Otmane Laassel: how mortgage lenders can serve the underserved
PERSON OF THE WEEK: As the mortgage industry and its regulators strive to bring home ownership to more borrowers across the country, many lenders are working hard to find the best way to serve their low-income customers. and to ensure they are not left behind in today’s market, while still lending responsibly.
Otmane Laassel, branch manager and senior credit consultant at Homespire Mortgage Shady Grove, Maryland branch recently spoke with MortgageOrb to serve the underserved mortgage borrower.
Q: What challenges do underserved/low-income borrowers face today?
Laassel: The current market can present a number of significant challenges for these borrowers. First, higher interest rates mean some borrowers won’t qualify for that much, which may be a problem exacerbated by current home prices. A townhouse that might have sold for $200,000 just a year or two ago might sell for $300,000 today. Paying a higher interest rate reduces purchasing power.
Higher prices also mean that borrowers have to come to the table with a higher down payment, which can be a big challenge for these buyers. It can also be aggravated if the seller is unwilling to pay closing costs, which unfortunately in today’s market does not really encourage them to do so in many cases. However, if the borrower can get a seller to pay even a portion of those costs, it could give them a much-needed helping hand in the process.
If the customer’s bid does not come with enough money, it will be more difficult for them to have the winning bid. However, money alone may not be enough. To get the house, many buyers are often asked to forgo contingencies on inspections and appraisals, in order to make an offer more attractive.
Inventory is one of the biggest overall challenges for everyone, but especially for low-income borrowers. There simply aren’t enough houses in the necessary price range, and the available houses often require a lot of work, leading to additional costs.
Today, the competition is intense. Our partner real estate agents tell us that they present between 20 and 38 offers on each house, some of which are 40% above the asking price.
Q: Are there any best practices that can help alleviate some of these barriers?
Laassel: Yes, but lenders and buyers’ agents need to understand that we need to work on every transaction.
If our buyer has a low income, we often advise them to consider a co-signer so they can come to the table with a larger down payment. Sometimes that might mean dipping into investments like their 401K just to be able to compete. Alternatively, some borrowers may qualify for down payment assistance, but this means the loan will take longer to close, which is not attractive to most sellers.
Some potential borrowers have taken on second jobs to supplement their income for a future purchase, but this takes time and isn’t always feasible for everyone. As usual, paying off debt can help, but that too can take time, and the longer it takes, the less purchasing power these borrowers may have.
Q: What are some of the key areas that low-income borrowers may overlook?
Laassel: The first is the need to buy now. The market is tough and they can spend more than they want. But if they have a house to sell, they’ll probably make more profit on that sale. Whether they have a home for sale or not, the longer they wait, the higher home prices and interest rates can rise.
Second, tell potential buyers to assess whether they really need to move to a new location right now. Most homeowners hold a lot of equity in their home and with a home improvement loan, they can use that money to turn their current residence into the home they’ve been looking for. And even if rates go up, cash back may still make more sense for some homeowners than applying for a home improvement loan or going through the process of buying a new home in today’s market.
Finally, if they decide to go ahead with buying a new home, they should make sure they are working with a solid and reputable mortgage lender who can qualify them and close the loan for the new home quickly. . Being able to close a loan in about two weeks gives borrowers a real edge in the market. At Homespire, we prefer to send approval letters, as these tend to carry more weight with sellers than pre-approval letters, which might not be as effective.
Basically, you have to go into this market as if you were a business, which means you have to work with a lender who knows how to help you.
Q: Is there good news for these borrowers?
Laassel: Absolutely. The mortgage landscape is very cyclical and a market that is less forgiving today will provide much better opportunities in the future.
Demographics will play a key role and eventually we will see more real estate listed. Prices will fall and interest rates may even fall once the Fed fixes the current inflation problem. But, as always, it will take time.
The best news for low-income borrowers is that the industry wants to help them. Placing more people in homes than they can afford is a primary goal, both for today’s mortgage professionals and for industry regulators.
We have loan products that can help finance these customers’ new homes, but we need to act quickly or they risk overbidding and losing an opportunity. It’s a team effort and borrowers need to work closely with the right, trusted mortgage professional who can help them achieve their goal.