Loan Officer Tip - Building Borrower Confidence in Turbulent Times

Today’s mortgage borrower is the most suspicious and distrusting in decades. With the turbulent times and all the negative media of today’s mortgage industry, borrowers are wary of the intentions and integrity of mortgage originators. However, their needs to refinance, get cash, consolidate debts and purchase homes are just as real as always. So how do we build the borrowing public’s confidence back? Be up-front, real, and honest with your borrowers.

There are several questions that are running through the minds of borrowers today. Questions like:

• Is this person out to help me or just themselves?
• How can I be sure this person is going to get me the best mortgage program?
• Can I trust this person?
• Is this person looking out for both my short and long-term best interests?

All of these questions can be resolved quickly if we are prepared with an opening presentation that addresses these concerns. The key is doing it right up-front. Remember, “You only get one chance to make a first impression.” This happens in the first 30 seconds. We either establish or lose our credibility in that critical opening. Let’s look at an opening presentation, step by step, that is perfectly suited for today’s market environment:

Step 1 - Address Media Coverage: “Mrs. Jones, I am sure you have seen all the recent negative press about the mortgage industry. There has been lots of media coverage about climbing interest rates, the impact of adjustable rate mortgages, foreclosures and the integrity of the mortgage industry itself. This has led to distrust towards mortgage professionals and concern for many borrowers as to whether this is a good time to be borrowing. I am sure you have questions in your mind, also. Let me begin by addressing these concerns up-front and showing you why I am the right person to work with.”

Step 2 - Address Market Conditions: “The majority of the problems we see today originated in the “sub-prime” sector. And although these problems are real, this sector represents only 10 – 20% of the entire mortgage market. We do not provide the types of loans that caused these problems. As for rates, although they have increased, there are still excellent rates out there. As for the concerns about integrity, although there were many who were guilty of dishonest and improper lending practices, we have done, and continue to do, business with high integrity. That is why we are still around today.”

Step 3 - Credibility Statement: “My commitment to you (and your family) is to help you find a mortgage loan that not only has an excellent rate, but also provides benefits beyond my competition. This includes getting you the best payment for your loan, at the best term for your long-term goals with the ideal amount of cash, and the greatest tax benefits. I will do this by providing several different options from several different lenders to give you the power to choose the best program for your situation. I will also show you programs that help you in both the short and long-term. Lastly, I will demonstrate my integrity through my actions, not words, by my service on your behalf. “

Step 4 - Guarantee: “Here is my guarantee: if at the end, you do not feel I have earned your trust and confidence and have not proven to you that I am the best loan officer to work with, I will expect and encourage you to work with someone else. I am confident that this will not be the case. Now, all I need is 20 to 30 minutes of your time, at no cost or obligation, to prove this to you. With your permission, I’d like to get started.”

The Key - You need to have your customer's best interest at heart even before making a presentation!

Loan Officer Tip - New Rules for Mortgages

On the Today Show this morning, there was a segment on "The New Rules for Mortgages - Recession Proofing Your Life". They discussed the 3 C's for getting a mortgage in today's market:

1. Credit - You must have a good credit score.
2. Capacity - You need to be able to pay back the loan and verify income.
3. Collateral - Put money down (at least 20%).

These "new rules" are not new concepts by any means. In fact, they have been a part of my training curriculum from day one. It is our job as loan officers to continue providing great loans for our borrowers that ensure making a positive life-change. How do you close a great loan? By mastering the monetary benefits, "scrubbing" their credit and verifying income (refer to Series 2: The Vermillion Selling System).

Loan Officer Tip - Homeownership Obsession

Although the mortgage industry is an ever-changing and cyclical industry, the mortgage industry will always be in existence. The fact is, although the mortgage and financial sectors are constantly in flux, the desire for homeownership is constant; it is the American Dream! A broker's job is to make sure their client is receiving the best loan for their situation - and ensure this will not put them into a worse situation which could lead to foreclosure.

There's a saying that says, "If you do what you've always done, you are going to get what you have always gotten." This is usually a true statement. However, in today's new market, it is not. The truth is, if you do what you've always done, you are going to get less than you used to get. Changing times call for changing methods. How do we ensure a good close? Create intrinsic value for your client! Not only will you ensure a close, you'll create a client who will return in the future!

The Homeownership Obsession
From: Washington Post
July 30, 2008

The real lessons of the housing crisis have gotten lost. It's routinely portrayed as the financial system run amok; the housing market became a casino. The remedy, we're told, is to enact rules that prevent a repetition. All this is partly true. But it ignores a larger truth: Our infatuation with homeownership, embedded in dozens of government policies, has turned housing -- once a justifiable symbol of the American dream -- into something of a national nightmare.

