Originators have likely seen an increase in borrowers seeking long-term financing due to increased demand for single-family rental homes. Fix-and-flip investor activity, which relies upon short-term loans, also has been steadily improving despite market challenges.

“On the post-flip side of the equation, originators who are dialed in with investor clients also have a great opportunity to place buyers in homes that have been renovated.”

The fix-and-flip market presents a unique opportunity for originators who have yet to consider loan programs that cater to this space. For the mortgage brokers who aren’t already convinced of the strength of the home renovation market, recent trends in this sector reveal real opportunities and ways to capitalize.

After interest rates plummeted in 2020 due to the COVID-19 pandemic, flip activity skyrocketed in 2021 and 2022. Investors seized the opportunity to revamp older homes and benefit from the high demand in the housing market. According to Attom, flips accounted for 5.9% of all single-family home sales in 2021 and 8.4% of sales in 2022. But in spite of these transactions reaching a 17-year high point in 2022, investors faced notable challenges in terms of profitability.

Exercising caution

Last year, investors in the fix-and-flip space saw their gross profit margin plummet to an average of 26.9%, the lowest level since 2008, according to Attom. The data analytics company also reported that flipped homes in 2022 generated a typical gross profit of $67,900, but the margins tightened toward the end of the year.

The decline in profits forced investors to exercise caution when selecting properties for renovation. A few missteps in budgeting for a rehab project, or holding onto the property for too long before reselling, can have dire consequences and potentially lead to financial losses.

The root cause of the recent drop in profit margins was the slower increase in the median value of the homes being flipped compared to the median price that investors paid to acquire these properties. In light of the shrinking margins, there were questions as to whether investors would continue to flip homes or take a step back and wait for housing market conditions to improve. But data from first-quarter 2023 showed that fix-and-flippers were not scared away by market challenges.

Despite the profitability issues of 2022, more recent data found that conditions are improving. Attom reported that 72,960 single-family homes and condominiums in the U.S. were flipped in Q1 2023, representing 9% of all sales. This figure might seem like a small sliver of the home sales pie, but the level of activity was the second highest for any quarter since 2000, trailing only the 9.4% share recorded in Q1 2022.

Investors have also seen improvements in profit margins in 2023 after facing nearly three years of continuous declines. From January through March, the nationwide gross profit for a home flip increased to an average of $56,000, or a 22.5% return on investment (ROI) compared to the initial acquisition price. The ROI figure represented an increase of 80 basis points from fourth-quarter 2022, although it was still below the 26.9% average for all of last year.

Areas of opportunity

Home flippers can attribute the modestly higher profits to rising median resale prices, which gained momentum at the start of this year. Other areas of the housing market continue to face challenges, such as wavering values. As of this past June, U.S. home values were up slightly year over year, but they were down from year-ago levels in more than half of the country’s 50 largest metro areas. The increase in ROI for home flips bodes well for the sector.

Commercial mortgage brokers may be wondering how to take advantage of activity in the fix-and-flip market. First and foremost, originators should begin offering loan programs that appeal to these investors. While flippers often utilize cash to purchase properties, Attom reported that nearly 34% of homes flipped in Q1 2023 were initially bought with financing.

Originators should look to offer short-term loans that fund both the acquisition of the property and any renovations, which will appeal to the portion of the fix-and-flip market that utilizes financing. Also, speed is key in these cases. For originators seeking to gain investor market share, fast closings will make all the difference as these borrowers must move quickly due to the current state of the real estate market.

When trying to find this type of client, it is important for originators to know where to look across the country, since short-term investors are more prevalent in certain areas. This could mean expanding the geographic areas they typically work within, but it could also pay dividends if this is the client type they’re looking to capture.

Home flip rates in most parts of the nation are trending up. In 128 of 172 (74%) of the major metro areas analyzed by Attom, home flips as a portion of all sales saw an increase from Q4 2022 to Q1 2023. And while many metros saw quarterly increases of 2% or less, there were many others that posted substantial gains. Some of the top metros for originators to keep an eye on include Macon, Georgia, where flips accounted for 16.8% of all home sales in Q1 2023. Atlanta (15.3%), Jacksonville (15.2%) and Memphis (14.4%) also led the way for high shares of home flip activity.

