Pat’s Blog

In my recent travels to mortgage lenders across the country, I’ve been hearing a common refrain: Sales professionals continue to struggle with prospecting in the current purchase-money marketplace.

There is no doubt that superior prospecting skills are more critical than ever for success in the “new” world of mortgage origination. Producers are under the gun to create demand in an environment where the balance of power has shifted from the seller to the buyer.

As a result, managers need to be asking the question, “What do my sales professionals really know about prospecting?” For many companies, the answer may be “Not enough!”

We recently conducted a nationwide study on LOs’ consultative sales knowledge and found that even “experienced” producers scored poorly in the prospecting category. Of the six parts of the sales process we studied, scores for prospecting were the lowest, averaging 3.63 out of a possible 10.

The bottomline: It doesn’t matter how knowledgeable or skilled your sales force is regarding other parts of the sales process if they have not mastered the first step —prospecting.

One of the latest cultural trends is the pursuit of games that can make an individual smarter. Many companies including Nintendo are coming out with games that supposedly increase cognitive performance. It seems that organizations of all types — from schools to the military — have embraced the concept that intelligence is a trainable quality.

In 2008, cognitive enhancement programs received a boost when a single study indicated that intelligence was trainable. The study contended that after just six hours of training, intelligence increased six points—an unheard of improvement. Most psychologists, however, are skeptical of the study and note that the results have never been replicated in other psychological studies. The traditional view is that increased intelligence is not likely unless there is a substantial commitment of resources. It takes natural talent plus time, the right environment and practice. In other words, it is not easy.

The reason I am mentioning the cognitive enhancement debate is that there are similar misconceptions about sales ability in mortgage origination. Many managers mistakenly believe that anyone can succeed at mortgage origination and that if sales professionals receive the proper training, they will excel. This may sound reasonable but unfortunately, it is not correct.

Why? Over the years, I have looked at this issue with our psychologists through different studies that we have performed and the truth is that individuals who are not matched to selling will never close the sales performance gap between those who have the personality traits linked to sales success and those who don’t. No amount of experience or training will bridge the gap. I guess this reality can be disheartening to some. I think it is liberating because it reinforces what matters: finding sales professionals who are matched to originate. It is not easy to find the right people but like anything in life, it is worth the effort!

Did you ever wonder why managers and salespeople always seem to be caught up with the here-and-now demands of today (the current hot topics QM and QRM come to mind) and rarely spend enough time thinking about issues critical to future success like how to create demand in prospects who have to be sold that taking out a mortgage is a good decision? In Andy Rooney’ familiar words, “It does make a person wonder!”

When consulting, I see it all the time: the urgent takes precedence over the important. Why is that? Finally I know the answer. In the just published book, Long Fuse, Big Bang, neuroscientist Eric Haseltine explains that the tyranny of the “urgent” is an ancient script that our brains are wired to make fast, unconscious decisions because the prehistoric environment was filled with immediate perils. Daily survival wasn’t a guarantee.

Haseltine contends that a person’s brain will forever forsake important pursuits in order to handle more urgent ones. So, are we doomed to always be putting out fires in exchange for establishing transformative change? Haseltine says, “No!”

The first step in moving beyond these ancient survival scripts is to recognize the pattern and know that it is possible to work around the hard-wired short fuse and to light longer fuses that can lead to breakthroughs. Here are some of Haseltine’s important insights that can be applied to managing in mortgage banking:

• One of the most important scripts is to expend as little energy as possible. This script biases us when presented with alternative choices to take the path of least resistance. Solution: long fuses need to be divided into many small easy steps.

• To set off big bangs, you don’t have to change what you do every day, just the way you do it. The secret to changing individual behaviors is to co-opt and work with natural tendencies instead of fighting those tendencies.

• Because our brains have blind spots in perception, we are not only blind to unexpected and unwanted possibilities, but we are unaware of the blindness. As a result, all we have to do is accept that we have perceptual blind spots; then force ourselves to look into them. This means that we don’t actually have to look very hard for big, new opportunities.

• When selling new big ideas, it is better when the person selling is able to stimulate our senses of sight, sound and touch. As an executive at Disney states “showing is better than telling, but experience is better than showing”.

• In persuading our here-and-now brains to embrace risky, there-and-then ideas, it’s necessary to evoke strong positive emotions such as hope and compassion that replace our unconscious fears about the future with conscious passions for it.

The most important point that Haseltine makes is that a brain will change its behavior when confronted with two simple contingencies: behaviors that are consistently rewarded will be repeated and behaviors that are consistently punished will not.

