A strategic response to rising interest rates: The importance of special loan products


Responding to a challenging market

Interest rates are sitting north of 6%, and while that’s a far cry off 2023’s peak of 7.8%, homeowners today are still less likely to leave their homes and take out new mortgages than they have been in recent years. Plus, ICE mortgage data shows nearly two-thirds of borrowers have locked in rates at less than 4%, meaning the appetite for refis has lessened.

Gone, for now, are the days when low interest rates led to simpler borrowing decisions. Current borrowers are grappling with an increasingly expensive financial environment, and new or would-be borrowers face heightened barriers to homeownership, which means servicers are also being challenged to find unique opportunities for business in a market resistant to movement.

This changing landscape has brought special loan products, such as buydown loans and adjustable rate mortgages (ARMs), to the forefront for lenders trying to earn borrowers’ business – which means servicers need to be ready to service these loans. These special loan products are not just financial tools; they are a strategic response to a fluctuating market.

Identifying effective special loan products

When it comes to getting a borrower into a home in today’s environment, any incentive helps. Among special loan products, buydown loans have emerged as particularly popular. These loans let a builder or lender reduce the borrower’s loan payments by the buydown amount for an agreed upon term. This allows for assistance programs not only at the time of purchase, but also during servicing.

Adjustable-rate mortgages have also become an appealing option for borrowers today. The interest rates on these loans start low, and though they will rise over the term of the loan, they help give homeowners an affordable on-ramp to a new mortgage. Plus, ARMs can lead to increased borrower engagement as they open the door for refinancing later down the line. In today’s market, it’s likely that interest rates will have decreased by the time a borrower’s ARM is increasing, at which point they can refinance to a fixed rate loan.

Other special loan products include assumptions, balloon ARMs, interest-only ARMs, and loans covered by the Servicemembers Civil Relief Act (SCRA). By training staff to recognize and handle these types of loans appropriately, servicers can position themselves well in today’s current environment.

Servicing special loans with confidence

While special loan products are an attractive option for lenders looking to increase borrower engagement and find new avenues for business, the reality is many teams are not up to speed on how to properly service them. And it’s not their fault – the low rates in years past reduced demand for these niche loan products.

ICE’s MSP® loan servicing system is already configured to help servicers handle these special loan types – and the ICE Mortgage Technology Professional Services team offers comprehensive training to help servicing teams understand how to service special loan products within the system. Comprising both mortgage and technical experts, Professional Services first conducts instructor-led training so servicing teams can learn how to use MSP to help them service special loan products, and then they consult with businesses to determine how they want these loans to behave once they’re in the system. Finally, Professional Services helps servicers configure MSP to get them working according to their needs and based on how the loans were closed.

Contact the experts to learn how they can help your team service special loan products with confidence.

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