Post-flip sales

On the post-flip side of the equation, originators who are dialed in with investor clients also have a great opportunity to place buyers in homes that have been renovated. Of the 72,960 U.S. homes flipped in first-quarter 2023, 11% were sold to buyers who used loans backed by the Federal Housing Administration (FHA).

This marked the third straight quarterly gain for flips sold to FHA buyers. Among the metro areas with at least 200,000 residents and at least 50 home flips in Q1 2023, the highest shares of flips sold to FHA buyers were in the California cities of Modesto, Bakersfield, Visalia and Stockton, as well as Lakeland, Florida.

Flipped properties are appealing to first-time homebuyers, many of whom utilize FHA financing due to the low downpayment requirements. Plus, these homes have been updated with modern finishes and are in move-in-ready condition. FHA loan programs are typically in the wheelhouse of residential mortgage originators, so those who expand their clientele to include investors will not only benefit with more business on the front end, but it often results in funding the resale of the property to an owner occupant.

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Despite fix-and-flip investment challenges in today’s real estate market, things are continuing to trend in a positive direction, creating tremendous opportunities for commercial mortgage originators who want to increase their production. Brokers should be aware of the cities and states that provide the best returns for flippers if they’re looking to expand loan offerings to meet the needs of this niche market.

It’s important to keep in mind that profits for fix-and-flippers are still limited despite the positive market improvements early in 2023. Still, originators who take on these types of clients can see increased business by providing financing for the actual flips and for the sale to an end buyer. Many of these homes are being snapped up by people looking for a primary residence in a low-inventory environment. It will be interesting to see how trends play out for the remainder of 2023, but market factors continue to look promising. ●

The post A Promising View appeared first on Scotsman Guide.

Poorly constructed ads, however, can be ineffective. In some cases, they can convey the wrong message or damage your company’s reputation. Whether you are appealing to clients directly or speaking business to business, some common principles can be applied in the creation of good advertising.

When it comes to advertising in the mortgage industry, it often can be challenging to develop a captivating ad. Unlike other types of consumer goods, companies that are trying to promote loan programs, mortgage services or software often don’t have exciting imagery to rely upon when advertising their products.

Let’s face it — mortgages aren’t exactly a sexy product. Also, depending on which part of the industry your company falls within, your ad must include legal disclaimers, licensing information and a plethora of other verbiage to ensure your ad complies with industry regulations. So, with all of that in mind, how can you develop a good print or digital advertisement that people will notice?

Audience consideration

It should go without saying that you should be thinking about your audience when developing any advertisement. Unfortunately, ads often run in our industry in which the advertiser clearly thought they had a clever idea but developed a campaign with no real consideration for their potential clients or business partners.

Just because you think something is catchy or witty does not mean it will resonate with your customers. When creating an appealing ad, it’s important to take your blinders off and try to view it from the perspective of your target audience, whether that be commercial mortgage brokers or direct lenders appealing to investors.

Think about which concepts, including imagery and verbiage, would best capture the attention of your future customers. For example, if your company provides mortgages for investors in single-family rental homes, consider graphics and language that capture the experience of making a loan for an investment property smooth and seamless.

A good ad tells the viewer a story that they can relate to, thus enticing them to use your products or services. Different areas of the mortgage industry may require drastically different stories. There is no one-size-fits-all template to create the perfect ad, so knowing your audience is critical.

You need to consider all members of your prospective audience. Although it may seem like an easy play to create a gimmicky ad that appeals to a portion of your potential customers, steer clear of any concepts that would potentially alienate a segment of your target audience.

For example, some companies have tried to lean into the fact that the mortgage industry is predominantly male, and have published borderline or blatantly sexist ads to capture people’s attention. While these types of ads will get eyes on them, mainly because of their shock value, it does not mean they will generate business. The same problem arises from ads that use cultural or ethnic stereotypes to attract attention.

