AVMs are software-based pricing models that often use public records to estimate the value of a home or other real estate. Commonly known AVMs used by consumers are Zillow’s Zestimate and Redfin’s Estimate, but there are many more of these sophisticated AVMs on the market.

“The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals.”

Today, it’s an accepted norm to show homebuyers or sellers an automated home value that is accurate enough to get their attention. But these values often fail in the level of accuracy needed to be usable for a consumer’s financial transaction. This results in a rude awakening for a seller who expects to list their home at the value they’ve grown accustomed to — or a homeowner who is dreaming about the project they can finance with their current level of equity, only to be approved for a lower loan amount.

Misleading information

The difference in predicted home values that consumers see and the accurate values that often take them by surprise could be due to a disconnect between marketing and underwriting goals. There are many business reasons why marketing and underwriting operate in silos. Highly accurate AVMs built for underwriting purposes cost more to produce than a marketing-first approach.

Marketing-based AVMs are often displayed for free to consumers in order to generate leads. Some companies may even go as far as showing a less accurate value as clickbait, hoping the homeowner will become a lead just to fix what they know to be true about their home.

It’s time to rethink this current norm, especially in today’s market where affordability is a challenge for so many. AVM providers have a larger opportunity to reduce friction in housing finance and provide viable alternatives to labor-intensive processes.

“AVMs that harness large amounts of data can perform more calculations than a human in a matter of seconds, and they provide an objective approach to value.”

Known low-quality values ultimately erode consumer confidence, particularly if no context of value accuracy is provided. To make confident decisions involving real estate, both accuracy and transparency are needed to understand a property’s value. AVM solutions need to provide a precise indication of confidence that allows someone to act upon the value with an expected outcome. It matters not only to real estate professionals but to consumers, financial institutions and investors.

Transparent approach

When consumers are shopping for homes or checking the value of their own home on their favorite site, an expectation has been created that an answer will always be available. This helps to create loyalty and confidence for return visits.

Imagine if you typed questions into Google and the searches frequently turned up zero results. Chances are, you would look for a different search option. It’s better to see something — even if it’s irrelevant to your original search — than to see nothing. The human brain wants to see results.

The problem comes when these results are not accompanied by some context of how accurate the model’s prediction actually is. AVMs are typically designed to predict a fair market sales price or an appraised value for a given property. Predicting the outcome before a sale or appraisal has happened can be a powerful tool for gauging the timing of getting a loan, listing a home or making a purchase. Knowing with certainty that a value is accurate, and that there’s a high likelihood it will be within a margin of error for a future sale or appraisal, is what actually empowers consumers to act upon the data.

Telling a friend you are 50% sure you will arrive at their house on time for dinner, versus being 98% sure, will probably change their expectations and actions. A homeowner equipped with the knowledge about the accuracy of an AVM can make informed decisions about their finances. They can better choose the timing to take advantage of their home equity, which might enable them to renovate their home, consolidate debt or send a child to college. Potential buyers with this context can ensure they are financially prepared to purchase a home. This reduces friction in the process and ultimately leads to fewer failed transactions.

With a transparent approach to communicating confidence, there will be an increased need for highly accurate AVMs to be used directly by consumers, instead of today’s two-tiered approach. Valuation accuracy can be the difference between a frustrated, discouraged homebuyer and a well-informed one. The combination of cloud-computing power, more available property data and modern technologies such as machine learning make it possible for AVM providers to increase accuracy while providing confidence in the value prediction.

Increased usage

AVMs are being increasingly used in home equity lending. With increased accuracy, instant results and lower costs compared to an appraisal, AVMs are especially suited for underwriting these loans.

When lenders market to consumers using a highly accurate AVM, they present consumers with realistic expectations. When an AVM is sufficient to satisfy underwriting requirements — typically on smaller loan sizes — it creates a more streamlined lending process and leads to better borrower outcomes.

For conforming mortgages, AVMs are not currently accepted as a replacement for an appraisal, but they can be used by underwriters in tandem with an appraisal to verify a home’s value and flag for overvaluation or undervaluation. AVMs that harness large amounts of data can perform more calculations than a human in a matter of seconds, and they provide an objective approach to value.

Historically, AVMs have been blind to a property’s current condition, which is why pairing them with a physical inspection has been key for using AVMs in lending decisions. Recent advances by innovative AVM providers and AI photo technologies have evolved the approach to include property condition as an input to the model, which produces a more accurate result. As AVMs become more accurate over time, underwriters will be able to rely on them further, and they will be used to determine whether an appraisal is required for the level of risk tied to a specific loan.

