This story originally appeared in the November edition of DS News.
With more than 30 years’ mortgage industry experience, William J. Tessar joined CIVIC Financial Services in March 2017. He previously founded and served as President of three mortgage companies resulting in residential funding volume exceeding $35 billion. Tessar was formerly one of the nation's top loan originators. Having been in the shoes of the originator, he has a unique vantage point that creates a recruiting, training, and management style that sets him apart from other originators.
What do lenders anticipate on the refi front as we head into 2021?
Mortgage volumes have been at record numbers over the past three decades, mostly due to low rates. The sequence at which it dropped has allowed a lot of borrowers to refinance multiple times throughout the course of the year. The old rule of thumb is that if you can drop someone between a quarter to three eighths and do that at little to no cost then it would make sense.
What's happening right now is that those spreads are tightening. In 2021, I think there will be much more room for rates to go up and down. We are at the high twos, low threes right now, depending on loan amount. I think this will remain through Q1 2021. The new administration takes office inside the first quarter, so I think there are really no economic indicators that tell me that rates are going to go up.
The next question is how much further down can rates go? They would really have to go down significantly in order to refinance the loan again. As such, we can expect refinances to shrink because you can't do that loan over and over. Purchases should remain equal or a little bit better. I think overall volume in 2021 is less on the conventional side because of these factors.
Civic Financial Services provides loans to real estate investors. Can you tell us about some of the advantages of investor real estate financing for brokers?
I spent the vast majority of my career on the other side of the island—conventional for almost three decades and loved that time there—but I would say the three main differences. Number one is quick closes. Our loans close in five to 10 days. Whereas, on the conventional side it can take 30 to 75 days depending on volume and type of loan. The benefit is very Pavlovian—the reward is quick and originators like that.
Second, there is minimal documentation. It's not like the old non-QM days. We're equity-based lenders so there's no tax returns, W-2, TRID, Dodd-Frank, etc. There's a lot less paperwork on a business purpose loan. The thing you've got to get right as a lender is the value. If you get the value right, you have a lot of flexibility in other areas.
Lastly, there's multiple transaction opportunities with the customer and not just on the original business purpose loan. The average investor will complete two and a half transactions a year. If you do your job well, they're going to come back to you for their other opportunities.
On top of that, if you're a conventional lender offering this product, you're going to do the takeout financing, either for the investor or the end buyer.
Read more on p. 10 of the November issue of DS News, available here .