More often than not, these types of ads are more damaging than they are helpful for a company’s reputation and can have long-lasting, negative effects. If there is any concern that a concept may be questionable, scrap it.

Solid structure

Creating a good ad takes much more finesse than simply slapping some words on an image and hoping for the best. While good design is another topic in itself, all good ads tend to have the same components, regardless of how they are arranged on the page. When developing an ad, you should think about the following pieces: a headline or title, supporting copy and a call to action.

The one question you should ask when developing a headline for an advertisement is, does it address a common problem, concern or need that a potential customer may have? This is particularly important because a viewer often will only skim the headline or title of your ad before deciding whether it’s worth their time to read the additional content on the page.

Also, in the case of small banner ads and digital advertising with limited space, a headline may be the only prominent text you are able to include. You want your ad headline to capture a potential customer’s attention and make them realize they have a need for whatever you’re selling.

From there, develop your supporting copy. This content is meant to address how your product or service will fill the customer’s need and make their life easier. Focus on what differentiates your product or service from your competitors. This is the part of the ad where you get to highlight all of your product’s major selling points. You can craft as much or as little supporting copy as you need. There is no “right amount” as long as it gets your points across.

Call to action

Don’t forget to include a compelling call to action. Think of it this way: In a perfect scenario, what do you want someone to do after they have seen your ad? 

The goal may be to get a potential customer to email your company for more information. It may be for them to make a call to connect with a dedicated representative or schedule a product demo. It could even be something as simple as visiting your website to learn more details. A call to action does not have to be a hard sell for your product or service, especially when your company is using other marketing channels to drive business. It is important to remember that this ad is only one piece of the puzzle.

Whatever you want potential customers to do, it should be abundantly clear what the next step is to engage with your company. You cannot assume that a borrower or business partner will figure out the next step on their own.

Without an apparent call to action, you are almost guaranteed to lose the customer. This is especially important for digital advertising. Even if you assume that the next logical next step would be to click on the ad and further explore your website, you should always include the specific link and call to action, such as “click here to learn more.” If you don’t entice the viewer to take this step, you could lose out on what might be an easy sell.

One of the biggest mistakes that advertisers make when running a new ad is failing to make sure the content fits within the broader scheme of their company’s brand.

Brand awareness

One of the biggest mistakes that advertisers make when running a new ad is failing to make sure the content fits within the broader scheme of their company’s brand. Especially in the commercial mortgage industry, so many companies take generic images of buildings, put their logo on it and think this will suffice.

While including your logo certainly helps, these types of ads are just like the images used to create them — generic. These types of ads tend to blend together, making it difficult for the viewer to remember a specific company.

When developing a new ad — or any branded marketing materials, for that matter — it is crucial that the content also reflects your brand identity. A good ad should convey the general aesthetic that your company has developed to improve brand recall. Try to incorporate related imagery and brand colors that are cohesive with other marketing pieces your company uses. Even if a viewer only quickly glances at your ad, they will recognize and remember your company. That is the goal.

Keep in mind that your ad copy should match your brand voice. Consider tone, formality and the use of certain language as you craft ad content. Just as people have certain mannerisms and ways of speaking, so does your brand. You should have a unified brand voice that appears not only in your print and digital ads but throughout all company content regardless of the marketing channel.

● ● ●

Creating a good ad is by no means easy, but thankfully there is a method to the madness. While it may seem like a lot of work to create something that may only take up a single page, taking the time to learn how to develop more impactful advertising is something that will ultimately repay the investment many times over. ●

The post Advertise Wisely appeared first on Scotsman Guide.

Key Points

Market your company in changing times

• Your ability to pivot quickly is the difference between surviving or shuttering.
• Use this time to do outreach and communicate with past and prospective clients.
• Attend virtual conferences, events and webinars.
• Analyze what portions of your marketing plan can be salvaged and what needs to be scrapped.
• Provide customers with industry insights and content through virtual trainings and industry publications.
• Consider taking steps to partially or fully rebrand your company.

