts" for 2%, leaving the borrower only 1% of the purchase price to pay as their down payment. What seems to escape people who are in the throws of an emotional transaction like purchasing a home is that "there's no such thing as a free lunch".  That 2% "grant" came at the cost, higher interest rate - additional profits, that the lenders received from Fannie and Freddie "gifted" to the borrowers to offset most of their down payment requirement. 

Like so many short-lived products and schemes before them, this program is now dying.  Freddie Mac just announced that it is ending the 1% down payment option for all lenders beginning Nov 1, which means that lenders will most likely stop offering the product immediately. 

So now what? Certainly there will be some other program that pops up to capture the attention of those looking for the "product du jour" to sell. Why? Because they fail to realize that what truly matters is timeless. 

Service and a Licensed Mortgage Originator that puts a Client's needs first is the mandate for prudent mortgage companies.  Matching client need to a sustainable mortgage product that fits that need is what Southeast Mortgage has done since 1993.  We never chase unsustainable products for profit and always put our clients first.  If one company offers a product that we feel is more hype, we do not follow and wait for time to balance the equation.  It always does.

Products come and go. Rates fluctuate with bond market daily moves, geopolitical events, confidence or uncertainty. Costs are a function of rate and must be competitive in any market. 

Service is what differentiates one company from another. Service is what creates clients for life and motivates those clients and business partners to refer their friends, family, and coworkers. 

Cal Haupt
Chairman and CEO, Southeast Mortgage of Georgia, Inc.

JD Crowe
President, Southeast Mortgage of Georgia, Inc.

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