So this issue’s theme is creative financing. Since I’m writing this before the issue comes out, and I am not Stewart Mednick, I don’t know how long the issue’s going to be, but if it really were just about creative financing, it would be a pamphlet. I’ve been around long enough to remember real
creative financing, where we stitched together a three-investor hard-money second at 18% on top of a HELOC 1st
so the borrower could buy the property, then two months later refinanced the entire package at 85% on a non-Fannie subprime 2-28 no-doc. THAT’S creative. Time was, non-government loans were a viable part of the marketplace. Now Fannie, Freddie, FHA
have about 97% of the mortgage market in the US, and there isn’t a lot of variation within this product group. Still more, where there used to be wide variance from shop to shop in what products were offered, now the demise of the mortgage broker and the homogenization of the banker makes it so that everyone, with vanishingly few exceptions, offers the same money the same way. Being that this is a marketing column, and the first one, too, I should probably get off that particular soapbox and propose some solutions to the current less-than-optimal situation. And as it happens, I have a couple to propose. But they have less to do with creative financing – that’s in a more-or-less eternal hammerlock now beneath the federal behemoth – than with creative client creation, if that doesn’t repeat myself too much. Said a bit more intelligibly, once we could take a borrower and customize a loan package from thousands of products. Now, we have to take a loan and customize a borrower from thousands of potential clients. We used to fit the loan to the client. Now we have to fit the clients to the loan. You’re already saying – I can hear you – that’s exactly the problem. We don’t have a lot of creative loan products, and the products we do have are so narrow on approval that not only can’t we put a square peg in a round hole, we can’t even put round
pegs in round holes. There is truth to this. It’s a problem that is going to get worse before it gets better. There is no question that regulatory strangulation, coupled with market seizure, has significantly complicated the loan process and shrunk the market. But I ask you in response: so what? What can you do about it? Can you make Dodd-Frank any less destructive? Can you restart the private secondary purchase market? If you can, I don’t know why you’re reading this, so I’m assuming that you can’t. What can you do, then? Here are a couple suggestions: Stop looking for borrowers that fit your products.
Right, you’re saying. Then, instead of the bit I do have, I’ll have no business at all. But this isn’t true. For a long time, the way to do business in our industry has been to walk through the orchards and pick whatever fruit happened to be ripe. That was fine, back when there was a lot of fruit getting ripe, but now that isn’t happening. Waiting for perfect borrowers to click you on Facebook is not going to pay the bills. Instead, you can start looking for borrowers that you can make fit. It takes longer to grow your own borrowers than to find them running around free-range, but it’s a lot more dependable source of income. Consider that despite the dramatic drop in completed mortgage contracts over the past few years, the demand for mortgage products is as high as it ever was. A recent study found that 80% of the population expects to need mortgage financing in the next few years. That’s a market, folks, of 240 million potential borrowers. All right, so your four-year-old doesn’t count yet, but even so, that’s a gigantic group to target. The problem is that approximately six of those 240 million people are going to qualify just by walking into your shop. So solve that problem by targeting people that want to do something and can’t. First off, there’s less competition for those people’s attention. Second, the way things currently are, without expert guidance, they might never qualify at all. And third, if it’s you that shows them what they need to do, it’s you that is going to get the business, no matter what the Google page rank of the outfit down the block. People are hungry for this information. They’re also skeptical of the search-engine-optimized link-bait article they find when they search online. Millions of borrowers would be very grateful to talk to someone that knows the score, and how they can eventually do what they want to do. Stop looking for people that already fit. Look for people that want to fit, in any condition, and work with them until they do. Stop being boring.
Tip two is a bonus, because I believe that the successful loan officer of tomorrow is going to be a self-generator of mortgage loans from a loyal clientele (that’s a successful loan officer of yesterday, too, come to think of it), but since we’re talking about creativity here, let me encourage you to start thinking of ways to get people to ignore the fact that you’re in mortgages. Can we face facts for a second? Nobody wants a mortgage loan. Coming to see you ranks somewhere between a dentist’s visit and chemotherapy. They need you, but they need you the way they need a thoracic surgeon, not the way they need Rolling Stones tickets. It would make their decade if they could do without you altogether. So pitching rates and fees and guarantees and all that jazz is, I guess, necessary, but it also plays on the home field of the big boys, who have more money than you and can outshout you on lowest-rates-of-the-millenium. What they can’t do, or won’t do, is get creative about putting themselves in front of people that ultimately feed into the group in tip 1. People don’t want mortgages. Fine. What do
- They want to shop. One local Realtor does a Tour of Disaster, a look at the four or five worst-condition homes on the market. It’s quite popular, and she couples it with a visit by the local FHA 203(k) specialist, who knows what it would cost to fix the disaster and make the house a steal. Now we’re talking. Those houses move. Loans get done. Home shopping is fun.
- They want inside information. I’m hearing about some seminars out there that show people the secret code to always – ALWAYS – get approved for a mortgage. You and I know that it isn’t rocket science (it’s sometimes even harder than that), but most people don’t. They know it’s hard, but they don’t know the code. You do. Offer it to them.
- They want a plan and a guide. Life is increasingly complicated. There are millions of people out there right now that would buy if they could, but they may never be able to because they have no plan. They’re not constructing their credit, documenting their income, building their cash. They’re drifting and hoping things loosen up. You can offer them a road map, and peace of mind.
Even if the creativity is gone from the financing angle (and it isn’t ALL gone), there is more room than ever to be creative about finding, teaching, and training borrowers so that you have an endless supply of hand-crafted clients, all your own. It’s better business, it’s more satisfying business, and it’s more profitable business. Then you can turn that robust creativity to finding ways to spend the money you’re making. Chris Jones is a branch manager with City First Mortgage Services and a ten-year veteran spanning the best and the worst of times in the industry. He is the author of the forthcoming book Mastering the Six Channels of Marketing, a look at why most loan officers can't even get their mothers to call them back anymore. Chris arrived in mortgages after careers with tech startups, stockbrokering, and running a presidential campaign; he's a sought-after speaker and a part-time opera singer, which he insists isn't as impressive as it sounds. Chris and his wife Jeanette live in Lehi, UT with their eight children. He can be reached at 801-850-3781 or at firstname.lastname@example.org.