Prior to the coronavirus outbreak, there was a concise formula for developing a strong marketing strategy in the commercial mortgage world. In these unusual times, however, a marketing plan that was constructed for the start of 2020 is probably no longer applicable nor sufficient. 

On top of having to adapt to a new and constantly changing reality, commercial mortgage lenders and brokers now find themselves with far fewer lending options for their clients. Your ability to pivot quickly is the difference between surviving or shuttering. So, how do you not only keep your head above water but thrive during these uncertain times? 

With all of the doom and gloom in the news, it can be easy to feel overwhelmed. Every commercial mortgage company, however, should base their marketing efforts on their core values, principles and the mission statement on which the company was founded. This is the time to go back to your roots and start developing a new plan of action based on the groundwork you have already laid for your business. 

Take a look at your existing marketing plan and figure out what portions of it can be salvaged and what needs to be scrapped entirely. Taking an inventory of what you planned for the year is key to setting yourself up for future success. If there are marketing campaigns that will no longer work in the current environment, use this time to do outreach. Try to postpone or cancel these campaigns, and attempt to recoup any expenses so that they can be applied to other marketing efforts.

If you were planning on sponsoring or attending events, make sure you know when the new dates will be, as well as what the updated cancellation policy is, in case you have scheduling conflicts in the second half of the year. Take a deep breath and take this time to prepare for when things get back to some semblance of normal. 

Reaching out 

Many commercial mortgage lenders and brokers were immediately faced with a new reality when the coronavirus hit this past March, causing liquidity to dry up. They could no longer lend in the same manner. On top of trying to shore up their businesses for the foreseeable future, there also was the challenge of figuring out what to tell clients. As any seasoned marketing professional knows, however, communication is key in times of crisis. 

Be as transparent as possible with your clients. During a challenging time like this one, borrowers are looking for as much information as you can give them. It’s imperative to communicate openly and often. If you have several different types of customers, make sure you tailor your messaging and delivery methods in a way that is best suited for the audience. 

For example, you may choose to schedule one-on-one phone calls to discuss the current environment with all of your top clients so that you can easily address any concerns. For customers that haven’t done business with you in a few months, it may be more appropriate to send a well-crafted email that clearly provides a point of contact should they have any questions. 

Whether you are still operating full speed ahead or your company has hit hard times due to the crisis, you owe it to your customers to update them regularly as the situation changes. Even during normal business times, it is a good idea to provide customers with industry and market outlooks as a way to stay in front of your clients and provide them with better insights. 

Embracing change 

Although customer outreach in times of crisis is rarely easy, you shouldn’t dance around harsh truths. If you take the time to communicate immediately and often with your customers, you will find a much brighter outlook for your business when the recovery begins. 

Once you’ve assessed your previous marketing strategies and you’ve communicated your company’s new reality to clients, where do you go from there? If your company is still operating and able to do business, it’s time to embrace new marketing trends and the technology that comes with them. It is important to try a digital alternative to the many face-to-face meetings or events you previously had planned. 

Video conferences and webinars will be the new normal for the foreseeable future. Take the time to invest in a video-conference platform, such as Microsoft Teams, Zoom or GoToWebinar/GoToMeeting. Plan out a timeline of virtual events and meetings to do customer outreach and facilitate business. Concurrently, prepare updated marketing materials that clearly outline any changes in products and services. Make them easy to share on these digital platforms or via email.

Finally, do your research on what virtual conferences, events and webinars are occurring in the industry. Tap into your contacts to see if existing partners have any opportunities that may be a good fit for your business. Get on board with them early to maximize your company’s visibility in promotional efforts. Although it may take some adjustment, the world has not stopped because of the pandemic. It is imperative, however, to adapt to the current marketing landscape. 

