Diana Olick of CNBC reported that mortgage demand has fallen to the lowest level in 22 years. Purchase money loan applications are down from the same time last year and refinance applications are off a whopping 75%.
As a mortgage banker dealing with this ugly market, people ask me why I have such a positive outlook. The answer is simple. I have seen this story before – in 1994, 2004 and 2008.
We had a huge refinance mania in 1992 and 1993, which died in 1994, and another even bigger refinance market from 2000 until the end of 2003, when rates steadily dropped, and homeowners refinanced every nine months.
The 2008 crash hit after the Wall Street-sponsored free-for-all that lasted from 2004 until March 2007 when the investors caught on that they were buying pools of pick-a-pay options – ARM loans and subprime mortgages that were likely going to default.
Now, don’t get me wrong, I am exceedingly upset about my IRAs and 401(k) dropping in value by 30%, but this is just another cleansing of the saturated mortgage market.
Thousands of loan officers quit the business in 1994 because selling a refinance in 1992 and 1993 was like trying to catch a 7-pound salmon in a 5-gallon bucket. Helping a client in 1991 drop from 7% to 6% was an easy sale, and then calling that same client nine months later to drop from 6% to 5% was cool.
1994 was a rude awakening for the newer loan officers who specialized in refinances. Many quit and returned to their previous career when they realized being a loan officer is one of the toughest sales professions in the world.
Here are some reasons why selling loans is hard:
No. 1: Competition. There were more than 10,000 different loan officers who funded at least one loan in Solano County in 2021, and there are only around 500 home sales per month. I predict the number of loan officers in our beloved market will drop to 1,500 in 2022 because it will be a 90% purchase and only 10% refinance. Realtors and sellers don’t like dealing with loan officers out of Texas and Florida who they cannot hold accountable in person.
No. 2: Professional expertise with debt and financial management. Helping people with their largest asset is an incredibly important responsibility. Tens of thousands of loan officers in California left the business in 2008 when underwriting came back to normal, and people had to qualify for a mortgage.
No. 3: Nobody loves borrowing money. Selling something that people need but nobody really wants is not easy unless you can provide a lot more value than just a loan. Most people need creativity, financial literacy education and debt management advice. People want a lender who cares more about creating a “raving fan” than just selling a loan. “Raving Fans” is the title of a book written by Ken Blanchard and Sheldon Bowles that talks about the importance of exceeding a customer’s expectations, so the customer is not only a client for life but also a referral source who raves about you to their friends and family.
No. 4: Hustle and hard work. The top loan originators in the country, and keep in mind that historically 80% of the business is done by 20% of the loan officers, all work at least 45 to 50 hours per week and most are available 24-7 by phone. Real estate agents and brokers are the key referral partners, and the top producing Realtors only refer their valuable buyers and sellers to lenders who help them sell more houses and treat their referrals perfectly and professionally with a keen sense of urgency.
No. 5: The real estate loan business can be stressful, to say the least. I often joke when I am coaching loan officers, processors and underwriters and say when a lender makes a mistake in the mortgage business, people die. I exaggerate this because I know buying a house is usually the largest financial transaction of the client’s life and the house may be the home he or she lives in for the next 30 or 40 years. It’s a big deal.
The difference between this 2022 market and 2008 is this is not a real estate crash. Our clients have equity and most have a very low fixed-rate mortgage, and 100% of the people who have purchased since 2008 had to qualify and afford their house payment. Being a loan originator is back to being one of the toughest professions in the world.
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