According to a recent New York Times article, the hottest customer service consulting firm isn’t the well-known McKinsey & Co. or Harvard University’s executive management teams but Disney. Yes. Disney. Why Disney? Companies are feeling the pressure to improve the quality of their customer interactions. From the NFL to Chevrolet, organizations are hiring the Disney Institute because they recognize that the Internet gives unhappy customers a megaphone. Sound similar to the challenges facing the mortgage industry? I think so.

The Disney Institute’s consulting approach is based on five principles: leadership, selection and training, customer experience, brand loyalty and creativity. While these topics are not new and many companies certainly talk about them, few companies execute them well in my opinion.

To summarize what Disney Consulting says about two of their main principles, I have outlined key insights here:

1. Leadership: It all starts with the quality of leadership. Leadership is driven by how the leader leads by example. Leading by example is when the leader (defined as any person who influences change not just those with manager titles) consistently demonstrates the values of the company and their personal values. Both value systems must be in alignment or employees will not buy into the message being delivered by the leader. While the Disney Leadership model starts with the communication of core values from the leader, it is recognized that for the organization to survive over time, it must be willing to examine its strategies from planning, role clarifications, right-fit talent, accountability and supporting processes. The key theme is to constantly look at what works and what does not. Just because it worked before, does not mean that it works today.

2. Selection & Training: Walt Disney believed that customers do not remember a product or process, but they remember the people they dealt with. As a result, Disney hit upon an essential business truth, that while an owner can dream about building the most wonderful place in the world, it takes people to make it a reality. When making hiring decisions, it isn’t enough for hiring leaders to find a person, but it is important to select the right person for the position.

Leadership and Selection & Training. I couldn’t agree more that if you get these two principles correct, success will follow.

In mortgage origination today, loan officers and account reps must sell in an environment where customers are much more knowledgeable than they were just five years ago. The balance of power has shifted to the buyer of services and not the seller. In all types of businesses, the seller is facing customers who research before they contact the vendor and comparison shop with practically everything they buy. It seems that everyone is haggling and is willing to walk at the drop of a hat. Customer loyalty seems to be a thing of the past.

Last week, a New York Times article discussed the shifting balance of power and how many retailers are scrambling to figure out what works in this new world. How can sellers best manage the newly empowered customers?

While many retailers from J.C. Penneys and Macys to Walmart are trying to address new pricing strategies, the grim reality is that when the merchandise is not unusual enough to draw customers, sellers resort to offering discounts.

How does this apply to mortgage banking? As more mortgage products are increasingly plain vanilla, companies are under the gun to distinguish what differentiates them from the competition. When it comes down to it, the customer wants to know: Is lender A really that different from lender B?

It seems to me that what is important in pricing strategy is the quality of the originator and how he or she presents value to the customer. While there are endless pricing models and pricing gurus, I think it always comes down to customers wanting good products and a fair price. I didn’t say the lowest price. If it is always about the lowest price, companies don’t need a sales force!

Originators must be able to convey value to a prospect; understanding that not every customer values the same thing. It seems evident that originators are at the front lines when evaluating what is important to a prospect. Here is the rub: If originators don’t have the talent or knowledge to sell value then how are customers going to be able to determine why they should give them the business? When customers can’t figure out the value proposition, they will invariably default to the lender that has the perceived lowest price.

As we move into this new world of mortgage banking, the importance of having originators who can effectively present value is more critical than ever. Just because originators are experienced does not mean that they are trained or capable in presenting the company’s unique value proposition.

Isn’t it time to look at the quality of our originators and whether or not they can convey value to prospects?

Recently, Greg Smith, a former Goldman Sachs executive, wrote in a NY Times Op-Ed article that he was leaving the firm because it had changed values from looking out for the customer to making as much money as possible by whatever means necessary. According to Smith, Goldman views clients as “muppets” and does not really value its customers.

Smith also said that Goldman traders compete with each other to see how much profit they can make at the expense of the client, even if it means selling products that are sure to blow up on them. After publication of Smith’s article, many financial firms rushed to Goldman’s defense saying that their clients were “big boys” who could take care of themselves. Even some of Goldman’s clients agreed that the securities firm was not responsible for their decisions because both sides of any transaction has its share of financial professionals.

But, the discussion has not stopped. The American public is still mad as hell about how Goldman and other financial firms have conducted business with their customers — even three years after the financial crisis happened.

It seems clear to me that operating in today’s financial marketplace is dramatically different than in the past. While Goldman has not been found guilty of any security violations, the court of public opinion has rendered its decision that a higher level of conduct is expected from financial firms.

