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Beyond the Transaction

In today’s red-hot purchase market, homebuyers find themselves competing for a finite number of homes, which is driving record-high levels of home-price appreciation. As a result, many homebuyers are being priced out of the market and pushed to the sidelines.

According to a report from the National Association of Realtors, existing-home sales fell for the fourth straight month in May 2021, while the median sales price for all existing-home types jumped 23.6% year over year in the same month.

It’s understandable that consumers hearing about these trends become intensely focused on the transaction at hand. They zero in almost entirely on who’s offering the lowest interest rate or the lowest fees. They’re not thinking about 10, 20, or 30 years down the road and how to effectively manage the mortgage debt they’re committing to today.

That’s where we, as mortgage experts, should come in. We have the opportunity to educate consumers on why it may be beneficial for them to take a holistic, long-term view of their real estate investment—and how their home plays a key role in the grander picture of their overall financial health.

Knowing how to effectively manage cash on hand and cash flow is a skill that translates directly to how we manage our credit. Effective mortgage-debt management is an important aspect of building a sound financial footing but is all too often overlooked. Explaining in simple terms to a consumer how they handle their mortgage debt and how they can leverage their home equity in this major asset, in my mind, performs a deeper service.

By drawing parallels between their home-financing decisions and their long-term financial goals, borrowers can better understand how and why a home mortgage should not be considered in a vacuum. We can help clients think about all their potential debts and understand the necessity of having a savings cushion when they face a financial hardship.

Think of the peace of mind borrowers will have if they take the opportunity to become educated about the debt they are taking on and create a financial safety net for their homes and their families when faced with income loss. That’s the impact our industry’s mortgage expertise can have when we (and consumers) think beyond a single transaction.

Make no mistake: our No. 1 job is to put people in housing that’s safe and financially sustainable over the long haul. Our work doesn’t and shouldn’t stop after a loan closes. All too often, however, that’s exactly what happens.

How Mortgage Unbundling Has Fractured Lenders’ Relationships with Borrowers
It’s no secret within our industry that origination and servicing have become unbundled. Unless your company is servicing the loans it originates, those loans get sold (and potentially resold) to other servicers. Over time, we lose that connection to the borrower. We move on to the next loan inquiry, the next deal.

In moving on, though, we wind up missing opportunities to help guide past clients after they’ve left the closing table. For example, look at what’s happened during the COVID-19 pandemic. After the economy shut down, millions of people struggled to keep up with their monthly mortgage payments.

In May 2020, 4.2 million U.S. mortgages were in forbearance—the highest level during the pandemic, according to a Freddie Mac research analysis of Mortgage Bankers Association estimates. At the time, this represented $1 trillion in mortgage debt and about 8% of all unpaid home loans.

Some press reports have revealed that some homeowners dealt with conflicting information about loan forbearances, and they didn’t always understand the terms and conditions of their forbearance agreements. Many were desperate, fearful, and unsure of what to do. Even homeowners who’ve weathered the pandemic and could benefit from tapping equity or a refinance may be waiting out the economic turbulence, because they don’t have expert mortgage guidance when they need it most.

Many of these borrowers have been orphaned by their original loan officer or broker because their loans were handed off to another company for servicing. That’s why, in my opinion, our industry should reconsider bringing origination and servicing assets back together under one roof. It’s my sincere belief that unbundling these services hasn’t yielded a good outcome for some consumers.

When originators retain servicing in-house, that means they should be positioned to offer guidance and assistance to borrowers. Whether they want to accelerate their mortgage payoff strategy to build wealth, or they have mortgage questions—about loan modification, forbearance, or how to tap home equity—we can proactively walk them through all those situations when loans stay on our books, and we can peek at what’s going on under the hood.

Mortgage Debt-Management Education Starts at the Initial Loan Intake
When the housing market normalizes again (and it will), ask yourself this question: will you be the first person whom past clients call if they decide to move up to their next home, to refinance, or to take out a second mortgage? If your mindset is still stuck in one-and-done transactional mode, then probably not.

Think of your expert role in the context of the consumer journey. How can you become the go-to resource for mortgage-related decisions at different stops along that journey? What advice can you give to help them maximize what’s likely their largest financial asset? And how do you communicate the ongoing value you offer beyond the first loan closing?

It all begins with how you establish and build an enduring relationship with your customers. The initial consultation with borrowers is especially important and hitting the basics—explaining how their credit score and credit history, debt-to-income (DTI) ratio, debts, assets, and savings all impact the loan decision—is standard fare. We must go beyond the expected.

Take it to the next level. Find out the borrowers’ financial goals. Explain how their savings plans for retirement, a child’s college tuition, or other goals might be impacted by their mortgage decisions (and vice versa). Dig even deeper by educating a borrower about their DTI ratio, so they understand what’s available for them to save and spend.

This is what I mean about showing borrowers the holistic view of mortgage borrowing and how it relates to their long-term, mortgage-debt management. A trusted mortgage advisor should be prepared to discuss financial goals and provide sound counsel on how to achieve financial wellness. Not enough mortgage advisors are doing this, and borrowers can tend to get caught up in the emotions and urgency of a home purchase.

If borrowers look at only the home price, interest rates, and fees, they’re focusing on the wrong things. The question they should ask themselves is this: “Who can I trust to help me understand the process and offer me suggestions to manage and maximize my real estate investment.”

Guiding Mortgage Borrowers on the Path to Financial Wellness
As mortgage advisors, we provide an important professional service because we’re educating and advising borrowers about their biggest financial asset: their home.

It’s easy to be laser-focused on closing transactions and moving to the next deal when the pace is brisk, and we have more volume than hands on deck. But as homebuyers take a pause from the chaos—as they’re doing now—that’s when we must get back to the basics of our profession. It comes down to relationships. It comes down to cultivating trust.

We’re mortgage educators. Let’s be proactive, rather than reactive, in showing borrowers the awesome power of how their real estate investment can be another arrow in their quiver toward financial wellness. To rise above the competition, become the go-to mortgage expert in your market who’s looking out for your clients’ financial health and their long-term needs.

Editor’s note: The views and opinions expressed by Bill Dallas are his own and do not necessarily reflect the views of Finance of America Companies or Finance of America Mortgage LLC.

About Author: Bill Dallas

Bill Dallas is President of Finance of America Mortgage LLC. Dallas is known for building two mortgage companies from the ground up, First Franklin and Ownit Mortgage Solutions. In 2009, he purchased Skyline Home Loans with Upfront Ventures and a talented team to modernize the traditional mortgage business. In 2018, assets of Skyline were purchased by Finance of America Mortgage as another stepping stone toward realizing their mission and vision to bring the promise of the digital mortgage to their customers and advisors. Today, Dallas leads the combined business at Finance of America Mortgage LLC. Dallas holds a Bachelor of Arts degree, magna cum laude, from Bowling Green State University and a Juris Doctor degree from the University of Santa Clara School of Law.
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