STEVEN TOMASELLI
Diversification key
The days of sitting by the phones and fielding hundreds of refinancing calls a day are gone, and mortgage brokers, lenders and loan officers are going back to the basics, pounding the pavement, hitting the phones and reestablishing old ties in an effort to drum up business in the increasingly important purchase mortgage market. But many are finding that while they were busy processing the flood of applications that inundated offices during the prolonged refinance boom, the purchase mortgage game has changed somewhat.
The recent rise in interest rates has caused some members of the mortgage industry to reevaluate their business strategy and relationships and reassess a sector in which loan applications are slowing and competition is growing. Establishing better service and providing greater options for consumers may give some lenders an edge in the rapidly changing mortgage arena, according to industry watchers.
Industry experts also predict the rising interest rates will force lenders to forge new and reestablish prior business relationships with consumers and real estate agents, and require mortgage professionals who boasted profitable income from refinancing to carefully analyze alternatives.
Mortgage companies that are unable or unwilling to adapt to the changed circumstances may not survive to see the next boom period.
“Over the last couple of years, business consisted almost exclusively of sitting next to your phone and waiting for it to ring. Now, people are going to have to go back to some of the old-fashioned things like going out and building personal relationships with people, and offer a value-added service to do business,” said Steven Tomaselli, president of Sharon-based online mortgage origination service Loansnap.com and 10-year veteran of the mortgage industry. “The end of the refi boom should cause mortgage professionals to reevaluate their business strategies. Every time there is a refi boom, [mortgage] companies open up and as soon as the rates go up then companies close. It hasn’t happened yet [in this cycle], but I think it will. For companies to stay in business, they need to diversify their mix of business.”
And part of that business, according to Tomaselli, is nurturing relationships with increasingly industry-savvy consumers.
“Over the last 10 years, consumers have become a lot smarter about everything and they have a lot more resources available to them,” said Tomaselli. “The relationship [between consumer and mortgage broker] has changed because consumers are more educated and more savvy shoppers, which means they have a little more power. They are taking the time to check out the information.”
Power Brokers
But consumers are not the only power players in the business. According to some industry experts, with the importance of the home purchase mortgage market rising, Realtors still have substantial influence in determining which lenders will flourish.
Brian Koss, New England regional vice president of retail at Countrywide Home Loans, said building a trusting relationship between mortgage brokers and Realtors is a critical step for mortgage brokers and lenders to reach borrowers.
According to Koss, Realtors are often choosy in selecting the mortgage brokers with whom they – and therefore the homebuyers they refer – are willing to work. Closing the loan is part and parcel of closing the home sale, and with their sales commissions hanging in the balance, real estate agents often will recommend a select few trusted mortgage brokers with whom they’ve successfully worked in the past. With the end of the refinancing boom at hand, mortgage originators now must rely more heavily on the purchase market. The lenders who succeed in the purchase mortgage arena are those in the good graces of the Realtors, Koss said.
Koss said mortgage professionals in Massachusetts, in particular, “are going to have to get back to concentrating on purchase money and equity lines of business” in order to stay afloat in the industry.
Koss said the symbiotic relationship between mortgage broker and Realtor is mutually beneficial. Real estate agents who refer homebuyers to a lender that can meet their needs provide a valuable service to the buyer and ultimately help ensure success of a sale. A mortgage broker able to form such a relationship with a real estate agent often secures a steady stream of new business. But for mortgage professionals who feasted almost exclusively at the refi trough, reentering the purchase mortgage arena may be a challenge.
“Frankly, the service in the mortgage industry has been pitiful,” said Koss. “The Realtors are sticking with the [mortgage professionals] who have handled the purchases during the refi boom, because the Realtors benefited from the purchase. Realtors aren’t acting like auctioneers anymore – they need a good lender and a good marketer to help sell this property. Realtors will start partnering with mortgage guys again – that went away for a while – but there needs to be a comfort level first.”
Whether through face-to-face contact or online mortgage originations, Tomaselli agreed that the relationship between Realtors and mortgage brokers must be strong in order for each to remain competitive in the marketplace. These days, however, those relationships increasingly are being established on large, companywide scale.