Switching gears

For mortgage companies that have had to put things on pause, or those that are adjusting their product and service offerings due to COVID-19, you may think there are no real opportunities to market yourself right now. Regardless, it’s important to maintain visibility with your customers. So, how do you achieve that when you have nothing to sell? 

You should take this time to prepare your business for future success. First and foremost, develop a strategy that frames your company as an industry leader. Provide your customers with industry insights and valuable content through virtual trainings, webinars, newsletters and regular contribution of articles to industry publications. This allows you to promote your company’s name and brand without overt advertisements. The best part is that many of these marketing efforts will have minimal or no costs associated with them. Creating content usually only requires your time and commitment to whatever schedule you develop.  

During this time, you also may want to consider taking steps to partially or fully rebrand your company, depending on what products and services you anticipate offering once you are back up and running. If what you will be offering will be drastically different, now is the perfect time to rebrand your company. Develop a new brand image and materials that will better suit your new ventures. Upon reentering the market, it will be clear that your company has undergone a major change and customers won’t associate you with previous product offerings. 

For companies that plan to retain similar products or services once the recovery begins, this is a good opportunity to develop new customer-facing materials for every aspect of your business. This will allow you to maintain the strength and integrity your brand previously had while emphasizing your new offerings and showing you are moving forward. Even if you don’t currently have a product to market, there is no shortage of things to do to prepare yourself for future success. 

Marketing trends will continue to evolve and change even after COVID-19 is a distant memory. It is in every business owner’s best interest to stay ahead of these trends. Don’t wait until the next pandemic or crisis to change your marketing strategy. Regularly assess these plans and be prepared to make changes as your goals, objectives and the marketplace dictate. Commercial mortgage companies that are able to recognize new trends and adapt will not only survive but thrive in both good times and bad. •

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Most mortgage brokers know it is essential to focus on building rapport with their clients and complementary industry partners. Some brokers are so focused on these aspects of their business that they often overlook a crucial piece of the puzzle — their lenders.

The most successful brokers are the individuals who are masters of catering to both their clients and their lenders. Many brokers may view lenders simply as a means to an end when it comes to getting funding for their clients, but brokers who take the time to establish strong relationships with their funding partners are the ones who will have a true advantage over their competition. Why? Because lenders will often go above and beyond for their best brokers, meaning their clients also reap the benefits.

Strategic partnerships

Why would lenders actively try to develop relationships with independent mortgage brokers when they could go to the client directly? Because thriving lenders recognize that mortgage brokers play a critical role in the lending world.

Simply put, lenders don’t just want to work with brokers, they need to work with brokers, because not having access to that deal flow could cripple their business. Once brokers understand that lenders need them just as much as brokers need lenders for their clients, it’s just a matter of developing strategic partnerships with the right lenders in order to take their business to the next level.

So, what are the initial steps an independent mortgage broker should take when trying to find their lending partners? First and foremost, brokers should be looking for multiple lenders that will allow them to diversify their product offerings.

Lenders can help brokers expand their business beyond traditional residential loan products. These offerings may include unique programs such as nonqualified mortgages (non-QM) — loans that don’t meet the standards to be securitized by Fannie Mae and Freddie Mac — and commercial loan products for investors. This will allow brokers to effectively become a one-stop shop for all of their clients, giving them a solution for any lending needs.

Also, there are tremendous opportunities emerging in both the non-QM and commercial lending spaces. Brokers that tap into these opportunities will have flourishing businesses and, most importantly, will be able to capitalize on deals they may have once turned away because they now have a home for these scenarios.

Appropriate fit

Once a broker has identified the loan products they want to offer, it’s time to develop relationships with reputable lenders that offer these programs. It’s important to keep in mind that while you may be vetting a lender to see if they are an appropriate fit, the lender also is most likely vetting you as an independent mortgage professional.

Lenders are usually looking for basic things from their broker partners to see if the relationship will be mutually beneficial. Lenders like to work with brokers whom they can trust to be an extension of their company. To keep the development of the lender relationship moving along, it’s important to focus on three crucial things.

