What’s My Mortgage Rate And How Much Is It Going To Cost Me?
May 15th, 2008 Categories: Mortgage News
Mortgage professionals would like to believe there is more to sales than answering the: ‘What’s MY rate and how much is this going to cost ME?‘ question, but there really isn’t.
It’s become an industry of risk based pricing and articulate paper pushing, whoever can push the paper in the right direction the fastest, for the least cost, wins. Sure they’re are people who’ll appreciate the full service model, much like the real estate sales industry equivalent, but this demographic is shrinking and far faster.
Allow me to tell a story…
My former company, a mortgage brokerage, engaged in a gelatinous mix of marketing campaigns with value apropos via: Direct mail, cold calls, blast faxing (while it was legal), ‘press one’ predictive dialing, targeted lists, internet leads, database marketing, yellow page ads, weekly newspaper runs, networking at every Chamber of Commerce event within driving distance, pounding the pavement visiting real estate professionals, you name it we tried it…obviously this was pre-web 2.0…
We sold ‘value propositions’ six ways till Sunday. The ‘trusted advisor’, the ‘mortgage planner’, the predictive crystal ball soothsayer, the technician, the take-away, the hard close, the soft close, the assumptive close, the second voice…I’m guilty of pitching every hook in the book to convert a consumer into a client. Our economy is built on debt and we were slingin it from early 2001 till mid 2004.
Regardless of what dog and pony show we put on for a client, the question always came back to: ‘What’s MY rate and how much is this going to cost ME again?‘ So, in late 2004 I threw my hands up in complete and utter frustration with myself for selling every value proposition except the one that was most important in the eyes of most every consumer…rates and cost. While many consumers were thankful for our many talents, presentations and advice, after 30 days most abandoned their prescribed path to better living with less debt.
Over a very short period of time everything became lucid and clear…Screw the ethereal value propositions, if consumers want rate and cost, HERE take them. I pulled out my rate sheets and showed consumers how risk based pricing works, told them I needed to make $X to cover my costs and make some profit. We abandoned the crazy commission split model, purged alot of labor costs, and I never had to ’sell’ another mortgage again.
Instead, what we began to ’sell’ in late 04 was how f*cked up this industry was, like how a lesser mortgage professional would cram them into the best paying programs and never tell them otherwise, what YSP was, how things really ‘went down’. I seeded the consumers mind and turned them loose back into the market, almost without fail they came running back with stories of attempted treachery and deceit. We made less per loan and had less volume but we netted out better at the end of each month, which is the goal of many successful businesses.
This type of action went on from roughly late 2001 to late 2005, then things started to, ahem, tighten up. Our sales pitch sounded exactly like what began as back-page newspaper worthy, working all the way to the headlines of every major news outlet in the USA…The Mortgage Meltdown. The industry was f*cked up, bloated and ‘disingenuous’ it had serious lack of disclosure issues, its very nature was to find anyone that had some financial ware-withal and cram them into the American Dream of Homeownership or convince them to use their home as a low interest ATM machine.
IMO, lenders, most specifically the Alt-A and Sub-Prime fueled Wall Street backed lenders were/are the root of the problem, but this doesn’t make them the only problem.
Since rules were apparently made to be broken, broken rules in the mortgage industry had a name: ‘Exceptions’. An ‘exception’ was granted by lenders if the consumer (via the broker/banker) didn’t quite meet their own underwriting criteria. In other words, they broke their own rules for an extra .25% of the loan amount, which came out of the broker/banker or consumers pocket, sometimes both. What is a broker/banker or consumer going to do at this point? Turn the deal down and lose the home/deal over a .25%?-LOL
It’s easy to look back and see that this practice was ’suspect’ at the very least, but at the time it was simply business.
We found ourselves openly joking about not remembering a lenders name as much as we knew their niche. There was the no VOE lender, the 12 mos bank statement guys, no seasoning specials, it got to be like: ‘Hey who’ll do a 80% plus seller second, 6% concessions 610 stated wage earner with no seasoning?’ What that means is: Have 610 middle FICO and some silly paperwork and you get a mortgage for probably very little money out of pocket, in many cases none.
I bolted the industry in January 2006, closed shop and went into the business of consulting other brokerages on how to lean out and prepare for the tight times ahead.
Fast forward to 2008.
Enough nostalgia, Judgement Day has all but arrived for the mortgage industry and it’s being choked out from the ground up. This is what happens during lean times after an unprecedented boom. The fat gets trimmed, it’s survival of the fittest, those not willing to adapt, adopt and change either burn out or fade away.
Needless to say many of the scenarios I described above are no longer in practice because the lenders that fostered it and the brokers/bankers/consumers that reveled in it are either already out or heading straight for the door. The lenders who are still functioning and used to look for every possible way to approve a loan, now scour files for any reason to turn them down.
So what’s left?
A battle of attrition and nobody’s pulling punches. If you’re still in the industry it’s all about who can push who under The Bus first. Conforming, FHA and VA loans are the only stable parts of whats left of this machine.
The government is preaching transparency while allowing certain designated mortgage businesses the privilege to be exactly the opposite. This isn’t good news for the small to mid size companies.
The ubiquitous mortgage solution circle jerk stands to serve big business and the lobbyists, leaving the small to mid size shops floundering in the wind and ultimately on to another career because of the skewed disclosure laws that favor one side of the business over the other.
If it’s not obvious by now, many powerful institutions with alot of money would like to see nothing more than the mortgage broker sucked up into their vacuum and erased from the landscape. They’ll have everyone believe this is for the betterment of the entire industry. I beg to disagree.
If there’s a new age battle going on, old-school weapons won’t do.
Lets face it, the whole ‘trusted advisor’, ‘mortgage planner’ talk sounds nice and noble but generally goes in one ear and out the other. We offered to help people get to retirement debt free, gave advice on how to ’save thousands in interest’ and religiously offered the cool software that produced fancy spreadsheets to show how ‘quickly and easily’ they could get there or how low their ‘effective interest rate’ could be, if they heeded my ‘advice’.
*Thud*. Thats the sound of sage advice hitting the bottom of their mental trash can. Unfortunately financial planning propositions are of little value to the general consumer, who in the end just wants to know what their rate is and how much the transaction will cost them, period. In a society of consumerism where most people live paycheck to paycheck, they’re far more concerned with how they can save $1000 today rather than $10,000 over the next 10 years.
Instead of delivering the product and information that a consumer wants, many mo-pros today are simply trolling new mediums spouting the same message, the same tired value propositions.
Mortgages really aren’t that hard to explain or understand, it’s the hieroglyphical documents that are supposed to clear things up, coupled with the ‘baffle you with bullshit’ sales pitches that confuse people.
It doesn’t take a degree in rocket science to figure out if you only plan on owning a property for 3 years, then a 30 Year fixed isn’t practical, and you can save money by taking the lower payment a 3 Yr or 5 Yr ARM (often) affords. If you invest the savings, you’ll make money. If you send the savings to the lender every month, you’ll pay the loan off sooner and pay less interest.
I’ve dished the ‘transparency in mortgage’ story in more flavors than Baskin Robbins, yet its all very vanilla…Consumers want to know ‘Whats my rate and how much will it cost me?‘ Whoever can answer quickest, with the most accuracy and deliver the goods in a reasonable amount of time wins in the land of Mortgage 2.0.
Get rid of your dated value propositions, get lean, get naked or get on to another industry.
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