As a society, we're overinvesting in real estate. We build too many McMansions. They use too much energy, and their carrying costs, including mortgage payments, absorb too much of Americans' incomes. We think everyone should become a homeowner, when many families can't or shouldn't. The result is to encourage lending to weak borrowers who are likely to default. The avid pursuit of a few more percentage points on the homeownership rate (it rose from 64 percent of households in 1994 to 69 percent in 2005) has condoned enormously damaging policies.

Does every house need a "home entertainment center"? Well, no. But when you subsidize something, you get more of it than you otherwise would. That's our housing policy. Let's count the conspicuous subsidies.

The biggest favor the upper middle class. Homeowners can deduct interest on mortgages of up to $1 million on their taxes; they can deduct local property taxes; profits (capital gains) from home sales are mostly shielded from taxes. In 2008, these tax breaks are worth about $145 billion. Next, government funnels cheap credit into housing through congressionally chartered Fannie Mae and Freddie Mac. Long perceived as being backed by the U.S. Treasury, Fannie and Freddie could borrow at preferential rates; they now hold or guarantee $5.2 trillion worth of mortgages, two-fifths of the national total. Finally, the Federal Housing Administration insures mortgages for low- and moderate-income families that require only a 3 percent down payment.

Congress's response to the present crisis is, not surprisingly, more of the same. The legislation enacted last week adds new subsidies to the old. It creates more tax breaks; most first-time home buyers could receive a $7,500 tax credit. It expands the lending authority of Fannie Mae and Freddie Mac. Previously, the permanent ceiling on their mortgages was $417,000; now it would be as much as $625,500. And the FHA would be authorized to support, at much lower monthly payments, the refinancing of mortgages of an estimated 400,000 homeowners who are in danger of default.

More subsidies may -- or may not -- stabilize the housing market in the short run. But there are long-term hazards. Make no mistake: I'm not anti-housing. I believe that homeownership strengthens neighborhoods and encourages people to maintain their property. It's also true, as economist Mark Zandi shows in his book "Financial Shock," that today's housing collapse had multiple causes: overconfidence about rising home prices, cheap credit, lax lending practices, inept government regulation, speculative fever, sheer fraud.

Still, the government's pro-housing policies contributed in two crucial ways.

First, they raised demand for now suspect "subprime" mortgages. The Department of Housing and Urban Development sets "affordable" housing goals for Fannie Mae and Freddie Mac to dedicate a given amount of credit to poorer homeowners. One way Fannie and Freddie fulfilled these goals was to buy subprime mortgage securities -- many of which have now gone bad. Second, government's housing bias created a permissive climate for lax lending. Both the Clinton and present Bush administrations bragged about boosting homeownership. Regulators who resisted the agenda risked being "roundly criticized," notes Zandi.

Good intentions led to bad outcomes: an old story. Fannie's and Freddie's losses impelled the Treasury Department to propose a rescue; given the companies' size and the government's implicit backing of their debt, doing otherwise would have risked a financial panic. Personal savings have been skewed toward housing. Many Americans approaching retirement "have accumulated little wealth outside their homes," concludes a study by economists Annamaria Lusardi of Dartmouth College and Olivia S. Mitchell of the University of Pennsylvania. Even some past gains from the pro-housing policies are eroding; the homeownership rate has now dropped to 68 percent.

We might curtail housing subsidies without exposing the economy to the disruption of outright elimination. The mortgage interest deduction could be converted to a less generous credit; Fannie and Freddie's expanded powers could be made temporary; the FHA's minimum down payment could be set at a more sensible 5 percent. But even these modest steps would require recognizing that the homeownership obsession has gone too far. It would require a willingness to confront the huge constituency of homeowners, builders, real estate agents and mortgage bankers. There is no sign of either. When tomorrow's housing crisis occurs, we will probably find its seeds in the "solution" to today's.

Loan Officer Tips - How to Succeed In This Differing Market

All markets are not created equal. Take a look at this article:

Housing crisis differs cross country
From: Politico
By: VICTORIA MCGRANE
July 15, 2008

The housing crisis was not created equally across the country.

In the Rust Belt, long-weak economies and unemployment helped fuel foreclosures in the traditional cause-and-effect relationship. In the other worst-hit spots — such as California, Nevada and Florida — the crisis was helped along by a serious oversupply of housing.