Accurate picture

Accurate AVMs can also change the way mortgage servicers interact with borrowers. AVMs help to determine when a homeowner can remove their mortgage insurance, assuring that borrowers aren’t paying for it longer than necessary. Removing the insurance requirement can help a borrower reduce their monthly payment and better understand their current equity position.

The low cost of AVMs also means that the values of properties in a servicing portfolio can be updated more frequently. This provides better tools that enable servicers to deliver the right options to current borrowers and inform them of additional opportunities to make use of their equity.

Close to 90% of mortgage holders have interest rates lower than 6%. This has created a lock-in effect where homeowners are prone to focus on improving their current property using available equity rather than moving to a different home. Servicers that use accurate AVMs can play a big part in empowering homeowners to understand all of their options and make good decisions.

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It’s understandable that some would see benefits to providing consumers with mediocre information all of the time, rather than great information some of the time. The recent evolution in AVM innovation means that there is no longer a need to compromise.

Machine learning, data availability and low-cost, massive computing power provide the ability to move past today’s two-tier system and focus on giving consumers direct access to underwriter-quality AVM values. This is an exciting development for homeowners and prospective buyers alike. Whether you’re a lender, originator, underwriter, servicer, investor or consumer, it’s OK to raise the expectation of accuracy rather than deal with the norm of missed expectations. And that is good news for everyone. ●

The post Expectations Can Meet Reality on Home Values appeared first on Scotsman Guide.

By adopting a proactive approach and leveraging the right technology tools, originators can not only survive but thrive in this environment. The real estate market has always been cyclical, with ups and downs. The current downturn, however, presents unique challenges. With fewer homebuyers in the market and stricter lending criteria, originators are finding it harder to close deals.

“Instead of waiting for the market to turn around, proactive originators are looking for ways to maximize their efficiency and reach potential buyers more effectively.”

This situation calls for a shift in strategy. Instead of waiting for the market to turn around, proactive originators are looking for ways to maximize their efficiency and reach potential buyers more effectively. This is where successful mortgage professionals use technology to grow business for themselves. Here are some of the freshest technologies that cutting-edge originators use to grow their mortgage business.

Pioneering AI

LoanPass.AI is pioneering the use of artificial intelligence in the U.S. lending industry with its AI chatbot. This technology serves as an automated loan officer, enabling borrowers to confidentially shop, price and lock in loan approvals. The chatbot is designed to interact with borrowers using a set of customized questions that lead to deterministic responses from a product and pricing engine, which contains each lender’s specific pricing, eligibility and underwriting guidelines.

 The technology positions LoanPass as a transformative tool in the mortgage industry, offering lenders a way to enhance their operational efficiency, reduce costs and improve customer engagement, all of which are critical factors to business success. The company’s chatbot automates the loan generation process, which traditionally required a loan officer or call center.

This automation allows for efficient connections of borrowers to lenders, potentially increasing the volume of loans processed. Lenders can customize the chat sessions in real time, from the questions asked to the decisioning rules applied, giving them control over the loan origination process and the ability to tailor it to specific business needs.

The chatbot combines three knowledge sources: the lender’s product, pricing and eligibility guidelines; a general information knowledge base; and the extensive knowledge from ChatGPT. The chatbot can provide quick, accurate and personalized responses to enhance the borrower’s experience.

Indispensable insights

In today’s digital age, data is king. Mobility Market Intelligence (MMI) provides indispensable mortgage and real estate data, allowing originators to make data-driven decisions. In addition, building and maintaining referral relationships with real estate agents is crucial to lead-generation efforts for lenders and originators.

Given the vast number of agents, originators often find it challenging to optimize their referral outreach. To address this, many lenders are turning to data intelligence tools. MMI is a top player in providing data intelligence for the mortgage and real estate sectors.

It offers an extensive database that allows enterprise clients to pinpoint partner networks that align with their goals. It provides detailed insights into lenders, originators and real estate agents based on regions and specific transactions. By understanding market trends and buyer behavior, originators can tailor their strategies to meet current demands.

MMI assists originators in the competitive real estate market by helping them identify potential real estate agent partners and differentiate themselves from competitors. Features include the ability to search and filter agent transaction data, track agents with new daily listings, and inspect the LO Agent Wallet Share to see what percentage of an agent’s business they receive.

MMI provides tools for originators to stay in touch with borrowers in meaningful ways. This includes listing alerts for properties they’ve dealt with, custom property intelligence pages for borrowers and triggered alerts when mortgage credit checks occur.

Seamless journey

SimpleNexus was acquired by nCino in January 2022 and underwent a rebrand in September 2023. The nCino Mortgage Suite now provides the best of both worlds to mortgage lenders and originators. The system is designed to enhance the profitability of financial institutions.

