A Peek Inside Successful Lending Shops

TheMReport — News and strategies for the evolving mortgage marketplace.

Issue link:

Contents of this Issue


Page 27 of 67

Feature offered for ARMs, there was no substantial reward to make up for taking on the risk of frequent changes in the interest rate a borrower would pay on a loan. In the current rising interest-rate environment, ARM loans can mean the difference between an affordable house and a borrower's dream home. The benefits of an ARM when fixed rates are relatively high are easy to see. With payments that are amortized during the same period as a 30-year fixed mortgage, monthly payments on ARMs can be much lower when there's a big gap in rates between fixed and adjustable mortgages. For instance, at 3 percent, the monthly payment on a $200,000 home would be $843. At 4 percent, the payment would be $955. Another way to look at it is if a borrower's income only qualified him or her for a monthly payment of $843, then paying a higher rate would only allow that borrower to take out a loan for $177,000. Having access to lower-rate ARMs allows borrowers to spend more on their dream home, which is useful especially in light of the increases in home prices over the past year. ARM products provide borrowers with lower initial interest rates than what is currently offered for 15- or 30-year fixed-rate programs and must be pooled separately. These lower rates are used for qualifying purposes, however, not on the 3/1 ARM, as either 2 percent above the initial rate or the fully indexed rate is used. Effectively Minimize Risk T he difference between a profitable mortgage lender and a highly profitable one comes down to the methods and tools used to minimize risk and decrease liability. There are many methods available to lenders, and knowing which ones to use and when to use them is the key differentiator. Options on mortgage-backed securities (TBA puts and calls) and options on Treasury notes and bonds (CME puts and calls) should be used when the timing is right and should be employed when the lender is faced with optional exposure from the borrower, whether from an outright builder commitment, float-down lock, long-term lock, or general locked loan. Borrower behavior is measurable and manageable, and with the right tools your business can prosper. Effectively utilizing the proper tools will not only increase lender pipelines, but also minimize the risk from fallout volatility. As the U.S. economy remains volatile, mortgage lenders must be diligent in their work to offer attractive financing options to customers. we build your valuation solutions It's the Pro Teck way. Call us today to learn how Pro Teck can help your company succeed. I 800.886.4949 AMC ServiCeS | DeSK revieW | DUe DiLiGeNCe | BPO | COLLATerAL POiNT | AvM/ANALYTiCS | HOMevALUeFOreCAST.COM 26 | The M Report

Articles in this issue

Links on this page

Archives of this issue

view archives of TheMReport - A Peek Inside Successful Lending Shops