“There are not as many independent or small real estate companies anymore, and what larger real estate companies are trying to do is make money from as many pieces of the real estate transaction as possible. That is why there are a lot of affiliated partnerships and in-house real estate companies,” said Tomaselli, noting that Loansnap.com is the parent company for Homesnap.com, the online real estate section of the mortgage origination company. “If we want to enhance our relationship with Realtors, we have to enhance our services. It’s not about bringing in rate sheets and donuts anymore. [Mortgage professionals] have to have some legitimate value-added service that they can bring to Realtors.”
As part of a value-added service, Tomaselli said Homesnap.com offers Realtors exposure on the firm’s Web site in return for using Loansnap.com brokers for the loan origination process, so Realtors gain exposure on the Internet.
While the mortgage industry has recently placed a greater focus on educating consumers, one industry expert maintains that mortgage brokers themselves could benefit from additional training.
Dave Hershman, author of six books on the mortgage industry and contributing writer for the Mortgage Bankers Association of America, said effective marketing techniques in this changing economy will help mortgage professionals beat out their competition. It is an area, Hershman said, in which many mortgage professionals still have much to learn.
Hershman said the mortgage business volume is likely to decrease in the foreseeable future, and a greater percentage of loans will be related to home purchases rather than refinancing.
“There is nothing that says that rates may not come down tomorrow, but we all knew that business would return back to a normal balance, eventually. Now, brokers need to become more diversified and be more efficient,” said Hershman.
By nurturing the relationships currently in their “sphere of influence” – people with whom they have previously worked and established a bond of trust – mortgage professionals can gain a competitive edge, Hershman said
“We are trying to promote Realtors and their value in the real estate transaction,” said Tomaselli. “Eventually, rates are going to go up [even more] and having the relationships with the Realtors to drum up business is going to help brokers.”
But Hershman warns brokers not to follow the obvious path when business volume drops.
“It is not untypical for a loan officer to go visit into a real estate office. But, that’s a bad idea – Realtors don’t want them there and everyone else is going to do the same thing. There will be no competitive advantage,” said Hershman. “Instead, meet those people through the management pipelines and through the sphere of influence … those you have the strongest relationships with and ones that have the most business to refer.”
Hershman said utilizing existing relationships to build new ones will result in a bigger client database. The most common mistakes when attempting to forge new business relationships often involve cold calling, and not providing the Realtor with value-added services.
“Rate sheets are not of any value,” said Hershman, referring to what once was a common practice of mortgage brokers bringing the latest available mortgage rates to post at real estate offices.
End of an Era
While a rapid change in interest rates almost inevitably requires mortgage professionals to take stock and reassess their business strategies, most industry insiders agree that the mortgage industry is holding up better in this turbulent environment than it did a decade ago during a similar rate-climb period following a refinance boom.
“One of the differences is there are a lot less banks than we had in 1994. Andover Savings, First Essex Bank and Cambridgeport Bank were [our] big competitors in 1994, but they no longer exist because they have been bought out,” said Koss.
While some speculate a wave of layoffs in the mortgage industry may follow quickly on the heels of the recent interest rate increases, Koss said that, aided by new technology, many mortgage companies have fewer people doing more work so “there should be less mortgage layoffs than last time, coming out of the [refi] boom.”
Overall, Koss said the mortgage industry is more efficient now than it was in 1994, and mortgage professionals are in a better position to keep their jobs.
But other industries affiliated with the loan process may suffer as the refinance boom ends, said Koss. As mortgage volume tails off, those who provide services to mortgage firms may also find fewer business opportunities available.
“I think it will be interesting on the vendors, appraisers, and attorney side of things,” Koss said. “Who added people and how are they going to adjust with their additional staff … you have to decide whether you lay off everyone you just hired or try to steal someone else’s market share. That’s [increasing market share] what we’re trying to do, so why wouldn’t a vendor try to do the same thing?”
Hershman said that when the market changes significantly, business strategies must change accordingly, and regardless of the industry, he said a sharp increase in interest rates is a precursor to a changing market.
Mortgage professionals, meanwhile, are watching interests rates and overall mortgage volume with a close eye, and trying to anticipate all that the end of a refinancing boom means to the industry.
“It should be an interesting fall,” said Tomaselli. “Every time we thought rates were going up, we were wrong and rates went down. Now, we’re being proven right” that interest rates eventually would rise.
