Putting it into Perspective

December 28, 2023

Coming off two of the most difficult years in the mortgage industry, we have seen a significant reduction in the sales force including loan officers, assistants, operations and support staff along with mid and high-level positions.  The name of the game is right sizing, minimizing losses and “profitability”, all necessary to survive and to position companies for the year to come.  

To give a background, I began my mortgage career in 1985.  I recall the 30-Year Fixed Rate was around 12.96% and the 1-year ARM was around 11%!  Rates today, fluctuating between 7% and 8%, do not seem too awful in retrospect. 

However, I was new to the industry, so I didn’t know if that was a good or bad rate; I just knew I had to go out and get loans. This year we saw rates pop over 8% for the 30-Year Fixed - the highest in 23 years.  

I share this background with you because I feel it is important for you to know that for 20+ years, I originated loans, just like many of you.  While “rate” was always important, it was never the driving factor for my success…nor should it be yours.  I believed then as I do now, ‘rates don’t buy houses, people do”.  Many of the traditional reasons why people buy homes are true in all markets.  Whether it is due to a relocation, job transfer, life changing event such as marriage or divorce, having children, a better school district, bigger home or down-sizing…the list goes on.  

The MBA reports that the average age of those of us in the mortgage business is 58 years of age; however, there have been a significant number of younger men and women join the industry.  What I witnessed, and what has reshaped our industry today, is that a lot of the younger Loan Officers entered the business during a REFINANCE BOOM in 2020 and 2021.  Per Freddie Mac, the 30-Year Fixed Rate averaged 3.0% in 2021.  Those days are over, and I do not expect we will see rates that low again.  Let’s remember the reason rates were artificially low...it was to spur economic growth.  In 2021 there were $2.8 trillion in first-lien refinance; a 7.6% decline from 2020.  What a great time to enter the mortgage business as a new Loan Originator; however, this group sold the “lowest rate”.  Many did not forge relationships with their referral sources.  Why would they, right? 

Fast forward to 2022 and 2023 and this same group of Originators have either exited the business altogether or have taken on a second job to stay afloat waiting for the next cycle.

For those seasoned Originators, most of their purchase business came from established relationships with Real Estate Agents, Financial Planners, Builders and past clients.  I found that the solid relationships I had with Realtors were ones where we had something in common.  I got to know them on a personal level, and they too got to know me on a personal level.  I knew their likes and dislikes, their children’s names, their favorite restaurant or favorite food, what sports they watched…just about everything I could get to know.  While some of you may argue, “today is different” …”you can’t visit real estate offices anymore”…”there is the internet to compete against”….”borrowers are more educated today”…and so on, I will argue that while all of that is true, they are simply obstacles that you can easily over-come.

Let’s face it, do you really want to create, print and drop off rate sheets in tiny mailboxes in a Realtors office?  Do you really want to become the “donut guy”?  I don’t think so.  Both would be ineffective and unsuccessful today.

Alternatively, researching the Realtor and then calling to offer something of value is much more effective today.  Of course, I would do this in person over breakfast, lunch or dinner because it is all about establishing the relationship that counts most.

Why not research that Realtors SOLD homes over the last 3 or 4 years and running a “Zestimate” in Zillow to determine the equity gained in these houses since the initial purchase?  Then compile a list that you can provide to that realtor, of all those properties that have increased 20% or more in value.  Point out to the realtor, that because of this increase in equity, these homeowners can easily move up and are potential “new buyers” for YOU!  Then ask that relator to meet with you for lunch…provide a specific day, time and location.  Chances are, you are on your way to forming a relationship that will pay dividends for years to come.

The internet…let’s face it, Realtors hate it when a buyer uses an internet lender.  And Realtors remain the #1 referral source of Loan Officers to their buyers.  Be prepared to combat this objection from your potential borrower.  For instance, “While you found a lower rate on the internet, your realtor will agree that the internet is a “great tool” for research; however, you should avoid choosing an internet lender because you may never get to the closing table!  Explain that “most internet lenders are set up as “Lead Generation Companies” that post low interest rates to get you to bite…then at the end, they offer a higher rate based on LTV, Down Payment, FICO Score or other reasons.  The fact is, you may not even speak to the same person every time you call. With me, you and I can meet in person; you can come to my office, I can come to your house, or we can meet at the local Starbucks.  Regardless of where we meet, I am positioned to be your “lender for life”.  See, I don’t view your loan as a transaction; rather I look forward to getting to know you and helping you now and the next time you decide to purchase or refinance your home.  

