« February 2018 | Main

Bigger worry: Ignorant Piranha’s or Amazon?

The traditional loan officer is experiencing constant erosion of the potential pool of candidates for their service. The “Amazoning” of our business is the risk that others come into your field with no burdens of compliance or credit risk or more importantly historical based fears and concerns and “free overnight delivery” you into matching their model.

Some of these models purposely don’t make money because they want to own the customer or make money on other aspects of the customer (see Gary Keller and Keller Mortgage), others see an opportunity to eliminate the salesperson and put out a price that disrupts.

What these outsiders lack is the appreciation that these are not units or widgets, but loans on people’s homes that carry 30 years of responsibility. Even after being paid off the decisions you made to grant that loan are a contingent liability, seemingly forever. Have any of these outsiders been through a credit cycle and seen what can happen if values drop? Gary gets his 5-6% no matter the number sold for and walks away scot-free. It is not unusual for a lender to see loans 5-10-15 year’s old walk back in their door with a bill attached from a lawyer or a regulator. I guarantee you that the Kellers and Amazons have not factored ANY risk into their modeling as they want to run a no margin business to just control the borrower and sell them other things. Mortgages are not “free shipping” or “free eggs” to sell milk.

Also, these new entrants are joined by telemarketing firms who have been shut down from refi business (in some cases legally—see HUD IRRLS) and banks/credit unions eager to grow and be consolidated. They are pricing loans that used to be priced for risk like jumbo or government with confirming or fewer margins. Jumbo loans frequently are priced below conforming even though the bigger the loan the bigger the risk (whose values are more volatile, and whose margin of risk is higher?). When the market turns, these banks will already be gone swallowed by a greater fool who will choke on what they bought.

All the low down government lenders in centralized chop-shops who are treating these low down/low FICO loans like consumer loans, after years of churning low doc refis have no idea of manufacturing risk; they are just trying to survive to the next refi wave. And as wrong as all these players could be they can be right enough to wipe out a year or two of market share and take collateral damage out of legitimate players.

So what does the traditional originator do? The over-40 majority group I worry about because of their ingrained memory of better times and the pining for its return. Blaming the last 6 companies they have been at in the last 6 years for their issues. It takes a very humble yet confident person to look deeply into who they are, finds what drives them and what they truly excel at, and reinvent themselves and their business while still being their best unique self.   Discovering how to do the job more efficiently while giving more value to referral source and customer will be where compensation is rewarded. As we currently serve the market, we originators have priced ourselves high enough to attract competition from the outside that will disrupt originators, not the mortgage business.

There are two basic choices.

First, you take a low comp plan with a low cap and a screaming price and match it with a heavy consumer tech experience where they do most of the work. You control the customer and referral source to doing it your way and back it up with an audacious Service Level Guarantee, you have a good production partner who runs this system like a marine and you steal share from others but you work smarter not harder while doing high volume.

The second path is to be a Loan Whisperer. You have mastered ALL products in your area and are seen as a true expert. Your high touch concierge level service is seen as a privilege to receive and you make a fair premium for your service. People know you are .125-.25 above lowest but enough people find it worth it that you have a very loyal following on social media. It also may not pay the same but it will be good for business for the future.

Trying to be both is dead skunk; especially in the Dodd-Frank world of compensation. Right now we are there and the Loan Officers and their companies are feeling a deep pain.

Currently, we in sales are struggling mightily with having “done their job” by having won the hearts and minds of their normal number of buyers in the form of pre-quals but then they don’t find homes due to inventory. So we stop, wait, blame the market. But we have not instituted tighter systems to stay in constant touch with this earned pool of buyers. We have not realized that you need to work your database of potential sellers so you can create deals (do you really do annual reviews??). We fight the technology that would allow them to increase their production and hourly effort so that we can find valuable ways to introduce our personal relationship with their customer. What industry outside of artisans and craftsmen do it the same way their whole career and expect the same result?

Only an economic crisis could change the landscape and I don’t see that in the immediate future. Sure valuations are frothy and there is a demographic and cultural shift in home ownership, but there are still immigrants every day who enter this country who want to buy a home as their first goal. Some of the rationales has shifted, and the new tax code didn’t help, but there is still a desire that will just be more rational and realistic.

We have too many companies and too many loan officers with unrealistic expectations. As product and credit differentiation is more limited due to regulations, QM, ATR, etc, price, comp, and model are left as options. There will be a split between “self-service” and “full service” with increased pressure to steer towards “self” as technology and AI improves the customer experience. It will take many years and there will be pauses to fight a 3-month refi war but the general direction is towards lower cost which also means lower comp for all in the process and savings for the consumer on paper but the potential loss of an advocate in the process.

These self-service jobs will be salaried with a smaller bonus per loan. They will be good jobs just limited in their upside potential and non-entrepreneurial. They will be the prevalent roles in the “brand” jobs where the consumer came in for the brand name –realtor and builder owned, bank and credit union, internet/call center.

The Loan officer who wants to bring full service has to master all products fit for their area. They have to have mastered technology –use a complete mobile app, utilize online app, full cycle CRM, Mortgage Coach Presentational software, Social Media daily integration, and more. They have to be confident enough and aware enough to seize every opportunity to partner with all potential partner throughout the life cycle –listing agents, borrower social network, CPA, CFP, Seller, Attorney, Affinity, etc. Like exhausting energy by fracking and tapping oil sands, they can’t rely on strip mining for easy refinance deals. They have to drill down daily and be purposeful in all they do just to stay ahead of the rising tides against them. The key is you can still make the same money if you are more efficient per action and therefore make the same money by “doing more business” per hour.

Fortunately, it will take many years of evolution, but the trend is undeniable. It is ironic that in the real estate transaction the outside forces would come after our 1.5-3% when the realtors 5-6% is there to be had. But they aren’t safe either. The whole real estate transactions 10%+ is in play and we all need to be better and faster to embrace change and adapt or be squeezed out over time….