The mortgage process can be complex, with multiple stages and stakeholders involved. The nCino Mortgage Suite simplifies this process by offering an end-to-end solution that automates various stages along the way. The robust platform brings together elements of the mortgage process, offering financial institutions a streamlined, efficient and data-driven approach to mortgage lending.

The suite streamlines the entire mortgage process, from origination to closing, making it more efficient and reducing manual tasks. In today’s fast-paced world, borrowers demand convenience. By offering a modern and seamless customer journey, nCino enhances the overall experience.

Originators have access to valuable data insights, and they can leverage this data to make informed decisions and improve their strategies. The suite provides an automated solution for managing incentive-based compensation, eliminating the need for complex spreadsheets and chaotic emails.

Social outreach

Social media is a powerful tool for reaching prospective clients, but it can be time-consuming and challenging to navigate. SocialCoach offers a solution that keeps lenders compliant across social media platforms. The system is a comprehensive social media management platform tailored for the mortgage industry.

It aims to simplify and automate social media marketing for originators, ensuring that the content they post is compliant with industry regulations and standards. The platform is trusted by leading brands in the mortgage sector.

SocialCoach allows originators to post and schedule content directly to their social media accounts, saving them hours of work every week. It supports various platforms, including Facebook, Instagram, LinkedIn and TikTok. This functionality ensures consistent online presence and compliance.

With the Video Catalyst tool, originators can tap into the power of TikTok and Instagram Reels. SocialCoach writes video scripts, and after an originator records from their phone, the platform takes care of editing and posting. The platform offers features to ensure that the content posted by originators is compliant. It provides built-in compliance parameters, allowing companies to decide which terms are flagged or blocked.

SocialCoach offers an analytics dashboard where companies can view activity and engagement metrics. This includes companywide social insights and personalized metrics for each originator. Understanding these key performance indicators for social media are crucial.

Proactive mindset

Arguably, one of the most important ways that successful mortgage professionals are moving the needle in this market is through mindset. Success in the current market requires a proactive mindset. Originators must actively seek out opportunities to grow their mortgage business. They need to leverage technology tools to maximize efficiency.

Originators must be willing to continuously learn and adapt. By embracing this mindset and utilizing key technology tools, they can better ensure that every minute spent translates into business growth. Here are three easy ways to start a mindset shift.

First, educate yourself continuously by staying up to date with the latest industry trends, regulations and technologies. Attend workshops, webinars and conferences to expand your knowledge by learning from industry experts.

Next, set clear goals. Define your short- and long-term objectives. Break down these goals into actionable steps and monitor your progress regularly. Third, actively network with Realtors, homebuilders, financial planners and other industry professionals. A strong network can provide referrals and insights into market trends.

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The bottom line is that current real estate market conditions demand that mortgage originators be more strategic and efficient with their time. By leveraging tools like LoanPass, Mobility Market Intelligence, nCino’s Mortgage Suite and SocialCoach, originators can navigate market challenges, optimize their operations and see tangible growth in their business. The future belongs to those who are prepared with the right tools and mindset. These loan officers will not only survive but thrive. ●

The post Seize the Future with the Right Attitude and Tools appeared first on Scotsman Guide.

In Episode 024 of the Scotsman Guide Author Showcase, Carl White interviews Rich Leffler of AxSellerated Development about his article, “Build a One-Stop Shop,” in the December 2023 issue of Scotsman Guide Residential Edition.

Rich Leffler is the director of training/senior instructor for AxSellerated Development, which offers guidance that you need to pass the Nationwide Mortgage Licensing System (NMLS) test. An award-winning mortgage expert, business coach, and speaker, Leffler has excelled in customer service, research, mortgage origination, training and consulting. He regularly lectures on compliance, sales and winning customer-service strategies, and is available for in-house training, speaking engagements, tutoring, personal coaching, and seminars.

The post Author Showcase: Rich Leffler, AxSellerated Development appeared first on Scotsman Guide.

As a mortgage originator, you’re the owner of your own business. You already make sure you’re working with quality management, processors, underwriters and closers. In addition, you should take an honest inventory of the other professionals you surround yourself with.

Successful mortgage originators thoroughly understand the importance of standing apart from their competition. To accomplish this, they must be able to provide their clients with more than uncompromising knowledge and service, competitive pricing and access to a wide selection of mortgage products. They must become a one-stop shop for their clients to access local knowledge.

Easing transition

Imagine that you’re embarking on a move to another state. So many concerns cross your mind. Of course, you need to find a place to live and have the money to afford it, but moving brings with it many other challenges. You’ll need to find reputable movers; establish new relationships with doctors, dentists and veterinarians; set up utilities; find new schools and child care; and find stores for shopping and new restaurants to try, just to name a few.

