Quality lending equals profitsLionel Urbanfocused sales and marketing, effective loan pricing, quality control, compliance
It has been said that opportunity can be found in adversity.
Today's mortgage lending market is certainly testing many mortgage
banking operations to find new and better ways to compete for
customers, operate more efficiently and maximize (or discover)
profits. Real estate markets are in retreat, credit markets are
tightening, warehouse lenders are increasing capital requirements
and regulators are exercising greater scrutiny than ever in
reaction to the sub-prime market collapse and option
adjustable-rate mortgage scandals. The rising tide of adversity for
mortgage professionals is forcing many to exit the business, but it
may also be creating significant opportunity for organizations able
to capitalize on their ability to execute quality lending
practices. What are quality lending practices? For some, quality
lending practices may bring to mind notions of a squeaky-tight
operation that grinds to a halt because of bureaucracy, analysis
paralysis and getting lost on irrelevant details. For others,
nothing could be further from the truth. Quality lending is the
tried and true practice of being at your very best--executing your
plans flawlessly and adapting constantly to the changing market
conditions. Quality lending involves understanding all the moving
parts of a very complex business, as well as having the right
strategies, systems and people to execute effectively. And above
all, quality lending is a commitment to delivering the very best
products and services to your customers, investors, partners and
employees. Currently, the desire to access quality lending is
greater than ever at both ends of the food chain--customers demand
fair service and investors are hungry for quality product.
There are 10 key factors in achieving quality lending
1. Focused sales and marketing
There must be a commitment to and execution of marketing strategies
and sales efforts to reach your target audience and compete for
customers on the product line being offered. When markets get
tight, the tendency is to grab for any business that is available.
But trying to be all things to all people is a losing proposition.
Successful mortgage professionals who believe in quality lending
practices understand that focus is critical. Knowing the market and
finding a niche that your business can serve better than other
competitors brings many advantages that lead to success and result
in quality on many levels.
-Focus helps you understand your customer better. Specific or
specialized market segments bring a greater understanding of
customer needs, what messaging and marketing efforts are more
effective, and which sales and closing techniques are most
-Focus creates efficiencies for sales. Originators need only be
trained on a limited number of products. Originators develop a
better rhythm and understanding of how products offered and market
niche needs match. They learn how to overcome objections and
competitive issues faster.
-Focus creates efficiency and effectiveness for marketing. It
helps marketing develop more targeted and, consequently, more
efficient, cost-effective marketing programs. Focus allows your
business to become experts quicker in the selected market segments
and reach a much higher level of sales and marketing proficiency in
less time and expense--resulting in higher capture rates, lower
costs per closed loan and setting accurate customer expectations
for a more satisfied client.
2. Focused product and investors
Once sales and marketing are focused, so should be your products
and investor strategies. Less is more with products and investors.
Focused alignment of products means fewer products and simpler
-Products will be aligned with marketing and sales. Your
marketing and sales people should see the synergy and fit between
products offered and the customers trying to be reached and
-Disclosure and documentation will be accurate and simplified.
Would you rather make sure compliance is handled properly on 10
products or 150?
-Operations will be more efficient. Staff will gain proficiency
faster and develop deeper expertise with less products and
investors. Ability to execute repeatable processes gain momentum
and speed as they are done more often. Problems are solved faster;
boundaries of underwriting and other exceptions are better
understood. Production costs will be lower, and employees will be
more productive and happier because of it.
-Better relationships with investors. Fewer products and more
focus should also translate to investors. When you have a handful
of products you are exceptional at, it means you deliver more
volume of higher quality to two or three investors. You'll develop
deeper, more meaningful relationships, resulting in better pricing,
more exceptions and specialized offerings on multiple fronts, from
faster purchases and other incentives to keep your large volumes of
-Better secondary marketing execution. When you have focus and
alignment of products and investors, you will achieve better sale
execution, which simply means you will make more profit per
-Better customer experience. With all the benefits of focus and
alignment, your customers will have a far better experience as
loans are closed faster, questions answered with ease, less
nickel-and-diming on conditions, etc.
