Financial Coaching—Break the Cycle

Over the years I have seen society in the US struggle with repairing the disparity in housing amongst the races, the perception is that if lenders just stopped their conscious or unconscious biases everyone would be at equal footing. That may have been so in the 60-s and ’70s but as lending has evolved into a heavily commissioned game that argument lost its power. Instead what you saw were increasing minority homeownership but at higher or not competitive terms because lenders made more off of the new to the housing game.

The CFPB was born and Billions in fines were levied. Did that money go to solving the issue or did it go to creating a large bureaucracy that more than doubled the cost of getting a loan, eliminating competition and therefore higher terms to the consumer?  Did this bureaucracy increase minority homeownership? No matter of fact it is at its widest gap (30%) since 1968 Passage of the Fair Lending act! We need more than Republican or Democratic thinking. We need Great Society vision with wise business implementation.

You have to change a cultural view and learned behaviors that take a generation to form. We need Financial coaching, not just education. Currently, we teach a class on home ownership—anywhere from 1-3 sessions—give a certificate and a grant and this optimistic family can by the house. But then the boiler goes, they lose one of their 4 jobs, life happens and payments get missed. They can’t refinance because of their credit which also creates a disparity as “fair lending” rears again because they pay higher terms after closing than other cultures.

Even when we put a minority new entrant into the homeownership world they tend to stay there. How do we keep them financially active and smart in their choices so they can take advantage of lower rates and build equity over time that can be leveraged into trading up or cashing out and buying a new investment property? Most dependable wealth has been built through real estate, especially the move to the middle class and upper-middle class.

The answer is to create an AmeriCorps of financial educators, tapping into our aging population who have endless economic wisdom and mixing in recent college grads who bring enthusiasm and technology. The government needs to create a path away from public support and create stable independent households that add to the economy and tax rolls.

We are all faced with endless financial decisions; some are daily or monthly and some big ones are only once or twice in a lifetime. Markets and tax laws are always changing, you have to stay on top off all of it. How does one home buyer class solve the greater issue? Plus all the different financial choices you then have to make alone put you at risk of losing your home. Then if you are lucky to find a counselor to help you it is only once you are faced with foreclosure.

We humans have a funny relationship with money. It is power, pain, and joy altogether. For some of us, it’s a never-ending battle like battling weight gain. For others, it is an evil addiction like alcohol or drugs. Either way, the only programs that will help are long-time committed coaching programs that give clear rules and guidance with coaching. You will fall off the wagon, it’s how you get back on that makes the difference of whether you stay on longer next time.  Whether its Weight Watchers or AA, you know in your town where and when weekly meetings are and who the sponsor/coaches are. We need that structure driven by the Federal government and in partnership with the states for financial coaching to not only increase home ownership but increase wealth and stability across all races and classes.

Tax credits would be earned by those benefiting in the program and by those teaching in it. $2500 for a single $5000 for a married couple annually if they stay in the program and their fico does not drop (fico part is debatable). There also could be a financial rating or grade that is computed annually that drives like a fico or AUS decision that measures credit, reserves, and savings for retirement or education, etc. The point is that there are educated touchstones that will be there to keep them on their path, no matter what.

The educators are at the stages of life when they are looking for a greater purpose. They could use financial benefit by either having their college debt paid off as part of the federal loan program or are looking for tax breaks or medical credits. So beyond minimal wage, the government could add those credits to keep the jobs attractive for quality people who want to give back.

The full time staff of the Financial AmeriCorps is driven by federal edict but the positive repercussions from this movement will lower the demand for government housing and shrink the defaults on government and state loan programs and thus fund the department. Plus it gets financial education and jobs into a percentage of our youth and gets them to listen to the lessons from their elders. It puts money back into an aging population that we all will care for and makes them feel wanted and valued. Their financial experiences and wisdom from making mistakes and adapting to changes is an untapped resource that can power millions of lives.

No, I don’t want to be the 32nd Democratic candidate or Howard Schultz’s independent VP. But I do wish for a third-party solution that can tap into a lot of retired mortgage bankers who are looking to leave this nation and the next generations stronger than they are today. Plus I’m tired of the mortgage industry being the target of why there is such a disparity in homeownership. Look back to the days of Kennedy and Johnson and find a bipartisan government that used government programs to harness the power of youthful idealism and local wisdom to do great things.

