Are You The Wheat or The Chaff?
By David Reinholtz
With interest rates on the rise, competition at every turn (In California, Albertson's grocery store is now "Home Loan Central"!) and the economy failing, mortgage originators who intend to succeed in our industry must separate themselves from the competition. Just as the wheat and chaff are separated during the harvest of grain, so too with rising interest rates, Loan Officers that are competent will be leaving those that are not in their dusty trail.
The most common question I am asked these days is "What will the industry be like when rates go up and the refinance market ends?" Well, for those that sell rate,, the opportunity to become an expert in our industry while it is relatively easy to succeed with the busy refinance market will be a brutal end to this opportunity of a lifetime. To begin with, in any market, a mortgage professional who's focus is on rate, quickly bumps into one of our two biggest competitors: Loan Officer's that lie and Loan Officer's that are not competent. I cannot match a deal that doesn't exist and you can't either. To be a truly great Loan Officer in any market one must know that rate doesn't matter. You advice as a professional loan officer and benefit you bring to your customers is what matters. This not only matters, it's critical for your competitive survival.
If rate did matter, then why did the most well qualified borrower accept an 18% fixed rate loan in 1981? Two reasons: it was better than what he/she had and it was the best that was available at the time. The same lesson applies to every situation in any rate environment.
Sell yourself, your advice, and customer benefits…not rate!
In the broadest terms, the three major benefits of financed real estate are the tax advantage, leverage and the inflation hedge that real estate provides. Most loan officers understand the tax advantage of homeownership but generally, their knowledge and advice stops there. When a borrower puts five percent down on a property and that property appreciates at a five percent annual rate, the owner is enjoying a 100% annual return on their investment. Try doing that with any other investment vehicle! There is no greater leverage than 100% financing on a property that goes up in value over a period of time. The concept of an inflation hedge in even more dramatic and less understood. If one owns a property, that home is appreciating annually while the monthly payment is not. Mortgage payments are not subject to inflation. When one compares a person who's rent is subject to annual inflation over a period of time, and the fact that they do not own an appreciating asset, the results are staggering. Even a reasonable rent payment when subject to average inflation when compared to a modest purchase can mean the difference of over one million dollars in net worth over the life of a thirty-year loan.
In addition to the three major benefits I have mentioned above, benefit includes much more. There is a huge benefit in shortening ones term. I promote twenty-year loans which offer two-thirds the benefit term-wise, with only one third the price increase when compared to the price increase of a fifteen-year loan. The lifetime payout difference is almost unbelievable. There is too much debt in this country and it's all in the wrong place. Loan Officers who think like financial planners and become their clients trusted advisors are literally changing the lives of their clients by providing better advice and education. Tools like the Mortgage Coach Software can be used to quickly gain your clients trust and respect within minutes. This popular solftware can be used to calculate equity acceleration, early principal payoff reductions, future values and the things that matter a lot more than rate.
There is nothing easier to sell in our industry than a debt consolidation loan because of the monumental benefit. Imagine a borrower who is currently at a fifty percent debt to income ratio. You refinance him or her and bring the debt ratio down to forty percent. That borrower has been living on about twenty cents on the dollar after paying taxes on their gross income and servicing his or her existing monthly debt. When we reduce the debt ratios by ten percent we are putting ten cents right back in the pocket of the borrower every month. If they are living on twenty cents now and we give them ten cents more each month that is a fifty percent pay raise on their available income. Our industry is the only one that is giving people pay raises right now. I don't want this to sound like a sales pitch for Mortgage Coach, but they have a report that does this for you in minutes. Even if you don't own the Mortgage Coach, you must find a way to professionally document and present this to your clients if you're going to compete.
Sell yourself. My attitude is this: There is only one Fannie Mae and one Freddie Mac and I've got them. I've got all the major lenders. If anyone can do it, I can. If I can't do it, probably no one else can either. There is only one thing that I have that no other Loan Officer has and that's what I need to focus on selling first. I sell myself.
One very easy way to sell your self is to ask the borrower about a past experience. "Have you been through the process of a home loan before?" We all know that most people have. If a prospect has not, you have a chance to be first and first is always best, like Coca Cola and Kleenex, first is always best! Most people have been through the process before however, so the next question should be "How did it go for you?" There will only be one of two answers and which one do you think is most common? "Not well", is usually the answer I get.. Ask the prospect what happened and then listen to their story. There will be no better chance to sell yourself and close right then by saying, "I'm glad you decided to give me a chance to do better, I'm not going to let that happen to you. You're going to like the way I do business. Now let's get started!" If the prospect happens to tell you that their last experience was a good one, (Why are they calling a stranger asking for the rates?) then you can still close by saying "Well, I plan to work just as hard for you. You're going to like the way I do business too. Now let's get started!" A great Loan Officer must be a closer. In addition you can also tell them about your "keeping in touch," or your "customer's for life" program. (You do have one don't you?) Many loan officers don't so this gives you a tremendous opportunity to show your customers that your job really begins when their loan closes. On top of that, this makes their last loan officer look bad if they didn't keep in touch.
At one time, I had a negative image of the word "closer". I imagined the car salesmen or women applying the pressure and tactics of their profession and was left with a bad feeling. A closer is a salesperson that takes the opportunity when it arises to stop talking and move forward. Too many loan professionals feel the need to over-educate their borrowers, giving them too many choices. When we give a borrower too many choices, we are requiring of them, something that is the exact opposite of our goal. A loan professional's goal with every prospect is to get commitment: The borrower's commitment to work with you. When we give a borrower too much information and too many choices we are requiring them to "think it over" which is the polar opposite of commitment. Think it over is usually "no". Be the confident expert and quickly lead them to a decision to do business with you. There is a fine line when dealing with expert advice. You want to know that your medical doctor is knowledgable, experienced and the best in their field. You don't want to know all the details of everything they know, you just want the bottom line and the summary. You want them to present to you say, "this is my area of expertise, here are some key distinctions and in your case, I advise the following. That's it!"
If there is a single trait that all top producing Loan Officers share it is this: Confidence. To exude confidence you must have competence. Invest your time and energy in getting as good as you can possibly be in this business and you won't have to worry about getting commitment and selling yourself at all. The best mortgage loan officer is a man or woman who has all of the knowledge and skills, but because they are so polished and prepared, they seldom have to use them…or so it seems. In addition, they use that knowledge and skill to really care about each customer. They give so much value to each customer that when it comes to referrals, they come in…almost automatically.
It's a new season in the mortgage industry. The wheat will always be in demand while the chaff of our industry may soon be blown away.
Who's in control of your business, you or the market? I haven't met a top producing loan officer yet that wasn't in complete, one hundred percent control of their business.
When all else fails, make contact with people that are interested in, or will benefit by borrowing money. What a concept!
David Reinholtz is the president and founder of LoanOfficerSchool.com, an instructor at closemoreU.com and the owner of Irvine Mortage in Southern California. He possesses more than 18 years of proven lending expertise. David takes experience gained from closing literally thousands of loans and uses it to mentor seasoned veterans and aspiring mortgage professionals alike. David's product knowledge and navigational skills have solved every possible residential lending problem many times over. His training classes, correspondence courses and other tools create top-producing mortgage professionals who add measurable value to every lending relationship by talking benefits, not just rates. Even loan officers with years of experience can learn from his guidance.