Originally published on LinkedIn, 2018
I have this feeling of total Déjà vu. We’ve been here before. Or have we? I look back over the past 3 decades in mortgage and I see myself flipping my purchase business to refinance, managing lead teams, telephony on micro levels, back to purchase then back to refinance and now back to purchase again! What amazes me is how quickly we forget what got us here and that this time, we have to play an entirely different game!
Deja Vu or No?
If you are over 40 years old, you remember that in 1998 markets were rising considerably, banks were moving towards subprime lending, brokerages were popping up everywhere, AND we were trying to sell a higher rate in the high sevens. On April 30, 1998 CNN reported, “Federal Reserve Fears Spur Rise in Interest Rates.”
It was a front-page cover story! I was working for a national lender and like everyone, shifting my origination gears. The news was coming at the hand of recent rising default ratios for the newly-penned sub-prime loans.
That default ratio was marginally higher considering what we subsequently lived through in 2008, however it was a new rise and, at that time, created a panic in our industry. Thousands of newly minted mortgage brokerages were panicked in fear that the party was going to be over before they had even got started. Loan officers were leaving banks in droves to go to broker shops, handing in their pocket protectors for the luxury of multiple rate sheet shopping.
It was a different time, market, and catalyst maybe, but the result was a rise in consumer fear (for 6-12 months). As those rising rates prevailed, loan officer uncertainty increased, and a whole lot of people were playing musical chairs with their careers!
As always, Loan Officers adapt; they find the way!
We now know the solutions for the rising rate environments of the past will not work this time. Or do we? Are you looking around right now for the solutions? As a manager in this industry, your leadership is being called to the proverbial mat, but are you stepping up with the proper advice?
We no longer have 2/28’s with no MI and 95% Investment No/Noes. We no longer have pre-paid penalties in trade of short term adjustable rate mortgages, so we can’t just flip people into an alternative solution.
No, we don’t have all the rabbits in the hats anymore and so all those sales guys who needed a dog and pony show to pull off any sales in the past are going to struggle in today’s market.
Today, you need to educate and gain the trust of the consumer.
The way you choose to educate on the rate environment needs to be an honest depiction of our current world and if that is something you can’t do well or teach your originators to do well, then you will likely be one of the people left standing when the music stops playing.
So Now What?
Enter stage right, the Rising Rate Environment and the re-emergence of the Cash Out Refinance! “Hello old friend,” I say. “Where have you been all these years?” Yes, we are headed into a healthier but wiser market. So, this may look familiar but it’s really quite different.
Rising rates today are a symptom of a healthier economy. It’s no mistake you see the return of equity in Americans homes, that we are seeing stabilization and a robust return in the builders market.
There are no more rabbits in our hats or magic wands up our sleeves!
So how do you do your job now and win the volume this year? So glad you asked!
- First, if you’re not good with economics, you probably will have a hard time selling the current market.
- Second, refer to #1.
- Third, learn where we are, how we got here, and where we are going. Otherwise you will sound like every other sales guy trying to sling the bull. You will stand out like a sore thumb today if you are that guy because you are now surrounded by true blue educated trusted advisors. Be warned, the same game will not work as it did in the past.
- Managers, you need to give a history lesson to your newer originators and make sure they truly understand what the economic climate is rendering, how we got here, and why it’s a good thing.
Yes, there’s margin compression. Yes, that obviously effects profit and that affects our managers wallets and pocket books.
Yes, that means we need to adjust our rates where we are able.
Yes, that means we also need to educate our referral partners, our realtor affiliates and, quite frankly, anyone involved with mortgage transactions.
Finally we need to expect to do more for less and be willing to swallow that bitter pill.
This too shall pass!
- You need to truly know what you’re talking about!
- You need to believe what you are saying and that you are a trusted advisor.
- We will all be ok!
Look around, we are all in the same proverbial boat, the water is rising for everyone in the fleet. Jumping into the next boat doesn’t change your circumstances. Yes, now is a good time to find your happily ever after employer!
The grass isn’t necessarily greener for many of you on the other side of the fence. If you are not a strong salesperson, taking the upfront guarantee that short-sighted lenders will payout may be your short term salvation. I hope smarter heads will prevail.
Dig in. Learn the market. Help your clients understand.
Last but not least with inventory low, you need to find the product replacement, so focus on diversifying.
Don’t get caught up in a game of Musical Chairs because you already know how that game ends!