Debate me, start the discussion---as 2020 approaches we need to get beyond the headlines and solve real people issues.

PS I wrote this before the announcement from Harris, Warren, and Booker about subsidizing down payments to the tune of $100Billion, but NO money to keep people in their homes. Who is teaching budgeting and financial planning? It feels good to put everyone in a home and you can pat yourself on the back for doing good deeds but similar to 95% of lottery winners going bankrupt awards are only half the story. It would have been better to stay renting than deal with the stresses of unprepared homeownership breaking up the family unit. Spend $1B on preventive education pre and post-close and utilize the low to no money down options available TODAY as they always have been to get educated buyers into their homes and stay there forever.

Pivot from Panic to Strategy


2019 will be a pivotal year for the real estate and real estate finance world. 2018 was the first year of a multi-year period of drought and starvation. In the first year, you are just thinking of getting through that month or that quarter or that year. Your decisions are short-sighted; you just react with survival instincts. You price irrationally (margins were unsustainable), pay irrationally (you would pay $20 for a $5 producer who would then deliver $2.50 due to the market), or buy any magical elixir that will make production appear (every lead and marketing appeared in your voice and email promising solutions).
Now firms know there is no end in sight and a refi boom is not coming to save us like the past 30 years. (Now the good news is that once we all believe that sad reality, refi’s will appear and the tone sure has shifted on Wall Street from 3 moves in 2019 to none, BUT if I start looking for my after Christmas presents I won’t get any! So now back to my campfire story…) This is the year that shifts us from panic reactions to strategic planning. When you realize you can’t cut margins that deep without changing your expense model, you make drastic changes to your business. If you’ve already cut salaried bodies and nice-to-have line items you are down to the heart and brain of the business, your sales and sales support team (leaders and assistants). In a perfect non-regulated world, how do you pay for being the best combination of revenue and efficiency? You must realign your business using new fresh eyes to see the marriage of consumer desires, technology, and compensation realignment to match.
Before we just slugged it out against our known competition; so we didn’t make big changes, just one more move than the guy we were recruiting from. Over the past year, money has poured into the real estate sector for pure disruption purposes. (Before that, money came into to gobble up existing firms and achieved efficiencies by layoff and consolidation theory.) We scoff at these new entrants like the internet lenders of 15 years ago saying it will never work. This time they have raised tech money and the tech attitude that they can lose money for years and still win. They didn’t come from banking; they didn’t grow up with a fear of compliance or risk. That forward thinking attitude frees up creativity that can create models and processes that are game changers---especially when accepted by the GSEs and major banks.
So what can we tell our aging sales teams who every month lose another potential customer before they ever got to their best referral source? They will never know because the oxygen just slowly leaks out of the room for them and their realtor. They see transactions occurring and neither of the traditional participants participates. Sure there will be plenty of deals to live off, but they shrink every year if you don’t adapt how you compensate so you can compete on price. Of course, then there won’t be plenty of deals to go around so LOs have to shrink.
So what do we tell them?
1) Master technology and the personal touch that makes you –YOU. If done correctly technology can replicate the basics of a relationship so you can be aware and present for the key parts where you are needed in a relationship. Tech can keep the relationship connected and warm so the clients never wander.
2) Communicate and listen to the way the customer wants you to. Ask and listen and ask again. Communication needs to be given the way the customer wants to hear it but YOU have to come through loud and clear throughout the process that becomes a relationship. Texting and video have to play a role as do self-serve portals for the customer to engage on their own time. AI (artificial intelligence) will sneak in here and be a subtle game changer.
3) Identifying the Influencers from day one and elevating them to an inner circle level of communication and first class service will expand your business, some of you are nodding your head as if you do. I throw the challenge flag on that. Have someone you trust audit that experience and I’ll bet you find three ways to upgrade the depth of the relationship that will tap into deeper levels of referrals.
4) Thoughtful and strategic thinking of how to mine your network by probing and connecting to the point of discomfort will open big doors. The amount of data we have that will continue to grow and be interconnected for us. But we have to be time-blocking to sit-down and put on the 3D glasses that make the 3 degrees of separation that connect two people who want to know each other and both who want to refer you.
5) Lenders need to think of themselves as being paid to give advice, as should Realtors. People only want to pay for that which they use. Our job is to correctly assess what the customer’s needs are and price that advice that will solve their need. If we assess it incorrectly or can’t get them to see what they really need, we lose the customer. If we win them we get correctly paid for that which we earned. The numbers could vary greatly by the customer, instead of the fixed % one-size cost structure today. How we work inside our crazy regulated world to do that is our challenge, but it needs to happen soon. Because others from the outside world who are disrupting us don’t know a Dodd from a Frank. They just know that customers want choice and transparency, and our industry is not known for either.
All but the last point can be accomplished by anyone. It takes a strategy, a plan to implement and the discipline to block it and execute it. If you don’t pivot in this pivotal year, there is always Amazon coming into our biz! I hear they just raised their wage to $15/hr.

