Diversifying with delinquency/default client services
The economy is tough in many parts of the country right now, possibly affecting some of your clients’ ability to make mortgage payments. Mortgage delinquency/default is an incredibly stressful situation where a trusted advisor like you can help immensely. In fact, offering delinquency/default advice is an excellent way to add value to your business, separating you from the competition.
Being the helping hand in difficult situations provides an opportunity to build solid relationships with clients. Relationships that will bear fruit when your clients inevitably get back on their feet and happily return to you for future mortgage needs and also with the ringing endorsements they’ll pass on to their friends and family.
Here are some tips for supporting these clients:
Communicate your delinquency/default services to clients
This can be as simple as adding a bullet to your current website and brochures, communicating to new customers that this is part of your business. It can be as simple as stating you provide “Professional guidance managing unforeseen financial challenges.”
Provide proactive solutions
The closing of a deal provides the perfect opportunity to offer your clients insurance options (job loss, disability & death) to safeguard their mortgage. It’s a win-win situation. If they decide not to take it, you’ve demonstrated knowledge in this area. If they opt to insure themselves, you make some extra bps protecting their mortgage.
Now that you’ve communicated your expertise and offered proactive solutions, you may receive phone calls from clients needing your advice. Here are some tips, from a lender’s perspective, to pass on:
Step 1: Alleviate stress
Many people assume the worst when they miss a payment. They’ve heard stories of people losing their homes to heartless banks/lenders (via the U.S media). In reality, Canadian lenders will explore every possible means to keep your client out of default before taking formal legal action. Repossession is truly the last option both parties want. Once you’ve calmed your client’s fears, let them know the sooner they act, the more likely it is that an arrangement can be made.
Step 2: Contact your lender immediately!
Whether your client has missed a payment (and not heard from their lender) or know they’re going to miss a payment, they should contact their lender immediately. People are often reluctant to do this as they feel they’re bringing the issue to the lenders attention before it’s necessary, which might escalate the lenders action to foreclose. This couldn’t be further from the truth. Lender’s want to assist your client in finding a reasonable and affordable solution… and you can help.
The worst case scenario, being forced out of the home, happens only when all efforts and options have been fully explored. Lenders and insurers will look at a number of different situations to keep your customer in their home, including:
- A longer amortization period to lower monthly payments
- Decelerate payments
- Switching from a variable rate to a fixed mortgage to provide a consistent payment plan your client can budget for without fear of any future interest rate increase
- Refinancing or a second mortgage (lender may waive penalties)
- A payment holiday, adding missed payments to the back of the current mortgage or capitalizing arrears
It is important to note every lender and insurer differ. For example, Genworth’s Homeowner’s Assistance Program offers numerous options in the case of job loss, reduced income, marital separation and/or unexpected illness or disability.
Knowledge of your customer’s mortgage agreement and lender’s policies are key in advising them of their options and tempering expectations.
Step 3: Pay down debt or keep the home?
Unfortunately, there are times when a house is unaffordable and it simply doesn’t make sense to keep it. If your client wants to keep their home, their mortgage should take priority over paying unsecured debts. There are usually many more options to deal with unsecured debt vs. secured debt.
Finding a solution to deal with the other unsecured debts like credit cards, lines of credit, consolidation loans, etc. is where you can really help your clients to obtain a positive cash flow each month and make the mortgage easily affordable.
One of the key things to advise your client is whether they can afford the house they live in, or whether they’re over-extended. It’s important the client completes an accurate budget that shows fixed and variable costs for the month. This will help them determine if they can find the funds to pay the mortgage and manage other bills regularly.
If the house is not affordable but there is equity, selling the house is an obvious option. Some lenders/insurers offer a payment holiday of up to three months while the home is for sale. If your client is in a negative equity situation, then this needs to be carefully planned with your best professional advice.
In the end, delinquency is a difficult situation for all involved. Lenders understand this and will try to work with your client to find a solution. Providing expert assistance through the process can help ease your client’s stress and cement your relationship as their go-to advisor for mortgage needs – especially being the liaison with their lender in these stressful times. And, as everyone knows, if you make your business about helping others, you’ll always have plenty of work.
We’d love to hear from some of you who have succeeded in this area. Please share your knowledge and experiences in the comments.