A Lender Speaks

By John O'Brien

Wow!!! What a year 1994 was. Rates went up, mortgage volumes came down, and lenders vied for a piece of a smaller pie. Although we all knew it was coming, I don't think anybody truly realized how quickly and profoundly the playing field would change.

When The Federal Reserve Board increased interest rates in February it set off a chain reaction in the mortgage business. Although rates went up, the subsequent reduction in the number of loans written resulted in positive changes. Different products, lending philosophies and competitive strategies combined to give the consumer more choices.

Perhaps the biggest change was the emphasis from fixed rate mortgages to adjustable rate mortgages (ARMs). As rates increased consumers demanded a program that would allow them to keep their monthly payments as low as possible.

This increased demand for ARMs had lenders rushing to offer many new types of programs. These new products had initial fixed rates that varied from one to seven years after which the payments could be subject to change based upon a predetermined index and margin. Map makers in eastern Europe had an easier time than consumers or borrowers shopping for a loan last year.

Good loan officers learned to ask questions like, "How long do you plan on owning this property?," to determine the product(s) that best fit the consumer's needs. Consumers discovered they had to depend on their loan officer to fully explain the various features of these new programs (such as index, margin, caps, etc.).

Traditional lending philosophies were challenged by the changing mortgage market. Guidelines became more flexible. People who had difficulty getting a loan one year ago found that many lenders were now willing to work with them. Loan officers began to probe applicants for possible compensating factors - such as part time employment, additional assets, or future earning potential - which could strengthen applications. Lenders have begun to give more weight to these factors and make more common sense lending decisions.

In such a competitive mortgage market the consumer can expect more from their loan officer. Loan officers can assist in keeping all parties informed of the loan's progress as well as coordinating closing locations. We can also become proficient in explaining how changes in the economy, inflation, and Wall Street affect the day to day movement of rates.

The changes in the mortgage industry represent an unqualified benefit to the consumer. Increased competition has had the effect of reducing the overall cost and expediting the mortgage process. It has facilitated the creation of many new creative products with features and guidelines that address many different customer needs. It has also ensured that the lenders who choose to meet the challenges set forth by this new environment be more flexible, knowledgeable, and stable. These are benefits that not only enhance the levels of customer satisfaction across the board but also strengthen the reputation of the mortgage industry as a whole.

John O'Brien is the Sales Manager of 1st New England Mortgage Corporation in Wellesley, MA.

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