Usherpa Blog - Preparing for the Coming Purchase Money Market
What lenders can do to get their LOs ready to succeed in the future
If you’ve been in the mortgage business for more than a cycle or two, you’ve surely heard that the refinance boom is coming to an end. Having been active in this business since the 80s, I heard it first in the early 90s, then the late 90s, in 2005, then again in 2014, 2016 and 2020.It hasn’t happened, but only a fool thinks it won’t.
Most recently it was Bankrate that called for the end of the refinance business, projecting interest rates rising to near 4% by year’s end and then rising past 4% in 2022. There just aren’t enough borrowers with higher interest rates to sustain the refinance business.
But that’s 2022! We’ve heard some people say this, but those people don’t realize how much work must be done to prepare today’s frontline mortgage loan originators to succeed in a purchase money market.
A salesforce woefully unprepared
I’ve talked to mortgage company CEOs from across the industry and every one of them is thinking the same thing. It’s keeping them awake at night. From the CEO to the branch manager, the conversations revolve around the same problem. Today’s LOs do not have the skills required to sell into a purchase money market.
Too many years of easy refinance business has eroded away any prospecting and closing skills that they brought to their positions. Many LOs have never had to sell into a purchase money market and have only a few business referral partners in their contact database.
We’re not saying that today’s professional LOs can’t sell. Just that they haven’t had to do it for so long that it’s going to be very painful when the refi business ends. They aren’t used to talking to real estate agents and builders and picking up a box of donuts isn’t going to cut it.
Management has to be wondering if they should have planned better for this, but even a casual glance at their calendars over the past few years will reveal that every moment was spent keeping their companies in shape to close mortgage transactions. They’ve been so busy doing their jobs that it’s been impossible to do the work of preparing their sales staff to succeed when the easy days are over.
Unfortunately, when it comes there won’t be a lot of warning. Interest rates will rise above a certain level -- and the experts debate what that number is -- and the refinance business will stop like someone turned off the fire hose. The trickle that’s left will leave lenders scrambling.
But it doesn’t have to be that way.
Preparing the mortgage enterprise to sell
Selling in a refinance market is fairly straightforward from a compliance standpoint. The borrower comes in looking for a lower rate, the LO finds them a product with a lower interest rate and the loan processor takes over. I realize that this is a simplification. But compare that to a purchase money transaction.
Now, everything the LO says to the consumer is being monitored by federal regulators. There are traps all along the way and any misrepresentation can lead to serious problems. As lenders prepare their teams to sell, they must look at the sales process and all of the materials that go along with it from an enterprise perspective. There should never be a communication going out from a loan officer that the company hasn’t approved.
But no company can monitor every single piece of information that goes out. What they can do is pre-approve the materials and then make them available to loan officers on a platform that includes an audit trail. This means that the lenders who will succeed in the future will be using an enterprise-grade Customer Relationship Management (CRM) platform. Anything less will expose them to unacceptably high compliance risk.
What the lender needs is enterprise control while giving loan officers individual responsibility for how they use the pre-approved material.
But what material will loan officers need to be successful? We’ll cover this in the second part of this series!
Originally published in the August 2021 issue of Scotsman Guide - read the full article here.
