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Originating a non-conforming loan that's sellable on the secondary market

Mar 06, 2006

MirroringJoe Cornosimilarities in businesses, marketing tools There are numerous references to mirroring in the lending business. It has become a very popular practice to mirror systems, practices and processes. However, we should examine common errors made with the various mirroring taking place. For example, there is the mirror-under-the-nose loan qualifying program. You hold a mirror under the customer's nose; if it fogs, he qualifies for the loan program. These are the nothing-needed types of loan products. These programs allow anyone to obtain a loan, and the lenders have built-in risk protection for default and possible foreclosure. The programs do fill a need and are used repeatedly. If this were not the case, lenders would not have the programs available. The loans are used as a Band-Aid for a short time period - usually within one year - but there are two- and three-year programs. They come with prepayment penalties so that the lenders can benefit from early payoff attempts. This is one of the built-in risk protector examples. The error associated with placing someone into such a loan product is assuming that the borrower will change his past ways in managing himself. In order to improve the borrower in credit score or verifiable income, we may require that the borrower be nursed through some system or organization rather than placing the burden to improve on the borrower himself. Most people are creatures of habit and will not change. A few years back, the lending industry introduced 125 percent loans. This is a proven standard of how people did not change habits and did not follow the conceptual plan to eliminate debt. In fact, it created added debt, and the default and foreclosure percentile caused the loan program to cease. There are various companies that are paid to handle the borrower's financial functions. This is yet another Band-Aid for borrower habits. We may wish to change our way of processing these types of customers, making them accountable for their habits, ceasing to aid them toward worse problems than when they were renting and making them responsible for their own credit and/or financial ills. Another mirroring shows up in Web-based loan companies. More are copying each other as the leader in discount lending, and we see startup, bargain basement, loan-in-a-minute Web sites. These, in themselves, are very similar. The customer applies and receives loan approval online. In an instant, the impulse consumer can receive loan approval. When comparing rates and fees, there are no large discounts or savings to the consumer. The commercials, which run every 9.5 minutes on daytime and late night television, draw the customer to the Web site. The speed and ease in applying draws people to utilize such Web-based businesses. Service is very limited, and if the loan takes longer than expected, there is no one to communicate with. Two items to consider in Web-based lending systems is to offer better service and to truly discount the loan online. With less cost to process the loan, there could be added service to the customer. Create a virtual image in the upper-right corner of the screen that would interact with the consumer, a virtual assistant that could speak any language as picked by the consumer. Through instant messaging, the virtual service representative would be available 24/7. There could be a real person behind the monitor somewhere in India. You knowoutsourcing! Being the actual lowest in cyberspace is really difficult, as already proven. If there are four Web sites claiming the lowest rate and cost, three of them are lying. This concept of being the major draw provides for a short-lived career. The point is, if you are going to market the lowest cost and rate, then be the lowest and actually discount the product. Service may be an easier task to maintain than claiming to be the lowest. Another mirroring is in marketing and processing loans. Most companies operate on a month-end practice, and each and every final week of the month is the most frustrating in the industry. If we would change our own month-end to the middle of the month, we would be closing deals in the most enjoyable time of the month. Market the last two weeks each month and close loans by the 15th of any given calendar month. With the exception of HUD loan payoffs due to the interest expense, no loan saves any money or is better off closing at month-end. Take advantage of the first two weeks of the month by making them the last two weeks of your loans month for closing and recording rather than the actual calendar month-end. Of course, in changing our perspective of closing loans, we need to change perspective in prioritizing loans. The login stage of a loan file is more critical than closing a loan. By making the login stage the more important stage of the loan process, we reduce and actually eliminate delays in the funding. Loan document arrival and document order stages of the process would fall right into place when the loan login is focused on as the most critical stage of the loan. By training staff and originators to do the critical work at the login stage, we push-process and acquire key data to meet contract expiration dates. In actuality, we are far ahead of the dates and can close better and faster. This beats people waiting in hotels, moving vans waiting in driveways and customers waiting at the closing table with no loan documents to sign. Mirroring service techniques is possibly the reason behind the failings of most mirroring. The industry has unintentionally downgraded customer service due to mirroring systems and processes. With automation, service should be better, yet it continues to decline. Let me give one example. As an originator, you work with real estate agents and the borrower in a purchase transaction. When you receive the automated loan preview, whom do you contact first? If the borrower came to your mind when reading the previous sentence, no wonder sales agents do not like working with loan originators. The sales agent represents the buyers in the transaction and your mirroring is circumventing the relationship when you go directly to the buyer with the automated approval. Be true to yourself. Did you not even realize that telling the borrower directly is a disservice to the sales agent? Most companies run the automated approval with the customer at the origination desk. Is this customer service or professional disservice? As we stop mirroring others poor service, we are able to look at things in a different perspective. I was recently training, and a student made the comment, When we see faults in the trainer, we are only seeing faults that are within ourselves. We need to stop mirroring ourselves to others and start measuring ourselves against ourselves. This logically leads into a mirror process of looking at ourselves in an actual mirror. What do you see? What do you like? What would you like to change? Of course, I am referring to more than the physical image in the mirror. It is very important to maintain a clean and professional appearance, but more important are the attributes, qualities and professional code that we have embraced. What is it that we see that we want to change within ourselves? When we are trained by management to be ruthless, vicious and downright difficult to work with, do we remain team players? The extreme bottom line wears on people that lie in the wake of the pounding waves that you pour out to acquire a piece of someone elses market share. Are you part of a vicious or virtuous company? There is a trend to be a virtuous company and treat the competition as allies in the industry. IBM averted a self-inflicted demise by opening up their think tanks to others within their industry. IBM is rediscovering and reinventing alongside past enemies who have become allies, creating new mission and vision statements and being in the service business to everyone. Is this reverse mirroring or a switch to better brighten the image? The purpose of this article is to make you think before you accept some manner of mirroring. Though mimicking what seems to be a successful business model may appear logical, the practice cannot possibly take into account every factor integrated into another corporate system. In other words, the mirror is warped. The time may come when you look back on mirroring practices to see who destroyed your business, only to see your own reflection. Joe Corno is president of Utah-based We Be Consulting and Seminars. He may be reached at (801) 836-2077 or e-mail [email protected].
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