It seems as if everything is moving toward a faster, cheaper, more convenient model. Indeed, the Costco-ization effect has improved many aspects of our daily lives. The flip side, however, is that corporations how have an unprecedented amount of power—and they’re using it to encroach on the homebuying and lending space.
Mega corporations are now the biggest threat not only to independent mortgage brokers, but to retail loan originators as well. The reason, says Mikel Erdman, founder of MySmartBlog, is that these companies, which he calls “Corporate Monsters”, are running on a completely different model than traditional businesses.
Because of this, the single scariest word in the mortgage industry isn’t technology at all.
“I’ve always been a referral guy and I’ve always believed in the strength of referrals will win in any case against any competition in our market. The one thing that’s different now, and people absolutely need to be aware of it, the biggest word that they should be afraid of in the mortgage industry now is the word ‘scale.’”
Thanks to investor capital, they can operate at a loss for sustained periods of time, allowing them to spend unprecedented amounts of money on marketing and outreach campaigns, without needing to create profit every month in order to stay in business. From Quicken to Zillow to Amazon, companies have had the ability to leverage a very low cost of capital to grow the company to scale.
In an upcoming webinar on October 2nd, Edrman will provide registrants with cost-effective and profitable strategies that these large companies are simply unable to execute, giving individual producers and small- to mid-sized shops a true advantage.
Originators must pick their battles, and Erdman will discuss the places where those battles are actually winnable, along with the areas where originators should “never, ever spend money on again.” The battles will be fought in the local markets, where the scale of the Corporate Monsters actually works against them.
The ideal borrowers—700+ credit score, long-term job stability, available cash—who have no problem qualifying for a mortgage are the foundation of any long-term successful producer in the mortgage industry. It’s not that originators don’t enjoy working with other borrowers, but the easy-to-qualify, easy-to-close deals allow originators to spend more time handholding the difficult borrowers, or spend time in their communities, create relationships with more partners. These well-qualified borrowers, however, are the ideal targets for the Corporate Monsters because they’re the most likely to be able to take advantage of the “push-button-get-mortgage” process.
That’s not to say that they’re going to take all of the business—they won’t. But taking the slam-dunk borrowers will hurt.
“What I'm saying is that you stand to lose some of the most valuable components of your business, because it's the easiest parts of business for them to take over in an automated form,” Erdman said.
It may seem that the answer is to focus on the trickier, harder-to close deals where people need more hand-holding and guidance, but that is a much more difficult road. Having a pipeline full of deals that are time- and labor-intensive that could blow up at any minute is exhausting and frustrating. The best originators have deals of every kind in the mix, delivering value to borrowers on both ends of the spectrum. This not only helps homebuyers, but helps to avoid burnout and have a much longer career.
Building local celebrity is important, as is having relationships with the most important influencers in your market, so that your connection is strong enough that your borrowers will resist not only the convenience of the “push-button-get-mortgage” process, but also the incentives and credits that are also being offered alongside. As the landscape continues to change and “Corporate Monsters” continue down the road of owning the entire real estate purchase sale ecosystem, originators need to make a shift in how they view their business. Because, Edrman says, there is no way to compete on the level of with Super Bowl ads or billion-dollar budgets.
“Those 500 or 1000 loan officers, no matter how well trained, sitting in a call center in Detroit, cannot get out and drive relationships in your local community. They can't become a more valuable part of your local community. They can't become more visible in the local community. Luckily, this is the most profitable and the most well established way that we've always done business,” Erdman says, but adds that originators have to lean into that and ensure that their online components are in place, and they have the right tools in place to support and amplify their offline behavior.
People often take the path of least resistance and originators need to put together a plan and learn how to build a fence around their business. The reality is that not everyone’s going to be successful. People who don’t make a stronger commitment to these winnable battlegrounds are going to go out of business.
“There's just no way around it. You can't get people to like you just because you're a good guy; you don't do any of the other parts right and expect to keep that business, you're going to lose it,” Edrman said.
Learn how to build a fence around your business and protect it from the onslaught. Register today for “Don't let corporate monsters like Zillow and Amazon steal your mortgage business”, taking place on October 2nd.