On June 15, 2022, in an attempt to curb rapidly-growing inflation, the Federal Reserve raised its benchmark Federal Funds rate by 75 basis points (bps). In response to the largest rate increase since 1987, the 30-year fixed interest rate quickly increased to an average of 5.78%, up almost three percent from what this rate averaged just one year ago.
Not long after the Fed’s announcement, panic consumed the mortgage industry. Lenders from California to New York announced layoffs and downsizing in expectation of significantly-reduced loan demand. If you happen to be one of those individuals panicking, I strongly encourage you to stop panicking this minute!
It is critically important to always retain sight of the forest for the trees. The mortgage industry is an historically-cyclical industry, rife with ebbs and flows. When business is fast-paced and strong, people tend to forget about how times can also be and have been lean. The good news is that these economic ebbs and flows are perfectly normal and to be expected.
I remember originating mortgages when the 30-year fixed interest rate was over 9%. And I assure you that I was a high-numbers, top-producing mortgage loan originator. Additionally, you may not be aware that, in the 1980’s, mortgage interest rates were over 17%! And countless people financed homes.
The mortgage industry is going nowhere. As long as people want to own homes and lack the money to pay for them in cash, there will be a definitive need for mortgage origination services and the mortgage loan originators who provide them. Sure, fewer people will be qualified, but that does not mean disaster.
Even though fewer consumers will be able to qualify for home financing when the interest rates increase, countless borrowers remain who will still qualify. And even though the pickings will be slimmer, so will your competition.
It’s pretty easy to panic when we hear about mortgage institutions who are trimming the fat. But the fat is exactly what they’re trimming. Do you really think that a lender would sever ties with its top, resourceful, and promising producers? Doing so would be ludicrous because lenders know that there are still enormous amounts of loans out there to fund. The successful loan originator perceives rising interest rates as an opportunity instead of through gloom-and-doom-filtered glasses.
Sure, the pace of business is going to slow. But the pace will eventually resume. That’s simply the ever-cycling nature of the mortgage financing industry. But I also understand that you have bills to pay and food to buy now. So, with that in mind, my advice, in a high-interest-rate environment is to hit the ground running strong!
While your competition is panicking and running around like chickens with their heads cut off professing the sky to be falling, I encourage you to head down a separate path. The path to prosperity. Here’s how!
When mortgage interest rates were over 9%, I researched and identified populations of home financers who were not adversely affected by high rates and I shifted my focus to them. Although now might not be the best time to focus on first-time homebuyers, it might be the perfect time to focus on investors.
As interest rates rise, housing demand drops. As housing demand drops, home prices fall and rents increase. The savvy investor understands this. So wouldn’t it be a good thing for you to be prepared and ready for when this new type of buyer emerges from the panic? If you’re currently less-than-versed on how investment property financing works, now’s the perfect time to learn about it and brand yourself as the investor’s prime source for financing. Or how about second home financing in affluent areas? Or doctor loans?
There are plenty of demographics who can still qualify for financing and who are interested in buying or will be shortly. It’s your job to step up your game and take advantage of the opportunity that’s currently out there. I mean if you don’t, I’m pretty certain that your competition will, leaving you in the dust.
Don’t panic! Your competition’s disappearance is a good thing. Act now to take advantage of the opportunities that higher-interest-rate environments offer. I encourage you to view the glass as half-full instead of as half-empty. And remember, for every client who you put into a higher-interest rate mortgage now, you’ll have another closing waiting right around the corner for you when interest rates ultimately fall, as they are guaranteed to, rendering that client eager to refinance.