By: Shmuel Shayowitz
I received an email from a reporter at a leading national publication with whom I have previously worked. She said she was working on an article about the impact of the Federal Reserve rate hikes and wanted to know if the upcoming Fed action would impact Adjustable Rate Mortgages (“ARMs”). I immediately replied to confirm that I received the email and would respond shortly with my comments.
I spent the next 10-15 minutes carefully crafting the most eloquent explanation about Adjustable Rate Mortgages, how they work, the pros and cons of utilizing an ARM loan, and why they are becoming more popular of late with the increase in Fixed Mortgage rates. I went on to explain how an ARM loan is based on adding together a predefined “Margin” (which is the spread) plus an “Index,” which becomes the interest rate. The index is tied to the movement of a major index, such as the Cost of Funds Index (COFI) or the Secured Overnight Financing Rate (SOFR).
I explained that part of what the Federal Reserve is looking to accomplish by raising rates so aggressively is to make “borrowing” more expensive, thereby slowing down consumer spending and consumption. They are simply making “money more expensive.” So, in essence, I explained, the impact will be that even Adjustable Rate Mortgages are getting more expensive with every Fed rate hike. She replied, “Thank you very much!” and that was it.
A few days later, I wanted to see if the article was ever published, so I googled the publication with the author’s name, and there it was! I read through the article twice, looking for my name or any of the details I wrote about, but it was nowhere to be found. The article discussed things that were becoming more expensive due to the Fed rate hike, and it listed ARM loans as one of them, but that was it. No mention of the intricacies that I discussed, no discussion about index and margin, nor the risks of doing an ARM.
I went back to look at the email from her to see if I missed something. In her email, she simply asked me if ARM loans would be impacted. Then it hit me. She wanted a yes or no answer. She didn’t want my opinion; She didn’t want to understand the mechanics of an ARM; She didn’t need the sophistication and complexities – it was a straightforward question.
This was another reminder to always first tell someone what they want to hear without your commentaries. I pride myself on being a good listener, and I am usually mindful of making sure that I don’t simply listen to wait for my turn to talk. Usually, I’m sensitive to what’s being asked, even when they don’t directly verbalize the question.
It also reminded me of how aggressive this marketplace is becoming, with so many people scrambling for the smaller amount of available business. Unfortunately, it’s becoming more common to hear that clients are being promised something, only for the details and fees to change later in the transaction. With the rigorous compliance and regulatory requirements, it isn’t the typical “bait and switch” tactics, but it’s unquestionably just as costly.
We had a frantic client who recently told us that his loan was being denied elsewhere because his name wasn’t formally printed on his bank statement, even though he was a joint account holder with his wife. The bank said that because “the money is not in his name,” they weren’t eligible for the program initially offered and that everything would be more expensive. It was awful to hear, and it wasn’t the first time I had heard such a thing. The lesson here is always to tell the person what they need to hear without your opinions and possible bias, and always to ensure that you hear the right advice from a reputable, experienced professional.
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well as specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience, including licenses and certifications as a certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected].
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