Pivot from Panic to Strategy


2019 will be a pivotal year for the real estate and real estate finance world. 2018 was the first year of a multi-year period of drought and starvation. In the first year, you are just thinking of getting through that month or that quarter or that year. Your decisions are short-sighted; you just react with survival instincts. You price irrationally (margins were unsustainable), pay irrationally (you would pay $20 for a $5 producer who would then deliver $2.50 due to the market), or buy any magical elixir that will make production appear (every lead and marketing appeared in your voice and email promising solutions).
Now firms know there is no end in sight and a refi boom is not coming to save us like the past 30 years. (Now the good news is that once we all believe that sad reality, refi’s will appear and the tone sure has shifted on Wall Street from 3 moves in 2019 to none, BUT if I start looking for my after Christmas presents I won’t get any! So now back to my campfire story…) This is the year that shifts us from panic reactions to strategic planning. When you realize you can’t cut margins that deep without changing your expense model, you make drastic changes to your business. If you’ve already cut salaried bodies and nice-to-have line items you are down to the heart and brain of the business, your sales and sales support team (leaders and assistants). In a perfect non-regulated world, how do you pay for being the best combination of revenue and efficiency? You must realign your business using new fresh eyes to see the marriage of consumer desires, technology, and compensation realignment to match.
Before we just slugged it out against our known competition; so we didn’t make big changes, just one more move than the guy we were recruiting from. Over the past year, money has poured into the real estate sector for pure disruption purposes. (Before that, money came into to gobble up existing firms and achieved efficiencies by layoff and consolidation theory.) We scoff at these new entrants like the internet lenders of 15 years ago saying it will never work. This time they have raised tech money and the tech attitude that they can lose money for years and still win. They didn’t come from banking; they didn’t grow up with a fear of compliance or risk. That forward thinking attitude frees up creativity that can create models and processes that are game changers---especially when accepted by the GSEs and major banks.
So what can we tell our aging sales teams who every month lose another potential customer before they ever got to their best referral source? They will never know because the oxygen just slowly leaks out of the room for them and their realtor. They see transactions occurring and neither of the traditional participants participates. Sure there will be plenty of deals to live off, but they shrink every year if you don’t adapt how you compensate so you can compete on price. Of course, then there won’t be plenty of deals to go around so LOs have to shrink.
So what do we tell them?
1) Master technology and the personal touch that makes you –YOU. If done correctly technology can replicate the basics of a relationship so you can be aware and present for the key parts where you are needed in a relationship. Tech can keep the relationship connected and warm so the clients never wander.
2) Communicate and listen to the way the customer wants you to. Ask and listen and ask again. Communication needs to be given the way the customer wants to hear it but YOU have to come through loud and clear throughout the process that becomes a relationship. Texting and video have to play a role as do self-serve portals for the customer to engage on their own time. AI (artificial intelligence) will sneak in here and be a subtle game changer.
3) Identifying the Influencers from day one and elevating them to an inner circle level of communication and first class service will expand your business, some of you are nodding your head as if you do. I throw the challenge flag on that. Have someone you trust audit that experience and I’ll bet you find three ways to upgrade the depth of the relationship that will tap into deeper levels of referrals.
4) Thoughtful and strategic thinking of how to mine your network by probing and connecting to the point of discomfort will open big doors. The amount of data we have that will continue to grow and be interconnected for us. But we have to be time-blocking to sit-down and put on the 3D glasses that make the 3 degrees of separation that connect two people who want to know each other and both who want to refer you.
5) Lenders need to think of themselves as being paid to give advice, as should Realtors. People only want to pay for that which they use. Our job is to correctly assess what the customer’s needs are and price that advice that will solve their need. If we assess it incorrectly or can’t get them to see what they really need, we lose the customer. If we win them we get correctly paid for that which we earned. The numbers could vary greatly by the customer, instead of the fixed % one-size cost structure today. How we work inside our crazy regulated world to do that is our challenge, but it needs to happen soon. Because others from the outside world who are disrupting us don’t know a Dodd from a Frank. They just know that customers want choice and transparency, and our industry is not known for either.
All but the last point can be accomplished by anyone. It takes a strategy, a plan to implement and the discipline to block it and execute it. If you don’t pivot in this pivotal year, there is always Amazon coming into our biz! I hear they just raised their wage to $15/hr.

Harsh Realities from Sunny San Diego

Ron B

Ron Burgundy: I'm kind of a big deal. People know me.

After returning from Duncan’s Sales Mastery I’m always forced to take a hard look at our industry. The mortgage banking poker game is approaching its last ante up and most are throwing their cards and saying pot’s too rich for their blood or the cards are against them and they are out, period. It frankly is the right answer whether it be a company or loan officer or processor. Mortgage Banking has become gambling; it has become a game of hope or chance if you play it the way you always have. And why wouldn’t you? The strategy has done well by you for nigh on 30 years. The market has always come back to you or the old tricks of the trade have found a way to make you a living to some extent.

But this time it’s different. If you are playing by the assumed rules that the attorneys and accountants tell you to play by you are at a disadvantage. There is no consensus as to what is right, compliant or wise. Which leads to reaction and panic. In this “Escape from New York” market, lenders are more afraid of the Bankruptcy court than the CFPB court. The pure capitalism of aligning revenue and costs to performance and compensation is fighting to rise and rescue this business. There are other ways to ensure good behavior than eviscerating the free market business model.