There is an important lesson to be learned in mortgage banking from what is happening to Goldman. While this time it was an employee who raised the veil on a premier financial firm and shown it to be repugnant, the next time it could be someone else. The solution for Goldman is it needs to fix it fast. Just ask Enron executives how long something like this can fester. The “it” that needs to be fixed starts at the top — it is all about leadership and culture. What does the company stand for?

Integrity and trust are values that must start at the top of a company. When there is a lack of it, invariably the reason lies at the senior management level. In my view, these are not mere slogans or taglines on email signatures. There is too much access to technology that can shed the light on poor practices quickly.

In my consulting practice, I often hear executives describe a sales performance problem when in reality, the problem lies with a lack of shared company values. If the company is only focused on the financial, when more difficult times occur there will be nothing to hold the group together. Similar to the sports world, long-term success in financial services does not happen by chance but is a function of doing the right things each day — not some days but every day. Mortgage origination is held to a high level of trust by customers today and not just by Dodd-Frank. Is your company ready to deliver on integrity and trust in the new normal world of mortgage banking?

In Forbes’ just released annual article on American’s Most Trustworthy Companies, the most interesting finding is that well-governed companies have higher long-term return for shareholders. Having a trustworthy company makes smart business sense. (To view the article, click here.)

Last week, at the 2012 MBA Regional Conference in Atlantic City, N.J., I presented our study results on what originators really know about sales knowledge. In Fall 2011, we tested more than 100 LOs at four national firms on the six critical components of the sales process. What we found was that even “experienced” LOs scored poorly, especially in the areas of prospecting, convincing and overcoming objectives. Of the six areas, scores for Prospecting sales knowledge were the lowest, averaging 3.63 out of a possible 10.

To view the entire presentation, download the PDF.

These findings are important for any manager or management team who wishes to remain competitive in the coming year. What does your sales team really know? Could they score in the higher percentages of consultative sales knowledge if put to the test?

In mortgage banking, some firms are on the verge of separating from the competition and there will be a new group of top 15 companies. How do I know? In speaking to countless executives, it is clear that some are preparing for it and others are stuck hoping that Harp 2.0 continues forever.

One indicator of “stuck” executives is the topics they talk about: Government regulations, the Dodd-Frank Act, and how to get more production from low performers (They are poor producers for a reason which executives seem to forget).

When you look at other industries that experienced difficult times, certain companies have always been able to reinvent themselves and rise above the rest. One great example is IBM.

Originally, IBM started out making clocks, scales, cheese slicers and similar products. In the 1960’s the company moved into mainframe computers and eventually dominated that business. Then 20 years later, they invented the personal computer. Unfortunately, management was tied to the mainframe and could not see what the world was becoming. It stuck to a business model that was based on things remaining the same.

The current IBM CEO discussed the issue in Tom Friedman’s book, “That Used to Be Us”: “Management spent more time arguing amongst themselves over a shrinking pie than looking to the future and as result, you miss the big turn. When you start thinking of your own colleagues as the opposition, you end up losing touch with the world in which you are living.”

How did IBM come out of its downturn and get back on track? The answer: Relentless scrutiny of itself and the world in which it was operating. Taking a hard look at your operation starts with an objective analysis of real numbers. (When was the last time that your company benchmarked its performance against your peers? This is a must if you want to improve — benchmarking requires outside expertise.) By doing so, IBM mastered the next big turn in technology which was computer networking.

Mortgage banking is moving into its next big turn. The problem is that too many management teams are still trying to get through the day and not looking to the future and where the customer is moving to.

In my view, the customer has changed dramatically — prospects select who they want to do business with and not the other way around. In the old days, it was all about push marketing. Advertise and the customer will come. Today, it is about pull marketing where the customer chooses which companies they will deal with and when. To succeed in a pull marketing environment, companies must meet customer demand for more professional sales people — individuals who are committed to continually improving their sales knowledge.

So the key question to ask is, “What percent of your sales force can meet the demands of the new customer?”

Why is it that experienced salespeople who once were successful seem unable to adjust to changing circumstances? You see it in sports and sales often. For example, my favorite baseball team, the Phillies (I admit I am a longtime fan—even when they had 10,000 losses!) have had a successful track record but in the last few years, they disappointed with poor performance in the playoffs.