First, learn the lender’s products and basic loan criteria. Learning these aspects of the lender’s business is crucial. You need to have a clear understanding of what a lender can and can’t do so that you know exactly what you can offer your clients.

Second, figure out what key information a lender is looking for upfront. This will allow you to collect the critical pieces of information from your client so that you can effectively communicate the details of their scenario to the lender. Ultimately, this will speed up the loan process.

Finally, respond quickly to time-sensitive requests to move the deal forward. Just as you expect lenders to respond quickly when time is of the essence, lenders ask the same in return. Once you have these basics down, it becomes a matter of maintaining the relationship, which is just as simple.

Clear communication

Just like any good relationship, maintaining strong lender ties boils down to good communication and transparency. Familiarize yourself with all aspects of your client’s deal before bringing them to your lender. You should be able to effectively provide the details of a scenario when you have that initial conversation with your lender. This will allow the lender to make a quick decision and provide you with accurate terms that you can relay to your client.

Most importantly, don’t try to hide any potential problems with your client’s deal from the lender. Revealing potential concerns early on will give the lender time to figure out solutions. Hiding issues will only prolong the origination process or kill the deal entirely, resulting in an outcome where no one wins. When it comes down to it, lenders are not asking for much, especially considering the benefits they can offer in return.

Plain and simple, strong lender relationships result in great client benefits. Because lenders rely on independent mortgage brokers, they will often work harder to make sure their best brokers and, in turn, their brokers’ clients are happy. Lenders can often give greater flexibility, faster decisions, faster turn times, more accurate pricing and even deal referrals to their best broker partners, which make for a better client experience.

When clients are happy, they are going to be more likely to come back to you time and time again with recurring business. Not only that, but clients who have a positive experience are far more likely to refer additional business your way, boosting your reputation throughout the industry. The bottom line is your business will grow and you will earn more money.

• • •

When it comes to independent mortgage brokers elevating their business and standing out from the competition, lender relationships are the most overlooked piece of the puzzle. For the brokers who take the time to connect the dots, they and their clients are sure to reap the benefits for years to come.

The post Don’t Overlook Your Lender Relationships appeared first on Scotsman Guide.

Although there may be enough business to go around for now, brokers are finding they need to create new ways to help themselves stand out from the influx of competitors. Simply diversifying your product offerings and providing great customer service isn’t going to cut it anymore. What can brokers do to stay ahead of competitors? Drastic changes are not necessary, but brokers do need to elevate and adapt their existing marketing strategies.

Mortgage brokers’ businesses thrive because of the relationships they develop with clients, lenders and other strategic partners in the industry. Unfortunately, many brokers aren’t making the most of the relationships they put so much time and effort into establishing.

Many brokers have loyal clients that come directly to them for business time and time again. It’s important, however, for brokers to reach out to customers whom they haven’t heard from or done business with recently.

Tap existing relationships

Developing a plan to nurture customer relationships should be a high priority for a commercial mortgage broker’s marketing strategy. This plan can be as simple as regularly sending personalized e-mails with information on relevant products, based on a client’s past deals. A brief phone call to catch up and see how a client is doing also can be highly effective.

These efforts are not difficult or all that time-consuming, but they go a long way toward showing customers that they are on your mind and important to you. In turn, the next time one of these clients has a deal, who do you think they are going to contact? Almost certainly, it will be the broker they speak to regularly and have a solid relationship with, rather than another broker who cold-calls them out of the blue. Never overlook the potential that exists with previous client relationships.

In the same vein, mortgage brokers also should make sure they are making the most out of the relationships they have developed with their lending partners. Having polished marketing materials can easily help a mortgage broker stand out from their competitors. Many brokers, however, don’t have the time or internal resources to develop these materials for every product they offer.

This is where lender partnerships come into play. Many lenders offer white-label marketing materials that brokers can easily customize and utilize. These materials can range from simple product sheets to detailed client presentations. There is no need to reinvent the wheel when lenders typically want to provide mortgage brokers with the tools they need to succeed. All you have to do is ask.