Focus and alignment is all about being really good at what you
do, and your customers experiencing that will always results in
more repeat business, more referral business, and higher margins as
3. Effective loan pricing and loan sale
You become a mortgage professional to get the margin and the
control, but the risk and complexity involved can be overwhelming.
You need the right tools, the right policies and procedures, and
effective risk management.
-Price for profitability. Know your profit margins every time
you price. Have accountability to know that the revenue anticipated
at the time of the lock is what you were actually paid. Be able to
price loans to the market with margins that are achievable while
-Manage profitability. Policies, procedures, management
communications and reporting are in place and monitored constantly
to insure that profitability is managed. This includes holding
origination channels to delivering conversion minimums, providing
incentives to operations to minimize cycle times and maximize
conversion rates. Understanding your pipeline, how it moves and
having hedging or sale coverage assumptions that are
-Preserve profitability. Complete loan reconciliation includes an
analysis of HUD-1 fees received, third party expenses paid, income
from the sale of the loan to the investor, warehouse line costs
(transaction fees and interest differential) and interim servicing.
Real time, accurate reporting requires having the necessary data
and understanding how to analyze it. It's all possible with the
right tools, team and strategy, and it's a hallmark of quality
lending mortgage professionals who are profitable month in and
Effective pricing and loan sale strategies are key to sustaining
a profitable and growing business. If you are going to get serious
about quality mortgage banking, having effective loan pricing and
loan sales management strategies is fundamental to your
4. Quality control and compliance
Quality lending demands that quality control and compliance
procedures are established and maintained throughout the entire
loan origination process.
-Eliminate costs and liabilities of non-compliance. Failure to
have quality in the production of your loans is a recipe for
disaster. Time is money--missing disclosures, wrong disclosures,
loan re-draws, going back to customers for more documentation that
was lost or not requested prior all add up to lost time that costs
your business money. Those costs can put you out of business faster
than you think. Missed delivery deadlines can cost you dearly, but
loan buybacks can deal a fatal blow. Sleep at night and know that
you are playing by the rules--invest in quality control (QC) and
compliance across your business so that these risks are minimized
-Happier relationships. From customers to investors to warehouse
lenders, employees and vendors, a reputation for QC and compliance
execution gives everyone the message that you are serious about
doing things right and building a business to succeed for the long
QC and compliance expertise and execution are defining aspects
of your business that will act as a cornerstone for almost
everything else you are trying to achieve as a quality lending
mortgage professional. As they say, "The devil is in the details,"
and there are no details less liked and more overlooked than QC and
compliance. Don't let this demon take your business down; instead,
make it a sign of your commitment to being the very best at the
business in all aspects of your organization.
5. Setting customer expectations
Quality lending leaders understand that the emotions of expectation
define the bilateral contract that is in place when a mortgage
professional delivers on the services promised to a borrower.
Expectations go both ways, and when they are set accurately and
used to guide your process, everyone wins.
-Customers get what they want. When expectations are set
correctly, then operations can deliver more consistently on that
expectation. And that makes for happy repeat customers and
-Operations gets what it wants. It's not just about the customer.
It's about your business too. Quality lenders set bilateral
expectations--they understand that for them to deliver on the
customer's expectations, the customer needs to do his part. This
also leads to efficient operations, lower costs and faster cycle
6. Security and data protection
Quality lenders understand that it's all about the data. No other
financial transaction has more data and more sensitive personal
financial data than a mortgage transaction. If you want your
mortgage banking business to have long term success, you must have
effective security and data protection standards in place from loan
prequalification to post closing.
7. Integrated technology systems
The complexity of mortgage banking requires that quality lending
organizations have the right technology system so that full
compliance, low risk, efficiency and profitability are consistently
achieved. Technology systems come in many flavors, from
best-of-breed and highly specialized solutions to end-to-end
systems that provide all the tools needed to operate your business.
