With rates likely to rise and continued home price growth, 2017 is shaping up to be a challenge for the mortgage space. So how do originators keep business booming in a market where it’s getting harder for prospective borrowers to get into homes? MPA chatted with Raymond Brousseau, president of Carrington Mortgage Services, about his company’s plan to thrive in a challenging space.
MPA: Are there any specific loan types – or kinds of customer – that you’re focusing on in 2017?
I’ve got 500 retail LOs. So giving them direction on what they need to do this year to be different – that’s just real life. We’re in a market that’s expected to shrink by 40% this year – but I expect to grow our business by 25%. The only way to grow your business in a shrinking market is to take business from someone else or get business from someplace that other people aren’t going. For us, that means really concentrating on the underserved market.
MPA: But won’t a tightening mortgage market make it tougher to cater to customers with lower credit scores?
We’re now in a rising-rate environment. That environment impacts prime borrowers far more than underserved borrowers. When we’re working with that underserved market – middle-aged, 620 FICO – whether their rate is 4% or 5% is less important to them than being able to afford the payment and get into that home.
Most of the LOs we’re dealing with today have only experienced 3-4% rates. LOs who came into the business in the last five to 10 years have never experienced the reality of a 10% prime rate. So we’re really educating them that price is an issue only in the absence of value, and really driving home the value of serving that underserved market.
The most important thing I can do for my LOs this year is help them understand what that underserved market is, why we can help them, and then show them how to go out and get those borrowers. Those borrowers are not as rate-sensitive as other borrowers. That’s still a market that’s not being touched, and there’s plenty of opportunity out there.
MPA: So what strategies should LOs use to pursue that market?
Some of the specific strategies we’re encouraging them to embrace are second-look strategies. Go out there and talk to builders and developers about that underserved market. Help them realize it’s about 97 million people – one third of the potential US borrowing public.
Today, most builders and developers aren’t dealing with those types of clients. We’re encouraging LOs to embrace the underserved strategy and raise their hands as experts. We may not be able to compete for all the business that builder brings to the table, but helping them expand their prospect base to include the underserved market is a win for them and a win for us.
MPA: How important is referral business in tapping the underserved market – or any market, for that matter?
It’s everything. We launched a very comprehensive “client for life” strategy this year, where we’re serving our customers throughout the origination process and getting feedback from them so we can understand what we’re doing well – and what we can do better. Intuitively, everyone knows customer service is important, but until this year we didn’t put a lot of teeth into it, really measuring its impact.
The way we make sure we get referrals is by delivering exceptional customer service. We’re using that survey to find out what we could have done better, thank them for their business and ask for those referrals.
MPA: When you’re dealing with the underserved market, I imagine finding the right loan product is even more important than usual. How do you help customers determine which product is right for them?
Dodd-Frank did a good job eliminating any steering conflicts when it comes to compensation. Beyond that, the short answer to the question is that only the client knows what’s best for them. Our job is to listen to the client and then present the opportunities that match those needs.
MPA: The mortgage process can be daunting – especially for clients who might have credit issues. How do you make the experience as pleasant as possible for them?
First and foremost, it’s to set good expectations. Especially when you’re dealing with that underserved segment, the propensity for challenges goes up considerably. With us, it’s really making sure that the LO sets the right expectation up front – in terms of the documentation that’s going to be required, the time that it’s going to take to get the loan done. Setting those expectations up front is critical. Other than that, it’s an ongoing process to strip anything out of the process that doesn’t add value. We’re constantly looking at the life cycle of the origination process and trying to strip away anything that doesn’t add value. The more steps you can eliminate, he better off you are.
MPA: Finally, what do you see ahead for the mortgage business in 2017?
It’s going to be a very difficult year, but we are forecasting growth of about 25%. We expect the mix to shift heavily from refi to purchase. We ended 2016 about 80% refi 20% purchase, and expect to end this year closer to 50-50. We expect our business to grow, and we expect it to grow predominantly through purchase business. Originations will shrink, if you listen to some people, by up to 40%. So for us to project growth comes with an assumption that we’re going to be doing new business, and we’re going to do it better than others.
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