“Second liens are a product that’s going to be really interesting over the next two or three years,” Davis said. “I also would say it would be foolish for originators, mortgage bankers, and brokers to not offer a second lien. And the reason is that it’s a great way to stay in front of your borrower and understand their financial position.
“Congratulate them on their equity. What’s going on in their life? ‘By the way, you have all this equity. Have you thought of using this equity as a solution for your other financial goals?’”
He said that if you aren’t looking for a solution for your past clients, somebody else will. Then, when rates drop, it will be less likely that you’ll be able to get them back to consolidate their debt into one mortgage again.
“If you’re not doing that as an originator, or you don’t have that product, all the loans that you’ve ever originated over the last 10 years, that loan has been sold to a servicer,” he said. “The servicer is going to be reaching out to those borrowers and taking that borrower. And if they have a first and second with the servicer, it’s going to be really hard in the future to do a refi cash out, because the servicers have a really good retention rate.
“So not only is having a second lien important, but it is critical so you don’t lose the borrower. It’s a great way to plant a seed for a future loan.”