Quality lenders understand the need for these systems and leverage
them fully, but also work to invest in technology solutions that
match their needs, strategies and budget.
-Feature/functionality. Today's effective systems allow lenders
to automate virtually every stage of making a loan. These
components should include point of sale applications, Web sites,
loan origination systems, pricing engine, secondary marketing,
warehouse line management, interim servicing, imaging and
-Integrated. No data re-entry. Data available for customer, vendor
or partner via Web pages, Web services and two-way data
-Affordable. Many enterprise systems will cost well over seven
figures to implement and put into use. They are extremely complex,
require six to 18 months to customize and implement, and also
require a staff of technology specialists to run. Be aware, costs
can appear from hardware and software acquisition, maintenance
fees, staff support costs and customization to the application or
-Scalable. Nobody wants a system that cannot grow with their
business. The right system will be easy to deploy when a new branch
opens or users are added. Additionally, it must continue to expand
when your business requires new functionality without unnecessary
expense or complex modifications.
-Easy to implement, easy to use. Quality lenders don't bite off
more than they can chew. They find a solution that will get them
where they want to go with the appropriate amount of resources. The
best lenders deploy preconfigured default settings and templates
that immediately create best business practices while reducing
implementation and support costs.
-Support and services. Quality lenders will find system solutions
that include support services that enhance their limited resources
and insure that they are getting the most out of the technology
investment. Support objectives can be created for hardware,
networking and software applications.
8. Vendor partners
The right vendor partners are in place to insure efficient
operations, maintain cost controls and deliver high levels of
-Integrated to business processes. The opportunity to integrate
vendors can be as simple as screening applicants with a single
bureau credit report that can offer additional bureaus to be added
and rescored based on criteria provided on sophisticated data
-Reduced costs. By bundling services with core providers, this
allows the opportunity for reduced fees. Additionally, many vendors
provide the ability to costs by user or branch, thereby holding
employees to more accountability which results in less waste.
-Enhanced service levels. Many vendors will now commit to service
level agreements with financial incentives. Lenders get predictable
service with greater emphasis on providing your customers with a
good lender experience.
9. Data and reporting
Systems are in place and reporting is used effectively to
streamline production, manage process and insure quality of loan
production is maintained. Data must flow from loan inquiries to
post-closing processes, and all fields should be available for
analysis by authorized staff. Reports must provide meaningful data
and be easily accessible.
10. Culture and talent
Quality lenders know better than anyone that it's all about their
-Quality lending only works when it is infused within leadership
and culture. Quality lenders intertwine quality lending practices
with their mission and vision so that it becomes a core element of
everything management and staff do. The team is devoted to quality
and what it stands for.
-Quality lenders demand talent and performance. To be at your
best, you need to surround yourself with others who share those
same high standards. High performance is not easily achievedquality
lenders are constantly looking for more talented individuals to
build their team and reach new levels of performance and
-Quality lenders have a commitment to training. The mortgage
industry has seen many changes in the last 25 years and now more
are right around the corner. With imaging, electronic delivery and
enhanced partnerships available through outsourcing, quality
lenders must anticipate and deliver systems and training that
maximizes efficient loan origination and delivery to the secondary
The mortgage lending business is a multi-trillion dollar
financial services industry that powers the American housing
market, a critical component of our national economy. The demand
for quality lending has never been greater with scrutiny of unfair
or unethical lending practices spotlighted as the housing market is
going through its next down cycle. But quality lending is also what
powers this great industry to separate the great mortgage
professionals from the business that only prosper in the good
times. To build and sustain profitable operations through the
feast-or-famine cycles of the mortgage business, lenders are
advised to look to quality as the cornerstone of their future
Lionel Urban is president and founder of PCLender.com. He may be reached
at (877) 536-6886, ext. 601.