How much would you love your mortgage originator if they went above and beyond by providing you with trusted recommendations for other services that someone new to a community needs? What if they not only accommodated your home financing needs but also connected you with a competent real estate professional, title company, home inspector, insurance provider and moving company? An originator could make this transition easier for you if they came through with all of that.

Successful originators already surround themselves with third-party service providers tied to the homebuying process. They refer their clients to partners who help make the experience of finding a home, securing financing and transitioning to a new environment much easier and more pleasant than it could otherwise be. There is, however, much more to referring clients to third-party service providers than amassing a list through your favorite search engine.

Just like every loan originator is of a different caliber, other service providers vary in terms of their specialties, levels of expertise and competencies. Real estate professionals, title companies, closing attorneys, accountants, insurance professionals and other referral partners should be vetted thoroughly before you recommend them to your clients.

Scrutinizing partners

Imagine you’re being pursued by a local title company that is desperate for referrals to your borrowers. You agree to meet and offer them the opportunity to convince you why you should partner with them.

Instead of meeting at your office, you insist on meeting on your terms, at their office, at a time convenient for you. When you arrive, their office is disorganized, dirty and cluttered, and their professionalism is subpar on many levels.

Had you simply referred a borrower to them prior to conducting this due diligence, your professional credibility could have sustained some real damage. In your clients’ eyes, your recommended referral partners are an extension of yourself. Always remember this.

When developing your professional referral portfolio, be certain to interview your prospective partners from a borrower’s perspective. Here are some things to consider:

• Their level of professionalism
• The appearance and comfort of their office
• Availability, punctuality and accommodation of unique schedules
• The depth of their product offerings and their level of execution
• A variety of channels to communicate and interact with customers
• Safeguards for the borrower’s personal information (ask for proof)
• Evidence that they’re properly bonded, insured and licensed

If you ultimately decide to engage with them, be sure to note when their insurance policies and licenses expire, and request to see copies of their renewal certificates. These considerations can make the difference between providing a wonderful experience and damaging your professional reputation beyond repair.

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By becoming your client’s one-stop shop, you will surpass the levels of service provided by much of your competition. You will establish your professional reputation far beyond that of the average mortgage originator, giving clients more reasons to refer and come back to you. ●

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Let’s start with how and why AI is used. The “how” is pretty simple. There are multiple AI services available, including ChatGPT, Claude and Jasper. You might already be using Grammarly, which bills itself as a free AI writing assistance tool.

“There are benefits to AI. If you have writer’s block when putting together a social media post on reverse mortgages, this might be a way to break it.”

Once you create an account (many are free), you can teach it to learn your writing style. Simply type in something to the effect, “Do you want to learn how I write?” The prompt is no more complicated than an internet search bar.

Now for the “why.” AI has been publicized as being wickedly smart and a true timesaver due to its ability to learn and grow in the future. There are specific concerns about AI’s use in mortgage and business lending. These include the potential to insert bias in the mortgage process, as well as possible security and privacy risks. The late physicist Stephen Hawking even warned about AI as a would-be threat to humankind, although these existential worries are thankfully not as immediate.

Overly informal

Setting aside these concerns, ChatGPT was given a writing example and a prompt to produce marketing materials on a loan program. The prompt stated, “Using an informal tone and a humorous example, write a social media post about reverse mortgages.” Here’s what the AI tool produced (emojis were removed):

Hey, peeps! Let’s talk about reverse mortgages, or as I like to call ‘em, “The Robin Hood of Mortgages”! Picture this: You’re retired, living it up in your dream house, but your bank account is starting to resemble a dried-up raisin. Reverse mortgages are like that lifeboat you didn’t even know you had!

Here’s the scoop, without the snooze-fest: Instead of sending your hard-earned cash to Mr. Banker every month, the bank sends YOU a check! It’s like they’re saying, “Thanks for being a homeowner; here’s some cash for your troubles!”

Let’s get down to brass tacks with a hilarious example: Meet Aunt Edna. She’s 75, loves her cozy cottage, and is always up for bingo night. But Edna’s wallet is flatter than a pancake, and she’s thinking, “How can I afford more bingo and maybe a fancy hat collection?”

Enter the reverse mortgage! Edna turns her humble abode into a cash cow. The bank coughs up some dough, and she can keep living in her cottage, rent-free, until the cows come home. The best part? Aunt Edna doesn’t have to pay back a dime until she’s sipping her morning coffee in the great bingo hall in the sky.