New entrants without legacy and deeply embracing technology will drive cost down and restructure ALL of the real estate processes, starting with the 6% on the realtor side which will drive significant change in the lending world. Lending, insurance, home warranty, etc. will all follow and value to the consumer will be redefined. Loan officers who can systematize the steps of their relationship building and educational process will be able to find AI models that will serve as virtual assistants for them. These assistants will do exactly what they are told to do on time no matter what. There will be no HR issues or ego battles with these bots—and they won’t steal your book! The LOs will be able to focus on what they are best at, the counseling of a great interview and a personalized analysis of their biggest debt obligation. Then repeat that annually for the next 30 years or more…

Right now we as LOs don’t do what we should every day. We are blessed with ADD and our success is tied to how well we manage it. As I leave another Sales Mastery I hear the ringing of the same words from ghosts of seminars and recordings past. We all know what the Bible says but we still can’t seem to master its contents. We listen to priests and preachers to hear them tell us what we already know. “You are weak and need encouragement and guidance as to how to get back on the Path.” Either way, the speakers were clear the surviving loan officers all will make less on more; so embrace the new efficiencies and realities or vanish.

A minority of Loan Officers achieve true success and only a few are able to maintain it year after year. Especially once they have reached their career goals.  There are no secrets; it is just execution and persistence. Knowing yourself, your true value, and your ability to handle rejection is the core to build upon. Sadly most can’t grasp those skills and therefore where we’re going as an industry 50% of the existing members will have to go and be replaced by 20% new blood and new intuitive technology that will empower the customer and allow for different levels of self-service that will align with savings to the consumer.

Loan officers and companies that adapt to that model will do more business in a different comp structure but will make more per hour IF they are at the top of their profession in efficiency and knowledge. There are still stockbrokers today but they have become wealth managers---there are 80% less of them than 30 years ago but the customer became empowered and the smartest customers who valued service were willing to pay not by trade but by money managed. Many customers who currently grind us down to a commodity will be deflected down the self-service chute to save their .125 and we all will be the better for it.

If you’re not closing 2-3 loans per month and you can’t keep up with technology and find yourself dreaming about the old days every day, find another business while the economy is good. This especially goes for management as well; there won’t be enough loan officers to pay your management override. You have to be all-in on reinvention and adoption of the new view and skill or success (and maybe even survival) will be impossible.

Don’t be Ron Burgundy; deal with your realities now and be in charge of your destiny.

“I’m very important. I have many leather-bound books and my apartment smells of rich mahogany.” — Ron Burgundy

 You stay classy, San Diego.

Buy the Rumor, Sell the Bonds

No matter how many times you say it, it still takes people by surprise… buy the rumor, sell the fact.

Well I talked about buying the rumor and selling the fact and QE2 lived up to its reputation there. The Market may have just had enough Government manipulation and the top of the mountain may have been crossed with the dreaded Land of Distant Inflation finally visible beyond the clouds many years away, but always present in the paranoid minds of bond traders everywhere. This kind of volatility usually signifies a bottom and it sure looks it this time. Now that doesn’t mean that bottoms won’t be retested and international events won’t trigger crash sell offs and panic buys, but the never ending rally is running out of steam leaving us a sputtering economy still trying to get its legs.

Now is the time to figure out what is your potential market; assuming rates stay within a full percent of their lows (so .5% higher than today) what is your potential market of just warm calls. Although most of us are still plowing through a bloated pipeline of refinances, odds are that your pipeline has seen it’s high if your shop is functioning correctly. So with the time of reacting beginning to wane the need to get a hold of your business, confirm a plan and begin to time block implementation is here.

Here’s the good news!!! There are 75% less competitors than a year ago! Housing affordability is at its highest in our lifetimes and rates are still near lifetime lows! The rules have finally been tightened to eliminate the sleazy, incompetent and disconnected through national and state licensing, coupled with well-funded enforcement. For those who are dedicated to their industry, with a strong sense of what is right, a strong work ethic and ability to adapt, this is your time!

Speaking of people with those characteristics, I attended the Mortgage Revolution pow-wow in NY in October and was very impressed with the bootstrap mentality and desire to outmaneuver the behemoths that drive the agenda today. The attention to Video, Social Media and progressive street level database/networking was the perfect recipe for cutting your way as an independent or even a team with-in the mid-size non-brand lenders in today’s market.

Those who are their own brand or are trying to build their own (especially trying to subversively break from the smothering brand they may be trapped in) must pay attention to these trends and embrace the change in this business. It is becoming clearer day by day what the new changes in comp and price may mean to certain models. The days of being everything to everybody will evaporate quickly. Specialists will appear or reappear in some cases. Where banks or insurance companies find potential sources of income (read jumbo, esp. super jumbo), they will subsidize their mortgage business but ignore other whole sections of the market.

Fringe and niche products like 203K, construction/rehab, reverse, bond, super jumbo, portfolio, HELOC will require delicate balance with the main book. The compensation handcuffs will complicate the active pursuit of these niches from an originator view but will factor into the overall servicing of the book. The attitude will have to change from one of WIIFM to What’s Good For My Business Long Term—(WGFMBLT???) The largest book of business with the most diverse referral base worked with focus, efficiency and discipline will win the share and continue to have the greatest return on investment.

Take the time this holiday and begin to map out your goals for 2011 and a plan to implement. Those who wait or take a rest will pay the price not just in lost months of income but in lost referral sources and market share. As Norm on Cheers said “It’s a dog eat dog world and I’m wearing Milkbone Underwear!”

 Happy Thanksgiving to you and your family!!!