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Why Do Lenders Sell Loans?

Why Do Lenders Sell Loans?

When you first work with your loan officer very early on in the process, you’ll soon establish a trusting relationship with that person. You’ve shopped around for a new loan and interviewed several loan officers before finally landing on the perfect choice. Your loan officer has helped qualify you and provide an array of loan programs that best meet your needs. You also work with your loan processor as your loan file moves through the approval process. You decide on not just the right loan program but also select your rate as your processor prepares your loan for a final approval. Once your approval is issued, papers are drawn and you attend your settlement. Papers are signed and returned to the mortgage company for a final review and once that review is completed your loan is funded.

Soon thereafter, you’ll receive payment information indicating where you need to make your payments. And for most funded loans, you’ll also receive another letter informing you the lender you originally worked with has just sold your loan to someone else. Someone you’ve never worked with before and even to a company you’ve never heard of. What happened to that relationship you formed with your loan officer? Where’s the loyalty?

Among the many initial documents you signed when you first applied was a Mortgage Servicing Disclosure. This form tells you what percentage of the lender’s loans are sold and more often than not the form indicates most if not all of the loans approved and funded by that particular mortgage company will be sold to someone else. But why? Why go through all the effort of originating, approving and funding a loan and forgo all the interest that new loan provides? Good question and an easy one to answer- if not for selling the loan, the lender would soon run out of money to lend.

Mortgage companies today work with a line of credit. It’s not as if the mortgage company approves a loan and then opens up a vault full of money to fund your mortgage. Instead, when it’s time to fund your loan the lender taps into the line of credit for the needed amount to fund the new mortgage. In order to replenish this line of credit the lender then sells the loan to a third party. Once the loan is sold, the lender now has more funds to make still more loans. Who is the loan sold to? Many times, it’s to other mortgage companies but ultimately the loan is sold either to Fannie Mae or Freddie Mac.

The marketplace for all this buying and selling is called the secondary market for mortgages. This secondary market is robust and active and keeps the mortgage market liquid. Without a secondary market, there would be fewer loans issued and still fewer choice. When your loan is sold it’s not because your original lender isn’t loyal to you or doesn’t appreciate your business…it’s to stay in business so the lender can make even more loans.

The Tell Tale Signs it is Time to Sell Your Residential Property

The Tell Tale Signs it is Time to Sell Your Residential Property

We all, at some point or another, get our feet firmly on the property ladder, and while some do it while they are young, others wait until they reach middle age before making the commitment to buy rather than rent. Once you own your home, there will likely come a time when relocation is the best path to take and with that in mind, here are some tell-tale signs that it is time to put your home on the market.

✓ Insufficient Living Space - A growing family, for example, would require more living space as the children grow and if one of your kids doesn’t have a room they can study in, perhaps it is time to upgrade. This would typically arise for a newly married couple around 10-12 years in the future, and this time is enough to ensure that their financial status supports the upgrade.If you are looking to upgrade, be sure to find a suitable contractor who will offer a fair rate.

✓ Can’t Afford The Mortgage Repayments - If you made the mistake of buying a property out of your budget limit, the best thing might be to put it on the market. If the house is in a prime location and is in good order, you might be lucky and make a profit on the deal, although your objective should be to downsize to a comfortable level.

✓ The Long Daily Commute - If you are spending more than one hour travelling to or from your place of work, this could be the time to look at relocating to an area closer to your work venue. The cost of daily commuting can indeed be high, and it isn’t just the cost in terms of money, there’s also the time that could have been spent with the family. If you would like some more information, check out this article that examines the question, “How far is too far to commute?”

✓ Looking To Start Your Own Business - If you have a great business idea, yet do not have access to startup capital, selling your home will release your equity. You could either rent for a few years while you develop your business, or buy a smaller property, either way, you have the necessary funds for your startup if you sell your home. Of course, a lot would depend on the location and condition of your home, but there is nothing to lose by putting it on the market.

✓ A Career Promotion - If you suddenly are offered a promotion that would mean relocating, it might be the break you have been looking for. Many families end up relocating solely for this reason and in most cases, it turns out to be a wise move. Of course, it is a big step and it would affect your partner and any children you have. You should discuss thing openly with the family and then weigh up the pros and cons before arriving at a decision.

Whatever the reason for selling, it is essential that you engage the services of an experienced conveyancing lawyer, who will facilitate the legalities and can help you to calculate your total costs.