What is interesting about the Phillies is while they have had roughly the same talent over time, their performance has suffered since their 2008 World Series win. What happened? A review of performance stats indicates that team members changed their approach to hitting. Where once they were swinging at strikes, now they are swinging at balls and wasting at bats. According to fangraphs.com, Phillies players swung at balls 31% of the time, which ranked 15th in baseball. What this means is instead of having to walk, ball players are striking out. Again, same talent but different results—results that made the difference between winning a championship and failing in the playoffs.

It seems to me that higher expectations also played a large role in their hitting patterns. For a team that rarely made the playoffs when I grew up to one where it was expected that they win another championship, the pressure to perform translated into bad decisions at the plate. Bad decisions coupled with a lack of discipline in what the athlete did put them in a position where they couldn’t leverage their talent when it really counted. (A great book on why individuals don’t perform when it matters is “Choke” by S. Beillock)

Sound familiar in mortgage origination? What worked before and what is required now can make a “B” player an underperformer. Managers ask, “What is wrong with Johnny or Jane? Why can’t they originate like they did before?” The answer is that Johnny or Jane is just an order-taker who succeeded in a market that did not require a high level of sales talent.

The truth is that bad decisions are made all the time when hiring originators. Over-valuing external factors can take many forms. The most common is when hiring managers become influenced by the originator’s previous employer — the bigger the company name, the more convinced they are that the candidate is a consultative sales expert.

Another hiring tactic, looking at an originator’s W-2 forms, can mask the real success driver. Maybe the originator’s success was a result of the previous employer’s sales system instead of an indication of sales talent. What is often overlooked is that when an originator moves from one lender to another, the producer typically loses half of his or her production. Thus, a $10 million producer is really only a $5 million originator. A key question to ask during the interview process is: Can the originator rebuild his or her book of business?

If external factors are deceiving, maybe it is time to look at the internal characteristics that an individual brings to the plate. Does the originator have the nine personality traits linked to sales success? (Read my article “Why Johnny Can’t Originate” for more information on these traits). Just because an originator had prior success at another lender, doesn’t mean the individual can duplicate these results in a more competitive market. Have you reviewed your hiring practices recently?

One of the greatest stories in sports this year has been the rise of Jeremy Lin, a point guard for the New York Knicks. A Harvard graduate who was not drafted by professional teams, Lin finally got a chance to play after some of the Knicks’ stars succumbed to injury. Unbelievably, Lin led the team to victory and became a hero to New York basketball fans.

Lin’s success has become national news, generating headlines for the Knicks. In my view, the most fascinating part of the story is why did so many pro teams and their management executives fail to recognize his talent and draft him in 2010? In an era of big money sports, how could a “Jeremy Lin” slip through the cracks?

Well, actually Lin’s talent was foreseen, but not by the so-called “experts.” Ed Weiland, a contributor to Hoops Analyst (a basketball analysis web site), had examined Lin’s body of work and forecast that Lin was one of the best point guards available in the draft. The problem? Weiland was ignored because he was not an insider to the professional teams. While Weiland is an avid basketball fan who tracked statistics and was able to isolate data that others disregarded, he was not part of a professional basketball team. He was able to be more accurate than those who were “supposed” to know which begs the question: “How is it that an outsider can be more accurate and perceptive than insiders?”

The simple answer is that outsiders can be objective, while insiders have a difficult time dealing truthfully with people they work with and even manage. Who wants to deliver the message that drastic change is needed in an organization? “Group think” shuns or downgrades the different viewpoint.

So how does “group think” happen and what does it look like? Here are eight indications of the problem:

• Illusions of invulnerability where the group thinks it is invincible and can do no wrong.
• Collective efforts to rationalize or discount warnings.
• Unquestioned belief in the moral correctness of the group.
• Stereotyped views of the out-group, often as too evil, weak or stupid to be worth bothering with.
• Self-censorship as individuals decide not to rock the boat.
• Pressure to conform.
• A shared illusion of unanimity (everyone always agrees with everyone else).
• Protecting the group from contrary viewpoints, by self-appointed ‘mind-guards’.

Download the white paper to find out more on group think.

What does it mean to management teams in mortgage banking? The industry is undergoing a period of fundamental change where old ideas do not make sense anymore. Outdated ideas include: it is OK to not screen objectively for sales talent; that experienced means that the originator is trained; that training at sales rallies is effective; by not customizing training to the LO at on boarding; and believing that no standards are needed for being a coach or manager as long as you can produce. These ideas might have worked in the past but not today when customers demand professionalism in sales and costs must be controlled to be profitable.

When was the last time you had your sales process reviewed by an outside expert? Isn’t it time to really look at your talent, culture and process? There is a reason why Weiland was right about Lin.