But before you start dreaming of all the fancy hats you could buy, remember to chat with a mortgage wizard to understand the ins and outs. Reverse mortgages have some twists and turns you need to know about! So there you have it, folks! Reverse mortgages can be your golden ticket to financial freedom in your golden years. Just remember, with great mortgage power comes great mortgage responsibility! #ReverseMortgageWins #CashForLife

Omitted specifics

First, the obvious: Yikes. Among other things, it’s a very rare occasion that one would address older clients as “peeps.” That writing style is more in line with a teenager trapped in high school in 1995 than a professional mortgage originator’s writing style.

That said, there are benefits to AI. If you have writer’s block when putting together a social media post on reverse mortgages, this might be a way to break it. The technology also wrote the post in about 10 seconds. Reportedly, it does learn a user’s writing style as more examples are put in. In the example above, it might not have had enough previous content to match the requested writing style.

There are pitfalls to AI content too. How was it generated? Is it unique content or does it plagiarize a post from elsewhere? If it’s original, who owns the content? A mortgage originator is potentially on the hook from the Consumer Financial Protection Bureau (CFPB) for advertising unsubstantiated content.

It is also incorrect in stating that “Aunt Edna doesn’t have to pay back a dime until she’s sipping her morning coffee in the great bingo hall in the sky.” With a reverse mortgage, if Aunt Edna dies and her spouse is still living, in an eligible circumstance, they get to continue living in the home as their primary residence. The post also doesn’t speak to the fact that Aunt Edna isn’t allowed to convert the home into an investment property. In most situations, if she moves out, the loan becomes due.

What about using AI to produce a shorter post on X, formerly Twitter, to help drum up reverse mortgage interest? The simple prompt of asking ChatGPT to write a Twitter post on reverse mortgages produced this result:

Considering a #ReverseMortgage? It’s like tapping into the hidden treasure chest of your home equity! But remember, with great power comes great responsibility. Before you dive in, consult a financial advisor (sic) and weigh the pros & cons. Your home, your future! #Retirement

Falls a little flat, doesn’t it? How many likes or shares will that post get? Likely, the inside of a doughnut.

Regulatory caution

What about lead generation? AI companies boast about the ability of these tools to help mortgage originators find leads. Below is what ChatGPT says when prompted, “Write about using AI to bring in new mortgage leads and how to communicate with clients.”

The AI Wand: Turning Data into Leads. Imagine AI as the magician’s wand, waving over a sea of data, and voila — out pops a list of potential clients. AI has the incredible power to sift through massive amounts of information faster than a blink of an eye. It identifies prospects who are actively looking for mortgages, like a hawk spotting its prey from miles away.

The Rabbit Hole: Where AI Finds Your Leads. But where does AI find these leads, you ask? Well, it’s a bit like a scavenger hunt. AI scours social media platforms, real estate websites, and even good old Google to discover people who have shown interest in buying a home. It’s like finding Easter eggs — except instead of candy, you get valuable leads.

AI vs. Manual Search: The Tortoise and the Hare. Now, let’s talk speed. Imagine manually searching for leads as being the slow and steady tortoise, while AI is the speedy hare. The tortoise may eventually find a few leads, but AI has already raced ahead and gathered a bouquet of them. AI saves you time, and as we all know, time is money in the mortgage game.

That all sounds well and good. But if you use AI to bring in leads, are you sure that you aren’t taking an action that potentially discriminates against some clients based on their race, religion, sex or other characteristics?

Meta (formerly Facebook) already landed in trouble with the Federal Housing Administration over discrimination with its targeted advertising system that uses AI. And CFPB Director Rohit Chopra has warned that more regulation is called for with AI-based lending decisions.

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Bottom line, artificial intelligence can be and will be a timesaver for originators and many other mortgage professionals. Originators can rely on AI to create content, but the person using the content is responsible for what’s published. Be brave, but be careful. ●

The post ‘Hey, Peeps’ Isn’t the Best Conversation Starter appeared first on Scotsman Guide.

In Episode 021 of the Scotsman Guide Author Showcase, Carl White interviews Brian Decker of Modern Lending about his article, “Take the Jolt Out of Power Bills,” in the November 2023 issue of Scotsman Guide Residential Edition.

Brian Decker is CEO of Modern Lending, a mortgage bank operating in 15 states with locations in California, Tennessee and Arizona. In 2022, Decker stepped into a full-time role as CEO of Modern Lending. That same year, he also founded Soar Energy with HGTV stars Tarek and Heather El Moussa, as well as United Wholesale Lending CEO Shelby Elias.

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In Episode 019 of the Scotsman Guide Author Showcase, Carl White interviews Ryan Walsh of Hard Money Bankers about his article, “Find Ways to Adapt” in the October 2023 issue of Scotsman Guide Commercial Edition.

