In an incredibly in-depth session at the Originator Excellence Workshop Barry Habib, founder and CEO of MBS Highway, discussed interest rates—why they’re doing what they’re doing, and why originators as advisors need to know this information in order to help consult their clients.
He thinks that the recession is coming in 2020, supported by two signs: every time the unemployment rate drops below 4.7% historically, which happened in 2017, a recession has followed in three years; and when the 10-Year/2-Year U.S. Treasury bond spread is flattening. When that spread gets inverted and the yield on the two-year is higher than the yield on a 10-year, it suggests that the Powers That Be are anticipating lower interest rates in the future, which means that they’re looking for deflation, which means that the economy is slowing down.
That’s not a bad thing for the mortgage industry, by the way. In fact, recessions tend to be good for mortgages and real estate. But Habib said that now is the time for originators to plan for the recession and gain a deeper and better understanding of economics, because all of the mediocre originators out there will not.
“This is a zero sum game. There’s no second place,” Habib said. “Are you a salesperson or an advisor? Because if I ask a thousand mortgage professionals, everyone’s going to say, ‘an advisor’, I say BS. Why? Because you put it on a name tag? If I put an M.D. here, am I a doctor? Come on. Nobody puts the work in.”
The narrative that’s being sold about the industry is that it’s a transaction that can be done by anyone, when in reality it’s a commodity to the issuer, he said, not the recipient. What true advisors and industry experts know is that mortgages are extremely personal and one of the most individual things anyone can buy. It’s up to true advisors to prove that and change the existing narrative.
Theoretical rates are one thing, but every one knows that rates do matter to a vast majority of people who are looking for a mortgage. Originators have to show borrowers how something intangible such an interest rate becomes tangible—literally walk them through the math of how a percentage of a percentage point impacts their daily lives. When it’s broken down into dollars spent per month, per week, per day, a buyer can see whether that percentage makes a difference, or not. And on the flip side, originators who are true advisors need to be able to walk borrowers through debt management, how refinancing a mortgage at a higher interest rate doesn’t seem like it should make sense, but from the perspective of managing debt, it can work out in their favor in terms of monthly payments.
These kinds of presentations are also gold for realtor partners, who would be able to use these information when talking to their buyers about home prices. Habib says that realtors’ biggest problem is the move-up buyer, who is reluctant to move when it would require not only paying more for a home, but also needing to put more money down, geting a higher interest rate, and paying more in taxes than they did in their current situation. They qualify for the bigger home, but they’re scared—and aren’t paying attention to the fact that they’ve “jacked up” their debt in the meantime. They don’t know or are unaware of the possibilities that exist to turn their shorter-term debt and turn it into a longer-term investment instrument via mortgage.
“Anybody who thinks it’s about low rate, please think again. Because the lowest rate on the wrong strategy is so much more expensive than a competitive rate on the right strategy. That’s important, and that’s the difference between a salesperson and an advisor.”
This also provides originators with a reason to reach into their database and contact past clients, when again, on the surface, it may seem as if there’s no reason why anyone would want to refinance in a rising rate environment.
A good advisor not only provides good advice to the borrower and referral partners alike on paying off debt, but is able to build trust while providing that advice. The two best ways to build trust, Habib said, are through knowledge and wisdom. The originator who wins over a client in the first 10 minutes and is able to gain trust by applying their knowledge to a particular client’s situation will be “forgiven” for any tough love that comes after that.
“If you think this game is about leads, and you think this game is about marketing, it’s a critical component, but all it does is give you a shot. This game is about conversion. That’s everything.”
In other words, don’t throw away that shot.
In reality, Habib said, “it’s too easy to win”—but winning may require some changes. He suggests that originators record their own conversations with clients as well as those of other loan officers on their team, using them as learning opportunities for what was said versus what should have been said. He suggests having a financial culture in the office, because knowledge sharing with all staff members means that everyone is sharp and able to coach borrowers, realtors, and other partners as part of casual conversation, not needing to turn it on when in a meeting with someone.
Habib also suggests that originators determine their primary motivator for the coming year. Whether that’s children, parents, money, a partner, the spirit of competition, or otherwise, identifying it will improve conversion efforts every single day. While other originators are walking around cloaked in doom and gloom, the best mortgage professionals—the true advisors—are training so they can improve, regardless of rising rates.