Borrowers are more educated today than ever before.  This is true; however, service and relationship are still one of the top reasons a borrower will choose a specific lender over another.  When I say “service”, I do not mean servicing their loan.  I am referring to is returning their phone call or email within 2-minutes of receiving it.  Answering your phone 24/7.  It means staying in “constant contact” during the process.  It means sending updates and statuses via text messaging.  It means sending them a hand-written card thanking them for choosing you to assist them with the financing of their home.  It means attending closing…it means giving them a closing gift with a THANK YOU card and finally it means “being the expert”.  You need to inform your potential borrower of current market trends, economic data that is due out and the impact it may have on interest rates.  Should they lock or float…be the expert!

When I originated, I set my TV to CNN and other financial networks, and I would wake up listening to the news.  I became engrossed in learning the bond market and how to predict rate changes up or down based on the Economic data being released, the 10-Year Treasury and Bond movement.  As a result, I felt comfortable giving advice and sharing “the news” and soon I was considered “the expert in the industry”.  You need to realize that the chances of the next Loan Originator they call providing market information is slim to none and this is how you can provide “service” and establish a “relationship”.  

Relationship Sales is with both your referral sources and borrowers.  While it may seem impossible to establish a relationship with all of your borrowers, you MUST market all of your past clients.  Whether you are into marketing or not, you need to set it and forget about it and let a marketing platform handle the marketing for you.  The theme is simple:  THANK YOU for your business and asking for a kind referral of a friend or family member. 

Many of my Realtor referral partners were either passing away or retiring - sad but true.  I had to pivot quickly, so I switched from realtor referrals to Past Client referrals…honestly, it was a breath of fresh air!  I soon realized that my past clients became my #1 referral source of new business.  It was awesome!  I found myself transitioning to a point where I was picking the Realtors I wanted to work with.  In fact, I fired some realtors who simply treated me with disrespect in the past.  What a great position to be in.  

The biggest change in our industry was the implementation of the Dood-Frank Act; specifically, no more sharing of overage and underage.  Some newer Originators, who got into the business after July 2010, may not even know what I am talking about; regardless, I am sure you will agree that if overages and underage’s were shared today, many of your decisions on quoting rates and how you approach your business would be different.  

While I won’t get into how the business has changed over the last decade, or how many companies lost money in 2017, 2018, 2022 and 2023, or that were forced to close their doors, there still remains success stories; both with individual Loan Originators and mortgage companies.  The name of the game has shifted to survival, profitability, and market share.

Being profitable is the name of the game and it starts with you!  It is easy to see that some Loan Officers, some branches and even some Regions are profitable, while others are not.  Those that are profitable will tell you they start with having the correct “mind-set”.  

I have experienced this myself.  I remember covering for a Loan Officer who went out on maternity leave.  I personally always cut .50 point right out of the box when quoting interest rates.  It’s just what I did.  She instructed me to quote “right off the rate sheet…no cutting pricing….I don’t take underage’s”.  I was thinking to myself, “wait what”?  She was one of the Top Producers in the Company, made the Chairmans Club each year and wasn’t taking underage’s!?  As a result, I originated more loans for her in her absence than I did for myself.  A lesson learned.  The first part of the lesson was that she had “solid relationships” with her referral partners.  When she was referred, the customer was told, you have to use Susan and they did regardless of the rate quote.  Second lesson, you don’t have to give it away!  This I found to be true.

I challenge every Branch Manager and Loan Originator (particularly those who are not profitable), to change your mind-set and to use some of the techniques shared in this article.  

And finally, “stay in control”.  I look back and wonder when the table turn where the Originator or Mortgage Company lost control of the business?  Gain your control back.  Control the real estate agent…control the borrower.  You are a professional after all and you should be treated as one.  

When interest rates drop and you lose a deal because the borrower had chosen to lock-in, ask yourself if you took all the necessary steps to establish a “relationship”.  Also, take that opportunity to circle back to any potential borrower that did not choose to go with you for one reason or another and offer them the lower market rate.  In many situations, you will pick up a loan or two to replace the one you lost. Focus on “Relationship Sales verse “Transactional Sales” and you will win every time!  

The last two and a half years have been difficult.  I imagine there are about 50% less loan originators today than in January 2021.  Companies have closed, many have been acquired or merged and lay-offs have been at record highs.  

Michael Jordon missed hundreds of fouls shots.  He missed shots at the buzzer, yet he is considered the best basketball player that ever played.  I remind you of this because if you are reading this article, you are a superstar too!  Focus on the wins.

I look forward to 2024, both the challenges and successes.  

Wishing you continued success in 2024 and beyond.  Need advice?  Reach out to me on LinkedIn or email me at jim@mortgagesavvyadvisors.com 

Jim Foley

Mortgage Savvy Advisors, LLC