The sub-prime forum: What are your sub-prime goals?Richard Bitnerrealistic goals, sub-prime lending
Welcome to "The sub-prime forum," a column designed to help
improve your knowledge of alt-A lending and offer tips to increase
your share of this lucrative market.
As a 12-year veteran of the industry, Richard Bitner has a
wealth of experience working in retail, wholesale and correspondent
sub-prime lending. He has served as the president of Kellner Mortgage
Investments for the past five years.
I've spent the last few months talking about recent changes in
the sub-prime arena. With margins steadily falling and some
competitors choosing to merge or close up shop, market forces are
certainly proving to be less than kind to many lenders who make a
living off capturing sub-prime mortgage business. Is the sky really
falling or are things just being blown out of proportion?
Well, consider this story for a moment. Have you ever noticed
that if you put a bunch of crabs into a bucket, none of them will
be able to crawl out? Why do you think this is the case? The answer
is relatively simple. Every time one of them gets close to the top,
one of the other crabs will reach up and pull the other one back
down. With this in mind, consider this simple question: Are you
hanging around a bunch of crabs?
Top producers in any industry will always see the glass as half
full. They never allow themselves to be negatively influenced by
the naysayers in the office or the originators who spend more time
talking about things that are happening than actually working to
make them happen. Setting goals and sticking to business plans are
the keys to their success.
Case in point: I have two friends in the industry who run a net
branch office in the Houston market. These guys are aggressive and
they're always looking to make things happen. On a visit to their
office in mid-December, a time traditionally associated with
slowdown in the mortgage industry, their pipelines were full, fat
and happy. The reason they had so much business was directly tied
to the execution of their business plan. Months ago, they had
clearly identified whom they were going to do business with and how
they were going to obtain that business. They worked diligently,
building a network of referral sources - builders, real estate
agents and attorneys - in order to put themselves in this enviable
position. Furthermore, they were driven by the decision that their
fate in a softening market was not going to be left to chance.
When asking them what they did to prepare for the inevitable
downturn in business, they responded with laser-like focus. "Having
opened up our office in the spring of 2005, we felt our business
was just starting to get some legs by mid-summer," said one of my
associates. "We were beginning to make inroads with our referral
sources and starting to see some deals pan out. But the key to our
success, we felt, was to significantly increase our market
penetration. If there was going to be less business to be had in
the whole market because of a downturn, we needed to be calling on
more referral sources in order to do the same amount or even more
business. We decided last August to step up our marketing efforts
with the idea of not wanting to slow down through the winter
months." It's pretty clear from looking at their pipeline that
their strategy has been working as planned.
As we spent more time discussing the details of their business
plan, it became clear that they had positioned themselves as the
sub-prime experts in their local market. Specifically, when they
went around meeting with builder and real estate offices, they came
armed with the ammunition necessary to impress. After listening to
these potential clients discuss varying horror stories of brokers
who had over-promised and under-delivered, they went on the attack.
As two quality loan officers with a significant amount of sub-prime
experience, they would spend a great deal of time relaying how that
expertise consistently translated into additional dollars for their
clients in the form of more closed loans. In meeting after meeting,
they relayed examples of how they worked with lenders to get
creative on deals in an effort to get them to the closing table.
The two of them worked each client in an effort to relay their
expertise and understanding of what it takes to get sub-prime loans
closed and funded.
Furthermore, they made a conscious decision to double their
marketing efforts. If they had been spending 10 hours a week making
new prospecting calls, they increased it to 20 hours. As they
mentioned, "The only way we figured to get more loans in a slower
market was to spend more time reaching out to the market for
While their strategy is paying dividends, it's important to
understand why they are successful today. They developed specific
goals with the understanding of what it would take it meet their
business objectives. An old business adage states that most
businesses don't plan to fail, they fail to plan.
