What 2010 Holds for Mortgage Professionals

Boni Lonnsburry: What do you see happening in the mortgage industry in 2010?

Dave Savage: The year 2010 could be an interesting, exciting and scary year all at the same time. The interesting and exciting part is the fact that we are obviously getting closer to a bottom in the financial crises. However, the scary part comes from the big question on everyone’s mind, “Is 2010 the bottom or is it going to get even uglier?”

I don’t know the answer to that question, I don’t think anybody does. As loan officers, I think we should plan for the worst and hope for the best. In the process, we should take every challenge in the marketplace and try to turn it into an opportunity.

One thing I can predict with certainty for 2010 is this: The new compliance guidelines are going to change our industry. Sure, it had already changed from an underwriting standpoint as far as dealing with lower property valuations and the accompanying appraisal challenges as well as stricter underwriting guidelines. However, the new GFE (Good Faith Estimate) and all the new rules that went into effect as of January 1 are going to yield another profound wave of change.

The savvy loan officers, the ones who are going to win this year, are the loan officers who embrace this new compliance world. They welcome it, and they learn how to turn it into a competitive advantage that further separates them from other loan officers in their market.

Boni: Do you have any other predictions for 2010?

Dave: I will make a bold prediction and say that 2010 is going to be a purchase market. I definitely believe that interest rates will go up. They don’t have a lot of room to go down. Therefore, we will see an increasing interest rate market that will eliminate refinances. The loan officer who is very purchase-market focused, and has embraced compliance and made it his or her competitive advantage, is going to see a lot of growth in 2010. Just like this year, there will be loan officers who have the best year they have ever had in this business.

Boni: That is very true.I see people all the time, in mortgage and real estate, having their best years ever. It seems counterintuitive, but people still are flourishing out there,

Dave: I have never in my more than 23 years in the business seen a bigger separation between the “haves” and the “have nots.” You can find great loan officers who are having record-breaking years, but the middle class loan officer has been crushed. They are either starving and barely closing three loans a month or successful and closing seven or eight loans each month. The mega producers who are closing 20 and 30 loans a month are far and few between because it’s so hard to close loans and run a big pipeline anymore.

However, every loan officer in America can be successful. They need to focus on purchase business, embrace compliance and respect relationships. Have a great strategy. Implement and execute. There is no forgiveness. In past years, a loan officer could be successful just by being everybody’s best friend at the country club, putting in a lot of hours, or being a loan officer who Realtors liked because he/she had tickets to ballgames. Those days are gone. Now if you want to be one of the loan officers who have success, you need to have a good business strategy and execute it. Being everybody’s best friend just does not cut it.

Boni: What are some of the specific strategies and tactics that you see these successful loan officers implementing and executing?

Dave: Let us start with the new GFE. It is now four pages long. It includes requirements regarding committing to the interest rate and how many days the rate you are quoting is good. It is all about empowering the homeowner to go shop for a loan. It is all about disclosing how much money you, as a loan officer, are going to make from their loan. You don’t get to make a penny more than what is initially disclosed. There will be no more day trading on interest rates, or quoting a rate where you make one point then closing it and making two points. Those days are gone.

As a loan officer, your are going to have to compete with Internet companies and other low margin big lenders that are operating at earnings of a point or less than a point. If you want to be an originator who still makes a healthy profit in this market, and you want to make 1.5 or 2 points, you cannot hide it or disguise it. You need to communicate to the homeowner that you deliver value. They need to see that working with you is a more valuable experience because you are going to help them make a more informed and intelligent decision.

One of our strengths here at Mortgage Coach is helping you provide a mortgage plan for a client. You need to help them analyze the total cost of different loan programs over time. You need to counsel that them on different debt reduction strategies to help them pay off their house sooner. The typical loan officers, the “have nots” who are the strugglers, they are not going to do that. They are just going to provide the same GFE that everybody else is providing, and they are not going to add the value of a superior presentation to the client.

As a result, there will be a lot of opportunity to differentiate at the point of sale. At Mortgage Coach, we have spent a lot of time creating tools and presentations to help loan officers really differentiate themselves in how they are presenting loans and loan programs in this new GFE world. No matter how you slice it and dice it, loan officers are going to have to be doing that at a different level.

