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 wascoming, I don't think anybody truly realized how quickly and profoundlythe playing field would change.

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

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

This increased demand for ARMs had lenders rushing to offer many newtypes of programs. These new products had initial fixed rates that variedfrom one to seven years after which the payments could be subject to changebased upon a predetermined index and margin. Map makers in eastern Europehad an easier time than consumers or borrowers shopping for a loan lastyear.

Good loan officers learned to ask questions like, "How long do youplan on owning this property?," to determine the product(s) that bestfit the consumer's needs. Consumers discovered they had to depend on theirloan 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 mortgagemarket. Guidelines became more flexible. People who had difficulty gettinga loan one year ago found that many lenders were now willing to work withthem. Loan officers began to probe applicants for possible compensatingfactors - such as part time employment, additional assets, or future earningpotential - which could strengthen applications. Lenders have begun to givemore weight to these factors and make more common sense lending decisions.

In such a competitive mortgage market the consumer can expect more fromtheir loan officer. Loan officers can assist in keeping all parties informedof the loan's progress as well as coordinating closing locations. We canalso 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 benefitto the consumer. Increased competition has had the effect of reducing theoverall cost and expediting the mortgage process. It has facilitated thecreation of many new creative products with features and guidelines thataddress many different customer needs. It has also ensured that the lenderswho choose to meet the challenges set forth by this new environment be moreflexible, knowledgeable, and stable. These are benefits that not only enhancethe levels of customer satisfaction across the board but also strengthenthe reputation of the mortgage industry as a whole.

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

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