Debt restructuring and equity strategies are increasingly top of mind
Finding and funding a mortgage for their client remain by far the biggest parts of loan originators’ jobs, but a challenging affordability environment means a growing number of originators also say the balance has tilted decisively toward something closer to financial planning.
That shift often starts with a simple observation, according to Cincinnati-based Edge Home Finance mortgage broker Jessica Eddy (pictured top): many clients aren’t struggling to understand mortgages. They’re struggling to understand money.
“A lot of people are sitting on so much equity, but they’re drowning in credit card debt paying around 22% interest every month,” she told Mortgage Professional America. “So we’re coming in with a more financial-advising approach.”
The traditional rate-and-term refinance – where a borrower simply swaps an existing mortgage for a lower rate – is increasingly uncommon in the current market.
New approaches to the refinance question
Homeowners locked into sub-4% mortgages from 2020 and 2021 see little incentive to refinance purely for a better rate, she pointed out, when the 30-year fixed is sitting in the mid-to-upper 6% range.
Debt restructuring is filling that void. Clients with higher mortgage rates and significant high-interest credit card debt, for instance, can accept a slightly lower rate on a no-point loan, executing a cash-out to retire the credit card balances.
That can ensure several hundred dollars saved per month, not because of a dramatic drop in the mortgage rate but because the overall debt load was reorganized.
“We get a game plan together for them,” Eddy said. “Their credit is suffering. Their overall monthly output is extended beyond their limits. So we’re looking at the money that is theirs – tied up in their home, equity they’ve rightfully earned – and using that to pay off high-interest debts, get that monkey off their back, and let their credit heal.”
Considering a client’s full financial picture, a skillset that overlaps significantly with what both financial planners and credit counselors do, has become central to how Eddy operates, she said – especially for move-up buyers weighing whether to cash out equity for a downpayment or use it to eliminate consumer debt first.
Eddy said her approach is producing results, with her refinance pipeline generating clients who are genuinely better off financially when the transaction closes.
“It leads them to answer: ‘What’s best for them and their family?’” she said. “That’s really what we’re doing.”
Waiting for the perfect rate not always the right call
On the purchase side, the value of an advisory-based approach is also showing up in how originators handle rate anxiety. That remains one of the most common headwinds in the market, even despite rates pulling back from their 2023 highs.
Eddy said her approach to purchase clients focuses on historical context, rather than promising anything about where rates are heading.
That often involves telling rate-anxious buyers that the 50-year average for a 30-year fixed mortgage sits around 7.6%, meaning today’s rates – while higher than the pandemic-era lows – are not historically unusual.
The three-percent mortgages that buyers remember fondly, Eddy emphasized, were the product of an economic emergency. “That rate was basically CPR – breathing life into the economy to keep it going,” she said.
“When you give them that context, they start to see that what feels high right now is actually right on track historically.”
The second part of Eddy’s rate argument is an economic one, rather than historical. Buyers who wait for rates to fall back to the high fives may find that the homes they’re waiting to afford have already appreciated and when rates do drop, they’ll be competing in a market flooded with pent-up demand.
“If you’re waiting until everyone else seems to be waiting for that ‘lower rate’, that’s going to drive home prices up because of supply and demand,” she said. “You may pay a little more on the rate, but you’re getting into a better-priced home than you would be when the rates come down – because then we’re going to see bidding wars.”
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