One strategy is utilizing great ideas to win Realtors. One of those great ideas is to help them out with their first time homebuyers. A good loan officer has the opportunity to be an extremely valuable resource to their Realtor referral sources. When a Realtor refers a first time homebuyer to a loan officer, he or she wants to know that the loan officer will have a conversation with that homebuyer that creates a sense of urgency. They want the loan officer to lay out all the logical reasons why the homebuyer should purchase a home. For example, being able to do a good “rent vs. purchase” analysis in order to explain the benefits of homeownership to that first time buyer is essential. The “seller buy down” program also helps loan officers to deliver unique value from an analytical and logical standpoint.

Another strategy is having a great follow up program. Once you engage in a relationship, whether with a client or a referral source, you want to be able to stay constantly top of mind through quality, professional marketing. I don’t think anyone does that better than In Touch Today in terms of the quality and professionalism.

This leads us to the third strategy, which is to be more selective of the Realtors with whom you do business. The Realtors who were successful two years ago are not necessarily the same Realtors who are doing all the transactions today. As a mortgage professional, you need to target the Realtors in your local market who are actually doing transactions. That is more critical than ever before. Just getting a relationship with a Realtor is not good enough.

Boni: So success is not just about selling loans anymore. It is about selling financial strategies.

Dave: Absolutely. And speaking to that, in some ways the business has become more commoditized. It is a chocolate, vanilla and strawberry market. There are no longer option ARMS. People are either getting into 30-year fixed rate or 15-year fixed rate mortgages. They are choosing from FHA, VA or a few very basic ARMs. A loan officer is selling strategies and service. However, selling service in the mortgage industry is no longer just saying, “I got a pager, I’m available 24-7.” Selling service is delivering a unique experience. A lot of how you are being measured involves your touch points, what you are mailing to your clients, what your presentation looks like, what your proposal looks like.

Loan officers need to sell a premium branded experience. They need to think about every touch point they have with a client, whether it’s their loan quote, their Good Faith Estimate or their actual mortgage plan.

Boni: It has certainly become a different business hasn’t it? I think what Mortgage Coach can do now more than ever before is the differentiation that has become even more vital.

Dave: It really has. You cannot differentiate on loan programs anymore because everybody has the same programs. And now with the new Good Faith Estimate, and having to quote what you are going to make up front, you can’t hook clients with low rates and then charge more (which some loan officers did). If you want to be a premium loan officer, you need to deliver premium service. Your collateral, your marketing, the experience you present needs to be intelligent, polished and professional. Without that, you will be perceived as a discount mortgage provider competing only on price. That is never very profitable.

Boni: I think the upside of all the turmoil in the industry is that it is a less competitive business now.

Dave: There are 50 percent fewer loan officers in business now than there were two to three years ago. But the American Dream of homeownership is not 50 percent less valuable to homeowners. Everyone still wants the American Dream. There are great days ahead for perceptive, adaptive loan officers. However, for those who are winging it, it is not going to be a bright year.

Boni: What do you think about the first time homebuyer market? It was so hot in 2009; do you think it will continue to be hot in 2010?

Dave: I think it has to continue to be hot. The government is still providing an incentive, it is still a leading market, there is still a great affordability factor, there are still a lot of people who qualify to be first time homebuyers.

I see the move-up buyer market building steam as well. It is a great time to buy if you are in a place in life where you want to move up your lifestyle and you have the financial wherewithal to do it. Rates have never been lower and values have never been lower. You are getting values, depending on what zip code you are in, that are 30 to 60 to 70 percent less than what they were three to four years ago. Sure, you may lose value when you sell the current home, but you’re getting that big new house at the same value.

Like I said, and it’s worth restating, 2010 is and will be full of both challenges and opportunities. It certainly won’t be a simple year, meaning people are going to have to adapt, really invest in themselves and their skills if they want to stay hot.

Just the compliance guideline changes alone represent this mixed landscape of challenge and opportunity. Successful loan officers this year are going to master this new compliance world. They’re going to gain a huge advantage. And they’re going to have a great year.