Ryan Walsh is a managing partner at the Greater New York City-based Hard Money Bankers and is an entrepreneur of multiple successful companies. He originally used private money to expand his own enterprise, then realized the importance of private money for growing businesses more quickly and easily.

The post Author Showcase: Ryan Walsh, Hard Money Bankers appeared first on Scotsman Guide.

Private energy-efficient mortgages, as well as Fannie Mae’s HomeStyle Energy and Freddie Mac’s GreenChoice mortgages, are reshaping this landscape. These options will revolutionize how buyers purchase their dream homes while also fulfilling their aspirations for eco-friendly living.

Mortgage originators will want to understand these options and relay these choices to clients, especially younger borrowers who may be prioritizing a reduction in their carbon footprint. To illustrate the transformative power of these programs, let’s delve into a real-life example.

Modern expectations

Across the U.S., prospective homebuyers often face a critical dilemma: the challenge of finding an available home within their budget that aligns with their modern expectations. A significant portion of the nation’s owner-occupied housing stock (about 75%) is at least 20 years old, while a startling 35% was built more than 50 years ago, according to census data.

Millennial homebuyers, the age group that’s consistently influencing the market’s direction, are increasingly seeking modern amenities and energy-efficient features. Yet after putting down a substantial downpayment, they are left financially strained and unable to undertake necessary upgrades.

One of the options in the past has been a form of financing called Property Assessed Clean Energy (PACE). These loans allow property owners to make upgrades — including solar panels, lighting systems and water-saving tools — that are repaid over time through assessments that are in addition to property tax bills.

There are disadvantages to PACE financing. For one, the owner may experience difficulty selling the property in the future since the debt is tied to the property rather than the borrower. Second, lenders may be reluctant to accept these homes as collateral since their claims may be subordinated to the unpaid assessment should the property go into foreclosure. Third, residential PACE programs are currently available in only three states (California, Florida and Missouri).

Fannie and Freddie have developed their own energy-efficient mortgages, the HomeStyle Energy and GreenChoice loans. Another option is a private energy-efficient mortgage that allows a homeowner to allocate up to 15% of the purchase price to eco-friendly improvements. These enhancements can encompass a spectrum of upgrades, ranging from energy-efficient appliances and solar systems to advanced heating and cooling solutions and eco-conscious landscapes.

Tangible example

To grasp the impact of a private energy- efficient mortgage product, consider the following example. Let’s assume a homebuyer purchases a $600,000 home with a 5% downpayment. They might spend $10,000 on a credit card for new appliances in the first year. Additionally, they anticipate an electric bill of roughly $350 per month.

In this scenario, their overall financial picture would include $4,700 a month for principal, interest, taxes, homeowners insurance and mortgage insurance. The credit card payment for the appliances (at a 23% interest rate) would add $300 a month. Including the $350 electric bill, this equates to a total monthly bill of $5,350. But by utilizing a private energy-efficient mortgage product, the expenses could be dramatically altered.

If the homeowner opts for an energy-efficient mortgage to install solar panels and new appliances, the monthly bill could total $4,950 for principal, interest, taxes and insurance. That’s an additional $250 per month compared to the previous example. But the homeowner would eliminate $300 a month in credit card debt while the improvements could reduce their power bill to as little as $40 a month.

Under this scenario, the combined monthly commitment would total $4,990. With a small increase in their monthly mortgage payment, the homeowner reaps substantial benefits. In this example, the energy-efficient mortgage product offers potential savings of up to $360 each month.

Path forward

This new approach is arriving in a housing market that needs new tools. It showcases how a relatively modest increase in the monthly mortgage payment can lead to substantial savings in other areas. The incorporation of energy-efficient upgrades not only improves the environmental impact of the home but also has a direct positive effect on the homeowner’s financial picture.

Electric bills are expected to rise by an average of 10% this year and possibly another 10% next year. The eco-conscious approach offers a beacon of hope for many. It illuminates a path toward sustainable homeownership while simultaneously freeing homeowners from the burdens of mounting credit card debt and escalating utility costs.

This new sustainability-driven approach is more than a financial instrument — it’s an embodiment of progress. By merging affordability, sustainability and practicality, this innovative solution exemplifies how visionary thinking and adaptability can drive transformation in real estate finance.

Energy-efficient mortgage products of all kinds transcend traditional boundaries in the real estate sector. They offer not only a tangible way to upgrade homes but also a means for creating a more sustainable future — one that is within reach for homeowners from all walks of life. ●

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A report from Black Knight showed that in June 2023, homeowners with a mortgage had $10.5 trillion in tappable home equity, or the amount of equity a homeowner can access while still retaining a 20% share. This number has grown significantly since February 2020, at the start of the COVID-19 pandemic, when U.S. homeowners had roughly $6 trillion in tappable equity.

