Despite increasing household debt and mortgage balances, a recent Q1 2018 Mortgage Consumer Profile Report from Best Rate Referrals found that most American consumers who were interested in applying for a purchase, refinance or reverse mortgage in the first quarter of 2018 perceived themselves as having good credit scores. The report also found that a continued increase in home values led affluent homeowners to tap into their equity through HELOCs and cash-out refinance mortgages, and that reverse mortgages have reduced appeal for home owners.
What does this mean for originators?
Raymond Bartreau, Founder and Senior Vice President of Lending Partnerships at Best Rate Referrals, thought that the consumer perceptions of the home value increases would be a little bit lower than they were, but he said that the accuracy of consumer perception is a good thing.
“It is nice to see that consumers are on par with where the value increases have been. It just shows that they have been doing the research and they know what’s going on,” Bartreau said. “[It] allows lenders to see where the values are in the consumer’s mind and it also allows the lenders to look at areas that have increased more than others and allocate their budget to spend more in the markets that will achieve a higher percentage of conversion on the leads they buy for products such as cash out, where people are looking to tap into that newly found equity.”
Consumers perceived themselves to have credit scores that were ‘good’ or higher, but between a sometimes over-estimated credit score and rising rates, which can reduce buying power for many would-be borrowers, that can lead to disappointment. The upside, however, is that many consumers who confidently start the mortgage process and then learn that their credit scores are less than ideal are prime candidates for credit repair services. Bartreau said that a larger percentage of the consumers coming into their site on the purchase side enter into credit repair, and that the conversion number that go into that program is “probably triple than the initial conversion number of the actual leads qualifying for a loan.” That increases the total lender conversions across the board.
There are other consumers who are savvier when it comes to knowing the credit that they need in order to get into the home – or the mortgage – that they want.
“A lot of them are even hesitating to pull the trigger on a refi or a purchase if they’re fairly close to the next credit tier, so if there’s more benefit to the borrower to go ahead and enter into a credit repair program to gain that 30, 40, 50, 60 points to get into the next credit tier. More and more consumers are looking at that today, whereas in years past, especially when I got into the business in the early 2000s, people really didn’t care, they just wanted to get into a house. So people are being more strategic now,” he said.
Today’s home buyer is more educated than ever before, but they know that being aware of the factors that go into their buying power—credit score, interest rates, and home values—isn’t enough. They still need someone to walk them through the other end of the equation, which includes the loan programs that are available for purchases, and the differences between each one.
Kimberlee Archibald, Director of Communications for Best Rate Referrals, said that the consumer education is what the report’s all about.
“What this report also underscores is the value of consumer education in the mortgage financing process and how important it is that consumers go to online marketplaces like mortgageadvisor.com—there’s others out there as well—that allow potential borrowers to research and shop around for the right fit. These sites hep consumers understand what the correct mortgage loan program is for their needs,” she said.
Given the amount of equity that’s available nationally, Bartreau says that the potential for cash out mortgages is “huge” but originators should start to transition into some purchase if they haven’t done so already. As rates continue to rise, the benefit to borrower for cash out prospects will rapidly decrease. That being said, there are still plenty of opportunities for purchase, refi, and reverse mortgages.
“The economy’s getting better, jobs reports look really good, unemployment’s really low, so there’s money flowing in the economy. People are making money, and generally when people are making money they want to achieve the American dream. So I think, even though we are dealing with some hurdles of inventory shortages, purchases are a very strong segment of the market,” Bartreau said. “We’re seeing a lot more organic traffic come to our site from consumers that are literally looking and searching for the ability to qualify to buy a home, as opposed to being marketed to first. A higher percentage of purchase leads is coming in organically as opposed to paid media these days, which is showing a good sign of consumer confidence in buying right now.”
Reverse mortgage revival
Q&A with Raymond Bartreau of Best Rate Referrals