So, what's your plan? What are your goals for making 2006, a
year in which the industry will probably see a downshift in terms
of total volume, a successful year? Whether your objective is to
actually grow your business or just maintain your current volume,
your ability to be successful will start with effective goal
Let's start by looking at your goals for 2006. If you haven't
already done so, begin with writing your goals down and make
certain they pass the SMART test. SMART is an acronym that
identifies the goal as being specific, measurable, achievable,
realistic and timely. When writing down your goals, these five
words are excellent guides to helping you write effective goals.
Let's look at each one briefly.
Start by asking yourself if the goal you're writing is specific. As
an example, to state that you want to do more sub-prime loans in
2006 is a good start; but is the goal specific? Will the business
be purchase-only, cash out or a combination of both? Asking
yourself if it is specific will help to narrow your target.
Measurable is a critical component in setting goals because it will
help you to set a target objective and give you something by which
you can measure your performance. In the example used above, a
measurable goal would be to close and fund at least five sub-prime
loans per month. By stating the goal in quantifiable terms, you've
got something to strive for and something to use as a yardstick
when evaluating your performance.
A goal is achievable if it truly can be obtained. For example, if
you're trying to close a certain number of sub-prime loans per
month but you are new to the business and have yet to close a
sub-prime deal, do you have the ability to reach this goal? In such
a scenario, maybe the real goal should first be to obtain the
necessary training or information on products before setting
specific targets on an unfamiliar product.
A goal can be viewed as being realistic if the end objective is
rooted in reality. If you are new to the mortgage business and have
yet to fund a loan, is it realistic to believe that you can make
$200,000 in income in your first year? While it's not impossible,
any industry veteran will tell you that it takes some time to build
a foundation for your business. While it's always worth reaching
for the stars, it's unrealistic to believe that you'll get there
without the help of a rocket ship.
Finally, make certain that your goal has a time frame to it.
Perhaps your objective is to earn a $200,000 income by becoming a
top-flight originator. If so, make the goal realistic and
obtainable by putting a time frame around it. Dont just leave it
Let's take the various examples we've discussed in the above
paragraphs and use the SMART test to set our goals. Here is an
As a new originator, my objective is to build a business
strategy that focuses on writing sub-prime, new home purchase
business. I will focus on targeting real estate agents, builders
and builder mortgage companies in my local market. I will build a
network of 25 referral sources that will come to know me as their
number one choice for sub-prime mortgage loans. I will establish
this network within five months from today. At the end of five
months, I will be closing no less than four sub-prime loans per
month from these referral sources. I will target making 200 basis
points per loan between loan origination fees and yield spread
Does this goal pass the SMART test? The answer is a resounding
yes. First, the goal is specific by laying out who will be targeted
to obtain business. In addition, the goal is very measurable. The
loan officer clearly identifies the exact number of referral
sources that he will need to contact and what the anticipated
result will be from this effort.
Is the goal achievable? Only time will tell with respect to this
element. However, the loan officer, through research and discussion
with other senior originators, should get enough feedback to
determine if these numbers can be obtained.
Whether or not the goal is realistic will depend on several
factors. First, does the originator have the work ethic to get the
job done? If the loan officer is taking a part-time approach to
working this strategy, it might not be realistic to expect that
this goal would be achieved.
Finally, the goal meets the critical time test by identifying
the period of time in which the goals will be achieved. We've now
created an effective goal statement from which we can start to
develop a business plan.
Start by reviewing the goals you've made for 2006 and see if
they pass the SMART test. If you haven't already set some goals for
this year, take the time to do it right now. An important point to
remember is that goal setting is a flexible process. If after five
months of work you discover that the goals require more time or a
revision of the numbers, the important thing is to not view it as a
failure. Instead, force yourself to rewrite the goals in order to
make them more obtainable. Part of effective goal setting lies in
constantly reviewing and occasionally modifying targeted
Richard Bitner is president of Kellner Mortgage
Investments, a nationwide wholesale sub-prime lender based in
Plano, Texas. He may be reached at (866) 416-9995 or e-mail [email protected]