“Collaborating with companies that specialize in home equity investments could open up new avenues for diversified financial services.”

In recent years, a new home equity product has emerged that helps homeowners who might not otherwise qualify for traditional financing options. It’s called a home equity investment (HEI). This type of alternative financing helps homeowners access cash without monthly payments.

Future value

A home equity investment provides homeowners with a lump sum of cash in exchange for a share of their home’s future value. Homeowners can access their home equity without selling their property or adding to their monthly payments. Some HEIs also don’t have the restrictive qualification standards of traditional loans, such as minimum credit scores or monthly income requirements.

For example, about 1.5 million home equity lines of credit (HELOCs) are originated annually, but most lenders require a FICO score of at least 620. Comparatively speaking, few companies offer the nontraditional HEI product and partner with homeowners throughout the term of the investment. It’s a partnership that benefits both the homeowner and the investor: The more the home value goes up, the more each of them benefits.

In addition, home equity investments aren’t installment loans that require a monthly payment. They don’t affect a homeowner’s current mortgage. This means that a homeowner can keep their existing mortgage and not worry about selling their home or refinancing right away.

There are a few requirements for homeowners to meet, which vary across HEI providers, but these typically include a minimum amount of equity in the home and limits on the type of property serving as collateral. Homeowners can use the funds to better their lives in many ways — such as paying off debt, saving for retirement or renovating their home.

Homeowners have recently turned to home equity investments because of their significant levels of equity, rising interest rates and existing 2% to 4% low-rate mortgages. In addition, the lack of homes for sale makes current homeowners less inclined to sell, leading to a well-known phenomenon known as the lock-in effect.

Lock-in effect

The lock-in effect is a trend in which homeowners feel stuck in their existing properties. This effect is being driven by a combination of factors: borrowers with historically low-rate mortgages, the rapid increase in interest rates over the past two years and the lack of available inventory to choose from. According to the National Association of Realtors, existing home sales in July 2023 were 17% lower compared to the same period last year.

Rising mortgage rates have certainly caused homeowners to feel locked into their homes and existing low-rate loans. The Fed has raised benchmark rates at the fastest pace in history — 11 times since March 2022. For many homeowners, it doesn’t make financial sense to give up their favorable rate for a higher one.

Even if homeowners might normally move for new jobs, growing families or location preferences, they’re frequently choosing to stay put. Not only is the rapid increase in interest rates fueling these decisions, but the lack of inventory has driven up home prices. If a homeowner does move, not only is their mortgage rate likely to go up but so is the cost of their new home.

Significant advantages

First and foremost, home equity investments provide homeowners with a way to access valuable cash. Their equity, which accumulates over time as they make mortgage payments and property values increase, can be accessed through an HEI without the burden of monthly payments, which sets this option apart from a traditional loan.

Many home equity investment companies take a more flexible approach to credit scores. While they are often required (since the HEI is a risk-based product), some providers don’t have a minimum credit score. This means that homeowners who might not otherwise qualify for a HELOC, home equity loan or cash-out refinance may be eligible for an HEI. Many homeowners use their cash to pay off high-interest debt and repair their credit scores.

Oftentimes, income statements are not required to prequalify for a home equity investment since it is not an installment loan. This makes it a great option for homeowners who may be in between jobs, self-employed or retired.

Additionally, home equity investments typically have no restrictions on how the funds can be used, offering homeowners the freedom to allocate proceeds accordingly. Whether it’s for home improvements, debt payoffs, educational expenses or any other financial goals, the choice is entirely theirs.

Leveraging the equity that homeowners currently have, in exchange for a lump sum of cash, will reduce the amount of equity they’ll have in their homes. And because the borrower is sharing a portion of their home’s future value with an investor, this reduces the amount of equity they’ll collect in the long run.

Finally, HEIs often allow homeowners to repurchase their equity at any point within a specified time frame, which can extend up to 30 years. This feature adds an extra layer of flexibility and control, allowing homeowners to tailor their financial strategy to their changing circumstances.

Partnership opportunities

U.S. home equity is at the highest point it’s ever been, but accessing this wealth is still not easy for many homeowners. Traditional home equity products (including HELOCs, reverse mortgages and cash-out refinances) are not always accessible to homeowners due to stringent qualification criteria.

For homeowners who might not otherwise qualify for a traditional financial product and need to access their home equity, originators should determine whether the homeowner is eligible for a home equity investment. Adding this option to their offerings also presents an opportunity for originators to assist a wider range of clients.