Mortgage Lending & Homebuying Trends for 2019

Mortgage Lending & Homebuying Trends for 2019

These are interesting times for mortgage lenders. While there are large-scale economic and socioeconomic reasons for optimism going forward, there are also some complexities and cautionary notes that need to be taken seriously. Understanding these key trends—and appreciating the significant issues likely to impact the industry in 2019 and beyond—is important for lenders, mortgage banking professionals and real estate professionals across the country.

Equilibrium on the horizon?

I expect to see the current imbalance between the number of homes available for sale and the number of buyers in the market to begin to come into greater equilibrium in 2019. That gradual balancing act is unlikely to depress housing prices, but it will slow the rate of increase somewhat. The slowing of home appreciation (a product of simple supply and demand dynamics) could actually be a positive development. Housing appreciation has been outstripping wage increases for some time now, and as these come into equilibrium, the result will likely be a healthier and more accessible home-buying marketplace.

Demographic dimensions

Experienced lenders are well aware of the importance of staying in touch with the preferences and priorities of different demographic groups and generations. Two of the most influential demographics, the baby boomers and the millennials, are likely to play an especially important role in shaping the contours of the housing market throughout 2019 and beyond. More boomers will likely be staying put and holding off on downsizing, as we see a slightly weaker market for larger homes and, consequently, a financial equation that doesn’t look quite as favorable with regard to downsizing. While much has been made of millennial preferences for urban environments, a recent Ernst & Young survey of 1,200 adults aged 20-36 actually reveals that greater numbers of millennials are purchasing homes in the suburbs than in cities. According to the study, 41 percent of millennial homeowners in 2018 are choosing suburban locations over cities, small towns or rural areas—an increase from 36 percent in 2016. Today, 38 percent of millennials live in the suburbs versus 37 percent in urban settings. What’s clear, is that the iconic American dream of homeownership remains durable. As older Millennials begin to raise families and look for more space, they will become an increasingly influential home-buying demographic.

Peaking your interest

Regardless of demographics, low interest rates make home ownership accessible. The sticking point for many prospective homeowners is the ability (or lack thereof) to make a large down payment. Lenders will continue to offer more loan products to credit worthy borrowers that require reduced or minimal down payments, and financing options will continue to be available with less than the traditional 20 percent down payment.

Another important piece of the puzzle is the impact of (what are expected to be) rising interest rates in the months and years ahead. While rates currently remain at historically low levels, higher rates inevitably impact affordability. That said, given the low rates and current state of the marketplace, it seems unlikely that marginally higher interest rates would have anything more than a fairly modest-to-minimal impact on home sales.

Technically speaking

The continued introduction of innovative technology in the months and years ahead will be an important storyline. Most of that new tech will be designed to facilitate the process on behalf of consumers. That means removing some of the friction from the loan process and ultimately compressing the amount of time it takes to get mortgage applications approved. New platforms will allow lenders to verify income at the time of application (with consumer permission). This should alleviate some of the paper trail and the documentation burden, allowing electronic access essentially at the time of application. Consumer trust will be a big part of this. It’s incumbent upon lenders—and the tech providers they rely on—to make consumer comfort and confidence with new tech a priority. It’s also important to remember that tech is just a tool. The role of mortgage lenders as counselors, educators and professional service providers will remain essential. Homebuyers—especially first-time homebuyers—have questions, and professionals with the knowledge, skills and experience to answer those questions will become arguably even more important as rules, regulation, tools and tech continues to evolve.

Wild card factors

There continue to be rumblings that Amazon is considering putting a toe in the water and getting into the mortgage business. Whether that would be as a facilitator, using their platform and unmatched market reach to connect consumers with mortgage professionals, or as a full-fledged provider offering something like “Amazon Mortgages,” is unclear. One thing that is clear, however, is that Amazon will have an impact one way or another. Even if the rumored market entry never materializes, younger homebuyers who grew up with Amazon and are used to the ease and speed with which customized service is delivered will continue to extend those expectations throughout other spheres—including mortgage lending. Amazon has helped set a standard for speedy and efficient service that real estate providers in general, and mortgage lenders specifically, will need to be able to meet if they want to be competitive going forward.

The big picture

For all the ebbs and flows and outside factors, home sales increased from 2017 to 2018 (while the overall mortgage market is slightly down in 2018, that’s largely because of fewer instances of refinancing, not because of a decline in home sales). The consensus among organizations like the Mortgage Bankers Association of America is that they expect that trend to continue in 2019. While you can never discount the possibility of a “black swan” event that disrupts national or global markets, the future continues to look bright, with innovation and increasingly efficient service models allowing forward-thinking lenders to continue to evolve and thrive.

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