Develop new connections

For mortgage brokers, developing new relationships are just as important as maintaining existing ones. Attending conferences, seminars and other events are a great way to accomplish both goals. If a broker doesn’t have a marketing plan that includes attending at least one event per quarter, they are missing out on major opportunities to grow their business.

Meeting someone in person is often far more effective than communicating by phone or e-mail because it allows clients to put a face with your name. In-person meetings also give brokers unique opportunities to create a more memorable interaction with their customers. A client may not remember a call they had with you a few weeks ago, but they will absolutely remember going out to dinner or stopping for a drink after a conference or seminar ends for the day.

A broker should make the most out of the technology they have in order to make a customer’s experience as smooth as possible.

Plus, events are inherently more social experiences. With networking events, cocktail hours and exhibit halls, there are opportunities for brokers to interact with both existing and potential customers numerous times throughout the conference. What might take a month’s time through e-mails and phone calls can be accomplished over the course of a few days in a relaxed, low-pressure setting.

At events, there is always the possibility of meeting that next big client or key strategic partner. You never know who you could potentially meet, what connections those people have and how they could ultimately benefit your business.

Beyond attending conferences and seminars, mortgage brokers also should consider getting more involved in events and partnering with the organizations that run them. Becoming a member of organizations that support mortgage brokers is an easy way to connect and establish relationships with other industry professionals. Brokers may consider getting involved in these organizations by volunteering, speaking at events or providing educational content. Not only will it bring more visibility to your company, but it will help you to establish greater credibility than your competitors.

Utilize simple technology

Commercial mortgage brokers likely know that having a website and access to basic marketing technology are no-brainers. Many brokers, however, struggle to properly utilize technology to improve their business. The best advice for this step is to keep things simple. A broker should make the most out of the technology they have in order to make a customer’s experience as smooth as possible.

If a broker has a website, for example, but it contains minimal information about product offerings or few options for customers to get in contact, it’s almost like not having a website at all. For a business website, think about what is most important from a customer standpoint, such as detailed information on loan products, then give clients multiple ways to achieve their goals using the technology you already have. Include a contact-request form and a detailed application form, as well as a contact phone number and e-mail address on your website. Most drag-and-drop website templates have these features, which give your clients the ability to reach out to you in the way they are most comfortable with.

Beyond having a website, mortgage brokers should simply utilize whatever additional technology they know how to efficiently use. There is no need to buy complicated e-mail marketing systems or social-media scheduling platforms that you may never use. Getting bogged down in complex technology is an unnecessary distraction from your main business. Much like their sales techniques, mortgage brokers should employ the marketing tools that work best for them and their business.

• • •

It may seem simple, but one of the most commonly overlooked ways for commercial mortgage brokers to improve their business is by paying attention to competitors. There is nothing wrong with getting inspiration from your competition as long as it’s just that — inspiration. Take marketing strategies and ideas that are working well for other mortgage brokers, tailor them for your business and make them your own. Getting ahead of your competition is not a complex thing. As a broker, you have likely already laid a strong foundation for success, so you should simply build upon what you already have in order to achieve your goals. 

The post Elevate and Adapt appeared first on Scotsman Guide.

The single-family rental (SFR) business has changed this model, however. Institutional lenders with a nationwide reach have entered the space. And private lenders now find themselves underwriting to the guidelines of their financing partners, rather than following their own common-sense underwriting

ommercial mortgage brokers who work with borrowers in the SFR space should know that private money lenders are now likely to have a thorough underwriting process. Brokers and investors may view this as an inconvenience that makes obtaining financing more difficult. Quite the opposite is true, however.

Establishing set underwriting makes it easier for private lenders to scale their business. Instead of making the standard up as they go, the lender can offer loan programs with more consistent guidelines as well as a predictable origination process. Brokers and investors can determine which scenarios will and won’t qualify for financing, and they also can learn to expect a certain interest rate and leverage amount for all future scenarios. These factors aren’t at the whim of the lender.