Collaborating with companies that specialize in home equity investments could open up new avenues for diversified financial services. As the demand for alternative home financing continues to grow, mortgage originators may be able to partner with these companies to offer more tailored solutions to homeowners while adapting to the ever-changing financial markets. ●

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Smart mortgage marketers are not taking the current interest rate environment lying down. As mortgage rates climb to 7% and higher, these professionals are on the offensive and vying to capture as much of the home purchase market as possible.

“Even the largest and most sophisticated marketers engage partners to help deliver all or part of these tasks.”

The industry’s gold standard for purchase mortgage marketing ― using credit-based inquiry triggers to target consumers who are already shopping ― continues to deliver results. But in today’s hypercompetitive mortgage environment, is it enough to only target borrowers after they’ve applied for a loan?

Critical behaviors

Sophisticated mortgage marketers are always looking for innovative ideas. Today, many enhance their traditional credit-inquiry-based marketing programs with “pre-mover triggers.”

These triggers flag prospects in the early stages of the borrower journey, tracking indicators that demonstrate a consumer is likely to soon be in the market for a new home. This category of triggers includes observed actions such as new home listings, apartment sublet listings and pre-listing inspections, as well as intent-type signals like online home searches and e-commerce activities.

The homebuying journey doesn’t begin with the loan application. It starts at the aspiration phase ― where consumers start thinking about their next home. When their baby starts moving around, new parents realize they need more space than their current apartment has. A retired couple thinks about downsizing now that their kids are out of the house. A young professional moving up the corporate ladder starts thinking about their starter home.

These triggers can dramatically alter the mortgage marketing playing field. By identifying future borrowers before competitors even know they exist, savvy lenders and originators can jump the line and reach these prospects first, sometimes weeks or even months before others.

This early-stage access grants mortgage originators entry at a pivotal juncture. It affords them the advantage of building credibility and preference while walking alongside prospects at the start of their journey — and generally in advance of any prequalification or preapproval activity. When a consumer is ready to bid on a house, they already have your brand in mind.

Data quality

The value of any marketing campaign to reach these prospects is only as good as the data behind it. And mortgage marketers who rely on a single source for data will not have access to all the high-quality leads available in their areas of business.

To get a complete picture of all critical trigger behaviors that suggest a prospect may soon be moving and in the market for a loan, marketers need access to an extensively multisourced database. A robust data solution can offer a 360-degree view of the market. It requires aggregated feeds from dozens of specialty providers on a massive scale — tracking signals, identifying patterns and filtering out noise.

Synthesizing consumer names with individual characteristics and behaviors boosts accuracy and offers a high-definition view of the entire prospect pool. It also directly impacts the return on investment for any campaign. In fact, lenders that utilize data from multiple complementary sources can increase the universe of potential borrowers up to seven times.

Of course, just as data quality and rigor matter, time is of the essence too. Audience responsiveness drops each week after a trigger event. This used to be the “big rock” for many marketers, since they knew that by the time they received the trigger, the prospect would have already moved and the transactional window would be closed. But this is an exciting new era.

New cloud-based technologies are making it possible to gather billions of actionable insights across hundreds of distinct data feeds and activate them in near real time. The marketing implications of this kind of speed are significant. For example, potential borrowers can be engaged across multiple coordinated marketing channels within days of exhibiting their first pre-mover behaviors. Again, this allows mortgage marketers to get their foot in the door with consumers as soon as possible.

Predictive insights

If someone is researching 30-year fixed mortgage rates in your market, or checking online listings every day for houses priced below $450,000, you have some knowledge that they may be poised to move in the not-too-distant future. But do they have capacity to spend? And, if given the option, would they choose you or another lender?

Some marketers are pushing the boundaries of technology and the pre-mover marketing strategy even further. They’re gathering predictive insights into household financial health, investable assets and provider selection preferences, then stitching them together with pre-mover trigger data to build highly personalized and highly effective audience profiles. With this data in hand, they are serving up relevant and timely marketing messages across multiple types of buyer personalities and affluence segments.

If you find that the data, technology and activation processes seem too much, you’re not alone. Even the largest and most sophisticated marketers engage partners to help deliver all or part of these tasks.

Lenders often find it faster and more economical to utilize providers that have already made the required investments in data-sourcing and marketing-activation technology. The right approach can accelerate success by strategically integrating partner data, reporting attribution, and campaign production and deployment capabilities with your company’s unique talents and value-proposition elements.

With the refinance market likely challenged for years to come, few lenders are finding they can afford to wait to advance their purchase loan marketing programs. With more rate hikes potentially on the way, data- and technology-powered marketing programs are among the most efficient levers to keep a mortgage company’s pipeline full of new opportunities. And they also offer a sizable advantage that will leave competitors wondering where all their new business went. ●

The post It’s Too Late if They’ve Started Shopping appeared first on Scotsman Guide.