Last week at the MBA Annual Convention, the mood was somber. The discussions centered on the industry’s current problems: high costs, tight margins, underperforming originators and negative profitability. Certainly, a dismal litany. It also seems that the grim reality of rising interest rates has thrown everyone for a loop.
The number one strategy by most companies remains the same — hire more sales staff with the hope that their volume will resolve the cost issues until things turn around. The whole focus by companies is to try to outlast their competition.
On top of all this, the MBA is estimating that a housing finance turnaround won’t happen until 2020 — 425 days from now. While this isn’t that far away, it can seem like forever if a mortgage company can’t make its financial commitments to warehouse lenders, employees and vendors. Clearly, the industry needs a new strategy that doesn’t involve adding more producers who can’t sell and cost too much to support.
In my opinion, the answer is rooted in re-examining what an originator’s purpose is in today’s marketplace. While this may sound like an odd place to start, it really is a critical component because the home-buyer’s journey has undergone dramatic changes and redefined what consumers are looking for in an originator.
Many managers believe that the originator’s job is to take the consumer’s application, handle the mortgage loan process and ensure that everything runs smoothly. I would argue that this is outdated thinking because by the time borrowers connect with a producer, they have already decided to buy or refinance a home. In other words, a need has already surfaced and the originator is just managing it to completion.
In the not too distant future, loan transactions will be handled by AI and other computer enhancements. What won’t be computerized is salespeople who can spark prospects’ interest in buying a home.
For originators, this means not only creating interest in buying a home but convincing prospects that purchasing a home is a better investment than putting money into the stock market or other alternative investments. In other words, originators will need to be experts earlier in the sales process in capturing consumer’s attention even when the prospect isn’t even thinking of making a home purchase. This requires producers to have more advanced selling skills than the average customer service rep.
Unfortunately, most originators and their lenders don’t see their role as creating interest in home purchasing. These same originators attribute their lack of loan volume to rising rates and student debt, but the real issue is the consumer needs to be persuaded that making a commitment for 30 years is a solid financial decision. This has nothing to do with fixed rate or adjustable mortgage loans or even lowest rates, but the determination that buying and financing a home is a smart strategy. How many originators can actually can make this type of argument or create interest in this new marketplace? Not many.
Creating interest in home purchasing is all about originators developing their own tribe of people that they will lead. This concept was first discussed by marketing guru Seth Godin, who said that “a tribe is any group of people, large or small, who are connected to one another, a leader, and an idea. For millions of years, humans have been seeking out tribes, be they religious, ethnic, economic, political, or even musical (think of the Deadheads). It\’s our nature. Now the Internet has eliminated the barriers of geography, cost, and time. All those blogs and social networking sites are helping existing tribes get bigger. But more important, they\’re enabling countless new tribes to be born—groups of ten or ten thousand or ten million who care about something. And so the key question is: Who is going to lead us?”
In essence, what Godin is saying is that every tribe needs a leader and in the mortgage banking industry, that person is the originator. To be successful in 2019, originators must establish a tribe of consumers who will look to them for help in navigating the housing finance marketplace. This is something that a lender can’t do as well as a good originator. A good originator can build trust and establish credibility more effectively than a lender or corporation.
Lenders need to stop asking which technological development will save them or when will interest rates move lower. Instead, they must determine what kind of sales structure they need to develop originators who will be able to “lead” consumers in the home finance market.