The crisis has hit some areas harder than others. Nevada, California and Arizona lead the nation in the rate of foreclosure filings, according to RealtyTrac. In June, one of every 122 Nevada households received a foreclosure filing — four times the national average and up 85 percent from a year ago.

California, Florida and Ohio recorded the highest total number of foreclosures in June.

Home prices in some areas have managed to stay stable. “There are a handful of markets where the housing market is sort of chugging along,” said Nicholas P. Retsinas, director of Harvard University’s Joint Center for Housing Studies. “But for the most part, the home price decline is pretty extensive throughout the country.”

Recovery also will come at different paces. Analysts expect that markets in the Northeast and the South — except in Florida — will recover ahead of the Midwest and could start to stabilize in a year or so. Markets in Las Vegas and Phoenix and throughout California will take the longest to recover.

• The national median single-family home price, as recorded by the National Association of Realtors, fell in nominal terms in 2007 for the first time since record-keeping began in 1968.

• Foreclosure start rates were up over the past year for all types of mortgages in the Mortgage Bankers Association’s latest national delinquency survey. The trade group, however, says that the magnitude of the national increase is being driven by “certain loan types in certain states” — namely subprime mortgages in states such as California and Florida.

• Subprime adjustable rate mortgages represent 6 percent of loans outstanding, but are 39 percent of foreclosures started during the first quarter of 2008.

• Combined, California, Florida, Arizona and Nevada represent 25 percent of total outstanding loans, but 42 percent of foreclosure starts in the first quarter of 2008.

• Analysts at Moody’s Economy.com predict that mortgage defaults will peak at 2.5 million in 2008 and fall to 1.6 million in 2009. They expect 4.5 percent of all outstanding mortgage loans to fall delinquent by the end of 2008 and remain there through mid-2009. That’s up from 3.5 percent of loans in delinquency in 2007 and 2.8 percent in 2006, according to Equifax and Moody’s Economy.com.

First, let me say that what we are seeing today is a result of many factors, but some of the biggest were overaggressive products, LTV's and underwriting guidelines, as well as an overzealous focus on ARM and Option ARM financing. This, mixed with a loss of focus on doing what is best long term for the borrower became major causes. So here are some tips to apply today for success in any market:

• Make Integrity Your Greatest Virtue
• Customer First Mentality
• Focus on Total Benefits
• Stick to Fixed rate Financing

By employing these simple tips you will be in a much better position to succeed in this market, and so will your borrowers!

Loan Officer Tip - Building Value In A Loan

I apologize that I missed last week. There is a lot going on with me right now... vacation with my family and a book deadline! (You can find out more about my upcoming book on mortgagempowered.com) I appreciate your patience in the meantime.

Next week's webinar is about Developing Options and Benefits to Separate Yourself From Competition. In honor of that, I'd like to talk quickly about building value in a loan. When working with a customer, ask yourself this question:

Will the benefits outweigh the costs for the life of the loan?

Many times we provide a loan that helps the borrower today and even provides more benefit than cost in the first year or two, but long-term really hurts the borrower. Some examples would be where the loan:

1. Puts the borrower in much deeper debt than they were before with limited financial wherewithal to get them out, exacerbating the problem, or;

2. Puts the borrower in debt for a longer period of time, eating up any short term savings, or;

3. Creates a situation 2 or 3 years down the road, as is evident with many of the 2/28, 3/27 and Option ARM loans, that they cannot afford.

Although the initial benefits were there, the overall value is not! The focus was only on the short term need with no attention paid to the long term ramifications. As mortgage professionals, our #1 goal should always be to give our borrowers a loan that meets their needs for today and the future... one that is life-changing.

Loan Officer Tip - Prioritize Refinance Leads for Success

Last week, I talked about prioritzing your leads. So how do you determine the order of the leads? Here are four tips:

Prioritize by Equity: Prioritize your leads from highest to lowest equity. As we covered last week, this is the first and foremost criteria for qualifying a borrower.

Prioritize by Debt: Prioritize your leads from the highest to the lowest debt. This establishes the greatest opportunity for creating benefits for the borrower (the more debt, the more monetary benefits you can provide – we’ll cover this in a later edition).

Prioritize by Opportunity: Now re-prioritize your stack from the highest combination of equity and debt (top of stack) to the lowest combination (bottom of stack).