Harsh Realities from Sunny San Diego

Ron B

Ron Burgundy: I'm kind of a big deal. People know me.

After returning from Duncan’s Sales Mastery I’m always forced to take a hard look at our industry. The mortgage banking poker game is approaching its last ante up and most are throwing their cards and saying pot’s too rich for their blood or the cards are against them and they are out, period. It frankly is the right answer whether it be a company or loan officer or processor. Mortgage Banking has become gambling; it has become a game of hope or chance if you play it the way you always have. And why wouldn’t you? The strategy has done well by you for nigh on 30 years. The market has always come back to you or the old tricks of the trade have found a way to make you a living to some extent.

But this time it’s different. If you are playing by the assumed rules that the attorneys and accountants tell you to play by you are at a disadvantage. There is no consensus as to what is right, compliant or wise. Which leads to reaction and panic. In this “Escape from New York” market, lenders are more afraid of the Bankruptcy court than the CFPB court. The pure capitalism of aligning revenue and costs to performance and compensation is fighting to rise and rescue this business. There are other ways to ensure good behavior than eviscerating the free market business model.

New entrants without legacy and deeply embracing technology will drive cost down and restructure ALL of the real estate processes, starting with the 6% on the realtor side which will drive significant change in the lending world. Lending, insurance, home warranty, etc. will all follow and value to the consumer will be redefined. Loan officers who can systematize the steps of their relationship building and educational process will be able to find AI models that will serve as virtual assistants for them. These assistants will do exactly what they are told to do on time no matter what. There will be no HR issues or ego battles with these bots—and they won’t steal your book! The LOs will be able to focus on what they are best at, the counseling of a great interview and a personalized analysis of their biggest debt obligation. Then repeat that annually for the next 30 years or more…

Right now we as LOs don’t do what we should every day. We are blessed with ADD and our success is tied to how well we manage it. As I leave another Sales Mastery I hear the ringing of the same words from ghosts of seminars and recordings past. We all know what the Bible says but we still can’t seem to master its contents. We listen to priests and preachers to hear them tell us what we already know. “You are weak and need encouragement and guidance as to how to get back on the Path.” Either way, the speakers were clear the surviving loan officers all will make less on more; so embrace the new efficiencies and realities or vanish.

A minority of Loan Officers achieve true success and only a few are able to maintain it year after year. Especially once they have reached their career goals.  There are no secrets; it is just execution and persistence. Knowing yourself, your true value, and your ability to handle rejection is the core to build upon. Sadly most can’t grasp those skills and therefore where we’re going as an industry 50% of the existing members will have to go and be replaced by 20% new blood and new intuitive technology that will empower the customer and allow for different levels of self-service that will align with savings to the consumer.

Loan officers and companies that adapt to that model will do more business in a different comp structure but will make more per hour IF they are at the top of their profession in efficiency and knowledge. There are still stockbrokers today but they have become wealth managers---there are 80% less of them than 30 years ago but the customer became empowered and the smartest customers who valued service were willing to pay not by trade but by money managed. Many customers who currently grind us down to a commodity will be deflected down the self-service chute to save their .125 and we all will be the better for it.

If you’re not closing 2-3 loans per month and you can’t keep up with technology and find yourself dreaming about the old days every day, find another business while the economy is good. This especially goes for management as well; there won’t be enough loan officers to pay your management override. You have to be all-in on reinvention and adoption of the new view and skill or success (and maybe even survival) will be impossible.

Don’t be Ron Burgundy; deal with your realities now and be in charge of your destiny.

“I’m very important. I have many leather-bound books and my apartment smells of rich mahogany.” — Ron Burgundy

 You stay classy, San Diego.

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….