Executive says borrowers are betting on low rates that may never return
“And that’s just really risky even though nobody wants to necessarily take a first mortgage at (the current) rate,” he said. “You’re going to take (a variable rate) thinking, ‘Well, (fixed rates) will be here in 18 months.’ And then all of a sudden in 18 months, (fixed rates) are now higher. And now you don’t have the liquidity to knock the balance down. And now you’re spinning a bit.”
Choosing now over later
Riddell said borrowers use home equity for a mix of things, from covering deposits to renovations ahead of a sale to projects done for enjoyment.
“How much of it is ‘The roof is leaking, and I need a new roof?’” he said. “And how much of it is ‘I’ve maxed out my credit cards, but I would really like to go on a trip. Now I’m going to take a trip, but it’s going to take me ten years to pay it off.’ Is that good financial decision-making? Every consumer can make their own mind.”
Lenders that make qualified mortgage (QM) loans and those that make non-qualified mortgage (non-QM) loans draw the line in different places, he said, which matters for a broker choosing where to send a file.
“QM might say to you, look, we’re going to stop you at this loan-to-value because they’re looking at it going, this is really overspending,” Riddell said. “The non-QM market might say, ‘Both of us, consumer and lender, we both understand that you’re stretching. However, there is a market for this product, so I will help you.’