Categorize your Leads: Finally, divide your leads into 3 categories: A, B and C. “A” leads are those with lots of equity and debt (highest sales potential), “B” leads are those with medium or low equity and debt (medium sales potential), and “C” leads are those with no equity or debt (No sales potential). Once completed, remove any that do not have adequate income to qualify based on a post-consolidation debt to income calculation.

Now that you only have qualified leads in your stack and they are properly prioritized, start at the top and work your way down. Give maximum time to the A and B leads and minimal time to the C leads.

Loan Officer Tip - Prioritize Refinance Leads for Success

Avoiding "Random Selection"

A few weeks ago, I talked about identifying qualified leads in today’s changing market. This week I want to focus on prioritizing those leads to maximize your success. This is a critical tip that will make the difference between success and failure. Understand, there is a priority order to your leads.

For example, if you have 10 leads on your desk, there is one, and only one, lead in the stack that is the highest potential (easiest to sell) – a lead that has so much benefit value to your borrower that it will change their life. By the same token, there is only one lowest potential (impossible to sell) lead in the stack that you could not sell under any circumstances. The eight leads in between also have a priority order from highest to lowest potential.

Your challenge for this week, if you really want to succeed, is to put your leads in order from highest to lowest potential. Start at the top and work your way down!

Success From Self-Promotion

Personal Referral Sources

1. Daily Contacts: Promote yourself in social and business settings.
2. Personal Contacts: Identify personal contacts that represent sales or referral opportunities.
3. Local Businesses: Contact local businesses regarding referral opportunities.
4. Industry Conferences: Attend lending and credit conferences.
5. Community Events: Get involved in community events to network.
6. Community Associations: Become a member of one community association.
7. Trade Shows: Attend industry related trade shows
8. Speaking Engagements and Articles: Write articles for your local paper or industry periodicals or speak at events.
9. Professional Network Group: Coordinate a ground of lending, credit and financial service professionals to meet monthly.

Are there any others that you have found to be successful? Leave a comment with some of the ideas you have found to be helpful in regards to promotion!

Loan Officer Tip - Verify Income

Income verification is crucial to successfully and honestly completing an application.

• Have customers read, fax and send (overnight) income information
• Get income at the end of the application: "What I'm going to need is your income documentation - right now! Don't worry, I'll wait while you grab the needed documents."
• "Doc's" show commitment.

Always ask yourself, "Does the loan put the borrower in a better position than when they came to you?"

OCC Chief Urges a Tightening Up on Home Equity Loans

From: American Banker
By: Cheyenne Hopkins
May 23, 2008

WASHINGTON — Comptroller of the Currency John C. Dugan on Thursday suggested several improvements in home equity underwriting, including ending the practice of using the loans to finance down payments.

"We need to ask some hard questions about home equity product structure and underwriting criteria," he said in a speech sponsored by the Financial Services Roundtable's housing policy council. "In particular, we need to revisit the problems that landed lenders where we are today — particularly some of the 'shortcuts' established in reaction to aggressive competition."

After a huge growth spurt — home equity loans more than doubled from the 2002 total, to $1.1 trillion — loose underwriting and falling home values have combined to produce big losses. Losses spiked ninefold, to $2.7 billion, in the first quarter compared to the year earlier, he said.

Mr. Dugan urged lenders to improve the tools they use to value collateral and verify income and told them to steer clear of interest-only loans.

Regulators began waving a red flag on home equity lending in 2005, but Mr. Dugan said banks have been slow to change their practices. For instance, he said, questions remain on the use of collateral valuation tools such as automated valuation models.

These tools must be "closely managed, periodically validated, and supported with sound business rules," he said. "Cost alone simply cannot be the guiding principle for their use."

Mr. Dugan also criticized "reactive stated income," situations in which lenders require a borrower to detail income and authorize the lender to verify it, "as if the lender were really going to do just that," Mr. Dugan said. "Supposedly unbeknownst to the borrower, the lender deliberately chooses not to incur the additional time and cost of actually following through and verifying the income."

The comptroller stopped short of saying this practice should be stopped. "We need to think carefully about whether anything short of actual verification of income is acceptable from a safety and soundness perspective for most borrowers," he said.

The industry should also rethink interest-only structures, he said. The lack of "payment discipline encourages borrowers to assume greater levels of debt, often to the limit of their ability to make minimum monthly payments."

Mr. Dugan said banks must increase their reserves against home equity loans.

"With losses accelerating, those reserves are simply not going to be adequate, and that's why our examiners are encouraging more robust portfolio analysis and loss-reserve levels," he said.

Still, the Comptroller noted that loss rates on home equity loans remain lower than for other types of retail credit.