Rising rates don't mean the sky is falling - Credit analysis, optimization and simulation help lenders close more loans, regardless of what the rates doDavid ChungClosing loans, Credit analysis tools, Rapid rescoring, Credit optimization tools, Credit simulation tools If the ebb and flow of interest rates make you as queasy as a day of deep-sea fishing, perhaps it's time to take control of your destiny. The simple way to succeed during uncertain times is to control the factors that remain consistent. For the consumer mortgage market, these factors are easy to identify. While you can't control overall interest rates, you can influence how much applicants pay by helping them to qualify for the best available rates. While you can't command more applicants to enter the marketplace, you can influence how many applicants select you over your competitors. While you may not be able to make the phone ring, you can improve the percentage of shoppers that convert into loan customers. Rather than allowing the vicissitudes of mortgage rates to control your fortune, you can utilize the last gasps of the refinance boom to shore up your business for leaner times ahead. Do More to Get More: A Little Effort Goes a Long Way In making a large, long-term financial commitment, applicants want to feel comfortable with you, the mortgage process and the rates they'll pay. By understanding and filling this need, you can win business and close more loans regardless of the market environment. Loan officers can quickly become the applicant's adversary at negotiation time. However, by adopting a consultative role, you can serve as the applicant's advocate. Applicants want to get the best rate possible. They expect a trusted advisor to go the extra mile to get what they want or at least exhaust all options trying. When an applicant doesn't qualify at all or isn't happy with the rate you are offering, do you explore other options? Are you doing everything you can to help your applicants? If they see that you are, you'll win their trust and close the loan. Instill Rate Confidence: Make Your Offers Stand Out Loan shoppers focus heavily on rates. By incorporating credit management tools into the application process, you can deter clients from rate shopping further by helping them qualify for the best possible rates and by demonstrating why their rates may not be as attractive as they expected. You can improve the rate picture by identifying old or inaccurate information that may be preventing applicants from qualifying for lower rates, or for a loan at all. You may also be able to determine simple actions applicants can take to improve their position. You can also demonstrate why the rates published in the newspaper may not be the rates an applicant might actually receive from the competing lender. By explaining to an applicant not just what they qualify for, but the specific reasons why, you provide valuable context along with your loan offer that makes it easier to accept. All of this gives applicants the assurance that they really are getting the best rates they can, thereby eliminating their need to continue shopping. By showing an applicant what actions to take and how they can qualify for better rates, your offer stands out because it includes the potential to save more money now and in the future. Improve Efficiency: Get More Out of Your Process In response to consumer demand, savvy lenders are enriching the mortgage origination experience and steadily shifting toward a friendlier, more consumer-centric approach. Some of the heaviest hitters in the industry have invested in new systems and programs that make the loan experience not only faster, but also simpler and easier to understand. You can help shoppers understand the loan process and what they can do to qualify for the best possible loans. In response, they will turn to you for guidance, assistance, and when the time is right, an application. If an applicant does not qualify for a loan, you have an opportunity to follow through with the consultative approach by providing a road to recoverya plan that shows them how to improve so they can qualify later. By continuing to serve as their trusted advisor, you potentially recover your investment by encouraging applicants to return when they have improved and are ready to apply again. Rehabilitation is a strategy that is gaining significance as the industry becomes increasingly competitive. You may also be able to convert declines into qualifying applicants by identifying information on their credit report that can be corrected, or areas where immediate improvements can boost scores. By providing a better borrowing experience that is easy to understand and navigate, you make it easier to complete the transaction. Your applicants will be thankful and you will close more loans. New Options: More That You Can Do Today's advanced tools help you improve how you work with potential borrowers and how you convert them into customers. Credit management tools introduced in the recent years such as credit analysis, optimization and simulation provide you with new insights and options so you can better understand how to handle a given applicant. Most loan officers derive an intuitive understanding of the dynamics of credit and credit scoring through years of experience, but that intuition is not detailed or accurate enough to effectively communicate to the applicant or to act upon. In fact, there has been a stir about loan officers providing bad advice. Also, many lenders are complaining that their loan officers are spending too much time explaining what an applicant's credit is like and why it is not good enough for a better rate. Credit analysis tools are a simple way to accurately provide the information that applicants want without tying up loan officers. Credit analysis is also a valuable way to focus and prioritize your attention by giving you a place to start looking. As a lender, you know all about the semantics of credit scoresthis score is too low, this score is good enough and this score is stellar. However, the reasons why are a bit of a mystery. Understanding these reasons will help you determine possible courses of action. Credit optimization tools run through different combinations of actions and determine the best combination to quickly improve an applicant's credit. Optimizers have the advantage of using actual credit scoring algorithms to determine the best action plans. Credit simulation tools help you understand how changes to a credit report are likely to impact credit scores. By testing strategies using a simulator, you can see probable outcomes and safely determine the right course of action. That way, you can safely guide advise an applicant about correcting information or paying down debt while avoiding costly changes that will not yield desirable results. One of the most significant services available in recent years is rapid rescoring. This is essentially an expedited credit bureau update. Typically, this process takes around four days to complete and costs roughly $150. Fees range widely because they are incurred per item changed at each credit bureau. Rapid rescoring has a significant impact because it allows loan officers to address items that artificially restrict an applicant within the current loan process, so the applicant does not need to go through declination and reapplication. However, a danger to rapid rescoring is that loan officers are making educated guesses about whether or not changes will have the desired effect. It is often a costly gamble because you make the applicant wait four days and pay a substantial fee for a service that may or may not help them and could, in fact, hurt. This could create a relationship nightmare, especially if you end up leaving the applicant worse off than when you started. Therefore, it is important to use tools that allow you to test strategies before you make a decision to do a rapid rescore. This gives you a chance to gauge whether it is worth the added time, expense and expectation to perform a rapid rescore. Again, credit simulators can let you test your strategies and make that decision. Although simulators are prone to some of the same assumptions that you currently have to make (e.g. nothing unexpected is about to hit the credit file), simulators have the advantage of utilizing, instead of being restricted by, the complexity of credit scoring to predict a result. Obviously there are no guarantees, but simulators can provide a more accurate prediction. And by improving your success rate, rapid rescoring becomes a more profitable option. Using these tools, you can diagnose and communicate an applicant's credit, identify opportunities to improve it, test the strategies, simulate the outcome and take action. Close More Loans: Get More Out of What You Already Have Building trusting relationships and adopting a consultative approach helps you win business. By bridging the information gap and utilizing all of the tools at your disposal, you can provide an enhanced borrowing experience and improve the processyou can get more shoppers to become applicants, more applicants to become qualified borrowers and more qualified borrowers to accept offers and become customers. By increasing efficiency and improving your closing rates, you increase your margins. This will make it easier for you to ride out the high rates and better position you to capitalize on the next market boom. David G. Chung is interim president and vice president of business development at CreditXpert Inc. He can be reached by e-mail at [email protected].