As loan originators, you are trained loan programs, how to pre-qualify, how to complete a loan application and related forms, but are you trained to manage peoples' debts? You are not a financial planner, CPA, or licensed securities agent. You are a debt manager. You figure out the best adjustments and flow of peoples' debts.
You learn about mortgage interest being tax deductible, to consolidate consumer debt into the mortgage loan, and to cash-out equity for the borrower to utilize. This is where most loan originators cease in service to their clients. Why not service your borrowers better?
You could study Equity and how it works. Know appreciation percentages in various spots within your area. The town to the north may have less appreciation than the town to the west. You could track and record each area for its' own appreciation history. Within cities you could know each section growth percentile.
This allows you to know the potential risk of security and liquidity. In the Santa Clara area, (Silicone Valley), it went through a slight slide five years ago and is now recovering. Before that; the 1998 earthquake impacted values through 2003. Two major potential housing bubbles popping in the Santa Clara area of California pulled through and look at values today.
Knowing the security and liquidity of an area affords you understanding the concept of "opportunity costs". What it takes to get into the housing market in a specific area is not opportunity costs. Most originators rely on the Realtor, or their company's processing system, to determine costs. Maybe you should know that this is not opportunity costs.
Opportunity costs, in utilizing $100,000 of equity, earning the borrower 3 percent a year, that could earn an additional 10 percent invested elsewhere, yields the borrower 13% opportunity costs. This is referred to as: "arbitraged" funds. As an originator you may want to learn about arbitraged funds.
A sharp originator will also know the closing documents and what the escrow officer knows. They know each loan document so that they can explain it to the borrowers at closing. There is a fantastic way to learn this while making money. Go to each and every loan closing of yours.
If you were doing this, over the past year, you would know that occupancy requirements have reverted back to "intention to occupy", excepting Home Equity Lines, (HELOCs). By going to the actual closing you are learning the data and being updated on changes.
You should learn about inflation and what it does to impact appreciation. That past inflation percentages makes $100,000., in equity, is worth $40,600. thirty years from now, based on inflation history, (since 1914), and be able to give borrowers real statistics on "cashing out".
"Leveraging" and "Return on Investment", (defined as: The amount of growth divided by the amount financed), can be tools for you to assist in managing borrower's debt. That Cash / Time / Rate - determines Return on Investment helps you formulate models that the borrowers can check on and make real choices.
Compounding interest and the time value of money play important roles with opportunity costs and are more important to a borrower than simply what the Realtor or processor has documented at cost to close on a transaction. Originators can truly be great debt managers if they want to be of added service to their borrowers.
Let me ask the originator reading this article what are the four financial benefits to owning Real Estate? If you can respond with: Appreciation, Taxes, Depreciation, and Cash Flow, you probably are a fantastic originator.
If you knew two out of four you may need to reread the article multiple times and learn to become a fantastic originator. Half is only a 50% score and you have failed the test.
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