As the market moves from a refi boom to increased purchase volume, lenders need to be prepared to change their approach to fit borrower needs. HousingWire recently spoke with William J. Tessar, President and CEO of CIVIC Financial, about the keys to lending in a post-refi world.
HousingWire: How is the decline in refi volume affecting lenders?
William J. Tessar: Conventional lenders just came off three to four years of historic low interest rates that generated record unit and volume levels. Many borrowers refinanced as many as four times, dropping their interest rate for free each time rates dipped lower. As long-term rates rise, and they are doing so, lenders are forced to expand their purchase business and add new product offerings.
Simply expanding purchase business, however, is not easy. Many lenders cemented their positions with real estate agents while other lenders focused on refi business. So this flight to purchase will end up being many fishing poles in a small pond.
You are starting to see RIFs (Reductions in Force), and I anticipate this to continue through the first two quarters of 2022. I also expect non-QM and business purpose loan programs will become more widely adopted.
HW: What should lenders consider as the market moves toward higher purchase volume?
WJT: As record refinance volumes disappear, lenders need to get intimately familiar with their database of customers. For instance, it is estimated that 15-20% of an originator’s database includes real estate investors.
The average investor is involved in three to four purchase transactions per year, and each transaction will have an acquisition loan and an exit loan through sale, or a refinance to a long-term mortgage. If lenders do not offer this product, these clients will find financing elsewhere.
This means lenders not only lose the potential of four to eight loans in connection to that customer, but they risk losing that customer for good. That being said, being a resource for all real estate financing needs for your customers will become more important in the next few years than ever before.
HW: What should lenders prioritize in the new “post-refi” environment?
WJT: The two most important things any originator should be doing are getting closer connected to your customers – understanding their current and longer-term real estate financing goals and needs; and becoming intimately familiar with the nuances of non-QM and business purpose loans so they can be an expert resource for that customer.
There are many needs a customer may have today, from lowering their rate, to acquiring a vacation, to paying off revolving debt, sending kids to college, home improvement, buying a rental property for cash flow and long term appreciation, or even flipping a house.
The closer connected we are with our customers, the better equipped we will be to solve all of their financing needs.
HW: How is CIVIC prepared to assist lenders as they adjust to the current market and margin compression?
WJT: CIVIC is a top originator and leader in the business purpose lending space, providing lenders products to supplement their business. With $6 billion funded in this channel alone and the backing of a publicly traded bank, we help lenders retain the business and relationships that they have worked so hard for.
We balance sheet all of our loans – making for a consistent lending experience for the borrower. The business purpose loan space requires far less documentation than conventional loans and generally closes a transaction significantly faster. Speed and leverage are the cornerstones for this lending channel and is exactly what the consumer needs and expects.
At the risk of sounding redundant, lenders today need to be a resource for all of their clients’ real estate financing needs, not just a few. By being this single, trusted lending solution, they have a much better chance of achieving that “Customer for Life” goal that each of us lenders strives for.
