What do you want to be known for, who do you want to be?
When I first got suckered into the mortgage business (too many years ago), I worked for a jumbo “A” paper broker specializing in New York City co-op lending. Co-op loans are perceived as more difficult transactions and yet, to our staff, they were run of the mill, almost ho-hum. Getting those co-op loans through Citi, Chase, Wells…piece of cake. Navigating the board approval process for the borrower – no problem. Coordinating closings with bank attorneys and making sure the stock certificates were transferred – we had it covered. But you should’ve seen us when a subprime application with credit dings came across the desk. We didn’t know where to turn first, what questions to ask, what advice to give. We knew the players, Countrywide, Fremont, Wilmington, Greenpoint…but we couldn’t close a subprime loan no matter how hard we tried. It wasn’t something we did every day, each loan was like the first time and well frankly, we stunk at subprime.
Ironically, my next engagement was for a subprime banker with a knack for FHA. Processes and systems were geared toward identifying and closing FHA loans. “A” paper borrower be damned if they wound up in the tangled and often elongated FHA process (this was the pre-crisis mid 2000s.) Prime borrowers were better served elsewhere. We stunk at prime.
Next, I found myself at a retail depository with a higher income clientele. They were dutiful A+ borrowers who loyally returned to the institution loan after loan. The organization's people, systems and processes were known entities – they didn’t require too much handholding. The decision was made to introduce FHA loans through a broker relationship. An inordinate amount of time and effort were expended to establish the vendor relationship and implement an FHA process. In three years, we did 12 loans and every loan was like the first time. While we didn’t necessarily stink at FHA – it was hardly our forte.
With shrinking margins bucking up against a dwindling market, offering a multitude of products, serving everyone, everywhere might not be the best business model. Spreading your company’s efforts too thin implicates time, increases costs, complicates efforts and diminishes the customer experience. Determining your core markets, building platforms to best serve those constituents and focusing on what you can do best will bring the most value to your company in the long term.
One of our clients had a core constituency of middle income type borrowers, First Time Homebuyers, Affordable Housing, a smattering of Upwardly Mobile and Empty Nesters. Yet, after clamoring from the sales department who insisted they were "losing lots of deals", they implemented a construction to perm process and for their efforts – saw less than 10 construction loans per year. Construction and rehab loans are horses of a different color - not well supported by most mainstream lenders’ systems with processes requiring on-going bookkeeping, draws and constant monitoring. For our client, every construction loan was like the first construction loan – staff had to relearn the processes necessary to fund the project and track the loan. A less than optimal experience for the borrower, and humiliating for the staff members. They stunk at construction lending. Adding this functionality to their platform detracted from the best in class service they wanted to provide to their core markets. The decision was made to leave Construction to Perm and Rehab loans on the table – knowing there were others who could do them better. Our client would never be a construction lender. It just wasn’t what they wanted to be known for.
Today’s lenders should be doing a bit of soul searching and asking some existential questions, “who do we want to serve”, “how do we want to serve them” and “what value does that service bring to our lending institution”? Basically, it boils down to this, what do you want to be known for, who do you want to be? Are you a vegetable or a fruit?
Start by culling data - who are your applicants and to whom do you actually lend. Big difference? Understanding your fallout ratio and examining the loans that just don’t make it to the finish line will lead to more questions: Is our marketing message consistent with our product offerings? Are we attracting borrowers that we can serve? Does our lending profile jive with our mission and vision?
Next, categorize the applications you receive and the loans you close. Break down the market place into recognizable sectors (with an understanding that there is always overlap) and identifying those you anticipate serving: First Time Homebuyer (FTHB), Affordable Housing, New Construction, Rehabs, Upwardly Mobile, Empty Nesters and High Net Worth. Each of these sectors has distinct characteristics that are not best served by cookie cutter processes – you cannot on-board a first-time homebuyer to your processes the same way as an Empty Nester or the Upwardly Mobile (who have been there, done that and have the mortgage T-shirt.) Affordable housing candidates need counseling and the lead time is long as you prepare them for homeownership by helping to establish savings accounts and clean credit. Your systems and processes must receive and service the FTHB as effectively as the repeat customer. Shift your thinking and organizational design away from offering and closing loan products to attracting and serving sectors.
Once you narrow your markets take measure of your current loan type offerings to determine if you have the tools necessary to serve each market. If the market is First Time Homebuyers, do you offer low down payment programs, have you connected with a home counseling provider, have you identified and can your staff explain the variety of grant and down-payment assistant programs? Is your platform prepared for the hand-holding required to get these borrowers across the finish line. Can you service these loans to provide life of loan support in times of distress? If your market is Empty Nesters or the Upwardly Mobile – is your technology streamlined and mobile optimized to allow them to upload documents while they wait for the elevator at work? When it comes to mortgage lending - they’ve been there, no handholding needed – just tell them what you need and where to send it and make sure it gets there securely. High Net Worth – get that third party authorization form handy – they want you to get it done with their accountants, lawyers, personal assistants, realtors and agents. Don’t bother them, don’t call them – just make sure the keys are there on the day of closing – so their attorney can pick them up. Your systems and process should allow for seamless and secure connectivity with these authorized agents.
This realignment effort wouldn’t be complete if we didn’t have a word with our finance people. The right products serve the customer and the organization. Heck, every loan officer dreams of selling the 0% loan – but they’d have to knock off the entire finance department first. Profitability may or may not mean that a particular product makes gobs of money – it may simply serve your mission or vision and throw off a small return. All departments have to come to a universal understanding about the varying definitions of profitability pertaining to the variety of products offered.
Once you have identified the audience, lined up the loan products and cleared the financial hurdle, you can give your marketing department a clear vision of where to concentrate efforts to increase application volume and ultimately your pull through. Staff training should now be geared toward understanding the needs of those particular segments, how to communicate with them and where to go when external resources are needed. Systems should be programmed and vendors integrated to facilitate the markets you have chosen to serve. Design Key Performance Metrics and Dashboards to measure the success of your segments – they won’t all have the same KPIs. Net promoter scores should go through the roof since staff will proficiently and consistently close loans for the chosen sectors. Knowing who you want to be instead of being all things to all people is liberating. You won’t stink.
Existential, I know.
Debra A. Leone, Principal
Mountain View Advisors, LLC