The first look

Mortgage brokers should be aware of what private lenders typically examine in each borrower’s file. Initially, the underwriter will review a few essential items — the loan amount, the loan-to-value (LTV) ratio and the minimum FICO score — to ensure the borrower qualifies under a program’s guidelines. From there, the file will be vetted for errors that would trigger an automatic denial. This so-called “pre-underwrite” is meant to ferret out issues at the beginning of the process and save time.

In this preliminary stage, the underwriter often will review the borrower’s prior investment experience, as it affects the loan’s structure. The underwriter also will look for mathematical errors and the borrower’s expected return on investment. At this point, it is the underwriter’s job to flag any major concerns that would constitute a denial so as to not draw out the process. If there are no major issues, the underwriter would then continue with a full file review.

An underwriter typically begins with this review of the documentation and the borrower’s eligibility, but the main job of an underwriter is to find indications of fraud. In the private lending industry, fraud shows up in many forms. An underwriter’s job is to spot the red flags within a file. This work ultimately protects both the lender and the borrower.

Looking for red flags

In the SFR market, one major type of fraud involves the occupancy status. The borrower may move into an investment property after initially stating they do not intent to do so. Owner- occupancy fraud can cause numerous legal issues for a commercial mortgage lender. Thankfully, there are often tell- tale signs of occupancy fraud.

In a refinance scenario, an underwriter can simply check a borrower’s identification, background report and credit report to see if the address of the subject property matches that of their primary residence. For a purchase loan, however, it is a bit trickier. An underwriter will check to see if the borrower has ever purchased a home as a primary residence or for investment purposes. If the borrower has never bought a property in any capacity, this can be a red flag that the borrower intends to occupy the property as a primary residence.

An individual, for example, may live with their parents or other family members, and apply for a loan for investment purposes. Although it is conceivable that the borrower does intend for the property to be an investment, it also is a warning that the individual potentially plans to occupy the home. The underwriter will typically request that the borrower confirm in writing that the purchase is for investment-related purposes. This will provide an added layer of legal protection for the lender should the borrower occupy the investment home.

Stamping out fraud

An underwriter also runs into other types of fraud. Another scenario is when an investor uses another person, commonly known as a “straw borrower” or “straw buyer,” with better credit to either qualify for a loan or to obtain a loan with better terms.

Take, for example, a young college student who is applying for a loan for an investment property. If this borrower recently made a large deposit in their bank account, it could be a red flag that the borrower is being used by another individual to get a loan for a property purchase. The second individual may have poor credit and can’t qualify for a loan, so they are getting this person to act as the straw borrower. An underwriter would immediately ask for an explanation of where the money in the bank account came from to ensure the legitimacy of the transaction.

Straw buyers also can be used to inflate the sales price of a property. A well-connected and savvy investor may, for example, flip a home repeatedly with other investors in their network to quickly increase the value of the subject property. Underwriters will spend additional time reviewing purchase and sale contracts when they suspect that a property’s value has been manipulated. In this scenario, the underwriter will request copies of the underlying contracts, then follow the entire money chain to determine who has paid the owner of record in these previous sales.

Mortgage brokers and investors should expect added due diligence when financing SFR properties with private money. This shouldn’t be viewed as roadblock, however. The underwriter is not only protecting the lender from fraud — they also are protecting the borrower.

Fix-and-flip and buy-and-hold rental- home investments have gained popularity, but inexperienced borrowers are at a higher risk of being taken advantage of in these deals. Underwriters often foil fake turnkey investment opportunities that are too good to be true, and stop transactions in which a borrower appears to be under duress. Underwriters have a responsibility to protect their lender’s clients.

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As set underwriting guidelines become more commonplace in the private lending industry, it’s important to remember that they exist for the benefit of the investor as well as the lender. Lenders have greater peace of mind that every loan is secure. Investors can still get the fast financing they’ve come to expect from private lenders, but with a more consistent process and added behind-the-scenes protection.

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